Notes to Accounts of Dhanlaxmi Bank Ltd.
Mar 31, 2023
1. DISCLOSURE REQUIREMENTS AS PER RBI''S MASTER DIRECTION ON FINANCIAL STATEMENTS - PRESENTATION AND DISCLOSURES
Amounts in notes forming part of the financial statements for the year ended March 31,2023 are denominated in Rupees Crore to conform to extant RBI guidelines except, where stated otherwise.
1. CAPITAL1.1 Capital Infusion
During the year ended March, 31,2023 there was no infusion of capital.
The Bank is subject to the Basel III Capital Regulations stipulated by Reserve Bank of India (RBI) effective from April 1, 2013. Transition to the Basel III Capital Regulations was in a phased manner. Bank has to comply with the regulatory limits and minima as prescribed under Basel III capital regulations, on an ongoing basis.
As per the Reserve Bank of India (RBI) guidelines, the total regulatory capital consists of sum of the following;
1) Tier 1 Capital (Going Concern Capital*)
a. Common Equity Tier 1(CET-1)
b. Additional Tier 1
2) Tier-2 Capital (Gone Concern Capital**)
* From Regulatory perspective, Going Concern Capital is the Capital, which can absorb losses without triggering bankruptcy of the Bank.
** From Regulatory perspective, Gone Concern Capital is the Capital, which will absorb losses only in a situation of liquidation of the Bank.
The draw down from the reserves for the year ended March 31,2023 are as follows:
1) The Bank has made a drawdown from its revenue reserves amounting to ''10.79 crore (Previous year Nil) being the remaining unprovided amount of one fraud account as permitted by the RBI Circular DBR No.BPBC.92/21.04.048/2015-16 dated April 18, 2016.
2) Draw down of ?0.54 crore (previous year ?0.58 crore) from revaluation reserves was made and credited to revenue reserves, being depreciation on the revalued assets.
1.2 ASSET LIABILITY MANAGEMENT
a) Maturity pattern of Assets and Liabilities
Disclosure format of maturity pattern has been revised by RBI vide circular DBR.BRBC.No, 86/21,04,098/2015-16 dated March 23, 2016, In compiling the information of maturity pattern, estimates and assumptions have been made by the management and have been relied upon by the auditors,
The Bank measures and monitors the LCR in line with the Reserve Bank of India''s circular dated June 09, 2014 on âBasel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standardsâ as amended for âPrudential Guidelines on Capital Adequacy and Liquidity Standardsâ dated March 31, 2015. The LCR guidelines aim to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30-calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated timelines. The maintenance of LCR, both on end of period and on an average basis, has been on account of multiple factors viz., increases in excess SLR, existing eligibility in corporate bond investments, increase in retail deposits and increase in non-callable deposits. Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows) except where otherwise mentioned in the circular and LCR template. Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows). Board of Directors of the Bank has empowered ALCO (Senior Management Executive Committee) to monitor and strategize the Balance Sheet profile of the Bank.
The Bank has been maintaining HQLA primarily in the form of SLR investments over and above mandatory requirement; Certificate of Deposits issued by Banks with rating A1 and above apart from regulatory dispensation allowed in the form of borrowing limit available through Marginal Standing Facility (MSF) and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). Average LCR for the Quarter ended March 31, 2023 is 277.47% (Quarter ended March 31, 2022: 476.49%), which is comfortably above RBI prescribed minimum requirement of 100%.
The Net Stable Funding Ratio (NSFR) is one of Basel Committee''s key reforms to promote a more resilient banking sector. The NSFR will require banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. A sustainable funding structure is intended to reduce the likelihood that disruptions to a bank''s regular sources of funding will erode its liquidity position in a way that would increase the risk of its failure and potentially lead to broader systemic stress. The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on- and off-balance sheet items, and promotes funding stability, The Bank is required to maintain the NSFR on an ongoing basis on a standalone Bank level and on a Group level. The minimum NSFR requirement set out in the RBI guideline for the standalone Bank and for Group effective October 1,2021 is 100%. The Bank has complied with the regulatory requirements with respect to NSFR as of 31 March 2023.
During the year ended March 31st, 2022, the aggregate book value of investments sold from Held to Maturity (HTM) category was within the prescribed limit of 5% (4.83% - Total ''113.21 Crores) of the book value of investments held in HTM category at the beginning of the year (''2,341.72 Crores) The market value of investments held in HTM category as on 31st March 2023 was ''2,551.36 crores (Previous year ''2563.31 Crore) against the book value of ''2,651.00 crores. (Previous Year ''2600.08 Crore). The Bank has not provided for excess of book value over market value i.e., ''99.64 Crores. (Previous Year ''36.77 Crore)
In accordance with Reserve Bank of India (RBI) guidelines, sale from, and transfer to/from Held to Maturity (HTM) category excludes;
> One-time transfer of securities to/from HTM category permitted to be undertaken by banks at the beginning of the accounting year with the approval of the Board of Directors;
> Direct sales from HTM for bringing down SLR holdings in HTM category consequent to a downward revision in SLR requirements by RBI.
> Sale to the Reserve Bank of India (RBI) under liquidity management Operations of RBI like Open Market Operation (OMO) and the Government Securities Acquisition Programme (GSAP).
> Repurchase of Government securities by Government of India from Banks under buyback/switch operations.
> Repurchase of state Development loans by respective state governments under buyback/switch operations.
> Additional shifting of securities explicitly permitted by the reserve Bank of India.
It is the reserve created from Capital profit. Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of taxes and the amount required to be transferred to Statutory Reserves). Amount transferred to Capital Reserve during the year is Nil (Previous year ''2.89 Crore).
j) Investment Reserve Account (IRA)
When provisions created on account of depreciation in the ''AFS'' or ''HFT'' categories are found to be in excess of the required amount in any year, the excess shall be credited to the Profit & Loss Account and an equivalent amount (net of taxes, if any and net of transfer to Statutory Reserves as applicable to such excess provision) shall be appropriated to an IRA. During the year, transfer to Investment Reserve Account is NIL (Previous year ''5.92 Crs).
k) Investment Fluctuation Reserve
Investment fluctuation reserve (IFR) is to be created with an amount not less than lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. During the year, Bank has transferred Nil amount (Previous year ''7.14 crore) to Investment Fluctuation Reserve Account with a view to building up of adequate reserves to protect against increase in yields in future.
The Bank has compiled the data for the purpose of this disclosure from its internal MIS system and has been furnished by the management, which has been relied upon by the auditors. The above priority sector advance figure is excluding the investment in RIDF with NABARD and other regulators.
c) Overseas assets, NPAs and revenue NIL
d) Particulars of Resolution Plan and Restructuring i) Particulars of Resolution Plan
During the FY 2022-23, the Bank has restructured advances under the following schemes:
⢠Prudential Framework for Resolution of Stressed Assets issued by RBI vide circular DBR.No.BPBC.45/21.04.048/2018-19 dated June 7, 2019.
⢠Education Loans under IBA circular No. CIR/RB-ELS/1713 dt.26.12.2016.
⢠DCCO extension under ''Project under implementation'' scheme.
⢠There were no accounts subjected to restructuring during the year which included an acquisition of shares due to conversion of debt to equity during a restructuring process on account of June 7, 2019 RBI circular.
e) Disclosure of Divergence in the Asset Classification and Provisioning
The divergence observed by RBI for the financial years 2021-22 and 2020-21 in respect of the Bank''s asset classification and provisioning under the extant prudential norms on income recognition, asset classification and provisioning are below the regulatory requirement for disclosure and hence the disclosure as required under RBI Master Direction on ''Financial Statements-Presentation and Disclosures'' on ''Divergence in the asset classification and provisioning'', is not required to be made.
f) Disclosure of transfer of loan exposures
During the year 2022-2023 and previous year 2021-2022:
(i) The Bank has not transferred any Non-Performing Assets (NPAs).
(ii) The Bank has not transferred any special mention accounts (SMA) & Loan not in default.
(iii) The bank has not transferred any loans in default acquired through assignment.
(iv) The Bank has not acquired any loans from SCBs, RRBs, Co-operative Banks, AIFIs, SFBs and NBFCs including Housing Finance Companies (HFCs) or ARCs.
RBI vide DoS. CO. FMG. No. S332/23.04.001/2022-23 dtd.13th January, 2023 has advised all member Banks to report all the Digital Payment related Financial Fraud incidents to RBI through FMR, which includes the instances where either the credentials
have been compromised by customers themselves, or no loss has been caused to the Bank. In compliance of the above, Bank has started to reporting all cyber fraud incidents to RBI through FMR, from 1st January 2023 onwards. Out of the total 61 numbers of fraud incidents reported to RBI during the year 2022-2023, 49 numbers are cyber frauds, where frauds had happened due to the compromise of confidential customer credentials by customers themselves/customer negligence and in these cases, there is no loss to the Bank.
Note: RBI Circular DBR. No.BRBC.92/21.04.048/2015-16 dated April 18, 2016 grants banks an option to spread the provisioning for frauds, over a period of four quarters. Bank had exercised this option in respect one account with outstanding balance of ''59.40 Crore declared as fraud during Q2 of this financial year, against which provision of ''14.85 Crore was held as on the date of declaring the account as fraud. Bank has charged an amount of ''33.41Crore to the profit and loss account during the year being 75% of the provision required to be made over and above provision already held as on the date of fraud. Bank recovered ''0.35 Crore in the account subsequently, Remaining unprovided amount of ''10.79 Crore has now been charged against Revenue Reserve under reserves and surplus and will be charged to the profit and loss account by reversing the charge in Revenue Reserve under reserves and surplus in the next quarter.
Bank has no factoring Exposures
Bank does not have any group entities.
g) Unhedged Foreign Currency Exposure
The Bank has a policy on managing credit risk arising out of foreign currency exposure of its borrowers. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. The Bank has fixed a maximum limit on unhedged position on borrowers, while sanctioning limits for all clients. The unhedged portion of foreign currency credit exposure of large corporate/SMEs are monitored and reviewed on a monthly basis. Any sanction of fresh loans/adhoc loans/renewal of loans to new/existing borrowers is done after obtaining/sharing necessary information. The Bank also maintains incremental provision towards the unhedged foreign currency exposure of its borrowers in line with the extant RBI guidelines.
The Bank has maintained a provision of ''0.12 crore (previous year - 116 crore) and ''0.10 Cr (previous year - 105 Cr) on account of unhedged foreign currency exposure of its borrowers as at March 31,2023.
c. Disclosures on risk exposure in derivatives i) Qualitative Disclosure
1. Structure and Organization for Management of risk in derivatives trading: Operations in the Treasury are segregated into three functional areas, namely Front office, Mid office and Back-office, equipped with necessary infrastructure and trained officers, whose responsibilities are well defined. The Bank enters into plain vanilla forward forex contracts only to backup/cover customer transactions as also for proprietary trading purpose. The Bank also enter in to foreign exchange swaps with other banks for hedging own balance sheet items like FCNR/EEFC etc. The Integrated Treasury policy of the Bank clearly lays down the scope of usages, approval process as also the limits like the open position limits, deal size limits and stop loss limits for trading.
The Mid Office is handled by Risk Management Department. Daily report is generated by Risk Management Department for appraisal of the risk profile to the senior management for Asset and Liability management.
2. Scope and nature of risk measurement, risk reporting and risk monitoring systems
Outstanding forward contracts are monitored by Risk Management Department against the limits (Counterparty, Stop Loss, Open Position, VaR, Aggregate Gap) fixed by the Board and approved by RBI (wherever applicable) and exceeding, if any, are reported to the appropriate authority/Board for ratification.
3. Policies for hedging and/or mitigating and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants
The Bank''s policy lays down that the transactions with the corporate clients are to be undertaken only after the inherent credit exposures are quantified and approved for customer appropriateness and suitability and necessary documents like ISDA agreements etc. are duly executed. The Bank adopts Current Exposure Method for monitoring the credit exposures. While sanctioning the limits, the competent authority stipulates condition of obtaining collaterals/margin as deemed appropriate. The derivative limits are reviewed periodically along with other credit limits.
4. Accounting policy for recording the hedge and non-hedge transactions, recognition of Income premiums and discounts, valuation of outstanding contracts, provisioning, collateral and credit risk mitigation.
Valuation of outstanding forward contracts are done as per FEDAI guidelines in force. Marked to market profit & loss are taken to Profit & Loss account. MTM profit & loss calculated as per Current Exposure method are taken into account while sanctioning forward contract limits to customers and collaterals/cash margins are prescribed for credit and market risks. The Bank undertakes foreign exchange forward contracts for its customers and hedges them with other banks. The credit exposure on account of forward contracts is also considered while arriving at the total exposure of each customer/borrower and counter party banker. The Bank also deals with other banks in proprietary trading duly adhering to risk limits permitted by RBI, set in the policy and is monitored by mid office. The Marked to Market values are monitored on daily basis for foreign exchange forward contracts. The credit equivalent is computed under current exposure method. The operations are conducted in terms of the policy guidelines issued by Reserve Bank of India from time to time and as approved by the Board of the Bank.
The bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year March 31, 2023 and March 31,2022.
e. OIS (Overnight Index Swap) position
The Bank has not entered into OIS (Overnight Index Swap) during FY 2022-23. The bank had NIL outstanding OIS position at the end of March 2023 and March 2022.
f. Un-hedged/uncovered foreign currency exposure of the Bank
The Bank''s foreign currency exposures as at March 31,2023 that are not hedged/covered by either derivative instruments or otherwise are within the Net Overnight Open Position limit (NOOP) and the Aggregate Gap limit, as approved by the Board. NOOP limit is ''10.00 Crore and actual position as on March 31,2023 is ''2.81 Crore. AGL limit is USD 89 Mio and actual position as on March 31,2023 is USD 17.86 Million.
g. Currency Futures
The Bank does not deal in exchange traded currency futures during the current and previous Financial Years.
*As per the terms of appointment approved by Board of Directors, the Managing Director & CEO is eligible for Variable Pay with cash and non-cash components aggregating to ''0.60 Crore in a year upon satisfying specific parameters as per audited figures of the relevant financial year. The actual amount of variable pay can be quantified based on audited figures for FY 2022-23 only,
c. Remuneration to Non-Executive Directors
The non-executive directors are paid remuneration by way of sitting fees for attending the meetings of the Board and Committee, Sitting Fees were paid at the rate of 125,000 for Board Meeting and ''15,000 for meetings of the Board Committees till 31,01,2023, The Board at its meeting held on 31,01,2023 has revised the sitting fees of Board and Board Committees to ''40,000/- and ''30,000/-respectively
d. Priority Sector Lending Certificate (PSLC)
The Bank purchases PSLC for meeting Priority Sector targets. The fee paid for purchase of PSLC is treated as expense.
⢠There was no sale of PSLC by bank during year ended March 31,2023 and March 31,2022.
⢠There was purchase of PSLC of ''75 Cr. by bank during year ended March 31,2023 and there was purchase of PSLC of ''100 Cr. during March 31,2022.
f. Implementation of IFRS converged Indian Accounting Standards (Ind AS)
The Bank has submitted half yearly proforma Ind AS financials with the corresponding comparative financial statements as per the current framework advised by RBI.
In terms of notification DBR.BPBC.No.29/21.07.001/2018-19 dated March 22, 2019, the implementation of Ind AS is deferred until further notice from RBI.
h. Disclosure of facilities granted to directors and their relatives: Not Applicable
i. Amortization of expenditure on account of enhancement in family pension of employees of banks
Reserve Bank of India vide letter dated October 4, 2021 has permitted all member banks of Indian Banks'' Association covered under the 11th Bipartite Settlement to amortize the additional liability on account of revision in family pension over a period not exceeding five years, beginning with the Financial Year ended March 31,2022. The bank has recognized the entire additional liability estimated at ''14.29 crores and opted to amortize the same over a period of five years beginning with the financial year ended March 31,2022. Accordingly, an amount of ''2.86 crores have been written off during the financial year ended March 31,2023 in respect of the said estimated additional liability and the balance amounting to ''8.58 crores have been carried forward as unamortized expenditure.
e) Provision for Long Term Contracts
The Bank has a process whereby periodically all long-term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law/ accounting standards for material foreseeable losses on such long-term contracts (including derivative contracts), if any, in the books of account and disclosed the same under the relevant notes in the financial statements.
f) Dues to Micro, Small and Medium Enterprises
There have been no reported cases of delayed payments of the principal amount or interest due thereon to Micro, Small and Medium Enterprises.
h) Investor Education and Protection Fund
There was no pending amount to be transferred to the Investor Education and Protection Fund by the Bank in the FY 2022-23. i. Inter-Bank Participation Certificates with Risk Sharing
There was no purchase or sale of Inter-Bank Participation Certificate with risk sharing by bank during year ended March 31,2023 and March 31,2022.
k. Corporate Social Responsibility (CSR)
Bank has decided to take up the activity of Corporate Social Responsibility (CSR) for the FY 2022-2023 and has been approved for a budget of ''0.84 Crore as CSR funds which is 2% of the average net profit achieved by the Bank during the last 3 financial years. Of the approved budget, Bank has spent ?0.20 Crore during the FY 22-23 and an unspent amount of ''0.64 Crore is transferred to ''Unspent Corporate Social Responsibility Account'' as the same pertains to an ongoing project.
For the financial year 2021-22, an unspent amount of ''0.27 Crore was transferred to ''Unspent Corporate Social Responsibility Account'' as the same pertains to an ongoing project. From the âUnspent Corporate Social Responsibility Account 2020-21â, Bank has spent ''0.03 Crore during the financial year 2022-23 and has carried forward ''0.23 Crore for the next financial year.
Previous year figures have been re-grouped/re-classified wherever considered necessary to conform to current year''s classification.
18. Disclosure as to Rule 11(e) of the Companies (Audit and Auditors) Rules, 2014
No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(s), including foreign entities (âIntermediariesâ) with the understanding, whether recorded in writing or otherwise, that the intermediary shall lend or invest in party identified by or on behalf of the Bank (âUltimate Beneficiariesâ). The Bank has not received any fund from any party(s) (Funding Party) with the understanding that the Bank shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Bank (âUltimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.
Mar 31, 2022
During the year ended March 31st, 2022, the aggregate book value of investments sold from Held to Maturity (HTM) category was within the prescribed limit of 5% (4.83% - Total Rs.113.21 Crores) of the book value of investments held in HTM category at the beginning of the year (Rs.2,341.72 Crores) The market value of investments held in HTM category as on 31st March 2022 was Rs.2,563.31 crores against the book value of Rs.2,600.08 crores. The Bank has not provided for excess of book value over market value i.e. Rs. 36.77 Crores.
In accordance with Reserve Bank of India (RBI) guidelines, sale from, and transfer to/from Held to Maturity (HTM) category excludes;
⢠One-time transfer of securities to /from HTM category permitted to be undertaken by banks at the beginning of the accounting year with the approval of the Board of Directors;
⢠Direct sales from HTM for bringing down SLR holdings in HTM category consequent to a downward revision in SLR requirements by RBI.
⢠Sale to the Reserve Bank of India (RBI) under liquidity management Operations of RBI like Open Market Operation (OMO) and the Government Securities Acquisition Programme. (GSAP)
⢠Repurchase of Government securities by Government of India from Banks under buyback/ switch operations
⢠Repurchase of state Development loans by respective state governments under buyback/ switch operations.
⢠Additional shifting of securities explicitly permitted by the reserve Bank of India.
During the year ended March 31,2021, the aggregate book value of investments sold from Held to Maturity (HTM) category was 37.57% (Total Rs 758.49 Cr) which was 32.57% in excess of the 5% of the book value of investments held in Held to Maturity (HTM) category at the beginning of the year.
The market value of investments held in HTM category as on 31 March 2021 was Rs. 2,328.65 Crore against the book value of Rs. 2,341.72 Crore. The Bank has not provided for excess of book value over market value ie, Rs. 13.07 Crore.
In accordance with Reserve Bank of India (RBI) guidelines, sale from, and transfer to/from Held to Maturity (HTM) category excludes;
⢠One-time transfer of securities to /from HTM category permitted to be undertaken by banks at the beginning of the accounting year with the approval of the Board of Directors;
⢠Direct sales from HTM for bringing down SLR holdings in HTM category consequent to a downward revision in SLR requirements by RBI.
⢠Sale to the Reserve Bank of India (RBI) under liquidity management Operations of RBI like Open Market Operation (OMO) and the Government Securities Acquisition Programme. (GSAP)
⢠Repurchase of Government securities by Government of India from Banks under buyback/ switch operations
⢠Repurchase of state Development loans by respective state governments under buyback/ switch operations.
⢠Additional shifting of securities explicitly permitted by the reserve Bank of India.
@The Total under column no: 1 is the total of investments included under the following categories in Schedule- 8 to the Balance Sheet;
i. Shares
ii. Debentures and Bonds
iii. Subsidiaries/Joint Ventures
iv. Others
# Amounts reported under the columns 2, 3, 4 and 5 above are not mutually exclusive.
* Excludes investments in equity shares and units of equity oriented mutual funds in line with extant RBI guidelines.
** Excludes investments in equity shares and units of equity oriented mutual funds in line with with extant RBI guidelines.
It is the reserve created from Capital profit. Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of taxes and the amount required to be transferred to Statutory Reserves). During the year Rs.2.89 crores (previous year Rs.21.72 crore) was transferred to Capital Reserve.
In the event, provisions created on account of depreciation in the âAFS'' or âHFT'' categories are found to be in excess of the required amount in any year, the excess shall be credited to the Profit & Loss Account and an equivalent amount (net of taxes, if any and net of transfer to Statutory Reserves as applicable to such excess provision) shall be appropriated to an IRA Account. During the year, transfer to Investment Reserve Account is 5.92 Crs (Previous year Nil).
k) Investment Fluctuation Reserve
Investment fluctuation reserve (IFR) is to be created with an amount not less than lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. During the year, Bank has transferred Rs7.14 crore (Previous year Rs. 6.17 crore) to Investment Fluctuation Reserve Account with a view to building up of adequate reserves to protect against increase in yields in future.
d) Particulars of Resolution Plan and Restructuring i) Particulars of Resolution Plan
During the FY 2021-22, the Bank has restructured advances under the following schemes:
⢠Prudential Framework for Resolution of Stressed Assets'' issued by RBI vide circular DBR.No.BPBC.45/21.04.048/2018-19 dated June 7, 2019.
⢠Resolution Framework - 2.0: Resolution of Covid-19 related stress of Individuals and Small Businesses, issued by RBI vide circular RBI/2021-22/31 DOR.STR.REC.11/21.04.048/2021-22, dated 05th May 2021.
⢠Resolution Framework 2.0 - Resolution of Covid-19 related stress of Micro, Small and Medium Enterprises (MSMEs), issued by RBI vide circular RBI/2021-22/32 DOR.STR.REC.12/21.04.048/2021-22, dated 05th May 2021.
⢠There were no slippages during the quarter ended 31st March 2022, from the restructured book on account of June 7, 2019 RBI Circular.
⢠There is no exposure to accounts where the Bank expects a delay in implementation of resolution plan triggering a potential reference to NCLT as per June 7, 2019 RBI notification (For Borrowers with aggregate debt of > Rs 2,000 Crores).
⢠There were no accounts subjected to restructuring during the year which included an acquisition of shares due to conversion of debt to equity during a restructuring process on account of June 7, 2019 RBI circular.
iv) Details of Micro, Small and Medium Enterprises (MSME) Sector accounts restructured under the One Time Restructuring Scheme for MSME accounts:
Details of MSME accounts restructured as per RBI Circular DBR.No.BP.BC.18/21.04.048/2018-19 dated January 1,2019, RBI/2019-20/160
e) Disclosure of Divergence in the Asset Classification and Provisioning
No Divergence was observed by the RBI for Financial year 2020-21 in respect of bank''s asset classification and provisioning under the Extant Prudential Norms on Income Recognition, Asset Classification and Provisioning. Hence the bank has not exceeded the limit specified under RBI Circular DBR.BPBC.No.63/21.04.018/2016-17 dated April 18, 2017 and DBR. BPBC.No.32/21.04.018/2018-19 dated April 1,2019 on âDivergence in the Asset Classification and Provisioning.''
The Bank has reported 12 cases of frauds that has a possible impact on the bank in the Financial year ended March 31,2022, amounting to Rs.5.46 Cr, Of which Rs.0.0074 Cr. from 4 cases were recovered from the concerned parties / insurance companies. The Bank has expensed off/provided for the expected loss arising from the remaining frauds and does not have any unamortized provision
J) On account of uncertainties arising from the COVID-19 pandemic across the world and in India, the extent to which the same will impact the Bank''s operations and financial position will depend on various aspects including actions taken to mitigate its impact and other regulatory measures. Despite these conditions, there is not likely to be any significant impact in the liquidity position of the Bank.
5. EXPOSURES
The Bank has lending to sectors, which are sensitive to asset price fluctuations. Such sectors include capital market and real estate.
Bank has no factoring Exposures
Bank does not have any group entities.
g) Unhedged Foreign Currency Exposure
The Bank has a policy on managing credit risk arising out of foreign currency exposure of its borrowers. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. The Bank has fixed a maximum limit on unhedged position on borrowers, while sanctioning limits for all clients. The unhedged portion of foreign currency credit exposure of large corporate/SMEs are monitored and reviewed on a monthly basis. Any sanction of fresh loans/ adhoc loans/ renewal of loans to new/ existing borrowers done after obtaining/ sharing necessary information. The Bank also maintains incremental provision towards the unhedged foreign currency exposure of its borrowers in line with the extant RBI guidelines.
The Bank has maintained a provision of Rs. 0.16 crore (previous year - Rs. 0.05 crore) and no additional capital (previous year - Nil) on account of unhedged foreign currency exposure of its borrowers as at March 31,2022.
6. CONCENTRATION OF DEPOSITS, ADVANCES, EXPOSURES AND NPAS
The Bank has compiled the data for the purpose of this disclosure from its internal MIS system and has been furnished by the management, which has been relied upon by the auditors.
Bank discusses its risk management policies pertaining to derivatives with particular reference to the extent to which derivatives are used, the associated risks and business purposes served.The discussion includes:
a) the structure and organization for management of risk in derivatives trading ;
b) thescopeandnatureofriskmeasurement,riskreportingandriskmonitoring systems;
c) policiesforhedgingand/ormitigatingriskandstrategiesandprocessesfor monitoring thecontinuingeffectivenessofhedges/ mitigates; and
d) Accounting policy for recording hedge and non-hedge transactions; recognitionof income, premiumsand discounts; valuationof outstanding contracts; provisioning,collateral and credit risk mitigation.
The bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year March 31,2022 and March 31,2021.
e. OIS (Overnight Index Swap) position
The Bank has not entered into OIS (Overnight Index Swap) during FY 2021-22. The bank had NIL outstanding OIS position at the end of March 2022 and March 2021.
f. Un-hedged / uncovered foreign currency exposure of the Bank
The Bank''s foreign currency exposures as at March 31,2022 that are not hedged/ covered by either derivative instruments or otherwise are within the Net Overnight Open Position limit (NOOP) and the Aggregate Gap limit, as approved by the Board. NOOP limit is Rs. 10.00 Crore and actual position as on March 31,2022 is Rs. 6.76 Crore. AGL limit is USD 89 Mio and actual position as on March 31,2022 is USD 19.67 Million.
The Bank does not deal in exchange traded currency futures during the current and previous Financial Years.
*As per the terms of appointment approved by Board of Directors, the Managing Director & CEO is eligible for Variable Pay with cash and non-cash components aggregating to Rs. 60 Lakhs in a year upon satisfying specific parameters as per audited figures of the relevant financial year. The actual amount of variable pay can be quantified based on audited figures for FY 2021-22 only.
c. Remuneration to Non-Executive Directors
The non-executive directors are paid remuneration by way of sitting fees for attending the meetings of the Board and Committee. Sitting Fees are paid at the rate of Rs. 25000 for Board Meeting and Rs. 15000 for meetings of the Board Committees.
Bank is not undertaking marketing and distribution function except bancassurance business.
d. Priority Sector Lending Certificate (PSLC)
The Bank purchases PSLC for meeting Priority Sector targets. The fee paid for purchase of PSLC is treated as expense.
⢠There was no sale of PSLC by bank during year ended March 31,2022 and March 31,2021
⢠There was purchase of PSLC of Rs.100 Cr. by bank during year ended March 31,2022 and NIL for March 31,2021
f. Implementation of IFRS converged Indian Accounting Standards (Ind AS)
As per the Road Map of Ministry of Corporate Affairs (MCA) in the Press Release Dated January 18, 2016, Banks shall comply with the IndAS for the financial statements for the accounting periods beginning from April 01,2018 onwards with the comparatives for the period ending March 31,2018. RBI had issued necessary instructions to Banks to take steps to assess the impact of transition to IndAS, adopt strategies for the effective implementation of IndAS including disclosure of the strategies adopted and the process made in the Annual Report.
Complying with the RBI direction to achieve the MCA Roadmap of IndAS implementation, Bank had constituted Steering Committee headed by Managing Director & CEO, comprising members from cross functional areas to oversee the progress of IndAS implementation. The Bank has also constituted sub-committee comprising members of junior/middle level management for IndAS implementation and adopted three phased approach for meeting the deadline.
Bank has furnished Proforma IndAS financial statements to the RBI half yearly with the corresponding comparative financial statements as per the current framework as advised by RBI.
RBI ,vide circular DBR.BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019, has deferred the implementation of IndAS until further notice considering the pending legislative amendments required for IndAS implementation as also the level of preparedness of many banks.
i. Amortization of expenditure on account of enhancement in family pension of employees of banks
Reserve Bank of India vide letter dated October 4, 2021 has permitted all member banks of Indian Banks'' Association covered under the 11th Bipartite Settlement to amortize the additional liability on account of revision in family pension over a period not exceeding five years, beginning with the Financial Year ended March 31 , 2022 The bank has recognized the entire additional liability estimated at Rs. 14.29 crores and opted to amortize the same over a period of five years beginning with the financial year ended March 31,2022. Accordingly, an amount of Rs. 2.86 crores has been written off during the financial year ended March 31, 2022 in respect of the said estimated additional liability and the balance amounting to Rs.11.43 crores has been carried forward as unamortized expenditure. Consequently, if the entire additional liability above had been written off during the current financial year, the net profit for the year ended March 31,2022 would have been lower by a sum of Rs.11.43 crores.
The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
(a) Treasury Operations
(b) Corporate / Wholesale Banking
(c) Retail banking
(d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does arise under this segment.
âGuaranteed bonus of 100000 shares at face value to Managing Director &CEO( Option not exercised as on 31.03.2022) is considered for computing the Weight average number of equity shares for Diluted EPS
g. Accounting for Taxes on Income (AS 22)
Bank has recognized the provision for Income Tax by exercising the option permitted under Section 115BAA of the Income Tax Act, 1961.The existing Deferred Tax Asset (DTA) recognized on 31st March 2021 amounting to Rs.51.32 crore has been reviewed and re measured and the DTA has been recognized as on 31st March 2022 at Rs.50.13 crore.
Intangible assets include computer software which are carried at cost of acquisition less accumulated amortization and amortized on a Straight-Line Method (SLM) basis over the estimated useful lives of 5 years on a pro rata basis
i. Impairment of Assets (AS 28)
In the opinion of the Bank''s management, there is no indication of the impairment to the assets during the year to which the Accounting Standard 28 âImpairment of Assetsâ applies.
16 ADDITIONAL DISCLOSURESa) Details of single Borrower limit, Group Borrower Limit
The bank had taken single borrower exposure and Group exposure within the prudential limit prescribed by RBI
b) Disclosure of Letter of Comforts (LOCs) issued by the Bank
During the year the Bank has not issued Letter of Comforts since .RBI vide Circular No.RBI/2017-18/139 A.P (DIR Series) Circular No.20 dated March 13, 2018 has discontinued issuance of Letters of Undertaking (LoUs) and Letters of Comforts (LoCs).
f. Provision for Long Term Contracts
The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.
g. Dues to Micro, Small and Medium Enterprises
There have been no reported cases of delayed payments of the principal amount or interest due thereon to Micro, Small and Medium Enterprises.
i. Investor Education and Protection Fund
There was no pending amount to be transferred to the Investor Education and Protection Fund by the Bank in the FY 2021-22.
j. Inter-Bank Participation Certificates with Risk Sharing
There was no purchase or sale of Inter Bank Participation Certificate with risk sharing by bank during year ended March 31,2022 and March 31,2021.
l. Corporate Social Responsibility (CSR)
Bank has decided to take up the activity of Corporate Social Responsibility (CSR) for the FY 2021-2022 and has been approved for a budget of Rs.66.92 Lakh as CSR funds which is 2% of the average net profit achieved by the Bank during the last 3 financial years. Of the approved budget, Bank has spent Rs.40.41 Lakh during the FY 21-22 and an unspent amount of Rs.26.51 Lakh is transferred to âUnspent Corporate Social Responsibility Account'' as the same pertains to an ongoing project.
For the financial year 2020-21, an unspent amount of Rs.20.25 Lakh was transferred to âUnspent Corporate Social Responsibility Account'' as the same pertains to an ongoing project. From the âUnspent Corporate Social Responsibility Account 2020-21â, Bank has spent Rs.1.67 lakh during the financial year 2021-22 and has carried forward Rs.18.58 lakh for the next financial year.
m. Transfer of Old Nostro Credit Entries
Bank has transferred an amount of Nil (Previous year Nil) to the Profit and loss account being the aggregate of individual unreconciled credit entries of value less than USD 2500 or equivalent in Nostro and mirror accounts originated between April 1,1996 and March 31,2002 and parked in the blocked account in terms of RBI guidelines. There is no impact on the profit and loss account (previous year - no impact).
17. COMPARATIVE FIGURES
Previous year figures have been re-grouped/ re-classified wherever considered necessary to conform to current year''s classification.
Mar 31, 2018
A. Corporate Information and Background
Dhanlaxmi Bank Limited (âDBLâ or the âBank) is a private sector Bank incorporated in the year 1927. Dhanlaxmi Bank Limited is a publicly held bank engaged in providing a wide range of banking and financial services. Dhanlaxmi Bank Limited is a banking company governed by the Banking Regulation Act, 1949 and the Companies Act, 2013..56.5% of the branches of the Bank is in Kerala,
B. Basis of Preparation
Financial Transactions are recorded, prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and comply with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act 1949, Circulars and guidelines issued by the Reserve Bank of India (âRBIâ) from time to time, Accounting Standards (âASâ) notified under Section 133 of the Companies Act, 2013 as amended by the Companies (Accounting Standards) Amendment Rules, 2016, Read with rule 7 of the Companies (Accounts) Rules, 2014 to the extent applicable and current practices prevailing within the banking industry in India.
C. Use of Estimates
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as on the date of the financial statements and the reported income and expenses during the reporting period. Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods.
1. CAPITAL
1.1 Capital Infusion
During the year ended March 31, 2018, the Bank allotted 4,31,65,465 Equity Shares at Rs.27.80 per share. Face Value per share Rs.10 per and share at premium of Rs.17.80 per share on preferential allotment basis. Accordingly the share capital is increased by Rs.43,16,54,650/- and Share Premium is increased by Rs.76,83,45,277/-. Expenditure incurred on raising the capital amounting to Rs.0.14 crores has been met out of share premium account. Details of the movement in the Paid-up equity capital of the Bank are given below:
Tier II Capital
During the year ended March 31, 2018, the Bank issued Unsecured Redeemable Non-Convertible Basel III compliant Subordinated Tier II Bonds in the nature of Debentures (âBondsâ) for Rs.150 Crore for 7 years on private placement. Accordingly the Tier II Capital is increased by Rs.150.00 Crore.
1.2 Capital Adequacy
The Bank is subject to the Basel-III Capital Regulations stipulated by Reserve Bank of India (RBI) effective from April 1, 2013. The transition to the Basel-III Capital Regulations is in a phased manner and during the transitional period the Bank is subject to the compliance with the regulatory limits and minimum as prescribed under Basel-III Capital Regulation on an on-going basis. Basel-III Capital Regulations will be fully implemented as on March 31, 2019. As per the Reserve Bank of India (RBI) guidelines, the total regulatory capital consists of sum of the following:
1) Tier-1 Capital (Going Concern Capital*)
a. Common Equity Tier-1(CET-1)
b. Additional Tier-1
2) Tier-2 Capital (Gone Concern Capital**)
* From Regulatory perspective, Going Concern Capital is the Capital, which can absorb losses without triggering bankruptcy of the Bank.
** From Regulatory perspective, Gone Concern Capital is the Capital, which will absorb losses only in a situation of liquidation of the Bank.
Transitional Arrangements
In order to ensure smooth transition to the Basel-III Capital Regulations without aggravating any near term stress, the Reserve Bank of India (RBI) has made transitional arrangements for compliance with Basel-III Capital Regulations in a phased manner. The phasing in of the Minimum Capital Requirement under Basel-III is as follows
As at March 31, 2018, Basel-III guidelines require the Bank to maintain a minimum capital to risk weighted assets ratio (CRAR) of 9% with minimum CET-1 CRAR of 5.5%, Minimum Tier-1 CRAR of 7% and Capital Conservation Buffer (CCB) CRAR of 1.875%.
The following table sets forth, for the period indicated, computation of capital adequacy as per Basel-III framework:
RBI Circular DBR. No.BRBC.102/21.04.048/2017-18 dated April 02, 2018 grants banks an option to spread the provisioning for mark to market losses on investments held in AFS and HFT for the quarters ended December 31, 2017 and March 31, 2018. The circular states that the provisioning for each of these quarters may be spread equally over up to four quarters, commencing with the quarter in which the loss was incurred. The Bank has not availed this option and recognized the entire mark to market loss on investments of Rs.19.81 Crores in the respective quarters,
Note: As per RBI/2009-2010/356 IDMD/4135/11.08.43/2009-10 dt. March 23, 2010 only Market repo & Market reverse repo Transactions have been taken into Account; Repo/Reverse repo Transactions conducted under Liquidity Adjustment Facility (LAF) with RBI have not been counted.
@ The Total under column No.: 1 is the total of investments included under the following categories in Schedule - 8 to the Balance Sheet;
iii. Shares
iv. Debentures and Bonds
v. Subsidiaries/Joint Ventures
vi. Others
# Amounts reported under these columns 2, 3, 4 and 5 above are not mutually exclusive,
* Excludes investments in equity shares, units of equity oriented mutual funds and deposits with NABARD, SIDBI, NHB, RIDF, RHDF and MSME deposits under the priority/weaker sector lending schemes in line with extant RBI guidelines,
** Excludes investments in equity shares, units of equity oriented mutual funds and deposits with NABARD, SIDBI, NHB, RIDF, RHDF and MSME deposits under the priority/weaker sector lending schemes in line with extant RBI guidelines,
e) CBLO Transactions
Collateralized Borrowing and Lending Obligation (CBLO) is a discounted money market instrument, established by the Clearing Corporation of India Limited (CCIL) and approved by the Reserve Bank of India. Collateralized Borrowing and Lending Obligation (CBLO) refers to a fully collateralized and secured instrument, for borrowing/lending money,
During the year ended March 31, 2018, the aggregate book value of investments sold from Held to Maturity (HTM) category was 37.36% (Total Rs.580.97 Cr) which was 32.36% in excess of the 5% of the book value of investments held in Held to Maturity (HTM) category at the beginning of the year. The Market Value of Investments held in the HTM category was Rs.2100.33 Crore (Previous Year Rs.1554.92 Crore) against the book value of Rs.2152.93 Cr (Previous Year Rs.1554.86 Crores) as on 31.03.2017. The Bank has not kept provision for excess book value of Rs.52.60 Crore over market value. In accordance with Reserve Bank of India (RBI) guidelines, sale from, and transfer to/from Held to Maturity (HTM) category excludes;
- One-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year with the approval of the Board of Directors; and
- Sale to the Reserve Bank of India (RBI) under pre-announced Open Market Operation Auctions
During the year ended March 31, 2017, the aggregate book value of investments sold from Held to Maturity (HTM) category was 90.89% (Total Rs.1654.85 Cr) which was 85.89% in excess of the 5% of the book value of investments held in Held to Maturity (HTM) category at the beginning of the year. The Market Value of Investments held in the HTM category was Rs.1554.92 Crore (Previous Year Rs.1820.42 Crore) and the excess of market value over book value was Rs.0.06 Crore as on 31.03.2017 (Previous year excess of market value was Rs.0.20 Crore). In accordance with Reserve Bank of India (RBI) guidelines, sale from, and transfer to/from Held to Maturity (HTM) category excludes;
- One-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year with the approval of the Board of Directors; and
- Sale to the Reserve Bank of India (RBI) under pre-announced Open Market Operation Auctions 3 DERIVATIVES
2.1 Forward Rate Agreement (FRA) / Interest Rate Swaps (IRS)
The Bank has not entered into Forward Rate Agreement (FRA) and Interest Rate Swap (IRS) during FY 2017-18. The bank had NIL outstanding FRA and IRS position at the end of March 2018.
2.2 OIS (Overnight Index Swap) position
The Bank has not entered into OIS (Overnight Index Swap) during FY 2017-18. The bank had NIL outstanding OIS position at the end of March 2018.
2.3 Unhedged/uncovered foreign currency exposure of the Bank
The Bankâs foreign currency exposures as at March 31, 2018 that are not hedged/covered by either derivative instruments or otherwise are within the Net Overnight Open Position limit (NOOP) and the Aggregate Gap limit, as approved by the Board. NOOP limit is Rs.14.00 Crore and actual position as on March 31, 2018 is Rs.3.07 Crore. AGL limit is USD 89 Mio and actual position as on March 31, 2018 is USD 55.71 Mio.
2.4 Currency Futures
The Bank does not deal in exchange traded currency futures during the current and previous Financial Years,
2.5 Disclosures on risk exposure in derivatives Qualitative Disclosure
Bank discusses its risk management policies pertaining to derivatives with particular reference to the extent to which derivatives are used, the associated risks and business purposes served, The discussion includes:
a) the structure and organization for management of risk in derivatives trading;
b) the scope and nature of risk measurement, risk reporting and risk monitoring systems;
c) policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants; and
d) accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation,
2,6 The bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year March 31, 2018 and March 31, 2017,
3.1 Disclosure of Divergence in the Asset Classification and Provisioning
The divergence observed by the RBI for financial year 2016-17 in respect of bankâs asset classification and provisioning under the extant prudential norms on income recognition, asset classification and provisioning exceed the limit specified under RBI Circular DBR.BP BC. No.63/21.04.018/2016-17 dated April 18, 2017 on âDivergence in the asset classification and provisioningâ.
3.2 Details of Loan Assets subjected to Restructuring as on March 31, 2017
- # Including provision of Rs.1.07 crore on restructured assets provided as per para 17.4.1 of Master Circular DBR. No. BRBC.2/21.04.048/2015-16 dated July 1, 2015 issued by RBI.
3.3 Disclosure - Resolution of stressed Assets under Revised framework
- Bank is not having any impact on account of RBI Circular dated Feb. 12, 2018 - Resolution of Stressed Assets Revised Framework.
- Bank has not implemented any resolution plan under RBI Circular dated Feb. 12, 2018 - Resolution of Stressed Assets Revised Framework.
- There is no slippage during the quarter from restructured book on account of Feb. 12, 2018 RBI Circular,
- There is no Impact on the outstanding restructured book as on March 31, 2018 as there was no schemes of Restructuring under the process of implementation as on 12.02.2018.
- There is no exposures to accounts where the Bank expects a delay in implementation of resolution plan triggering a potential reference to NCLT as per Feb. 12, 2018 RBI notification (For Borrowers with aggregate debt of - Rs.2,000 Crores)
3.4 Disclosure on earlier Restructuring schemes
Bank has not implemented any restructuring schemes under the Flexible Structuring of Existing loans (FD), Strategic Debt
Restructuring scheme (SDR), Change in ownership outside strategic debt restructuring scheme and Scheme For Sustainable
Structuring of Stressed Assets (S4A).
*Additional provision of Rs.4.17 Crores (Previous year Rs.4.22 Crores) was made by the Bank against its exposure to telecom sector in view of the RBI Circular No. DBR.No. BRBC. 64/21.04.048/2016-17 dated April 18, 2017. Previous year figure also includes upfront provision of Rs.4.00 Crore against an account then referred to S4A, but withdrawn subsequently during current year,
3.5 Advances against Intangible Assets
- Outstanding advances against intangible securities such as charge over the rights, licenses, authority, etc. has been taken as on March 31, 2018 is Rs.77.21 Crores (Previous Year : Rs.51.07 crore).
- Other unsecured advances is Rs.217.74 crores (Pervious year : Rs.154.63 crore)
* Working funds represents the average of total assets as reported in Return Form X to RBI under Section 27 of the Banking Regulation Act, 1949.
# For the purpose of computation of business per employee (deposits plus advances), interbank deposits have been excluded and average employees have been considered.
4 LIQUIDITY COVERAGE RATIOS
Below mentioned is a position of Liquidity Coverage Ratio computed based on Simple Average of daily observations over the previous quarter during the year ended March 31, 2018 (Previous year : based on simple average of month-end position).
Qualitative Disclosure
The Bank measures and monitors the LCR in line with the Reserve Bank of Indiaâs Circular dated June 09, 2014 on âBasel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standardsâ as amended for âPrudential Guidelines on Capital Adequacy and Liquidity Standardsâ dated March 31, 2015. The LCR guidelines aim to ensure that a Bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by January 01, 2019. However, with a view to provide transition time, the guidelines mandate a minimum requirement of 60% w.e.f. January 01, 2015 and a step up of 10% every year to reach the minimum requirement of 100% by January 01, 2019. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated timelines. The maintenance of LCR, both on end of period and on an average basis, has been on account of multiple factors viz., increases in excess SLR, existing eligibility in corporate bond investments, increase in retail deposits and increase in non-callable deposits. Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows) except where otherwise mentioned in the Circular and LCR template. Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows), Board of Directors of the Bank has empowered ALCO (Top Management Executive Committee) to monitor and strategize the Balance Sheet profile of the Bank.
The Bank has been maintaining HQLA primarily in the form of SLR investments over and above mandatory requirement; Certificate of Deposits issued by Banks with rating A1 and above apart from regulatory dispensation allowed upto 11% of NDTL in the form of borrowing limit available through Marginal Standing Facility (MSF) and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). Average LCR for the year ended March 31, 2018 is 298.08% (March 31, 2017: 345.51%), which is comfortably above RBI prescribed minimum requirement of 90%.
LCR computed based on daily simple average for the year ended March 31, 2018 is not comparable with those reported on simple averages of monthly observations over the previous quarter (i.e., the average is calculated over a period of 90 days) during the year ended March 31, 2017.
5 ASSET LIABILITY MANAGEMENT
In compiling the information of maturity pattern, estimates and assumptions have been made by the management and have been relied upon by the auditors. For Investment Securities, the Bank bucket HFT portfolio in 29-90 days bucket or actual maturity whichever is earlier,
6 LENDING TO SENSITIVE SECTOR
The Bank has lending to sectors, which are sensitive to asset price fluctuations. Such sectors include capital market and real estate,
a. Exposure to Real Estate Sector
The exposure, representing the higher of funded and non-funded limits sanctioned or outstanding to real estate sector, is given in the table below:
b. Exposure to Capital Market
The exposure, representing the higher of funded and non-funded limits sanctioned or outstanding to capital market sector, is given in the table below:
Capital market exposure is reported in line with Para 2.3 of RBIâs Master Circular on Exposure Norms dated July 1, 2015 (DBR.No, Dir.BC. 12/13.03.00/2015-16).
- Bank has complied with the Reserve Bank of India guidelines on group borrower limit.
6.2 PENALTIES LEVIED BY THE RESERVE BANK OF INDIA
The Penalty imposed by RBI during the year ended March 31, 2018 was Nil for the contraventions of various KYC/ AML requirements/ directions of the Reserve Bank of India.
7 CHANGE IN ACCOUNTING ESTIMATES
Change in method of Depreciation from WDV to SLM
Deprecation on Fixed assets is charged based on useful life of asset in compliance with schedule II of Companies Act 2013. The Bank assesses and reviews the pattern of consumption of future economic benefits embedded in the Fixed Assets at every Financial Year End. If such pattern of consumption is significant the method of deprecation is changed. Based on such review it was found that the pattern of consumption of premises owned by the Bank is same throughout the useful life of premises. Accordingly the method of charging depreciation on premises is shifted from WDV to SLM during the current financial year. Impact on account of such change in method of depreciation is given below:
* During the previous year as a matter of prudence, bank has not recognised the notional asset of Rs.11.99 crore for pension and 1.00 crore for gratuity (Total Rs.12.99 cr) arising due to fair value of planned assets as on 31.03.2017.
Disclosure on option to spread additional liability on account of the Enhancement in gratuity limits
Ministry of Labour and Employment, Government, Government of India on March 29, 2018 has enhanced the gratuity ceiling to an employee under Payment of Gratuity Act, 1972 to Rs.20 Lakh from earlier limit of Rs.10 Lakh. This change has resulted in an incremental gratuity liability amounting to Rs. 761 Lakh. As per the RBI circular DBR. BPBC.9730/21.04.018/2017-18 dated April 27, 2018, the Bank has an option to spread the impact of change in gratuity ceiling over four quarters beginning with the quarter ended March 31, 2018. The Bank has not availed this option and the full incremental liability of Rs.761 lakh has been charged to the profit and loss account for the quarter and year ended March 31, 2018.
8.1 Segment Reporting (AS 17)
The Bank has recognized Business segments as primary reporting Segment and Geographical Segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments
(a) Treasury Operations
(b) Corporate/Wholesale Banking
(c) Retail Banking
(d) Other banking business operations
II. Secondary Segments: Geographical segments
Since the Bank is having domestic operations only, no reporting does arise under this segment.
8.2 Operating Leases
Operating Leases primarily comprise office premises, staff residences, which are renewable at the option of the Bank. Lease Payments recognized in the Profit and Loss Account are given below:
8.3 Accounting for Taxes on Income (AS 22)
Based on prudence, the Bank has not recognized any additional Deferred Tax Asset during the year ended March 31, 2018. The existing Deferred Tax Asset recognized in March 31, 2014 amounting to Rs.37.06 Crore is reviewed in the light of fluctuating trend in performance and a considered conservative view has been taken to retain the same as such. Accordingly the components of Deferred Tax Assets and Liabilities shown below represents the component of Deferred Tax Assets and Liabilities recognized at the time of recognition of the Net Deferred Tax Asset Rs.37.06 crore as on March 31, 2014.
8.4 Impairment of Assets
In the opinion of the Bankâs management, there is no indication of the impairment to the assets during the year to which the Accounting Standard 28 âImpairment of Assetsâ applies,
*Other provision shown net of current year provision made against other assets and reversal of provisions made during earlier years,
9. Reserves and Surplus (From Reserves Draw Down)
During the financial year ended March 31, 2018 the Bank has drawn down 114 crore from reserve (Previous Year - 105 Cr),
10. Disclosure of Letter of Comforts (LOCs) issued by the Bank
During the year the Bank has not issued Letter of Comforts,
11. Concentration of Deposits, Advances, Exposures and NPAs
The Bank has compiled the data for the purpose of this disclosure from its internal MIS system and has been furnished by the management, which has been relied upon by the auditors,
12. Disclosures on Remuneration
a. Information relating to the composition and mandate of the nomination & remuneration committee,
Composition
The remuneration committee of the Board consists of four members of which one member from the Risk Management Committee of the Board facilitates effective governance of compensation.
The terms of reference of the nomination & remuneration committee are as follows;
1. Frame a policy describing the qualification, experience and other positive attributes for selection of executive/whole time directors including their age of retirement;
2. Formulate and put in place guiding principles to determine the qualities, qualifications, and the parameters to determine the âfit and properâ criteria for appointment of independent Directors keeping in mind the diversity quotient the Bankâs Board shall maintain from time to time and subject to the applicable regulatory requirements;
3. Conduct the process of due diligence to determine the suitability of the person for appointment/continuing to hold appointment as Director on the Board, based on the specific criteria prescribed by Reserve Bank of India;
4. Filling in a timely manner vacancies on the Board of the company including the position of executive/whole time directors;
5. Selection of directors, key management personnel and persons to be appointed in senior management positions as defined by the Board and recommend to the Board for their appointment and removal thereof;
6. Formulate and recommend to the Board for its approval a policy relating to the remuneration for the directors, key managerial personnel and other employees from time to time to ensure that:-
a) The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Directors of the quality required to run the Bank successfully;
b) Relationship of remuneration to performance is clear and meets appropriate performance benchmarks;
c) Remuneration to Directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long term performance objectives appropriate to the working of the company and its goals;
7. Review the performance of individual Directors of the Bank on a yearly basis at the end of each financial year or at such periodicity as the Committee deem fit and recommend to the Board on the basis of such review, whether a director to be recommended for re-appointment or not;
8. Review the performance of the executive/whole time Directors of the Bank and fix suitable compensation packages in consideration of their performance, contributions, the general business environment in which the Bank operates and financial position of the Bank. The remuneration package may be a combination of fixed and performance based bonus/incentives for the period under review,
9. Review the performance of key managerial personnel and senior management persons on a periodical basis and fix their remuneration packages in accordance with the policies approved by the Board, provided the period of gap between two such reviews shall not elapse fifteen months;
10. Ensure that at all times, the Board of the Bank has a fair combination of independent, non-executive and executive directors meeting the governance standards set by the Board and in compliance with regulatory requirements and listing agreements prevailing from time to time;
11. Ensure that the organization structure and flow of command meets the governance standard set for the internal management of the Bank;
12. Evaluate and put in place proper mechanism for refreshment trainings for Directors on relevant subject;
13. Evaluate and put in place a proper mechanism to ensure that the independence of independent directors are always maintained and to ensure that there are no situations which suggest the existence of circumstances resulting in the loss of independence of any directors of the Bank;
14. Put in place, subject to the provisions of applicable laws, policies and procedure for determining the retirement and re-appointment of independent and other Directors on the board of the Bank;
15. Ensure that at all times the sub-committees of the Board is functioning and are constituted according to the regulatory requirement and governance policies of the Bank;
16. Oversee the overall governance standards and policies of the Bank and delegation of authorities to match with the best practices in relation to the size of the Bank and the level of its operations to protect the interest of all stakeholders.
b. Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy
The Bank has formed the compensation policy based on the Reserve Bank of India guidelines vide its Circular No. DBOD No.BC.72/29.67.001/2011-12 dated 13-01-2012.
The fixed remuneration and other allowances including retirement benefits of all subordinates, clerical and officers up to the rank of General Manager (Scale- VII) is governed by the industry level wage settlement under Indian Banks Association pattern. In respect of officers above the cadre of General Manager, the fixed remuneration is fixed by Board/Committee.
Further, the compensation structure for the Whole-time Directors/Managing Director and Chief Executive Officer of the Bank is subject to approval of Reserve Bank of India in terms of Section 35B of the Banking Regulation Act, 1949.
c. Human Resource Management department under the guidance of MD & CEO shall administer the compensation and the benefit structure in line with the best suited practices and statutory requirements as applicable.
d. The Bank has not identified any employee as risk taker for the purpose of variable pay under the compensation policy,
e. Employee Stock Option Scheme as may be framed by the Board from time to time in conformity with relevant statutory provisions and SEBI guidelines as applicable will be excluded from the components of variable pay,
f. Variable pay means the compensation as fixed by the Board on the recommendation of the committee which is base on the performance appraisal of the employee in that role, i.e., how well they accomplish their goals,
13. Securitization Transactions
The Bank has not done any securitization transaction during the year ended March 31, 2018 and March 31, 2017,
14. Intra-Group Exposures
Bank does not have any group entities
15. Transfers to Depositor Education and Awareness Fund (DEAF)
In accordance with the guidelines issued by RBI, the Bank transfers the amount to the credit of any account which has not been operated upon for a period of 10 years or any deposit or any amount remaining unclaimed for more than 10 years to the DEAF. Details of amount transferred to DEAF are set out below:
16. Unhedged Foreign Currency Exposure of Bankâs Customers
The Bank has a policy on managing credit risk arising out of unhedged foreign currency exposure of its borrowers. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. The Bank has fixed a maximum limit on unhedged position on borrowers, while sanctioning limits for all clients. The unhedged portion of foreign currency credit exposure of large corporate/SMEs are monitored and reviewed on a monthly basis. Any sanction of fresh loans/adhoc loans/renewal of loans to new/ existing borrowers done after obtaining/ sharing necessary information. The Bank also maintains incremental provision towards the unhedged foreign currency exposure of its borrowers in line with the extant RBI guidelines,
The Bank has maintained a provision of Rs.0.85 crore (previous year - 1.5 crore) and an additional capital of Rs.1.55 crore (previous year - 14.47 crore) on account of unhedged foreign currency exposure of its borrowers as at March 31, 2018.
17. Provision for Long Term Contracts
The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law/ accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.
18. Dues to Micro, Small and Medium Enterprises
Under the Micro and Small Enterprises Development Act, 2006 which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro and Small enterprises. On the basis of information and records available with the management and confirmation sought by the management from suppliers on their registration with the specified authority under the said Act, there have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments.
19. Provisioning Pertaining to Fraud in Advances
The Bank has reported 16 case of fraud that has a possible impact on the bank in the Financial year ended March 31, 2017 amounting to Rs.61.74 crore. In respect of one Gems & Jewellery borrower group, where fraud was declared by some banks, the bank has fully provided for the entire funded exposure. The Bank has expensed off/provided for the expected loss arising from these frauds and does not have any unamortized provision,
20. Investor Education and Protection Fund
There has been no delay in transferring amounts required to be transferred to the Investor Education and Protection Fund by the Bank.
21. Priority Sector Lending Certificate (PSLC)
The Bank purchases PSLC for meeting Priority Sector targets. The fee paid for purchase of PSLC is treated as expense.
- There was no sale of PSLC by bank during year ended March 31, 2018 and March 31, 2017.
- Details of PSLCs purchased with Net Nominal Value
22. Inter-Bank Participation with Risk Sharing
There was no purchase or sale of Inter-Bank Participation Certificate with risk sharing by bank during year ended March 31, 2018 and March 31, 2017.
23. Remuneration to Non-Executive Directors
The non-executive directors are paid remuneration by way of sitting fees for attending the meetings of the Board and Committee. Sitting Fees are paid at the rate of Rs.20000 for Board Meeting and Rs.10000 for meetings of the Board Committees. Details of sitting fees paid are given below:
24. Software Capitalized under Fixed Assets
The Bank has capitalized software under Fixed Asset amounting to Rs.1.33 crore and Rs.1.48 crore during the financial year ended March 31, 2018 and March 31, 2017 respectively, as given below:
25. Capital Reserve & Investment Reserve
Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes). During the year Rs.4.08 crores (previous year: Rs.14.64 crores) was transferred to Capital Reserve.
26. Corporate Social Responsibility (CSR)
The Bank understands its responsibilities towards the society and environment in which it operates. The Bank has constituted Corporate Social Responsibility Committee at the Board level to monitor the CSR activities. Since the Bank has net loss in computing the average three years net profit for CSR expenditure, no amount was spent on CSR during the current year or in the previous year,
27. Implementation of Indian Accounting Standard (Ind AS)
Banks shall comply with the Indian Accounting Standards (hereinafter referred to as Ind AS) for the financial statements for the accounting periods beginning from April 01, 2018 onwards with comparatives for the periods ending March 31, 2018 or thereafter as per the road map for implementation of International Financial Reporting Standards (IFRS) converged Ind AS issued by the Ministry of Corporate Affairs (MCA) in the Press Release dated January 18, 2016. Reserve Bank of India (RBI) had issued directions to the banks to take steps to assess the impact of transition to Ind AS, adopt strategies for the effective implementation of Ind AS including disclosure of the strategies adopted and the progress made in the Annual Report,
The Bank has constituted a steering committee headed by the Managing Director and CEO, comprising members from cross functional areas to oversee the progress of Ind AS implementation and report the progress to the Audit Committee of the Board and Board of Directors. The Bank has constituted Sub-Committee under the Steering Committee comprising members of junior/ middle level management for Ind AS implementation. The Bank has adopted a three phased strategy for Ind AS implementation;
Phase - 1:- Submission of Proforma Ind AS financial statements.
Pahse - 2 :- Commencing from April 01, 2017 to the year ended March 31, 2018, involving the preparation of opening Balance sheet, finalization of accounting policies, system level changes for Ind AS implementation, policy changes etc.
Phase - 3:- Commencing from April 01, 2018 to the submission of fully converged Ind AS financial statements for the year ended March 31, 2019 with comparatives for the year ended March 31, 2018.
The Bank had submitted the Proforma Ind AS financial statements for the quarter ended June 30, 2017 to the Reserve Bank of India.
Reserve Bank of India (RBI) vide its Press Release dated April 05, 2018 has deferred the implementation of Ind AS by one year from April 01, 2018 to April 01, 2019 in view of the level of preparedness of the Bank and the necessary legislative amendments to make the format of financial statements in the Banking Regulation Act, 1949 are under the consideration of the Government of India.
28. Comparative Figures
Previous year figures have been re-grouped/ re-classified wherever considered necessary to conform to current yearâs classification.
Mar 31, 2016
a) Treasury:
The treasury services segment primarily consists of interest earnings on investments portfolio of the bank, gain or losses on investment operations and earnings from foreign exchange business. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses.
b) Corporate/Wholesale Banking
The Corporate/Wholesale Banking segment provides loans and other banking services to corporate segment identified on the basis of RBI guidelines. Revenues of this segment consist of interest earned on Loans made to corporate customers and charges/fees earned from other banking services. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses.
c) Retail Banking:
The Retail banking segment provides loans and other banking services to non-corporate customers identified on the basis of RBI guidelines. Revenues of this segment consist of interest earned on Loans made to non-corporate customers and the charges/fees earned from other banking services. The principal expenses of the segment consist of interest expense on funds borrowed and other expenses.
d) Other Banking Operations:
This segment includes income from para banking activities such as debit card, third party product distribution and associated costs.
GEOGRAPHIC SEGMENT
The Bank operations are predominantly confined within one geographical segment (India) and accordingly this is considered as the only secondary segment.
3. CAPITAL ADEQUACY
The Bank is subject to the Basel-III Capital Regulations stipulated by Reserve Bank of India (RBI) effective from April 1, 2013. The transition to the Basel-III Capital Regulations is in a phased manner and during the transitional period the Bank is subject to the compliance with the regulatory limits and minima as prescribed under Basel-III Capital Regulation on an on-going basis. Basel-III Capital Regulations will be fully implemented as on March 31, 2019. As per the Reserve Bank of India (RBI) guidelines, the total regulatory capital consists of sum of the following:
1) Tier-1 Capital (Going Concern Capital*)
a. Common Equity Tier-1(CET-1)
b. Additional Tier-1
2) Tier-2 Capital (Gone Concern Capital**)
* From Regulatory perspective, Going Concern Capital is the Capital, which can absorb losses without triggering bankruptcy of the Bank.
4. DERIVATIVES
- Forward Rate Agreement (FRA) / Interest Rate Swaps (IRS)
The Bank enters into Forward Rate Agreement (FRA) and Interest Rate Swap (IRS) for balance sheet management and market making purpose. Forward Rate Agreement (FRA) and Interest Rate Swap (IRS) are such instruments which can provide effective hedge against
interest rate risks.
A Forward Rate Agreement (FRA) is a financial contract between two parties to exchange interest payments for a `notional principalâ amount on settlement date, for a specified period from start date to maturity date. Accordingly, on the settlement date, cash payments based on contract (fixed) and the settlement rate, are made by the parties to one another. The settlement rate is the agreed benchmark/ reference rate prevailing on the settlement date. The benchmark used in Forward Rate Agreement (FRA) contracts is London Inter-Bank Offered Rate (LIBOR).
An Interest Rate Swap (IRS) is a financial contract between two parties exchanging or swapping a stream of interest payments for a `notional principalâ amount on multiple occasions during a specified period. Such contracts generally involve exchange of a `fixed to floatingâ or `floating to floatingâ rates of interest. Accordingly, on each payment date - that occurs during the swap period - cash payments based on fixed/ floating and floating rates, are made by the parties to one another. The Bank deals in interest rate benchmarks like Mumbai Inter-Bank Offered Rate (MIBOR), Indian Government Securities Benchmark Rate (INBMK), Mumbai Inter Bank Forward Offer Rate (MIFOR) and LIBOR of various currencies.
These contracts are subject to the risks of changes in the market interest rates as well as the settlement risk with the counterparties. The following table sets for the details of Forward Rate Agreements (FRAs)/Interest Rate Swaps (IRSs):
5. OTHER ASSETS (SCHEDULE NO.: 11) & FIXED ASSETS (SCHEDULE NO.:10)
Reconciliation of rent advance/security deposit for premises occupied by branches/offices, etc. (as per Schedule No. 11) and physical verification of fixed assets (Schedule No. 10) are in progress. However a provision of Rs. 3.19 crore against Fixed Assets and Rs. 1.05 crore against Advances/Deposits were made to cover the possible impact of reconciliation in the profit and loss account.
6. Provision for the liability towards Pension/DA increase to Retired/VRS opted employees in the years 2000 to 2010 amounting to Rs. 89.56 crore has been created in the account based on the liability ascertained as per present annuity rates. This was included under other provision in the profit and loss account for the year ended March 31, 2016.
7. Disclosures on Remuneration
a. Information relating to the composition and mandate of the nomination & remuneration committee. Composition
The remuneration committee of the Board consists of four members of which one member from the Risk Management Committee of the Board facilitates effective governance of compensation.
The terms of reference of the nomination & remuneration committee are as follows:
1. Frame a policy describing the qualification, experience and other positive attributes for selection of executive/whole time directors including their age of retirement;
2. Formulate and put in place guiding principles to determine the qualities, qualifications, and the parameters to determine the âfit and properâ criteria for appointment of independent Directors keeping in mind the diversity quotient the Bankâs Board shall maintain from time to time and subject to the applicable regulatory requirements;
3. Conduct the process of due diligence to determine the suitability of the person for appointment/continuing to hold appointment as Director on the Board, based on the specific criteria prescribed by Reserve Bank of India;
4. Filling in a timely manner vacancies on the Board of the company including the position of executive/whole time directors;
5. Selection of directors, key management personnel and persons to be appointed in senior management positions as defined by the Board and recommend to the Board for their appointment and removal thereof;
6. Formulate and recommend to the Board for its approval a policy relating to the remuneration for the directors, key managerial personnel and other employees from time to time to ensure that:
a) The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate Directors of the quality required to run the Bank successfully:
b) Relationship of remuneration to performance is clear and meets appropriate performance benchmarks;
c) Remuneration to Directors, key managerial personnel and senior management involves a balance between fixed and
incentive pay reflecting short and long term performance objectives appropriate to the working of the company and its
goals;
7. Review the performance of individual Directors of the Bank on a yearly basis at the end of each financial year or at such periodicity as the Committee deem fit and recommend to the Board on the basis of such review, whether a director to be recommended for re-appointment or not;
8. Review the performance of the executive/whole time Directors of the Bank and fix suitable compensation packages in consideration of their performance, contributions, the general business environment in which the Bank operates and financial position of the Bank. The remuneration package may be a combination of fixed and performance based bonus/incentives for the period under review.
9. Review the performance of key managerial personnel and senior management persons on a periodical basis and fix their
remuneration packages in accordance with the policies approved by the Board, provided the period of gap between two such reviews shall not elapse fifteen months;
10. Ensure that at all times, the Board of the Bank has a fair combination of independent, non-executive and executive directors meeting the governance standards set by the Board and in compliance with regulatory requirements and listing agreements prevailing from time to time;
11. Ensure that the organization structure and flow of command meets the governance standard set for the internal management of the Bank;
12. Evaluate and put in place proper mechanism for refreshment trainings for Directors on relevant subject;
13. Evaluate and put in place a proper mechanism to ensure that the independence of independent directors are always maintained and to ensure that there are no situations which suggest the existence of circumstances resulting in the loss of independence of any directors of the Bank;
14. Put in place, subject to the provisions of applicable laws, policies and procedure for determining the retirement and re-appointment of independent and other Directors on the board of the Bank;
15. Ensure that at all times the sub committees of the Board is functioning and are constituted according to the regulatory requirement and governance policies of the Bank;
16. Oversee the overall governance standards and policies of the Bank and delegation of authorities to match with the best practices in relation to the size of the Bank and the level of its operations to protect the interest of all stake holders
a. Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy.
The Bank has formed the compensation policy based on the Reserve Bank of India guidelines vide its Circular No. DBOD
No.BC.72/29.67.001/2011-12 dated 13-01-2012.
The fixed remuneration and other allowances including retirement benefits of all subordinates, clerical and officers up to
the rank of General Manager (Scale - VII) is governed by the industry level wage settlement under Indian Banks Association
pattern. In respect of officers above the cadre of General Manager, the fixed remuneration is fixed by Board/Committee.
Further, the compensation structure for the Whole-Time Directors/Managing Director and Chief Executive Officer of the Bank is subject to approval of Reserve Bank of India in terms of Section 35B of the Banking Regulation Act, 1949.
b. Human Resource Management department under the guidance of MD & CEO shall administer the compensation and the
benefit structure in line with the best suited practices and statutory requirements as applicable.
Qualitative Disclosure
The Bank measures and monitors the LCR in line with the Reserve Bank of Indiaâs circular dated June 09, 2014 on âBasel III Framework on Liquidity Standards â Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standardsâ as amended for âPrudential Guidelines on Capital Adequacy and Liquidity Standardsâ dated March 31, 2015.
The LCR guidelines aim to ensure that a
bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by January 1, 2019. However, with a view to provide transition time, the guidelines mandate a minimum requirement of 60% w.e.f. January 01, 2015 and a step up of 10% every year to reach the minimum requirement of 100% by January 01, 2019. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated timeliness. The maintenance of LCR, both on end of period and on an average basis, has been on account of multiple factors viz, increases in excess SLR, existing eligibility in corporate bond investments, increase in retail deposits and increase in non callable deposits.
Unweighted values are calculated as outstanding balances maturing or callable within 30 days (for inflows and outflows) except where otherwise mentioned in the circular and LCR template. Weighted values are calculated after the application of respective haircuts (for HQLA) or inflow and outflow rates (for inflows and outflows). Board of Directors of the Bank has empowered ALCO (Top Management Executive Committee) to monitor and strategize the Balance Sheet profile of the Bank.
The Bank has been maintaining HQLA primarily in the form of SLR investments over and above mandatory requirement; Certificate of Deposits issued by Banks with rating A1 and above apart from regulatory dispensation allowed upto 7% of NDTL (additional 3% effective February 16) in the form of borrowing limit available through Marginal Standing Facility (MSF) and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). Average LCR for the year ended March 31, 2016 is 176.95% (March 31, 2015: 177.37%), which is comfortably above RBI prescribed minimum requirement of 70%.
LCR for the quarter end March 31, 2015 had been computed based on the guidelines applicable at that point in time. Subsequently there have been amendments in the RBI guidelines w.e.f. April 2015. Hence, LCR computed based on 3 months average for March 15 is not comparable with those reported for the current financial year based on 12 months average.
16.. DUES TO MICRO AND SMALL ENTERPRISES
Under the Micro and Small Enterprises Development Act, 2006 which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro and Small enterprises. On the basis of information and records available with the management and confirmation sought by the management from suppliers on their registration with the specified authority under the said Act, there have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments.
17. SOFTWARE CAPITALIZED UNDER FIXED ASSETS
The Bank has capitalized software under Fixed Asset amounting to Rs. 0.68 crore and Rs. 0.69 crore during the financial year ended March 31, 2016 and March 31, 2015 respectively.
(Rs. in Crore)
18. DESCRIPTION OF CONTINGENT LIABILITIES
1. Claims against the Bank not acknowledged as debts
The Bank is a party to various legal proceedings in the normal course of business. The Bank does not expect the outcome of these proceedings to have a material adverse effect on the Bankâs financial conditions, results of operations or cash flowsâ
ti2. Liability on account of forward exchange and derivative contracts
The Bank enters into foreign exchange contracts, currency options, forward rate agreements, currency swaps and interest rate swaps with interbank participants and customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in one currency against another, based on predetermined rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. The notional amounts of financial instruments of such foreign exchange contracts and derivatives provide a basis for comparison with instruments recognized on the balance sheet but do not necessarily indicate the amounts of future cash flows involved or the current fair value of the instruments and, therefore, do not indicate the Bankâs exposure to credit or price risks. The derivative instruments become favorable (assets) or unfavorable (liabilities) as a result of fluctuations in market rates or prices relative to their terms. Hence the aggregate fair values of derivative financial assets and liabilities can fluctuate significantly.
3. Guarantees given on behalf of constituents, acceptances, endorsements and other obligations
As a part of its commercial banking activities the Bank issued documentary credit and guarantees on behalf of its customers.
Documentary credits such as letters of credit enhance the credit standing of the customers of the Bank. Guarantees generally represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.
4. Other items for which the Bank is contingently liable
â Value dated purchase of securities
â Disputed Tax
â Amount deposited with RBI under Depositor Education Awareness Fund
â Foreign Exchange Contracts (Tom & Spot) (Refer Schedule 12 for amounts relating to Contingent Liability)
19. PROVISION FOR LONG TERM CONTRACTS
The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements. Previous year figures have been re-grouped/ re-classified wherever considered necessary to conform to current yearâs classification.
Mar 31, 2015
BASIS OF PREPARATION
The Financial Statements have been prepared in accordance with the
requirements prescribed under the "Third Schedule" of the Banking
Regulation Act, 1949. The accounting and reporting policies used in the
preparation of these financial statements conform in all material
aspects to Generally Accepted Accounting Principles in India (Indian
GAAP), the guidelines issued by Reserve Bank of India (RBI) from time
to time, the Accounting Standards (AS) notified under Sec. 133 of the
Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules
2014 to the extent applicable and practices generally prevalent in the
banking industry in India. The bank follows the accrual method of
accounting and the historical cost convention except where otherwise
stated. The Accounting policies adopted by the bank are consistent with
the previous year except as disclosed otherwise.
USE OF ESTIMATES
The preparation of Financial Statements requires the management to make
estimates and assumptions in the reported amounts of assets and
liabilities (Including contingent liabilities) as of the date of the
financial statements and the reported income and expenses during the
reporting period. Management believes that the estimates and
assumptions used in preparation of the financial statements are prudent
and reasonable. Actual results could differ from these estimates.
1. DISCLOSURE OF LETTER OF COMFORTS (LOCs) ISSUED BY THE BANK During
the year the Bank has not issued Letter of Comforts.
2. SEGMENT REPORTING (AS 17)
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
(a) Treasury Operations
(b) Corporate / Wholesale Banking
(c) Retail banking
(d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
3. Penalties levied by the Reserve Bank of India
The Penalty imposed by RBI during the year ended March 31, 2015 was Rs.
10,500/- (Previous Year Rs. 2,00,16,800/- )
4. OTHER ASSETS (SCHEDULE NO.: 11), BALANCE WITH BANKS AND MONEY AT
CALL AND SHORT NOTICE (SCHEDULE NO.: 7) & FIXED ASSETS (SCHEDULE NO.:
10)
Reconciliation of rent advance/ security deposit for premises occupied
by branches/ offices, etc. (as per Schedule No. 11), and physical
verification of fixed assets (Schedule No. 10) is in progress. In the
opinion of the management no material impact of reconciliation of
accounts is anticipated.
5. The Bank had entered into an agreement with M/s Bajaj Allianz Life
insurance Company Ltd. ( BALIC) for sale of products of BALIC on
specified terms and conditions. BALIC issued a demand notice to the
Bank claiming a penalty amount of 1511 lakhs (for 2011-12) and Rs. 2123
lakhs ( for 2012-13) totaling Rs. 3634 lakhs for non-achievement of
targets along with interest at 12% per annum for delay in paying the
amount beyond fifteen days. Further, BALIC informed the bank that
targets for the Financial year 2013-2014 had not been met by the bank
and a further penalty of Rs. 2664 lakhs had to be paid to BALIC by the
bank in addition to the earlier penalty of 3634 lakhs Considering the
initiatives taken by both the parties to renegotiate the terms and
conditions of the agreement and as legally advised, the demand of
penalty of Rs. 6298 lakhs is shown as contingent liability (Schedule
No. 12)
6. Pending settlement of wage revision w.e.f. 1st November, 2012, an
adhoc provision of Rs.3164 lakhs is held as on 31.03.2015 which
includes Rs.1962 lakhs provided during the current year.
7. In terms of RBI circular DBR No. BP. BC 79/ 21.04.048/ 2014-15
dated March 30, 2015 Banks were permitted to utilise up to 50%
countercyclical provision buffer/ floating provision held by them as on
31.12.2014 for making specific provisions for non- performing assets,
as per the policy approved by their Board of Directors. Accordingly,
the Bank has utilised an amount of Rs. 364 lakhs for making specific
provisions for non-performing assets.
8. a) In terms of RBI guidelines contained in Circular DBR
No.BP.BC.83/21.01.048/2014-15 dated 01-04-2015, banks are required to
provide, in case of fraud, the entire amount due to the Bank over a
period not exceeding four quarters commencing from the quarter in which
the fraud has been detected. As a prudent measure, the Bank has
provided the entire amount during the year, thereby; the loss reported
by the Bank is overstated by Rs. 4944 Lakhs.
b) Though a special dispensation is given by RBI vide its Letter No.
DBR No. BP 17661/21.04.048/ 2014-15 dated 20-05-2015 for providing the
amount due to the Bank over a period of three quarters commencing from
March, 2015 in respect of a borrowal account, the Bank, as a prudent
measure, has provided for the entire amount during the year, thereby
the loss reported by the Bank is overstated by Rs. 4524 Lakhs.
9. In respect of 259 employees who had opted for VRS in 2000 & 2004
and 424 retired employees, the Bank has not provided to the Pension
Trust, funds required amounting to around Rs. 7938 lakhs for purchase
of annuities for payment of pension/ increase in Dearness Allowance
respectively. However, pension/ increase in dearness allowance is paid
by the Bank by debiting Profit and Loss account.
10. Effective April 1, 2014 the Bank has changed the estimated useful
life of certain fixed assets in line with the recommended useful life
as per Part C of Schedule II to the Companies Act, 2013. On account of
this change, the bank has reversed an amount of Rs. 901 lakhs during
the year ended March 31, 2015, representing the excess depreciation
charge and disclosed the same as an exceptional item. Except for this,
there has been no change in the accounting policies followed during the
quarter/ period ended 31st March, 2015 as compared to those followed in
the preceding financial year ended 31st March, 2014. As a result of
this change, the loss for the current financial year is decreased by
Rs. 901 lakhs.
11. Disclosures on Remuneration
a. Information relating to the composition and mandate of the
remuneration committee.
Composition
The remuneration committee of the Board consists of four members of
which one member from the Risk Management Committee of the Board
facilitates effective governance of compensation.
The rules and responsibilities of the remuneration committee are as
follows;
- To oversee the framing, review and implementation of Bank's overall
compensation and related policies on remunera- tion packages payable to
all employees and the Whole Time Directors (WTDs)/ MD&CEO including
perquisites, stock option scheme etc. with a view to attract, motivate
and retain employees and review compensation level vis-Ã -vis other
banks and the industry in general.
- The remuneration committee works in close coordination with the Risk
Management Committee of the Bank in order to achieve effective
alignment between remuneration and risks. The Committee also ensures
that the cost income ratio of the Bank supports the remuneration
package consistent with the maintenance of sound capital adequacy
ratio.
- The committee also functions as the compensation committee as
prescribed under the SEBI (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines,1999 and is empowered to formulate
detailed terms and conditions of the scheme, administer, supervise the
same and to allot shares in compliance with the guidelines and other
applicable laws.
- To conduct the annual review of the compensation policy.
- To fulfill such other powers and duties as may be delegated to it by
the Board.
b. Information relating to the design and structure of remuneration
processes and the key features and objectives of remuneration policy.
The Bank has formed the compensation policy based on the Reserve Bank
of India guidelines vide its Circular No. DBOD
No.BC.72/29.67.001/2011-12 dated 13-01-2012.
The fixed remuneration and other allowances including retirement
benefits of all subordinates, clerical and officers up to the rank of
General Manager (Scale- VII) is governed by the industry level wage
settlement under Indian Banks Association pattern. In respect of
officers above the cadre of General Manager, the fixed remuneration is
fixed by Board/Committee.
Further, the compensation structure for the Whole-Time
Directors/Managing Director and Chief Executive Officer of the Bank is
subject to approval of Reserve Bank of India in terms of Section 35B of
the Banking Regulation Act, 1949.
c. Human Resource Management department under the guidance of MD & CEO
shall administer the compensation and the benefit structure in line
with the best suited practices and statutory requirements as
applicable.
d. The Bank has not identified any employee as risk taker for the
purpose of variable pay under the compensation policy.
e. Employee Stock Option Scheme as may be framed by the Board from
time to time in conformity with relevant statutory provisions and SEBI
guidelines as applicable will be excluded from the components of
variable pay.
f. Variable pay means the compensation as fixed by the Board on the
recommendation of the committee which is base on the performance
appraisal of the employee in that role, i.e. how well they accomplish
their goals.
12. Credit Default Swaps
The Bank has not taken any Credit Default Swaps during the year and the
balance outstanding as on 31.03.2015 is "NIL"
13. Intra-Group Exposures
Bank does not have any group entities.
14. Unhedged Foreign Currency Exposures
Based on the available data, available financial statements and
declarations from the borrowers wherever received, the Bank has
estimated the liability of Rs. 108 lakhs as at 31.03.2015 (Previous
Year  Nil) on Unhedged Foreign Currency Exposure to their constituents
in terms of RBI circular DBOD.No.DP.BC.85/21.06.200/2013-14 dated
15.01.2014. The entire estimated amount is fully provided for.
Qualitative Disclosure
The LCR standard aims to ensure that a bank maintains an adequate level
of unencumbered HQLAs that can be converted into cash to meet its
liquidity needs for a 30 calendar day time horizon under a
significantly severe liquidity stress scenario specified by supervi-
sors. At a minimum, the stock of liquid assets should enable the bank
to survive until day 30 of the stress scenario, by which time it is
assumed that appropriate corrective actions can be taken.
Stock of high quality liquid assets (HQLAs) LCR =
Total net cash outflows over the next 30 calendar days
The LCR requirement of banks would be minimum 60% for the calendar year
2015 i.e. with effect from January 1, 2015, and rise in equal steps to
reach the minimum required level of 100% on January 1, 2019.
High Quality Liquid Assets (HQLAs)
Assets are considered to be high quality liquid assets if they can be
easily and immediately converted into cash at little or no loss of
value. There are two categories of assets which can be included in the
stock of HQLAs, viz. Level 1 and Level 2 assets.
Level 1 assets of banks would comprise of the following and these
assets can be included in the stock of liquid assets without any limit
as also without applying any haircut:
i. Cash including cash reserves in excess of required CRR.
ii. Government securities in excess of the minimum SLR requirement.
iii. Within the mandatory SLR requirement, Government securities to
the extent allowed by RBI, under Marginal Standing Facility (MSF).
iv. Marketable securities issued or guaranteed by foreign sovereigns
satisfying all the following conditions:
(a) assigned a 0% risk weight under the Basel II standardized approach
for credit risk;
(b) Traded in large, deep and active repo or cash markets characterised
by a low level of concentration; and proven record as a reliable source
of liquidity in the markets (repo or sale) even during stressed market
conditions.
(c) not issued by a bank/financial institution/NBFC or any of its
affiliated entities.
Level 2 assets are sub-divided into Level 2A and Level 2B assets on the
basis of their price-volatility. Assets to be included in each cat-
egory are those that the bank is holding on the first day of the stress
period. Level 2 assets (comprising Level 2A assets and Level 2B assets)
can be included in the stock of liquid assets, subject to the
requirement that they comprise not more than 40% of the overall stock
of HQLAs after haircuts (minimum 15% for Level 2A & minimum 50% for
Level 2B) have been applied. Further, Level 2B assets should comprise
not more than 15% of the total stock of HQLA. They must also be
included within the overall Level 2 assets.
Total net cash outflows
The total net cash outflows is defined as the total expected cash
outflows minus total expected cash inflows for the subsequent 30
calendar days. Total expected cash outflows are calculated by
multiplying the outstanding balances of various categories or types of
liabilities and off-balance sheet commitments by the rates at which
they are expected to run off or be drawn down. Total expected cash
inflows are calculated by multiplying the outstanding balances of
various categories of contractual receivables by the rates at which
they are expected to flow in up to an aggregate cap of 75% of total
expected cash outflows.
15. Previous year figures have been re-grouped/ re-classified wherever
considered necessary to conform to current year's classifica- tion.
Mar 31, 2014
1. OTHER ASSETS (SCHEDULE NO: 11) & OTHER LIABILITIES (SCHEDULE NO
:5)
Reconciliation of rent advance /security deposit for premises occupied
by branches/ offices, etc (as per Schedule No 11), exchange fuctuations
(as per Schedule No.5) and physical verifcation of fixed assets
(Schedule No 10) is in progress. In the opinion of the management no
material impact of reconciliation of accounts is anticipated.
2. The Bank had entered into an agreement with M/S Bajaj Allianz Life
insurance Company Ltd.(BALIC) for sale of products of BALIC on specified
terms and conditions. BALIC issued a demand notice to the Bank claiming
a penalty amount of 1511 lakhs (for 2011-12) and Rs. 2123 lakhs (for
2012-13) totaling Rs. 3634 lakhs for non-achievement of targets along
with interest at 12% per annum for delay in paying the amount beyond
ffteen days. Considering the initiatives taken by both the parties to
renegotiate the terms and conditions of the agreement and as legally
advised, the demand of penalty of Rs. 3634 lakhs is shown as contingent
liability (Schedule No. 12)
3. The Bank had entered into a deal with M/s Shriram City Union
Finance Ltd. (SCUF) for the buyout of retail loans portfolio including
SME Advances for a purchase consideration of Rs. 35071 lakhs and SCUF was
appointed as the collection and service agent for the Bank. SCUF
prepaid the outstanding amount of certain loans in violation of the
agreement and when the matter was taken up with SCUF, they defaulted
subsequent monthly pay outs. The Bank approached the security trustee
for appropriating the fixed deposits with Canara Bank. Aggrieved by
this, SCUF obtained an injunction order from the Hon. High Court of
Madras. The matter was reported to the Reserve Bank of India. The
account has been classified by the Bank as a non-performing asset.
4. Pending settlement of wage revision w.e.f. 1st November 2012, an
adhoc provision of Rs. 1202 lakhs is made during the current year.
5. In terms of RBI circular DBOD No. B P. 95/ 21.04.048/ 2013-14
dated February 7, 2014 Banks were permitted to utilise up to 33%
countercyclical provision buffer/ foating provision held by them as on
31.03.2013 for making Specific provisions for non-performing assets, as
per the policy approved by their Board of Directors. Accordingly, the
Bank has utlised an amount of Rs. 875 lakhs for making Specific provisions
for non-performing assets.
6. In terms of RBI circular DBOD.BP.BC.No.41/21.04.141/2013-14 dated
August 23, 2013 on "Investment portfolio of banks - Classifcation,
Valuation and Provisioning", the Bank has opted to amortise the
depreciation on the Available for Sale (AFS) and Held for Trading (HFT)
portfolios on each of the valuation dates in the current financial year
ie 2013-14 in equal installments. The Bank had amortised such
depreciation during the quarters ended September and December 2013.
During the quarter and year ended 31st March 2014, depreciation in
respect of AFS and HFT portfolio has been recognised in full.
Mar 31, 2013
BACKGROUND
Dhanlaxmi Bank Limited was incorporated in November 1927 at Thrissur,
in Kerala by a group of ambitious entrepreneurs. Dhanlaxmi Bank is a
publicly held banking company engaged in providing a wide range of
banking and financial services including commercial banking and
treasury operations. Dhanlaxmi Bank is a banking company governed by
The Banking Regulation Act, 1949. It became a scheduled commercial bank
since 1977.
BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and in compliance with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India (''RBI'') from time to time, Accounting Standards (''AS'')
issued by the Institute of Chartered Accountants of India (''ICAI'') and
notified by the Companies Accounting Standard Rules, 2006 to the extent
applicable and incompliance of the current practices prevailing within
the banking industry in India.
The preparation of financial statements requires the management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expense for the
reporting period. Management believes that the estimates used in the
preparation of the financial statements are prudent and reasonable.
Future results may differ from these estimates. Any revision in the
accounting estimates is recognized prospectively in the current and
future period.
1. No penalty has been imposed during the year 2012-13 by RBI.
2. DISCLOSURE OF LETTER OF COMFORTS (LOCs) ISSUED BY THE BANK
The Bank has not issued any Letter of Comfort during the year 2012-13.
3. ESOP SCHEME
On May 11, 2010, 20,000 options were issued at an exercise price of Rs.
144.70 to new joinees in addition to 3,979,225 options granted on 6
August 2009 to employees under two different plans at a uniform option
price of Rs. 118.35. Out of the above, 20,149 shares were exercised
during 2010-11 and 570 shares are exercised in 2011-12 year and none of
the employees were exercised the options during the current year
(2012-13). All the options granted to the employees under the first
plan (''Existing Employees'') and second plan (Joining employees) were
fully vested as on 31-03-2013.
4. SEGMENT REPORTING (AS 17)
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
a) Treasury Operations
b) Corporate / Wholesale Banking
c) Retail banking
d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
5. DRAW DOWN OF RESERVES
The bank has not undertaken any draw down of reserves during the year.
6. OTHER ASSETS (SCHEDULE NO. 11) AND OTHER LIABILITIES (SCHEDULE NO.
5)
The reconciliation of entries in other assets and liabilities are in
progress. The impact if any on the accounts are not ascertainable now,
as the work is in progress. The management is of the opinion that the
overall impact, if any, on the accounts may not be significant and is
not ascertainable at this stage.
7. Previous year figures have been re-grouped/ re-classified wherever
considered necessary to conform to current year''s classification.
Mar 31, 2012
Background
Dhanlaxmi Bank Limited was incorporated in November 1927 at Thrissur,
in Kerala by a group of ambitious entrepreneurs. Dhanlaxmi Bank is a
publicly held banking company engaged in providing a wide range of
banking and financial services including commercial banking and
treasury operations. Dhanlaxmi bank is a banking company governed by
The Banking Regulation Act, 1949. It became a scheduled commercial bank
since 1977.
Basis of preparation of financial statements
The financial statements have been prepared and presented under the
historical cost convention and accrual basis of accounting, unless
otherwise stated and in compliance with generally accepted accounting
principles, statutory requirements prescribed under the Banking
Regulation Act, 1949, circulars and guidelines issued by the Reserve
Bank of India ('RBI') from time to time, Accounting Standards ('AS')
issued by the Institute of Chartered Accountants of India ('ICAI') and
notified by the Companies Accounting Standard Rules, 2006 to the extent
applicable and in compliance of the current practices prevailing within
the banking industry in India.
The preparation of financial statements requires the management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expense for the
reporting period. Management believes that the estimates used in the
preparation of the financial statements are prudent and reasonable.
Future results may differ from these estimates. Any revision in the
accounting estimates is recognized prospectively in the current and
future period.
Disclosures on risk exposure in derivatives Qualitative Disclosure
Bank discusses its risk management policies pertaining to derivatives
with particular reference to the extent to which derivatives are used,
the associated risks and business purposes served. The discussion
includes:
a) the structure and organization for management of risk in derivatives
trading;
b) the scope and nature of risk measurement, risk reporting and risk
monitoring systems;
c) policies for hedging and/or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants; and
d) accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation.
1. Asset Quality
i. Claim pertaining to debt relief arising till December 31, 2009 was
Rs.15.16 Lakhs which was shown as receivable from Government of India
under Agricultural Debt Relief Scheme 2008, which was received from RBI
during 2010-11. Additional claim amount of Rs.2.20 Lakhs pertaining to
the extended period of Debt Relief Scheme from January 1, 2010 to June
30, 2010 (which was clubbed under head advances) was also received from
RBI during 2011-12 and receivable from RBI in this regard is Rs. Nil.
2. ESOP Scheme
On May 11, 2010, 20,000 options were issued at an exercise price of
Rs.144.70 to new joinees in addition to 3,979,225 options granted on 6
August, 2009 to employees under two different plans at a uniform option
price of Rs.118.35. Out of the above, 20,149 shares were exercised during
the previous year and 570 shares were exercised during the current
year. Options granted to the employees under the first plan ('Existing
Employees') shall vest at the rate of 30%, 30% and 40% on each
successive anniversary of the grant date. Options granted to the
employees under the second plan ('Joining Employees') shall vest after
completion of 12 months from the date of grant. Further, all the option
granted to Joining Employees' under the scheme shall be subject to a
lock in period of twenty four months from date of vesting of options
under this scheme.
3. Exercise period will commence from the date of vesting of option
and will end on 10 years from the date of grant of options or 10 years
from the date of vesting of Option, whichever is later.
Note:
a) The compensation Committee has granted a total of 3,999,225 options
convertible into 3,999,225 Equity shares which represent 6.24% of the
paid up share capital of the Bank. The fair market value one day before
the date of grant is Rs.118.35 which is also the exercise price of the
option.
b) The Bank accounts for 'Employee Share Based Payments' using the fair
value method.
Note:
Consequent on the reopening of the pension option and enhancement of
the gratuity limit following the amendments to Payment of Gratuity Act
1972, RBI has allowed amortisation of the additional expenses over a
period of five years beginning with the financial year ending March 31,
2011 subject to a minimum of 1/5th of the total amount involved every
year. Out of the total liability of Rs.2,554 lakhs arising on account of
above mentioned amendments, Rs.511 lakhs has been charged to the Profit
and Loss Account in the current year and the balance unrecognised
portion shall be amortised with in next three years.
4. Segment Reporting (AS 17)
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
a) Treasury Operations
b) Corporate / Wholesale Banking
c) Retail banking
d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
5. Draw Down of Reserves
The bank has not undertaken any draw down of reserves during the year
except expenses incurred towards increasing of Authorised share
capital, which have been adjusted against the Share Premium Account.
6. Impact of Change in Accounting Policy
Till the previous year, income from bills discounting was recognized
upfront except where the tenure exceeds one year. However, during the
year, the Bank has changed its method of recognizing income, wherein
the income is apportioned to the profit and loss account on a daily
basis to the extent it relates to the year and the balance amount in
subsequent periods. Had the Bank had followed the earlier accounting
policy, income for the year would have been higher by Rs.205 Lakhs and
the Loss for the Year would have been lower by the like amount.
7. Previous year figures are regrouped wherever necessary.
Mar 31, 2011
1. Capital commitments Rs. 249 Lakhs (Previous Year - Rs. 774 Lakhs).
2. Derivatives
The bank uses forward exchange contract to hedge against its foreign
currency exposures relating to the underlying transaction and firm
commitments. The bank has not entered into any derivative instruments
for trading/speculative purposes either in foreign exchange or domestic
treasury operations.
3. Asset quality
i) In terms of Agricultural Debt Waiver and Debt Relief Scheme 2008,
framed by the Government of India, the bank had received Rs. 313 Lakhs
from RBI on account of loans to small and marginal farmers out of the
amount eligible for debt waiver of Rs. 435 Lakhs during FY 2010. The
balance amount of Rs. 122 Lakhs had been shown as receivables and
clubbed under the head "Advances" as on March 31, 2010. The amount of
Rs. 122 Lakhs was also received from RBI during 2010-11 and hence
receivable from RBI in this regard as at March 31, 2011 is Rs. Nil.
The position with reference to Agricultural Debt Relief Scheme is as
under:
Claim pertaining, to Debt Relief Scheme arising till December 31, 2009
of Rs. 16 Lakhs, which was pending receipt" from Government of India,
was subsequently received from Reserve Bank of India during 2010-11.
Additional claim amount of Rs. 2.20 Lakhs pertaining to the extended
period of the Debt Relief Scheme from January 1,2010 to June 30, 2010
is due from Government of India under Agricultural Debt Relief Scheme
2008 (clubbed under head advances)
4. Details of single borrower limit, group borrower limit exceeded by
the bank
The bank has not exceeded single borrower limit or group borrower limit
during the year.
5. No penalty has been imposed during the year 2010-11 by RBI.
6. Disclosure of letter of comforts (Iocs) issued by the bank
The Bank has not issued any Letter of Comfort during the year ended
March 31, 2011.
7. Employee stock option plan
On May 11, 2010, 20,000 options were issued at an exercise price of Rs.
144.70 to new joiners in addition to 3,979,225 options granted on
August 6, 2009 to employees under two different plans at a uniform
option price of Rs. 118.35. Out of the above, 20,149 shares were
exercised during the current year. Options granted to the employees
under the first plan (Existing Employees - "ESOP") shall vest at the
rate of 30%, 30% and 40% on each successive anniversary of the grant
date. Options granted to the employees under the second plan (Joining
Employees - "JESOP") shall vest after completion of 12 month Rs. from
the date of grant. Further, all the option granted to Joining
Employees under the scheme shall be subject to a lock in period of
twenty four months from date of vesting of options under this scheme.
Notes:
a) The Compensation Committee has granted a total of 3,999,225 options
convertible into 3,999,225 Equity Shares which represents 6.24% of the
paid up share capital of the Bank. The fair market value one day before
the date of grant is Rs. 118.35 which is also the exercise price of the
Option.
b) The Bank accounts for Employee Share Based Payments using the fair
value method.
8. Employee benefits (Accounting Standard -15)
The summarized position of various defined benefits recognized in the
profit and loss account and balance sheet along with the funded status
are as under:
F. Actuarial assumptions
Note :-
Consequent on the reopening of the pension option and enhancement of
the gratuity limit following the amendments to payment of gratuity act
1972, RBI has allowed amortization of the additional expenses over a
period of five years beginning with the financial year ending March 31,
2011 subject to a minimum of 1/5th of the total amount involved every
year. Out of the total liability of 25.54 crores arising on account of
above mentioned amendments, Rs. 5.11 crores has been charged to the
Profit and Loss account in the current year and the balance
unrecognized portion shall be amortized with in next four years
9. Segment reporting (AS-17)
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
a) Treasury Operations
b) Corporate/Wholesale Banking
c) Retail banking
d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does
arise under this segment.
10. Particulars of related party transactions (AS-18)
Particulars March 31,2011 March 31, 2010
a) Key Management personnel Mr. Amitabh Chaturvedi, Mr. Amitabh
Chaturvedi,
b) Nature of transaction: Managing Director and
Chief Managing Director
and Chief
Remuneration (including Executive Officer Executive Officer
perquisites) Rs. 5,371,000 Rs. 3,600,000
11. Miscellaneous income under schedule 14 includes Rs. 3,000 Lakhs
being Commitment Fee received from M/s. Bajaj Allianz Life Insurance
Company with whom the Bank has entered into agency agreement for life
and general insurance. (Previous Year Rs. 2,700 Lakhs)
12. The declaration of dividend is subject to RBI approval.
13. Previous Years figures are regrouped/rearranged wherever necessary
to conform to current years classification.
Mar 31, 2010
1. Capital commitments Rs. 7, 74 Lakhs.
2. Commission from insurance business is accounted on accrual basis
which hitherto was accounted on cash basis. Had the Bank accounted
commission on cash basis, profit (net of tax) for the year would have
been lower by Rs. 84 Lakhs.
3. (a) Provisions and Contingencies
in Lakhs
Particulars 31.03.2010 31.03.2009
Provision for depreciation on Investments 67 (94)
Provision towards Standard Assets 7,42 52
Provision towards NPA (including write off) 3,01 2,19
Provision towards Non Performing Investments (58) (1,13)
Provision towards Security Receipts - 4,95
Provision towards Income Tax, Wealth Tax,
FBT etc. 5,12 22,62
Deferred Tax Asset/Liability (68) (41)
Provision for diminution in value of
Restructured Accounts 42 65
Floating Provision for NPA
(Advances) - 2,00
Total 15,38 30,45
1Mb DHANALAKSHMI BANK LIMMbU
4. Derivatives
The bank uses forward exchange contract to hedge against its foreign
currency exposures relating to the underlying transaction and firm
commitments. The bank has not entered into any derivative instruments
for trading /speculative purposes either in Foreign Exchange or
domestic treasury operations.
5. Asset quality
i) In terms of Agricultural Debt Waiver and Debt Relief Scheme 2008,
framed by the Government of India, the bank has received Rs.313 lakhs
from RBI on account of loans to small and marginal farmers out of the
amount eligible for debt waiver of Rs.435 lakhs. The balance amount of
Rs.122 lakhs has been shown as receivables and clubbed under the head
"Advances".
The position with reference to Agricultural Debt Relief Scheme is as
under:
Claim pertaining to Debt Relief arising till December 31,2009 is Rs.16
lakhs which is shown as Receivable from Government of India under
Agricultural Debt Relief Scheme 2008(which can be clubbed under the
head "advances"). Government of India has subsequently extended the
scheme upto June 30, 2010.
6. Details of single borrower limit, group borrower limit exceeded by
the bank
The bank has not exceeded single borrower limit or group borrower limit
during the year
7. No penalty has been imposed during the year 2009-10 by RBI.
8. Disclosure of letter of comforts (locs) issued by the bank
The Bank has not issued any Letter of Comfort during the year ended 31
March, 2010.
9. ESOP Scheme
On August 6, 2009, the Bank granted 3,979,225 options to employees
under two different plans at a uniform option price of Rs. 118.35.
Options granted to the employees under the first plan (ÃExisting
EmployeesÃ) shall vest at the rate of 30%, 30% and 40% on each suc-
cessive anniversary of the grant date. Options granted to the employees
under the second plan (ÃJoining EmployeesÃ) shall vest after completion
of 12 months from the date of grant. Further, all the option granted to
ÃJoining Employeesà under the scheme shall be subject to a lock in
period of twenty four months from date of vesting of options under this
scheme.
As the closing quoted market price of share one day prior to the date
of grant is sone as the exercse tions is NIL; accordingly no stock
based compensation arose on thesegrant is
10. Segment reporting (AS-17)
The Bank has recognized Business segments as primary reporting segment
and Geographical segments as secondary segment in line with RBI
guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
a) Treasury Operations
b) Corporate / Wholesale Banking
c) Retail banking
d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only no reporting does
arise under this segment.
11. Miscellaneous income in schedule 14 includes Rs. 2700 lakhs being
Commitment Fee received from M/s. Bajaj Allianz towards Life and
General Insurance with whom the Bank has entered into agency agreement
for life and general insurance. (Previous Year 2300 Lakhs)
12The declaration of divid d is subject to RBI approval.
13. Previous Years figures are regrouped/rearranged wherever necessary
to conform to current years classification.j
c) & d) Since the Bank does not have any subsidiaries there are no
quantitative disclosures.
Qualitative disclosures:
a) Summary
Tier I capital of the Bank includes Equity Share Capital (64115600
equity shares of Rs.10 each fully paid up), Reserves& Surpluses
comprising of Statutory Reserves, Capital Reserves, Share Premium and
balance in Profit and Loss account.
Tier II Capital includes Revaluation Reserve, Special Reserves,
Standard Asset Provisions and Tier II Bonds. During the year, the Bank
has is- sued Unsecured Redeemable Subordinated Non-Convertible Lower
Tier - II Bonds in the nature of Promissory Notes ("BondsÃ) amounting
to Rs. 150 crores with a tenor of 5 years 9 months.
Qualitative disclosures:
(a) General : -
Definitions of past due and impaired (for accounting purposes)
The Bank has adopted the definition of the past due and impaired (for
accounting purposes) as defined by the Regulator for income recognition
and asset classification norms. As per the prudential norms applied for
income recognition, asset classification and pro- visioning, the bank
considers following categories of loans and advances as non-performing
assets, wherein:
- Interests and/or instalment of principal remain overdue for a period
of more than 90 days in respect of a Term loan.
- The account remains out of order in respect of an overdraft/cash
credit (OD/CC)
- The bill remains overdue for a period of more than 90 days in the
case of bills purchased and discounted.
- In case of agricultural advances, interest and/or instalment of
principal remains overdue for 2 crop seasons (in respect of short
duration crops) & 1 crop season (in respect of long duration crops)
- Any amount receivable that remains overdue for a period of more than
90 days in respect of other accounts.
- Interest charged during any quarter is not serviced fully within 90
days from the end of the quarter
Strategies and Processes for Credit Risk Management
The Bank has put in place a comprehensive Credit Policy which is
reviewed and revised periodically. The Credit Risk Management Policy
forms part of the Credit Policy. The main objectives of the Credit
Policy are: -
- Maintain quality of loan assets.
- Ensure reasonable return on the assets.
- Ensure an acceptable risk profile.
- Achieve proper sectoral/geographical distribution of assets
- Compliance with regulatory norms in respect of exposure caps pricing,
IRAC guidelines targeted credit etc.
The Bank has defined segment wise exposure limits industry wise
exposure caps individual and group borrower wise exposure caps. The
operational processes and systems of the Bank relating to credit are
built on sound credit risk management principles and are subjected to
periodical review In order to improve the quality of appraisals and to
ensure accelerated response to customers, particularly in respect of
high value credits relationships and appraisal functions are segregated
between the concerned branch and the core credit groups at zonal /
central offices. Bank has revised many of its existing systems,
procedures and structures with respect to Credit Approval Process,
Credit Rating, Prudential Limits, Documentation, Credit Monitoring and
Review Mechanism.
Bank has a Credit Monitoring Policy and a Recovery Policy, which are
reviewed from time to time. Bank has system in place for identification
of credit weaknesses well in advance. A Loan Review Mechanism for
constantly evaluating the quality of loan book, by way of review of
sanctions made, renewal process submission of monitoring reports,
credit related MIS, is in place. The Bank has a Credit Mid Office Group
which would take care of the security creation and account management
and a Credit Monitoring & Review Department which would
Structure and Organization of the Risk Management function in the Bank
The Bank has a Credit Risk Management Committee in place with
representation from Risk, Credit Sanction & Monitoring, Business Heads,
Policy & Research and the Committee is headed by the Managing Director
& CEO of the Bank. CRMC discusses on adherence to pruden- tial limits
set, recommends to Board, policies on rating standards and benchmarks
and monitors credit risk on a bank wide basis
Scope and Nature of Risk Reporting and/or Measurement Systems
The Bank has developed a comprehensive risk rating system that serves
as a single point indicator of diverse risk factors of counterparty and
for taking credit decisions in a consistent manner. Risk Rating system
is made applicable for loan accounts with total limits of Rs.2 lakhs
and above. Bank uses different rating models for different types of
exposures. The Integrated Risk Management Group of the Bank validates
the ratings of all exposures of Rs. 25 lakhs and above. The Group
carries out an independent analysis of the various risks attached to
the credit proposals including industry analysis. Bank also conducts
migration analysis of the credit portfolio. Bank evaluates the asset
quality by tracking the delinquencies and migration of borrower from
one rating scale to another in various industry, business segment etc.
Credit facilities are sanctioned at various levels in accordance with
the delegation approved by the Board. The Bank has in place the
following hierarchical sanctioning powers delegated for credit sanction
and administration:
- Branch Heads
- Zonal Credit Head
- Zonal Office Credit Committee (ZCC)
- Central Office Credit Committee (CCC)
- Management Committee of Directors (MC/ Board)
Representatives from Integrated Risk Management Group forms part of the
core team of various ZCCs and the CCC. The bank has imple- mented a
fully automated software solution to get system support for calculation
of Risk Weighted Assets for CRAR computation and gen- erate various
credit related reports for review of exposure and monitoring, and
conducting analysis of credit portfolio from various angles
Policies for hedging and/or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges/miti-
gants
The Bank has put in place a Board approved policy on Credit Risk
Mitigation techniques and collateral management, covering the credit
risk mitigation techniques used by the Bank for both risk management
and capital computation purposes. Apart from the Basel defined
collateral, the Bank ensures securities by way of inventories, Book
Debts, plant & machineries, Land& Buildings and other moveable/im-
movable assets/properties. The Bank also accepts personal/corporate
guarantee as an additional comfort for credit risk mitigation. The
securities are subjected to proper valuation as prescribed in the
Credit Policy of the Bank.
Bank has laid down detailed guidelines on documentation to ensure legal
certainty of Banks charge on collateral
The Bank has an exclusive set up for Credit monitoring functions in
order to have greater thrust on post sanction monitoring of loans and
strengthen administering the various tools available under the Banks
policies on loan review mechanism. For effective loan review, the Bank
has the following in place: -
- On site monitoring tools like Inspection of assets/ books/ stock of
the borrower, stock audit, operations in the account, payment of
Credit Audit system to identify analyse instances of non-compliance
and rectifieation
- Recording of loan sanctioned by each sanctioning authority by the
next higher authority
(a) For Portfolios under the standardized approach
1 Names of credit rating agencies used
Domestic Rating Agencies: CRISIL, CARE, FITCH, ICRA. International
Credit rating agencies: Standard and poor, MoodyÃs , FITCH
2 Changes if any, since prior period disclosure in the identified
rating agencies and reasons for the same.
No change
3 Types of exposure for which each agency is used
All the above identified Rating Agency rating are used for various
types of exposures as follows
:
(i) For Exposure with a contractual maturity of less than or equal to
one year (except Cash Credit, Overdraft and other Revolving Credits),
Short-Term Rating given by ECAIs will be applicable
(ii) For Domestic Cash Credit, Overdrafts and other Revolving Credits
(irrespective of the pe- riod ) and/or Term Loan exposures of over one
year, Long-Term Rating will be applicable.
(iii) For Overseas exposures, irrespective of the contractual maturity,
Long-Term Rating given by IRAs will be applicable.
(iv) Rating assigned to one particular entity within a corporate group
cannot be used to risk weight other entities within the same group.
4 Description of the process used to transfer public issue rating on to
comparable assets in the banking book.
Long-term Issue Specific (our own exposures or other issuance of debt
by the same bor- rower-constituent/counter-party) Ratings or Issuer
(borrower-constituent/counter-party) Ratings can be applied to other
unrated exposures of the same borrower-constituent/ counterparty in the
following cases:
(i) If the Issue Specific Rating or Issuer Rating maps to Risk Weight
equal to or higher than the unrated exposures, any other unrated
exposure on the same counter-party will be as- signed the same Risk
Weight, if the exposure ranks paripassu or junior to the rated exposure
in all aspects
(ii) In cases where the borrower-constituent/counter-party has issued a
debt (which is not a borrowing from our Bank), the rating given to that
debt may be applied to Banks unrated exposures if the Banks exposure
ranks pari-passu or senior to the specific rated debt in all respects
and the maturity of unrated Banks exposure is not later than Maturity
of rated debt.
A description of the main types of collateral taken by the Bank.
Collateral used by the Bank as risk mitigants for capital computation
under Standardized Approach comprise eligible financial collaterals
namely: -
- Cash and fixed deposits of the counterparty with the Bank.
- Gold: value arrived at after notionally converting these to 99.99%
purity.
- Securities issued by Central and State Governments.
- Kisan Vikas Patra and National Savings Certificates.
- Life Insurance Policies restricted to their surrender value.
- Debt securities rated by an approved Rating Agency.
- Unrated debt securities issued by banks, listed in Stock Exchange.
- Units of Mutual Funds.
Bank has no practice of on balance sheet netting for credit risk
mitigation.
The main types of guarantor counterparty and their creditworthiness
Bank accepts guarantees of individuals or corporates of adequate
networth, as an additional comfort for mitigation of credit risk which
can be translated into a direct claim on the guarantor and are
unconditional and irrevocable.
Main types of guarantor counterparty as per RBI guidelines are: -
- Sovereigns (Central/ State Governments)
- Sovereign entities like ECGC, CGTSI
- Other entities rated AA (-) and above. The Guarantees has to be
issued by entities with a lower risk weight than the counterparty.
Concentration on account of collateral is also relevant in the case of
land & building. However as land and building is not recognized as
eligible collateral under Basel II, its value is not reduced from the
amount of exposure in the process of computation of capital charge. It
is used only in the case of housing loan to individuals and
non-performing assets to determine the appropriate risk weight. As
such, there is no concentration risk on account of nature of
collaterals.
Quantitative Disclosures:
For the disclosed Credit Risk portfolio under the Standardised
Approach, the total
Exposure that is covered by:
(i) Eligible Financial Collateral : Rs. 968.25 crores
(ii) Other eligible Collateral (after Hair Cuts) : Rs. Nil
DF Table 7- Securitisation - standardized approach:
Qualitative Disclosures:
- Bank has not securitized any of its standard assets till date.
However the Bank has sold Non-performing assets, either written off or
otherwise. The Bank has outstanding investment of Rs.8.18 crores in 10
% IFMR Trust A2 series Pass Through Certificates of M/s. Equita Micro
Finance India Pvt. Ltd. The same is rated by CRISIL. The PTCs is
subjected to market risk capital charge and is primarily made
- Bank will not assume any credit, operational or legal risk post sale
of NP As the effect of sale of the figarfact asset well be that the
asset . is taken off from the books of the Bank and after the sale
there is no known liability devolving on the bank.
- Sale will not be backed by any commitment or credit support in the
nature of credit enhancement or liquidity support.
Qualitative Disclosures:
(a) General : -
Strategies and processes
Market Risk management functions of the Bank are guided by various
policies like Integrated Treasury Policy and Asset Liability Manage-
ment Policy. Bank has an independent Mid-Office for market risk
management functions like monitoring of adherence to set limits, inde-
pendent valuation and reporting of activities. Mid-Office reports to
Head of Integrated Risk Management Group. The Asset Liability Com-
mittee is responsible for establishing market risk management and asset
liability management in the Bank, procedures thereof, monitoring
adherence to prudential limits, interest rate risk management etc. The
overall objective of market risk management is to create shareholder
value by improving the bankÃs competitive advantage and reducing loss
from all types of market risk loss events.
Scope and nature of risk reporting/ measurement systems
The Bank has put in place regulatory/ internal limits for various
products and business activities relating to trading book. Various
exposure limits for market risk management such as overnight limit, Va
R limit, Daylight limit, Aggregate Gap limit, Investment limits etc.
are in place. The reporting system ensures timelines, reasonable
accuracy with automation, highlight portfolio risk concentrations and
include written analysis. The reporting formats and frequency are
periodically reviewed to ensure that they suffice for risk monitoring,
measuring and miti- gation requirements of the Bank. Bank also subjects
non-slr investments to credit rating.
Policies for hedging/ mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges/ mitigants:
Board approved policies viz. Integrated Treasury Policy and Asset
Liability Management Policy provides the framework for risk assessment,
identification, measurement and mitigation, risk limits and triggers,
risk monitoring and reporting.
Liquidity risk of the Bank is assessed through Statement of Structural
Liquidity on static basis and statement of Short-term Dynamic Liquidity
on dynamic basis. Structural Liquidity position is assessed on daily
basis and dynamic liquidity position is assessed on a fortnightly
basis. Interest Rate risk is analysed from earning perspective using
Traditional Gap Analysis on a fortnightly basis and economic value
perspective using Duration Gap Analysis on a quarterly basis. Stress
tests are conducted at quarterly intervals to assess the impact of
various contingen- cies on the capital of the Bank.
The portfolio covered by Standardized Duration approach for computation
of market risk capital charge are investment portfolio held under HFT
and AFS, Gold and Forex Open positions.
Strategies and processes: - Bank has put in place a framework for
Operational Risk Management with a well-defined Operational Risk
Management (ORM) Policy The ORM Committee at the executive level
oversees bank-wide implementation of Board approved policies and
process in this regard. The Committee meets at least once in a quarter
All new products and processes of the Bank are risk vetted from the
view point of operational risk, before implementation. The Bank is
conducting Risk Control Self Assessment (RCSA) in critical busi- ness
as well as Centralised activities. Risk Based Internal Audit is in
place in all the Branches. The Bank has put in place important policies
like Information System Security Know Your Customer & Anti Money
Laundering, Fraud Risk Management, Business Continuity and Disaster
Recovery Management.
Scope and nature of risk reporting/measurement systems: -
The risk reporting consists of operational risk loss incidents/ events
occurred in branches/ offices relating to people, process, technology
and external events. The bank has implemented a software solution which
is a modular Operational risk management solution which satis- fies
end-to-end operational risk management requirements (quantitative and
qualitative). The Loss Data Methodology document which describes the
approach for collection of Loss Data was adopted, which will enable the
Bank to eventually ease the transition to Advanced Measurement
Approach.
Policies for hedging and/or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges/miti-
gants:
Internal control mechanism is in place to control and minimize the
operational risks. Bank is using insurance for mitigating operational
risk. The various Board approved policies viz., Operational Risk
Management Policy Outsourcing Policy Compliance Policy Internal
Inspection & Audit Policy, Internet Banking Security Policy;
Information Systems Security Policy and Business continuity Plans
addresses issues pertaining to Operational Risk Management.
Operational Risk capital assessment:
The Bank has adopted Basic Indicator Approach for calculating capital
charge for Operational Risk, as stipulated by the Reserve Bank of
India. Bank has initiated steps to move on to the Advances Measurement
Approach in due course.
Table DF 10 - Interest rate risk in the Banking Book (IRRBB):
Qualitative Disclosures:
Strategies and processes
The Bank has put in place a comprehensive market risk management
framework to address market risks. The Asset Liability Management
Policy prescribes various methodologies like Earnings at Risk to assess
the impact of interest rate change on the Net Interest Income of the
Bank and Duration Gap Analysis to assess the impact of interest rate
risk in the Banking Book. The framework for managing interest rate risk
in the Banking Book under Pillar II of Basel II is put in place by the
ICAAP Policy The Bank calculates the impact on the Market Value of
Equity by Duration Gap Analysis quarterly.
Scope and nature of risk reporting/ measurement systems
Interest rate risk in the Banking Book is measured and Modified
Duration of Equity is evaluated on a quarterly basis. The likely drop
in Market Value of Equity for a 200 bps change in interest rates is
computed. Earnings at Risk based on Traditional Gap Analysis are
calculated on a fortnightly basis and adherence to tolerance limits set
in this regard is monitored and reported to ALCO. Stress tests are
conducted to assess the impact of interest rate risk under different
stress scenarios on earnings of the Bank.
Policies for hedging/ mitigating risk and strategies and processes for
monitoring the continuing effectiveness of hedges/mitigants
Bank has operationalised mitigating/hedging measures prescribed by
Integrated Treasury Policy, ALM Policy and Stress Testing Policy. The
strategy adopted by ALCO for mitigating the risk is by clearly
articulating the acceptable levels of exposure to specific risk types
(interest rate, liquidity etc). The process for mitigating the risk is
initiated by altering the mix of asset and liability composition,
change in interest rates etc.
Brief description of the approach used for computation of interest rate
risk and nature of IRRBB
The interest rate risk in Banking Book is computed through Duration Gap
Analysis. The various assumptions used are as follows: -
- Items such as capital, reserves & surplus, bills payable,
inter-office adjustment, provisions are treated as non-rate sensitive
- Similarly items such as cash, current account, fixed assets are
considered to be non rate sensitive.
- The midpoint of each time bucket is considered as the proxy for the
maturity of all assets and liabilities in that time bucket.
- The Bank uses market yields and coupons for various instruments and
they are mapped to the same set of products for respective maturities.
- The frequency of coupon payment is assumed to be annual.
- The basis for interest calculation for each time bucket is assumed to
be Ãactual/actualÃ.
- The Bank has also carried out studies to adopt Economic Value
Approach for its additional capital calculation under Pillar II. Under
this approach, the Banks interest rate risk is indicated by comparing
the weighted average duration of assets (DA) with the weighted average
duration of liabilities (DL) to arrive at the duration of the gap
(equity). As with GAP analysis the sign and magnitude of DGAP provides
the impact of interest rate changes on the Economic Value of Equity
(EVE).
- Modified Durations of each category of assets and liabilities are
computed for all the time buckets using the maturity date, coupon,
yield, frequency and basis for interest calculation.
The Bank is computing market value of equity based on Duration Gap
Analysis.
For a 200 bps rate shock, the drop in equity value as on 31.03.2010
19.27%
Prudential floor limit for minimum capital requirements:
The guidelines for implementation of the New capital adequacy framework
issued by RBI, stipulates higher of the following amounts as minimum
capital required to be maintained by the bank.
(a) Minimum capital as per Basel II norms for Credit, Market and
Operational risks.
(b) Minimum capital as per Basel I norms for Credit and market risks.
The minimum capital required to be maintained by the Bank as on
31.03.2010 as per Basel I norms is Rs. 4,41,06lakhs and as per Basel II
norms is Rs. 4,23,46 lakhs.
Capital (Tier I and Tier II) maintained by the Bank as on 31.03.2010 is
Rs. 6,11, 22 lakhs, which is above the prudential floor limit.
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