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Notes to Accounts of IDFC First Bank Ltd.

Mar 31, 2023

18.09 Exchange traded interest rate derivatives

The Bank has not undertaken any transactions in Exchange traded interest rate derivatives during the year ended

March 31, 2023 and March 31, 2022.

18.10 Credit default swaps

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2023 and

March 31, 2022. Further, there are no outstanding CDS as on March 31, 2023 and March 31, 2022.

18.11 Disclosures on risk exposure in derivatives

Qualitative disclosures :

a. Structure and organization for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants :

i The Bank undertakes transactions in FX and derivatives for the purpose of hedging the Balance Sheet, support customer FX and derivatives hedging / business requirements and takes proprietary positions. Bank deals in various kinds of products viz. FX spot and forwards, INR and CCY swaps and foreign currency options. The Bank undertakes trading positions FX spot, forward, swaps, futures and FX Options.

ii Treasury Sales Desk is a customer centric desk that caters to customers requirements in FX and derivatives products subject to regulatory and internal requirements. Product offering to the clients is based on Suitability and appropriateness policy of the Bank as well as by the extant RBI guidelines. The policy ensures that the product being offered by the Bank are in sync with the nature of the underlying risk sought to be hedged giving due regard to the risk appetite of the customer and understanding of the risk by the customer. The credit risk related to off Balance Sheet exposures of clients arising out of FX and derivative transactions are monitored by the Bank daily through current exposure method. Exposures are independently monitored and reported.

iii The Bank recognizes all derivative contracts (other than those designated as hedges) at fair value. The mark to market movement on the positions is monitored daily. Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account. Hedge transactions are accounted for on an accrual basis or fair value in line with the approved policy. Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item.

iv All the derivative transactions are governed by the FX & Derivative policy, Market Risk Management policy and Limit Management Framework of the Bank. Limit Management Framework details various types of market risk limits which are monitored daily and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically and presented to the Market Risk Committee / Asset Liability Committee. These limits are set up considering market volatility, risk appetite, business strategy and management experience. The Bank has a clear functional segregation of Treasury operations between Front Office, Market Risk and Back Office.

b. 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 :

For hedge transactions, the Bank identifies the hedged item (asset or liability) and assesses the effectiveness at inception as well as at each reporting date. Hedge derivative transactions are accounted for pursuant to the principles of hedge accounting based on guidelines issued by RBI. Funding swaps are accounted in accordance with FEDAI guidelines.

Interest rate swaps are booked with the objective of managing the interest rate risk on liabilities. Interest rate swaps in the nature of hedge are recorded on accrual basis or fair value in line with approved policy. Any resultant profit or loss on termination of the hedge swaps is amortised over the life of the swap or underlying liability, whichever is shorter.

Currency interest rate swaps in the nature of hedge, booked with the objective of managing the currency and interest rate risk on foreign currency liabilities are recorded on accrual basis or fair value basis in line with the approved policy. Any resultant profit or loss on termination of hedge swaps is amortised over the life of swap or underlying liability, whichever is shorter. The foreign currency balances on account of principal of currency interest rate swaps outstanding as at the Balance Sheet date are revalued using the closing rate.

The Bank offers a mix of loan products designed in accordance to the need of customers. The interest rates for these products may be fixed or variable as per the customer requirements. Further, the Bank raises liabilities to meet its funding requirements. To manage the interest rate risk in the Banking Book (net interest margin / market value of equity), the Bank has executed interest rate swaps to hedge or minimize the duration gap in the Balance Sheet. The Bank reckoned fair value for both the underlying instruments and derivatives contract in line with the applicable guidelines and net MTM is recognized in the Profit and Loss Account, in accordance with the ICAI guidance note on Accounting of Derivatives Contracts. The net MTM of the derivative contracts reckoned as fair value hedge is about '' 7.60 crore (gain) for the year ended March 31, 2023.

The Bank assesses and monitors the hedge strategy on a periodic basis and reports the current status to ALCO, as per the internally approved framework.

iii. In respect of derivative contracts, the Bank evaluates the credit exposure arising therefrom. Credit exposure has been computed using the Current Exposure Method (CEM) which is the sum of :

a. the current replacement cost (marked to market value including accrued interest) of the contract or zero whichever is higher; and

b. the Potential Future Exposure (PFE) is a product of the notional principal amount of the contract and credit conversion factors derived basis the type / residual maturity of the contract, in line with the extant RBI guidelines.

b. Divergence in asset classification and provisioning for NPAs :

In terms of the RBI circular no. DBR.BP.BC.No.32/21.04.018/2018-19 dated April 01, 2019, banks are required to disclose the divergences in asset classification and provisioning consequent to RBI''s annual supervisory process in their notes to accounts to the financial statements, wherever either or both of the following conditions are satisfied :

(i) the additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period and

(ii) the additional Gross NPAs identified by RBI exceed 10 per cent of the published incremental Gross NPAs for the reference period.

Based on the above, no disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI''s annual supervisory process for the year ended March 31, 2022 and March 31, 2021.

c. Implementation of resolution plans (RPs) :

In terms of the RBI circular dated June 07, 2019 on Prudential Framework for Resolution of Stressed Assets, the Bank has not implemented Resolution Plan (RP) for any of the borrowers during the financial year ended March 31, 2023 (Previous Year Nil).

f. COVID-19

The COVID-19 virus, a global pandemic affected the world economy over more than last two years. The extent to which the COVID-19 pandemic, including the future subsequent waves, if any, may impact the Bank''s operations and asset quality will depend on future developments. The Bank''s capital and liquidity position is strong and would continue to be the focus area for the Bank.

The Bank holds COVID-19 related contingency provision of '' 89.17 crore as at March 31, 2023.

18.27 Draw down from reserves

The Bank has not undertaken any draw down from reserves during the year ended March 31, 2023 and March 31, 2022. Appropriation to Reserves

i Statutory Reserve

As mandated by the Banking Regulation Act, 1949, all banking companies incorporated in India shall create a reserve fund, out of the balance of profit of each year as disclosed in the Profit and Loss Account and before any dividend is declared and transfer a sum equivalent to not less than twenty five per cent of such profit. During the year, the Bank has transferred an amount of '' 609.50 crore (Previous Year '' 36.50 crore) to Statutory Reserve Account.

ii Investment Reserve Account (IRA)

As per RBI guidelines, if 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 and 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 Investment Reserve Account. Further, the Bank may draw down from the IRA to the extent of provision made during the year towards depreciation in investment in AFS and HFT categories (net of taxes, if any, and net of transfer to Statutory Reserves as applicable to such excess provision). During the year, the Bank has transferred an amount of '' 79.00 crore (Previous Year '' 199.50 crore) to Investment Reserve Account.

iii Investment Fluctuation Reserve (IFR)

The RBI vide circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 02, 2018 advised banks to create an Investment Fluctuation Reserve (IFR) with effect from FY 2018-19. Accordingly, an amount not less than the lower of net profit on sale of investments in the HFT and AFS portfolio during the year or net profit for the year less mandatory appropriations shall be transferred to the IFR, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. Where feasible, this should be achieved within a period of 3 years. Accordingly, the Bank has appropriated '' 273.50 crore (Previous Year '' Nil) to IFR.

iv Capital Reserve

As per RBI guidelines, profit / loss on sale of investments in the âHeld to Maturity'' category is recognised in the Profit and Loss Account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit / loss on sale of investments in Available for Sale'' and âHeld for Trading'' categories is recognised in the Profit and Loss Account. Accordingly, the Bank has appropriated '' 95.50 crore (Previous Year '' 45.00 crore) to Capital Reserve.

v Special Reserve

As per the provisions under Section 36(1)(viii) of Income Tax Act, 1961, specified entities like banks are allowed deduction in respect of any special reserve created and maintained, i.e. an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head âProfits and gains of business or professionâ is carried to such reserve account. This would be applicable till the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and general reserves of the entity. During the year, the Bank has transferred an amount of '' 65.00 crore (Previous Year '' 6.00 crore) to Special Reserve.

vi General Reserve

During the year ended March 31, 2023 and March 31, 2022, no amount was transferred to the General Reserve.

18.33 Unhedged foreign currency exposure (UFCE)

The Banks Credit Policy outlines the framework for evaluating the risks arising out of unhedged foreign currency exposure of the corporates, while extending credit facilities. Computation of UFCE is in line with the extant regulatory guidelines. At the time of sanctioning of limits, the Bank may stipulate limits on the unhedged foreign currency exposure of the corporate. Additionally, the Bank also monitors the unhedged portion of foreign currency exposures of such corporates on a periodic basis and also adhere to the extant regulatory requirements with regards to capital and provisioning requirements for exposures to entities with UFCE. During the year ended March 31, 2023, incremental capital held towards borrowers having unhedged foreign currency exposures is '' 149.34 crore (Previous Year '' 118.23 crore) and provision held towards UFCE is '' 54.50 crore (Previous Year '' 54.50 crore).

18.37 Off-Balance Sheet SPVs sponsored (which are required to be consolidated as per accounting norms)

There are no Off-Balance Sheet SPVs sponsored by the Bank, which need to be consolidated as per accounting norms.

18.38 Disclosures on remuneration (i) Qualitative disclosures

a Information relating to the composition and mandate of the Nomination and Remuneration Committee :

Name, composition and mandate of the main body overseeing remuneration :

The Nomination and Remuneration Committee of the Board oversees the framing, review and implementation of the Remuneration Policy of the Bank on behalf of the Board. The Committee works in close co-ordination with the Board. Nomination and Remuneration Committee comprised of the following members :

Mr. Hemang Raja Chairman

Mr. Aashish Kamat Member

Dr. (Mrs.) Brinda Jagirdar Member

Mr. Vishal Mahadevia Member

Some of the key functions of the Committee inter-alia include the following :

i. Review and recommend to the Board the overall remuneration framework and associated policies of the Bank.

ii. Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters.

iii. Evaluate performance of Senior Management.

iv. Make recommendations on remuneration (including Variable Pay (Cash and Non-cash and perquisites)) of Whole Time Directors.

v. Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank.

vi. Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bank''s stock options to Whole Time Directors of the Bank.

vii. Review and recommend to the Board the payment of profit related commission to the Non-Executive Directors of the Bank within the overall limits as may be approved by the shareholders of the Bank, in terms of the Companies Act, 2013 and RBI guidelines.

External consultants whose advice has been sought, the body by which they were commissioned, and in what areas of the remuneration process :

The Bank''s Human Resource function commissions Aon Consulting Pvt. Limited'', to conduct market benchmarking of employee compensation. In this process, the Bank participates in the salary benchmarking survey conducted by Aon for the Private Banking firms. Every year Aon conducts salary benchmarking survey and the information gathered by

Aon on Fixed and Variable salary from various private sector peer banks across functions, levels and roles is referred to by the human resource function to evaluate the market competitiveness of Bank''s compensation positioning and practices.

A description of the scope of the Bank''s remuneration policy (e.g. by regions, business lines), including the extent to which it is applicable to foreign subsidiaries and branches :

The Bank has defined the below policies to cover its respective personnel as highlighted in the title:

1. Remuneration Policy for Whole Time / Executive Directors, Material Risk Takers, Key Managerial Personnel, Senior Management Personnel, Control Function and all other employees. The scope of this policy covers pan India employees across management levels. Currently, the Bank doesn''t have any foreign subsidiaries and branches.

2. Remuneration Policy (for Independent Directors). The scope of this policy covers all Independent Directors.

A description of the type of employees covered and number of such employees.

Employees are categorised into the following four categories from remuneration structure and administration stand point. The Head count as at March 31, 2023 is stated against each category :

1. MD & CEO 1

2. Material Risk Takers 21 (including 1 retired during the year)

3. Control Function Staff 8 (1 exited during the year)

4. Other Staff 35,323

b. Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy :

Objective, Principles and Key Features : The remuneration philosophy of the Bank is guided by the organization''s Philosophy for enabling employee performance to achieve the organization''s short term and long-term objectives, balanced with prudent risk taking and are in compliance with the regulatory guidelines.

To achieve this the following principles are adopted :

â¢ The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate talent.

â¢ Respect employee needs basis relevant market anchors and to compensate adequately for the contribution towards the Bank''s growth.

â¢ The cost / income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio.

â¢ The remuneration is balanced between fixed pay and variable pay, with adequate focus on prudent risk taking and the short term as well as the long term objectives of the Bank and its shareholders.

â¢ The variable pay is balanced between cash linked and share linked component as well as between immediate and deferred component so that remuneration is aligned to performance and risk outcomes over both short term and long term.

â¢ Establish relationship between remuneration and performance with adequate focus on achievement of performance objectives incorporating elements of risk, compliance and service measures.

The Compensation structure of MD & CEO and other Material Risk Takers (MRTs) are aligned to the RBI''s âGuidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staffâ dated November 04, 2019

The Remuneration Policy was reviewed and revised in FY2022-23 to strengthen the linkage of performance and remuneration and describe the governance process around it and ensure that its in order with the RBI Compensation guidelines :

i) Governance Framework :

All components of remuneration for Whole Time Directors, Executive Directors and Chief Executive Officers is recommended by Nomination and Remuneration Committee (NRC) and approved by the Board and the same is approved by the shareholders of the Bank and Reserve Bank of India.

All components of remuneration for Key Managerial Personnel (KMP), Senior Management Personnel (SMP), Material Risk Takers (MRTs) and Control Function is recommended by Nomination and Remuneration Committee to the Board of Directors of the Bank for their necessary approval.

The remuneration of other employees is determined by CHRO in consultation with MD & CEO of the Bank and placed before the NRC & Board for approval.

A discussion of how the bank ensures that risk and compliance employees are remunerated independently of the businesses they oversee :

The Bank ensures that risk, internal audit and compliance employees are remunerated independently of the businesses they oversee and is guided by the individual employee performance. The remuneration is determined on the basis of relevant risk measures included in the Key Deliverables of the respective employee across levels in these functions. The parameters reviewed for performance based rewards are independent of performance of the business area they oversee and commensurate with their individual role in the Bank. Additionally, the ratio of fixed and variable compensation is weighed towards fixed compensation in case of employees in risk, internal audit, and compliance function.

ii) Identification of Material Risk Takers (MRTs) for the Bank based on RBI guidelines :

The Bank has used the combination of qualitative and quantitative criteria in order to identify whether an employee is a material risk taker as per the compensation guidelines of RBI dated November 04, 2019.

Standard Qualitative Criteria

Relates to the role and decision-making power of staff members (e.g., senior manager, member of management body) having jointly or individually, the authority to commit significantly to risk exposures, etc.

In the context of the Bank, this qualitative criterion translates into members of various committees of the Bank who have decision making authority to cause significant risk exposure, individually or jointly with other committee members.

In addition, following quantitative criteria shall be used to identify the material risk takers (MRTs)

â¢ Quantitative Criteria 1: Their total remuneration exceeds '' 1.5 crore or

â¢ Quantitative Criteria 2: They are included among top 0.3% of the highest paid employees of the Bank or

â¢ Quantitative Criteria 3: Their remuneration is equal to or greater than the lowest total remuneration of senior management and other risk-takers.

Any employee who meets the qualitative criteria and any one of the quantitative criteria will be considered as a Material Risk Taker.

iii) Compensation Structure of WTD, MD & CEO and MRTs :

â¢ At least 50% of total compensation shall be Variable Pay.

â¢ Value of stock options will be included in definition of âTotal Variable Pay''.

â¢ Total Variable Pay for the MD & CEO / Whole Time Directors / Material Risk Takers of the Bank would be capped at 300% of Fixed Pay.

â¢ If the Total Variable Pay is up to 200% of the Fixed Pay, a minimum of 50% of the Variable Pay; and in case Variable Pay is above 200%, a minimum of 67% of the Variable Pay shall be paid via employee stock options.

â¢ Minimum 60% of the Total Variable Pay shall be deferred over 3 years. If cash component is part of Total Variable Pay, at least 50% of the cash component of Variable Pay should also be deferred over 3 years. In cases where the cash component of Total Variable Pay is under '' 25 lakh, Variable Pay shall not be deferred.

â¢ All the fixed items of compensation, including retiral benefits and perquisites, will be treated as part of Fixed Pay.

iv) Components of Remuneration - Risk Control and Compliance Staff (Control Function) :

Risk Control and Compliance Staff (Control Function Staff) including Internal Audit include heads of functions who have a role and responsibility in defining and monitoring the Bank''s Policies, Credit & Regulatory processes etc and such other functions as may be determined by CHRO in consultation with MD & CEO. They may also be member(s) of various committees of the Bank, however, not directly responsible for business. The total target variable pay for Risk control, Internal audit and Compliance staff shall be less than or equal to fixed pay. Further, a substantial portion of the variable pay should be deferred in the form of cash based or share linked instruments. All other elements of the compensation policy shall be same as that for WTDs and MRTs.

v) Guidelines on Malus & Clawback :

The Bank has defined guidelines on Malus and Clawback Conditions applicable under various scenarios. These conditions are included in the Remuneration Policy and Employee terms and conditions.

c. Description of the ways in which current and future risks are taken into account in the remuneration process including the nature and type of the key measures used to take account of these risks :

An overview of the key risks that the Bank takes into account when implementing remuneration measuresâ : âRisk Appetite Statement Frameworkâ has been designed for the Bank - which provides strategic guidance around various parameters. It includes the Bankâs risk appetite, limits framework and policies and procedures governing various types of risk.

Bank''s Board Approved Risk Appetite Statement (RAS) has clearly articulated & quantified portfolio level risk metrics / measures stipulated for each business segment which includes parameters like on-boarding criteria basis internal rating threshold, restrictions pertaining to specific industries / transactions, portfolio quality metrics, risk-based caps related to exposure, rating concentration, product concentration, group exposure etc. The RAS is communicated to the stakeholders in the form of the various limits and mandates. MD & CEO along with Risk Management Committee of the Bank ensures overall adherence to Risk Appetite Statement of the Bank. Some of the Bank level metrics includes limits on strategic risk, capital adequacy, liquidity risk, reputation risk etc.

Performance and risk measures are part of the performance assessment framework and are factored in while assessing performance. Remuneration is decided basis performance evaluation for the year. The remuneration framework is designed to focus on achieving financial and non-financial objectives, risk - adjusted returns that are consistent with our prudent risk and capital management, as well as emphasis on long term sustainable outcomes.

The pay-out structure for the WTD, MD & CEO, Senior Management Team, MRTs & Control Function are designed to align to performance payments with the long-term sustainable performance of the Bank through deferral and claw-back arrangements.

An overview of the nature and type of key measure used to take account of these risks, including risk difficult to measure : The Bank has a robust system of defining, measuring and reviewing risk parameters. The risk parameters are a part of the Key Result Areas and Deliverables used for setting of performance objectives and for measuring performance, which includes both financial performance and non-financial performance in the areas of Risk, Governance and Compliance, Customer Centricity and People development. Weightage is assigned to each parameter which includes both financial (Quantitative) and non-financial (Qualitative) parameter detailing the outcome to be achieved in each areas.

A discussion of the ways in which these measure affect remuneration : The aforesaid risk measures are included in the Key Result Areas and Key Performance Index of MD & CEO, WTD, MRTs and all employees. Inclusion of the above mentioned measures ensures that performance parameters are aligned to risk measures at the time of performance evaluation. The Nomination and Remuneration Committee takes into consideration all the above aspects while assessing organisational and individual performance and making compensation related recommendations to the Board.

A discussion of how the nature and type of these measures have changed over the past year and reasons for the changes as well as the impact of changes on remuneration: In the FY 2022-23, The Bank has sharpened the KPIs around Risk, Governance and Compliance besides the metrics around financial performance, people development, customer centricity and operational excellence. It continues to track performance outcome against these key metrics as a part of overall Bank''s performance objective for FY 2022-23 and linked it to Bank''s strategy, with focus on growth, profitability, compliance and sustainability.

d. Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration :

An overview of main performance metrics for bank, top level business lines and individual: Performance and its linkage to levels of remuneration is guided by the objective / principles of the Remuneration and Performance Management Framework defined by the Bank. Cash Variable Pay in form of Incentives and Performance Bonus is determined by the achievement against the defined performance thresholds. The performance thresholds and KPIs covers financial and non-financial metrics defined for the year.

Performance measures are clearly defined in the beginning of the year for all the employees.

While setting performance measures of the MD & CEO, Senior Management team, MRTs & Control Function Staff, Strategy of the bank is kept in context. Further, Bank identifies key parameters that are important for the growth, success, stability and effective risk management of the Bank, as desired by the Board. Further, non-financial criteria such as maintaining high level of Compliance and Governance, Risk, Customer Centricity, Operations excellence & People management are also considered.

A discussion of how amounts of individual remuneration are linked to the Bank-wide and individual performance: The Bank follows balance scorecard approach for managing Performance and pay-outs. Individual performances are assessed annually, and the rewards are determined on the basis of the achievements against the various financial and non-financial objectives. The Performance measures are revised annually to reflect the priorities for the year and ensure its in line with the short term, long term, financial and non-financial objectives. This ensures close linkage between total compensation and our annual and long term business objectives.

A discussion of the measures the Bank will in general implement to adjust remuneration in the event that performance metrics are weak. This should include the Bank''s criteria for determining weak performance metrics: The Bank uses deferral, malus and staff accountability tools to impact compensation pay offs for failures becoming apparent in future years. On an annual basis, Performance matrices is defined in the goal sheets of each individual, financial and non-financial - risk measures. The outcomes against these measures are considered and adjustment made basis performance and risk outcomes, where necessary. The Bank evaluates employees on a rating scale of 1-5, with 5 being

the highest. For people who have been rated 1 & 2, the Bank pays Zero variable pay, including Zero annual salary increment. Further, if there is significant impact owing to issues arising out of conduct or items listed under the Malus / Claw-back clause, the Bank pays Zero variable pay. (Owing to Bank''s subdued or negative financial performance on account of external factors or any other factors, the Variable Pay could be zero in particular year). For Non-Cash (ESOP) component of variable pay, Bank has a deferral period of up to 5 years, which adequately covers the time horizon for risk to materialize. A minimum 75% of grants are deferred over a period of 5 years ensuring sensitivity to risk outcomes over a multi year risk horizon. Under the ESOP Scheme of the Bank, there is check made on the ratings of the employees every year to ascertain if the grants vesting for that year can be vested. Grants lapse for those employees who get a rating of 2 or 1 on the 5 point rating scale of the Bank. In case of significantly adverse risk outcomes, malus & claw back provisions become applicable as has been defined in the guideline and Bank''s remuneration policy.

e. Description of the ways in which the Bank seeks to adjust remuneration to take account of the longer term performance Disclosure :

A discussion of the Bank''s policy on deferral and vesting of variable remuneration and, if the fraction of variable remuneration that is deferred differs across employees or group of employees, a description of the factors that determine the fraction and their relative importance :

The Bank''s Remuneration Policy / Framework is in line with the RBI âGuidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staffâ dated November 04, 2019.

The Remuneration Policy is approved by the Bank''s Nomination and Remuneration Committee and the Board.

The Bank remuneration framework consist of guarding against excessive risk taking, wherein Bank has focus on achieving risk adjusted returns that are consistent with our prudent risk management, as well as emphasis on long term sustainable outcomes. Pay-out structures are designed to align variable pay with the long term performance of the Bank through deferral and malus / claw back arrangements.

Compensation in the Bank has linkages to risk outcomes, time horizon sensitive pay-out schedule in the form of a longer deferral period of 3 to 5 years for the variable remuneration. The cash component of variable pay for WTD and MRTs over '' 25 lakh vest in 3 years as per the guidelines. The ESOP vest from 2^nd to 6^th year (20% each year). In addition, cash bonus, unvested and / or vested shares is subject to malus / clawback and subject to the events triggered as stated in the Remuneration Policy. The ESOP guideline is applicable to employees across categories, who are eligible for ESOP.

A discussion of the Bank''s policy and criteria for adjusting deferred remuneration before vesting and (if permitted by national law) after :

The Total Variable Pay for MD&CEO, Whole Time Directors and other Material Risk Takers of the Bank is subject to malus and clawback clauses, which are defined in the Remuneration Policy of the Bank. Detailed scenarios under which said clauses can be applied, such as event of an enquiry determining gross negligence or breach of integrity, or significant deterioration in financial performance are defined in the Remuneration Policy of the Bank.

The Bank follows a Balanced Scorecard approach for measuring performance at all levels. The Nomination and Remuneration Committee reviews the achievements against the set of parameters which determines the performance of the individuals in these roles.

For all other employees, performance appraisals are conducted annually and initiated by the employee with selfappraisal. The immediate supervisor reviews the appraisal ratings in a joint consultation meeting with the employee and assigns the performance rating. The final ratings are discussed and approved by the head of the departments. Both relative and absolute individual performances are considered for the moderation process. Individual fixed pay increases, variable pay and ESOPs are linked to the final performance ratings.

f. Description of the different forms of variable remuneration (i.e. Cash, Shares, Share-linked instruments and other forms) that the Bank utilizes and the rationale for using these different forms :

An Overview of the forms of variable remuneration offered, if the mix of different forms of variable remuneration differs across employees or group of employees, a description of the factors that determine the mix and their relative importance :

The Bank has the following forms of variable remuneration pay for WTD & MRTs, Control Function staff and other employees :

â¢ Cash Variable pay - In form of Incentives for frontline sales staff and Performance Bonus for Senior Management (including WTD, MRTs, CF) and Non-sales staff members. Performance Bonus is part of the annual performance and compensation review cycle and is paid on the basis the performance rating of the individual employee. Incentive payments are subject to achievement of short term minimum threshold target performance on both quantitative and qualitative parameters, as defined in the plan.

â¢ Non cash variable pay - In the form of an ESOP scheme has been designed for MD,CEO, WTD, MRTs and Control Function staff members, Senior Management staff with a view to ensure an appropriate risk balanced remuneration architecture and establish a sense of ownership amongst these categories of employees.

Variable pay in the form of performance based Cash bonus and ESOP is paid out annually and is linked to performance achievement against performance measures and aligned with the principles of meritocracy. The proportion of variable pay in total pay shall be higher at senior management levels. The payment of all forms of variable pay is governed by the affordability of the Bank and based on financial and risk performance outcomes. For MD and CEO and MRTs, a portion of variable compensation as stated above may be paid out in a deferred manner in order to drive prudent behaviour as well as long term & sustainable performance orientation. The quantum of grant of stock options is determined and approved by the Nomination and Remuneration Committee. The current ESOP design has an inbuilt deferral intended to spread and manage risk.

⁵ Represents portion of Variable pay for FY 2021-22 paid in FY 2022-23, this includes Cash Variable Pay for 1 MRT who retired during the year & does not include amount of '' 2.22 crore paid to the 3 exiting MRTs & '' 1.49 crore paid to 3 newly appointed MRTs. Previous year represents Variable pay for FY 2020-21 paid in FY 2021-22.

⁶ Amount as on March 31, 2023 represents portion of Cash Variable pay for FY 2020-21 payable in April 2023 to April 2024 & Variable pay for FY 2021-22 payable from April 2023 to April 2025. Amount as on March 31, 2022 represents portion of Variable pay for FY 2020-21 payable from April 2022 to April 2024.

⁷ Mean pay calculation of the Bank employees is based on Total Fixed Pay, which includes âBasic Pay, Allowances, and Employerâs contribution to Provident Fundâ. Deviation of the pay of MD & CEO from the mean pay of the Bank is the difference between MD & CEOâs Total Fixed Pay and mean pay of the Bank.

⁸ Fair value is calculated using fair value of stock options computed using Black-Scholes options pricing models on the grant date. (iii) During the year ended March 31, 2023, the bank has paid '' 1.50 crore to Non - Executive Directors.

18.40 Net stable funding ratio

Banks are required to disclose Net Stable Funding Ratio (NSFR) under the Basel III framework in accordance with RBI guidelines. The Bank has made these disclosures which are available on its website at the link: http://www.idfcfirstbank. com/regulatory-disclosures.html. These disclosures have not been subjected to audit or limited review by the Joint Statutory Auditors of the Bank.

18.41 Liquidity coverage ratio

Qualitative disclosure

Liquidity risk management of the Bank is undertaken by the Balance Sheet Management Group (BSMG) under the central oversight of the Asset Liability Management Committee (ALCO) in accordance with the Board approved policies. The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI for reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO), Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

The Bank follows the criteria laid down by the RBI for calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30 days period. HQLA predominantly comprises cash, excess CRR and investments qualifying to be HQLA as per the RBI guidelines. The Bank has maintained LCR above RBI and internal thresholds on an ongoing basis.

The Bank is funded through term deposits, CASA, refinance, issuance of bonds and foreign currency borrowings. All significant outflows and inflows determined in accordance with the RBI guidelines are included in the prescribed LCR computation.

The risk department measures and monitors the liquidity profile of the Bank and monitor against Board approved limits using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bankâs ALCO for perusal and review.

18.43 Earnings per share (âEPSâ)

Basic and diluted earnings per equity share are computed in accordance with AS-20 Earnings per share. Basic earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive. Dilution of equity is on account of stock options granted by the Bank.

18.44 Movement in stock options granted is as under :

Employee Stock Option Scheme (ESOS) of IDFC FIRST Bank Limited viz. IDFC FIRST Bank ESOS-2015 (âthe Schemeâ) was framed with an object of encouraging higher participation on the part of employees in the Bank''s financial growth and success. An effective stock option scheme enables retention of talent and aligning employee interest to that of the shareholders.

The shareholders of the Bank at its Extra-Ordinary General Meeting held on December 09, 2014 had approved IDFC FIRST Bank ESOS - 2015. The Scheme was further amended and was approved by the shareholders at its the 1^st Annual General Meeting (AGM) held on September 29, 2015, at the 2^nd AGM held on July 27, 2016 and at 5^th AGM held on July 25, 2019.

The Scheme is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 as amended from time to time. The Scheme is administered by the Nomination and Remuneration Committee (âNRC'') of the Bank. As per the Scheme,the NRC is authorized to determine the specific employees to whom Employee Stock Options (âoptions'') would be granted. The options granted under the Scheme would vest for period not less than one year and not more than five years from the date of grant of options, as approved by the NRC and the vesting would be subject to continued employment and achievement of performance criterias. The specific vesting schedule is outlined in the letter of grant given to option grantee at the time of grant of options.

Options granted under the Scheme shall be capable of being exercised within a period of 3 years from the date of vesting of the respective options or such other period as may be determined by the NRC. Options granted under the Scheme are settled with equity shares being allotted to the beneficiary upon exercise.

During the year ended March 31, 2023 , there has been no material change in IDFC FIRST Bank ESOS-2015.

The Bank has used the intrinsic value method to account for the compensation cost of stock options to employees of the Bank (other than Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function

Staff). Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price on the option. Accounting for the stock options has been in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 to the extent applicable. Further, the Bank recognises fair value of share-linked instruments on the date of grant as an expense for all instruments granted after the accounting period ending March 31, 2021 for Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff as required in the RBI clarification dated August 30, 2021 on âGuidelines on Compensation of Whole Time Directors/ Chief Executive Officers / Material Risk Takers and Control Function Staffâ. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model and is recognised as compensation expense over the vesting period.

Expected dividend during the estimated expected term of the option are based on the dividend declared for one financial year prior to the date of grant. Expected life of option is the period for which the Bank expects the option to be in existence. Risk free interest rates over the expected term of the option are based on the maturity zero coupon yield curve for Government Securities at the time of grant. Expected volatility during the estimated expected term of the option is based on historical volatility determined based on the daily closing market prices of the Bank''s publicly traded equity shares.

18.49 Proposed dividend

The Bank did not declare any dividend for the financial year ended March 31, 2023 and March 31, 2022.

18.50 Small and micro industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. During the year ended March 31, 2023, '' 20.00 crore (Previous Year '' 12.20 crore) worth bills were paid with delays to micro and small enterprises and '' 2.04 crore (Previous Year '' 0.10 crore) worth bills remained unpaid as at March 31, 2023. There have been no demand of interest on these payments during the year (Previous Year '' 0.01 crore).

18.51 Disclosure on factoring

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head âBills Purchased and Discounted'' in Schedule 9 of the Balance Sheet. The Bank has factoring exposure of '' 1,649.29 crore (Previous Year '' 1,057.31 crore) and outstanding of '' 1,134.47 crore (Previous Year '' 738.97 crore) as on March 31, 2023.

18.52 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.

18.53 Description of contingent liabilities

i. 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 Bank''s financial condition, results of operations or cash flows.

ii. Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact.

iii. 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 inter-bank participants on its own account and for 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. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time. An exchange traded currency option contract is a standardised foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date on the date of expiry. Currency Futures contract is a standardised, exchange-traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specified price.

With respect to transactions entered by customers, the Bank generally takes off-setting positions in the inter-bank markets which results into higher numbers of outstanding contracts. The same also leads to representation of large gross notional principal of the portfolio, while the actual credit / market risk is much smaller.

Further, the notional amounts of the financial instruments do not represent the current fair value or future cash flows and hence do not indicate the Bank''s exposure to credit or price risk. The derivative instrument becomes an asset / liability basis change in underlying market rates compared to contracted rates.

iv. Guarantees given on behalf of constituents

As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfil its financial or performance obligations.

v. Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

vi. Other items

Other items represent estimated amount of contracts remaining to be executed on capital account and certain undrawn non-cancellable loan commitments. This also includes the amount of investments bought and remaining to be settled on the date of financial statements.

18.54 Implementation of IFRS converged Indian Accounting Standards (Ind - AS)

The Reserve Bank of India vide Circular RBI/2018-2019/146 DBR.BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019 had deferred the implementation of Ind AS for banks till further notice.

Auditors of the Bank. Under the RBI guidelines, banks are not allowed to early adopt Ind AS. Accordingly, the general-purpose financial statements of the Bank presented in the Annual Report are not under Ind AS. The results of the Bank upon its first-time adoption of and transition to Ind AS, based on the updated regulations and accounting standards / guidance and business strategy at the date of actual transition, could differ from those reported in the Fit-for-Consolidation information. The Bank also submits Standalone Proforma financials in the format and frequency as prescribed by the RBI.

The implementation of Ind AS is expected to result in significant changes to the way the Bank prepares and presents its financial statements. The areas that are expected to have significant accounting impact on the application of Ind AS are summarized below:

1) Financial assets (which primarily include advances and investments) shall be classified under amortised cost, fair value through other comprehensive income (a component of Reserves and Surplus) or fair value through profit / loss categories based on the nature of the cash flows and the intention of holding the financial assets and business model assessment.

2) Interest will be recognised in the income statement using the effective interest method, whereby, fees net of transaction costs and all other premiums or discounts will be amortised over the life of the financial instrument.

3) Stock options will be required to be fair valued on the date of grant and be recognised as staff expenses in the income statement over the vesting period of the stock options.

4) The impairment requirements of Ind AS 109, Financial Instruments, are based on an Expected Credit Loss (ECL) model that replaces the incurred loss model under the existing reporting framework. The Bank will be generally required to recognise either a 12-month or Lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. Ind AS 109 will change the Bank''s current methodology for calculating the provision for standard assets and Non-Performing Assets (NPAs). The Bank will be required to apply a three-stage approach to measure ECL on financial instruments accounted for at amortised cost or fair value through other comprehensive income. Financial assets will migrate through the following three stages based on the changes in credit quality since initial recognition:

Stage 1: 12 Months ECL - for exposures which have not been assessed as credit-impaired or where there has not been a significant increase in credit risk since initial recognition, the portion of the ECL associated with the probability of default events occurring within the next twelve months will need to be recognised.

Stage 2: Lifetime ECL - for credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL will need to be recognised.

Stage 3: Lifetime ECL - Financial assets will be assessed as credit impaired when one or more events having a detrimental impact on the estimated future cash flows of that asset have occurred. For financial assets that have become credit impaired, a lifetime ECL will need to be recognised.

5) Accounting impact on the application of Ind AS at the transition date shall be recognised in Equity (Reserves and Surplus) as and when it becomes statutorily applicable to the Bank.

The RBI has recently issued a discussion paper on âIntroduction of Expected Credit Loss framework for provisioning by Banksâ which demonstrates the intention of the RBI to move towards Ind AS on piecemeal basis. It may further be noted that the above significant impacted areas may change based on the final guidelines to be issued by the RBI. This will further change the way financial statements would be read and would bring people, business and technology changes across the Bank.

18.55 Utilisation of borrowed funds

The Bank, as part of its normal banking business, grants loans and advances, makes investment, provides guarantees to and accept deposits and borrowings from its customers, other entities and persons. These transactions are part of Bank''s normal banking business, which is conducted ensuring adherence to all regulatory requirements.

Given the nature and background of transactions explained above, 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 persons or entities, 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 (Ultimate Beneficiaries) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

The Bank has also not received any fund from any person(s) or entity(ies), including foreign entities (Funding Parties) with the understanding, whether recorded in writing or otherwise, that the Bank shall whether, directly or indirectly lend or invest in other persons or entities identified by or on behalf of the Funding Party (âUltimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

18.56 Particulars of items under O

Mar 31, 2022

Amounts in notes forming part of the financial statements for the year ended March 31, 2022 are denominated in '' crore to conform with the extant RBI guidelines.

18.01

IDFC FIRST Bank Limited (Formerly âIDFC Bank Limited'') (âthe Bank") was incorporated on October 21, 2014 as a Company under the Companies Act, 2013. The Bank commenced its banking operations on October 01, 2015 after receiving universal banking license from the Reserve Bank of India (âthe RBI'') on July 23, 2015.

* During the year ended March 31, 2022, the Bank raised additional capital aggregating to '' 3,000 crore (rounded off) from qualified institutional buyers through issuance of 523,103,660 equity shares, fully paid-up, at the price of '' 57.35 per equity share (including securities premium of '' 47.35 per equity share).

During the year ended March 31, 2021, the Bank raised additional capital aggregating to '' 2,000 crore (rounded off) on a preferential basis through issuance of 862,440,704 equity shares, fully paid-up, at the price of '' 23.19 per equity share (including securities premium of '' 13.19 per equity share).

# During the year ended March 31, 2022, the Bank has raised Basel III compliant Additional Tier II bond amounting to '' 1,500.00 crore.

The Bank has certain undrawn non-cancellable commitments amounting to '' 5,278.89 crore which have been considered as part of Credit Risk Weighted Assets (CRWA) after applying Credit Conversation Factor (CCF) as prescribed in Basel III Guidelines. This is in addition to other eligible contingent liabilities considered for CRWA computation which are included in Schedule 12 âContingent Liability".

$ Working funds to be reckoned as average of total assets (excluding accumulated losses, if any) as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949, during the 12 months of the financial year.

@ Return on assets is based on the simple average of opening and closing total assets.

# Business is the total of average net advances and average deposits (net of inter-bank deposits). The average advances and the average deposits represents the simple average of the opening and closing figures.

^A Productivity ratios are based on monthly average of employee numbers, which excludes contract staff, intern etc.

& Operating profit is profit before provisions and contingencies.

* Net Interest Income/ Average Earning Assets. Net interest Income is Interest Income less Interest Expense. Average Earning Assets is the daily average of total Earning Assets during the year.

aa Cost of deposit is based on daily average of total Deposits during the year.

18.05 Repo transactions

a) Following are the details of securities sold and purchased under repo / reverse repo transactions excluding triparty repo / reverse repo (in face value terms) respectively including transactions under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) done during the year ended March 31, 2022 and March 31, 2021 :

18.07

During the year ended March 31, 2022 and March 31, 2021, the value of sales / transfers of securities to / from HTM category (excluding 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, sales to the RBI under open market operation auctions and redemptions in units of Venture Capital Funds as these are not initiated by the Bank) did not exceed 5% of the book value of investments held in HTM category at the beginning of the year.

18.09 Exchange traded interest rate derivatives

The Bank has not undertaken any transactions in Exchange Traded Interest rate derivatives during the year ended

March 31, 2022 and March 31, 2021.

18.10 Credit Default Swaps

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2022

and March 31, 2021. Further, there are no outstanding CDS as on March 31, 2022 and March 31, 2021.

18.11 Disclosures on risk exposure in derivatives

Qualitative disclosures :

i The Bank undertakes transactions in FX and derivatives for the purpose of hedging the Balance Sheet, support customer FX and Derivatives hedging / business requirements and takes proprietary positions. Bank deals in various kinds of products viz. FX spot and forwards, INR and CCY Swaps and Foreign currency options. The Bank undertakes trading positions FX Spot, Forward, Swaps and Futures. The Bank does not run Option book as of now. All the Option products are offered to the clients on a back to back basis.

ii Treasury Sales Desk is a customer centric desk that caters to customers'' requirements in FX and Derivatives products subject to regulatory and internal requirements. Product offering to the clients is based on Suitability and Appropriateness policy of the Bank as well as by the extant RBI guidelines. The policy ensures that the product being offered by the Bank are in sync with the nature of the underlying risk sought to be hedged giving due regard to the risk appetite of the customer and understanding of the risk by the customer. The credit risk related to off balance sheet exposures of clients arising out of FX and Derivative transactions are monitored by the Bank daily through current exposure method. Exposures are independently monitored and reported.

iii The Bank recognizes all derivative contracts (other than those designated as hedges) at fair value. The mark to market movement on the positions is monitored daily. Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account. Hedge transactions are accounted for on an accrual basis. Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item.

b. 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 :

Interest rate swaps are booked with the objective of managing the interest rate risk on liabilities. Interest rate swaps in the nature of hedge are recorded on accrual basis and these transactions are not marked-to-market. Any resultant profit or loss on termination of the hedge swaps is amortized over the life of the swap or underlying liability, whichever is shorter.

Currency interest rate swaps in the nature of hedge, booked with the objective of managing the currency and interest rate risk on foreign currency liabilities are recorded on accrual basis and these transactions are not marked-to-market. Any resultant profit or loss on termination of hedge swaps is amortized over the life of swap or underlying liability, whichever is shorter. The foreign currency balances on account of principal of currency interest rate swaps outstanding as at the balance sheet date are revalued using the closing rate.

^A Excludes instruments such as FX Forwards, FX Swaps etc.

i The notional principal amount of derivatives reflect the volume of transactions outstanding as at the balance sheet date and do not represent the amounts at risk.

ii The Bank has computed maximum and minimum of PV01 for the year based on monthly averages.

iii In respect of derivative contracts, the Bank evaluates the credit exposure arising therefrom. Credit exposure has been computed using the Current Exposure Method (CEM) which is the sum of :

a. the current replacement cost (marked-to-market value including accrued interest) of the contract or zero whichever is higher; and

In terms of the RBI circular no. DBR.BP.BC.No.32/21.04.018/2018-19 dated 01 April 2019, banks are required to disclose the divergences in asset classification and provisioning consequent to RBI''s annual supervisory process in their notes to accounts to the financial statements, wherever either or both of the following conditions are satisfied:

(i) the additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period and

(ii) the additional Gross NPAs identified by RBI exceed 15 per cent of the published incremental Gross NPAs for the reference period.

Based on the above, no disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI''s annual supervisory process for the year ended March 31, 2021.

* Aggregate Exposure of the Borrower to Lenders above '' 1,500 crore.

$ Balance outstanding does not include 1 case written off during the year.

# No. of cases include 1 case where RP was implemented and there is no balance outstanding as at March 31, 2021.

Note - As per the approved policy of the Bank, in addition to the above, RP is at various stages of implementation for 5 counterparties with aggregate outstanding of '' 382.10 crores as on March 31, 2021. During the year ended March 31, 2022, no Resolution Plan was implemented for these borrowers under the extant framework in line with the revised policy adopted by the Bank.

* As defined in Section 3(7) of the Insolvency and Bankruptcy Code, 2016

$ Includes restructuring done in respect of requests received as of September 30, 2021 processed subsequently

^A Represents debts that slipped into NPA and was subsequently written off during the half-year ended March 31, 2022

# This amount represents amount paid by the borrowers during the half year net of Interest capitalised/ FITL amounts

** Loans restructured under the above framework amounting to '' 33.18 crore, which were not standard as at September 30, 2021 and upgraded to standard during the half year ended March 31, 2022 have not been included

f. COVID-19

Outbreak of COVID-19 pandemic resulted into nation-wide lockdown in March 2020 which had substantially impacted the economic activities. Subsequently in financial year 2020-21, the national lockdown was lifted by the government, but regional lockdowns continued to be implemented in areas with significant number of COVID-19 cases. Further, in the current financial year, India witnessed two more waves of the COVID-19 pandemic which also led to the re-imposition of localised / regional lock-down measures in various parts of the country which were subsequently lifted.

Currently, while the number of new COVID-19 cases have reduced significantly and the restrictions have been eased by the Government, the extent to which the COVID-19 pandemic, including the future subsequent waves, if any, may impact the Bank''s operations and asset quality will depend on future developments. The Bank''s capital and liquidity position is strong and would continue to be the focus area for the Bank during this period.

The Bank holds COVID-19 related contingency provision of '' 165.00 crore as at March 31, 2022.

18.23 Segment reporting

Business Segments :

The business of the Bank is divided into four segments : Treasury, Corporate / Wholesale Banking, Retail Banking Business and Other Banking Business. These segments have been identified and reported taking into account, the target customer segment, the nature of products, internal business reporting system, transfer pricing policy approved by Asset Liability Committee (ALCO), the guidelines prescribed by the Reserve Bank of India (âthe RBI''), which has been relied upon by the Joint Statutory Auditors.

Segment	Principal activities
Treasury	The treasury segment primarily consists of Bank''s investment portfolio, money market borrowing and lending, investment operations and foreign exchange and derivative portfolio of the Bank. Revenue of treasury segment consist of interest income on investment portfolio, inter segment revenue, gains or losses from trading operations, trades and capital market deals. The principal expenses consists of interest expenses from external sources and on funds borrowed from inter segments, premises expenses, personnel cost, direct and allocated overheads.
Corporate / Wholesale Banking	The wholesale banking segment provides loans, non-fund facilities, loan syndication and transaction services to corporate relationship not included under Retail Banking. Revenues of the wholesale banking segment consists of interest earned on loans to customers, inter segment revenue, interest / fees earned on transaction services, earnings from trade services, fees on client FX & derivative and other non-fund facilities. The principal expenses of the segment consists of interest expense on funds borrowed from internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses of delivery channels, and support groups.
Retail Banking	Retail Banking constitutes lending to individuals / business banking customers through the branch network and other delivery channels subject to the orientation, nature of product, granularity of the exposure and the quantum thereof. Revenues of the retail banking segment are derived from interest earned on retail loans, inter segment revenue and fees from services rendered, fees on client FX & derivative. Expenses of this segment primarily comprise interest expense on deposits and funds borrowed from inter segments, commission paid to retail assets sales agents, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated and support groups.
Other Banking Business	This segment includes revenue from distribution of third party products.
Unallocated	All items which are reckoned at an enterprise level are classified under this segment. This includes assets and liabilities which are not directly attributable to any segment. Revenue and expense of this segment includes income and expenditure which are not directly attributable to any of the above segments. Revenue includes interest on income tax refund and expense of this segment mainly includes employee cost, establishment & technology expense which is not directly attributable to any segment.

18.27 Draw down from reserves

The Bank has not undertaken any draw down from reserves during the year ended March 31, 2022 and March 31, 2021.

Appropriation to Reserves

i Statutory Reserve

As mandated by the Banking Regulation Act, 1949, all banking companies incorporated in India shall create a reserve fund, out of the balance of profit of each year as disclosed in the Profit and Loss Account and before any dividend is declared and transfer a sum equivalent to not less than twenty five per cent of such profit. During the year, the Bank has transferred an amount of '' 36.50 crore (Previous Year '' 113.50 crore) to Statutory Reserve Account.

ii Investment Reserve Account (IRA)

As per RBI guidelines, if 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 and 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 Investment Reserve Account. Further, the Bank may draw down from the IRA to the extent of provision made during the year towards depreciation in investment in AFS and HFT categories (net of taxes, if any, and net of transfer to Statutory Reserves as applicable to such excess provision). During the year, the Bank has transferred an amount of '' 199.50 crore (Previous Year '' 335.00 crore) to Investment Reserve Account.

iii Investment Fluctuation Reserve (IFR)

The RBI vide circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 02, 2018 advised banks to create an Investment Fluctuation Reserve (IFR) with effect from FY 2018-19. Accordingly, an amount not less than the lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations shall be transferred to the IFR, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. Where feasible, this should be achieved within a period of 3 years. During the year ended March 31, 2022 and March 31, 2021 the Bank has not transferred any amount to Investment Fluctuation Reserve since net profit after mandatory appropriations was Nil.

iv Capital Reserve

As per RBI Guidelines, profit / loss on sale of investments in the âHeld to Maturity'' category is recognised in the Profit and Loss Account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit / loss on sale of investments in Available for Sale'' and âHeld for Trading'' categories is recognised in the Profit and Loss Account. Accordingly, the Bank has appropriated '' 45.00 crore (Previous Year '' 148.50 crore) to Capital Reserve.

v Special Reserve

As per the provisions under Section 36(1)(viii) of Income Tax Act, 1961, specified entities like banks are allowed deduction in respect of any special reserve created and maintained, i.e. an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head âProfits and Gains of business or profession" is carried to such reserve account. This would be applicable till the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and general reserves of the entity. During the year, the Bank has transferred an amount of '' 6.00 crore (Previous Year '' 24.00 crore) to Special Reserve.

vi General Reserve

During the year ended March 31, 2022 and March 31, 2021, no amount was transferred to the General Reserve.

18.33 Unhedged Foreign Currency Exposure (UFCE)

The Banks Credit Policy outlines the framework for evaluating the risks arising out of unhedged foreign currency exposure of the corporates, while extending credit facilities. Computation of UFCE is in line with the extant regulatory guidelines. At the time of sanctioning of limits, the Bank may stipulate limits on the unhedged foreign currency exposure of the corporate. Additionally, the Bank also monitors the unhedged portion of foreign currency exposures of such corporates on a periodic basis and also adhere to the extant regulatory requirements with regards to capital and provisioning requirements for exposures to entities with UFCE. During the year ended March 31, 2022, incremental capital held towards borrowers having unhedged foreign currency exposures is '' 118.23 crore (Previous Year '' 119.69 crore) and provision held towards UFCE is '' 54.50 crore (Previous Year '' 54.50 crore).

18.38 Disclosures on Remuneration

(i) Qualitative disclosures

a. Information relating to the composition and mandate of the Nomination and Remuneration Committee :

The Board nomination and remuneration committee comprised of the following members :

Mr. Hemang Raja Chairman

Mr. Aashish Kamat Member

Dr. (Mrs.) Brinda Jagirdar Member

Mr. Vishal Mahadevia Member

Some of the key functions of the Committee inter-alia include the following:

i. Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters

ii. Evaluate performance of Senior Management Team members

iii. Make recommendations on remuneration (including performance bonus and perquisites) of Whole Time Directors

iv. Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank

v. Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bank''s stock options to Whole Time Directors of the Bank

vi. Review and recommend to the Board the payment of profit related commission to the Non-Executive Directors of the Bank within the overall limits as may be approved by the shareholders of the Bank, in terms of the Companies Act, 2013 and RBI Guidelines.

b. Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy :

The remuneration philosophy of the Bank is guided by the organization''s Philosophy for enabling employee performance to achieve the organization''s short-term and long-term objectives, balanced with prudent risk taking and are in compliance with the regulatory guidelines.

To achieve this the following principles are adopted:

â¢ The level and composition of remuneration is reasonable and sufficient to attract, retain and motivate talent

â¢ Respect employee needs basis relevant market anchors and to compensate adequately for the contribution towards the Bank''s growth

â¢ The cost / income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio

â¢ The remuneration is balanced between fixed pay and variable pay, with adequate focus on prudent risk taking and the short-term as well as the long-term objectives of the Bank and its shareholders

â¢ Establish relationship between remuneration and performance with adequate focus on achievement of performance objectives incorporating elements of risk, compliance and service measures

i) Governance Framework :

The remuneration of other employees is determined by CHRO in consultation with MD & CEO of the Bank and placed before the NRC & Board for approval.

Bank''s remuneration policy was reviewed by the Nomination and Remuneration Committee of the Bank in order to align with the revised RBI guidelines.

ii) Identification of Material Risk Takers (MRTs) for the Bank based on RBI guidelines:

Standard Qualitative Criteria

Relates to the role and decision-making power of staff members (e.g. senior manager, member of management body) having jointly or individually, the authority to commit significantly to risk exposures, etc.

In addition, following quantitative criteria shall be used to identify the Material Risk Takers (MRTs)

â¢ Quantitative Criteria 1: Their total remuneration exceeds '' 1.5 Crore or

â¢ Quantitative Criteria 2: They are included among top 0.3% of the highest paid employees of the Bank or

â¢ Quantitative Criteria 3: Their remuneration is equal to or greater than the lowest total remuneration of senior management and other risk-takers.

Any employee who meets the qualitative criteria and any one of the quantitative criteria will be considered as a Material Risk Taker.

iii) Compensation Structure of WTD, MD & CEO and MRTs :

â¢ At least 50% of total compensation shall be Variable Pay.

â¢ Value of stock options will be included in definition of âTotal Variable Pay''.

â¢ Total Variable Pay for the MD & CEO/ Whole-time Directors/ Material Risk Takers of the Bank would be capped at 300% of Fixed Pay.

â¢ If the Total Variable Pay is up to 200% of the Fixed Pay, a minimum of 50% of the Variable pay; and in

case Variable Pay is above 200%, a minimum of 67% of the Variable Pay shall be paid via employee stock

options.

â¢ Minimum 60% of the Total Variable Pay shall be deferred over 3 years. If cash component is part of Total Variable Pay, at least 50% of the cash component of variable pay should also be deferred over 3 years. In cases where the cash component of total variable pay is under '' 25 lakh, variable pay shall not be deferred.

â¢ All the fixed items of compensation, including retiral benefits and perquisites, will be treated as part of Fixed Pay.

iv) Components of Remuneration - Risk Control and Compliance Staff (Control Function) :

The total target variable pay for Risk control, Internal audit and Compliance staff shall be less than or equal to fixed pay. Further, a substantial portion of the variable pay should be deferred in the form of cash based or share linked instruments.

All other elements of the compensation policy shall be same as that for WTDs and MRTs.

v) Guidelines on Malus & Clawback :

The Bank has defined guidelines on Malus and Clawback Conditions applicable under various scenarios These conditions are included in the Remuneration Policy and Employee terms and conditions.

c. Description of the ways in which current and future risks are taken into account in the remuneration process including the nature and type of the key measures used to take account of these risks :

âRisk Appetite Statement Framework'' has been designed for the Bank - which provides strategic guidance around various parameters. It includes the Bank''s risk appetite, limits framework and policies and procedures governing various types of risk.

Bank''s Board Approved Risk Appetite Statement (RAS) has clearly articulated & quantified portfolio level risk metrics / measures stipulated for each business segment which includes parameters like on-Boarding criteria basis internal rating threshold, restrictions pertaining to specific industries / transactions, portfolio quality metrics, risk-based caps related to exposure, rating concentration, product concentration, group exposure etc. The RAS is communicated to the stakeholders in the form of the various limits and mandates. MD & CEO along with Risk Management Committee of the Bank ensures overall adherence to Risk Appetite Statement of the Bank. Some of the Bank level metrics includes limits on strategic risk, capital adequacy, liquidity risk, reputation risk etc.

Performance and risk measures are part of the performance assessment framework and are factored in while assessing performance. Remuneration is decided basis performance evaluation for the year. The remuneration framework is designed to focus on achieving financial and non-financial objectives, risk-adjusted returns that are consistent with our prudent risk and capital management, as well as emphasis on long-term sustainable outcomes.

The pay-out structure for the WTD, MD & CEO, Senior Management Team, MRTs & Control function are designed to align to performance payments with the long-term sustainable performance of the Bank through deferral and claw-back arrangements.

d. Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration :

Performance and its linkage to levels of remuneration is guided by the objective / principles of the Remuneration and Performance Management Framework defined by the Bank.

Performance measures are clearly defined in the beginning of the year for all the employees.

While setting performance measures of the MD & CEO, Senior Management team, MRTs & Control Function Staff, Strategy of the Bank is kept in context. Further, bank identifies key parameters that are important for the growth, success, stability and effective risk management of the bank, as desired by the Board. Further, non-financial criteria such as maintaining high level of Compliance and Governance, Risk, Customer Centricity, Operations excellence & People management are also considered.

The Bank follows balance scorecard approach for managing performance and pay-outs.

Individual performances are assessed annually, and the rewards are determined on the basis of the achievements against the various financial and non-financial objectives. The Performance measures revised annually, reflect the priorities for the year in line with the short-term, long-term, financial and non-financial objectives.

This ensures close linkage between total compensation and our annual and long-term business objectives as it is measured through the balanced scorecard.

e. Bankâs policy on deferral and vesting of variable remuneration and a discussion of the Bankâs policy and criteria for adjusting deferred remuneration before vesting and after vesting :

The Remuneration Policy is approved by the Bank''s Nomination and Remuneration Committee and the Board.

The Bank remuneration framework consist of guarding against excessive risk taking, wherein Bank has focus on achieving risk adjusted returns that are consistent with our prudent risk management, as well as emphasis on Long-term sustainable outcomes. Pay-out structures are designed to align variable pay with the long-term performance of the Bank through deferral and malus / claw back arrangements.

Compensation in the Bank has linkages to risk outcomes, time horizon sensitive pay-out schedule in the form of a longer deferral period of 3 to 5 years for the variable remuneration. The cash component of variable pay over '' 25 lakhs vest in 3 years as per the guidelines. The ESOP vest from 2nd to 6th year (20 % each year). In addition, cash bonus, unvested and /or vested shares is subject to malus/clawback and subject to the events triggered as stated in the Remuneration Policy.

f. Description of the different forms of variable remuneration (i.e. cash, shares, Share-linked instruments and other forms) that the Bank utilizes and the rationale for using these different forms :

The Bank has the following forms of variable remuneration pay for WTD & MRTs & Control Function staff:

â¢ Cash Variable pay - This is part of the annual performance and compensation review cycle and is basis the performance rating of the individual employee.

â¢ Non Cash Variable pay - In the form of an ESOP scheme has been designed with a view to ensure an appropriate risk balanced remuneration architecture.

(ii) Quantitative disclosures

The quantitative disclosures cover the Bank''s Whole Time Directors / Chief Executive Officer / Material Risk Takers

1. For FY 2021-22, Remuneration paid includes MD & CEO and 21 other Material Risk Takers (MRTs) identified in current year.

For FY 2020-21, it includes MD & CEO and 22 other Material Risk Takers (MRTs) identified in Previous Year.

2. In FY 2020-21 joining bonus was paid to one Material risk takers (MRTs) for whom the joining offer was made prior to the implementation of compensation guideline dated November 04, 2019.

3. Represents Long-term Incentive paid.

4. Represents portion of Variable pay for FY 2020-21 payable from April 2022 to April 2024.

5. Represents variable pay for FY 2019-20 and portion of variable pay for FY 2020-21 paid in FY 2020-21 and FY 2021-22 respectively

6. Mean pay calculation of the Bank employees is based on Total Fixed Pay, which includes âBasic Pay, Allowances, and Employer''s contribution to Provident Fund". Deviation of the pay of MD & CEO from the mean pay of the Bank is the difference between MD & CEO''s Total Fixed Pay and mean pay of the Bank.

7. Fixed pay of MRTs includes âTotal Fixed pay (on actual basis), leave encashment, perquisites, Gratuity".

8. Fair Value is calculated using fair value of stock options computed using Black- Scholes options pricing model as on the grant date.

18.40 Net Stable Funding ratio

18.41 Liquidity Coverage Ratio

Qualitative disclosure

Liquidity risk management of the Bank is undertaken by the Balance Sheet Management Group (BSMG) under the central oversight of the Asset Liability Management Committee (ALCO) in accordance with the Board approved policies and ALCO approved funding plans. The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI for reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO), Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

As a strategy, the Bank is highly invested into GOI Bonds and corporate bonds which has resulted in a high level of HQLA. The Bank follows the criteria laid down by the RBI for month-end calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30 day period. HQLA predominantly comprises Government securities in excess of minimum SLR requirement viz. Treasury Bills, Central and State Government securities and corporate bonds in form of CP, CD and Bonds rated AA- and above with mandated haircuts applied thereto.

Bank is funded through Long-term bonds, term deposits, CASA, refinance and foreign currency borrowings. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation.

The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short-term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bank''s ALCO for perusal and review.

The average weighted and unweighted amounts are calculated taking daily averages.

* âOther Cash inflows" include inflows related to derivative exposure. The corresponding outflows related to derivative exposures are shown separately under â5.i. Outflows related to derivative exposures and other collateral requirements".

Note : Classification of inflows and outflows for determining the run off factors is based on the same estimates and assumptions as used by the Bank for compiling the return submitted to the RBI, which has been relied upon by the Joint Statutory Auditors.

e. Relatives of key management personnel:

Mrs. Jeyashree Vaidyanathan, Mr. Krishnamurthy Vembu, Mr. Pranav Vaidyanathan, Mr. Amartya Vaidyanathan, Ms. Anusha Vaidyanathan, Group Captain V. Satyamurthy, Maj V Krishnamurthy and Ms. Savitri Krishnamoorthy

In accordance with paragraph 5 and 6 of AS - 18, the Bank has not disclosed certain transactions with relatives of key management personnel as they are in the nature of banker-customer relationship.

The significant transactions between the Bank and related parties for year ended March 31, 2022 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of all related party transactions in that category:

* Dividend received from pre-acquisition profits of subsidiary is reduced from cost of investments as per AS - 13 - Accounting for Investments

^A During FY 2021-22, the Board of Directors of the Bank, based on the recommendation of Nomination and Remuneration Committee, at

its meeting held on June 30, 2021 had approved grant of 2,999,748 stock options to Mr. V. Vaidyanathan, MD & CEO under âIDFC FIRST Bank - Employees Stock Option Scheme 2015''.

During FY 2020-21, the Board of Directors of the Bank, based on the recommendation of Nomination and Remuneration Committee, at its meeting held on May 21, 2020 had approved grant of 5,000,000 stock options to Mr. V. Vaidyanathan, MD & CEO under âIDFC FIRST Bank - Employees Stock Option Scheme 2015''

18.44 Movement in stock options granted is as under:

Employee Stock Option Scheme (ESOS) of IDFC FIRST Bank Limited viz. IDFC FIRST Bank ESOS-2015 ( âthe Scheme") was framed with an object of encouraging higher participation on the part of employees in the Bank''s financial growth and success. An effective stock option scheme enables retention of talent and aligning employee interest to that of the Shareholders.

The Shareholders of the Bank at its Extra-Ordinary General Meeting held on December 09, 2014 had approved IDFC FIRST Bank ESOS - 2015. The Scheme was further amended and was approved by the shareholders at its 1st Annual General Meeting (AGM) held on September 29, 2015, at the 2nd AGM held on July 27, 2016 and at 5th AGM held on July 25, 2019.

All Options vests in a graded manner and are required to be exercised within a specific period. The Bank has used the intrinsic value method to account for the compensation cost of stock options to employees of the Bank (other than Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff). Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price on the Option. Accounting for the stock options has been in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 to the extent applicable. Further, the Bank recognises fair value of share-linked instruments on the date of grant as an expense for all instruments granted after the accounting period ending March 31, 2021 for Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff as required in the RBI clarification dated August 30, 2021 on âGuidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff". The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model and is recognised as compensation expense over the vesting period.

During the year ended March 31, 2022, there has been no material change in the Scheme.

18.49 Proposed dividend

The Bank did not declare any dividend for the financial year ended March 31, 2022 and March 31, 2021.

18.50 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises. During the year ended March 31, 2022, '' 12.20 crore (Previous Year '' 23.91 crore) worth bills were paid with delays to Micro and Small Enterprises and '' 0.10 crore (Previous Year '' 1.86 crore) worth bills which remained unpaid as at March 31, 2022. There have been no demand of interest on these payments except for one instance which amounts to '' 0.01 crore (Previous Year Nil).

18.51 Disclosure on Factoring

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head âBills Purchased and Discounted'' in Schedule 9 of the Balance Sheet. The Bank has factoring exposure of '' 1,057.31 crore (Previous Year '' 875.05 crore) and outstanding of '' 738.97 crore (Previous Year '' 607.13 crore) as on March 31, 2022.

18.52 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.

18.53

As per the Master Direction on Financial Statements - Presentation and Disclosures issued by the RBI dated August 30, 2021, provision / (write-back) of mark-to-market depreciation on investments in AFS and HFT categories (net) are classified under âOther Income". Hitherto, the Bank was classifying such provisions / (write-back) under Provisions and Contingencies. Further, the provision on Non- Performing Investments (NPIs) and Identified Investments continues to be shown under Provisions and Contingencies. Previous period figures have been reclassified accordingly in line with this presentation. There is no impact of this change on net profit / loss.

18.54

RBI, vide its clarification dated August 30, 2021 on âGuidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff", advised that the fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted to the above category of employees after March 31, 2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model and is recognised as compensation expense over the vesting period. As a result, âEmployees cost'' for the year ended March 31, 2022 has increased by '' 14.50 crore.

18.55 Description of contingent liabilities

i. Claims against the Bank not acknowledged as debts

The Bank is a party to taxation matters which are in dispute and are under appeal. The demands are either in the process of being stayed or have been partly or wholly paid / adjusted and will be received as refund (where paid / adjusted) to the extent the matters are decided in favour of the Bank. 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 Bank''s financial conditions, results of operations or cash flows.

ii. Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact.

iii. Liability on account of forward exchange and derivative contracts

Further, the notional amount of the financial instruments do not represent the current fair value or future cash flows and hence do not indicate Banks'' exposure to credit or price risk. The derivative instrument becomes an asset / liability basis change in underlying market rates compared to contracted rates.

iv. Guarantees given on behalf of constituents

v. Acceptances, endorsements and other obligations

These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

vi. Other items

Other items represent estimated amount of contracts remaining to be executed on capital account. This also includes the amount of investments bought and remaining to be settled on the date of financial statements.

18.56 Implementation of IFRS converged Indian Accounting Standards (Ind-AS)

The Reserve Bank of India vide Circular RBI/2018-2019/146 DBR.BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019 has decided to defer the implementation of Ind-AS for banks till further notice.

The Bank has made considerable progress on Ind AS implementation. The Bank is an associate company of the IDFC Limited (âIDFC''), which is a Non-Banking Finance Company (NBFC) that falls under the âInd-AS Road map'' and to whom Ind-AS is mandatorily applicable from April 01, 2018 and accordingly, the Bank has been preparing and submitting special purpose âFit-for-Consolidation" consolidated financials under Ind-AS to IDFC Limited with the transition date as April 01, 2017. Under the RBI guidelines, Banks are not allowed to early adopt Ind-AS. Accordingly, the general-purpose financial statements of the Bank presented in the Annual Report are not under Ind-AS. The results of the Bank upon its first-time adoption of and transition to Ind-AS, based on the updated regulations and accounting standards / guidance and business strategy at the date of actual transition, could differ from those reported in the Fit-for-Consolidation information. Further, the Bank also submits Standalone Proforma financials in the format and frequency as prescribed by the RBI. These submissions including Fit-for-Consolidation information are reviewed by the management and approved by the Audit Committee of the Bank.

The implementation of Ind-AS is expected to result in significant changes to the way the Bank prepares and presents its financial statements. The areas that are expected to have significant accounting impact on the application of Ind-AS are summarized below:

3) Stock options will be required to be fair valued on the date of grant and be recognized as staff expenses in the income statement over the vesting period of the stock options.

4) The impairment requirements of Ind-AS 109, Financial Instruments, are based on an Expected Credit Loss (ECL) model that replaces the incurred loss model under the existing reporting framework. The Bank will be generally required to recognize either a 12-Month or Lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. Ind-AS 109 will change the Bank''s current methodology for calculating the provision for standard assets and non-performing assets (NPAs). The Bank will be required to apply a three-stage approach to measure ECL on financial instruments accounted for at amortised cost or fair value through other comprehensive income. Financial assets will migrate through the following three stages based on the changes in credit quality since initial recognition:

5) Accounting impact on the application of Ind-AS at the transition date shall be recognised in Equity (Reserves and Surplus) as and when it becomes statutorily applicable to the Bank.

18.57 Disclosure on LIBOR to IBOR Transition

In 2017, the Financial Conduct Authority (FCA) and the Bank of England''s Financial Policy Committee (FPC) noted that it had become increasingly apparent that the absence of active underlying markets and the scarcity of term unsecured deposit transactions raised serious questions about the future sustainability of the LIBOR benchmarks.

The LIBOR panel banks agreed transition to a new Risk-Free Rate (RFR) from LIBOR by the end-2021 (later extended to end-June 2023 for US dollar LIBOR only), to enable time for the market to move away from LIBOR.

As planned by FCA, January 2022 marked the publication of 24 out of the 35 CHF, EUR, GBP, USD and JPY LIBOR settings has ceased, and the 6 most widely used GBP and JPY settings will be published using a changed methodology (âsynthetic LIBOR"). The remaining 5 USD LIBOR settings will continue to be calculated using panel bank submissions until mid-2023 to facilitate with limited exceptions.

Considering the above global development, the Bank has actively engaged with clients to provide necessary information to help their transition journey. The Bank has adhered to the

Mar 31, 2021

18.10 Disclosures on risk exposure in derivatives

Qualitative disclosures :

a. Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigants :

ii Treasury Sales Desk is a customer centric desk that caters to customersâ requirements in FX and Derivatives products subject to regulatory and internal requirements. Product offering to the clients is based on Suitability and Appropriateness policy of the Bank as well as by the extant RBI guidelines. The policy ensures that the product being offered by the Bank are in sync with the nature of the underlying risk sought to be hedged giving due regard to the risk appetite of the customer and understanding of the risk by the customer. Market Risk exposures of clients arising out of FX and Derivative transactions are monitored by the Bank on a daily basis through current exposure method. Exposures are independently monitored and reported.

iii The Bank recognises all derivative contracts (other than those designated as hedges) at fair value. The mark to market movement on the positions is monitored on a daily basis. Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss Account. Hedge transactions are accounted for on an accrual basis. Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item.

iv All the derivative transactions are governed by the FX & Derivative policy, Market Risk Management policy and Limit Management Framework of the Bank. Limit Management Framework details various types of market risk limits which are monitored on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically and presented to the Market Risk Committee / Asset Liability Committee. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. The Bank has a clear functional segregation of Treasury operations between Front Office, Market Risk and Back Office.

b. 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 :

For hedge transactions, the Bank identifies the hedged item (asset or liability) and assesses the effectiveness at inception as well as at each reporting date. Funding swaps are accounted in accordance with FEDAI guidelines.

Interest rate swaps are booked with the objective of managing the interest rate risk on liabilities. Interest rate swaps in the nature of hedge are recorded on accrual basis and these transactions are not marked-to-market. Any resultant profit or loss on termination of the hedge swaps is amortised over the life of the swap or underlying liability, whichever is shorter.

ii The Bank has computed maximum and minimum of PV01 for the year based on monthly averages.

iii In respect of derivative contracts, the Bank evaluates the credit exposure arising therefrom. Credit exposure has been computed using the Current Exposure Method (CEM) which is the sum of :

a. the current replacement cost (marked-to-market value including accrued interest) of the contract or zero whichever is higher; and

The RBI had released amendments to prudential guidelines on Bilateral Netting of Qualified Financial Contracts on March 30, 2021. The Bank shall work towards implementation of the same. However, it may be noted that the credit exposure (CEM) is currently reckoned basis the earlier methodology defined under Basel III Capital Regulations, which are more conservative for exposure measurement.

18.11 Credit Default Swaps

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2021 and March 31, 2020. Further, there are no outstanding CDS as on March 31, 2021 and March 31, 2020.

b Divergence in Asset Classification and Provisioning for NPAs :

In terms of the RBI circular no. DBR.BP.BC.No.32/21.04.018/2018-19 dated 1 April, 2019, banks are required to disclose the divergences in asset classification and provisioning consequent to RBIâs annual supervisory process in their notes to accounts to the financial statements, wherever either or both of the following conditions are satisfied: (a) the additional provisioning for NPAs assessed by RBI exceeds 10 per cent of the reported profit before provisions and contingencies for the reference period and (b) the additional Gross NPAs identified by RBI exceed 15 per cent of the published incremental Gross NPAs for the reference period.

Based on the above, no disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBIâs annual supervisory process for the year ended 31 March, 2020.

The impact of COVID-19, including changes in customer behaviour and pandemic fears, as well as restrictions on business and individual activities, has led to significant volatility in global and Indian financial markets and a significant decrease in global and local economic activity, which may persist even after the restrictions related to the COVID-19 outbreak are being lifted. While the easing of restrictions has driven a revival in economic activity across sectors, the continued slowdown has impacted lending business, fee income generation from sale of third party products, collection efficiency etc. Further, there may be a rise in the number of customer defaults and consequently an increase in provisions. The extent to which the COVID-19 pandemic, including the current âsecond waveâ will continue to impact the Bankâs operations and asset quality will depend on future developments, which are highly uncertain. The current second wave COVID-19 pandemic where the number of cases have increased significantly in India, has resulted into re-imposition of localised / regional lock down measures in various parts of the country. The Bankâs capital and liquidity position is strong and would continue to be the focus area for the Bank during this period.

In accordance with the RBI guidelines on âCOVID-19 Regulatory Packageâ of March 27, 2020, April 17, 2020 and May 23, 2020, the Bank granted moratorium on repayment of instalments and/or interest, as applicable, due between March 1, 2020 and August 31, 2020 to all eligible borrowers. For all eligible accounts, where the moratorium was granted, the asset classification was under standstill during the moratorium period (i.e. the number of days past-due shall exclude the moratorium period for the purposes of asset classification under the Income Recognition, Asset Classification and Provisioning norms).

During the year ended March 31, 2021, the Bank has made additional COVID-19 related provision (net) amounting to '' 375.00 crores.

e Resolution Framework for COVID-19-related Stress

Details of resolution plan implemented under the Resolution Framework for Covid-19 related stress as per RBI circular dated August 6, 2020 during the year ended March 31, 2021:

f Micro, Small and Medium Enterprises (MSME) sector - Restructuring of Advances

With reference to the RBI circular RBI/2020-21/17 DOR.No.BP.BC/4/21.04.048/2020-21 dated August 6, 2020, Banks are advised to disclose MSME accounts restructured as under:

18.24 Unsecured advances

During the year ended March 31, 2021, there are unsecured advances of '' 655.23 crore (Previous Year '' 811.38 crore) for which intangible securities such as charge over the rights, licenses, authority etc. has been taken as collateral by the Bank and the estimated value of the intangible collaterals was '' 1,844.78 crore (Previous Year '' 2,154.12 crore).

18.25 Disclosure of penalties imposed by RBI

During the year ended March 31, 2021, no penalty was imposed by the RBI. During the previous year, RBI imposed a penalty of '' 10,000 on the Bank with respect to certain deficiencies observed on note /coin exchange and clean note policy during the incognito visit to the branch.

ii Gratuity

The following tables summarise the components of net benefit expenses recognised in the Profit and Loss Account and funded status and amounts recognised in the balance sheet for the gratuity benefit plan :

18.27 Segment reporting

Business Segments :

The Business of the bank is divided into four segments : Treasury, Corporate / Wholesale Banking, Retail Banking Business and Other Banking Business. These segments have been identified and reported taking into account, the target customer segment, the nature of products, internal business reporting system, transfer pricing policy approved by Asset Liability Committee (ALCO), the guidelines prescribed by the Reserve Bank of India (âthe RBIâ), which has been relied upon by the auditors.

Appropriation to Reserves

i Statutory Reserve

As mandated by the Banking Regulation Act, 1949, all banking companies incorporated in India shall create a reserve fund, out of the balance of profit of each year as disclosed in the profit and loss account and before any dividend is declared and transfer a sum equivalent to not less than twenty five per cent of such profit. During the year, the Bank has transferred an amount of '' 113.50 crore (Previous year Nil) to Statutory Reserve Account.

ii Investment Reserve Account (IRA)

As per RBI guidelines, if provisions created on account of depreciation in the âAFSâ or âHFTâ categories are found to be in excess of the required amount in any year, the excess shall be credited to the Profit and 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 Investment Reserve Account. Further, the Bank may draw down from the IRA to the extent of provision made during the year towards depreciation in investment in AFS and HFT categories (net of taxes, if any, and net of transfer to Statutory Reserves as applicable to such excess provision). During the year, the Bank has transferred an amount of '' 335.00 crore (Previous year Nil) to Investment Reserve Account.

iii Investment Fluctuation Reserve (IFR)

The RBI vide circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 advised banks to create an Investment Fluctuation Reserve (IFR) with effect from FY 2018-19. Accordingly, an amount not less than the lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations shall be transferred to the IFR, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. Where feasible, this should be achieved within a period of 3 years. During the year, the Bank has transferred Nil (Previous year Nil) to Investment Fluctuation Reserve.

iv Capital Reserve

recognised in the Profit and Loss Account. Accordingly, the Bank has appropriated '' 148.50 crore (Previous Year '' 166.00 crore) to capital reserve.

v Special Reserve

As per the provisions under Section 36(1)(viii) of Income Tax Act, 1961, specified entities like banks are allowed deduction in respect of any special reserve created and maintained, i.e. an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head âProfits and gains of business or professionâ is carried to such reserve account. This would be applicable till the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and general reserves of the entity. During the year, the Bank has transferred an amount of '' 24.00 crore (Previous Year Nil) to Special Reserve.

vi General Reserve

During the year ended March 31, 2021 and March 31, 2020, no amount was transferred to the general reserve.

18.38 Unhedged Foreign Currency Exposure (UFCE)

The Bankâs Credit Policy lays down that the Bank will evaluate risks arising out of unhedged foreign currency exposures of the borrowers and will also monitor the same. Both at the time of initial approval as well as subsequent reviews, the assessment of credit risk arising out of foreign currency exposure of the borrowers include details of imports, exports, repayments of foreign currency borrowings, as well as hedges done by the borrowers or naturally enjoyed by them visa-vis their intrinsic financial strength, history of hedging and losses arising out of foreign currency volatility. The details of unhedged foreign currency exposure of customers are monitored periodically. The Bank also maintains additional provision and capital, in line with RBI guidelines.

During the year ended March 31, 2021, incremental capital held towards borrowers having unhedged foreign currency exposures is ''119.69 crore (Previous Year ''43.37 crore) and provision held towards UFCE is ''54.50 crore (Previous Year ''41.81 crore).

18.43 Disclosures on Remuneration

Qualitative disclosures

a Information relating to the composition and mandate of the Remuneration Committee :

The Board nomination and remuneration committee comprised of the following members :

Mr. Hemang Raja Chairman

Mr. Aashish Kamat Member

Dr. (Mrs.) Brinda Jagirdar Member

Mr. Vishal Mahadevia Member

The functions of the Committee inter-alia include the following :

i Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters

ii Make recommendations on remuneration (including performance bonus and perquisites) of Whole Time Directors

iii Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank

iv Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bankâs stock options to Whole Time Directors of the Bank

v Review and recommend to the Board the payment of profit related commission to the Non-Executive Directors of the Bank within the overall limits as may be approved by the shareholders of the Bank, in terms of the Companies Act, 2013 and RBI Guidelines.

b Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy :

The principles for Remuneration Policy at the Bank have been formulated with the approval of the Nomination and Remuneration Committee (âNRCâ). They are guided by the organizationâs philosophy for enabling employee performance to achieve the organizationâs short term and long term objectives, balanced with prudent risk taking and are in compliance with the RBIâs Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk takers and Control function staff, etc. dated January 13, 2012.

The principles are as follows:

â¢ To ensure that the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate talent.

â¢ To ensure that the remuneration is balanced between fixed pay, variable pay and ESOPs, with adequate focus on prudent risk taking and the short-term as well as the long-term objectives of the Bank and its shareholders.

â¢ To ensure a clear relationship between remuneration and performance with adequate focus on achievement of performance objectives incorporating elements of risk, compliance and service measures.

â¢ To respect employee needs basis relevant market anchors and to compensate adequately for the contribution towards the Bankâs growth.

â¢ To ensure that the cost/income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio.

c Description of the ways in which current and future risks are taken into account in the remuneration process including the nature and type of the key measures used to take account of these risks :

The Board approves the risk framework for the Bank. Business activities of the Bank are undertaken within this framework to achieve the financial plan. The risk framework includes the Bankâs risk appetite, limits framework and policies and procedures governing various types of risk. The performance evaluation framework of Whole Time Directors, equivalent positions and senior management personnel in material risk taker roles, incorporates these risk and control aspects as detailed by the Board. These factors include (but are not limited to) elements such as consistency in asset quality, rating slippage of existing loans, RORWA, operational risk parameters and quality of systems. The performance management framework of the Bank will evolve over time and get more sophisticated and mature. As regards linkage to remuneration, the compensation for Whole Time Directorâs, etc. is paid in fixed pay, performance linked variable pay and stock options which is approved by the NRC.

d Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration :

Performance and its linkage to levels of remuneration will be guided by the objectives / principles as spelt out in Item b above. Annual Remuneration package comprises of a combination of fixed salary, cash bonus and ESOPs, in a mix that ensures appropriate alignment with RBI guidelines, long term value creation and stability of the Bank. Further, total pay levels will be referenced against 66th percentile of Indian private sector banks.

e Bank''s policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting :

As outlined in Item (d) above, deferral structures have been incorporated and published to the staff. For senior levels and material risk taker roles, remuneration package represents a mix of fixed pay, cash bonus and ESOP with deferred vesting schedule. Further, the deferred / unvested portions will be subject to âmalusâ provision in conformity with RBI guidelines.

f Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms :

The bank has the following forms of variable remuneration

â¢ Annual Cash Bonus - This is part of the annual performance and compensation review cycle and is basis the performance rating of the individual employee.

â¢ Sales Incentive Plan - employees in sales, customer relationship / service, collections & operations are covered under Incentive Plan. The coverage and payout plan is defined on the basis of business plans and budgets, it is designed keeping in mind, requisite emphasis on risk and control parameters.

â¢ Promotional activities which may result in rewards on achieving threshold targets. This may be in cash or kind and is subject to perquisite tax as applicable.

â¢ The ESOP scheme has been designed with a view to ensure an appropriate risk balanced remuneration architecture.

Quantitative disclosures

The quantitative disclosures cover the Bankâs Whole Time Directors.

18.45 Liquidity Coverage Ratio

Qualitative disclosure

Liquidity risk management of the Bank is undertaken by the Balance Sheet Management Group (BSMG) under the central oversight of the Asset Liability Management Committee (ALCO) in accordance with the Board approved policies and ALCO approved funding plans. The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI for reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO), Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

Bank is funded through long term bonds , term deposits, CASA, refinance and foreign currency borrowings. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation.

The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bankâs ALCO for perusal and review.

e Relatives of key management personnel:

Mrs. Jeyashree Vaidyanathan, Mr. Krishnamurthy Vembu, Mr. Pranav Vaidyanathan, Mr. Amartya Vaidyanathan, Ms. Anusha Vaidyanathan, Group Captain V. Satyamurthy, Mr. Maj V Krishnamurthy, Ms. Savitri Krishnamoorthy

In accordance with paragraph 5 and 6 of AS - 18, the Bank has not disclosed certain transactions with relatives of key management personnel as they are in the nature of banker-customer relationship.

The significant transactions between the Bank and related parties for year ended March 31, 2021 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of all related party transactions in that category:

â¢ Interest Expense :

IDFC Financial Holding Company Limited '' 7.61 crore (Previous year '' 3.99 crore); IDFC FIRST Bharat Limited '' 2.47 crore (Previous year '' 3.97 crore)

â¢ Interest income earned :

Millennium City Expressways Private Limited '' 8.93 crore (Previous year '' 0.11 crore)

â¢ Managerial Remuneration :

Mr. V. Vaidyanathan '' 6.18 crore (Previous year '' 8.72 crore)

â¢ Receiving of services

IDFC FIRST Bharat Limited '' 464.35 crore (Previous year '' 372.62 crore)

â¢ Rendering of services

Millennium City Expressways Private Limited '' 0.10 crore (Previous year '' 0.10 crore); IDFC FIRST Bharat Limited '' 0.01 crore (Previous year Nil)

â¢ Sale of fixed assets

IDFC Limited '' 0.09 crore (Previous year Nil)

The details of the transactions of the Bank with its related party during the year ended March 31, 2021 are given below:

18.47 Earnings per share (âEPSâ)

Basic and diluted earnings per equity share are computed in accordance with AS 20 - Earnings per share. Basic earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive. Dilution of equity is on account of stock options granted to employees by the Bank.

18.48 Movement in stock options granted is as under:

Employee Stock Option Scheme (ESOS) of IDFC FIRST Bank Limited viz. IDFC FIRST Bank ESOS-2015 was framed with an object of encouraging higher participation on the part of employees in the Bankâs financial growth and success. An effective stock option scheme enables retention of talent and aligning employee interest to that of the Shareholders.

The Shareholders of the Bank at its Extra-Ordinary General Meeting held on December 09, 2014 had approved IDFC FIRST Bank ESOS - 2015. The IDFC FIRST Bank ESOS - 2015 was further amended and was approved by the shareholders at its the 1st Annual General Meeting (AGM) held on September 29, 2015, at the 2nd AGM held on July 27, 2016 and at 5th AGM held on July 25, 2019.

IDFC FIRST Bank ESOS-2015 is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, as amended from time to time. IDFC FIRST Bank ESOS-2015 is administered by the Nomination and Remuneration Committee (âNRCâ) of the Bank. As per IDFC FIRST Bank ESOS-2015, the Bank is authorized to issue Employee Stock Options to Eligible Employees as defined under the IDFC FIRST Bank ESOS-2015.

All Options vests in a graded manner and are required to be exercised within a specific period. The Bank has used the intrinsic value method to account for the compensation cost of stock options to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price on the Option. Accounting for the stock options has been in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to the extent applicable.

During the year ended March 31, 2021, there has been no material change in IDFC FIRST Bank ESOS-2015.

18.53 Proposed dividend

The Bank did not declare any dividend for the financial year ended March 31, 2021 and March 31, 2020.

18.54 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. During the year ended March 31, 2021 '' 23.91 crores (Previous Year Nil) worth bills were paid with delays to micro and small enterprises and '' 1.86 crores worth bills remained unpaid as at March 31, 2021. There have been no demand of interest on these payments.

18.55 Disclosure on Factoring

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head âBills Purchased and Discountedâ in Schedule 9 of the Balance Sheet. The Bank has factoring exposure of '' 875.05 crore (Previous Year '' 876.14 crore) and outstanding of '' 607.13 crore (Previous Year '' 573.87 crore) as on March 31, 2021.

18.56 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.

18.57 The Bank pays loan servicing fees to business correspondents for services rendered towards sourcing and servicing of loans and other related activities. These were hitherto netted off from âInterest/discount on advances/billsâ in the profit and loss account. During the year ended March 31, 2021, the Bank has changed this presentation and accordingly reclassified them as part of âOperating Expensesâ with the corresponding change in the previous year. Basis this change, all relevant disclosures have been regrouped / reclassified wherever applicable.

18.58 In accordance with the instructions in the aforesaid circular dated April 07, 2021, the Bank shall refund / adjust âinterest on interestâ to all borrowers including those who had availed of working capital facilities during the moratorium period, irrespective of whether moratorium had been fully or partially availed, or not availed. As required by the RBI notification, the methodology for calculation of such interest on interest has recently been circulated by the Indian Banksâ Association. The Bank is in process of implementing this circular. As at March 31, 2021, the Bank has created a liability towards estimated interest relief of '' 55.00 crore and reduced the same from the interest income.

18.59 Description of contingent liabilities

i Claims against the Bank not acknowledged as debts

The Bank is a party to taxation matters which are in dispute and are under appeal. The demands have been partly paid / adjusted and will be received as refund if the matters are decided in favour of the Bank. 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 flows.

ii Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact.

iii Liability on account of forward exchange and derivative contracts

price.

Further, the notional amount of the financial instruments do not represent the current fair value or future cash flows and hence do not indicate Banksâ exposure to credit or price risk. The derivative instrument becomes an asset / liability basis change in underlying market rates compared to contracted rates.

iv Guarantees given on behalf of constituents

v Acceptances, endorsements and other obligations

These includes documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bankâs customers that are accepted or endorsed by the Bank.

vi Other items

18.61 Comparative figures

Figures for the previous year have been regrouped and reclassified wherever necessary to conform to the current yearâs presentation.

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Mar 31, 2019

18.34 Disclosure of letters of comfort (LoCs) issued by banks

The Bank has not issued any Letter of Comfort to its subsidiary / group companies during the years ended March 31, 2019 and March 31, 2018.

18.35 Bancassurance business

The details of fees / brokerage earned in respect of insurance broking, agency and bancassurance business undertaken by the Bank are as under:

18.37 Exposure to Infrastructure Leasing & Financial Services Limited (ILFS) and its group entities

With reference to the RBI circular DBR.BP.BC.No.37/21.04.048/2018-19 dated April 24, 2019, Banks are advised to disclose exposure to ILFS and its group entities:

18.40 Unhedged Foreign Currency Exposure (UFCE)

The Bankâs Credit Policy lays down that the Bank will evaluate risks arising out of unhedged foreign currency exposures of the borrowers and will also monitor the same. Both at the time of initial approval as well as subsequent reviews, the assessment of credit risk arising out of foreign currency exposure of the borrowers include details of imports, exports, repayments of foreign currency borrowings, as well as hedges done by the borrowers or naturally enjoyed by them vis-a-vis their intrinsic financial strength, history of hedging and losses arising out of foreign currency volatility. The details of unhedged foreign currency exposure of customers are monitored periodically. The Bank also maintains additional provision and capital, in line with RBI guidelines. Total provision held towards UFCE is Rs, 33.37 crore (Previous Year Rs, 14.68 crore).

18.45 Disclosures on Remuneration

Qualitative disclosures

a Information relating to the composition and mandate of the Remuneration Committee:

The Board nomination and remuneration committee comprised of the following members:

Mr. Hemang Raja Chairman

Mr. Aashish Kamat Member

Dr. (Mrs.) Brinda Jagirdar Member

Mr. Vishal Mahadevia Member

The functions of the Committee include:

i Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters

ii Make recommendations on remuneration (including performance bonus and perquisites) of Whole Time Directors

iii Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank

iv Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bankâs stock options to Whole Time Directors of the Bank

b Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy:

The principles for Remuneration Policy at the Bank have been formulated with the approval of the Nomination and Remuneration Committee (''NRC''). They are guided by the organizationâs philosophy for enabling employee performance to achieve the organizationâs short term and long term objectives, balanced with prudent risk taking and are in compliance with the RBIâs Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk takers and Control function staff, etc. dated January 13, 2012. The principles are as follows:

- To ensure that the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate talent.

- To ensure that the remuneration is balanced between fixed pay, variable pay and ESOPs, with adequate focus on prudent risk taking and the short-term as well as the long-term objectives of the Bank and its shareholders.

- To ensure a clear relationship between remuneration and performance with adequate focus on achievement of performance objectives incorporating elements of risk, compliance and service measures.

- To respect employee needs basis relevant market anchors and to compensate adequately for the contribution towards the Bankâs growth.

- To ensure that the cost/income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio.

c Description of the ways in which current and future risks are taken into account in the remuneration process including the nature and type of the key measures used to take account of these risks:

Directors, equivalent positions and senior management personnel in material risk taker roles, incorporates these risk and control aspects as detailed by the Board. These factors include (but are not limited to) elements such as consistency in asset quality, rating slippage of existing loans, RORWA, operational risk parameters and quality of systems. The performance management framework of the Bank will evolve over time and get more sophisticated and mature. As regards linkage to remuneration, the compensation for Whole Time Director''s, etc. is paid in fixed pay, performance linked variable pay and stock options which is approved by the NRC.

d Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration:

e Bank''s policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting:

As outlined in Item (d) above, deferral structures have been incorporated and published to the staff. For senior levels and material risk taker roles, remuneration package represents a mix of fixed pay, cash bonus and ESOP with deferred vesting schedule. Further, the deferred / unvested portions will be subject to "malus" provision in conformity with RBI guidelines.

f Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms:

The bank has the following forms of variable remuneration

- Annual Cash Bonus - This is part of the annual performance and compensation review cycle and is basis the performance rating of the individual employee.

- Sales Incentive Plan - employees in sales, customer relationship / service, collections & operations are covered under Incentive Plan. The coverage and payout plan is defined on the basis of business plans and budgets, it is designed keeping in mind, requisite emphasis on risk and control parameters.

- Promotional activities which may result in rewards on achieving threshold targets. This may be in cash or kind and is subject to perquisite tax as applicable.

- The ESOP scheme has been designed with a view to ensure an appropriate risk balanced remuneration architecture.

18.47 Liquidity Coverage Ratio

Qualitative disclosure

Liquidity risk management of the Bank is undertaken by the Balance Sheet Management Group (BSMG) under the central oversight of the Asset Liability Management Committee (ALCO) in accordance with the Board approved policies and ALCO approved funding plans. The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI for reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO), Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

Bank is predominantly funded through long term sources of borrowings viz Bonds and ECBs and short term sources of borrowings viz Certificate of Deposits and Term Deposits. Further the reliance on retail deposits and CASA is increasing. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation.

The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bankâs ALCO for perusal and review.

18.48 Related party disclosure:

As per AS-18, Related Party Disclosure, the Bankâs related parties are disclosed below:

a Holding Company (upto January 4, 2019)

IDFC Limited

IDFC Financial Holding Company Limited

b Entities having Significant Influence (wef. January 5, 2019) *

IDFC Limited

IDFC Financial Holding Company Limited

c Fellow Subsidiaries*

IDFC Alternatives Limited

IDFC Asset Management Company Limited IDFC AMC Trustee Company Limited IDFC Foundation

IDFC Infrastructure Finance Limited IDFC Projects Limited IDFC Securities Limited IDFC Trustee Company Limited IDFC Capital (USA) Inc.

IDFC Capital (Singapore) Pte. Ltd.

IDFC Investment Managers (Mauritius) Limited IDFC Securities Singapore Pte. Limited

d Subsidiary

IDFC Bharat Limited (IDFC FIRST Bharat Limited wef. April 29, 2019)

e Associates

i Direct

Millennium City Expressways Private Limited

Feedback Infra Private Limited (Cease to be a associate wef. March 19, 2018)

ii Indirect (through fellow subsidiaries)*

Jetpur Somnath Tollways Private Limited

Delhi Integrated Multi-Modal Transit System Limited Infrastructure Development Corporation (Karnataka) Limited Uttarakhand Infrastructure Development Company Limited IndianOil LNG Private Limited

f Key Management Personnel

Mr. V. Vaidyanathan (Appointed wef. December 19, 2018)

Dr. Rajiv B. Lall (Resigned wef. December 18, 2018)

g Relatives of key management personnel:

Jeyashree Vaidyanathan, Mr. K. Vembu, Captain V. Satyamurthy, Maj V Krishnamurthy, Savitri Krishnamoorthy, Tara Lall, Ambika Lall, Indrani Gangadhar, Kishen Behari Lall, Bunty Chand, Ashok B. Lall, Ranjana Pandey, Veenu Shah

In accordance with paragraph 5 and 6 of AS - 18, the Bank has not disclosed certain transactions with relatives of key management personnel as they are in the nature of banker-customer relationship.

- Consequent to issuance of equity under the scheme of amalgamation (IDFC - CFL merger), the share holding of IDFC Financial Holding Company Limited in IDFC FIRST Bank Limited has reduced to 40% wef January 5, 2019. Accordingly IDFC Limited & IDFC Financial Holding Company Limited are now entities with significant influence and certain entities has ceased to be related parties of the Bank (refer note 18.01).

All transactions with fellow subsidiaries and indirect associate companies have been disclosed till existence of related party relationship.

The significant transactions between the Bank and related parties for year ended March 31, 2019 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of all related party transactions in that category:

- Interest on Deposits:

I DFC Financial Holding Company Limited '' 2.55 crore (Previous Year '' 6.72 crore); IDFC Bharat Limited '' 5.84 crore (Previous Year '' 5.94 crore); IDFC Securities Limited '' 1.87 crore (Previous Year '' 1.23 crore)

- Interest on Advances:

Millennium City Expressways Private Limited '' 19.76 crore (Previous Year '' 24.64 crore).

- Dividend Income earned:

IDFC Bharat Limited Rs, 66.96 crore (Previous Year Rs, 11.16 crore). Dividend received from pre-acquisition profits of subsidiary is reduced from cost of investments

- Fees for services received:

IDFC Bharat Limited Rs, 255.69 crore (Previous Year Rs, 167.24 Crore)

- Rendering of services:

IDFC Asset Management Company Limited Rs, 2.23 crore (Previous Year Rs, 1.43 crore); IDFC Alternatives Limited Rs, 5.23 crore (Previous Year Rs, 0.75 Crore).

- Managerial Remuneration:

Dr. Rajiv B. Lall Rs, 5.91 crore (Previous Year Rs, 4.04 crore), Mr. V. Vaidyanathan Rs, 1.69 crore (Subject to approval from Shareholders) (Previous Year N.A.)

- Sale of investments:

IDFC Limited Rs, 15.69 crore (Previous Year Nil).

- Profit on sale of investments:

IDFC Limited Rs, 5.30 crore (Previous Year Nil).

- Sale of fixed assets:

IDFC Limited Rs, 0.21 crore (Previous Year Nil), IDFC Infrastructure Finance Limited Rs, 0.12 crore (Previous Year Nil), IDFC Securities Limited 0.37 Crore (Previous Year Nil)

- Purchase of Fixed Assets:

Delhi Integrated Multi Modal Transit System Limited Rs, 2.48 Crore (Previous Year Rs, 5.25 Crore)

- Corporate Social Responsibility:

IDFC Foundation Rs, 20.82 crore (Previous Year Rs, 14.23 crore)

# Other receivable includes cash with business correspondents.

$ As at March 31, 2018, IDFC Financial Holding Company Limited holds 1,797,512,668 and KMP holds 2,624,286 equity shares in the Bank.

# Other receivable includes cash with business correspondents.

18.49 Earning per share (''EPS'')

Equity shares issued as part of the consideration for the IDFC - CFL Merger are included in the weighted average number of shares as of the appointed date of the merger.

18.50 Movement in stock options granted is as under:

Employee Stock Option Scheme of IDFC FIRST Bank Limited viz. IDFC FIRST Bank ESOS-2015 was framed with an object of encouraging higher participation on the part of employees in the Bankâs financial growth and success. An effective stock option scheme enables retention of talent and aligning employee interest to that of the Shareholders.

The Shareholders of the Bank at its 2^nd Annual General Meeting held on July 27, 2016 had approved IDFC FIRST Bank ESOS - 2015 and had granted its approval to Employee Stock Options pool of 6% of the issued and paid up share capital of the Bank.

All Options vests in a graded manner and are required to be exercised within a specific period. The Bank has used the intrinsic value method to account for the compensation cost of stock options to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price on the Option. Accounting for the stock options has been in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to the extent applicable.

During FY 2018-19, there has been no material change in IDFC FIRST Bank ESOS-2015.

18.52 Leases

In accordance with Accounting Standard 19 on ''Leases'' as notified under the Accounting Standards specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, the following disclosures in respect of operating leases are made:

The Bank has not sub-leased any of its properties taken on lease. There are no provisions relating to contingent rent. The terms of renewal / purchase options and escalation clauses are those normally prevalent in similar agreements. There are generally no undue restrictions or onerous clauses in the agreements.

18.55 Proposed dividend

The Board of Directors, in their meeting held on May 10, 2019 have not proposed any dividend. During year ended March 31, 2018 the Bank had proposed dividend of Rs, 0.75 per equity share amounting to Rs, 307.79 crore, inclusive of dividend distribution tax.

In terms of revised Accounting Standard (AS) 4 âContingencies and Events occurring after the Balance sheet dateâ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016, proposed dividend of Rs, 307.79 crore was appropriated from Profit and Loss Account in FY 2018-19.

Dividend paid during the year ended March 31, 2019 represents dividend of Rs, 294.02 crore (net of DDT on dividend from subsidiary) pertaining to previous year.

18.56 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. 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.

18.57 Disclosure on Factoring

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head âBills Purchased and Discountedâ in Schedule 9 of the Balance Sheet. The Bank has factoring exposure of Rs, 1,161.22 crore (Previous Year Rs, 1,383.64 crore) and outstanding of Rs, 684.42 crore (Previous Year Rs, 1,048.88 crore) as on March 31, 2019.

18.58 Investor education and protection fund

There were no amounts which were required to be transferred to the Investor Education and Protection Fund.

18.59 Description of contingent liabilities

i Claims against the Bank not acknowledged as debts

ii Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact.

iii Liability on account of forward exchange and derivative contracts

iv Guarantees given on behalf of constituents

v Acceptances, endorsements and other obligations

These includes documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bankâs customers that are accepted or endorsed by the Bank.

vi Other items

Other items represent estimated amount of contracts remaining to be executed on capital account.

18.60 Comparative figures

Figures for the previous year have been regrouped and reclassified wherever necessary to conform to the current yearâs presentation.

18.61 The figures of '' 50,000 or less have been denoted by B.

Mar 31, 2018

In terms of revised Accounting Standard (AS) 4 ''Contingencies and Events occurring after the Balance sheet date'', dividend for FY 2016-17 including dividend distribution tax of '' 307.01 crore was appropriated in FY 2017-18.

- Capital adequacy ratio after considering the effect of dividend for FY 2016-17 is 18.51% as on March 31, 2017. Capital adequacy ratio for FY 2017-18 is after considering the impact of proposed dividend of Rs, 307.78 crore.

$ Working funds represents average of total assets as reported to the RBI in Form X under Section 27 of the Banking Regulation Act, 1949.

@ Return on assets is based on the simple average of opening and closing total assets.

- Business is the total of average net advances and average deposits (net of inter-bank deposits). The average advances and the average deposits represents the simple average of the opening and closing figures.

- Productivity ratios are based on monthly average of employee numbers, which excludes contract staff, intern etc.

& Operating profit is profit before provisions and contingencies.

1 The Bank has not spread provisioning for mark to market (MTM) losses on investment held in AFS and HFT category for the

quarters ended December 31, 2017 and March 31, 2018, though allowed by RBI vide circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018 with a view to address the systemic impact of sharp increase in yields of Government Securities.

During the year ended March 31, 2018, the value of sales / transfers of securities to / from HTM category (excluding one-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year and with approval of the Board of Directors and sales to the RBI under open market operation auctions) exceeded 5% of the book value of investments held in HTM category at the beginning of the year

During the year ended March 31, 2017, the value of sales / transfers of securities to / from HTM category (excluding one-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year and with approval of the Board of Directors and sales to the RBI under open market operation auctions) did not exceed 5% of the book value of investments held in HTM category at the beginning of the year.

2. DISCLOSURES ON RISK EXPOSURE IN DERIVATIVES QUALITATIVE DISCLOSURES :

ii Treasury Sale Desk is a customer centric desk that caters to customers'' requirements in FX and Derivatives products subject to regulatory and internal requirements. Product offering to the clients is based on Suitability and Appropriateness policy of the Bank as well as by the extant RBI guidelines. The policy ensures that the product being offered by the Bank are in sync with the nature of the underlying risk sought to be hedged giving due regard to the risk appetite of the customer and understanding of the risk by the customer. Market Risk exposures of clients arising out of FX and Derivative transactions are monitored by the Bank on a daily basis through current exposure method. Exposures are independently monitored and reported.

iii The Bank recognizes all derivative contracts (other than those designated as hedges) at fair value. The mark to market movement on the positions is monitored on a daily basis. Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account. Hedge transactions are accounted for on an accrual basis. Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item.

iv All the derivative transactions are governed by the FX & Derivative policy, Market Risk Management policy and Limit Management Framework of the Bank. Limit Management Framework details various types of market risk limits which are monitored on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically and presented to the Market Risk Committee / Asset Liability Committee. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. The Bank has a clear functional segregation of Treasury operations between Front Office, Market Risk and Back Office.

Interest rate swaps are booked with the objective of managing the interest rate risk on liabilities. Interest rate swaps in the nature of hedge are recorded on accrual basis and these transactions are not marked to market. Any resultant profit or loss on termination of the hedge swaps is amortized over the life of the swap or underlying liability, whichever is shorter

Currency interest rate swaps in the nature of hedge, booked with the objective of managing the currency and interest rate risk on foreign currency liabilities are recorded on accrual basis and these transactions are not marked to market. Any resultant profit or loss on termination of hedge swaps is amortized over the life of swap or underlying liability, whichever is shorter. The foreign currency balances on account of principal of currency interest rate swaps outstanding as at the balance sheet date are revalued using the closing rate.

i The notional principal amount of derivatives reflect the volume of transactions outstanding as at the balance sheet date and

do not represent the amounts at risk.

ii The Bank has computed the maximum and minimum of PV01 for the year based on daily average.

iii In respect of derivative contracts, the Bank evaluates the credit exposure arising therefrom, in line with RBI guidelines.

Credit exposure has been computed using the Current Exposure Method (CEM) which is the sum of :

a. the current replacement cost (marked to market value including accrued interest) of the contract or zero whichever is higher; and

b. the Potential Future Exposure (PFE) is a product of the notional principal amount of the contract and a factor that is based on the grid of credit conversion factors prescribed in RBI guidelines, which is applied on the basis of the residual maturity and the type of contract.

Classified as Standard Classified as NPA

The RBI vide its circular RBI/2017-18/131 DBR.No.BP.BC.101/21.04.048/2017-18 dated February 12, 2018 has revised ''Framework for Resolution of Stressed Assets'' and extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long-Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) stand withdrawn with immediate effect from February 12, 2018. All accounts, including such accounts where any of the schemes have been invoked but not yet implemented, shall be governed by the revised framework.

ANNUAL REPORT 2017-2018

122 IDFC BANK

3.DRAW DOWN FROM RESERVES

During the year ended March 31, 2018, the Bank has made a draw down out of the Investment Reserve account towards depreciation on investments in AFS and HFT categories in terms of RBI guidelines. During the year ended March 31, 2017, the Bank has not undertaken any draw down from reserves.

APPROPRIATION TO RESERVES

i Statutory Reserve

As mandated by the Banking Regulation Act, 1949, all banking companies incorporated in India shall create a reserve fund, out of the balance of profit of each year as disclosed in the profit and loss account and before any dividend is declared and transfer a sum equivalent to not less than twenty five per cent of such profit. The Bank has transferred Rs, 215.00 crore (Previous Year Rs, 255.00 crore) to Statutory Reserve for the year,

ii Investment Reserve Account (IRA)

As per RBI guidelines, if 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 and 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 Investment Reserve Account. Further, the bank may draw down from the IRA to the extent of provision made during the year towards depreciation in investment in AFS and HFT categories (net of taxes, if any, and net of transfer to Statutory Reserves as applicable to such excess provision). During the year ended March 31, 2018, as per RBI guidelines, the Bank has transferred Rs, 0.55 crore from Investment Reserve Account to Profit and Loss Appropriation Account. During the year ended March 31, 2017, the Bank has appropriated Rs, 0.55 crore to Investment Reserve Account.

iii Capital Reserve

As per RBI Guidelines, profit / loss on sale of investments in the ''Held to Maturity'' category is recognized in the Profit and Loss Account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit / loss on sale of investments in ''Available for Sale'' and ''Held for Trading'' categories is recognized in the Profit and Loss Account. Accordingly, the Bank has appropriated Rs, 202.00 crore (Previous Year Rs, 5.50 crore) being profit on sale of investments in the HTM category net of applicable taxes and transfer to statutory reserve.

iv Special Reserve

As per the provisions under Section 36(1)(viii) of Income Tax Act, 1961, specified entities like banks are allowed deduction in respect of any special reserve created and maintained, i.e. an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head âProfits and gains of business or professionâ is carried to such reserve account. This would be applicable till the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and general reserves of the entity. During the year, the Bank has transferred an amount of Rs, 75.00 crore (Previous Year Rs, 325.00 crore) to Special Reserve.

v General Reserve

During the year, there were certain vested stock options that expired unexercised and hence the balance in stock options outstanding is transferred to the general reserve.

Note 1 : During the year ended March 31, 2017, there was breach of intra-group exposure limit for one of the intra-group entities and the same was reported to the RBI.

4. UNHEDGED FOREIGN CURRENCY EXPOSURE (UFCE)

The Bank''s Credit Policy lays down that the Bank will evaluate risks arising out of unhedged foreign currency exposures of the borrowers and will also monitor the same. Both at the time of initial approval as well as subsequent reviews, the assessment of credit risk arising out of foreign currency exposure of the borrowers include details of imports, exports, repayments of foreign currency borrowings, as well as hedges done by the borrowers or naturally enjoyed by them vis-a-vis their intrinsic financial strength, history of hedging and losses arising out of foreign currency volatility. The details of unhedged foreign currency exposure of customers are monitored periodically. The Bank also maintains additional provision and capital, in line with RBI guidelines.

During the year ended March 31, 2018, the Bank has made incremental provision of Rs, 5.30 crore (Previous Year Rs, 1.21 crore) and held incremental capital of Rs, 83.98 crore (Previous Year Rs, 56.37 crore) towards borrowers having unhedged foreign currency exposures. Total provision held towards UFCE is Rs, 14.68 crore (Previous Year Rs, 9.38 crore).

5. DISCLOSURES ON REMUNERATION

Qualitative disclosures

a Information relating to the composition and mandate of the Remuneration Committee :

The nomination and remuneration committee of the Board comprised of the following members :

Mr. Ajay Sondhi Chairman

Ms. Veena Mankar Member

Mr. Anand Sinha Member

The functions of the Committee include :

i Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters

ii Make recommendations on remuneration (including performance bonus and perquisites) of Whole Time Directors

iii Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank

iv Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bank''s stock options to Whole Time Directors of the Bank

b Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy :

The Bank has under the guidance of the Board and the Nomination and Remuneration Committee, follows compensation practices intended to drive pay for performance within the framework of prudent risk management.

Specific principles and objectives of IDFC Bank remuneration policy and design include :

i Help attract and retain employees :

- Pay elements and structure to be market competitive

- Flexibility and agility in approach to design / review structure

- Differentiate market through benefit programs that build and reinforce organization values and loyalty

- Reward meritocracy, with differentiation based on performance

ii Foster a culture of authentic service and prudent risk taking :

- Reward programs to be designed to incentivize

- superior and consistent customer service specifically discourage mis-selling, thereby help build trust and faith of customers

- Rewards not just based on quantitative (financial) parameters alone; but also on how performance is achieved, including process adopted, prudent judgment and controls exercised

- Reward good behavior and organizational stewardship, that conserves franchise reputation

- Revenue producers will not determine compensation for risk managers and other control functions

- Compensation programs to be overlaid with requisite conformity to the RBI guidelines.

iii Emphasize alignment with our stated Bank Values of Balance, Collaboration, Drive and Honesty :

- Compensation program design to promote, measure and reward excellence on these key organization values

- Short term / long term incentives and staff recognition framework to specifically incorporate metrics on these

iv Evaluate and Reward Performance over Time :

- Program design to ensure balance between short term versus long term financial performance and health of the organization

- Drive long term commitment and ownership for decisions through LTI and/or equity awards with deferred vesting schedule

v Balance between market competitiveness and internal alignment :

- Pay levels to be referenced to the 66th percentile of Indian Private Sector banks

Aspire to stay best-in-class within competitive cost parameters; balance between basic and lifestyle benefits

- Internal pay parity for roles staffed with employees with similar skills and seasoning

c Description of the ways in which current and future risks are taken into account in the remuneration process including the nature and type of the key measures used to take account of these risks :

The Board approves the risk framework for the Bank. Business activities of the Bank are undertaken within this framework to achieve the financial plan. The risk framework includes the Bank''s risk appetite, limits framework and policies and procedures governing various types of risk. The performance evaluation framework of Whole Time Directors, equivalent positions and senior management personnel in material risk taker roles, incorporates these risk and control aspects as detailed by the Board. These factors include (but are not limited to) elements such as consistency in asset quality, rating slippage of existing loans, RORWA, operational risk parameters and quality of systems. The performance management framework of the Bank will evolve over time and get more sophisticated and mature. As regards linkage to remuneration, the compensation for Whole Time Director, etc is paid in fixed pay, performance linked variable pay and stock options which is approved by the NRC. Furthermore, material risk takers will not be put on any guaranteed bonus framework. Performance evaluation of individuals in Credit, Risk and Control functions will have requisite line of independence to revenue making senior management personnel.

d Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration :

e Bankâs policy on deferral and vesting of variable remuneration and a discussion of the bankâs policy and criteria for adjusting deferred remuneration before vesting and after vesting :

f Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms :

The bank at this juncture primarily has an annual cash bonus process and ESOPs. The ESOP scheme has been designed with a view to ensure an appropriate risk balanced remuneration architecture. Further, for junior roles in front-line sales where quarterly formulae based incentive programs get rolled-out, there will be requisite emphasis on risk and control parameters. We have piloted the monthly incentive plan for all branch roles in rural branches with an adequate emphasis on risk / collections and compliance to set-out processes.

Qualitative disclosure

Liquidity risk management of the Bank is undertaken by the Balance Sheet Management Group (BSMG) under the central oversight of the Asset Liability Management Committee (ALCO) in accordance with the Board approved policies and ALCO approved funding plans. The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI for reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the ALCO, Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

As a strategy, the Bank is highly invested into GOI Bonds and corporate bonds which has resulted in a high level of High Quality Liquid Assets (HQLA). The Bank follows the criteria laid down by the RBI for month-end calculation of HQLA, gross outflows and inflows within the next 30 day period. HQLA predominantly comprises Government securities in excess of minimum SLR requirement viz. Treasury Bills, Central and State Government securities and corporate bonds in form of CP, CD and Bonds rated AA- and above with mandated haircuts applied thereto.

Bank is predominantly funded through long term sources of borrowings viz. Bonds and ECBs and short term sources of borrowings viz. Certificate of Deposits and Term Deposits. Further the reliance on retail deposits and CASA is increasing. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation.

The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bank''s ALCO for perusal and review.

6. RELATED PARTY DISCLOSURE :

As per AS-18, Related Party Disclosure, the Bank''s related parties are disclosed below :

A. ULTIMATE HOLDING COMPANY

IDFC Limited

B. HOLDING COMPANY

IDFC Financial Holding Company Limited

C. FELLOW SUBSIDIARIES

IDFC Alternatives Limited

IDFC Asset Management Company Limited

IDFC AMC Trustee Company Limited

IDFC Finance Limited (Merged with IDFC Projects w.e.f. April 1, 2016)

IDFC Foundation

IDFC Infrastructure Finance Limited IDFC Projects Limited IDFC Securities Limited IDFC Trustee Company Limited IDFC Capital (USA) Inc.

IDFC Capital (Singapore) Pte. Ltd.

IDFC Investment Managers (Mauritius) Limited IDFC Securities Singapore Pte. Limited

D. SUBSIDIARY

IDFC Bharat Limited (wholly owned subsidiary w.e.f. October 13, 2016)

E. ASSOCIATES

i Direct

Feedback Infra Private Limited (Ceased to be an associate w.e.f. March 19, 2018)

Millennium City Expressways Private Limited

ii Indirect (through fellow subsidiaries)

Jetpur Somnath Tollways Private Limited

Delhi Integrated Multi-Modal Transit System Limited

Infrastructure Development Corporation (Karnataka) Limited

Uttarakhand Infrastructure Development Company Limited (under liquidation)

IndianOil LNG Private Limited

F. KEY MANAGEMENT PERSONNEL

Dr. Rajiv B. Lall (Founder Managing Director & Chief Executive Officer)

G. RELATIVES OF KEY MANAGEMENT PERSONNEL

Tara Lall, Ambika Lall, Indrani Gangadhar, Kishen Behari Lall, Bunty Chand, Reena Khanna

In accordance with paragraph 5 and 6 of AS - 18, the Bank has not disclosed certain transactions with relatives of key management personnel as they are in the nature of banker-customer relationship.

The significant transactions between the Bank and related parties for year ended March 31, 2018 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of all related party transactions in that category:

- Interest Expense :

IDFC Financial Holding Company Limited Rs, 6.72 crore (Previous Year Rs, 5.02 crore); IDFC Foundation Rs, 2.01 crore (Previous Year Rs, 2.62 crore); IDFC Bharat Limited Rs, 5.94 crore (Previous Year Rs, 0.61 crore)

- Interest income earned :

Feedback Infra Private Limited Rs, 13.38 crore (Previous Year Rs, 11.94 crore); Millennium City Expressways Private Limited Rs, 24.64 crore (Previous Year Rs, 38.94 crore)

- Dividend Income earned:

IDFC Bharat Limited Rs, 11.16 crore (Previous Year Nil)

- Receiving of services :

IDFC Bharat Limited Rs, 167.24 crore (Previous Year Rs, 45.15 Crore); IDFC Securities Limited Rs, 37.08 crore (Previous Year Rs, 12.66 crore)

- Rendering of services :

IDFC Securities Limited Rs, 3.95 crore (Previous Year Rs, 3.73 crore); IDFC Asset Management Company Limited Rs, 1.43 crore (Previous Year Rs, 2.13 crore); IDFC Infrastructure Finance Limited Rs, 1.55 crore (Previous Year Rs, 1.50 Crore)

- Managerial Remuneration (refer note 18.42):

Dr. Rajiv B. Lall Rs, 4.04 crore (Previous Year Rs, 4.65 crore)

- Sale of investments :

IDFC Infrastructure Finance Limited Rs, 100.51 crore (Previous Year Nil)

- Purchase of investments :

IDFC Limited Rs, 35.05 crore (Previous Year Nil)

- Advance repaid :

Millennium City Expressways Private Limited Rs, 28.76 crore (Previous Year Rs, 19.46 crore); Feedback Infra Private Limited Rs, 59.98 crore (Previous Year Nil)

- Purchase of Fixed Assets :

Delhi Integrated Multi Modal Transit System Limited Rs, 5.25 Crore (Previous Year Nil)

- Non Fund based Exposure Issued:

Feedback Infra Private Limited Rs, 2.74 crore (Previous Year Rs, 9.52 Crore)

- Investment in related party by Bank :

Millennium City Expressways Private Limited Rs, 8.10 crore (Previous Year Rs, 24.28 crore)

- Investment of related party in the Bank :

Dr. Rajiv B. Lall Rs, 0.82 crore (Previous Year Rs, 2.87 crore)

- Corporate Social Responsibility:

IDFC Foundation Rs, 14.23 crore (Previous Year Rs, 4.85 crore)

Basic and diluted earnings per equity share are computed in accordance with AS 20 - Earnings Per Share. Basic earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive. Dilution of equity is on account of stock options granted to employees by the Bank.

7.MOVEMENT IN STOCK OPTIONS GRANTED IS AS UNDER:

Employee Stock Option Scheme of IDFC Bank Limited viz. IDFC Bank ESOS-2015 was framed with an object of encouraging higher participation on the part of employees in the Bank''s financial growth and success. An effective stock option scheme enables retention of talent and aligning employee interest to that of the Shareholders.

The Shareholders of the Bank at its 2nd Annual General Meeting held on July 27, 2016 had approved IDFC Bank ESOS - 2015 and had granted its approval to Employee Stock Options pool of 6% of the issued and paid up share capital of the Bank.

IDFC Bank ESOS-2015 is in compliance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, as amended from time to time. IDFC Bank ESOS-2015 is administered by the Nomination and Remuneration Committee (''NRC'') of the Bank. As per IDFC Bank ESOS-2015, the Bank is authorized to issue Employee Stock Options to Eligible Employees and Executive Directors of the Bank and its Subsidiary Companies.

All Options vests in a graded manner and are required to be exercised within a specific period. The Bank has used the intrinsic value method to account for the compensation cost of stock options to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price of the option. Accounting for the stock options has been in accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, to the extent applicable.

During FY 2017-18, there has been no material change in IDFC Bank ESOS-2015.

8. PROPOSED DIVIDEND

The Board of Directors, in their meeting held on April 24, 2018 have proposed dividend of Rs, 0.75 (Previous Year Rs, 0.75) per equity share amounting to Rs, 307.78 crore (Previous Year Rs, 307.01 crore), inclusive of dividend distribution tax. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of revised Accounting Standard (AS) 4 ''Contingencies and Events occurring after the Balance sheet date'' as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016, proposed dividend is not recognized as a liability as on March 31, 2018 and March 31, 2017.

Dividend paid during the year ended March 31, 2018 represents dividend of '' 304.78 crore pertaining to previous year. Dividend paid during the year ended March 31, 2017 of '' 0.03 crore represents dividend paid pursuant to exercise of employee stock options after the previous year end but before the record date for declaration of dividend.

9. SMALL AND MICRO INDUSTRIES

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. 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.

10 DISCLOSURE ON FACTORING

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head ''Bills Purchased and Discounted'' in Schedule 9 of the Balance Sheet. The Bank has factoring exposure of Rs, 1,383.64 crore (Previous Year Rs, 512.85 crore) and outstanding of Rs, 1,048.88 crore (Previous Year Rs, 332.61 crore) as on March 31, 2018.

11. INVESTOR EDUCATION AND PROTECTION FUND

There were no amounts which were required to be transferred to the Investor Education and Protection Fund.

12. DESCRIPTION OF CONTINGENT LIABILITIES

i Claims against the Bank not acknowledged as debts

ii Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact.

iii Liability on account of forward exchange and derivative contracts

iv Guarantees given on behalf of constituents

v Acceptances, endorsements and other obligations

These includes documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

vi Other items

Other items represent estimated amount of contracts remaining to be executed on capital account.

13. COMPARATIVE FIGURES

Figures for the previous year have been regrouped and reclassified wherever necessary to conform to the current year''s presentation.

Mar 31, 2017

A. BACKGROUND

IDFC Bank Limited (âthe Bankâ) was incorporated on October 21, 2014 as a Company under the Companies Act, 2013. Further to the grant of the universal banking license issued by the Reserve Bank of India (âthe RBIâ) on July 23, 2015 and pursuant to the filing and approval of the Scheme of Arrangement under Section 391-394 of the Companies Act, 1956, between IDFC Limited and IDFC Bank Limited and their respective shareholders and creditors (âScheme of Arrangementâ), by the Honâble Madras High Court vide its order dated June 25, 2015 and on fulfilment of all conditions specified under the Scheme and final banking license, the Bank has commenced its Banking operations on October 1, 2015, mainly in Commercial & Wholesale, Personal & Business Banking and Bharat (rural) Banking business. The Bank is regulated by the RBI and governed under the Banking Regulation Act, 1949. The Bankâs shares are listed on National Stock Exchange of India Limited and BSE Limited since November 6, 2015,

During the year ended March 31, 2017, the Bank has acquired 100% equity share capital of IDFC Bharat Limited (formerly known as Grama Vidiyal Microfinance Limited), a non banking finance company - microfinance institution (NBFC-MFI). On receipt of final approval from RBI and satisfaction of all the conditions (including surrender of the NBFC-MFI registration on October 18, 2016), IDFC Bharat Limited has become a wholly owned subsidiary of the Bank with effect from October 13, 2016. The Bank acquired 55,79,996 equity shares of IDFC Bharat Limited for a total consideration of Rs.310.52 crore,

B. BASIS OF PREPARATION

The financial statements have been prepared based on historical cost convention and accrual basis of accounting in accordance with the requirements prescribed under Section 29 and third schedule of the Banking Regulation Act, 1949 and in conformity with Generally Accepted Accounting Principles in India to comply with the statutory requirements prescribed under the circulars and guidelines issued by the RBI from time to time and the Accounting Standards notified under section 133 of the Companies Act, 2013, to the extent applicable and practices generally prevalent in the banking industry in India.

C. USE OF ESTIMATES

The preparation of financial statements in conformity with the Generally Accepted Accounting Principles requires the Management to make estimates and assumptions that affects the reported amount of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the financial statements. The management believes that the estimates used in preparation of financial statements are prudent and reasonable. Actual results could differ from those estimates and the differences between the actual results and the estimates would be recognised in the periods in which the results are known / materialised,

Amounts in notes forming part of the financial statements for the year ended March 31, 2017 are denominated in Rs. crore to conform with the extant RBI guidelines.

1.1 IDFC Bank Limited (ââthe Bankâ) was incorporated as a Company under the Companies Act, 2013 on October 21, 2014. The Bank commenced its Banking operations on October 1, 2015, post receipt of final banking license by the RBI. Accordingly, figures for the previous period / year are not comparable since Banking operations were carried only for the period October 2015 to March 2016.

1.2 CAPITAL ADEQUACY

The capital adequacy ratio of the Bank, calculated as per the RBI guidelines (under Basel III) is set out below :

** Includes Rs.1,594.02 crore of equity share capital issued to shareholders of IDFC Limited on account of demerger and Rs.1,797.46 crore held by IDFC Financial Holding Company Limited - Non Operative Financial Holding Company.

In terms of revised Accounting Standard (AS) 4 âContingencies and Events occurring after the Balance Sheet dateâ, proposed dividend including dividend distribution tax of Rs.307.11 crore is not recognised as a liability as on March 31, 2017. Accordingly, the same has not been reckoned in determining capital funds in the computation of capital adequacy ratio as at March 31, 2017, Capital adequacy ratio after considering the effect of proposed dividend is 18.51%.

* The Bank commenced its banking operations from October 1, 2015 and was in operations only for a period of six months. Accordingly, figures considered for the computation of ratios are for the period October 1, 2015 to March 31, 2016 and ratios stated above are annualized (i.e. by multiplying 366 over actual number of days in operations).

$ Working funds represents average of total assets as reported to the RBI in Form X under Section 27 of the Banking Regulation Act, 1949.

@ Return on assets is computed based on net asset.

* Business is the total of average net advances and average deposits (net of inter-bank deposits). The average advances and the average deposits represents the simple average of the opening and closing figures.

* Productivity ratios are based on average employee numbers, which excludes contract staff, intern etc. & Operating profit is profit for the year before provisions and contingencies.

1.3 REPO TRANSACTIONS

Following are the details of securities sold and purchased under repo / reverse repo transactions (in face value terms) respectively including transactions under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) done during the years ended March 31, 2017 and March 31, 2016 :

1.4 During the year ended March 31, 2017, the value of sales / transfers of securities to / from HTM category (excluding one-time transfer of securities permitted to be undertaken by banks at the beginning of the accounting year and with approval of the Board of Directors and sales to the RBI under open market operation auctions) did not exceed 5% of the book value of investments held in HTM category at the beginning of the year

During the year ended March 31, 2016, the value of sales / transfers of securities to / from HTM category exceeded 5% of the book value of investments held in HTM category at the beginning of the year

1.5 DISCLOSURES ON RISK EXPOSURE IN DERIVATIVES QUALITATIVE DISCLOSURES :

i The Bank undertakes transactions in FX and derivatives for the purpose of hedging the Balance Sheet, support customer FX and Derivatives hedging / business requirements and takes proprietary positions. Bank deals in various kinds of products viz. FX spot and forwards, INR and CCY Swaps and Foreign currency options. The Bank undertakes trading positions FX Spot, Forward, Swaps and Futures. Bank does not run Option book as of now. All the Option products are offered to the clients on a back to back basis.

ii Treasury Sale Desk is a customer centric desk that caters to customersâ requirements in FX and Derivatives products subject to regulatory and internal requirements. Product offering to the clients is based on Suitability and Appropriateness policy of the Bank as well as by the extant RBI guidelines. The policy ensures that the product being offered by the Bank are in sync with the nature of the underlying, risk sought to be hedged giving due regard to the risk appetite of the customer and understanding of the risk by the customer. Market Risk exposures of clients arising out of FX and Derivative transactions are monitored by the Bank on a daily basis through current exposure method. Exposures are independently monitored and reported.

iv All the derivative transactions are governed by the FX & Derivative policy, Market Risk Management policy and Limit Management Framework of the Bank. Limit Management Framework details various types of market risk limits which are monitored on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically and presented to the Market Risk Committee / Asset Liability Committee. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. Bank has a clear functional segregation of Treasury operations between Front Office, Market Risk and Back Office.

Interest rate swaps are booked with the objective of managing the interest rate risk on liabilities. Interest rate swaps in the nature of hedge are recorded on accrual basis and these transactions are not marked-to-market. Any resultant profit or loss on termination of the hedge swaps is amortised over the life of the swap or underlying liability, whichever is shorter

Currency interest rate swaps in the nature of hedge, booked with the objective of managing the currency and interest rate risk on foreign currency liabilities are recorded on accrual basis and these transactions are not marked-to-market. Any resultant profit or loss on termination of hedge swaps is amortised over the life of swap or underlying liability, whichever is shorter. The foreign currency balances on account of principal of currency interest rate swaps outstanding as at the balance sheet date are revalued using the closing rate.

i The notional principal amount of derivatives reflect the volume of transactions outstanding as at the balance sheet date and do not represent the amounts at risk.

ii The Bank has computed the maximum and minimum of PV01 for the year based on daily average,

iii In respect of derivative contracts, the Bank evaluates the credit exposure arising therefrom, in line with RBI guidelines,

Credit exposure has been computed using the Current Exposure Method (CEM) which is the sum of :

a. the current replacement cost (marked-to-market value including accrued interest) of the contract or zero whichever is higher; and

1.6 SPECIFIC PROVISION

The Bank holds on a prudent basis, provisions on identified advances in infrastructure sector that were extended by IDFC Limited and acquired by the Bank on demerger of Financing Undertaking, that are not non-performing (as on Balance Sheet date), on the basis of extant environment or specific information on risk of possible slippages or current pattern of servicing.

1.7 MOVEMENT IN TECHNICAL / PRUDENTIAL WRITTEN-OFF ACCOUNTS :

Technical or prudential write-offs refers to the amount of non-performing assets which are outstanding in the books of the branches, but have been written-off (fully or partially) at the head office level. Movement in the stock of technically or prudentially written-off accounts given below :

1.8 DETAILS OF NON-PERFORMING FINANCIAL ASSETS PURCHASED / SOLD

During the year ended March 31, 2017 and March 31, 2016 there were no non-performing financial assets purchased / sold by the Bank from / to other banks / FIs / NBFCs (excluding securitisation / reconstruction companies)

1.9 DETAILS OF SINGLE BORROWER LIMIT (SGL) / GROUP BORROWER LIMIT (GBL) EXCEEDED BY THE BANK

During the years ended March 31, 2017 and March 31, 2016, the Bankâs credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by the RBI.

1.10 UNSECURED ADVANCES

During the year ended March 31, 2017, there are unsecured advances of Rs.1,588.27 crore (Previous Year Rs.3,651.52 crore) for which intangible securities such as charge over the rights, licenses, authority etc. has been taken as collateral by the Bank and the estimated value of the intangible collaterals was Rs.1,401.09 crore (Previous Year Rs.5,969.71 crore).

1.11 DISCLOSURE OF PENALTIES IMPOSED BY RBI

During the years ended March 31, 2017 and March 31, 2016, the RBI has not imposed any penalty on the bank.

1.12 EMPLOYEE BENEFITS

I The Bank has charged the following amounts in the Profit and Loss Account towards contribution to defined contribution plans which are included under schedule 16 (I) :

II GRATUITY

Profit and Loss Account

Net employee benefit expenses (recognised in payments to and provisions for employees) :

1.13 SEGMENT REPORTING

Business Segments :

The business of the Bank is divided into three segments : Treasury, Corporate / Wholesale Banking, Retail Banking Business and Other Banking Business. These segments have been identified and reported taking into account, the target customer profile, the nature of products and services, the differing risks and returns, the organisation structure, the internal business reporting system and the guidelines prescribed by the RBI.

1.14 DEFERRED TAX

The major components of deferred tax assets and deferred tax liabilities arising out of timing differences are as under :

1.15 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down from reserves during the year,

APPROPRIATION TO RESERVES

i Statutory Reserve

As mandated by the Banking Regulation Act, 1949, all banking companies incorporated in India shall create a reserve fund, out of the balance of profit of each year as disclosed in the Profit and Loss Account before any dividend is declared and transfer a sum equivalent to not less than twenty five per cent of such profit. The Bank has transferred Rs.255.00 crore (Previous Year Rs.118.00 crore) to Statutory Reserve for the year

ii Investment Reserve Account (IRA)

iii Capital Reserve

As per RBI Guidelines, profit / loss on sale of investments in the âHeld to Maturityâ category is recognised in the Profit and Loss Account and profit is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit / loss on sale of investments in âAvailable for Saleâ and âHeld for Tradingâ categories is recognised in the Profit and Loss Account. Accordingly, the Bank has appropriated Rs.5.50 crore (Previous Year Rs.82.50 crore) being profit on sale of investments in the HTM category net of applicable taxes and transfer to statutory reserve.

iv Special Reserve

As per the provisions under Section 36(1) (viii) of Income Tax Act, 1961, the specified entity is allowed the deduction in respect of any special reserve created and maintained by it, i.e. an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head âProfits and gains of business or professionâ (before making any deduction under this clause). This would be applicable till the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital (excluding the amounts capitalized from reserves) and general reserves of the entity. During the year, the Bank has transferred an amount of Rs.325.00 crore (Previous Year Rs.145.00 crore) to Special Reserve,

1.16 DISCLOSURE OF LETTERS OF COMFORT (LOCs) ISSUED BY BANKS

The Bank has not issued any Letter of Comfort to its subsidiary / group companies during the years ended March 31, 2017 and March 31, 2016.

1.17 UNHEDGED FOREIGN CURRENCY EXPOSURE

The Bankâs Credit Policy lays down that the Bank will evaluate risks arising out of unhedged foreign currency exposures of the borrowers and will also monitor the same. Both at the time of initial approval as well as subsequent reviews, the assessment of credit risk arising out of foreign currency exposure of the borrowers include details of imports, exports, repayments of foreign currency borrowings, as well as hedges done by the borrowers or naturally enjoyed by them vis-a-vis their intrinsic financial strength, history of hedging and losses arising out of foreign currency volatility. The details of unhedged foreign currency exposure of customers are monitored periodically. The Bank also maintains additional provision and capital, in line with RBI guidelines,

During the year ended March 31, 2017, the Bank has made incremental provision of Rs.1.21 crore (Previous Year Rs.8.17 crore) and held incremental capital of Rs.52.74 crore (Previous Year Rs.22.55 crore) towards borrowers having unhedged foreign currency exposures,

1.18 DISCLOSURES ON REMUNERATION

Qualitative disclosures

a Information relating to the composition and mandate of the Remuneration Committee :

The Board nomination and remuneration committee comprised of the following members :

Mr. Ajay Sondhi Chairman

Ms. Veena Mankar Member

Mr. Anand Sinha Member

During FY 2017, Mr. Vinod Rai and Mr. Anil Baijal were members of nomination and remuneration committee and they resigned from the Board w.e.f. July 31, 2016 and December 08, 2016 respectively

i Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters

ii Make recommendations on remuneration (including performance bonus and perquisites) of Whole Time Directors

iii Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank

iv Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bankâs stock options to Whole Time Directors of the Bank

b Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy :

Specific principles and objectives of IDFC Bank remuneration policy and design include :

i Help attract and retain employees :

- Pay elements and structure to be market competitive

- Flexibility and agility in approach to design / review structure

- Differentiate market through benefit programs that build and reinforce organization values and loyalty

- Reward meritocracy, with differentiation based on performance

ii Foster a culture of authentic service and prudent risk taking :

- Reward programs to be designed to incentivize

- superior and consistent customer service and

- specifically discourage miss-selling, thereby help build trust and faith of customers

- Rewards not just based on quantitative (financial) parameters alone; but also on how performance is achieved, including process adopted, prudent judgement and controls exercised

- Reward good behaviour and organizational stewardship, that conserves franchise reputation

- Revenue producers will not determine compensation for risk managers and other control functions

- Compensation programs to be overlaid with requisite conformity to the RBI guidelines.

iii Emphasize alignment with our stated Bank Values of Balance, Collaboration, Drive and Honesty :

- Compensation program design to promote, measure and reward excellence on these key organization values

- Short term and long term incentives, and staff recognition framework to specifically incorporate metrics on these

iv Evaluate and Reward Performance over Time :

- Program design to ensure balance between short term versus long term financial performance and health of the organization

- Drive long term commitment and ownership for decisions through LTI and/or equity awards with deferred vesting schedule

v Balance between market competitiveness and internal alignment :

- Pay levels to be referenced to the 66th percentile of Indian Private Sector banks

- Aspire to stay best-in-class within competitive cost parameters; balance between basic and lifestyle benefits

- Internal pay parity for roles staffed with employees with similar skills and seasoning

c Description of the ways in which current and future risks are taken into account in the remuneration process including the nature and type of the key measures used to take account of these risks :

The Board approves the risk framework for the Bank and the business activities of the Bank are undertaken within this framework to achieve the financial plan. The risk framework includes the Bankâs risk appetite, limits framework and policies and procedures governing various types of risk. The performance evaluation framework of Whole Time Directors, equivalent positions and senior management personnel in material risk taker roles incorporates these risk and control aspects as detailed by the Board. These factors include (but are not limited to) elements such as consistency in asset quality, rating slippage of existing loans, RORWA, operational risk parameters and quality of systems. The performance management framework of the Bank will evolve over time and get more sophisticated and mature. As regards linkage to remuneration, the compensation for Whole Time Directorâs, etc is paid in fixed pay, performance linked variable pay and stock options which is approved by the NRC. Furthermore, material risk takers will not be put on any guaranteed bonus framework, Performance evaluation of individuals in Credit and Risk, and Control functions will have requisite line of independence to revenue making senior management personnel,

d Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration :

While the bank had its first performance review cycle having started its operations only on October 1, 2015, performance and its linkage to levels of remuneration will be guided by the objectives / principles as spelt out in Item b above. Annual Remuneration package comprises of a combination of fixed salary, cash bonus and ESOPs, in a mix that ensures appropriate alignment with RBI guidelines and long term value creation and stability of the Bank. Further, total pay levels will be referenced against 66th percentile of Indian private sector banks,

e Bankâs policy on deferral and vesting of variable remuneration and a discussion of the bankâs policy and criteria for adjusting deferred remuneration before vesting and after vesting :

As outlined in Item (d) above, deferral structures have been incorporated and published to the staff. For senior levels and material risk taker roles, remuneration package represents a mix of fixed pay, cash bonus and ESOP in a manner that ensures deferred vesting schedule of ESOPs. Further, the deferred / unvested portions will be subject to âmalusâ provision in conformity with RBI guidelines,

f Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms :

The bank at this juncture primarily has an annual cash bonus process and ESOPs. The ESOP scheme has been designed with a view to ensure an appropriate risk balanced remuneration architecture. Further, for junior roles in front-line sales where quarterly formulae based incentive programs get rolled-out, there will be requisite emphasis on risk and control parameters. We have piloted the monthly incentive plan for all branch roles in Bharat Banking with an adequate emphasis on risk / collections and compliance to set-out processes.

1.19 CREDIT DEFAULT SWAPS

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2017 and March 31, 2016.

1.20 LIQUIDITY COVERAGE RATIO

Qualitative disclosure

Liquidity risk management of the Bank is undertaken by the Balance Sheet Management Group (BSMG) under the central oversight of the Asset Liability Management Committee (ALCO) in accordance with the Board approved policies and ALCO approved funding plans. The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI for reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO), Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

Currently the Liquidity Coverage Ratio is significantly higher than minimum regulatory threshold. As a strategy, the Bank is highly invested into GOI Bonds and corporate bonds which has resulted in a high level of HQLA. The Bank follows the criteria laid down by the RBI for month-end calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30 day period. HQLA predominantly comprises Government securities in excess of minimum SLR requirement viz. Treasury Bills, Central and State Government securities and corporate bonds in form of CP, CD and Bonds rated AA- and above with mandated haircuts applied thereto.

Bank is predominantly funded through long term borrowings viz Bonds and ECBs. Further the reliance on retail deposits and CASA is minimal as of now. All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation. Bank expects the LCR to reduce in the coming quarters primarily on account of growth in advances and increased focus on raising retail deposits.

The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bankâs ALCO for perusal and review.

1.21 RELATED PARTY DISCLOSURE :

As per AS-18, Related Party Disclosure, the Bankâs related parties are disclosed below :

A. ULTIMATE HOLDING COMPANY

IDFC Limited

B. HOLDING COMPANY

IDFC Financial Holding Company Limited

C. FELLOW SUBSIDIARIES

IDFC Alternatives Limited

IDFC Asset Management Company Limited IDFC AMC Trustee Company Limited

IDFC Finance Limited (Merged with IDFC Projects w.e.f. April 1, 2016)

IDFC Foundation

IDFC Infrastructure Finance Company Limited (formerly known as IDFC Infra Debt Fund Limited)

IDFC Projects Limited IDFC Securities Limited IDFC Trustee Company Limited IDFC Capital (USA) Inc.

IDFC Capital (Singapore) Pte. Limited IDFC Investment Advisors Limited IDFC Investment Managers (Mauritius) Limited IDFC Securities Singapore Pte. Limited

D. SUBSIDIARY

IDFC Bharat Limited (formerly known as Grama Vidiyal Micro Finance Limited) (wholly owned subsidiary w.e.f. October 13, 2016)

E. ASSOCIATES

i Direct

Feedback Infra Private Limited Millennium City Expressways Private Limited

ii Indirect (through fellow subsidiaries)

Jetpur Somnath Tollways Private Limited

Delhi Integrated Multi-Modal Transit System Limited

Infrastructure Development Corporation (Karnataka) Limited

Uttarakhand Infrastructure Development Company Limited (under liquidation)

India PPP Capacity Building Trust

F. KEY MANAGEMENT PERSONNEL

Dr. Rajiv B. Lall (Founder Managing Director & Chief Executive Officer)

G. RELATIVES OF KEY MANAGEMENT PERSONNEL

Tara Lall, Ambika Lall, Indrani Gangadhar, Kishen Behari Lall, Bunty Chand, Reena Khanna

In accordance with paragraph 5 and 6 of AS - 18, the Bank has not disclosed certain transactions with relatives of key management personnel as they are in the nature of banker-customer relationship.

The significant transactions between the Bank and related parties for year ended March 31, 2017 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of all related party transactions in that category:

- Interest Expense :

IDFC Limited Rs.4.37 crore (Previous Year Rs.2.11 crore); IDFC Financial Holding Company Limited Rs.5.02 crore (Previous Year Rs.1.58 crore); IDFC Foundation Rs.2.62 crore (Previous Year Rs.0.03 crore),

- Interest income earned :

Feedback Infra Private Limited Rs.11.94 crore (Previous Year Rs.3.96 crore); Millennium City Expressways Private Limited Rs.38.94 crore (Previous Year Rs.20.03 crore); IDFC Bharat Limited Rs.21.49 crore (Previous Year Nil).

- Dividend Income earned:

Feedback Infra Private Limited Rs.0.60 crore (Previous Year Nil)

- Receiving of services :

IDFC Securities Limited Rs.12.66 crore (Previous Year Rs.5.92 crore); IDFC Bharat Limited Rs.45.15 crore (Previous Year Nil),

- Rendering of services :

IDFC Securities Limited Rs.3.73 crore (Previous Year Rs.6.55 crore); IDFC Asset Management Company Limited Rs.2.13 crore (Previous Year Rs.0.91 crore); IDFC Infrastructure Finance Company Limited Rs.1.50 crore (Previous Year Rs.0.01 crore); IDFC Alternatives Limited Rs.1.01 crore (Previous Year Rs.0.19 crore)

- Managerial Remuneration :

Rajiv B. Lall Rs.4.65 crore (Previous Year Rs.1.92 crore)*

* Refer Note 18.46 - Quantitative Disclosure

- Sale of investments :

IDFC Limited Rs.14.34 crore (Previous Year Nil),

- Advance granted :

Feedback Infra Private Limited Rs.65.96 crore (Previous Year Nil),

- Advance repaid :

Millennium City Expressways Private Limited Rs.19.46 crore (Previous Year Rs.8.26 crore),

- Sell down of loans :

IDFC Infrastructure Finance Company Limited Rs.73.62 crore (Previous Year Rs.125.21 crore),

- Non Fund based Exposure :

Feedback Infra Private Limited Rs.9.52 crore (Previous Year Nil),

- Deposits with the Bank :

IDFC Limited Rs.398.81 crore (Previous Year Rs.218.97 crore); IDFC Financial Holding Company Limited Rs.75.44 crore (Previous Year Rs.44.23 crore); IDFC Bharat Limited Rs.110.40 crore (Previous Year Nil),

- Investment of related party in the Bank :

IDFC Financial Holding Company Limited Rs.7,030.07 crore (Previous Year Rs.7,030.07 crore),

- Security Deposits Outstanding :

IDFC Alternatives Limited Rs.1.77 crore (Previous Year Rs.1.77 crore)

- Other receivables (net) :

IDFC Bharat Limited Rs.41.27 crore (Previous Year Nil),

- Other payables (net) :

IDFC Bharat Limited Rs.9.57 crore (Previous Year Nil),

1.22 EARNING PER SHARE (âEPSâ)

Basic and diluted earnings per equity share are computed in accordance with AS 20 - Earnings per share. Basic earnings per equity share are computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares outstanding during the year. Diluted earnings per equity share is computed by dividing net profit after tax attributable to equity shareholders by the weighted average number of equity shares and weighted average number of dilutive potential equity shares outstanding during the year, except where the results are anti-dilutive. Dilution of equity is on account of stock options granted to employees by the Bank.

1.23 LEASES

In accordance with Accounting Standard 19 on âLeasesâ as notified under the Accounting Standards specified under Section 133 of the Companies Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014, the following disclosures in respect of operating leases are made:

1.24 CORPORATE SOCIAL RESPONSIBILITY (CSR)

i Amount required to be spent by the Bank on CSR during the year Rs.4.85 crore.

ii Amount spent towards CSR during the year and recognised as expense in the statement of profit and loss on CSR related activities is Rs.4.85 crore, which comprise of following -

1.25 PROPOSED DIVIDEND

The Board of Directors, in their meeting held on April 25, 2017 have proposed dividend of Rs.0.75 per equity share amounting to Rs.307.11 crore, inclusive of dividend distribution tax. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of revised Accounting Standard (AS) 4 âContingencies and Events occurring after the Balance sheet dateâ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated March 30, 2016, proposed dividend is not recognised as a liability as on March 31, 2017. Accordingly, the balance of Reserves and Surplus is higher by Rs.307.11 crore and the balance of Other Liabilities is lower by an equivalent amount as on March 31, 2017.

Appropriation to proposed dividend during the year ended March 31, 2017 represents dividend of Rs.0.03 crore (Previous Year Nil) paid pursuant to exercise of employee stock options after the previous year end but before the record date for declaration of dividend for the year ended March 31, 2016,

1.26 SMALL AND MICRO INDUSTRIES

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. 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,

1.27 DISCLOSURE ON FACTORING

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head âBills Purchased and Discountedâ in Schedule 9 of the Balance Sheet. The Bank has factoring exposure of Rs.480.16 crore (Previous Year Rs.200.25 crore) and outstanding of Rs.302.41 crore (Previous Year Rs.200.21 crore) as on March 31, 2017.

1.28 INVESTOR EDUCATION AND PROTECTION FUND

There were no amounts which were required to be transferred to the Investor Education and Protection Fund,

1.29 DESCRIPTION OF CONTINGENT LIABILITIES

i Claims against the Bank not acknowledged as debts

ii Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact,

iii Liability on account of forward exchange and derivative contracts

iv Guarantees given on behalf of constituents

v Acceptances, endorsements and other obligations

These includes documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bankâs customers that are accepted or endorsed by the Bank.

vi Other items

Other items represent estimated amount of contracts remaining to be executed on capital account.

1.29 COMPARATIVE FIGURES

Figures for the previous year have been regrouped and reclassified wherever necessary to conform to the current yearâs presentation.

Mar 31, 2016

1 NOTES FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED MARCH 31, 2016

Amounts in notes forming part of the financial statements for the year ended March 31, 2016 are denominated in Rs,crore to conform with the extant RBI guidelines.

2 IDFC Bank Limited (''''the Bankâ) was incorporated as a Company under the Companies Act, 2013 on October 21, 2014. The Bank commenced its Banking operations on October 1, 2015, post receipt of final banking license by the RBI. Accordingly, figures for the previous period / year is not comparable since Banking operations were not carried out during the previous period / year. In addition, RBI guidelines on Disclosure in Financial Statements - ''Notes to Accounts'' is not applicable for the period / year ended March 31, 2015.

Pursuant to the Scheme of Arrangement, the Financing Undertaking of IDFC Limited was demerged in the Bank with effect from October 1, 2015. Accordingly assets amounting to Rs,66,237.46 crore and liabilities amounting to Rs,60,002.90 crore resulting in net assets amounting toRs,6,234.56 crore along with contingent liabilities of Rs,285.63 crore, capital commitment of Rs,840.05 crore and notional principal of derivative contract of Rs,13,903.57 crore pertaining to the Financing Undertaking were transferred from IDFC Limited to the Bank and in consideration, equity shares of the Bank, in the ratio of 1:1 have been issued to the shareholders of IDFC Limited equivalent to 47% of the equity shareholding of IDFC Bank Limited. In addition, shares were issued to the Non-operative Financial Holding Company, IDFC Financial Holding Company Limited in compliance with RBI Guidelines for Licensing of New Banks in the Private Sector

3 DISCLOSURES ON RISK EXPOSURE IN DERIVATIVES QUALITATIVE DISCLOSURES :

i The Bank undertakes transactions in FX and derivatives for the purpose of hedging the Balance Sheet, support customer FX and Derivatives hedging / business requirements and takes proprietary positions. Bank deals in various kinds of products viz. FX spot and forwards, INR and CCY Swaps and Foreign currency options. The Bank undertakes trading positions FX Spot, Forward, Swaps and Futures. Bank does not run Option book as of now. All the Option products are offered to the clients on a back to back basis.

ii Treasury Sale Desk is a customer centric desk that caters to customers'' requirements in FX and Derivatives products subject to regulatory and internal requirements. Product offering to the clients is based on Suitability and Appropriateness policy of the Bank as well as by the extant RBI guidelines. The policy ensures that the product being offered by the Bank are in sync with the nature of the underlying, risk sought to be hedged giving due regard to the risk appetite of the customer and understanding of the risk by the customer. Market Risk exposures of clients arising out of FX and Derivative transactions are monitored by the Bank on a daily basis through current exposure method. Exposures are independently monitored and reported.

iv All the derivative transactions are governed by the FX & Derivative policy, Market Risk Management policy and Limit Management Framework of the Bank. Limit Management Framework details various types of market risk limits which are monitored on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically and presented to the Market Risk Committee / Asset Liability Committee. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. The Bank has a clear functional segregation of Treasury operations between Front Office, Market Risk and Back Office.

Currency interest rate swaps in the nature of hedge, booked with the objective of managing the currency and interest rate risk on foreign currency liabilities are recorded on accrual basis and these transactions are not marked-to-market. Any resultant profit or loss on termination of hedge swaps is amortized over the life of swap or underlying liability, whichever is shorter. The foreign currency balances on account of principal of currency interest rate swaps outstanding as at the balance sheet date are revalued using the closing rate.

4 DISCLOSURES ON REMUNERATION

Qualitative disclosures

a Information relating to the composition and mandate of the Remuneration Committee :

The Board nomination and remuneration committee comprised of the following members :

Mr. Ajay Sondhi Chairman

Mr. Anil Baijal Member

Ms. Veena Mankar Member

Mr. Vinod Rai Member

The functions of the Committee include :

i Evaluate performance of the Whole Time Directors (WTDs) (including the Managing Director & CEO) against predetermined parameters

ii Make recommendations on remuneration (including performance bonus and perquisites) of Whole Time Directors

iii Approve policy and quantum of variable pay, bonus, stock options and increments for the employees of the Bank

iv Frame guidelines for the Employees Stock Option Scheme (ESOS) and recommend grants of the Bank''s stock options to Whole Time Directors of the Bank

b Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy:

Specific principles and objectives of IDFC Bank remuneration policy and design include :

i Help attract and retain employees :

- Pay elements and structure to be market competitive

- Flexibility and agility in approach to design / review structure

- Differentiate market through benefit programs that build and reinforce organization values and loyalty

- Reward meritocracy, with differentiation based on performance

ii Foster a culture of authentic service and prudent risk taking :

- Reward programs to be designed to incentivize

- Superior and consistent customer service and

Specifically discourage miss-selling, thereby help build trust and faith of customers

- Rewards not just based on quantitative (financial) parameters alone; but also on how performance is achieved, including process adopted, prudent judgment and controls exercised

- Reward good behavior and organizational stewardship, that conserves franchise reputation

- Revenue producers will not determine compensation for risk managers and other control functions

- Compensation programs to be overlaid with requisite conformity to the RBI guidelines.

iii Emphasize alignment with our stated Bank Values of Balance, Collaboration, Drive and Honesty :

- Compensation program design to promote, measure and reward excellence on these key organization values

- Short term and long term incentives, and staff recognition framework to specifically incorporate metrics on these

iv Evaluate and Reward Performance over Time

- Program design to ensure balance between short term versus long term financial performance and health of the organization

- Drive long term commitment and ownership for decisions through LTI and/or equity awards with deferred vesting schedule

v Balance between market competitiveness and internal alignment

- Pay levels to be referenced to the 66th percentile of Indian Private Sector banks

Aspire to stay best-in-class within competitive cost parameters; balance between basic and lifestyle benefits

- Internal pay parity for roles staffed with employees with similar skills and seasoning

The Board approves the risk framework for the Bank and the business activities of the Bank are undertaken within this framework to achieve the financial plan. The risk framework includes the Bank''s risk appetite, limits framework and policies and procedures governing various types of risk. The performance evaluation framework of Whole Time Directors, equivalent positions and senior management personnel in material risk taker roles incorporates these risk and control aspects as detailed by the Board. These factors include (but are not limited to) elements such as consistency in asset quality, rating slippage of existing loans, RORWA, operational risk parameters and quality of systems. The performance management framework of the Bank will evolve over time and get more sophisticated and mature. As regards linkage to remuneration, the compensation for Whole Time Director''s, etc is paid in fixed pay, performance linked variable pay and stock options which is approved by the NRC. Furthermore, material risk takers will not be put on any guaranteed bonus framework. Performance evaluation of individuals in Credit and Risk, and Control functions will have requisite line of independence to revenue making senior management personnel.

d Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration :

While the bank is yet to have a first performance review cycle having started its operations only on October 1, 2015, performance and its linkage to levels of remuneration will be guided by the objectives / principles as spelt out in Item babove. Annual Remuneration package will comprise of a combination of fixed salary, cash bonus and ESOPs, in a mix that ensures appropriate alignment with RBI guidelines and long term value creation and stability of the Bank. Further, total pay levels will be referenced against 66th percentile of Indian private sector banks.

e Bankâs policy on deferral and vesting of variable remuneration and a discussion of the bankâs policy and criteria for adjusting deferred remuneration before vesting and after vesting :

As outlined in Item (d) above, deferral structures will be incorporated and published to the staff over the next 12 months.

For senior levels and material risk taker roles, remuneration package will represent a mix of fixed pay, cash bonus and ESOP in a manner that ensures deferred vesting schedule of ESOPs. Further, the deferred / unvested portions will be subject to âmalusâ provision in conformity with RBI guidelines.

f Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms.

The bank at this juncture primarily has an annual cash bonus process and ESOPs. The ESOP scheme has been designed with a view to ensure an appropriate risk balanced remuneration architecture. Further, for junior roles in front-line sales where quarterly formulae based incentive programs get rolled-out, there will be requisite emphasis on risk and control parameters. We are piloting the first such quarterly plan for junior roles in a specific business area (Bharat Banking), where there is adequate emphasis on risk / collections and compliance to set-out processes.

5 LIQUIDITY COVERAGE RATIO

Qualitative disclosure

The mandated regulatory threshold as per the transition plan is embedded into the Limit Management Framework of the Bank with appropriate cushion to ensure maintenance of adequate liquidity buffers. Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO), Risk Management Committee of the Board and Board for oversight and periodical review. The Bank has been submitting LCR reports to RBI from January 2016.

The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. The Bank assesses the impact on short term liquidity gaps dynamically under various scenarios covering business projections under normal as well as varying market conditions. Periodical reports are placed before the Bank''s ALCO for perusal and review.

6 RELATED PARTY DISCLOSURE :

As per AS-18, Related Party Disclosure, the Bank''s related parties are disclosed below :

A. ULTIMATE HOLDING COMPANY

IDFC Limited

B. HOLDING COMPANY

IDFC Financial Holding Company Limited

C. FELLOW SUBSIDIARIES

IDFC Alternatives Limited

IDFC Asset Management Company Limited

IDFC AMC Trustee Company Limited

IDFC Finance Limited

IDFC Foundation

IDFC Infra Debt Fund Limited

IDFC Projects Limited

IDFC Securities Limited

IDFC Trustee Company Limited

IDFC Capital (USA) Inc.

IDFC Capital (Singapore) Pte. Ltd.

IDFC Investment Advisors Limited

IDFC Investment Managers (Mauritius) Limited

IDFC Securities Singapore Pte. Limited

D. ASSOCIATES

i Direct

Feedback Infra Private Limited Millennium City Expressway Private Limited

ii Indirect (through fellow subsidiaries)

Jetpur Somnath Tollways Private Limited

Delhi Integrated Multi-Modal Transit System Limited Infrastructure Development Corporation (Karnataka) Limited Uttarakhand Infrastructure Development Company Limited India PPP Capacity Building Trust

E. KEY MANAGEMENT PERSONNEL

Dr. Rajiv B. Lall (Founder Managing Director & Chief Executive Officer)

F. RELATIVES OF KEY MANAGEMENT PERSONNEL:

Tara Lall, Ambika Lall, Indrani Gangadhar, Kishen Behari Lall, Bunty Chand, Reena Khanna

In accordance with paragraph 5 and 6 of AS - 18, the Bank has not disclosed certain transactions with relatives of key management personnel as they are in the nature of banker-customer relationship.

The significant transactions between the Bank and related parties for year ended March 31, 2016 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of all related party transactions in that category:

- Interest Expense :

IDFC LimitedRs,2.11 crore (Previous Year Nil); IDFC Financial Holding Company LimitedRs,1.58 crore (Previous Year Nil); IDFC Finance LimitedRs,0.46 crore (Previous Year Nil).

- Interest income earned :

Feedback Infra Private LimitedRs,3.96 crore (Previous Year Nil); Millennium City Expressways Private LimitedRs,20.03 crore (Previous Year Nil).

- Receiving of services :

IDFC Securities LimitedRs,5.92 crore (Previous Year Nil); IDFC Alternatives LimitedRs,1.77 crore (Previous Year Nil).

- Rendering of services :

IDFC Securities LimitedRs,6.55 crore (Previous Year Nil); IDFC Asset Management Company LimitedRs,0.91 crore (Previous Year Nil).

- Managerial Remuneration :

Rajiv B. LallRs,1.92 crore (Previous Year Nil).

- Sale of investments :

IDFC Infra Debt Fund LimitedRs,108.83 crore (Previous Year Nil).

- Profit on sale of Investments :

IDFC Infra Debt Fund LimitedRs,1.03 crore (Previous Year Nil).

- Purchase of fixed assets :

IDFC Securities LimitedRs,0.34 crore (Previous Year Nil).

- Placement of security deposits :

IDFC Alternatives LimitedRs,1.77 crore (Previous Year Nil).

- Advance repaid :

Millennium City Expressways Private LimitedRs,8.26 crore (Previous Year Nil).

- Sell down of loans :

IDFC Infra Debt Fund LimitedRs,125.21 crore (Previous Year Nil).

- Deposits with the Bank :

IDFC LimitedRs,218.97 crore (Previous Year Nil); IDFC Financial Holding Company LimitedRs,44.23 crore (Previous Year Nil); IDFC Infra Debt Fund LimitedRs,102.39 crore (Previous Year Nil).

- Investment of related party in the Bank :

IDFC Financial Holding Company LimitedRs,7,030.07 crore (Previous Year Nil).

- Other receivables (net) :

IDFC Securities LimitedRs,0.75 crore (Previous Year Nil).

- Other payables (net) :

IDFC Securities LimitedRs,1.18 crore (Previous Year Nil).

7 EARNING PER SHARE (âEPSâ)

8 SMALL AND MICRO INDUSTRIES

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from October 2, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. 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.

9 DISCLOSURE ON FACTORING

As per the RBI circular Ref No. DBR.No.FSD.BC.32/24.01.007/2015-16 dated July 30, 2015, banks are required to disclose factoring exposures. Receivables acquired under factoring are treated as part of loans and advances and reported under the head ''Bills Purchased and Discounted'' in Schedule 9 of the Balance Sheet. The Bank has factoring exposure ofRs,200.25 crore and outstanding ofRs,200.21 crore as on March 31, 2016 (Previous Year Nil).

10 DESCRIPTION OF CONTINGENT LIABILITIES

i Claims against the Bank not acknowledged as debts

ii Liability for partly paid investments

This represents amounts remaining unpaid towards liability for partly paid investments. These payment obligations of the Bank do not have any profit / loss impact.

iii 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 inter-bank participants on its own account and for 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. Interest rate futures are standardized, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time. An exchange traded currency option contract is a standardized foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date on the date of expiry. Currency Futures contract is a standardized, exchange-traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specified price.

iv Guarantees given on behalf of constituents

v Acceptances, endorsements and other obligations

These includes documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''s customers that are accepted or endorsed by the Bank.

vi Other items

Other items represent estimated amount of contracts remaining to be executed on capital account.

Mar 31, 2015

1.IDFC Bank Limited ('the Company') is a public company, incorporated in India on October 21, 2014. The Company is a wholly owned subsidary of IDFC Financial Holding Company Limited.

(b) Terms / rights attached to equity shares

* The Company has only one class of equity shares having a par value of ' 10 per share. Each holder of equity shares is entitled to one vote per share.

* In the event of liquidation of the Company, the holders of equity shares will be entitled to receive any of the remaining assets of the Company, after distribution of all preferential amounts. However, no such preferential amounts exists currently. The distribution will be in proportion to the number of equity shares held by the Shareholders.

2. Provisions & Contingencies

a. There are no litigations claims made by the Company or pending on the Company.

b. Provisions for onerous contracts are recognised when the expected benefits to be derived by the Company from a contract are lower than the unavoidable costs of meeting the future obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Company recognises any impairment loss on the assets associated with that contract.

3. The Company is yet to commence its commercial operations. Accordingly, there are no separate reportable segments as per Accounting Standard 17 on 'Segment Reporting' as specified u/s 133 of Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules, 2014.

4. As per Accounting Standard 18 on 'Related Party Disclosures' as specified u/s 133 of Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules, 2014.

Holding Company:

IDFC Limited (Upto December 25, 2014)

IDFC Financial Holding Company Limited (w.e.f. December 26, 2014)

5. In accordance with Accounting Standard 20 on 'Earnings Per Share' as specified u/s 133 of Companies Act, 2013 read with rule 7 of the Companies (Accounts) Rules, 2014.

6. The Company has a negative net worth as at March 31,2015 however, the accounts of the Company have been prepared on going concern basis, since the ultimate parent company IDFC Limited has committed to infusion of funds and other support as necessary in accordance with the corporate restructuring plan for the IDFC group approved by the Board of Directors of IDFC Limited in the meeting dated October 30, 2014. This demonstrates the ability and intention of the Company to continue as a going concern.

7. Since the Company was incorporated on October 21, 2014 this is the first accounting period of the Company. Accordingly there are no comparative figures.

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