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Directors Report of Kotak Mahindra Bank Ltd.

Mar 31, 2015

To the Members of


The Directors present their Thirtieth Annual Report together with the audited accounts of your Bank for the year ended 31st March 2015.


(A) Kotak Mahindra Bank Limited - Consolidated financial highlights:

31st March 2015 31st March 2014 Rs.crore Rs. crore

Total income 21,471.08 17,268.29

Total expenditure, excluding provisions and contingencies 16,715.37 13,263.82

Operating Profit 4,755.71 4,004.47

Provisions and contingencies, excluding provision for tax 205.73 308.97

Profit before tax 4,549.98 3,695.50

Provision for taxes 1,484.90 1,183.96

Profit after tax 3,065.08 2,511.54

Less: Share of minority interest 59.51 62.17

Add: Share in profit of Associates 39.88 15.62

Consolidated profit for the Group 3,045.45 2,464.99

Earnings per Equity Share:

Basic (Rs.) 39.49 32.19

Diluted (Rs.) 39.40 32.14

(B) Kotak Mahindra Bank Limited - Standalone financial highlights:

31st March 2015 31st March 2014 Rs. crore Rs. crore

Total Income 11,748.32 10,166.83

Total expenditure, excluding provisions and contingencies 8,750.86 7,589.68

Operating Profit 2,997.46 2,577.15

Provisions and contingencies, excluding tax provisions 164.50 304.70

Profit before tax 2,832.96 2,272.45

Provision for taxes 966.98 769.93

Profit after tax 1,865.98 1,502.52

Add: Surplus brought forward from the previous year 4,005.29 3,016.60

Amount available for appropriation 5,871.27 4,519.12


Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 466.50 375.63

General Reserve 93.30 75.13

Transfer to / (from) Investment Reserve Account 86.65 (41.10)

Transfer to Capital Reserve 5.91 0.40

Transfer to Special Reserve 28.00 32.00

Proposed Dividend 82.07 63.08

Corporate Dividend Tax 13.58 8.69

Surplus carried to Balance Sheet 5,095.26 4,005.29


The Board of Directors confirms that there are internal controls in place with reference to the Financial Statements and that such controls are operating effectively.


Your Directors are pleased to recommend a dividend of Rs. 0.90 per equity share (previous year Rs. 0.80 per equity share), entailing a payout of Rs. 95.65 crore including dividend distribution tax (previous year Rs. 71.77 crore). The dividend would be paid to all the shareholders (including the shareholders of the erstwhile ING Vysya Bank Ltd.), whose names appear on the Register of Members/Beneficial Holders list on the Book Closure date.


Your Directors recommend an issue of bonus shares, subject to the approval of the members at the Annual General Meeting to be held on 29th June 2015, in the ratio of 1:1 i.e. one additional equity share for every one equity share held by the members on a date to be fixed by the Board, by capitalizing a part of the reserves.


The Board of Directors of your Bank and the Board of Directors of ING Vysya Bank Ltd. (''IVBL'') at their respective meetings held on 20th November 2014, had approved a Scheme of Amalgamation of IVBL with the Bank under Section 44A(4) of the Banking Regulation Act, 1949, subject to approval of the shareholders of both the Banks, Reserve Bank of India (RBI) and other regulatory authorities. On 7th January 2015, the shareholders of the Bank accorded their consent to the Scheme of Amalgamation of IVBL with the Bank. Further, RBI approved the Scheme of Amalgamation of IVBL with the Bank effective 1st April 2015. Consequently, on 21st April 2015, the shareholders of the erstwhile IVBL were allotted 13,92,05,159 equity shares of Rs.5/- each fully paid up of the Bank, as on the record date of 17th April 2015, in the ratio of 725 equity shares of face value of Rs.5/- each of the Bank for every 1000 equity shares of Rs.10/- each held by the shareholders of IVBL.


During the year, your Bank has allotted 10,77,480 equity shares arising out of the exercise of Employees Stock Options granted to the employees and whole-time directors of your Bank and its subsidiaries.

Post allotment of equity shares as aforesaid, the issued, subscribed and paid-up share capital of your Bank stands at Rs. 3,86,17,63,320 comprising of 77,23,52,664 equity shares of Rs. 5 each as on 31st March 2015.

Further, upon allotment of 13,92,05,159 equity shares to the shareholders of erstwhile ING Vysya Bank Ltd. pursuant to the scheme of amalgamation in April 2015, the issued, subscribed and paid-up share capital of your Bank stands at Rs. 4,55,77,42,615 comprising of 91,15,48,523 equity shares of Rs. 5 each. On account of cross holding 9300 equity shares of Rs.5 each have been cancelled.

Your Bank is well capitalised and has a Capital Adequacy Ratio (''CAR'') under Basel III as at 31st March 2015 of 17.17% with Tier I being 16.18%. At a consolidated level the CAR was 17.56% under Basel III.

During the year, your Bank has not issued any capital under Tier II. As on 31st March 2015, outstanding Unsecured, Redeemable Non-Convertible, Subordinated Debt Bonds were Rs.482 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II stood at Rs. 417.25 crore.

In August 2014, your Bank had sought approval of its shareholders through Postal Ballot for issuance of securities in the nature of non-convertible debentures, in Indian/foreign currencies in the domestic and/or overseas market for an amount upto Rs. 5000 crore on private placement basis. Accordingly, your Bank raised around Rs.962 crore in the financial year under review through issuance of infrastructure bonds.


In April 2006, your Bank had issued and allotted 1,50,00,000 equity shares of Rs. 10 each (post subdivision 3,00,00,000 equity shares of Rs. 5 each) to The Bank of New York, in its capacity as Depository for registered Global Depository Receipts (GDR) holders. The GDRs were listed on Luxembourg Stock Exchange.

The average daily trading volume was 2,449 and the number of outstanding Depository Receipts as on 31st March 2015 was 10,37,075. Due to low trading/conversion volume in GDR, the Board of Directors of the Bank at its meeting held on 5th May 2015 has decided to terminate the GDS program. The requisite notice of termination is being issued to the Custodian and the Depository.


Consumer Banking

Your Bank consolidated its network presence through a measured expansion of its footprint across the country and as of 31st March 2015 had 684 branches and 1273 ATMs, covering 379 locations. Of the 79 new branches commissioned this year, 21 were in rural and semi-urban locations. Your Bank added about eight hundred thousand new customers this year across core banking products of savings and checking accounts, term deposits, overdrafts and non-resident accounts.

Your Bank rolled out several initiatives aimed at offering a superior and differentiated customer experience. Some key ones are:

Digital Initiatives

Enabling availing products and services through digital channels was a key focus area for your Bank in this year. Some of the highlights being:

- Building onto the new digital account JIFI, launched last year, your Bank introduced its interest bearing variant, JIFI Saver, this year in January 2015. The account offers up to 6% interest and has a slew of distinguishing features like Hashtag Banking, Loyalty Rewards, Credit Bureau Score and Money Watch to appeal the tech savvy Gen Y segment.

- Marked by the rise of e-commerce in the country and with a view to staying ahead of competition, your Bank introduced a loyalty rewards platform, Kotakrewards.com in January, 2015. The platform is powered by 100 ecommerce partners and 7000 hotels completely funding the points earned by Kotak customers while shopping on their portals. The platform offers extra points to JIFI & JIFI Saver customers.

- In sync with the lifestyle of today''s social media savvy generation, with the launch of Hashtag banking in January 2015, your Bank took banking to a new high. With Hashtag banking, for the JIFI and JIFI Saver account holders, now Mobile & DTH recharge, account updates, cheque book request and many more account activities are just a tweet away.

- Your Bank ventured into the burgeoning digital payments arena with the launch of Kaypay in October 2014. It''s a bank agnostic person-to-person payments application which allows funds transfer to about 250 million customers of 28 banks in the country. Kaypay is a web based application optimized for use on mobile and allows funds transfer in real time 24X7 for free.

- Your Bank also launched an easy and hassle free person-to-person payment feature in Net Banking and Mobile Banking called Mail Money & Message Money. Mail Money, launched in September 2014, allows the Net Banking users to send money to anyone just by using their email addresses. On the same lines, for all Mobile Banking users, Message Money was launched in December 2014, to enable money transfer to any mobile number without the hassle of knowing the recipient''s account details.

- Your Bank introduced Kotak Money Watch, a 360 degree personal finance management tool within Net banking, in March 2015. It enables all the Net Banking users to track expenses, set budgets and track cash out from ATM.

Products & Services

- Your Bank launched Grand, a new savings bank proposition tailored exclusively for customers above 55 years, deriving features & benefits from their needs of healthcare, convenience and personalized attention. Under the proposition, customers are provided with priority service for their transactions at the branch & a first aid card, which details a customer''s health status and emergency contacts for easy reference. Further, Grand customers are offered a health card from Indian Health Organization (IHO), offering discount on treatments, consultation and procedures. Also, available are services like customized cash delivery, courtesy call back, etc.

- Your Bank launched SANMAN savings bank account in unbanked rural locations. The product is customized to cater to the banking needs of rural/ unbanked India such as farmers, small time traders, self-employed, low income group individuals, works etc. It offers key features like reduced Average Quarterly Balance (AQB) requirement and enhanced cash deposit limits to suit the seasonality of rural India apart from standard features.

- Your Bank launched on-line PIN (for debit and credit card) generation feature through net-banking, mobile banking and IVR. On one end, this feature has provided a huge convenience to customers and on the other end, significant cost saving to the bank.

- Your Bank has introduced differentiated cards with additional features. These include the RuPay Debit Card, for customers opening accounts under PMJDY scheme. Associate Card for representatives of customers whereby non-financial transactions can be made through ATMs within Kotak network.

- Your Bank introduced electronic platform for KYC. Customers can walk in to the branch only with Aadhar number and with the help of biometric impression of customer or OTP, the KYC details can be downloaded from UIDAI database through eKYC application. This has enabled faster on boarding of new customers.

Business Lines

a) Non Resident Business

Your Bank continues to deliver innovative products and services in its endeavor to become a preferred banker amongst the NRI community globally. Some of the key initiatives taken this year are:

1. Extended C2R money transfer mode for Australia. Your Bank''s NRI clients can now use this medium to transfer money from Australia to their Kotak Bank account in India.

2. Your Bank has further expanded the network of exchange house relationships and the count now stands at 20.

3. Launched a unique proposition for Indian IT professionals deputed to overseas assignments.

4. Your Bank has signed an MOU with NED Bank South Africa. This alliance would address the needs of the Indians migrating to South Africa and those already present there. South Africa has one of the strongest Indian diaspora which include both the NRI and PIO.

5. As a platform to reach out to the overseas Indian community, your Bank participated in various international business forums such as Pravasi Bhartiya Diwas (PBD)-2015 and Vibrant Gujarat, the annual convention of AAPI-2014 (American Association of Physicians of Indian origin) at San Antonio (Houston.), AIA (Association of Indian Americans)-Annual Convention at New York, 2014.

b) Priority Banking Business

Privy League, the premium banking program of the Bank, now services more than 2.75 lakh customers. The segmental offering in Privy League was re-enforced with the launch of Trader current accounts and Grand savings accounts for senior citizens, under the Privy League program umbrella. An exclusive Privy League branch was launched in Hauz Khas, Delhi to create a differentiated service experience for the HNI customers with amenities like valet parking, private meetings rooms with video conference facility and a coffee lounge.

c) Consumer Assets Business

Your Bank has continued to grow the product lines under the Consumer Assets business.

Credit Card: Your Bank''s credit card business has issued 4.80 lac cards by March 2015 and is in its seventh year of operations. The premium range of our products - VISA Signature and VISA Platinum have driven the spends growth in the portfolio and it contributes to 47% of spends, while accounting for 27% of customer base. The Credit card business has clocked total spends of Rs.3204 crore for the year at 31% growth Y-o-Y with a book size of Rs.643.5 crore. As per RBI data on electronic payments released for November 2014, total credit card spends for the industry has grown by 23% for April to November 2014 period over last year.

Salaried Personal Loan: Your Bank''s Salaried Personal Loan business offers salaried individuals personal loans with a tenure of upto 60 months. This year the business has grown by 68% with a SOH of Rs. 840 crore as of March 2015. The total customer base stands at 34000 customers.

Home Finance: Home Finance business clocked high growth of 37% in disbursements with loan book growth of 20% during the year with strong demand from both Tier I and Tier II Cities. Your Bank has expanded its home finance business further in Tier II Cities. Cross Sell through Bank Branches, Corporate Salary, Privy, and Wealth Teams contributed to around 30% of total volume. This year also witnessed very low losses on account of efficient and effective recovery and collection processes and policies adopted and we were able to resolve NPA cases.

d) Business Banking Assets (BBA): Your Bank through its BBA division offers secured and unsecured Business loans, Loans against Property & Working Capital Finance to self-employed professionals / non-professionals and Small & Medium Enterprises. This has been a landmark year for your Bank''s BBA business with its book growing by 27%. Your Bank continues to maintain its best in class portfolio quality through it effective and efficient risk management and recovery policies and practices. Capitalizing on the growing retail branch network, your Bank managed to expand its BBA product offering in over 400 branches.

Wholesale Banking

Your Bank through its consolidated franchise has focussed on serving customers'' requirements across segments with its wide array of customized financial products and services that are driven through best-in-class technology platforms.

Your Bank has also ensured a healthy portfolio with its continuous efforts through both volatile economic situation and tough credit environment in the last financial year. This has led to a stable credit growth.

The Transaction Banking Group has focussed on reinforcing your Bank as the Best Domestic Bank during the past year. Your Bank has been able to consistently add value to clients across Cash Management & Trade Services through its specialized product solutions that are steered by innovation and robust technology. This has helped clients optimize working capital & liquidity management. Proactive competition benchmarking, advanced processes and product parameters, continuous client feedback and customized solutions have helped the bank in catering to needs of this ever changing challenging industry. Your Bank has introduced the following key initiatives to serve customers better:

- Service Support: To serve diverse financial needs your Bank has nine dedicated commercial branches & 135 CSM teams including cluster heads across 47 locations.

- Tax Payment: Your Bank offers a ''Comprehensive Statutory Payment Solution'' to its customers via direct integration with Tax authorities, payment aggregators and various partner banks. Your Bank has developed a Government Business Module (GBM) for its customers to process payment of Direct (CBDT)/ Indirect Taxes (CBEC) through Net Banking and Branch channel. Currently, your Bank has been empanelled as Agency Bank for

collecting tax for a) Delhi VAT & CST, Gujarat Commercial Tax, b) Andhra Pradesh Commercials Taxes, c) Punjab VAT & CST, Telengana Commercial Taxes d) an aggregator bank for Bihar VAT & CST and e) Odisha VAT & CST.

- Online EPF Payment: Employees'' Provident Fund Organization has enabled online EPF payment for employers through payment aggregator with SBI as their primary banker. Your Bank has successfully integrated GBM module with concerned solution provider to enable all Kotak account holders to make EPF payment online using maker-checker workflow.

- IFC: Your Bank has signed an agreement with International Finance Corporation (IFC) under Global Trade Finance Programme (GTFP) as a confirming bank. Under this arrangement IFC will issue us payment guarantees/ SBLC for letter of credit favouring Kotak Mahindra Bank Ltd., thereby mitigating the payment risk on the underlying banks.

- Kotak Sarvartha Prepaid Card: Your Bank has initiated a comprehensive Prepaid Card program that will enable corporate clients to make payments to their employees, customers, affiliates, and vendors etc. and address their diverse payout needs like incentive payments, petty cash reimbursements, contract staff payouts, FI payouts etc.

- Kotak Bill Pay: To ensure convenient & secure way of managing bill payments, your Bank introduced Kotak BillPay that offers customers the flexibility of making regular payments by one time registration.

Your Bank''s in-depth understanding of clients'' requirement and ability to deliver tailored solutions in both Trade & Cash Management businesses has been acknowledged by industry''s leading agencies. Your Bank has been adjudged the "Best Domestic Trade Bank in India" by Trade & Forfaiting Review and "Best Local Cash Management Bank in India" 6th year in a row by Asiamoney. The Asiamoney awards are based on scores formed from a corporate survey conducted by Asiamoney (turnover less than or equal to USD 100mn). Your Bank won the Best Prepaid Card Programme at Financial Inclusion & Payments Systems Award 2014 for Amul Samriddhi. Your Bank has also received the Special Award for Innovation at the National Payments Excellence Award 2014 and was also recognised by NPCI for its role in launch of the RuPay Prepaid Card. Your Bank also received an award from the Honorable President of India Shri. Pranab Mukherjee at Rashtrapati Bhawan for its role in the launch of RuPay prepaid card leading to automation of the payout process for milk procurement by milk unions. These awards stand testimony to your Bank''s focussed approach towards Transaction Banking and client centric solutions.

Commercial Banking

The Commercial Banking business has registered a reasonable growth in FY 2014-15 despite subdued market sentiments and erratic monsoon.

Commercial Vehicles (CV) and Construction Equipment (CE) sectors, which have been witnessing slowdown since 2011, showed signs of recovery. The CV situation seems to have improved slightly in the last two quarters of the previous year, especially in the case of Medium Commercial Vehicle (MCV) & Heavy Commercial Vehicle (HCV) sales across segments, which was driven by replacement demand. Decrease in energy prices and all around improvement of load factors have improved viability for transport operations and also reduced levels of delinquency. However, the recovery of Light Commercial Vehicle (LCV) segment is still weak. Further, de-growth is seen in the Small Commercial Vehicles (SCV) segment. Your Bank has started increasing exposure to this sector in the second half of FY 2014.

At a macro level, GDP growth in FY 2015-16 is expected to be better than the previous year. MCV and HCV sectors are expected to grow in the next fiscal year, whereas the LCV segment could grow with a lag of 6 months towards the latter half of FY 2015-16. Further, project clearances should pave the way for action in infrastructure, which in turn will lead to revival in the CE sector. Your Bank is well positioned to accelerate growth in these segments should a sustainable turnaround be seen.

After continuous growth in the last four years, the tractor industry was in the negative by 13.5% during FY 2014-15 as a result of late and deficit monsoon in the first half of the last fiscal year followed by unseasonal rain fall. Losses in Kharif and Rabi crops, drop in prices of major commodities and reduction in yields have led to more than 25% percent fall in tractor industry growth post January 2015. Your Bank''s fresh disbursement for tractors in FY 2014-15 was marginally lower than previous year but better than the industry de-growth. However, the slowdown in rural economy has led to marginal deterioration of portfolio quality.

Although the monsoon also had an impact on the agri business industry, your Bank inched closer to the RBI target of 18% of the Bank''s advances in the agri loan portfolio. Your Bank has set up new branches in the tier two to tier six towns and villages. This is in keeping with the Banks philosophy of borrowing (deposits) from India (metro/urban cities) and lending (light on liabilities, heavy on assets) to Bharat (rural and semi-urban). Even though the portfolio quality of agri loans continues to remain satisfactory, there could be incremental stress in the next fiscal year, given the unpredictable weather patterns.

The total agri portfolio of your Bank crossed Rs. 12,000 crore in the last fiscal. The Agri business is now offering new non-urban small ticket loan products in smaller towns and rural pockets. Under the micro loan segment, your Bank commenced direct lending in the state of Uttar Pradesh, specifically in and around Varanasi. Close to 4,000 women customers were added through this initiative. Further, your Bank has acquired by assignment a large portfolio of micro loans given to women borrowers under the Joint Liability Group setup in the states of West Bengal, Bihar and Tripura.

Emerging Corporate Group''s (ECG) strategy continues to focus on balanced growth and maintain asset quality. Further, its growth has been driven by new customer acquisition along with increasing product penetration to existing customers. In the last financial year, the ECG business expanded its operations to 19 locations across 13 states. While the portfolio has witnessed stress due to slow down in the economy majority of them are in advanced stage of resolution.

Your Bank also diversified its gold loans and rural housing finance operations. Gold loan products are now available across 150 bank branches and Rural Housing finance is now offered at 50 locations.

Asset Reconstruction

This year your Bank received and invested in several proposals of special situation and last mile financing. This scenario is expected to continue for the next few years as well. However, recoveries from sale of large assets continues to be challenging.

The retail recoveries of the assets purchased from other banks and NBFC''s continues to be robust. The retail portfolio sale from other banks and NBFC''s is expected to increase in the coming few years.


Your Bank''s treasury actively contributes to your Bank by way of:

- Proprietary Trading: The various proprietary trading desks actively trade in products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion. Primary Dealer Desk - part of the proprietary trading desk, actively participates in the primary auctions of government securities, makes market in government securities and engages in retailing of government securities.

- Customer Transactions:

o Facilitating access to foreign currency markets through cash & derivatives products and providing fine market rates to clients for remittance and trade transactions.

o Client solutions - standardised and structured, pertaining to Debt Capital Markets including Syndication of Loans, Bonds, Mezzanine financing, Promoter funding and acquisition financing and Securitisation.

- Balance Sheet Management: The Balance Sheet Management Unit (BMU) manages the Asset Liability mismatches, Interest rate & Liquidity gaps and implementation of Funds Transfer Pricing between various business units. The Correspondent Banking Division within treasury actively builds on relationships with offshore banks towards improving quality and international reach for its customers.

Human Resources

Investment in Human Capital continues to be significant as in earlier years. Programs related to Talent Attraction, Talent Development and Talent Management have been institutionalized basis our architectural framework of Value creation and Best employment Experience.

Pre-trained manpower acquisition channels such as Kotak Probationary Officer (KPO) and Junior Probationary Officer (JPO) programs have been further strengthened to create a sustainable pipeline of quality and timely manpower who become specialist bankers with requisite managerial skills.

Talent management continues to be an integral part of overall performance management process in the Bank. Your Bank believes in driving businesses through its core values and our talent management process aims to provide long term, sustained and meaningful career to employees across the organization.

Cultural integration of people is a very key focus area and in this context our organizational learning initiatives are designed around assimilation and development of individuals and team competencies, on aspects such as people management, productivity and service quality. Your Bank has partnered with top academic institutions as well as renowned industry experts for the same

Your Bank recognises that functional training is key to equip employees with strong domain knowledge and it continues the commitment of developing strong functional competencies in its employees through its robust e-learning platform as well as classroom trainings. The organization learning team runs around 350 plus unique functional and developmental programs in the above context.

Specialized certifications for specific roles continue to be run as mandatory programs to ensure employee awareness of various regulatory norms in this dynamic external environment.


This year, your Bank increased emphasis on digital products. Three major upgrades on the mobile banking application saw a large increase in adoption of usage. Several new "native digital" products were launched including Kaypay, Message Money and Hashtag Banking. On the loans management side, mobility has been introduced for collections on personal loans and credit card payments.

Customer connect was improved by leveraging the Unica platform launched the previous year. Further automation of the marketing operations enabled your Bank to increase its ability to increase scale in offers to customers, tailored to their needs.

A new system was introduced for the Bank''s Wealth Management customers, enabling them to get a consolidated, single view of all their investments. This will serve as the foundation for portal and mobile access to customer dashboards and alerts in the coming year.

To ensure customer data security, technology programs in the area of information security kept pace with the digital innovation. Customers are now given an option to login using digital certificates. New technology to prevent leakage of customer data has been implemented across the Bank and a new initiative for fraud detection on channels has been started.

Governance and control continued to be an area of concentration, with new systems being deployed for internal audit automation, anti-money laundering, asset-liability management and compliance management.


Your Bank''s subsidiaries are established players in the different areas of financial services, viz. car finance, investment banking, stock broking, asset management and life insurance.

As at 31st March 2015, your Bank has seventeen (17) subsidiaries as listed below:

Domestic Subsidiaries

Kotak Mahindra Prime Limited

Kotak Securities Limited

Kotak Mahindra Capital Company Limited

Kotak Mahindra Old Mutual Life Insurance Limited

Kotak Mahindra Investments Limited

Kotak Mahindra Asset Management Company Limited

Kotak Mahindra Trustee Company Limited

Kotak Investment Advisors Limited

Kotak Mahindra Trusteeship Services Limited

Kotak Forex Brokerage Limited

Kotak Mahindra Pension Fund Limited

Kotak Mahindra General Insurance Limited

International Subsidiaries

Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc.

Kotak Mahindra Financial Services Limited

Kotak Mahindra Asset Management (Singapore) Pte. Limited

During the year, Global Investment Opportunities Fund Limited, ceased to be a subsidiary of your Bank with effect from 13th May 2014.

Further, a new subsidiary of the Bank viz. Kotak Mahindra General Insurance Limited was incorporated in December 2014, with principal objective of carrying on business of general insurance. It is awaiting approval from Insurance Regulatory and Development Authority of India (IRDAI) to commence the business of general insurance.

The various activities of the subsidiaries and the performance and financial position of the subsidiaries and associates are outlined in the Management Discussion and Analysis section appended to this Report.

The Bank''s Policy for determining material subsidiaries is available on the Bank''s website viz. URL: http://ir.kotak.com/governance/policies.html

As at 31st March 2015, your Bank has following four (4) Associate companies:

ACE Derivatives & Commodity Exchange Limited Infina Finance Private Limited Matrix Business Services India Private Limited Phoenix ARC Private Limited

The Annual Report which consists of the financial statements of your Bank on standalone basis as well as consolidated financial statements of the group for the year ended 31st March 2015, has been sent to all the members of your Bank. It does not contain Annual Reports of your Bank''s subsidiary companies. Your Bank will make available full Annual Report (including the Annual Reports of all subsidiaries) upon request by any member of your Bank.

These Annual Reports will be available on your Bank''s website viz. URL : http://ir.kotak.com/annual-reports and will also be available for inspection by any member at the Registered Office of your Bank.

The Bank has received in-principle approvals from the Stock Exchanges for the above schemes.

Further, the Board of Directors of the Bank at its meeting held on 5th May 2015 has approved and adopted, subject to the shareholders approval and other necessary approvals, a new Scheme under the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 for the purposes of granting options and stock appreciation rights to the employees of the Bank, its subsidiaries and its associate companies, as applicable. viz. Kotak Mahindra Share Based Employee Benefit Scheme 2015 comprising of:

- Part A - Kotak Mahindra Equity Option Scheme 2015

- Part B - Kotak Mahindra Stock Appreciation Rights Scheme 2015

Approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank.


Pursuant to Clause 49 and 55 of the Listing Agreement with the Stock Exchanges, separate sections entitled ''Report on Corporate Governance'' and ''Business Responsibility Report'' have been included in this Annual Report. The Report of Corporate Governance also contains certain disclosures required under the Companies Act, 2013.


Directors retiring by rotation

Dr. Shankar Acharya, Chairman - Non-Independent Director of the Bank, retires by rotation at the Thirtieth Annual General Meeting and is eligible for re-appointment.

Directors appointed during the year

The Board of Directors of the Bank, at its meeting held on 7th September 2014 had appointed Ms. Farida Khambata as an Additional Director of the Bank.

The shareholders of the Bank at their Extraordinary General Meeting held on 7th January 2015 pursuant to Section 149, 150 (2) & 152 of the Companies Act, 2013 and Section 10-A(2-A) of the Banking Regulation Act, 1949, appointed the following directors as Independent Directors, not liable to retire by rotation:

- Mr. Asim Ghosh (DIN : 00116139) for a term upto 8th May 2016

- Mr. Amit Desai (DIN : 00310510) for a term upto 17th March 2019

- Prof. S. Mahendra Dev (DIN : 06519869) for a term upto 14th March 2018

- Mr. Prakash Apte (DIN : 00196106) for a term upto 17th March 2019

- Ms. Farida Khambata (DIN : 06954123) for a term upto 6th September 2019

Further, the shareholders at the same meeting re-appointed Mr. C. Jayaram (DIN : 00012214) as Whole-time Director of the Bank designated as Joint Managing Director for the period from 1st January 2015 to 30th April 2016, subject to the approval of the Reserve Bank of India.

The Board of Directors of the Bank, at its meeting held on 5th May 2015, has re-appointed Dr. Shankar Acharya (DIN : 00033242) as the Chairman of the Bank subject to the approval of the shareholders and of the Reserve Bank of India. The approval of the shareholders in this regard is being sought at the ensuing Annual General Meeting of the Bank.

Mr. Mark Newman (DIN : 03518417) was appointed as an Additional Director of the Bank with effect from 5th May 2015. Mr. Newman holds office as a Director up to the date of this Annual General Meeting and is eligible to be appointed as a Director. In terms of Section 160 of the Companies Act, 2013, your Bank has received notice in writing from a member along with requisite deposit of Rs. 1,00,000/- proposing candidature of Mr. Newman for his appointment as a Director.

The details of the Directors appointed are set out in the Corporate Governance Report annexed to this Report.

Declaration from Independent Directors

The Board has received declarations from the Independent Directors as per the requirement of Section 149(7) of the Companies Act, 2013 and the Board is satisfied that the Independent Directors meet the criteria of independence as mentioned in Section 149(6) of the Companies Act, 2013.

Board Evaluation

The Independent Directors of the Bank at their meeting held on 6th September 2014, had advised the management to appoint an external agency specialized in HR and management consultancy to finalise the criteria for performance evaluation of Non-Executive directors, Whole-time Directors and the Chairperson. Accordingly, the management has identified and shortlisted one external agency for finalizing the criteria for the performance evaluation of the Directors and would be presenting the proposal to the Independent Directors at their next meeting for their consideration and approval.

Key Managerial Personnel (KMPs)

The Board of Directors of the Bank at its meeting held on 30th April 2014 confirmed and approved the appointment of the following officials of the Bank as "Key Managerial Personnel" pursuant to the provisions of Section 203 of the Companies Act, 2013:

- Mr. Uday Kotak, Executive Vice Chairman and Managing Director

- Mr. C. Jayaram, Joint Managing Director

- Mr. Dipak Gupta, Joint Managing Director

- Mr. Jaimin Bhatt, President & Group Chief Financial Officer

- Ms. Bina Chandarana, Company Secretary

Appointment & Remuneration of Directors & KMPs

The appointment and remuneration of Directors of the Bank is governed by the provisions of Section 35B of the Banking Regulation Act, 1949. The Nomination and Remuneration Committee recommends to the Board the appointment of Directors. The Committee considers the qualifications, fit & proper status, positive attributes as per the suitability of the role and independent status as may be required of the candidate before such appointment.

The Reserve Bank of India (''RBI'') vide its circular no.DBOD.No.BC.72/29.67.001/201 1-12 dated 13th January 2012 has issued the Guidelines on

Compensation of Whole Time Directors / Chief Executive Officers / Other Risk Takers of Private Sector Banks on Compensation Policy which inter alia cover the following:

- Proper balance between fixed pay and variable pay;

- Variable pay not to exceed 70% (Seventy Per Cent) of the fixed pay in a year.

In accordance with the aforesaid RBI Circular, the Board of the Bank has adopted a Compensation Policy for its Whole-time Directors, Chief Executive

Officer of the Bank and other employees which includes issue of stock appreciation rights as a form of variable pay, linked to the Bank''s stock price, payable over a period of time. The salient features of the Compensation Policy are as follows:

- Objective is to maintain fair, consistent and equitable compensation practices in alignment with Kotak''s core values and strategic business goals.

- Applicable to all employees of the Bank. Employees classified into 3 groups:

o Whole-time Directors/Chief Executive Officer

o Risk Control and Compliance Staff

o Other categories of Staff

- Compensation structure broadly divided into Fixed, Variable and ESOPs

o Fixed Pay - Total cost to the Company i.e. Salary, Retirals and Other Benefits

o Variable Pay - Linked to assessment of performance and potential based on Balanced Key Result Areas (KRAs), Standards of Performance and achievement of targets with overall linkage to Bank budgets and business objectives. The main form of incentive compensation includes - Cash, Deferred Cash/Incentive Plan and Stock Appreciation Rights.

o ESOPs - Granted on a discretionary basis to employee based on their performance and potential with the objective of retaining the employee.

- Compensation Composition - The ratio of Variable Pay to Fixed Pay and the ratio of Cash v/s Non Cash within Variable pay outlined for each category of employee classification.

- Any variation in the Policy to be with approval of the Nomination & Remuneration Committee.

- Malus and Clawback clauses applicable on Deferred Variable Pay.

- Ensuring no personal hedging strategies by employees which undermine risk alignment effects as part of their remuneration.

The details of the remuneration paid to the Non-Executive Chairman, Executive and Non-Executive Directors of the Bank for the year ended 31st March 2015 is provided in the Corporate Governance Report annexed to this Report.

The Non-Executive Directors of the Bank receive remuneration only by way of sitting fees for attending meetings of the Board or Committees thereof. Remuneration paid to the KMPs is in line with the Compensation Policy of the Bank which is based on the RBI Guidelines.


Messrs S. B. Billimoria & Co., Chartered Accountants, auditors of your Bank, retire on the conclusion of the Thirtieth Annual General Meeting.

In terms of Section 139 of the Companies Act, 2013, every Company is required to appoint auditors for a term of five years subject to their appointment being ratified at every Annual General Meeting. However, pursuant to the guidelines issued by the Reserve Bank of India (RBI), an audit firm is allowed to continue as the statutory auditor of a bank for a continuous period of four years only.

Accordingly, it is proposed to appoint, subject to the regulatory approvals, Messrs S. R. Batliboi & Co. LLP, Chartered Accountants, as the statutory auditors of the Bank in place of Messrs S. B. Billimoria & Co., Chartered Accountants, who have completed four years as the statutory auditors. The appointment of Auditors is proposed to the members in the Notice of the current i.e. the Thirtieth Annual General Meeting for a period of four years from the conclusion of the Thirtieth Annual General Meeting until the conclusion of the Thirty fourth Annual General Meeting of the Bank, subject to the annual approval of RBI and ratification by the members every year.


Pursuant to Section 204 of the Companies Act, 2013, your Bank has appointed Ms. Rupal D. Jhaveri, a Company Secretary in Practice, as its Secretarial Auditor. The Secretarial Audit Report for the financial year ended 31st March 2015 is annexed to this Report.


Being a banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable to your Bank.


All the Related Party Transactions that were entered into during the financial year were on arm''s length basis and were in ordinary course of business.

Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no transactions to be reported under Section 188(1) of the Companies Act, 2013.

All Related Party Transactions as required under Accounting Standards AS-18 are reported in Note 21 of Schedule 17 - Notes to Accounts of the Consolidated financial statements and Note 8 of Schedule 17 - Notes to Accounts of the Standalone financial statements of your Bank.

The Bank''s Policy on dealing with Related Party Transactions is available on the Bank''s website viz. URL: http://ir.kotak.com/governance/policies.html PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS

Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given, securities provided or acquisition of securities by a banking company in the ordinary course of its business are exempted from the disclosure requirement under Section 134(3)(g) of the Companies Act, 2013.


Your Bank is committed to its "Vision Statement" of upholding its Global Indian Financial Services Brand creating an ethos of trust across all constituents, developing a culture of empowerment and a spirit of enterprise thereby becoming the most preferred employer in the financial services sector.

Consistent with the Vision Statement, your Bank is committed to maintain and provide to all its employees and directors highest standards of transparency, probity and accountability. The Kotak Group endeavours to develop a culture where it is safe and acceptable for all employees and directors to raise / voice genuine concerns in good faith, and in a responsible as well as effective manner.

A vigil mechanism has been implemented through the adoption of Whistleblower Policy with an objective to enable any employee or director, raise genuine concern or report evidence of activity by the Bank or its employee or director that may constitute: Instances of corporate fraud; unethical business conduct; a violation of Central or State laws, rules, regulations and/or any other regulatory or judicial directives; any unlawful act, whether criminal or civil; malpractice; serious irregularities; impropriety, abuse or wrong doing; deliberate breaches and non-compliance with the Bank''s policies; questionable accounting / audit matters / financial malpractice. The same option has now been extended to the vendors of the Bank also. The concerns can be reported on the website viz. URL: https://cwiportal.com/kotak.

Currently an online mechanism enabling aforementioned reporting has been implemented over and above other modes of communication like e-mail, or a letter sent by mail, courier or fax to designated persons.

Safeguards to avoid discrimination, retaliation, or harassment, and confidentiality have been incorporated in the policy. All employees and directors have access to the Chairman of the Audit Committee in appropriate and exception circumstances.

The Policy has been uploaded on the Bank''s intranet as well as website viz. URL: http://ir.kotak.com/governance/policies.html and regular communication is made for sustained awareness.


Your Bank has constituted a Corporate Social Responsibility (CSR) Committee consisting of the following Directors:

- Mr. C Jayaram Joint Managing Director and Chairman of CSR Committee

- Mr. Dipak Gupta, Joint Managing Director

- Prof S. Mahendra Dev, Independent Director

Your Bank''s CSR Committee drives the CSR programme of the Bank. Your Bank has a Board approved CSR policy, charting out its CSR approach, and is available on the Bank''s website viz. URL: http://www.kotak.com/corporate-responsibility.html.

The CSR expenditure incurred for the period 1st April 2014 to 31st March 2015 under Section 135 of Companies Act, 2013 in the financial year 2014-15 amounts to Rs. 1,197 lac as against Rs. 363 lac CSR spent in the financial year 2013-14.

Your Bank is building its CSR capabilities on a sustainable basis and is committed to gradually increase its CSR spend in the coming years. The CSR Committee of the Board confirms that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and Policy of the company.

The details of CSR activities and report under Section 135 of the Companies Act, 2013, are provided on pages 145-146 and 152-161 of the annual report FY 2014-15.


Your Bank has in place a comprehensive Enterprise wide Risk Management (ERM) framework supported by detailed policies and processes for management of Credit Risk, Market Risk, Liquidity Risk, Operational Risk and various other Risks. Details of identification, assessment, mitigations, monitoring and the management of these Risks are mentioned in the Management Discussion and Analysis section appended to this Report.


The provisions of Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of the Companies (Accounts) Rules, 2014 are not applicable to your Bank. However, your Bank has been increasingly using information technology in its operations.


The employee strength of your Bank, standalone, was 18,335 and along with its subsidiaries was 31,432 as of 31st March 2015. Upon the merger, 10,314 employees have been added up in the Bank and 514 employees in the subsidiaries.

191 employees employed throughout the year and 30 employees employed for part of the year were in receipt of remuneration of Rs. 60 lacs or more per annum.

With an average age of 31 years your Bank continues to attract talent across all its businesses and hierarchy and has put in place various processes and systems to ensure alignment of employee behaviors with the organization''s core values.

Organizational culture aspects like trust & inclusiveness were also reiterated through 113 cross functional meets conducted by senior business leaders for employees at mid management level under the "Meet 5" initiative.

In a very short span of two years, your Bank has crossed several milestones in its Gender Diversity agenda.

- A differentiated talent acquisition strategy to increase women employee base across various suitable roles has helped us to continue adding 20% women amongst all new hires in the Bank.

- Your Bank''s top senior women professionals (around forty women across Kotak) have been brought together under our diversity initiative "Astra" and these women leaders now play a pivotal role in guiding and mentoring other mid-level women employees to sustain and grow in the careers.

- Your Bank''s internal women''s cell Strisangini continues to address women issues at workplace and facilitates mass-mentoring programs with senior women leaders.

- POSH: Prevention Of Sexual Harassment (POSH) Policy has been formally instituted with 3 Regional Internal Complaints Committees (ICC). The ICC members have been trained in handling and resolving complaints and have also designed an online e-learning POSH Awareness module which covers the larger employee base.

Following is a summary of sexual harassment complaints received and disposed off during the year 2014-15: o No. of complaints received : 5

o No. of complaints disposed off : 4

As part of the Leadership Transformation program, new promotes are now put through an intensive two day intervention to orient them on expected skill-sets and competencies and create a leadership mindset apart from other managerial and leadership development program.

As your Bank enters in its next phase of growth and expansion of footprint across urban and rural India, your Bank and its subsidiaries continued to carry out several initiatives to attract and retain a pool of highly skilled and motivated employees who are aligned to the firm''s vision of becoming the most trusted financial services provider.

I n accordance with the provisions of Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 the names and other particulars of employees are set out in the annexure to the Directors'' Report. In terms of the Proviso to Section 136(1) of the Companies Act, 2013, the Directors'' Report is being sent to all shareholders excluding the aforesaid annexure. The annexure is available for inspection at the Registered Office of your Bank. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of your Bank.


The Directors, based on the representations received from the operational management, confirm in pursuance of Section 134(5) of the Companies Act, 2013, that:

(i) your Bank has, in the preparation of the annual accounts for the year ended 31st March 2015, followed the applicable accounting standards along with proper explanations relating to material departures, if any;

(ii) they have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of your Bank as at 31st March 2015 and of the profit of your Bank for the financial year ended 31st March 2015;

(iii) they have taken proper and sufficient care to the best of their knowledge and ability, for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of your Bank and for preventing and detecting fraud and other irregularities;

(iv) the annual accounts have been prepared on a going concern basis;

(v) they have laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and are operating effectively; and

(vi) they have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems are adequate and operating effectively.


Following statements/reports are set out as Annexures to the Directors'' Report:

- Extract Of Annual Return under Section 134(3)(a) of the Companies Act, 2013 read with Rule 12 (1) of Companies (Management & Administration) Rules, 2014 (Annexure-A).

- Secretarial Audit Report pursuant to Section 204 of the Companies Act, 2013 (Annexure-B).


Your Directors would like to place on record their gratitude for the valuable guidance and support received from the Reserve Bank of India, Securities and Exchange Board of India, Insurance Regulatory and Development Authority and other Government and Regulatory agencies. Your Directors acknowledge the support of the members and also wish to place on record their appreciation of employees for their commendable efforts, teamwork and professionalism.

For and on behalf of the Board of Directors

Dr. Shankar Acharya Place: Mumbai,

Chairman Date: 5th May 2015

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