Mar 31, 2023
Your Directors have the pleasure of presenting the 99th Annual Report of the Bank together with the Audited Statement of Accounts for the year ended March 31, 2023, and the Auditors'' Report thereon. The highlights of the operational performance are as under:
OPERATIONAL PERFORMANCE
Rs. in Crore |
||
MARCH 31, 2023 |
MARCH 31, 2022 |
|
Net Profit |
1180.24 |
508.62 |
Operating Profit |
2208.23 |
1634.00 |
Net Interest Income (NII) |
3185.10 |
2491.03 |
Gross Income |
8212.81 |
7175.54 |
Deposits (A) |
87368.01 |
80386.85 |
Advances (B) |
59951.62 |
56783.14 |
Business Turnover (A) (B) |
147319.63 |
137169.99 |
Investments |
23326.37 |
22041.00 |
CASA deposits (as a share of total deposits) (%) |
32.97 |
32.97 |
Gross NPA (%) |
3.74 |
3.90 |
Net NPAs (%) |
1.70 |
2.42 |
Provision Coverage Ratio (%) |
80.86 |
73.47 |
Capital Adequacy Ratio (CRAR) (%) |
17.45 |
15.66 |
Return on Assets (%) |
1.21 |
0.56 |
Note: The figures mentioned are on a standalone basis. The consolidated financial statements are furnished separately as part of this report.
BUSINESS OVERVIEW
As on March 31, 2023, the Business Turnover of the Bank has reached a new high of ''147319.63 crore with a YoY growth of 7.40%. During FY 23, Bank registered an all-time high net profit of ''1180.24 crore with an impressive 132.05% YoY growth. The deposits and advances grew by 8.68% and 5.58% YoY respectively. As of March 31,2023 the CD ratio was 68.62%. Despite the northward movement of interest rates, Bank maintained the share of CASA at 32.97%. The asset quality improved with a 16 bps and 72 bps reduction, respectively, under Gross NPAs and Net NPAs. The Bank has further consolidated its position in Provision Coverage Ratio (PCR), which improved to 80.86% and CRAR, which improved to an all-time high of 17.45%. Overall, the year 2022-23 was yet another year of satisfactory performance, witnessing further strengthening of the fundamentals of the Bank.
DEPOSITS AND CASA
The total deposits grew by 8.68% during the FY under report, with CASA deposits at 32.97% of the total deposits. The CASA deposits grew by 8.71% YoY. The deposits below ''2 crore accounted for about 92% of the total deposits, reflecting a strong retail franchise.
ADVANCES
The advances grew by 5.58% YoY. The lending profile was well balanced with the share of retail advance at 50.34% and mid corporate advances at 29.48% and the share of Large corporate advances was at 20.18% of the loan book.
The priority sector advances increased from ''32077 crore to ''32181.73 crore forming 50.78% of applicable Adjusted Net Bank Credit (ANBC). The agricultural advances increased from '' 10474 crore to ''11305 crore, which, together with eligible deposits under the Rural Infrastructure Development Fund (RIDF), constituted 17.84 % of ANBC during Q4FY23. Bank also focuses on lending under various socio-economic schemes, weaker section schemes, MSMEs etc.
Your Bank has been focusing on improving the asset quality through better credit appraisal and effective monitoring, as well as intensified recovery efforts. In terms of absolute numbers, the GNPAs slightly increased to ''2292.91 crore as on March 31, 2023, from '' 2250.82 crore as on March 31, 2022. However, the percentage of Gross NPAs reduced from 3.90 % as on March 31,2022, to 3.74 % as on March 31, 2023.
The amount of Net NPAs (NNPAs) reduced to ''1021.27 crore as against ''1376.97 crore as on March 31, 2022 and during the period, the percentage of NNPAs substantially improved to 1.70% as against 2.42% last year. The Provision Coverage Ratio (PCR) improved to 80.86 % on March 31,2023 from 73.47 % on March 31,2022, thus further strengthening the fundamentals.
INVESTMENTS
The total investments increased by 5.83% and the ID ratio stood at 26.70 % as on March 31,2023 as against 27.42 % on March 31, 2022.
OPERATIONAL METRICS
The Bank''s gross income for the year ended March 31,2023, stood at ''8212.81 crore compared to ''7175.54 crore last year recording a YoY growth of 14.46%.
The total expenditure (excluding provisions and contingencies) increased by 8.36 % to ''6004.58 crore for the year ended March 31, 2023, as against ''5541.54 crore for the last financial year. The cost to income ratio improved by 543 bps to 47.14%.
During the FY, Net Interest Income (NII) grew by 27.86 % over the previous year. The Net Interest Margin (NIM) also improved to 3.70 % from 3.18 % last year.
The operating profit increased by 35.14 % to '' 2208.23 crore for FY 2022-23 from '' 1634.00 crore for the previous year due to improved Net Interest Income. The provisions (other than tax) and contingencies for FY 2022-23 were '' 767.19 crore vis-a-vis ''939.44 Crore for the previous year.
The net profit reached an all-time high of ''1180.24 crore from '' 508.62 crore during the previous year, registering a growth of 132.05 %.
APPROPRIATIONS
The net profit of '' 1180.24 crore, along with a sum of ''135.82 crore brought forward from the previous year, aggregating to '' 1316.06 crore, has been appropriated as under:
Appropriation |
'' in crore |
Transfer to Statutory Reserve |
296.00 |
Transfer to Capital Reserve |
NIL |
Transfer to Revenue and Special Reserves |
665.47 |
Transfer to Investment Fluctuation Reserve |
64.15 |
Dividend of 2021-22 paid during the year |
124.52 |
Balance carried over to Balance Sheet |
165.92 |
DIVIDEND
Having regard to the overall performance of the Bank, the Board of Directors has recommended a dividend of ''5/-per share (50%) for the year ended 31st March 2023 (previous year ''4/- per share (40%). The dividend payout ratio for the year works out to 13.30% as against 24.47% for the previous year. In accordance with Accounting Standard (AS)4-Contingencies & Event occurring after the balance sheet date, the proposed dividend amounting to '' 157 crores (Previous year ''124.47 Crores) has not been shown as an appropriation from the profit for the year ended March 31, 2023.
EARNINGS PER SHARE (EPS) and BOOK VALUE
The Earnings Per Share stood at ''37.88 (basic) and ''37.66 (diluted) for the year ended March 31,2023. This was ''16.36 (basic) and ''16.29 (diluted) during the previous year. The Book Value per share has further improved to ''262.96 as on March 31,2023 as against ''228.01 during the last year.
The Bank''s capital funds increased from ''8118.55 crore to ''9312.53 crore. The Capital to Risk- Weighted Assets (CRAR) Ratio improved to a high of 17.45 % as on March 31, 2023, as against the previous year''s 15.66 %. The Bank has consistently maintained the CRAR ratio well above the minimum requirement of 11.50 %, including the Capital Conservation Buffer of 2.50 % stipulated by the Reserve Bank of India and the Bank''s internal policy of maintaining the CRAR one per cent over and above the regulatory requirement.
EQUITY CAPITAL BASE
As on March 31,2023, the paid-up capital of your Bank stood at '' 312,34,26,210 comprising 31,23,42,621 equity shares of ''10/- each. During the year, 11,78,761 equity shares of ''10/- each were allotted to option grantees upon exercise of vested stock options under KBL ESOS-2018.
CHANGE IN CAPITAL BASE AFTER THE CLOSE OF THE FINANCIAL YEAR
After the Financial Year''s close, 2,24,901 equity shares of ''10/- each were allotted pursuant to the exercise of vested stock options by the grantees under KBL ESOS-2018.
DEBT INSTRUMENTS AND CERTIFICATE OF DEPOSITS
Bank has issued Unsecured Non-Convertible BASEL III Debt Instruments as a part of Tier-2 Capital on a private placement basis. These bonds are listed on the debt segment of National Stock Exchange of India Ltd (NSE). The details of the debt instruments outstanding as on March 31, 2023, are as under:
Series |
Date of Issue |
Face Value per Bond ('') |
Number of Bonds |
Amount ('' crore) |
Tenure from the date of issue |
Coupon Rate(% pa.) |
Credit Rating |
Listing |
ISIN of the Bonds |
V |
16.11.2018 |
1,00,000 |
40,000 |
400.00 |
120 |
12 |
ICRA ''A'' & |
Listed on |
INE614B08039 |
VI |
18.02.2019 |
1,00,000 |
32,000 |
320.00 |
12 |
CARE ''A'' |
NSE Deht |
INE614B08047 |
|
VII |
30.03.2022 |
1,00,00,000 |
300 |
300.00 |
months |
10.70 |
Segment |
INE614B08054 |
Your Bank has paid interest on these debt instruments on time since the issue of respective debt instruments as per the terms of the issue. During the FY, the bonds issued under Series IV matured on 17.11.2022 and were redeemed by the Bank on the said due date.
Further, during the reporting year, Bank raised Rs. 400.00 crore for a period of 90 days by issuing Certificates of Deposits (CDs) and there was no outstanding as on March 31,2023.
TRANSFORMATION JOURNEY- ''KBL VIKAAS''
Your Bank had embarked on a holistic and aspirational transformation journey KBL-VIKAAS in November 2017 to strengthen its digital capabilities and total transformation in all the areas of its functioning. Under Phase-I of KBL-VIKAAS, many milestones were achieved like institutionalization of marketing culture, setting up of Digital Centre of Excellence (DCoE)/ Digi branch/ Digi Centres, digital underwriting of Loans, review cadence, etc.
In Phase-II, i.e., under the ''KBL NxT'' concept of KBL VIKAAS 2.0, the journey is being taken up to further enhance the digital capabilities in all the banking operations to have end-to-end digital solutions. During the FY, your Bank set up an Analytical Centre of Excellence (ACoE) as a part of this initiative. Besides, over the next three years, your Bank will be focusing on digitizing various customer-facing activities and internal processes for increased efficiency.
Details about various digital initiatives introduced during the FY 2022-23 are furnished in Management Discussion and Analysis.
Leveraging through Bank''s Wholly Owned Subsidiary:
Your Bank''s wholly owned non-financial subsidiary-KBL Services Limited has been operationalised with effect from March 30, 2021 and has started providing its services to the Bank in augmenting its ''Feet on Street''. Presently, the subsidiary is providing the services of Business Associates as the feet on street support and for various back office processes in select areas.
RISK MANAGEMENT AND GOVERNANCE
In the normal course of business, banks are exposed to various risks, namely, Credit Risk, Market Risk and Operational Risk, besides other residual risks such as Liquidity Risk, Interest Rate Risk, Concentration Risk, Strategic Risk, Reputation Risk etc. With a view to efficiently managing such risks, your Bank has put in place various risk management systems and practices. In line with the guidelines issued by the Reserve Bank of India from time to time, your Bank continues to strengthen various risk management systems that include policies, tools, techniques, systems and other monitoring mechanisms.
Your Bank aims at achieving an appropriate trade-off between risks and returns. Your Bank''s risk management objectives broadly cover proper identification, assessment, measurement, monitoring, controlling, mitigation and reporting of the risks across various business segments of the Bank. The risk management strategy adopted by your Bank is based on a clear understanding of the risks and the level of risk appetite, which is dependent on the willingness of your Bank to take risks in the normal course of business. A Board level committee, viz., Risk & Capital Management Committee (RCMC), periodically reviews the risk profile, evaluates the overall risks encountered by the Bank and develops policies and strategies for its effective management. Bank has an exclusive risk management department and a Chief Risk Officer for the overall supervision of all the risk related issues.
Various senior management committees, such as Credit Risk Committee (CRC), Asset-Liability Management Committee (ALCO), Operational Risk Management Committee (ORMC) etc., operate within the broad policy framework of the Bank to ensure and enhance the risk control and governance framework within the Bank. The Risk Management Department at Head Office oversees the overall implementation of various risk management initiatives across the Bank. Your Bank''s Risk Management Department (RMD) has been accredited with the prestigious ISO 9001:2015 international certification for Quality Management System (QMS). Under ISO Accreditation, Quality Policy has been defined, existing procedures and Standard Operating Procedures were reviewed, and a formal Quality Management system (QMS) was established to ensure that the Risk Management processes and practices of the Bank are in line with the global standards.
In line with the guidelines issued by RBI, your Bank has nominated a Chief Information Security Officer (CISO), who is responsible for articulating and enforcing the policies that the Bank uses to protect the information assets apart from coordinating security-related issues in the implementation of new systems in the Bank.
A more elaborate discussion on how the Bank manages the key risks associated with its operations is provided under Management Discussion and Analysis attached to this report.
Basel III Capital Regulations - Implementation of Leverage Ratio:
To mitigate the risk of excessive leverage and enhance financial stability, RBI mandated the minimum Leverage Ratio (LR) under Basel III Regulations for banks in India. Both the capital measure and the exposure measure, along with the leverage ratio are to be disclosed on a quarter-end basis. However, banks must meet the minimum leverage ratio requirements at all times. As on March 31, 2023, your Bank had a comfortable leverage ratio of 6.91% as against the regulatory minimum requirement of 3.50%.
Capital Adequacy & Internal Capital Adequacy Assessment Process (ICAAP):
In compliance with Basel guidelines, Bank has put in place a policy document for Internal Capital Adequacy Assessment Process (ICAAP) to evaluate its capital adequacy requirements. A stress testing framework for various stress scenarios is also put in place for a better understanding of the likely impact of adverse market movements/events on capital and earnings. The results of the ICAAP and Stress testing are reviewed periodically to assess the capital requirement for the projected business growth, keeping in view the risk appetite and risk profile of the Bank. A Board level Risk & Capital Management Committee (RCMC) reviews the risk appetite, risk profile, business projections as well as capital assessments of your Bank at periodic intervals.
The Disclosure under Pillar III of the Basel III accord has been annexed to the Directors'' Report as in Annexure-I. SEGMENT REPORTING
Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting), the Bank has identified four business segments viz., Retail Banking (''Digital Banking'' as a Sub-segment under Retail Banking as per RBI circular DOR.AUT.REC.12/22.01.001/2022-23 dated April 07, 2022, on establishment of Digital Banking Unit (DBU)), Corporate / Wholesale Banking, Treasury and Other Banking Operations for the year ended March 31, 2023 as under:
'' in Crore |
||
Segment |
Revenue Earned |
Contribution to Profit Before Tax and un-allocable expenditure |
Retail Banking |
3755.78 |
1634.08 |
-Digital Banking Unit (DBU) |
0.01 |
-0.64 |
-Other Retail Banking |
3755.77 |
1634.72 |
Corporate / Wholesale Banking |
2691.29 |
462.62 |
Treasury Operations |
1276.83 |
182.23 |
Other Banking Operations |
424.58 |
-48.63 |
Details about aforesaid business segments are discussed in Management Discussion and Analysis attached to this report.
Banking Outlets and Alternate Delivery Channels (ADCs):
Your Bank has a strong presence in south India and has been judiciously expanding its network of branches and controlling offices in other parts of the country after examining the potential for business, earnings and customer outreach. As of 31st March 2023, your Bank had 2376 service outlets including 901 branches (including two Digital Banking Units), 871 ATMs, 603 cash recyclers (CRs) and one extension counter, with a presence in 578 centres spread across 22 States and 2 Union Territories.
More Details are discussed in Management Discussion and Analysis attached to this report.
Your Bank has been appointed by RBI as Agency Bank for the conduct of government business and your Bank can now undertake revenue receipts and payments on behalf of the Central/State Governments, pension payments and collection of Stamp Duty, and any other item of work specifically approved by the concerned government department and concurred by RBI. The handling of government business augurs well for your Bank as it helps in facilitating the customers in tax payments, thus enhancing relationship stickiness and as a source of revenue through eligible agency business commission.
Now, your Bank has engaged with the Central Board of Indirect Taxes and Customs (CBIC), Central Board of Direct Taxes (CBDT) and Department of Treasuries, Government of Karnataka (GoK) for the collection of Taxes and various revenues. Bank has started collecting customs duty through the ICEGATE portal on behalf of CBIC and also integrated with Khajane II IFMS SNA 4 module for Central/ State Sponsored schemes.
Your Bank has launched exclusive products and services for Government Departments, Boards, Bodies and Corporations to suit their needs.
Third-Party Products and Insurance Business:
With an aim to provide diversified financial products & services and to maximize value-added services to the customers, your Bank provides a bouquet of Third Party Products, which include Life Insurance, General Insurance, Health Insurance, Mutual Funds, Demat Account, Trading Account, Co-branded Credit Cards, PoS Network, KBL FASTag, NPS, SGB, APY, etc. A summary of the major third-party products is provided in Management Discussion and Analysis attached to this report.
Your Bank is continuously focusing on creating new benchmarks in customer service so as to make the Bank distinctly more competitive. This necessitates the designing of innovative and cost-effective mechanisms for delivering banking services efficiently. The Bank is actively involved in putting in place a system and procedures for banking services rendered to customers and an effective grievance redressal mechanism, including an Internal Ombudsman [IO] as per the guidelines received from RBI and IBA from time to time. Bank is also providing doorstep banking services to Senior Citizen customers of more than 70 years of age and differently-abled or infirm persons including the visually impaired.
In order to have an effective post-sanction monitoring and collection mechanism, an exclusive Credit Monitoring Department (CrMD) is set up at Head Office. Regional Collection Hubs (RCH) consisting of the Regional Retail Collection Teams (RRCT) and Regional Corporate Collection Teams (RCCT) are set up at all the Regional offices. The RRCTs and
RCCTs follow up/initiate time-bound/DPD-wise actions to ensure the collection of dues in respect of all loan accounts under the overall supervision of CrMD. Dedicated Credit Monitoring Teams (CrMT) are also functioning under RCHs at all the Regional Offices to undertake post-sanction monitoring of loan accounts of the respective regions. With a view to improve the efficiency in monitoring & follow-up activities, various digital initiatives, viz., implementation of web-based Collection Tool-"KBL-Kollect ", the introduction of Auto Sweep system for auto collection of EMI / Installment/ Interest of loans from operating accounts of borrowers, E-Connect solution for making payment to the loan accounts through UPI, Auto-capturing of Early Warning Signals etc., are put in place.
For close monitoring of the restructured advances, Bank has formed an exclusive cell, viz., "Restructured Advances Monitoring Cell" within the Credit Monitoring Department. Further, a Consortium & Multiple Banking Arrangement Cell was also formed for special monitoring of loan accounts under Consortium & Multiple Banking Arrangement.
With an integrated approach to contain stress in the portfolio, Bank has been able to contain overall stress in the advances portfolio.
SUPPORT AND CONTROL FUNCTIONS Information Technology:
The Bank has adopted Core Banking System (CBS) since the year 2000, and all its branches and offices are under the CBS network. Alternate Delivery channels, viz., ATM, Internet Banking, Mobile Banking, UPI, and PoS, have been integrated with the CBS. Disaster Recovery [DR] arrangement also exists to ensure business continuity in the event of a primary site failure. This arrangement is strengthened by implementing a three-way data replication process aimed at maintaining zero data loss. Critical applications like CBS, ATM, Internet Banking and Mobile Banking are part of this arrangement. Bank''s Primary Data Centre is operating from a Tier-4 Colocation Centre. Bank''s IT infrastructure as a whole is supervised by the Chief Technology Officer (CTO).
Human Resources:
As on March 31, 2023, Bank had 8652 employees, of which 2644 are women employees constituting around 30.56% of the total strength. Your Bank recognizes the significance of Human Resources as an important asset and attaches the greatest importance to employee upskilling, employee satisfaction and human resource development activities. Bank has introduced ECDS (Employee Career and Development System) by operationalizing the PMS (Performance Management System). Bank has also put in place TMC (Talent Management Committee) to identify and groom the talent as part of succession planning. Further, the Bank provides training and development opportunities to the employees, which are discussed in detail in the Managing Discussion and Analysis.
Your Bank has put in place an institutional mechanism for the protection of women employees at the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, providing for the protection of women employees against the sexual harassment of women at the workplace and redressal of such complaints. There was no complaint pending at the beginning of the FY, and no complaint was received during the year under report.
Your Bank values opinions and suggestions from all the employees and encourages their inputs, thoughts and innovative ideas, which help in creating a highly productive, competitive and reliable workforce, thereby emerging as a preferred destination for the competent workforce. Further, your Bank has maintained cordial industrial relations and effective employee discipline.
EMPLOYEE STOCK OPTIONS (ESOP)
Your Bank has the below-mentioned Employee Stock Option Schemes in force as on March 31,2023:
1. Employee Stock Option Scheme 2018 (ESOS 2018) was approved by the shareholders on July 21,2018. During the reporting year, there was no grant of options under ESOS 2018. However, the grantees have exercised 11,78,761 vested stock options as per the terms of the ESOP Scheme, which were granted to them during earlier years.
2. Employee Stock Option Scheme-2023 (ESOS-2023), was approved by the shareholders of the Bank on March 30, 2023, with a total of 15,00,000 stock options available for grant. During the reporting year, there was no grant of options under ESOS-2023.
Other statutory disclosures required as per SEBI guidelines/Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 are provided on the website of the Bank at the link: https:// karnatakabank.com/sites/default/files/2023-08/ESOP%20Disclosure%202022-23%20.pdf
In view of the growing complexities in the processes, product offerings and systems and procedures in the Indian banking sector, pursuant to the recommendation of the High-Level Steering Committee, the Reserve Bank of India has shifted its supervisory stance to a risk-based approach called the Supervisory Program for Assessment of Risk and Capital (SPARC) which is focusing on evaluating both present and future risks, identifying incipient problems and facilitating prompt intervention / early corrective action etc. Your Bank has been included under the same and migrated to Risk Based Supervision since March 31, 2015. A plan of action for complying with various findings in RBS communicated to the Bank in the Risk Assessment Report is also ensured.
Your Bank is effectively addressing Compliance Risk through the Compliance function. The compliance function is one of the key elements in the Bank''s Corporate Governance structure along with internal control and risk management process. Bank has set up a robust Compliance Department with sufficient independence to promote a healthy compliance culture. Bank ensures strict observance of all statutory provisions, guidelines from RBI and other Regulators, standards and codes, the Bank''s internal policies and fair practices code. The compliance function includes interpretation/dissemination of regulatory and statutory guidelines and ensures that controls and procedures capture the appropriate information to the Senior Management in their risk management function. The risk-based compliance programme of the Bank, under the supervision of the Chief Compliance Officer, ensures appropriate coverage across businesses, besides verifying the level of compliance through ''Compliance Testing'' of branches/business units. The Bank carries out an annual compliance risk assessment to identify and assess its significant compliance risks and take steps to manage the risks effectively. Further, the tone from the Top management continuously emphasizes the significance of compliance to usher in perceptible improvements in the overall compliance culture of the Bank.
The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) since the year 2007, intended to promote the participation of employees at all levels and detection of corruption, misuse of Office, criminal offences, suspected/actual fraud, failure to comply with the rules and regulations prescribed by the Banks and any events/ acts detrimental to the interest of the Bank, depositors and the public resulting in financial loss/operational risk, loss of reputation etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against the victimization of Whistle Blower who avails of such mechanism and also provides for direct access to the Chief of Internal Vigilance (CIV). Further, there was no occasion where a person was denied access to the Audit Committee. The details of Whistle Blower Policy are posted on Bank''s website and available at the https://karnatakabank.com/sites/default/files/2023-06/Policy%20 on%20Whistle%20Blower%202023-24.pdf
Corporate Social Responsibility
Corporate Social Responsibility (CSR) initiatives of the Bank are designed to make a positive impact on a wide range of areas of social life like healthcare, education, livelihood enhancement, empowering women/socially and economically disadvantaged, environmental sustainability/ green initiatives, protection of heritage/ culture, promotion of sports, rural development, Swachh Bharath etc., aimed at promoting the overall development of the society. Further, to minimize the urban-rural divide, your Bank has been strengthening its rural orientation through initiatives aimed at imparting financial literacy and extending banking services to the people in rural unbanked areas in a fair and transparent manner at an affordable cost.
Further, pursuant to Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board has constituted a ''Corporate Social Responsibility (CSR) Committee'' of the Board and has also put in place a Policy on Corporate Social Responsibility (CSR Policy) to undertake projects/programmes in pursuance of the said Policy. Under CSR activities, Bank has so far funded 1812 projects with a total financial outlay of ''74.20 crore, and these projects have exhibited a positive impact on society.
Pursuant to Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, the contents of the CSR Policy, along with the report on amounts spent on various projects/ programmes during FY2022-23, are detailed in Annexure-2 to this report. Further, in terms of Rule 4(5) of the CSR rules, certification from the Chief Financial Officer has been obtained for the CSR outlay during FY 2022-23.
Financial Inclusion:
Through the Financial Inclusion Plan, your Bank aims at ''connecting people'' with the Bank and and not at just opening accounts. This includes meeting the small credit needs of the rural public, giving them access to the payments system, providing remittance facilities, life insurance and health insurance etc. Your Bank has 418 branches, apart from 35 Ultra Small Branches, located in the rural and semi-urban areas and offers banking facilities to the rural clientele. Our rural branches are also acting as Financial Literacy Centers (FLCs) and imparting banking literacy among the rural populace. In accordance with Prime Minister''s Jan Dhan Yojana (PMJDY), Bank has implemented the revised Strategy and Guidelines for Financial Inclusion activities. Your Bank is actively participating in the Direct Benefit Transfer (DBT) Programme of Govt. of India to transfer the benefits of various Schemes / LPG subsidies directly to the beneficiaries'' Aadhaar-enabled bank accounts.
As part of the Financial Inclusion plan, Bank has been offering the following services:
1. Business Correspondent (BC) services: Bank has tied up with Sub-K Impact Solutions Limited to provide the BC services, and as on March 31,2023, 121 BC Agents are covering the allocated villages in the states of Karnataka, Andhra Pradesh and Chhattisgarh.
2. Aadhar Enabled Payment System (AEPS): Bank has introduced AEPS transaction services offered by the National Payments Corporation of India (NPCI) at all Business Correspondent (BC) locations of the Bank, and with this, the Bank''s customers having an Aadhar-enabled SB account can transact at the BC point.
3. Financial Literacy and Credit Counseling Centers (FLCs): Bank is running 5 FLCs at B.C Road - Bantwal, Hangal, Kundagol, Tiptur and Alur (Karnataka). During FY23, these FLCCs have conducted 795 Financial Literacy campaigns in which 54,960 participants took part. In adherence to the RBI guidelines, all rural branches of your Bank are also conducting financial literacy Camps.
4. Social Security Schemes: All the branches of your Bank are actively involved in providing three Social Security Schemes-Prime Minister Jeevan Jyothi Bima Yojana (PMJJBY), Prime Minister Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) schemes to customers across the country.
5. Prime Minister Jan Dhan Yojana (PMJDY): All the branches across the country are opening accounts under PMJDY and are issuing RuPay Debit Cards.
6. Bank is one of the trustees of Karnataka Farmers Resource Center (KFRC), Bagalkot, established to impart training and act as a resource centre for farmers under the umbrella of SLBC Karnataka. Bank has contributed '' 50.00 lakhs towards the capital expenditure/corpus of KFRC.
7. In line with the Pradhan Mantri Street Vendor''s Atmanirbhar Scheme, Bank has rolled out KBL- PM - SVANidhi scheme providing working capital loans up to ''50,000/- to the street vendors to support their businesses.
AWARDS AND ACCOLADES:
Your Bank has bagged the following awards during the year under report in recognition of its achievement:
i. '' Excellence Award-Runner Up'' under Lending in Small Bank category by ASSOCHAM 17th Annual Summit & Awards Banking & Financial Sector Lending Companies.
ii. Three prestigious awards from Confederation of Indian Industry (CII) - Digital Transformation (DX) in BFSI segment for ''Innovative'' Best Practice under the following categories:
a) ''KBL HR NxT''
b) ''KBL Operations NxT''
c) ''KBL Customer NxT''
iii. ''Award of Par Excellence'' received in APY Strategy Review Meeting & Felicitation Programme organised by PFRDA held on 18.11.2022 under ''Beat the Best & Be the Best'' category for South Zone.
iv. '' Best Technology Talent-Runner Up'' award at the 18th IBA annual Technology Conference, Expo & Awards 2022, conferred by Indian Banks'' Association (IBA) Mumbai.
v. '' Prathista Puraskar'' under ''Digidhan Awards 2021-22'' by Ministry of Electronics & Information Technology (MeitY), Govt. of India for achieving target with highest percentage in BHIM-UPI transactions in Private Sector Bank category.
vi. Three (3) Awards at ''MSME Banking Excellence Awards-2022'' by CIMSME (Chamber of Indian Micro Small & Medium Enterprises) held on 23.02.2023 at New Delhi, as detailed herebelow:
a) CSR Initiative Bank - Winner
b) Best MSME Bank - Runner-Up
c) MSME Friendly Bank - Runner-Up
vii. The Bank stood Sixth position among all the Banks in India under Digital Payment Performance as on March 2022 as published by the Ministry of Electronics & Information Technology, Govt. of India. Our Bank stood at First position in the list under Category Specific Bank-wise Digital Payment Performance-Small & Micro Banks.
Implementation of Ind AS:
As per the roadmap given by Reserve Bank of India (RBI) vide circular dated February 11, 2017, transition to "Indian Accounting Standards (Ind AS)'' in banks were to commence from the accounting period beginning April 1, 2018 onwards. However, RBI vide its circular No.DBR.BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019 has deferred implementation of Ind-AS in Banks till further notice.
The Bank has set up a Steering Committee head by the Managing Director and also a sub-committee called IFRS Working Group involving stakeholder departments to facilitate on a continuous basis the process of smooth implementation of Ind AS in the Bank and to have detailed discussions and deliberations on Ind AS Standards and related RBI Circulars. As stipulated by RBI, Bank has been submitting the Proforma Ind AS Financial statements at half yearly intervals. Also, as a prudent measure, Bank is preparing Proforma Ind AS financials on a quarterly basis and the estimated impact along with latest update on the Ind AS implementation in the Bank is placed to the Audit Committee of the Board.
DIVIDEND DISTRIBUTION POLICY
Your Bank has adopted a Policy on the Distribution of Dividend to the shareholders pursuant to the Regulation 43A of the SEBI (LODR) Regulations, 2015. The Gist of the Dividend Distribution Policy is as under:
⢠Being a Banking entity, Dividend Distribution is guided by the RBI Circular DBOD.No.BP.BC.8821.02.67/2004-05 dated May 5, 2005, with regard to eligibility criteria for distribution of dividend.
⢠Factors considered for a recommendation of dividend includes both internal factors such as financial performance, dividend payout trends, tax implications, and corporate actions and external factors such as shareholders'' expectations, macro environment etc.
⢠Factors considered for determining the quantum of dividend include financial performance, capital fund requirements to support future business growth, having regard to the dividend payout ratio prescribed under the aforesaid RBI Guidelines etc.
The Dividend Distribution Policy of the Bank is available on Bank''s website at https://karnatakabank.com/sites/default/ files/2023-04/Policy%20on%20Dividend%20Distribution%202023-24.pdf
As discussed earlier, the Board of Directors has recommended payment of dividend duly complying with the Reserve Bank of India directions for payment of dividend out of the profit for the financial year ended March 31, 2023.
ANNUAL RETURN
Pursuant to Section 92(3) of the Companies Act, 2013, read with Rule 12 of the Companies (Management and Administration) Rules, 2014, a copy of the Annual Return of the Company for FY2023 prepared in accordance with Section 92(1) of the Act has been placed on the website and is available at https://karnatakabank.com/investor-portal/ annual-report
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the provisions of Section 129(3) of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014, the Bank has prepared Consolidated Financial Statement including its subsidiary - KBL Services
Limited and pursuant to the provisions of Accounting Standard (''AS'') 21, the Consolidated Financial Statements notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014, the Consolidated Financial Statements of the Bank along with its subsidiary for the year ended March 31, 2023 forms part of the Annual Report. The financial position and performance of the subsidiary are given in Form AOC-1 attached to this Report as Annexure-3.
In accordance with the third proviso to Section 136(1) of the Companies Act, 2013, the Annual Report of the Bank, containing therein its Standalone and Consolidated Financial Statements has been hosted on the website, https:// karnatakabank.com. Further, as per the fourth proviso to the said Section, the Audited Annual Accounts of the said subsidiary company of the Bank, considered as part of the Consolidated Financial Statements have also been hosted on the Bank''s website: https://karnatakabank.com. The documents/details available on the Bank''s website: https:// karnatakabank.com will also be available for inspection by any member at its Registered Office.
INVESTOR RELATION CELL
To maintain a regular connect with the investors, your Bank has a dedicated Investor Relation Cell at the Registered Office. Besides redressing the grievances, if any, from the investors, the Cell proactively disseminates corporate information on a voluntary basis to the shareholders through email (wherever made available) about financial results, major events and coverage about the Bank in the media etc.
DIRECTORS AND CHANGES IN THE BOARD
As of March 31, 2023, your Bank''s Board comprised of eleven Directors with one Independent woman director. Except the then Managing Director & CEO - Mr. Mahabaleshwara M S, Mr. Sekhar Rao, Executive Director and Mr. B R Ashok, Non-Executive Director, all of them are Independent Directors. The details of the criteria for appointment and remuneration of Directors are provided in the report on Corporate Governance under Annexure-4.
During the FY 2022-23, the Bank has inducted Mr Jeevandas Narayan (DIN: 07656546) and Mr Kalmanje Gururaj Acharya (DIN: 02952524) as Additional Directors (Non-Executive, Independent) w.e.f. April 26, 2022 and their appointment as Independent Directors was approved by the shareholders vide resolution dated June 02, 2022 passed via Postal ballot (e-voting). Further, Bank has also appointed Mr. Sekhar Rao (DIN: 06830595) as Executive Director w.e.f. February 01, 2023 and his appointment was approved by the shareholders vide resolution dated March 30, 2023, passed via Postal ballot (e-voting).
During the year under report, Mrs. Mythily Ramesh, Independent Director, retired on March 13, 2023 upon completion of her tenure of five years.
Further, subsequent to March 31,2023, Mr. Mahabaleshwara M S retired from the post of Managing Director & CEO on April 14, 2023 upon completion of his tenure.
The Board places on record its appreciation for the valuable contributions and the guidance given by them during their tenure in office.
Further, pursuant to the approval of RBI, your Bank has appointed Mr Srikrishnan Hari Hara Sarma (Mr Srikrishnan H) as the Managing Director & CEO of the Bank for a period of three years who has assumed charge w.e.f. June 09, 2023. The Board of Directors recommends his appointment as the Managing Director & CEO of the Bank for approval by the shareholders and accordingly, a resolution seeking appointment of Mr Srikrishnan H as the Managing Director & CEO has been included in the Notice of 99th AGM for approval of the members.
Considering the appointment of whole time Directors (WTD) i.e., MD & CEO and ED for a fixed tenure with prior approval of RBI under section 35B of Banking Regulation Act, 1949, Bank has been following the practice of the office of WTDs not being subjected to retirement by rotation. However, in view of the present constitution of the Board and provisions of Section 152(6) of Companies Act, 2013, it is proposed that the office of WTDs shall also be liable for retirement by rotation, within the overall tenure permitted by RBI. Hence, it is proposed to to partially amend the terms of appointment of the Executive Director- Mr. Sekhar Rao to this effect.
Hence, a resolution seeking shareholders'' approval for the amendments to the terms of appointment of Mr. Sekhar Rao is included in the Notice of 99th AGM.
Considering the foregoing and as per Section 152(6) of Companies Act, 2013, at the ensuing AGM, Mr. B R Ashok, NonExecutive Director being the longest in office shall retire on rotation. Further, being eligible, he has offered himself for reappointment. In the opinion of the Board Mr. B R Ashok has the integrity, expertise and requisite experience, which is beneficial to the business interest of the Bank. Based on performance evaluation and the due diligence carried out under ''Fit and Proper'' norms of RBI, the Board recommends his re-appointment for approval by the members of the Bank. Accordingly, a resolution seeking the reappointment of Mr. B R Ashok has been included in the Notice of 99th AGM.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER (MD & CEO)
Mr. Mahabaleshwara M S (DIN: 07645317) was reappointed as the Managing Director & CEO of the Bank upon receipt of approval from RBI to hold office from April 15, 2020, for a period of three years i.e., till April 14, 2023, in accordance with Section 35B of Banking Regulation Act, 1949 and upon completion of his term, Mr. Mahabaleshwara M S retired from the position of MD & CEO on April 14, 2023. As per the approval received from RBI, Mr. Sekhar Rao was appointed as the interim MD& CEO from April 15, 2023 upto June 08, 2023.
As mentioned earlier, Mr. Srikrishnan H has assumed charge as the Managing Director & CEO of the Bank w.e.f. June 9, 2023, for a period of three years.
DECLARATION BY INDEPENDENT DIRECTORS
Pursuant to the provisions of Section 149(7) of the Companies Act, 2013 and Regulation 25(8) of SEBI (LODR) Regulations, 2015, your Bank has received necessary declarations from all the Independent Directors confirming that they meet the criteria of independence for Independent Directors as on March 31, 2023.
PERFORMANCE EVALUATION OF THE BOARD
Your Board of Directors has laid down criteria and process for performance evaluation of Directors, Chairman, Wholetime Directors, Committees of the Board and Board as a whole. The Nomination and Remuneration Committee (NRC) of the Board annually reviews and approves the criteria and the mechanism for carrying out the evaluation exercise effectively. The statement indicating the manner in which formal annual evaluation of the Directors, the Board and Committees of the Board etc., are given in detail in the report on Corporate Governance under Annexure-4. In pursuance to the above, the Independent Directors, in their separate meeting held on February 21, 2023, have reviewed and evaluated the performance of the Board as a whole and the Non-Executive Director. Further, the Board has also reviewed the performance of the Committees of the Board and that of individual Independent Directors at its meeting held on April 12, 2023.
As per Bank''s Policy on Performance Evaluation, the performance evaluation of the Managing Director & CEO shall be carried out after the publication of the audited financial results. Accordingly, the performance evaluation of the MD & CEO has been carried out by the Independent Directors at their meeting held on June 16, 2023.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions with the related parties that were entered into during the year under report were in the ordinary course of the business of the Bank and were on an arm''s length basis. There were no materially significant related party transactions entered into by the Bank with the Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of the Bank. As such disclosure in Form AOC-2 is not applicable. The Policy on dealing with Related Party Transactions as approved by the Audit Committee/ Board has been placed on the website of the Bank under the Investor Portal.
DIRECTORS'' RESPONSIBILITY STATEMENT
In accordance with Section 134(3)(c), 134(5) of the Companies Act, 2013, read with Rule 8 of the Companies (Accounts) Rule, 2014 and other applicable provisions, your Directors state that:
a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanations relating to material departures.
b) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as of the end of financial year March 31, 2023, and profit and loss for that period.
c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013, for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.
d) The Directors have prepared the annual accounts on a going concern basis.
e) The Directors have laid down the internal financial controls followed by the Bank and that such internal financial controls are adequate and are operating effectively.
f) The Directors have devised proper systems to ensure compliance with the provision of all applicable laws and that such systems were adequate and operating effectively.
STATUTORY DISCLOSURES
The disclosures under sub-section (3) of Section 134 of the Companies (Accounts) Rules, 2014 are furnished below:
a) Conservation of energy and technology absorption: Considering the nature of the Bank''s business, the provisions of Section 134(3)(m) of the Companies Act, 2013 relating to conservation of energy and technology absorption are not applicable to your Bank. The Bank has, however, used information technology in its operations extensively. Further, to promote renewable sources of energy, Bank has installed solar panels at the Corporate Office, a few Regional Offices and Bank''s few owned premises.
b) During the year ended March 31,2023, the Bank earned ''3.36 crore and spent ''1.93 crore in foreign currency.
c) There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and the Bank''s operations in future.
d) Internal financial control systems and their adequacy: Your Bank has laid down standards, processes and structure facilitating the implementation of internal financial control across the Bank and ensure that same are adequate and operating effectively.
e) Key Managerial Personnel:
⢠Mr. Mahabaleshwara M S, MD & CEO (demitted his office on April 14, 2023 upon completion of his term), Mr. Abhishek S Bagchi, CFO and Mr Sham K, Company Secretary, were the Key Managerial Personnel of the Bank as on March 31, 2023, as per the provisions of the Companies Act, 2013.
⢠Mr. Prasanna Patil the then Company Secretary, resigned from the services of the Bank and was relieved w.e.f. August 31,2022.
⢠Mr. Sham K joined the Bank as Company Secretary & Compliance Officer of the Bank w.e.f. February 27, 2023.
⢠Mr. Muralidhar Krishna Rao, upon completion of his contractual term demitted the office of Chief Financial Officer on March 01,2023, and Mr. Abhishek S Bagchi assumed charge as the Chief Financial Officer w.e.f. March 02, 2023.
f) Remuneration of Directors: Disclosure pursuant to Section 197 (12) of the Companies Act, 2013, read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure-7 to this report.
g) During the financial year 2022-23, there was no employee who was in receipt of remuneration requiring disclosure as per the limits prescribed under Section 197 of the Companies Act, 2013, read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. However, the remuneration (including variable pay determined in the subsequent financial year) pertaining to the Whole Time Directors is subject to prior approval of the Reserve Bank of India. The details of remuneration paid to Mr. Mahabaleshwara M S, the then Managing Director & CEO and Mr. Sekhar Rao, Executive Director (w.e.f. February 01,2023) are provided in the Corporate Governance Report.
I n terms of Section 197(12) of the Act, read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the Top-10 employees in terms of remuneration drawn forms part of this annual report. In accordance with the provisions of Section 136(1) of the Act, the annual report excluding the aforesaid information, is being sent to the members of the Bank and others entitled thereto. The said information is available for inspection by the members at the Registered Office of the Bank during business hours of the Bank up to the date of the ensuing
Annual General Meeting. Any member interested in obtaining a copy thereof, may write to us at [email protected].
h) There are no material changes affecting the financial position of the Bank which have occurred between the end of the financial year of the Bank to which the financial statements relate and the date of this Report.
i) Particulars of loans, guarrentees or investments under section 186:Nil
j) Any changes in nature of business during the year under report:Nil NUMBER OF BOARD MEETINGS
During the year under report the Board met 17 times and the details thereof are provided in the report on Corporate Governance attached to this report.
COMMITTEES OF THE BOARD
As on March 31, 2023, the Bank had 12 Committees of the Board which were constituted to comply with the requirements of relevant provisions of the applicable laws and for operational efficiency. Details of the meetings of the Board and the Committees, their composition (as on March 31, 2023), terms of reference, powers, roles etc., are furnished in the report on Corporate Governance attached to this report in Annexure-4.
CORPORATE GOVERNANCE
Your Bank is committed to adopt the best practice of corporate governance to protect the interests of all the stakeholders of the Bank, viz. shareholders, depositors and other customers, employees and society in general and maintain transparency at all levels. A detailed report on corporate governance practices is given in Annexure 4 to this report.
BUSINESS RESPONSIBILITY & SUSTAINABILITY REPORT:
Bank has adopted various policies that imbibe the best practices with regard to environmental, social and governance (ESG) principles. In this context, Bank has prepared a Business Responsibility and Sustainability Report (BRSR) for the Financial Year 2022-23, prepared in accordance with the requirements under Regulation 34(2)(f) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and as per the format devised by the Securities and Exchange Board of India vide Circular SEBI/HO/CFD/CMD-2/P/CIR/2021/562 dated May 10, 2021. The same is provided under Annexure-8.
AUDITORS
a. Statutory Auditors:
At the 98th Annual General Meeting M/s Sundaram & Srinivasan, Chartered Accountants (Firm Registration No. 004207S) and M/s Kalyaniwalla & Mistry LLP (Firm Registration No./ LLP No. 104607W/W100166), Chartered Accountants, were appointed as joint Statutory Auditors of the Bank to hold office upto the ensuing 99th Annual General Meeting, being their second year in office. The Board of Directors proposes to the members continuation of the aforesaid auditors to hold office upto the conclusion of 100th Annual General Meeting.
As per the extant RBI guidelines and Bank''s Policy on Appointment of Statutory Auditors(SAs), the maximum tenure of SAs is for a period of three years, and FY 2023-24 (i.e., up to the 100th AGM) will be the third year in office for the existing audit firms and thereafter, the present auditors need to be rested and the Bank will be required to appoint new auditors. Therefore, with a view to ensure continuity of auditors, the Board of Directors of the Bank at its meeting held on June 17, 2023, on the recommendation of the Audit Committee approved the appointment of M/s Ravi Rajan & Co LLP, Chartered Accountants (Firm Registration No./LLP No. 009073N/ N500320), New Delhi. Thus, for the current FY 2023-24, there will be three joint auditors. As the existing two audit firms would be completing their third year of appointment by next year i.e., FY 2024-25, and having appointed one of the new audit firms this year, Bank shall appoint another new joint statutory auditor during FY 2024-25 and such two firms, with necessary approvals, will be jointly conducting the statutory audit thereafter.
Accordingly, the Board of Directors recommends the appointment of M/s. Ravi Rajan & Co LLP, Chartered Accountants, New Delhi, as third Statutory Auditor of the Bank for the financial year 2023-24 (i.e., up to the conclusion of the 100th AGM). Pursuant to Section 30(1A) of the Banking Regulation Act, 1949, approval has
been obtained from the RBI vide their letter dated July 20, 2023. The Bank has received consent from the above auditors and necessary confirmation from them that they are not disqualified from being appointed as auditors of the Bank pursuant to the provisions of the Companies Act, 2013 and the Rules made thereunder.
b. Secretarial Audit Report:
Pursuant to Section 204 of the Companies Act, 2013 and the rules thereunder, your Bank has appointed M/s. BMP & Co, LLP, Bengaluru, Company Secretaries in practice as the Secretarial Auditor to conduct the Secretarial Audit for the year ended March 31, 2023. The audit report from the Secretarial Auditor is annexed to this report as a part of Annexure-6.
Pursuant to Regulation 24A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with SEBI Circular No. CIR/CFD/CMD1/27/2019 dated February 08, 2019, the Bank has obtained the Annual Secretarial Compliance Report, certified by CS Pramod S M (COP: 13784), BMP & Co. LLP, Company Secretaries in practice, Bengaluru, for the financial year ended March 31, 2023, on compliance of all applicable SEBI Regulations and circulars/ guidelines issued thereunder and a copy was submitted to the Stock Exchanges within the prescribed timeline.
During the FY 2022-23, pursuant to Section 143(12) of the Act, neither the Statutory Auditors nor the Secretarial Auditor of the Bank have reported any instances of fraud committed in the Bank by its officers or its employees.
ACKNOWLEDGEMENTS
The Board of Directors would like to place on record their sincere gratitude to the customers of the Bank, depositors, shareholders for their unwavering support, patronage and goodwill. Your Directors also place on record their gratitude for the continued guidance and support provided by the Reserve Bank of India, other government and regulatory authorities, financial institutions and correspondent banks. Your Directors express their deep sense of appreciation to all the staff members, for their contribution to the Bank''s quest for sustained growth and profitability and look forward to their continued contribution to scaling greater heights.
For and on behalf of the Board of Directors P Pradeep Kumar
Part-time Chairman Place: Mangaluru Date: August 03, 2023
Mar 31, 2022
Your Directors have the pleasure of presenting the 98thAnnual Report of the Bank together with the Audited Statement of Accounts for the year ended March 31,2022 and the Auditors'' Report thereon. The highlights of the operational performance are as under:
OPERATIONAL PERFORMANCE |
'' in crore |
|
MARCH 31, 2022 |
MARCH 31, 2021 |
|
Deposits |
80386.85 |
75654.86 |
Advances |
56783.14 |
51515.85 |
Business Turnover |
137169.99 |
127170.71 |
Investments |
22041.00 |
21635.18 |
Operating Profit |
1634.00 |
1908.28 |
Net Profit |
508.62 |
482.57 |
Gross Income |
7175.54 |
7636.62 |
Net Interest Income (NII) |
2491.03 |
2183.19 |
CASA deposits (as a share of total deposits) |
32.97% |
31.49% |
Note: Since the Bank''s wholly owned non-financial subsidiary has miniscule operations compared to Bank''s scale of operations, analysis has been done on a standalone basis. The consolidated financial statements are furnished separately as part of this report.
As on March 31,2022, the Business Turnover of the Bank has reached a new high of ''137169.99 crore. During the FY2022, the Bank registered an all-time high net profit of ''508.62 crore with a CD ratio of 70.64%. The share of CASA also has reached an alltime high of 32.97%. The asset quality improved with a 101 bps and 77 bps reduction respectively under Gross NPAs and Net NPAs. The Bank has taken prudent measures and concrete actions to strengthen its Balance sheet by improving its Provision Coverage Ratio to 73.47% and CRAR to an all-time high of 15.66%. Overall, the FY2022 was a year of satisfactory performance witnessing further strengthening of the fundamentals of the Bank, despite COVID19 pandemic affecting the economy.
The total deposits grew by 6.25% during the FY under report. An impressive growth was registered under CASA Deposits which grew by 11.23%. As a result, the CASA Deposits constituted 32.97% of total deposits. The deposits below ''2 crore accounted for about 92% of the total deposits, reflecting a strong retail franchise.
The gross advances grew by 10.22% with a positive traction under corporate advances. The share of retail & mid corporate advances stood at 79.63% whereas corporate advances were slightly above 20%.
The priority sector advances increased from ''28617 crore to ''32077 crore forming 56.41% of applicable Adjusted Net Bank Credit (ANBC) and agricultural advances increased from ''9071.32 crore to ''10473 crore which, together with eligible deposits under the Rural Infrastructure Development Fund (RIDF), constituted 18.42 % of ANBC during Q4FY22. The Bank is also focusing on lending under various socio-economic schemes, weaker section schemes, MSMEs etc.
ASSET QUALITY AND PROVISION COVERAGE RATIO (PCR)
Your Bank has been focusing on improving the asset quality through better credit appraisal and effective monitoring as well as intensified efforts to address the problems posed by the impaired assets. Despite the COVID-19 pandemic-related stress during the year, the asset quality has further improved. In terms of absolute numbers, the GNPAs reduced to ''2250.82 crore
as on March 31,2022, from ''2588.41 crore as on March 31,2021. The percentage of Gross NPAs has also reduced from 4.91 % as on March 31,2021 to 3.90 % as on March 31,2022.
Similarly, the amount of Net NPAs (NNPAs) also reduced to ''1376.97 crore (2.42%) as against ''1645.05 crore (3.19%) as on March 31,2021. The Provision Coverage Ratio (PCR) improved to 73.47 % as on March 31,2022 from 69.99 % as on March 31, 2021, thus further strengthening the fundamentals.
The total investments increased by 1.88 % and the ID ratio stood at 27.42 % as on March 31,2022 as against 28.60 % as on March 31,2021.
Your Bank''s gross income for the year ended March 31,2022 stood at ''7175.54 crore when compared to ''7636.62 crore last year. The total expenditure (excluding provisions and contingencies) declined by 3.26 % to ''5541.54 crore for the year ended March 31,2022 as against ''5728.34 crore for the last financial year. During the FY, the Bank''s Net Interest Income (NII) grew by 14.10 % over the previous year. The Net Interest Margin (NIM) also improved to 3.18 % from 2.91 % last year.
The operating profit declined by 14.37 % to ''1634.00 crore for FY2022 from ''1908.28 crore for the previous year due to muted treasury income. The provisions (other than tax) and contingencies for the year 2021-22 were ''939.44 crore vis-a-vis ''1296.35 crore for the previous year.
The net profit reached an all-time high of ''508.62 crore from ''482.57 crore during the previous year registering a growth of 5.40 %.
The net profit of ''508.62 crore which along with a sum of ''85.47 crore brought forward from the previous year, aggregating to ''594.09 crore, has been appropriated as under:
Appropriation |
'' in crore |
Transfer to Statutory Reserve |
150.00 |
Transfer to Capital Reserve |
0.82 |
Transfer to Revenue and Special Reserves |
248.23 |
Transfer to Investment Fluctuation Reserve |
3.27 |
Dividend of 2020-21 paid during the year |
55.96 |
Balance carried over to Balance Sheet |
135.82 |
Having regard to the overall performance of the Bank, the Board of Directors has recommended a dividend of ''4/- per share (40%) for the year ended March 31,2022 (previous year '' 1.80/- Per share (18%). The dividend payout ratio for the year works out to 24.47% against 11.60% for the previous year. In accordance with the Accounting Standard (AS)4-''Contingencies & Event occurring after the balance sheet date'', the proposed dividend amounting to ''124.47 crore (the previous year''s ''55.96 Crore) has not been shown as an appropriation from the Profit for the year ended March 31,2022.
EARNINGS PER SHARE (EPS) and BOOK VALUE
The Earnings Per Share stood at ''16.36 (basic) and ''16.29 (diluted) for the year ended March 31,2022. This was ''15.52 (Basic) and ''15.48 (diluted) during the previous year. The Book Value per share has further improved to ''228.01 as on March 31,2022 as against ''213.67 during the previous year.
CAPITAL FUNDS AND CAPITAL TO RISK WEIGHTED ASSETS RATIO (CRAR)
Your Bank''s capital funds increased from ''7387.05 crore to ''8118.55 crore. The Capital to Risk-Weighted Assets Ratio(CRAR) improved to an all-time high of 15.66 % as on March 31, 2022 as against the previous year''s 14.85 %. The Bank has been consistently maintaining the CRAR ratio well above the minimum requirement of 11.50 % including the Capital Conservation Buffer of 2.50 % stipulated by the Reserve Bank of India and the Bank''s internal policy of maintaining the CRAR one per cent over and above the regulatory requirement.
As on March 31, 2022, the paid-up capital of your Bank stood at ''3,11,16,38,600 comprising of 31,11,63,860 equity shares of ''10/- each. During the year, 294171 equity shares of ''10/- each were allotted to option grantees upon exercise of stock options under KBL ESOS-2018.
CHANGE IN CAPITAL BASE AFTER THE CLOSE OF THE FINANCIAL YEAR
After the Financial Year''s close, 1,29,192 equity shares of ''10/- each were allotted till date pursuant to exercise of options vested with grantees under KBL ESOS-2018.
ISSUE OF SUBORDINATED DEBT INSTRUMENTS
With a view to maintaining a healthy capital position on an ongoing basis, during the FY2022, Bank has raised an amount of ''300.00 crore by issuing subordinated debt instruments (i.e., Unsecured Non-Convertible Subordinated BASEL III Debt Instruments) as a part of Tier-2 Capital on private placement basis. These bonds are listed on the debt segment of National Stock Exchange of India Ltd(NSE).
The details of the debt instruments outstanding as on March 31,2022, are as under:
Series |
Date of Issue |
Face Value per Bond ('') |
Number of Bonds |
Amount ('' crore) |
Tenure from date of issue |
Coupon Rate (% p.a.) |
Credit Rating |
Listing |
ISIN of the Bonds |
IV |
17.11.2012 |
10,00,000 |
2,500 |
250.00 |
120 months |
11 |
ICRA |
Listed on NSE-Debt Segment |
INE614B08021 |
V |
16.11.2018 |
1,00,000 |
40,000 |
400.00 |
12 |
''A'' & CARE ''A'' |
INE614B08039 |
||
VI |
18.02.2019 |
1,00,000 |
32,000 |
320.00 |
12 |
INE614B08047 |
|||
VII |
30.03.2022 |
1,00,00,000 |
300 |
300.00 |
10.70 |
INE614B08054 |
Your Bank has paid interest on these debt instruments on time since the issue of respective debt instruments as per the terms of the issue. No Certificate of Deposits were issued by the Bank during the year under report.
TRANSFORMATION JOURNEY- ''KBL VIKAAS''
Bank''s aspirational transformation journey, ''KBL-VIKAAS'' launched in 2017 has completed four years with visible accomplishments and is surging ahead with various futuristic initiatives. The wave 1.0 of ''KBL VIKAAS'' has already put the Bank into a new orbit of overall development with institutionalization of a strong culture of sales & marketing and the establishment of state of the art Digital Centre of Excellence (DcoE), a digital innovation hub of the Bank. The Bank today has a bouquet of digital asset and liability offerings providing superior customer experience leading to their delight. With the help of DcoE, your Bank has launched digitized journeys under the ''KBL Xpress'' series for both asset and liability products. Under ''KBL Xpress'' journey, Bank has already launched digital loan underwriting (in-principle approvals) for most of its retail/MSME loan products and Online Saving account opening through Tab banking and Web banking besides Video enabled Customer Identification Process (V-CIP). For a unique digital experience, Bank has also established a Digi Branch at Basavanagudi, Bengaluru. A ''Digital Human Interactive Relationship Assistant (Dhira)'', a chatbot was also launched at select branches. Besides these, various transformational initiatives under HR, IT, Credit, customer experience etc., were also implemented.
As digital is the way forward for our business, under wave 2.0 of ''KBL VIKAAS'', your Bank has placed digital banking on fast forward mode and the ''KBL NxT'' concept was launched on April 01,2021, to reposition the Bank as ''Digital Bank of Future''. In the''KBL NxT'', the Bank has planned several digital transformational changes like establishing an Analytical Center of Excellence (AcoE), Chatbots, Account Aggregators, partnering with Neo Banks, Trade Finance Automation, Digital Insurance, Corporate/ NRI Mobile Banking, Doorstep Gold Loan, Digital Marketing, Opening of Digi Centers, providing Omni-Channel experience to the customers, Digitization of internal processes and many other digital initiatives that will lead to customer delight. Steps for implementing many of the above initiatives have already been taken up and will be rolled out soon.
Your Bank has already enabled providing investments in units of mutual funds through the digital platforms, including Demat and online trading account and insurance products. The Bank intends to expand the scope of these offerings and provide digital wealth management services, personal banking/intuitive banking, Robo advisories and customer advocacy in a phased manner. Under digitization of internal processes, Audit, CERSAI/CGTMSE related works, Online submission of stock statements by borrowers etc., are also being taken up for early implementation.
Leveraging through Bank''s Wholly Owned Subsidiary:
Your Bank''s wholly owned non-financial subsidiary-KBL Services Limited has been operationalised with effect from March 30, 2021 and has started providing its services to the Bank in augmenting its ''Feet on Street'' and KBL Services Limited is expected to play a significant role in enhancing the operational efficiency of our Bank going forward. To begin with, the subsidiary is providing the services of Business Associates for canvassing CASA accounts and Retail loan products of the Bank and for back end data entry operations in select areas. Your Bank''s Subsidiary is permitted to provide its services to the Bank under the categories of business sourcing, contact centre management, management of banking channels, back-end processing activities, IT projects, exploring new Digital Capabilities, etc.
RISK MANAGEMENT AND GOVERNANCE
In the normal course of business banks are exposed to various risks, namely, Credit Risk, Market Risk and Operational Risk, besides other residual risks such as Liquidity Risk, Interest Rate Risk, Concentration Risk, Strategic Risk and Reputation Risk among others. With a view to efficiently manage such risks, your Bank has put in place various risk management systems and practices. In line with the guidelines issued by the Reserve Bank of India from time to time, your Bank continues to strengthen various risk management systems that include policies, tools, techniques, systems and other monitoring mechanisms.
Your Bank aims at achieving an appropriate trade-off between risks and returns. Your Bank''s risk management objectives broadly cover proper identification, assessment, measurement, monitoring, controlling, mitigation and reporting of the risks across various business segments of the Bank. The risk management strategy adopted by your Bank is based on a clear understanding of the risks and the level of risk appetite, which is dependent on the willingness of your Bank to take risks in the normal course of business. A Board level committee, viz., Risk & Capital Management Committee (RCMC) periodically reviews the risk profile, evaluates the overall risks encountered by the Bank and develops policies and strategies for its effective management.
Various senior management committees such as Credit Policy Committee (CPC), Asset-Liability Management Committee (ALCO), Operational Risk Management Committee (ORMC) etc., operate within the broad policy framework of the Bank to ensure and enhance the risk control and governance framework within the Bank. The Risk Management Department at Head Office oversees the overall implementation of various risk management initiatives across the Bank.
In line with guidelines issued by RBI, your Bank has nominated a Chief Information Security Officer (CISO), who is responsible for articulating and enforcing the policies that the Bank uses to protect the information assets apart from coordinating security-related issues in the implementation of new systems under Information Technology in the Bank.
A more elaborate discussion on how the Bank manages the key risks associated with its operations are provided under Management Discussion and Analysis attached to this report.
ISO 9001:2015 Certification to Risk Management Department (RMD)
Your Bank''s Risk Management Department (RMD) has been accredited with the prestigious ISO 9001:2015 international certification for Quality Management System (QMS). Under ISO Accreditation, Quality Policy has been defined, existing procedures and Standard Operating Procedures were reviewed and a formal Quality Management system (QMS) was established to ensure that the Risk Management processes and practices of the Bank are in line with the global standards.
Basel III Capital Regulations - Implementation of Leverage Ratio
To mitigate the risk of excessive leverage and enhance financial stability, RBI mandated the minimum Leverage Ratio (LR) under Basel III Regulations for banks in India. Both the capital measure and the exposure measure, along with the leverage ratio, are to be disclosed on a quarter-end basis. However, banks must meet the minimum leverage ratio requirements at all times. As on March 31, 2022, your Bank had a comfortable leverage ratio of 6.53 % as against the minimum regulatory requirement of 3.5 %.
Under Pillar 2 of the Basel II Accord, Internal Capital Adequacy and Assessment Process (ICAAP) was introduced as a measure of the adequacy of a bank''s capital resources in relation to its current liabilities and also in relation to the risks associated with its assets. An appropriate level of capital adequacy ensures that the entity has sufficient capital to support its activities and that its networth is sufficient to absorb adverse changes in the value of its assets without becoming insolvent. An assessment of the capital requirement of the Bank is carried out through comprehensive projections of future business that takes cognizance of the strategic intent of the Bank, profitability of particular business and opportunities for growth. The proper mapping of credit, operational and market risks to this projected business growth enables the assignment of capital that not only adequately covers the minimum regulatory capital requirements but also provides headroom for growth. The calibration of risk to business is facilitated by a strong risk culture in the Bank aided by an effective, technology-based risk management system.
The Disclosure under Pillar III of Basel III accord has been annexed to the Directors Report in Annexure-1.
INTERNAL CAPITAL ADEQUACY ASSESSMENT PROCESS (ICAAP):
In compliance with Basel guidelines, Bank has put in place a policy document for Internal Capital Adequacy Assessment Process (ICAAP) to evaluate its capital adequacy requirements. Stress testing framework for various stress scenarios is also put in place for a better understanding of the likely impact of adverse market movements/events on the capital and earnings. The results of the ICAAP and Stress testing are reviewed periodically to assess the capital requirement for the projected business growth, keeping in view the risk appetite and risk profile of the Bank. A Board level Risk & Capital Management Committee (RCMC) reviews the risk appetite, risk profile, business projections as well as capital assessments of your Bank at periodic intervals.
Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting), the Bank has identified four business segments viz., Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations for the year ended March 31,2022 as under:
⢠Treasury Operations: Bank has earned total revenue of '' 1315.30 crore from Treasury operations with a contribution of ''256.12 crore to profit before tax and un-allocable expenditure.
⢠Corporate / Wholesale Banking: The revenue earned by the Bank during the year under report from this segment was ''2506.24 crore with a contribution of ''526.63 crore to profit before tax and un-allocable expenditure.
⢠Retail Banking: This segment has earned revenue of ''2910.17 crore with a contribution of ''920.35 crore to profit before tax and un-allocable expenditure.
⢠Other Banking Operations: This segment has generated revenues of ''427.66 crore with a net result of ''-11.59 crore.
The details of the aforementioned business segments are discussed in Management Discussion and Analysis attached to this report.
Banking Outlets and Alternate Delivery Channels (ADCs)
Though the presence of your Bank is predominant in South India, your Bank has been judiciously expanding its network of branches and controlling offices in various parts of the country after examining the potential for business, earnings and customer outreach.
As at March 31,2022, your Bank had 2326 service outlets including 877 branches, one extension counter, 885 ATMs and 563 Cash Recyclers (CRs) with a presence in 567 centres spread across 22 States and 2 Union Territories. Apart from the above, Bank has one co-located Data Centre with a Disaster Recovery Centre and Near Line Site (NLS), two Service branches, four Currency Chests, two Central Processing Centers, one Digital Centre of Excellence and seven Asset Recovery Management Branches. During the year under report, your Bank has opened twenty new branches, moved integrated treasury by merging domestic treasury to Mumbai, three Central Loan Processing Hubs and one Central Loan Sanctioning Centre for sanctioning of retail loans.
Mobile Banking and Net Banking:
Besides ATM/CRs, the Mobile banking app-''KBL Mobile Plus'' and Net banking-''KBL Money Click'' are the prominent delivery channels. During the FY, value-added features like Online submission of 15G/15H forms, NRI Mobile Banking facility, a new version with support for Kannada Language, Email ID Updation, UPI QR code etc., were launched. As on March 31, 2022, 93.22% of transactions were performed through digital channels.
Pursuant to the deregulation of the Policy by the Central Government and Reserve Bank of India (RBI), the eligible scheduled private sector banks have been permitted to act as agency banks of RBI for the conduct of government business. Based on the evaluation and fulfilment of eligibility criteria, your Bank has been appointed by RBI as Agency Bank vide letter dated July 20, 2021 followed by execution of agreement between RBI and your Bank on July 27, 2021. With this, your Bank can now undertake Revenue Receipts and Payments on behalf of the Central/State Governments, Pension Payments and collection of Stamp Duty charges and any other item of work specifically approved by the user department concerned and concurred by RBI.
With a pan-India presence, driven by robust technology and digital platforms, your bank is confident of being the preferred choice for the Central and State Governments in providing the best possible financial solutions in the most seamless manner. The handling of government business augurs well for your Bank as it helps facilitate the customers in tax payments thus enhancing relationship stickiness and as a source of revenue through eligible agency business commission.
Your Bank has made active progress in completing the administrative and technical procedures with a few agencies. Your Bank is well positioned to make a foray into strategically important government projects/ mandates that help expand the liability business skewed towards low-cost deposits and open new avenues of fee income contributing to the bottom line.
Third-Party Products and Insurance business:
With an aim to provide diversified financial products & services and to maximise value-added services to the customers, your Bank delivers a bouquet of Third Party Products which include Life Insurance, General Insurance, Health Insurance, Mutual Funds, Demat Account, Trading Account, Cobranded Credit Cards, PoS Network, KBL FASTag, NPS, APY, etc. A summary on each third-party product has been provided in Management Discussion and Analysis attached to this report.
Your Bank is continuously focusing on creating new benchmarks in customer service to make the Bank distinctly more competitive. This necessitates designing innovative and cost-effective mechanisms for efficiently delivering banking services. Your Bank is actively involved in putting in place systems and procedures for banking services rendered to customers and an effective grievance redressal mechanism including an Internal Ombudsman [IO] as per the guidelines received from RBI and IBA from time to time. The Bank is also providing doorstep banking services to Senior Citizen customers of more than 70 years of age and differently-abled or infirm persons, including the visually impaired, at all branches of metro centers and going forward "on a best effort basisâ at all other branches of the Bank.
Credit Monitoring:
To have an effective post-sanction monitoring and collection mechanism, an exclusive Credit Monitoring Department (CrMD) has been established at the Head Office. ''Regional Collection Hubs'' (RCH) consisting of Regional Retail Collection Team (RRCT) and Regional Corporate Collection Team (RCCT) are formed at all the Regional offices. The RRCTs and RCCTs follow up /initiate time-bound/DPD-wise actions to ensure collection of dues in respect of all loan accounts under the overall supervision of CrMD. A dedicated Credit Monitoring Team (CrMT) is also functioning under RCHs at all the Regional Offices to undertake postsanction monitoring of loan accounts of respective Regions. To improve the efficiency in monitoring & follow-up activities, various digital initiatives viz., implementation of web-based Collection Tool-"KBL-Kollectâ, the introduction of Auto Sweep system for auto collection of EMI / Installment/Interest of loans from operating accounts of borrowers, E-Connect solution for making payment to the loan accounts through UPI payment options, Auto-capturing of Early Warning Signals etc., are put in place.
The Bank has been doing its best to reduce the stress i.e., SMA (SMA 0, 1,2) under performing advances. Stress in Restructured advances is also showing a declining trend on account of improved monitoring and collection efficiency.
During the FY 2021-22, "Manthanâ a workshop on "Reorienting towards Better & Effective Credit Monitoringâ was held in October 2021. Specific action points were identified and pursued with the active involvement of the field-level functionaries. In respect of Stress Management in advances, we are focusing on the concept of ''Connect-Collaborate-Exhibit''
For close monitoring of restructured advances, Bank has formed an exclusive cell viz., "Restructured Advances Monitoring Cellâ (RAMCELL) within the Credit Monitoring Department. The exchange of information between banks under consortium and multiple banking has been automated for the effective exchange of information. Furthermore, the Bank has also initiated the process of automation of noting Bank''s charge in the CERSAI portal and submission of drawing power statement by the borrowers.
SUPPORT AND CONTROL FUNCTIONS:
Information Technology:
The Bank has had a robust Core Banking System (CBS) since 2000, and all its branches and offices are under the CBS network. Alternate Delivery channels viz., ATM, Internet Banking, Mobile Banking, UPI and PoS have been integrated with the Core Banking System.
A disaster recovery [DR] arrangement also exists to ensure business continuity in the event of primary site failure. This arrangement is strengthened by implementing three-way data replication process aimed at maintaining zero data loss. The critical applications like CBS, ATM, Internet Banking and Mobile Banking are part of this arrangement. During the FY, Bank''s Data Centre has been successfully shifted to a Colocation Centre.
Bank''s IT infrastructure as a whole is supervised by the CTO (Chief Technology Officer). Your Bank will continue to take note of technological revolutions and take appropriate decisions at the right time to provide premier banking services and continue to be a tech-savvy Bank.
The banking industry is exposed to various changes/challenges with digitalisation taking the world by storm. The survival and prosperity of any industry depends upon the quality of its human resources and the banking industry is not an exception. Human Resource Development is a continuous process to ensure development of employee competencies, dynamism, motivation and effectiveness in a systematic and planned way. Accordingly, your Bank attaches the most significance to employee upskilling, employee satisfaction and human resource development activities. Your Bank also has a Chief Learning Officer to oversee skill development and training needs. Bank has also introduced ECDS (Employee Career and Development System) by operationalising the PMS (Performance Management System). Your Bank has also put in place TMC (Talent Management Committee) to identify and groom the talent as part of succession planning. Further, the Bank provides training and development opportunities to the employees which are discussed in detail in the Management Discussion and Analysis.
As on March 31, 2022, Bank had 8520 employees of which, 2542 were women employees constituting around 29.83% of the total strength. Your Bank has put in place an institutional mechanism for the protection of women employees at the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, providing for protection of women employees against the sexual harassment of women at the workplace and redressal of such complaints. No complaints were pending at the beginning of the financial year and no complaints were received during the year under report.
The Bank''s shareholders approved the Employee Stock Option Scheme 2018 (ESOS 2018) on July 21, 2018. During the reporting year, Bank had granted 40,000 stock options to eligible employees under the KBL-ESOS 2018 Scheme.
A Compliance certificate as required under Regulation 13 of SEBI (Share Based Employee Benefits and sweat equity) Regulations, 2021 has been furnished in Annexure-6. Other statutory disclosures as required by the SEBI guidelines/Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 on ESOS are given in website of the Bank in the link: https://karnatakabank.com/investor-portal/annual-report.
Risk-Based Supervision (RBS)
In view of the growing complexities in the processes, product offering''s and systems and procedures in the Indian banking sector, pursuant to the recommendation of the High-Level Steering Committee, the Reserve Bank of India has shifted its supervisory stance to a risk-based approach called the Supervisory Program for Assessment of Risk and Capital (SPARC) which is focusing on evaluating both present and future risks, identifying incipient problems and facilitating prompt intervention / early corrective action etc. Your Bank has been included under the same and migrated to Risk Based Supervision since March 31,2015. A plan of action for complying with various findings in RBS communicated to the Bank in the Risk Assessment Report is also ensured.
Compliance Function
Your Bank manages Compliance Risk through the Compliance function. Compliance function in the Bank is one of the key elements in the Bank''s Corporate Governance structure along with internal control and risk management process. As an essential element of the Corporate Governance structure, the Bank has a robust Compliance Department with sufficient independence to promote a healthy compliance culture. Bank ensures strict observance of all statutory provisions, guidelines from RBI and other Regulators, standards and codes, Bank''s internal policies and fair practices code. The compliance function includes interpretation/dissemination of regulatory and statutory guidelines and ensures that controls and procedures capture the appropriate information to the Senior Management in their risk management function. The risk-based compliance programme of the Bank, under the supervision of the Chief Compliance Officer, ensures appropriate coverage across businesses, besides verifying the level of compliance through''Compliance Testing''of branches/business units. The Bank carries out an annual compliance risk assessment to identify and assess its significant compliance risks and take steps to manage the risks effectively. Further, the tone from the Top management - ''Compliance First, Business Next'' is being emphasized to usher in perceptible improvements in the overall compliance culture in the Bank.
Vigil Mechanism
The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) since the year 2007 intended to promote the participation of employees at all levels and detection of corruption, misuse of office, criminal offences, suspected/ actual fraud, failure to comply with the rules and regulations prescribed by the Bank and any events/acts detrimental to the interest of the Bank, depositors and the public resulting in financial loss/operational risk, loss of reputation etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances. It provides adequate safeguards against Whistle Blower''s victimization who avails such mechanism and offers direct access to the Chief of Internal Vigilance (CIV). Further, there was no occasion where a person was denied access to the Audit Committee. The details of the Whistle Blower Policy are posted on the Bank''s website and available at the link:
https://karnatakabank.com/sites/default/files/2022-07/Policv%20on%20Whistle%20Blower%202022-23.pdf
Corporate Social Responsibility
The Corporate Social Responsibility initiatives of the Bank are designed to make a positive impact on a wide range of areas of social life like healthcare, education, livelihood enhancement, empowering women/socially and economically disadvantaged, environmental sustainability/ green initiatives, protection of heritage/ culture, promotion of sports, rural development, Swachh Bharath etc., aimed at promoting the overall development of the society. Further, to minimize the urban-rural divide, your Bank has been strengthening its rural orientation through initiatives aimed at imparting financial literacy and extending banking services to the people in rural unbanked areas, fairly and transparently, at an affordable cost.
Further, pursuant to Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board has constituted ''Corporate Social Responsibility (CSR) Committee'' of the Board and has also put in place a Policy on Corporate Social Responsibility (CSR Policy) to undertake projects/programmes in pursuance of the said Policy. Pursuant to Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014, the contents of the CSR Policy along with the report on amounts spent on various projects/ programmes during FY2022 are detailed in Annexure-2 to this report. Under CSR activities, Bank has so far funded 1603 projects with a total financial outlay of ''62.06 crore and these projects have exhibited a welcome positive impact on society. Further, in terms of Rule4(5) of the CSR rules, certification from the Chief Financial Officer has been obtained for the CSR spend during 2021-22.
Financial Inclusion and Atal Pension Yojana-related initiatives:
Through the Financial Inclusion Plan, your Bank aims to connect people with the Bank and not just open accounts. This includes meeting the small credit needs of the rural public, giving them access to the payments system, providing remittance facilities, life insurance and health insurance etc. Your Bank has 404 branches apart from 35 Ultra Small Branches, located in the rural and semi-urban areas and offers banking facilities to the rural clientele. Our rural branches also act as Financial Literacy Centers (FLCs) and impart banking literacy among the rural populace. In accordance with Prime Minister''s Jan Dhan Yojana (PMJDY), Bank has implemented the revised Strategy and Guidelines for Financial Inclusion activities. Your Bank is actively participating in the Direct Benefit Transfer (DBT) Programme of Govt. of India, to transfer the benefits of various Schemes / LPG subsidies directly to the beneficiaries'' Aadhaar enabled bank accounts.
As part of the Financial Inclusion plan, Bank has been offering the following services:
1. Business Correspondent (BC) services: Bank has tied up with Sub-K Impact Solutions Limited to provide the BC services and as on March 31,2022, 121 BC Agents are covering allocated villages in the states of Karnataka, Andhra Pradesh and Chhattisgarh.
2. Aadhar Enabled Payment System (AEPS): Bank has introduced AEPS transaction services offered by the National Payments Corporation of India (NPCI) at all Business Correspondent (BC) locations of the Bank and with this, the Bank''s customer having an Aadhar enabled SB account can transact at the BC point.
3. Financial Literacy and Credit Counseling Centers (FLCs): Bank is running 5 FLCs at B.C Road - Bantwal, Hangal, Kundagol, Tiptur and Alur (Karnataka). Till March 31, 2022, 5 FLCs have conducted 3,801 Financial Literacy campaigns in which 1,56,976 participants took part. In adherence to RBI guidelines all the rural branches of your Bank are also conducting financial literacy Camps.
4. Social Security Schemes: Three Social Security Schemes-Prime Minister Jeevan Jyothi Bima Yojana (PMJJBY), Prime Minister Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) have been launched by Hon''ble Prime Minister on June 01, 2015. All your Bank branches are actively involved in providing these schemes to customers across the country.
5. Prime Minister Jan Dhan Yojana (PMJDY): All the branches across the country are opening accounts under PMJDY and are issuing RuPay Debit Cards. Since August 15, 2014, 2,56,422 PMJDY accounts have been opened with an outstanding balance of ''80.99 crore.
6. The Bank is one of the trustees of Karnataka Farmers Resource Center (KFRC), Bagalkot established to impart training and act as a resources center for farmers under the umbrella of SLBC Karnataka. Bank has contributed ''50.00 lakh towards capital expenditure/corpus of KFRC.
7. In line with the Pradhan Mantri Street Vendor''s Atmanirbhar Scheme, Bank has rolled out KBL- PM - SVANidhi scheme providing working capital loans up to ''50,000/- to the street vendors to support their businesses.
Your Bank has bagged the following awards during the year under report in recognition of its achievement:
i) Two prestigious awards from ASSOCHAM, New Delhi under the Private Sector Bank category, for excelling in digitalisation.
⢠Digital Services: Winner
⢠Digital Lending: Runner-Up
ii) ''Top Organisations with Innovative HR Practices'' award by the 19th edition of Asia Pacific HRM Congress.
iii) The Runner Up under ''Customer Journey Reimagination'' category among the ''Mid-Size Bank segment'' by INFOSYS in the Infosys Innovation Global Awards 2021.
iv) Two ''DigiDhan Awards'' instituted by the Ministry of Electronics & Information Technology, Govt. of India, for achieving the target with the highest percentage in BHIM-UPI transactions under the Private Sector Bank Category consecutively for two Financial Years i.e. FY 2019-20 & FY 2020-21.
v) Award of Excellence ''APY - Mega Login Stars'' from PFRDA (Pension Fund Regulatory & Development Authority).
vi) Digital Transformation DX 2021 Award for Best Practice in Digital Transformation 2021 in recognition of the "Innovative" Best Practice - "KBL VIKAAS" instituted by the Confederation of Indian Industry (CII).
vii) Three Runner-Up Awards in the ''IBA-Banking Technology Awards 2022'' under the Small Bank Category:
⢠Best Technology Bank of the Year
⢠Best Use of AI/ML & Data Analytics
⢠Best Fintech Adoption
viii) Five Awards from CIMSME (Chamber of Indian Micro Small and Medium Enterprises), New Delhi:
⢠Best MSME Private Bank - Winner
⢠Best MSME Friendly Private Bank - Winner
⢠Best Branding Private Bank - Runner-Up
⢠Best Private Bank for Promoting Social Schemes - Runner-Up
⢠Best Private Bank Implementing Covid Related Government Schemes - Winner
ix) Prestigious ''GOLD'' Award for outstanding achievement in Safety & Security in Banking Sector conferred by Sustainable Development Foundation at the 11th Exceed Occupational Health Safety & Security Award & Conference 2021.
x) ''Best MSME Bank of the year - Winner'' Award among Private Sector Banks at the 8th MSMEs Excellence Awards Ceremony and Summit instituted by ASSOCHAM, New Delhi.
xi) ''National Best Employer Brand'' Award at the 16th Edition of Employer Branding Awards of World HRD Congress, Mumbai.
Our Kanhangad Branch has been adjudged as ''Third Best Branch in Kerala State'' under Private Sector Bank Category for the FY2021 by the State Forum of Bankers'' Clubs (Kerala) in SFBCK Banking Excellence Awards 2021.
Convergence with the International Financial Reporting System (IFRS)- Ind AS''
As per the roadmap given by the Reserve Bank of India (RBI) vide circular dated February 11,2017, the transition to "Indian Accounting Standards (Ind AS)'' in banks were to commence from the accounting period beginning April 1, 2018 onwards. However, the RBI vide its circular No.DBR.BPBC.No.29/21.07.001/2018-19 dated March 22, 2019 has deferred implementation of Ind-AS in Banks till further notice.
Your Bank has conducted a diagnostic study on various disparities between the current accounting framework and Ind AS and ascertained various areas impacting measurement, accounting and disclosure of financial assets & liabilities and provisioning requirements. Besides, changes required to be carried out in Core Banking Solution (CBS) and IT systems of the Bank, to accommodate Ind AS are also being evaluated. As stipulated by RBI, Bank has been submitting the Proforma Ind AS Financial statements from time to time to RBI.
Your Bank has adopted a Policy on the Distribution of Dividend to the shareholders pursuant to Regulation 43A of the SEBI (LODR) Regulations, 2015. The gist of the Dividend Distribution Policy is as under:
⢠Being a Banking entity, Dividend Distribution is guided by the RBI Circular DBOD.No.BP.BC.8821. 02.67/2004-05 dated May 5, 2005 with regard to eligibility criteria for distribution of dividend.
⢠Factors considered for the recommendation of dividend include both internal factors such as financial performance, dividend payout trends, tax implications, corporate actions and external factors such as shareholders'' expectations, macro environment etc.
⢠Factors considered for determining the quantum of dividend include financial performance, capital fund requirements to support future business growth, having regard to the dividend payout ratio prescribed under the aforesaid RBI Guidelines.
The Dividend Distribution Policy of the Bank is available in Bank''s website at https://karnatakabank.com/investor-portal/ corporate-governance
As discussed earlier, Board of Directors has recommended for payment of dividend duly complying with the Reserve Bank of India directions for payment of dividend out of the profit for the financial year ended March 31,2022.
Pursuant to Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, a copy of the Annual Return of the Bank for FY21-22 prepared in accordance with Section 92(1) of the Act has been placed on the website and is available at https://karnatakabank.com/investor-portal/annual-report
CONSOLIDATED FINANCIAL STATEMENTS
In accordance with the provisions of Section 129(3) of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014, the Bank has prepared its Consolidated Financial Statements including its subsidiary-KBL Services Limited. Pursuant to the provisions of Accounting Standard (''AS'') 21, the Consolidated Financial Statements notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014, the Consolidated Financial Statements of the Bank along with its subsidiary for the year ended March 31,2022 forms part of the Annual Report. The financial position and performance of the subsidiary are given in Form AOC-1 attached to this Report as Annexure-3.
In accordance with the third proviso to Section 136(1) of the Companies Act, 2013, the Annual Report of the Bank, containing therein its Standalone and Consolidated Financial Statements has been hosted on the website, https://karnatakabank.com. Further, as per the fourth proviso to the said Section, the Audited Annual Accounts of the said subsidiary company of the Bank, considered as part of the Consolidated Financial Statements have also been hosted on the Bank''s website: https:// karnatakabank.com. The documents/details available on the Bank''s website: https://karnatakabank.com will also be available for inspection by any member at its Registered Office.
To maintain a regular connect with the investors, your Bank has a dedicated Investor Relation Cell at the Registered Office. Besides redressing the grievances, if any, from the investors, the Cell proactively disseminates corporate information on a voluntary basis to the shareholders through email (wherever made available) about financial results, major events and, articles about the Bank in the media etc.
DIRECTORS AND CHANGES IN THE BOARD
As of March 31, 2022, your Bank''s Board comprised of nine Directors, including two Independent woman directors. All of them are Independent Directors except Mr. Mahabaleshwara M S, Managing Director & CEO and Mr. B R Ashok, Non-Executive Director. The details of the criteria for appointment and remuneration of Directors are provided in the report on Corporate Governance under Annexure-4.
During the year under report, Mr. D Surendra Kumar and Mr. Rammohan Rao Belle retired from the office of the Independent Director on May 30, 2021 and October 20, 2021 respectively on completion of their respective tenure as per BR Act/Companies Act, 2013. Further, Mr. P Jayarama Bhat, retired as Part-time Non-Executive Chairman on November 13, 2021 upon completion of his tenure. The Board places on record its appreciation for the valuable contributions and the guidance given by them during their tenure in office.
Upon the retirement of Mr. P Jayarama Bhat, the Board, pursuant to the approval received from RBI, has appointed Mr. P Pradeep Kumar as the Part-time Chairman. He has assumed office w.e.f November 14, 2021.
Further, the Bank has inducted Dr. D S Ravindran and Mr. Balakrishna Alse S as Additional Directors (Non-Executive, Independent) w.e.f. April 01,2021 and May 26, 2021 respectively and their appointment as Independent Directors was approved by the shareholders at the 97th AGM held on September 02, 2021.
To ensure board-level succession planning, your Bank has inducted Mr. Jeevandas Narayan and Mr. Kalmanje Gururaj Acharya as Additional (Non-Executive Independent)Directors on 26.04.2022 and the appointment has been approved by the shareholders by way of a resolution dated June 02, 2022 passed via Postal Ballot (e-voting).
As per Section 152(6) of Companies Act, 2013, Mr. B R Ashok, the Non-Executive Director, is liable to retire by rotation and being eligible he has offered himself for reappointment. The Board formed an opinion that Mr. B R Ashok has the integrity, expertise and requisite experience, which is beneficial to the business interest of the Bank and accordingly the Board recommends his re-appointment for the members'' approval. Accordingly, a resolution seeking reappointment of Mr. B R Ashok has been included in the Notice of 98th AGM for approval of the members.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER (MD & CEO)
Mr. Mahabaleshwara M S (DIN: 07645317) was reappointed as the Managing Director & CEO of the Bank upon receipt of approval from RBI to hold office from April 15, 2020 for a period of three years i.e., till April 14, 2023 in accordance with Section 35B of Banking Regulation Act, 1949.
Pursuant to the provisions of Section 149(6) of the Companies Act, 2013, your Bank has received necessary declarations from all the Independent Directors confirming that they meet the criteria of independence for Independent Directors as on March 31, 2022.
PERFORMANCE EVALUATION OF THE BOARD
Your Board of Directors has laid down criteria for performance evaluation of Directors, Chairman, MD & CEO, Committees of the Board and Board as a whole and also the evaluation process for the same. The NRC annually reviews and approves the criteria and the mechanism for carrying out the evaluation exercise effectively. The statement indicating the manner in which formal annual evaluation of the Directors, the Board and Committees of the Board etc., are given in detail in the report on Corporate Governance under Annexure-4. In pursuance to the above, the Independent Directors in their separate meetings held on March 13, 2022, have reviewed and evaluated the performance of Board as a whole and Non-Executive Director. Further, the Board has also reviewed the performance of Committees of the Board and that of individual Independent Directors at its meeting held on March 13, 2022.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All transactions with the related parties that were entered into during the year under report were in the ordinary course of the business of the Bank and were on an arm''s length basis. There were no materially significant related party transactions entered into by the Bank with the Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of the Bank. As such disclosure in Form AOC-2 is not applicable. The Policy on dealing with Related Party Transactions as approved by the Audit Committee/ Board has been placed on the website of the Bank under Investor Portal.
DIRECTORS'' RESPONSIBILITY STATEMENT
In accordance with Section 134(3)(c), 134(5) of the Companies Act, 2013, read with Rule 8 of the Companies (Accounts) Rule, 2014 and other applicable provisions, your Directors state that:
a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures.
b) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at the end of financial year March 31,2022 and profit and loss for that period.
c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.
d) The Directors have prepared the annual accounts on a going concern basis.
e) The Directors have laid down the internal financial controls followed by the Bank and that such internal financial controls are adequate and are operating effectively.
f) The Directors have devised proper systems to ensure compliance with the provision of all applicable laws and that such systems were adequate and operating effectively.
The disclosures under sub-section (3) of Section 134 of the Companies (Accounts) Rules, 2014 are furnished below:
a) Conservation of energy and technology absorption: Considering the nature of the Bank''s business, the provisions of Section 134(3)(m) of the Companies Act, 2013 relating to conservation of energy and technology absorption are not applicable to your Bank. The Bank has, however, used information technology in its operations extensively. Further, to promote renewable sources of energy, Bank has installed solar panels at the Corporate Office, a few Regional Offices and at Bank''s few owned premises.
b) During the year ended March 31,2022, the Bank has earned ''1.36 crore and spent ''1.74 crore in foreign currency.
c) There were no significant and material orders passed by the regulators or courts of tribunals impacting the going concern status and the Bank''s operations in future.
d) Internal financial control systems and their adequacy: Your Bank has laid down standards, processes and structure facilitating the implementation of internal financial control across the Bank and ensure that same are adequate and operating effectively.
e) Key Managerial Personnel: Mr. Mahabaleshwara M S, MD & CEO, Mr. Muralidhara Krishna Rao, CFO and Mr. Prasanna Patil, Company Secretary, were the Key Managerial Personnel of the Bank as on March 31,2022 as per the provisions of the Companies Act, 2013. None of the Key Managerial Personnel has resigned during the year under report.
On February 28, 2022, Mr. Muralidhar Krishna Rao, Chief Financial Officer attained superannuation and w.e.f. March 01,2022 he has been continuing in his position on contractual basis. Further, Mr. Prasanna Patil, Company Secretary has tendered his resignation to pursue better career prospects outside of the Bank which has been accepted by the Board of Directors at the meeting dated June 27, 2022 and he will continue to be the Company Secretary of the Bank upto August 31,2022.
f) Remuneration of Directors: Disclosure pursuant to Section 197 (12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure-7 to this report. Mr. Mahabaleshwara M S, Managing Director & CEO, is the only Whole Time Director and his remuneration is subject to prior approval of the Reserve Bank of India. The details of remuneration paid to him are provided under Corporate Governance Report.
In terms of Section 197(12) of the Act, read with Rule 5(2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, a statement showing the names and other particulars of the Top-10 employees in terms of remuneration drawn forms part of this annual report.
In accordance with the provisions of Section 136(1) of the Act, the annual report excluding the aforesaid information, is being sent to the members of the Bank and others entitled thereto. The said information is available for inspection by the members at the Registered Office of the Bank during business hours of the Bank up to the date of the ensuing Annual General Meeting.
Any member interested in obtaining a copy thereof, may write to us at [email protected].
g) There are no material changes affecting the financial position of the Bank which have occurred between the end of the financial year of the Bank to which the financial statements relate and the date of this Report.
h) Particulars of loans, guarantees or investments under section 186: Nil
i) Any change in nature of business during the year under report: Nil NUMBER OF BOARD MEETINGS
During the year under report the Board met 17 times and the details thereof are provided in the report on Corporate Governance attached to this report.
The Bank had 9 Committees of the Board which were constituted to comply with the requirements of relevant provisions of the applicable laws and for operational efficiency. Details of the meetings of the Board and the Committees, their composition (as on March 31,2022), terms of reference, powers, roles etc., are furnished in the report on Corporate Governance attached to this report in Annexure-4.
Further, RBI vide circular DOR.GOV.REC.8/29.67.001/2021-22 dated April 26, 2021 issued instructions on''Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board'' interalia covering constitution of certain Board level Committees and your Bank has already reconstituted the Committees in line with these instructions.
Your Bank is committed to follow the best practice of corporate governance to protect the interest of all the stakeholders of the Bank, viz. shareholders, depositors and other customers, employees and the society in general and maintain transparency at all levels. A detailed report on corporate governance practices is given as Annexure 4 to this report.
Your Bank has prepared the Integrated Report on voluntary basis and the same is hosted on the Bank''s website under Investor Portal at https://karnatakabank.com > Investor Portal > Annual Report/ AGM/ Postal Ballot Notice, Minutes & Voting Results > FY 2021-22 tab.
BUSINESS RESPONSIBILITY REPORT:
Bank has adopted various policies that imbibe the best practices with regard to environmental, social and governance(ESG) principles. In this context, Bank is presenting its Business Responsibility Report (BRR) for the Financial Year 2021-22, prepared in accordance with the requirements under Regulation 34(2)(f) of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 and as per the format devised by the Securities and Exchange Board of India vide Circular CIR/CFD/CMD/10/2015 dated November 4, 2015. The same is provided under Annexure-8.
a. Statutory Auditors
At the 97th Annual General Meeting M/s Sundaram & Srinivasan, Chartered Accountants (Firm Registration No. 004207S) and M/s. Kalyaniwalla & Mistry LLP (Firm Registration No./ LLP No. 104607W/W100166), Chartered Accountants, were appointed as joint Statutory Auditors of the Bank to hold office upto the ensuing 98th Annual General Meeting.
The Board of Directors proposes to the members the appointment of M/s Sundaram & Srinivasan, Chartered Accountants (Firm Registration No. 004207S), New No.4, Old No. 23, C. P. Ramaswamy Road, Alwarpet, Chennai-600018 and M/s. Kalyaniwalla & Mistry LLP (Firm Registration No./ LLP No. 104607W/W100166), Chartered Accountants, Registered Office: Esplanade House, 29, Hazarimal Somani, Fort, Mumbai-400001 jointly as Statutory Auditors of the Bank to hold office upto the conclusion of 99th Annual General Meeting. The Bank has received consent from the above auditors and necessary confirmation from them that they are not disqualified to be appointed as auditors of the Bank pursuant to the provisions of the Companies Act, 2013 and the Rules made thereunder. Further, approval from the Reserve Bank of India has been sought for the appointment of the Statutory Auditors.
b. Secretarial Auditor and Secretarial Audit Report
Pursuant to Section 204 of the Companies Act, 2013 and the rules thereunder, your Bank had appointed M/s. BMP & Co, LLP, Bengaluru as Secretarial Auditors to conduct the Secretarial Audit for the year ended March 31,2022. The audit report from the Secretarial Auditor is annexed to this report as Annexure-5.
Pursuant to Regulation 24A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 read with SEBI Circular No. CIR/CFD/CMD1/27/2019 dated February 08, 2019, the Bank has obtained the Secretarial Compliance Report, certified by CS Pramod S M (COP: 13784), BMP & Co. LLP, Company Secretaries, Bengaluru, for the financial year ended March 31, 2022, on compliance of all applicable SEBI Regulations and circulars/ guidelines issued thereunder and the same has been submitted with the Stock Exchanges.
During fiscal 2022, pursuant to Section 143(12) of the Act, neither the Statutory Auditors nor the Secretarial Auditor of the Bank have reported any instances of frauds committed in the Bank by its officers or its employees.
The Board of Directors would like to place on record their sincere gratitude to the Reserve Bank of India, other government and regulatory authorities, financial institutions and correspondent banks for their continued guidance and support. Your Directors also place on record their gratitude to the Bank''s shareholders, depositors and other customers for their continued support, patronage and goodwill. Your Directors express their deep sense of appreciation to all the staff members, for their contribution to the Bank''s quest for sustained growth and profitability and look forward for their continued contribution to scaling greater heights.
For and on behalf of the Board of Directors
Place: Mangaluru P Pradeep Kumar
Date: July 23, 2022 Part-time Chairman
Mar 31, 2019
DIRECTORâS. 95th ANNUAL REPORT
The Directors have the pleasure in presenting the 95th Annual Report of the Bank together with the Audited Statement of Accounts for the year ended 31stMarch 2019 and the Auditorsâ Report.
PERFORMANCE HIGHLIGHTS
Performance highlights for the reporting financial year are as under: (Rs. in crore)
Particulars |
As on / for the year ended 31.03.2019 |
As on / for the year ended 31.03.2018 |
Deposits |
68452.12 |
62871.29 |
Advances |
54828.20 |
47251.75 |
Investments |
16184.99 |
15444.45 |
Gross Income |
6907.92 |
6378.09 |
Operating Profit |
1449.81 |
1473.16 |
Net Profit |
477.24 |
325.61 |
The total business turnover of the Bank stood at Rs.123280.32 crore as on 31st March 2019, registering a growth of 11.95 percent as against the turnover of Rs.110123.04 crore as on 31st March 2018. The total assets of the Bank increased from Rs.70373.68 crore to Rs.79045.76 crore recording a growth of 12.32 percent for the year 2018-19. The market share of the Bank in business turnover has increased to 0.56 percent as compared to 0.54 percent as on 31st March 2018.
The total deposits of the Bank grew to Rs.68452.12 crore as on 31st March 2019 from Rs.62871.29 crore as on 31st March 2018, registering a growth of 8.88 percent.
During the year, low cost deposits of the Bank, viz., Savings and Current Account Deposits have shown growth of 9.17 percent and constituted 28.06 percent of the total deposits of the Bank as on 31st March, 2019.
The total advances grew to Rs.54828.20 crore as on 31st March 2019 from Rs.47251.75 crore as on 31st March 2018 an increase of 16.03 percent. The Credit Deposit Ratio increased from 75.16 percent to 80.10 percent reflecting robust credit growth. The priority sector advances increased from Rs.20594.27 crore to Rs.21878.22 crore forming 48.05 percent of Adjusted Net Bank Credit (ANBC) and agricultural advances increased from Rs.6877.51 crore to Rs.7082.90 crore which, together with eligible deposit under Rural Infrastructure Development Fund (RIDF), constituted 15.73 percent of ANBC. Lending under various socio-economic schemes has shown satisfactory progress.
The total investments increased from Rs.15444.45 crore as on 31st March 2018 to Rs.16184.99 crore as on 31st March 2019. The ID ratio stood at 23.64 percent as on 31st March, 2019 as against 24.57 percent as on 31st March, 2018.
OPERATIONAL PERFORMANCE
The gross income of the Bank for the year ended 31st March 2019 stood at Rs.6907.92 crore as against Rs.6378.09 crore in the last financial year showing a growth of 8.31 percent. The total expenditure (excluding provisions and contingencies) stood at Rs.5458.11 crore for the year ended 31st March 2019 as against Rs.4904.93 Crore for the year ended 31st March 2018. The net interest income was Rs.1905.12 crore, showing a growth of 2.56 percent over the previous year.
PROFIT
Your Bank earned an operating profit of Rs.1449.81 crore for the year 2018-19 as against Rs.1473.16 crore for the previous year. The net profit of the Bank increased to an all time high of Rs.477.24 crore during the year 2018-19 from Rs.325.61 crore during the previous year, showing a robust growth of 46.57 percent.
APPROPRIATIONS
The net profit of Rs.477.24 crore which along with a sum of Rs.102.23 crore brought forward from the previous year, aggregating to Rs.579.47 crore, is appropriated as under:
Appropriation |
Rs. in crore |
Transfer to Statutory Reserve |
180.00 |
Transfer to Capital Reserve |
0.00 |
Transfer to Revenue and Special Reserves |
109.70 |
Transfer to Investment Fluctuation Reserve |
67.91 |
Dividend of 2018 paid during the year 2019 |
84.78 |
Tax on dividend paid as above |
17.43 |
Balance carried over to Balance Sheet (including proposed Dividend and tax) |
119.65 |
Total |
579.47 |
DIVIDEND
Having regard to the overall performance of the Bank, the Board of Directors recommends a dividend of Rs.3.50 per share i.e., 35 percent on the paid up capital (previous year 30 percent) for the reporting year. The dividend payout ratio for the year works out to 20.73 percent as against last yearâs 26.04 percent. In accordance with the revised Accounting Standard (AS)-4 âContingencies and Events occurring after the Balance Sheet dateâ notified by MCA on 30th March 2016, the proposed dividend including dividend distribution tax amounting to Rs.119.24 crore has not been shown as an appropriation from the Profit for the year ended 31st March 2019.
EARNINGS PER SHARE/ BOOK VALUE
The earnings per share (basic) and the book value per share as on 31st March 2019 stood at Rs.16.89 and Rs. 204.71 respectively. This was Rs.11.52 and Rs.191.44 respectively during last year.
CAPITAL FUNDS AND CAPITAL ADEQUACY RATIO
The capital funds of the Bank increased from Rs.5414.25 crore to Rs.6306.95 crore, registering a growth of 16.49 percent. The Capital Adequacy Ratio (CAR) stood at 13.17 percent as on 31st March 2019, as per BASEL III norms (Previous year 12.04 percent). The Bank has been consistently maintaining the Ratio well above the minimum CAR of 10.875 percent stipulated by the Reserve Bank of India. The market capitalization as on 31st March 2019 was Rs.3777.05 crore with a high of Rs.3777.05 crore as on 29th March 2019 and a low of Rs.2657.92 crore as on 23rd October 2018.
NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Bank has been focusing on containing the non-performing assets through a better credit monitoring as well as intensified efforts to recover the impaired assets. The Bankâs Gross NPAs as on 31st March 2019 was at Rs.2456.38 crore (4.41 percent) as on 31st March 2019 as against Rs.2376.07 crore (4.92 percent) as on 31st March 2018. The net NPAs stood at Rs.1616.71 crore (2.95 per cent) as against Rs.1400.51 crore (2.96 per cent) as on 31st March 2018. The Provision Coverage Ratio (PCR) improved to 58.45 percent as on 31st March 2019 from 54.56 percent as on 31st March 2018.
SEGMENT REPORTING
Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting), the Bank has identified four business segments viz., Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations for the year ended 31stMarch 2019 as under:
- Treasury Operations: Bank has earned total revenue of Rs.1307.60 crore from Treasury operations with a contribution of Rs.293.06 crore to profit before tax and un-allocable expenditure.
- Corporate / Wholesale Banking: The revenue earned by the Bank during the year under report from this Segment was Rs.2840.48 crore with a contribution of Rs.28.36 crore to profit before tax and un-allocable expenditure.
- Retail Banking: This Segment has earned revenue of Rs.2356.29 crore with a contribution of Rs. 235.84 crore to profit before tax and un-allocable expenditure.
- Other Banking Operations: This segment has generated revenues of Rs.386.34 crore with a contribution of Rs.87.48 crore to profit before tax and un-allocable expenditure.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs.12560.49 crore in foreign exchange business as against Rs.14932.52 crore in the previous year. The outstanding advances to export sector stood at Rs.1574.28 crore as on 31stMarch 2019.
âIND ASâ IMPLEMENTATION
As per the roadmap given by Reserve Bank of India (RBI) vide circular dated 11th February, 2017, transition to âIndian Accounting Standards (Ind AS)â in banks were to commence from the accounting period beginning 1st April, 2018 onwards. However, the regulator had deferred the implementation of Ind AS for Scheduled Commercial Banks by one year i.e., from the accounting period beginning 1st April, 2019. Now the RBI vide its circular No.DBR.BP.BC.No.29/21.07.001/2018-19 dated 22nd March, 2019 has deferred implementation of Ind AS till further notice.
However, your Bank is prepared to implement Ind AS and towards this direction, Bank has conducted diagnostic study on various disparities between current Accounting framework and Ind AS and ascertained various areas having an impact on measurement, accounting and disclosure of financial assets & liabilities and provisioning requirements. Besides, changes required to carried out in CBS and IT systems of the Bank, to accommodate Ind AS are also being looked into and as stipulated by RBI, Bank has been submitting the Proforma Ind AS Financial statements from time to time.
SUBORDINATED DEBT INSTRUMENTS
With a view to maintain a healthy capital position on an ongoing basis, Bank raised an amount of Rs.720.00 crore by issuing subordinated debt instruments (i.e. Unsecured Non-Convertible Subordinated (Lower Tier-2) BASEL III Debt Instruments) as part of Tier 2 Capital under two series i.e. Series V (Rs.400 crore) in the month of November 2018 and Series VI (Rs.320 crore) in the month of February 2019 on private placement basis. Further, below table provides debt instruments outstanding as on 31stMarch 2019:
Series |
Date of Issue |
Face Value per Bond |
Number of Bonds |
Amount (Rs. crore) |
Tenure from date of issue |
Coupon Rate (% p.a.) |
Credit Rating |
Listing |
ISIN of the Bonds |
IV |
17.11.2012 |
10,00,000 |
2,500 |
250.00 |
120 months |
11 |
ICRA A & CARE A |
Listed on NSE- Debt Segment |
INE614B08021 |
V |
16.11.2018 |
1,00,000 |
40,000 |
400.00 |
12 |
INE614B08039 |
|||
VI |
18.02.2019 |
1,00,000 |
32,000 |
320.00 |
12 |
INE614B08047 |
Notes:
1. Your Bank has paid interest on these debt instruments on a timely basis since the issue of respective debt instruments.
2. During the reporting year, bonds issued under Series III (Rs.200 crore) were redeemed upon maturity on 27th September, 2018 along with payment of interest.
3. Series I (Rs.120.50 crore) and Series II (Rs.29.50 crore) were since redeemed during FY2017-18.
4. CREDIT RATING: ICRA Limited (âICRAâ) and Credit Analysis and Research Limited, (âCAREâ) have retained the rating at âICRA Aâ and âCARE Aâ respectively. The instruments with these rating are considered to have adequate/high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
Further, during the reporting year, Bank had issued Certificate of Deposits (CDs) in different tranches to meet the short term liquidity mismatch and the amount outstanding under CDs as on 31st March 2019 stood at Rs.811.57 crore. The ICRA has rated these CDs assigned A . The instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk. The modifier â â reflect the comparative standing within the category.
DIVIDEND DISTRIBUTION POLICY
Your Bank has adopted a Policy on distribution of Dividend to the shareholders pursuant to the Regulation 43A of the SEBI (LODR) Regulations, 2015. Gist of the Dividend Distribution Policy is as under:
- Being a Banking entity, Dividend Distribution Policy is guided by the RBI Circular DBOD.No.BP.BC.8821.02.67/2004-05 dated 5th May, 2005 with regard to eligibility criteria for distribution of dividend.
- Factors considered for recommendation of dividend include both internal factors such as financial performance, dividend payout trends, tax implications, corporate actions and external factors such as shareholdersâ expectations, macro environment etc.
- Factors considered for determining the quantum of dividend include financial performance, capital fund requirements to support future business growth, having regard to the dividend payout ratio prescribed under the aforesaid RBI Guidelines etc.
The Dividend Distribution Policy of the Bank is available in our Bankâs website at https:// karnatakabank.com/investor-portal/corporate-governance.
INTEGRATED REPORTING
Your Bank being a listed entity, has made an attempt to address the concept introduced under the framework of International Integrated Reporting Council and detailed Integrated Report has been hosted on the Bankâs website under Investor Portal section and the same can be accessed here: www.karnatakabank.com> Investor Portal>Corporate Governance.
As on 31st March 2019, Bank had 8275 employees. The Business per employee (excluding inter-bank deposits) has improved from Rs.13.44 crore as on 31st March 2018 to Rs.14.90 crore as on 31st March 2019. Further, your Bank has maintained cordial industrial relations and employee discipline. Your Bank has put in place an institutional mechanism for protection of women employees at the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, providing for protection of women employees against the sexual harassment of women at the workplace and redressal of such complaints. The details of the complaints under the above Policy for the year under report are as under:
Number of complaints pending as at the beginning of the financial year |
Nil |
Number of complaints filed during the financial year |
Nil |
Number of complaints pending as on end of the financial year |
Nil |
VIGIL MECHANISM
The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) since the year 2007 intended to promote participation of employees at all levels and detection of corruption, misuse of Office, criminal offences, suspected / actual fraud, failure to comply with the rules and regulations prescribed by the Banks and any events/ acts detrimental to the interest of the Bank, depositories and the public resulting in financial loss/operational risk, loss of reputation etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower who avails such mechanism and also provides for direct access to the Chief of Internal Vigilance (CIV) in general and Chairman of the Audit Committee, in exceptional cases. The Vigil mechanism is reviewed periodically. The details of Whistle Blower Policy is posted in our website and available at the link https://kamatakabank.com/sites/default/files/2017-09/PoNcy%20on%20Disdosure%20Scheme.pdf
CENTRALISED PAYMENT & RECONCILIATION CELL (CPRC)
To enable timely reconciliation of various transactions carried out through technology enabled payment channels like NEFT, RTGS, IMPS, UPI etc., a separate centralized cell namely Centralised Payment and Reconciliation Cell(CPRC) has been set-up in the Bank which has improved the reconciliation and resolution of disputes, if any, in relation to these transactions.
INVESTOR RELATION CELL
In view of the changed business dynamics, shareholdersâ expectations and regulatory and reporting mechanism, a regular connect with the shareholders is necessary. In this regard, Bankâs Investor Relation Cell has been disseminating corporate information on voluntary basis to the shareholders through email about financial results, major events, articles about the Bank in the media etc. During the reporting financial year, quarterly update of financial results of the Bank were disseminated to the shareholders besides, four earningsâ related conference calls were held to discuss with analysts and also one analyst meet at Mumbai. In addition, Bankâs Management participated in various earningsâ related discussions and the presentation made to the analysts during the participation have been hosted on the Bankâs website www.karnatakabank.com>Investor Portal > Analyst Presentations.
DIRECTORS AND CHANGES IN THE BOARD
As on 31st March 2019, your Bank had a total of 9 Directors, including one woman director. All of them, except Mr. P Jayarama Bhat, Part-Time Non-Executive Chairman and Mr. Mahabaleshwara M S, Managing Director & CEO are Independent Directors. The details of the criteria for appointment and remuneration of Directors are provided in the report on Corporate Governance under Annexure III.
During the year under report, upon attainment of upper age limit of 70 years of age, Mrs. Usha Ganesh retired from office of the Independent Director on 04th July, 2018 as per extant guidelines of Reserve Bank of India. The Board places on record its appreciation for the valuable contribution and the guidance given by her during her tenure in office.
Mr. P Jayarama Bhat Part time Non-Executive Chairman, was reappointed as a Non Executive Director, liable to retire by rotation, at the 94th Annual General Meeting of the Bank held on 21st July, 2018 and being eligible for re-appointment, Mr. P Jayarama Bhat has offered himself for reappointment. Considering his experience, knowledge and expertise and the contribution made during his tenure as Non-executive Chairman of the Bank, your Directors recommend for approval of his re-appointment as a Director of the Bank who is liable to retire by rotation at the ensuing 95th Annual General Meeting. A brief resume of Mr. P Jayarama Bhat is furnished in the notice of the Annual General Meeting.
Mr. B A Prabhakar, Independent Director, who was appointed as a Director on the Board of the Bank on 06th September, 2014, will be completing the tenure of 5 years as Independent Director on 05th September, 2019. Considering his participation in the Board deliberations and to the overall directions given by the Board, your Directors recommend for approval of his re-appointment as an Independent Director of the Bank as a special resolution at the ensuing 95th Annual General Meeting. Necessary explanatory statement has been furnished in the notice of the Annual General Meeting.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER (MD & CEO)
Mr. Mahabaleshwara M S has been appointed as the Managing Director & CEO of the Bank for a period of three years w.e.f.15th April , 2017, pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt.No.11838/08040.001/2017-18 dated 05th April , 2017, in accordance with Section 35B of the Banking Regulation Act, 1949.
INDEPENDENT AND NON-EXECUTIVE DIRECTORS
Pursuant to the provisions of Section 149(6) of the Companies Act, 2013, your Bank has received necessary declarations from all the non-executive directors, except Mr. P Jayarama Bhat, confirming that they meet the criteria of independence for Independent Directors.
PERFORMANCE EVALUATION OF THE BOARD
Your Board of Directors has laid down criteria for performance evaluation of Directors, Chairman, MD & CEO, Committees of the Board and Board as a whole and also the evaluation process for the same. The statement indicating the manner in which formal annual evaluation of the Directors, the Board and Committees of the Board etc., are given in detail in the report on Corporate Governance under Annexure III. In pursuance to the above, Nomination and Remuneration Committee (NRC) of the Board and Independent Directors in their separate meetings held on 22nd March, 2019 have reviewed and evaluated the performance of Board as a whole and the Managing Director & CEO.
Further, the Board has also reviewed the performance of committees of the Board and that of individual Independent Directors at its meeting held on 22nd March, 2019.
CONTRTACTS OR ARRANGEMENTS WITH RELATED PARTIES
All related party transactions that were entered into during the financial year were in the ordinary course of the business of the Bank and were on armâs length basis. There were no materially significant related party transactions entered into by the Bank with Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of the Bank. As such disclosure in Form AOC-2 is not applicable. The policy on dealing with Related Party Transactions as approved by the Audit Committee/ Board has been placed in the website of the Bank.
DIRECTORSâ RESPONSIBILITY STATEMENT
In accordance with Section 134(3)(c), 134(5) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rule, 2014, your Directors state that:
a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;
b) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at the end of financial year 31st March 2019 and profit and loss for that period.
c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.
d) The Directors have prepared the annual accounts on a going concern basis.
e) The Directors have laid down the internal financial controls followed by the Bank and that such internal financial controls are adequate and are operating effectively.
f) The Directors have devised proper systems to ensure compliance with the provision of all applicable laws and that such systems were adequate and operating effectively.
STATUTORY DISCLOSURES
The disclosures under sub-section (3) of Section 134 of the Companies Act, 2013 and Companies (Accounts) Rules, 2014 are furnished below:
a) Conservation of energy and technology absorption: Considering the nature of the Bankâs business, the provisions of Section 134(3) of the Companies Act, 2013 relating to conservation of energy and technology absorption are not applicable to your Bank. The Bank has, however, used information technology in its operations extensively.
b) During the year ended 31st March 2019, the Bank has earned Rs.20.15 crore and spent Rs.1.58 crore in foreign currency.
c) There were no significant and material orders passed by the regulators or courts of tribunals impacting the going concern status and Bankâs operations in future.
d) Internal financial control systems and their adequacy: Your Bank has laid down standards, processes and structure facilitating the implementation of internal financial control across Bank and ensure that same are adequate and operating effectively.
e) Key Managerial Personnel: Mr. Mahabaleshwara M S, MD & CEO, Mr. Y V Balachandra, CFO and Mr. Prasanna Patil, Company Secretary of the Bank were the Key Managerial Personnel of the Bank as on 31st March 2019 as per the provisions of the Companies Act, 2013. None of the Key Managerial Personnel has resigned during the year under report.
Upon elevation of Mr. Balachandra Y V to the post of Chief Operating Officer (COO) of the Bank and entrustment of other functional reallocation to him, Mr. Muralidhara Krishna Rao, General Manager, has been designated as the Chief financial Officer of the Bank w.e.f. 13th May, 2019 in place of Mr. Y V Balachandra.
f) Remuneration of Directors: Disclosure pursuant to Section 197 (12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure VI to this report.
g) During the financial year 2018-19, there was no employee who was in receipt of remuneration requiring disclosure as per the limits prescribed under Section 197 of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
NUMBER OF BOARD MEETINGS
During the year under report the Board met 12 times and the details thereof are provided in the report on Corporate Governance attached to this report.
COMMITTEES OF THE BOARD
The Bank had 9 Committees which were constituted to comply with the requirements of relevant provisions of the applicable laws and for operational efficiency. Details of the meetings of the Board and the Committees, their composition, terms of reference, powers, roles etc., are furnished in the report on Corporate Governance attached to this report.
CORPORATE GOVERNANCE
Your Bank is committed to follow the best practice of corporate governance to protect the interest of all the stakeholders of the Bank, viz. shareholders, depositors and other customers, employees and the society in general and maintain transparency at all levels. A detailed report on corporate governance practices is given as Annexure III to this report.
AUDITORS
a. Statutory Auditors
At the 94th Annual General Meeting, M/s Badari, Madhusudhan & Srinivasan, (Firm Registration No.005389S) Chartered Accountants and M/s Manohar Chowdhry & Associates, (Firm Registration No. 001997S) Chartered Accountants were appointed as joint Statutory Central Auditors of the Bank to hold office upto the ensuing 95th Annual General Meeting.
The Board of Directors proposes to the members the appointment of M/s Badari, Madhusudhan & Srinivasan, (Firm Registration No.005389S) Chartered Accountants, No. 132, II Floor, Kantha Court, Lalbagh Road, Bengaluru-560027 and M/s Manohar Chowdhry & Associates, (Firm Registration No.001997S) Chartered Accountants, New No.27, Subramaniam Street, Abiramapuram, Chennai-600018 jointly as Statutory Central Auditors of the Bank to hold office upto the conclusion of 96th Annual General Meeting. Pursuant to Section 30(1A) of the Banking Regulation Act, 1949, approval from Reserve Bank of India has been sought for the above appointments. The Bank has received consent from the above auditors and necessary confirmation from them that they are not disqualified to be appointed as auditors of the Bank pursuant to the provisions of the Companies Act, 2013 and the Rules made thereunder.
b. Secretarial Auditor and Secretarial Audit Report
Pursuant to Section 204 of the Companies Act, 2013 and the rules thereunder, your Bank had appointed M/s.Gopalakrishnaraj H H & Associates, Practising Company Secretary, Bengaluru as Secretarial Auditors to conduct the Secretarial Audit for the year ended 31st March 2019. The audit report from the Secretarial Auditor is annexed to this report as a part of Annexure III.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to the Reserve Bank of India, other government and regulatory authorities, financial institutions and correspondent banks for their continued guidance and support. Your Directors also place on record their gratitude to the Bankâs shareholders, depositors and other customers for their continued support, patronage and goodwill. Your Directors express their deep sense of appreciation to all the staff members, for their contribution in your Bankâs quest for sustained growth and profitability and look forward to their continued contribution in scaling greater heights.
For and on behalf of the Board of Directors
P Jayarama Bhat
Chairman
Place : Bengaluru
Date : June 17, 2019
Mar 31, 2018
The Directors have the pleasure in presenting the 94thAnnual Report of the Bank together with the Audited Statement of Accounts for the year ended 31st March 2018 and the Auditorsâ Report.
PERFORMANCE HIGHLIGHTS
Performance highlights for the reporting financial year are as under: (Rs. in crore)
Particulars |
As on / for the year ended 31.03.2018 |
As on / for the year ended 31.03.2017 |
Deposits |
62871.29 |
56733.11 |
Advances |
47251.75 |
36915.70 |
Investments |
15444.45 |
20219.73 |
Gross Income |
6378.09 |
5994.74 |
Operating Profit |
1473.16 |
995.80 |
Net Profit |
325.61 |
452.26 |
The total business turnover of the Bank crossed a milestone of Rs.1,00,000 crore and stood at Rs.110123.04 crore as on 31st March 2018, registering a growth of 17.59 per cent as against the turnover of Rs.93648.81 crore as on 31st March 2017. The total assets of the Bank increased from Rs.64038.60 crore to Rs.70373.68 crore recording a growth of 9.89 per cent for the year 2017-18. The market share of the Bank in business turnover has increased to 0.54 percent as compared to 0.51 percent as on 31st March 2017.
The total deposits of the Bank grew from Rs.56733.11 crore as on 31st March 2017, to Rs.62871.29 crore as on 31st March 2018, registering a growth of 10.82 per cent.
During the year, low cost deposits of the Bank, viz. Savings and Current Account Deposits have shown growth of 6.83 per cent and constitute 27.99 per cent of the total deposits of the Bank. The market share of the Bank in deposits was 0.54 per cent as against 0.53 percent previous year.
The total advances grew from Rs.36915.70 crore as on 31st March 2017 to Rs.47251.75 crore as on 31st March 2018, an increase of 28.00 per cent. The Credit Deposit Ratio increased from 65.07 percent to 75.16 percent reflecting robust credit growth. The priority sector advances increased from Rs.17238.77 crore to Rs.20594.27 crore forming 52.83 percent of Adjusted Net Bank Credit (ANBC) and agricultural advances increased from Rs.6582.77 crore to Rs.6877.51 crore which, together with eligible deposit under Rural Infrastructure Development Fund (RIDF), constituted 17.64 percent of ANBC. Lending under various socio-economic schemes has shown satisfactory progress. The market share of the Bank in loans and advances was 0.56 percent ( Previous year 0.53 percent)
Consequent to the improved CD Ratio, the total investments declined from Rs.20219.73 crore as on 31st March 2017 to Rs.15444.45 crore.
OPERATIONAL PERFORMANCE
The increased CD Ratio, increase in interest income etc. resulted in the improved operating results as reflected in the gross income. The gross income of the Bank for the year ended 31st March 2018 stood at Rs.6378.09 crore as against Rs.5994.74 crore showing a growth of 6.39 percent and the total expenditure (excluding provisions and contingencies) stood at Rs.4904.92 crore as gainst Rs.4998.94 crore for the year ended 31st March, 2017 showing a decrease of 1.88 percent. The net interest income was Rs.1857.64 crore, showing a growth of 24.62 per cent over the previous year.
PROFIT
Your Bank earned an operating profit of Rs.1473.16 crore for the year 2017-18 as against Rs.995.80 crore for the previous year showing a growth of 47.94 per cent. The net profit of the Bank reduced from Rs.452.26 crore to Rs.325.61 crore, due to higher provisioning requirements.
APPROPRIATIONS
The net profit of Rs.325.61 crore which along with a sum of Rs.137.14 crore brought forward from the previous year, aggregating to Rs.462.75 crore, is appropriated as under:
Appropriation |
Rs. in crore |
Transfer to Statutory Reserve |
82.00 |
Transfer to Capital Reserve |
51.05 |
Transfer to Revenue, General and Special Reserves |
115.58 |
Transfer from Investment Reserve |
-24.16 |
Dividend of 2017 paid during the year 2018 |
113.04 |
Tax on dividend paid as above |
23.01 |
Balance carried over to Balance Sheet (including proposed Dividend and tax) |
102.23 |
Total |
462.75 |
DIVIDEND
Having regard to the overall performance of the Bank, the Board of Directors recommend a dividend of Rs.3 per share i.e. 30 percent on the paid up capital (previous year 40 per cent) for the reporting year. The dividend payout ratio for the year works out to 26.04 percent as against last yearâs 24.99 percent. In accordance with the revised Accounting Standard (AS)-4 âContingencies and Events occurring after the Balance Sheet Date notified by the MCA on March 30, 2016, the proposed dividend including dividend distribution tax amounting to Rs.102.21 crore has not been shown as appropriation from the Profit for the year ended 31st March 2018.
EARNINGS PER SHARE/ BOOK VALUE
The earnings per share (basic) and the book value per share as on 31st March 2018 stood at Rs.11.52 and Rs.191.44 respectively.
CAPITAL FUNDS AND CAPITAL ADEQUACY RATIO
The capital funds of your Bank increased from Rs.5172.16 crore to Rs.5414.25 crore, registering a growth of 4.68 per cent. The Capital Adequacy Ratio stood at 12.04 per cent as on 31st March 2018, as per BASEL III norms (Previous year 13.30 per cent). The Bank has been consistently maintaining the Ratio well above the minimum of 10.875 percent stipulated by the Reserve Bank of India. The market capitalization as on 31st March 2018 was Rs.3247.16 crore with a high of Rs.5115.20 crore as on 2nd June 2017 and a low of Rs.3052.16 crore as on 12th March 2018.
NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Bank has been focussing on containing the non-performing assets through better credit monitoring as well as intensified efforts to recover the impaired assets. However, in view of the delinquencies in select sectors, impact of RBIâs revised framework on resolution of stressed assets etc., the Bankâs Gross NPAs as on 31st March 2018 has increased from Rs.1581.59 crore (4.21 per cent) to Rs.2376.07 crore by the year end (4.92 per cent). The net NPAs stood at Rs.1400.51 crore (2.96 per cent) as against Rs.974.73 crore (2.64 per cent) as on 31st March 2017. Provision Coverage Ratio (PCR) marginally improved to 54.56 percent as on 31st March 2018 from 54.00 per cent as on 31st March 2017.
SEGMENT REPORTING
Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting), the Bank has identified four business segments viz., Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations for the year ended 31st March 2018 as under:
- Treasury Operations: Bank has earned total revenue of Rs.1404.18 crore from Treasury operations with a contribution of Rs.267.76 crore to profit before tax and un-allocable expenditure.
- Corporate / Wholesale Banking: The revenue earned by the Bank during the year under report from this Segment was Rs.2174.98 crore with a negative contribution of Rs.306.05 crore to profit before tax and un-allocable expenditure.
- Retail Banking: This Segment has earned revenue of Rs.2367.95 crore with a contribution of Rs.249.28 crore to profit before tax and un-allocable expenditure.
- Other Banking Operations: This segment has generated revenues of Rs.332.57 crore with a contribution of Rs.50.82 crore to profit before tax and un-allocable expenditure.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs.14932.52 crore in foreign exchange business as against Rs.14561.52 crore in the previous year. The outstanding advances to export sector stood at Rs.1970.58 crore as on 31st March 2018.
CENTRALISED PAYMENT & RECONCILIATION CELL (CPRC)
To enable timely reconciliation of various transactions carried out through technology enabled payment channels like NEFT, RTGS, IMPS, UPI etc., a separate centralized cell namely Centralised Payment and Reconciliation Cell (CPRC) has been set-up in the Bank which has improved the reconciliation and resolution of disputes, if any, in relation to these transactions.
INVESTOR RELATION CELL
In view of the changed business dynamics, shareholdersâ expectations and regulatory & reporting mechanism, a regular connect with the shareholders is necessary. In this regard, with a view to disseminate corporate information on voluntary basis to the shareholders through email (wherever made available) about financial results, major events, articles about the Bank in the media etc., Bank has formed an âInvestor Relation Cellâ in the month of July 2017.
âIND ASâ IMPLEMENTATION
As per the erstwhile roadmap given by Reserve Bank of India (RBI) vide circular dated February 11, 2017, transition to âIndian Accounting Standards (Ind AS)â in banks were to commence from the accounting period beginning April 1, 2018 onwards. However, in its âStatement on Developmental and Regulatory Policiesâ dated April 5, 2018, the regulator has deferred the implementation of Ind AS for Scheduled Commercial Banks by one year i.e. from the accounting period beginning April 1, 2019 and your Bank would proceed to carry out the strategy laid out by its Audit Committee of the Board, for facilitating effective and successful implementation of Ind AS on the revised transition date in accordance with the relevant guidelines.
In this regard, your Bank in consultation with M/s Ernst & Young (EY), has conducted a diagnostic study on various disparities between current Accounting framework and Ind AS and ascertained various areas having an impact on measurement, accounting and disclosure of financial assets and liabilities and provisioning requirements. An IT Diagnostic Study was also conducted identifying robust changes in CBS and IT systems of the Bank, to accommodate Ind AS. Further, as stipulated by RBI, your Bank has also duly submitted the Proforma Ind AS Financial statements for the half year ended September 30, 2016, and for the quarter ended June 30, 2017.
SUBORDINATED DEBT INSTRUMENTS
Bank had issued subordinated debt instruments [i.e. Unsecured Non-Convertible Subordinated (Lower Tier-II) Debt Instruments] as part of Tier II Capital Structure under four series namely: Series I (Rs.120.50 crore), Series II (Rs.29.50 crore), Series III (Rs.200.00 crore) and Series IV (Rs.250.00 crore) which were issued on 30.06.2007, 29.03.2008, 27.09.2008 and 17.11.2012 respectively, with each Series having a maturity tenure of 120 months from the date of issue. Your Bank has ensured payment of interest on these debt instruments on a timely basis since the issue of respective debt instruments. Further, during the reporting year, Bank had issued Certificate of Deposits (CDs) in different tranches to meet the short term liquidity mismatch and the amount outstanding under CDs as on 31st March 2018 stood at Rs.2173 crore.
During the reporting year, the Bonds issued under Series I (Rs.120.50 crore) and Series II (Rs.29.50 crore) were redeemed upon maturity on their respective due dates i.e. 30.06.2017 and 29.03.2018 along with payment of interest for the broken period. Balance amount of subordinated debt instruments with progressive discounting have been considered for capital adequacy ratio as per the RBI Guidelines.
CREDIT RATING
ICRA Limited (âICRAâ) and Credit Analysis and Research Limited, (âCAREâ) have been rating the aforesaid debt instruments over the past few years and during the reporting financial year, these rating agencies have retained the rating at âICRA Aâ and âCARE Aâ respectively. The instruments with these rating are considered to have adequate/high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
In addition, the ICRA has rated the CDs issued by the Bank and has assigned ICRA A1 . The instruments with this rating are considered to have very strong degree of safety regarding timely payment of financial obligations. Such instruments carry lowest credit risk. The modifier â â reflect the comparative standing within the category.
DIVIDEND DISTRIBUTION POLICY
Your Bank has adopted a Policy on distribution of Dividend to the shareholders pursuant to the Regulation 43A of the SEBI (LODR) Regulations, 2015. Gist of the Dividend Distribution Policy is as under:
- Being a Banking entity, Dividend Distribution Policy is guided by the RBI Circular DBOD.No. BP.BC.8821.02.67/2004-05 dated May 5, 2005 with regard to eligibility criteria for distribution of dividend.
- Factors considered for recommendation of dividend include both internal factors such as financial performance, dividend payout trends, tax implications, corporate actions and external factors such as shareholdersâ expectations, macro environment etc.
- Factors considered for determining the quantum of dividend include financial performance, capital fund requirements to support future business growth, having regard to the dividend payout ratio prescribed under the aforesaid RBI Guidelines etc.
The Dividend Distribution Policy of the Bank is available in our Bankâs website at https:// karnatakabank.com/investor-portal/corporate-governance.
INTEGRATED REPORTING
In todayâs era, although organisations in India operate in local jurisdictions, the developed countriesâ working culture and disclosure standards have been influencing over the past few years and is shaping the internal processes and also external processes. As such, reporting standards and disclosure requirements are being aligned to international standards and efforts are being made both by (i) Indian Corporates (i.e. taking steps in this regard on a voluntary basis) and (ii) Regulators (such as mCa, RBI, SEBi etc.) are considering progressive phase-wise initiatives in the reporting and disclosure standards. Some of the examples of internationally aligned reporting standards are introduction of IFRS (i.e. IND AS), Integrated Reporting (IR), XBRL Reporting, BASEL Standards etc.
Further, the Securities and Exchange Board of India (SEBI) is working towards improving the disclosure standards of listed entities in India in consultation with the industry bodies and stock exchanges etc. and thus, suggested the listed entities to introduce the concept of âIntegrated Reportingâ (IR) based on the âInternational Integrated Reporting Councilâs (IIRC) Frameworkâ.
Your Bank being a listed entity, an attempt is made to address the concepts introduced under the IIRC Framework and going forward, the reporting/disclosure standards will be aligned with the IIRC model with a view to implement comprehensive structure of reporting in the years to come. In this context, IIRC Framework also provided a timeline of not more than three years for the entities to realign their reporting standards in accordance with the IR framework.
Further, presentation of the Integrated Reporting (IR) is under nascent stages, and therefore, your Directors opine that adoption of entire IIRC framework by the industry at large would require aligning reporting/disclosure in consonance with the Indian regulatory standards wherein, most of the financial and non-financial disclosures are already being made as per the formats prescribed by various Indian Regulators as stated above. However, this is a transition phase for the overall listed entitiesâ community. As regards the Bankâs IR, a comparative table given below will provide details of disclosures that are being made over the past few years and the IR elements.
Your Bank is in the business of banking i.e. playing a fiduciary role in overall socio-economic growth of the country by safeguarding the depositorsâ interest and providing quality financial support to the enthusiasts who have been making an impact in the society not only for their own profit, but also providing employment to many needy citizens. The Bank in its 94 years of existence, touched many lives through financial support, social support, financial inclusion and generation of employment etc. and the success of its business model has been mainly by focusing on quality of service to stakeholders. As the decades pass by, new technological revolutions are shaping the new age banking and Karnataka Bank has been adapting itself to the new processes and systems to meet the expectations of the customers yet, keeping intact the core values and identity. To illustrate, Karnataka Bank was one of the first few private sector banks to adopt core banking solution (CBS) in India. Further, your Bank believes that, concepts that have emerged in the recent times such as mobile based banking, block-chain, Unified Payment Interface, fin-tech business etc. are only derivatives of the disruptive technologies and the future of banking across the globe is subject to adaption of newer technologies by Banks and, Karnataka Bank has been proactively initiating steps to adopt itself to innovative systems from time to time. In this direction, a Transformation Plan is being worked out at strategic level to assess suitable technologies and processes and systems.
Table on comparative statement with respect to IR and Bankâs disclosures that are being made:
IR Frameworkâs content elements |
Reporting provided in this Annual Report |
|
Eight Content Elements : 1. Organizational overview and external environment 2. Governance 3. Business model 4. Risks and opportunities 5. Strategy and resource allocation 6. Performance 7. Outlook 8. Basis of preparation and presentation |
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1. Organizational overview and external environment What does the organization do and what are the circumstances under which it operates? Ownership Operating Structure, principal activities and markets, competitive landscape and market positioning. |
Karnataka Bank is in the business of banking. With a view to uphold the best corporate governance practices, Founders of this Bank carefully designed the business model wherein, Bank does not have any promoter and only the best professionalism prevails. In the Indian scenario, this model is now being adopted by many companies. Back in the era of 1920s, nonpromoter concept was used to ensure there is no conflict of interest at the helm of leadership. Bankâs Board/ Management has been ensuring handing over of the stewardship to the team of persons who possess required caliber. Healthy sustenance of the Bank has always been kept in mind while defining succession planning at the top levels. Your Bankâs shares are held by the public at large and shareholding pattern as on March 31, 2018 has been provided under Annexure III. Your Bank operates through âBranch Banking Modelâ and also âDigital Banking Modelâ and follows three tier administrative structure comprising of Head Office at the apex level, Regional Offices at the administrative level and Branches as business centers. Its principal activities include acceptance of deposits and lending for earning interest and fees. Karnataka Bank operates in various states in India and the details are provided under âDistribution Networkâ Section provided as part of this Directorsâ Report. |
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External environment |
Details on external environment, regulatory changes and their impact on the banking industry as well the bank besides risks and the opportunities are detailed under âManagement Discussion Analysis(MDA)â Section which is provided as part of this Directorsâ Report. |
2. Governance How does the organizationâs governance structure support its ability to create value in the short, medium and long term. Specific processes used to make strategic decisions. |
Your Bank being regulated entity, adheres to the norms prescribed under Banking Regulation Act, 1949 wherein, guidance on constitution of the Board of the banks has been narrated. Accordingly, constitution of the Board of Directors of the Bank conforms to the provisions of Section 10B of the Banking Regulation Act, 1949, Section 149 of the Companies Act, 2013 and SEBI LODR. The Board consists of eminent persons drawn from specialized fields such as Banking, Finance, Accountancy, Law, Agriculture and Rural Economy, Cooperation and SSI, Information Technology etc. The progress of the Bank is being reported to the Board/Board level Committees on a periodical basis and the Directors provide feedback to the Management for further improvement in the operations of the Bank. Further, Board of Directors has also formed sub-committees to take advantage of the skills and expertise of directors concerned. Terms of reference and number of meetings held etc. are provided under âCorporate Governance Reportâ (Annexure II) Further, Bankâs Corporate Governance Report is prepared in line with the extant regulations of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 [âSEBI LODRâ]. Further, the Management also has many committees of executives for the day-to-day management and to implement new initiatives. |
3. Business Model What is the organizationâs business model. (Inputs, Business activities, Outputs, Outcomes) |
A detailed diagram provided in subsequent page provides an insight on Bankâs business model. |
4. Risks and Opportunities What are the specific risks and opportunities that affect the organizationâs ability to create value over the short, medium and long term, and how is the organization dealing with them etc. |
Details have been provided under MDA. |
5. Strategy and Resource allocation Where does the organization want to go and how does it intend to get there? |
As detailed above, your Bank has been taking initiatives to adopt itself to changing scenarios to meet the expectations of the stakeholders. In this directions, your Bank defines corporate goals on an annual basis and the performance is reviewed on a periodical basis. However, technological advancements are impacting all industries across the globe and Bank has time and again initiated steps to transform itself through business process re-engineering or through transformation plan after carefully studying the pros and cons of such advancements. Accordingly, with a view to reposition |
the Bank as âRelevant and Significant Bankâ, a transformation project has been launched during the reporting financial year partnering with Boston Consulting Group (BCG). A brief about the strategies included under transformation project adopted by the Bank has been detailed under âTransformation Projectâ Section under this Directorsâ Report. |
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6. Performance To what extent has the organization achieved its strategic objectives for the period and what are its outcomes in terms of effects on the capitals |
Both financial and non-financial performance achieved by the Bank during the reporting period has been detailed under this Directorsâ Report along with its impact on capital. |
7. Outlook What challenges and uncertainties is the organization likely to encounter in pursuing its strategy, and what are the potential implications for its business model and future performance |
Outlook of the banking industry, changes in the socio-economic conditions, changes in the regulatory environment, and their impact on business model and future performance etc. have been detailed under MDA. |
8. Basis of preparation and presentation How does the organization determine what matters to include in the integrated report and how are such matters quantified or evaluated |
As aforesaid, the concept of IR is in the nascent stages in Indian reporting structure, however, most of the content elements provided under the IR Framework have already been reported under various formats as desired by various regulators such as RBI, MCA, SEBI etc. and Bank will continue to adhere to the standards of reporting as per the expectations of the regulators by pooling the best resources. |
1. INPUTS
Financial Capital |
Human Capital |
Manufactured Capital |
Socio-Relationship Capital |
- Deposits from public - Raising funds in the form of equity, debt etc. - Internal own funds (i.e. Reserves and Share Premium Account). |
- Karnataka Bank h a s 8 1 8 5 employees who have been regularly updating their skills to provide best in the class banking services. |
- The Bankâs b u s i n e s s i s operated through branch-banking a n d d i g i t a l banking channels i n cl u d i ng ATM s, Internet Banking, Mobile Banking, POS, e-Lobbies etc. - The Bank has 800 branches spread across 22 states and 2 Union Territories as on March 31, 2018. |
- Bank has been making efforts over the years by contributing to society through its financial inclusion branches. Bank has touched 547 villages of 106 Gram Panchayats through âBrick and Mortarâ Branch approach as on March 31, 2018. - The Bank also provides assistance through its C o r p o r a t e S o c i a l Responsibility (CSR) Programme and details of its contribution made during the year are provided under Annexure V. |
Further details h a v e b e e n provided at the beginning of the Directorsâ Report. |
Further details have been provided under this Directorsâ Report. |
Further details h a v e b e e n provided under this Directorsâ Report. |
Further details have been provided under this Directorsâ Report. |
Banking is a service oriented technology based industry and utilization of natural resources plays only a supportive role to the main activity.
2. Business Activities
- By engaging various capital forms, Bank deploys its funds by lending and investing.
- In this process, Bank also sells third party products such as Bancassurance, Mutual Funds etc.
3. Outputs
- By employing various forms of capitals and deployment of funds, Bank earns interest/commission in funded and non-funded exposures by retaining a margin between borrowing rates and lending rates.
- Bank earns commissions, processing fees, profit on sale of investments etc.
4. Outcomes and 5. Value creation
- Business turnover, operating profit, interest income, Bankâs operating profit etc. are outcomes of the process.
- In its 94 years of existence, Bank has played a pivotal role in many lives by providing timely servicing of interest to depositors, lending to borrowers at competitive rates, creating employment, distributing dividend on a consistent basis to the shareholders and besides value creation by way of increase in market capitalisation.
- Contributing to society through its Financial Inclusion and CSR Programmes and enabling the weaker section to improve their standard of living.
VIGIL MECHANISM
The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) since the year 2007 intended to promote participation of employees at all levels and detection of corruption, misuse of Office, criminal offences, suspected / actual fraud, failure to comply with the rules and regulations prescribed by the Banks and any events/ acts detrimental to the interest of the Bank, depositories and the public resulting in financial loss/operational risk, loss of reputation etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower who avails such mechanism and also provides for direct access to the Chief of Internal Vigilance (CIV) in general and Chairman of the Audit Committee, in exceptional cases. The Vigil mechanism is reviewed periodically. The details of Whistle Blower Policy is posted in our website and available at the link https://karnatakabank.com/sites/default/files/2017-09/Policy%20on%20Disclosure%20Scheme.pdf
DIRECTORS AND CHANGES IN THE BOARD
As on 31st March 2018, your Bank had a total of ten Directors, including two woman directors. All of them, except Mr. P Jayarama Bhat, Part-Time Non-Executive Chairman, Mr. Mahabaleshwara M S, Managing Director and CEO and Mrs. Mythily Ramesh, Additional Director, are Independent Directors. The details of the criteria for appointment and remuneration of Directors are provided in the report on Corporate Governance under Annexure II.
The Board of Directors at its meeting held on April 12, 2017 appointed Mr. P Jayarama Bhat as Part time Non-Executive Chairman, (who assumed charge on 12.04.2017) pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt.No.12034/08.40.001/2017-18 dated April 10, 2017 in accordance with Section 10B (1A)(i) of the Banking Regulation Act, 1949, after being inducted as an Additional Director. Subsequently, at the 93rd Annual General Meeting of the Bank, he was appointed as Non-Executive Non Independent Director of the Bank, liable to retire by rotation. Being eligible for reappointment, Mr. P Jayarama Bhat has offered himself for reappointment.
Considering his experience, knowledge and expertise and the contribution made during his tenure as Non-executive Chairman of the Bank, your Directors recommend for approval of his re-appointment as a Director of the Bank who is liable to retire by rotation at the ensuing 94th Annual General Meeting and being eligible, offers himself for re-appointment. A brief resume of Mr. P Jayarama Bhat is furnished in the notice of the Annual General Meeting.
During the year under report, Mrs. Mythily Ramesh, was appointed on the Board as an Additional Director w.e.f.14.03.2018 and as per Section 161 of the Companies Act, 2013 and she would hold office upto the date of ensuing Annual General Meeting. Further, the Bank has received necessary notice from a member under Section 160 of the Companies Act, 2013 proposing her candidature for appointment as an Independent Director of the Bank and having regard to her vast experience, rich knowledge and expertise, your Directors recommend her appointment as an Independent Director. A brief resume of Mrs. Mythily Ramesh is furnished in the notice of the Annual General Meeting.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER (MD & CEO)
The Board at its meeting held on April 12, 2017 appointed Mr. Mahabaleshwara M S as Managing Director and CEO of the Bank for a period of three years w.e.f. April 15, 2017 i.e. from the date of taking charge, pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt.No.11838/08040.001/2017-18 dated April 05, 2017 in accordance with Section 35B of the Banking Regulation Act, 1949, after inducting him as an Additional Director on the Board.
INDEPENDENT AND NON-EXECUTIVE DIRECTORS
Pursuant to the provisions of Section149(6) of the Companies Act, 2013, your Bank has received necessary declarations from all the Non-Executive Directors, except Mr. P Jayarama Bhat, confirming that they meet the criteria of independence for Independent Directors. Mrs. Mythily Ramesh has also furnished similar declaration and subject to her appointment at the ensuing Annual General Meeting, she also meets the criteria of independence.
PERFORMANCE EVALUATION OF THE BOARD
Your Board of Directors has laid down criteria for performance evaluation of Directors, Chairman, MD & CEO, Committees of the Board and Board as a whole and also the evaluation process for the same. The statement indicating the manner in which formal annual evaluation of the Directors, the Board and Committees of the Board etc., are given in detail in the report on Corporate Governance, which forms part of this Annual Report. In pursuance to the above, NRC of the Board and Independent Directors in their separate meetings held on March 14, 2018 have reviewed and evaluated the performance of Board as a whole and the Managing Director and CEO.
Further, the Board has also reviewed the performance of committees of the Board and that of individual Independent Directors at its meeting held on March 14, 2018.
CONTRTACTS OR ARRANGEMENTS WITH RELATED PARTIES
All related party transactions that were entered into during the financial year were in the ordinary course of the business of the Bank and were on armâs length basis. There were no materially significant related party transactions entered into by the Bank with Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of the Bank. As such disclosure in Form AOC-2 is not applicable. The policy on dealing with Related Party Transactions as approved by the Audit Committee/ Board has been placed in the website of the Bank.
DIRECTORSâ RESPONSIBILITY STATEMENT
In accordance with Section 134(3)(C), 134(5) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rule, 2014, your Directors state that:
a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;
b) The Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at the end of financial year 31st March 2018 and profit and loss for that period.
c) The Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.
d) The Directors have prepared the annual accounts on a going concern basis.
e) The Directors have laid down the internal financial controls followed by the Bank and that such internal financial controls are adequate and are operating effectively.
f) The Directors have devised proper systems to ensure compliance with the provision of all applicable laws and that such systems were adequate and operating effectively.
STATUTORY DISCLOSURES
The disclosures under sub-section (3) of Section 134 of the Companies (Accounts) Rules, 2014 are furnished below:
a) Conservation of energy and technology absorption: Considering the nature of the Bankâs business, the provisions of Section 134(3)(m) of the Companies Act, 2013 relating to conservation of energy and technology absorption are not applicable to your Bank. The Bank has, however, used information technology in its operations extensively.
b) Foreign exchange earnings and outgo: During the year ended 31st March 2018, the Bank has earned Rs.25.40crore and spent Rs.1.15crore in foreign currency.
c) There were no significant and material orders passed by the regulators or courts of tribunals impacting the going concern status and Bankâs operations in future.
d) Internal financial control systems and their adequacy: Your Bank has laid down standards, processes and structure facilitating the implementation of internal financial control across Bank and ensure that same are adequate and operating effectively.
e) Key Managerial Personnel: Mr. Mahabaleshwara M S, MD & CEO, Mr. Y V Balachandra, CFO and Mr. Prasanna Patil, Company Secretary of the Bank were the Key Managerial Personnel of the Bank as on 31st March 2018 as per the provisions of the Companies Act, 2013. None of the Key Managerial Personnel has resigned during the year under report.
f) Remuneration of Directors: Disclosure pursuant to Section 197 (12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure VI to this report.
g) During the financial year 2017-18, there was no employee who was in receipt of remuneration requiring disclosure as per the limits prescribed under Section 197 of the Companies Act, 2013 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
EXTRACT OF THE ANNUAL RETURN
Pursuant to Section 92(3) of the Companies Act, 2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return of the Bank as on 31st March 2018 is annexed (Annexure III).
NUMBER OF BOARD MEETINGS
During the year under report the Board met 17 times and the details thereof are provided in the report on Corporate Governance.
COMMITTEES OF THE BOARD
The Bank had 13 Committees which were constituted to comply with the requirements of relevant provisions of the applicable laws and for operational efficiency. Details of the meetings of the Board and the Committees, their composition, terms of reference, powers, roles etc are furnished in the report on Corporate Governance forming part of this report
CORPORATE GOVERNANCE
Your Bank is committed to follow the best practice of corporate governance to protect the interest of all the stakeholders of the Bank, viz. shareholders, depositors and other customers, employees and the society in general and maintain transparency at all levels. A detailed report on corporate governance practices is given as Annexure II to this report.
AUDITORS
a. Statutory Auditors
At the 93rd Annual General Meeting of the shareholders, M/s. Abarna & Ananthan, Chartered Accountants, Bengaluru and M/s. R K Kumar & Co, Chartered Accountants, Bengaluru were appointed as Statutory Central Auditors of the Bank to hold office upto the ensuing 94th Annual General Meeting. Since M/s. Abarna & Ananthan (Firm Registration No. 000003S), Chartered Accountants, Bengaluru, one of the retiring statutory central auditors, will be completing their four years of statutory central audit of the Bank their firm is subject to resting for a period of six years.
M/s. R K Kumar & Co, (Firm Registration No.001595S), Chartered Accountants, Chennai, the other joint statutory auditor, will be completing the period of one year at the conclusion of the ensuing Annual General Meeting. The firm was appointed at the 93rd Annual General Meeting held on July 17, 2017 after completion of resting period of two years as per then applicable RBI extant guidelines. Currently, the resting period prescribed by the RBI is six years and as the firm had completed resting period of 3 years before their current term beginning from 2017-18, M/s. R. K. Kumar & Co firm is now subject to resting for a period six years from the conclusion of the ensuing 94th Annual General Meeting.
Hence, Board of Directors propose to the members the appointment of M/s Manohar Chowdhry & Associates, (Firm Registration No.001997S) Chartered Accountants, New No.27, Subramaniam Street, Abiramapuram, Chennai-600018 and M/s Badari, Madhusudhan & Srinivasan, (Firm Registration No.005389S) Chartered Accountants, No. 132, II Floor, Kantha Court, Lalbagh Road, Bengaluru-560027 jointly as Statutory Central Auditors of the Bank to hold office upto the conclusion of 95th Annual General Meeting. Pursuant to Section 30(1A) of the Banking Regulation Act, 1949, approval from Reserve Bank of India has been obtained for the above appointments. The Bank has received consent from the above auditors and necessary confirmation from them that they are not disqualified to be appointed as auditors of the Bank pursuant to the provisions of the Companies Act, 2013 and the Rules made thereunder.
b. Secretarial Auditor and Secretarial Audit Report
Pursuant to Section 204 of the Companies Act, 2013 and the rules thereunder, your Bank had appointed M/s.Gopalakrishnaraj H H & Associates, Practising Company Secretary, Bengaluru as Secretarial Auditors to conduct the Secretarial Audit for the year ended 31st March 2018. The audit report from the Secretarial Auditor is annexed to this report as Annexure IV.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to the Reserve Bank of India, other government and regulatory authorities, financial institutions and correspondent banks for their continued guidance and support. Your Directors also place on record their gratitude to the Bankâs shareholders, depositors and other customers for their continued support, patronage and goodwill. Your Directors express their deep sense of appreciation to all the staff members, for their contribution in your Bankâs quest for sustained growth and profitability and look forward to their continued contribution in scaling greater heights.
For and on behalf of the Board of Directors
Sd/-
P Jayarama Bhat
Chairman
Place: Mangaluru
Date: June 18, 2018
Mar 31, 2017
The Directors have pleasure in presenting the Ninety Third Annual Report together with the Audited Statement of Accounts for the year ended 31st March 2017 and the Auditorsâ Report.
PERFORMANCE HIGHLIGHTS
Your Directors are pleased to inform that during the year ended 31st March 2017, your Bank has been able to achieve satisfactory growth in all the areas of operation. Performance highlights for the financial year in the key financial areas are as under:
(Rs. in crore)
Particulars |
As on / for the year ended 31.03.2017 |
As on / for the year ended 31.03.2016 |
Deposits |
56733.11 |
50488.21 |
Advances |
37003.65 |
33902.45 |
Investments |
20219.73 |
16256.65 |
Gross Income |
5994.74 |
5535.07 |
Operating Profit |
995.80 |
854.53 |
Net Profit |
452.26 |
415.29 |
The total business turnover of the Bank was Rs.93736.76 crore as on 31st March 2017, an increase of 11.07 per cent (Previous year Rs.84390.66 crore). The total assets of the Bank increased from Rs.56500.33 crore to Rs.64126.55 crore recording a growth of 13.50 per cent for the year 2016-17.
The total deposits of the Bank grew from Rs.50488.21 crore as on 31st March 2016, to Rs.56733.11 crore as on 31st March 2017, registering a growth of 12.37 per cent.
During the year, low cost deposits of the Bank, viz. Savings and Current Account Deposits have shown growth of 24.23 per cent and constitute 29.04 per cent of the total deposits of the Bank. The market share of the Bank in deposits was 0.53 per cent.
The total advances grew from Rs.33902.45 crore as on 31st March 2016 to Rs.37003.65 crore as on 31st March 2017, an increase of 9.15 per cent. The priority sector advances increased from Rs.16149.99 crore to Rs.17238.77 crore which, together with the Rural Infrastructure Development Fund (RIDF) exposure, formed 48.13 percent of Adjusted Net Bank Credit (ANBC) and agricultural advances increased from Rs.5836.74 crore to Rs.6582.77 crore which, together with eligible RIDF exposure, constituted 18.38 per cent of ANBC. Lending under various socio-economic schemes has shown satisfactory progress. The market share of the Bank in loans and advances was 0.48 per cent.
As on 31st March 2017 the total investments of the Bank stood at Rs.20219.73 crore, as against Rs.16256.65 crore as on 31st March 2016, showing an increase of 24.38 per cent.
OPERATIONAL PERFORMANCE
In the backdrop of subdued credit off take experienced by banks, the performance of your Bank can be considered satisfactory for the year ended 31st March 2017. The gross income of the Bank was Rs.5994.74 crore and total expenditure (excluding provisions and contingencies) was Rs.4998.94 crore. The net interest income was Rs.1490.62 crore, showing a growth of 14.41 per cent over previous year.
PROFIT
Your Bank earned an operating profit of Rs.995.80 crore for the year 2016-17 as against Rs.854.53 crore for the previous year showing a growth of 16.53 per cent. The net profit of the Bank increased from Rs.415.29 crore to an all time high of Rs.452.26 crore showing a growth of 8.90 per cent.
APPROPRIATIONS
The net profit of Rs.452.26 crore which along with a sum of Rs.0.03 crore brought forward from the previous year, aggregating to Rs.452.29 crore, is appropriated as under.
Appropriation |
Rs. in crore |
Transfer to Statutory Reserve |
125.00 |
Transfer to Capital Reserve |
112.80 |
Transfer to Revenue, General & Special Reserves |
68.60 |
Transfer to Investment Reserve |
8.75 |
Balance carried over to Balance Sheet (including proposed Dividend and tax) |
137.14 |
Total |
452.29 |
DIVIDEND
Having regard to the overall performance of the Bank, expanded capital base on account of the successful Rights issue in the ratio of 1:2 and also the positive outlook for the future, the Board of Directors recommended a dividend of Rs.4 per share i.e. 40 percent on the paid up capital (previous year 50 per cent) for the reporting year. The dividend payout ratio for the year works out to 24.99 percent as against last year''s 22.69 percent. In accordance with the revised Accounting Standard (AS)-4 âContingencies and Events occurring after the Balance Sheet Date notified by the MCA on March 30, 2016, the proposed dividend including dividend tax amounting to Rs.136.05 crore has not been shown as appropriation from the Profit as of March 31, 2017.
EARNINGS PER SHARE/BOOK VALUE
The earnings per share (basic) and the book value per share as on 31st March 2017 stood at Rs.19.38 and Rs.177.12 respectively.
ISSUANCE OF EQUITY SHARES
During the year under report, with a view to augment common equity, your Bank issued 9,42,35,441 equity shares of Rs.10 each at a price of Rs.70 per share including the premium of Rs.60per equity share on Rights basis in the ratio of 1 (One) equity share for every 2 (Two) equity shares held aggregating Rs.659.65 crore as per SEBI (ICDR) Regulations, 2009. The issue was subscribed by 1.85 times. After keeping in abeyance 98,575 entitlements pertaining to equity shares kept under Suspense Account, Board of Directors allotted 9,41,36,866 equity shares on 08.12.2016. The Board of Directors wishes to place on record its appreciation for the confidence reposed by the shareholders of the Bank and thank them for their overwhelming response to the Rights Issue.
REVALUATION OF ASSETS
As permitted under the extant RBI Guidelines, your Bank has revalued its Land and building having existing book value of Rs.119.39 crore. Appreciation of Rs.423.53 crore arising out of such revaluation is accounted with corresponding credit to Revaluation Reserves and the appreciation is reckoned for Tier-1 Capital after applying discount of 55 per cent as permitted under Basel III guidelines.
CAPITAL FUNDS AND CAPITAL ADEQUACY RATIO
The capital funds of your Bank increased from Rs.4185.24 crore to Rs.5172.16 crore, registering a growth of 23.58 per cent. The Capital Adequacy Ratio stood at 13.30 per cent as on 31st March, 2017, as per BASEL III norms (Previous year 12.03 per cent). The capital funds of the bank increased during the year under report, due to the augmentation of common equity capital through Rights Issue (Rs.654.95 crore net of expenses) and revaluation of Land & Building resulting in revaluation reserves to the extent of Rs.190.59 crores after discounting etc. The Bank has been consistently maintaining the Ratio well above the minimum of 10.25 percent stipulated by the Reserve Bank of India. The market capitalization as on March 31, 2017 was Rs.3976.26 crore.
CREDIT RATING
ICRA Limited ("ICRA") and Credit Analysis and Research Limited, (âCAREâ) who had rated the Unsecured Redeemable Non-Convertible Subordinated (Lower Tier-II) debt instruments issued during the earlier years aggregating Rs.600 crore have retained the rating âICRA Aâ and âCARE Aâ respectively for the aforesaid instruments. The instruments with these rating are considered to have adequate/high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.
SUBORDINTED DEBT INSTRUMENTS
In order to augment capital under Tier II Capital structure, your Bank had issued subordinated debt instruments under four series namely, Series I (Rs.120.50 crore), Series II (Rs.29.50 crore), Series III (Rs.200.00 crore) and Series IV (Rs.250.00 crore) issued on 30.06.2007, 29.03.2008, 27.09.2008 and 17.11.2012 respectively, with each Series having a maturity tenure of 120 months from the date of issue.
Series I (Rs.120.50 crore) is due for redemption on 30.06.2017 (upon completion of 120 months from the date of issue) and your Bank has ensured timely interest payment on the said debt instruments since the year 2007 and will redeem the said debt instruments as per the scheduled timeline. The redemption value has already been factored into while considering the capital adequacy ratio (CAR) for the financial year 2016-17 and therefore is no impact on CAR post redemption.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs.14561.52 crore in foreign exchange business as against Rs.14277.44 crore in the previous year. The outstanding advances to export sector stood at Rs.1631.02 crore as on March 31, 2017.
NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Bank has been focusing on containing the nonperforming assets through better credit monitoring as well as intensified efforts to recover the impaired assets. However, in view of the continuing slowdown in the economy and delinquencies in select sectors, the Bank''s Gross NPAs as on March 31, 2017 has increased from Rs.1180.40 crore (3.44 per cent) to Rs.1581.59 crore by the year end (4.21 per cent). The Net NPAs stood at Rs.974.73 crore (2.64 per cent) as against Rs.795.47 crore (2.35 per cent) as on 31st March 2016. However, Provision Coverage Ratio (PCR) improved to 54.00 percent as on March 31, 2017 from 48.39 per cent as on March 31, 2016.
SEGMENT REPORTING
Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting), the Bank has identified four business segments viz., Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations for the year ended 31st March 2017 as under:
Treasury Operations
During the year ended 31st March 2017, your Bank has earned total revenue of Rs.1642.55 crore from Treasury operations with a contribution of Rs.442.87 crore to profit before tax and un-allocable expenditure.
Corporate / Wholesale Banking
The revenue earned by the Bank during the year under report from this Segment was Rs.1814.36 crore with a contribution of Rs.-56.12 crore to profit before tax and unallocable expenditure.
Retail Banking
During the year 2016-17, this Segment has earned revenue of Rs.2281.72 crore with a contribution of Rs.165.19 crore to profit before tax and un-allocable expenditure.
Other Banking Operations
During the year ended 31st March 2017, this segment has generated revenues of Rs.256.11 crore with a contribution of Rs.34.23 crore to profit before tax and unallocable expenditure.
MANAGEMENT DISCUSSION AND ANALYSIS
The financial year 2016-17 evidenced revelation both in the international and national scenarios. The international events included political changes in the Advanced Economies (AE), fluctuations in the crude oil prices, unsettled global political climate in some of the countries etc. Factoring the international developments, India also witnessed exchange rate fluctuations, sluggish growth leading to slower pace of exports, impact on consumer prices due to fluctuations in the oil prices etc.
In order to contain the rising incidence of fake notes and black money, on 08.11.2016 the Government of India withdrew legal tender of specified bank notes (SBNs) (i.e. denominations of Rs.500 and Rs.1000) issued by the Reserve Bank of India and subject to certain conditions, SBNs held by a person could have been exchanged at the branches of Reserve Bank of India, public sector banks, private sector banks etc., up to December 30, 2016. During the said period, Bank played a crucial role in making the Government action successful and impact of demonetization was transitional in nature and momentum across all sectors has started picking up since February 2017.
The headline inflation declined to lowest levels during November 2016-January 2017. Drop in the prices of vegetables and pulses leading to downward trend in the inflation was visible during immediate months of post demonetization. This was due to cash intensive transactions in the agri-commodities in the market.
However, remonetization started firming up in the month of January 2017 leading to firmer food and fuel prices which drove the overall inflation in the month of February i.e. Consumer Price inflation showed an upward trend and stood at 3.81 per cent in March 2017 as against 3.65 per cent in February 2017 as against 3.17 per cent in January 2017. Pace of remonetization, increase in oil prices are some of the reasons for upward trend in the CPI.
With the Central Statistical Officeâ provisional estimates for 2016-17, real GVA growth for 2017-18 have been projected at 7.3 per cent. Growth in the services sector and industry and also implementation of uniform GST and other structural reforms, is expected to take the GVA rate to the expected level. Reserve Bank of India has revised the inflation to an average 4 per cent for the medium-term target of the FY 2017-18. Key upside risks to inflation on the domestic front includes uncertain monsoons, 7th Pay Commission impact, gap in government deficit led by states etc. besides, fluctuations in the international crude oil prices, volatility in the global financial markets, rise in international commodity prices etc.
DEVELOPMENTS IN THE BANKING SECTOR
The overall growth in bank deposits and credit during the year remained sluggish especially during the second half of the financial year 2016-17. Banks faced unexpected surge in the flow of cash into their vault due to demonetization move by the Government. The credit off take witnessed downward trend. Post January 2017, the remonetization started picking up, which resulted in credit growth again and improvement in the consumption.
Banking sector as such, credit expanded by 5.1 per cent while deposits grew by 11.8 per cent in the financial year 2016-17. Banking sector was embroiled in NPA issues which dissuaded growth of credit to industry. On the whole, the distressed assets is posing serious problems and the Central Government, Regulator & banks are making coordinated efforts to control the said menace.
In the recent past good number of Fin-tech companies, small finance banks, payment banks, start up companies etc have emerged in the Indian financial sector and your bank treats it as an opportunity for cooperation and collaboration in furthering the agenda of financial inclusion wherever necessary.
OPPORTUNITIES
Based on the prediction of normal monsoon, considering the pace of remonetization, the economic growth is projected at 7.3 per cent. The Governmentâs thrust on infrastructure development besides technological advancement in the manufacturing sector may open up avenues to Banks to finance these projects. The improved employment in the country, higher income levels etc. augur well for the long term sustainable growth of retail lending in the Indian market. Governmentâs inclusive growth agenda may also bring additional business to banks.
The biggest opportunity for the Indian banking system today is the Indian consumer. Demographic shifts in terms of income levels and cultural shifts in terms of lifestyle aspirations are changing the profile of the Indian consumer. This is regarded as key driver of economic growth going forward. The focus of Union Budget 2017-18 on reviving the rural economy and doubling rural income could support rural consumption demand more enduringly going forward which may ultimately lead to increased business opportunities for banks.
With an aim to promote digital payments and less-cash society, several initiatives are being taken by the Government of India. With the help of optimum utilization of technology and telecommunication system, ground-breaking methods are being encouraged for financial transactions such as Aadhar Enabled Payment Systems (AEPS), Unstructured Supplementary Service Data for feature phone based financial transactions (USSD), Mobile wallets, Unified Payments Interface (UPI) etc. and your Bank perceives ample opportunities to participate in the digital banking movement.
In order to consolidate the laws relating to insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner, the Government of India notified the âInsolvency and Bankruptcy Code, 2016â (Code) on 28.05.2016. The code defines the institutional framework, operative guidelines, adjudicating procedures for time bound insolvency resolution process and liquidation. With the implementation of the Code, Indian lending system gets advantages in dealing with stressed assets.
OUTLOOK
With the technological advancement sweeping the banking industry leading to steady migration to digital banking, the operational landscape of Banks is likely to change for the better enhancing cost effectiveness and productivity. With the expected growth in the GDP and improvement in export momentum, coupled with the growing service industry, good monsoon etc., there are great opportunities for the banks to improve their business. However, the continued deterioration in assets quality is haunting the banks and your bank is hopeful of containing the NPAs through vigorous monitoring efforts. The recovery of NPAs is also expected to be aggressive. Further, ordinance to amend the Banking Regulation Act, 1949 promulgated by the Honâble President of India in the month of May 2017 is a positive move for the overall banking industry.
RISKS AND CONCERNS
In the normal course of business, banks are exposed to various risks, namely, Credit Risk, Market Risk and Operational Risk, besides other residual risks such as Liquidity Risk, Interest Rate Risk, Concentration Risk, Strategic Risk, Reputation Risk etc. With a view to efficiently manage such risks, your Bank has put in place various risk management systems and practices. In line with the guidelines issued by the Reserve Bank of India from time to time, your Bank continues to strengthen various risk management systems that include policies, tools, techniques, systems and other monitoring and forewarning mechanisms.
Your Bank aims at enhancing and maximizing the shareholder value by achieving appropriate trade-off between risks and returns. Your Bank''s risk management objectives broadly cover proper identification, assessment, measurement, monitoring, controlling, mitigation and reporting of the risks across various business segments of the Bank. The risk management strategy adopted by your Bank is based on a clear understanding of the risks and the level of risk appetite, which is dependent on the willingness of your Bank to take risks in the normal course of business. A Board level committee, viz., Integrated Risk Management Committee periodically reviews the risk profile, evaluates the overall risks faced by the Bank and develops policies and strategies for its effective management.
Various senior management committees such as Credit Policy Committee (CPC), Asset-Liability Management Committee (ALCO), Operational Risk Management Committee (ORMC) etc operate within the broad policy framework of the Bank to ensure and enhance the risk control and governance framework within the Bank.
The Risk Management Department at Head Office oversees the overall implementation of various risk management initiatives across the Bank.
In line with the guidelines issued by RBI, your Bank has implemented the New Capital Adequacy Framework and is Basel II compliant with effect from March 31, 2009, by adopting the basic approaches available under the guidelines. While complying with all the requirements of the basic approaches under Basel II, your Bank has taken the necessary steps to move over to Basel II Advanced Approaches as per the Road Map approved by the Bank''s Board in this regard. As a part of the Basel III, Pillar III -Market Disclosure requirement, your Bank has made a detailed Pillar III Disclosure, which is appended to this report as Annexure II. The Bank conforms to the Basel III guidelines from April 1, 2013 and has also assessed the future capital impacts.
In compliance with Basel guidelines, the Bank has put in place a policy document for Internal Capital Adequacy Assessment Process (ICAAP) to evaluate its capital adequacy relative to its risks. Stress testing framework for various stress scenarios is also put in place for better understanding of the likely impact of adverse market movements/events on the capital and earnings. The results of the ICAAP and Stress testing are reviewed periodically to assess the capital requirement for the projected business growth, keeping in view the risk appetite and risk profile of the Bank. A Board level committee, viz., Internal Capital Adequacy Assessment Committee (ICAAC), reviews the risk appetite, risk profile, business projections as well as capital assessment of your Bank at periodical intervals
To evaluate and review the performance of various business units/ products/ customers etc, your Bank has introduced a scientific Fund Transfer Pricing (FTP) and Customer Profitability Management System (CPMS) for better management of risk and return. FTP & CPMS enable the Bank to assess the profitability at various levels like branch, product, customers, accounts, regions etc. The system enables the Bank to perform various profitability related analysis and helps the Bank to make more business-focused decisions to increase the long-term profitability.
For continuous monitoring of customer induced transactions under various Alternate Delivery Channels (ADC) and Core Banking Solution (CBS), your Bank has implemented Enterprise Level Fraud Risk Management System (ELFRMS) in September 2016. This is an automated transaction monitoring system for detection of frauds in customer accounts. Based on a range of scenarios, various alerts triggered by the system are monitored by ELFRMS team from various risk and fraud angles. The system acts as a check on potential fraud incidents as a preventive measure and is intended to identify the potential fraudulent transactions covering various channels like internet banking, mobile banking, debit card, POS, CBS etc on real time basis, based on predefined probable fraud scenarios.
In line with guidelines issued by RBI, your Bank has nominated a Chief Information Security Officer (CISO), who is responsible for articulating and enforcing the policies that Bank uses to protect the information assets apart from coordinating security related issues in implementation of new systems under Information Technology in the Bank.
KBL VISION 2020
Your Bank has adopted the KBL Vision 2020, a five year business plan guiding the path of the Bank for achieving set goals. Bankâs Vision 2020 document reflects the aspirations of all the stakeholders for achieving various targets by taking advantage of emerging opportunities, upgrading IT infrastructure, strengthening audit, vigilance and risk management practices and compliance culture and taking steps to improve efficiency of people, processes and products by continuously evolving new strategies and policies and create value for its shareholders by optimally utilizing capital resources. As per the KBL Vision 2020 document, Bankâs total business turnover is projected to increase to Rs.1,80,000 crore with deposits of Rs.1,00,000 crore and advances of Rs.80,000 crore by March 2020 besides recording significant improvement in key financial parameters. Bank is moving progressively towards reaching above targets.
DISTRIBUTION NETWORK
During the year under report, your Bank opened 40 new branches in 9 States - one each in the States of Punjab and West Bengal, 2 each in the states of Andhra Pradesh, Delhi [U.T], Kerala and Tamil Nadu, 3 in Gujarat, 4 in Maharashtra and 23 in Karnataka. Out of these 40 branches, 10 branches [9 in the state of Karnataka and one in Kerala] have been opened in Unbanked Rural Centres under Financial Inclusion Initiatives of the Bank. Further, your Bank has added 117 ATM outlets at various locations during the year 2016-17. Your Bank has also 24X7 e-lobby/mini e-lobby facility at 110 locations. Bank also has 10,314 POS (Point of Sale) machines across India (Previous year 3123 POS machines).
As at 31st March 2017, your Bank had 2,148 Service Outlets i.e. 765 branches, 1,380 ATMs and 3 extension counters spread across 21 States and 2 Union Territories. Apart from the above, your Bank has 12 Regional Offices, an International Division, a Data Centre, a Customer Care Centre, 4 Service branches, 2 Currency Chests, 2 Central Processing Centres and 3 Asset Recovery Management branches.
Further, for better ambience and improved customer service, your Bank shifted 17 branches/offices to new premises during the year 2016-17.
CUSTOMER SERVICE
Every customer is important to us. Keeping this in mind, several customer-centric initiatives have been introduced by your Bank during the year under report. To improve customer service and to reduce waiting time of customers at branches, Bank has rolled out the Single Window Service concept on a trial basis at 20 branches during 2016-2017. The Single Window Service for non-cash transactions with Queue Management System (QMS) has helped in reducing the processing time at branches. Your Bank also introduced the New Pension Scheme (NPS) for the unorganized sector and facilitated investment to Sovereign Gold Bond Scheme-2016-17.
Bank is actively involved in putting in place systems and procedures to comply with the recommendations of the Damodaran Committee on Customer Service, constituted by the Reserve Bank of India, to look into the banking services rendered to customers and the grievance redressal mechanism prevalent in banks. Your Bank has complied with all the recommendations made by the said Committee.
Being a member of the Banking Codes and Standards Board of India (BCSBI), your Bank adheres to standards of banking practices while dealing with individual customers and micro and small enterprises. BCSBI conducts survey of select branches of the member bank from time to time and provide its âCode Compliance Ratingâ and your Bank is ranked 17th amongst 51 banks considered for the study during the year 2016-17.
DIGITAL BANKING
Bank has adopted the strategy of âManaging Channels instead of Managing Branchesâ and is always pioneer in adopting technology driven delivery channels i.e., digital channels and bringing out innovations & value additions in its existing digital channels. The major digital initiatives taken by the Bank during the FY 2016-17 are:
- Introduction of âKBL POS Managerâ Android mobile app for POS merchants to keep track of in-store transactions;
- Mobile Banking App âKBL mobileâ to ensure instantaneous remittance;
- âKBL SMARTzâ Android mobile App on Unified Payments Interface (UPI) platform of NPCI facilitating Interoperability, Push - Pull Payments & fund transfer through virtual address;
- Fincale e-Banking Application (FEBA) with a host of new features such as IMPS, bulk upload, online term deposit account opening, dashboard etc.
- RuPay International Platinum Debit Card for privileged customers of the Bank with enhanced withdrawal / purchase limit coupled with bundled offers
- Co-branded credit Card in collaboration with State Bank of India
Apart from the above, Bank has also introduced âKBL Loan Junctionâ for submission of online loan application. Besides, in order to promote entrepreneurship amongst SC/ST, women, schemes viz. âStart-up Indiaâ, âStand-up Indiaâ were introduced. âKBL Contractor Mitra â; KBL Commodity pledge Loan were the other new Schemes initiated during the year. Your Bank will continue to put efforts in the direction of introducing products/services to cater to the needs of present and prospective customer base and to be a âone-stop-shopâ for all financial requirements.
PARA-BANKING ACTIVITIES
With an aim to provide diversified financial products and services and to maximize value addition to the customers, your Bank provides para-banking third party products such as Bancassurance, Mutual Funds, Online Trading etc and during the year under report, Bank has tied up with 5 institutions.
AWARDS AND RECOGNITIONS
Your Bank bagged the following awards during the year under report in recognition of its achievement under technology initiatives, social banking, export performance etc.
- ASSOCHAM Social Banking Excellence Awards 2016, under Small Banks category, received on 03-03-2017
1. Winner - Government Schemes.
2. Winner - Priority Sector Lending
3. Runner up - Agricultural Banking.
4. Runner up - Overall Best Social Bank.
- IBA - Banking Technology Awards 2017, under the following categories.
1. Winner - Best Financial Inclusion Initiatives (Small Bank category).
2. Runner up - Best use of Digital and Channels Technology (Small Bank Category).
- "Best MSME Bank Award 2016" under Private Sector, instituted by the Associated Chambers of Commerce & Industry of India (ASSOCHAM), New Delhi, received on 06-12-2016.
- FIEO - Southern Region Export Excellence Award : Best Financial Institution (Southern Region) for the support extended to Export Business, for the year 2013-14 under the Gold Category, instituted by Federation of Indian Export Organizations, received on 08-10-2016.
- Greentech Safety Award 2016 - GOLD AWARD, for significant achievements made in the field of safety and security, instituted by Greentech Foundation, received on 29-08-2016.
- "Certificate of Special Mention for use of Technology for Financial Inclusion among small banks" instituted by IDRBT, received on 18-07-2016.
- CFBP Jamnalal Bajaj Awards 2015 for Fair Business Practices - Certificate of Merit under the category "Service Enterprises - Large", received on 14-06-2016.
- Award of Excellence for Outstanding Performance in MSME Funding, instituted by Federation of Industry Trade & Services [FITS], received on 03-05-2016.
FINANCIAL INCLUSION
Financial Inclusion means making available the full range of banking services at an affordable cost to the people who do not have access to banking services. It mainly focuses on the section of society not having formal financial institutional support. Through the
Financial Inclusion Plan, Bank aims at ''connecting people'' with the Bank and not just opening accounts. This includes meeting the small credit needs of the rural public, giving them access to the payments system, providing remittance facility and life and health insurance. Efforts are being made to optimize the resources to achieve the goal of extending banking facilities to the unbanked areas/deprived sections.
All the branches of the Bank are under Core Banking Solution (CBS) and all the branches to be opened in future will also be under CBS. Out of 765 branches, Bank has 174 rural branches and all these branches are provided with CBS offering all banking facilities to the rural clientele in the gram panchayats or villages where these branches are located. All the rural branches are also acting as Financial Literacy Centers (FLCs) and imparting Banking literacy among the rural Populace.
In accordance with announcement of Prime Minister Jan Dhan Yojana (PMJDY) on August 15, 2014 revised Strategy & Guidelines of Department of Financial Services (DFS), Ministry of Finance, Govt. of India, has been considered for implementation of Financial Inclusion activity of the Bank. PMJDY takes in to account both rural sub service areas (SSAs) and urban wards for Financial Inclusion. Under the revised financial inclusion plan, in rural areas, Bank is allocated with 214 Gram Panchayats (GPs) for Financial Inclusion, covering 297 Sub service Areas (SSAs) consisting of 1039 villages in the states of Karnataka, Chattisgarh, Maharashtra and Andhra Pradesh and in urban areas, 313 wards are allocated in Karnataka and other States. The Gram Panchayats are being financially included through Brick and Mortar Branches and Business Correspondents (BC). Your Bank has been issuing RuPay PMJDY Debit Cards under the domestic card payment scheme launched by the National Payments Corporation of India (NPCI) and has also introduced Aadhaar Enabled Payments System (AEPS) at all BC locations of the Bank.
BRICK AND MORTAR BRANCHES:
As on March 31, 2017 Bank has covered 547 villages of 105 GPs through Brick & Mortar Branches.
BUSINESS CORRESPONDENT SERVICES (BC SERVICES):
Bank has entered into an agreement with M/s BASIX Sub-ki Transaction Ltd and M/s Integra Micro Systems Pvt. Ltd. to provide online transaction facility and as on March 31, 2017, 113 GPs with 141 SSAs covering 517 villages of Karnataka, Andhra Pradesh and Chhattisgarh States were covered under the above arrangement.
ULTRA SMALL BRANCHES (USBs):
As permitted by the Reserve Bank of India Bank had opened USBs where business correspondents (BCs) could conduct operations and thereby boost confidence of customers to use their financial services. As on 31st March 2017, your Bank has 37 USBs.
ELECTRONIC BENEFIT TRANSFER (EBT) - PILOT PROJECT OF GOVT. OF KARNATAKA:
Bank is participating in Govt. of Karnataka (GOK) EBT Pilot project for NREGA/SSP beneficiaries under - âOne District - Many Bank Modelâ and is disbursing the payments under the above schemes to the beneficiaries using smart card and hand held machines at 5 Gram Panchayat locations in Chitradurga and Yadgir districts.
DIRECT BENEFIT TRANSFER (DBT):
Bank is actively participating in Direct Benefit Transfer (DBT) Programme of Govt. India, wherein, the Govt. would transfer benefits of various Schemes directly to the beneficiaries Aadhaar enabled bank accounts and also accounts seeded with LPG ID in case of transfer of subsidy for LPG. For this purpose, Bank has on boarded with NPCI for Aadhaar Payment Bridge System (APBS) under National Automated Clearing House (NACH). Revised DBTL was introduced on November 15, 2014 and launched throughout the country on January 1, 2015. Both the Aadhaar based and LPG ID based approaches are made available to customers across all branches of the Bank.
FINANCIAL LITERACY AND CREDIT COUNSELING CENTERS(FLCCS)
Bank has sponsored 5 FLCs at B.C Road, Tiptur, Hangal, Kundagol and Alur in a joint venture with M/s Jnana Jyothi Financial Literacy and Credit Counseling Trust, Manipal. During the financial year 5 FLCs sponsored by the Bank have conducted 1227 Financial Literacy campaigns and 50024 participants had been covered. In adherence to RBI guidelines all the rural branches of our Bank are also conducting financial literacy Camps.
SOCIAL SECURITY SCHEMES:
Three Social Security Schemes- Prime Minister Jeeven Jyothi Bima Yojana (PMJJBY), Prime Minister Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) have been launched by Honâble prime Minister on 1st June 2015. All the branches of your Bank are actively involved in providing the above benefits of the schemes to the customers across the country.
1) PMJJBY provides life Insurance coverage of Rs.2,00,000/- by paying yearly premium of Rs.330/-. A person aged between 18 to 50 years holding account in a bank is eligible for the scheme. A total of 1,36,200 lives have been covered till 31.03.2017.
2) PMSBY provides Accidental insurance coverage of Rs.2,00,000 by paying yearly premium of Rs.12/-. A person aged between 18 to 70 years holding account in a Bank is eligible for the scheme. A total of 1,99,390 lives have been covered till 31.03.2017
3) APY : This scheme was launched by the Government of India on 9th May, 2015 to address the old age income security needs of the citizen in an affordable manner linked to auto debit facility from the bank''s savings account of the subscriber. Your Bank is actively participating in the scheme, with all branches being registered as Point of Presence-Service Provider (POP-SP) for APY. As on 31-32017 Bank has opened 23181 APY accounts.
PRIME MINISTER JAN DHAN YOJANA (PMJDY):
In accordance with announcement of Prime Minister Jan Dhan Yojana (PMJDY) on August 15, 2014, revised Strategy & Guidelines of Department of Financial Services (DFS), Ministry of Finance, Govt. of India, has been considered for implementation of Financial Inclusion activity of the Bank. PMJDY takes in to account both rural, semi urban, urban wards and metro for providing basic banking facilities to the unbanked populace. PMJDY also provides scope for RuPay debit card that is inclusive of Rs.1 lakh accidental insurance.
All the branches across the country have opened accounts under PMJDY and are issuing RuPay Debit Card under the domestic card payment scheme launched by the National Payments Corporation of India (NPCI).
A total of 25,10,929 accounts have been opened under PMJDY since 15.08.2014 till 31.03.2017, with outstanding balance of Rs.2545.80 crore. A total of 2,09,197 RuPay cards have been issued so far by the Bank.
AADHAAR ENABLED PAYMENT SYSTEM (AEPS):
The Bank has introduced AEPS transaction services offered by National Payments Corporation of India (NPCI) at all Business Correspondent (BC) locations of the Bank. Any bank customer having any type of SB account that is Aadhaar enabled can now transact at the BC point.
CORPORATE SOCIAL RESPONSIBILITY
Businesses play an important role in the growth of an economy. The growth of the economy becomes meaningful only when it translates to the welfare of the society. Towards this end, business establishments have to align their objectives in such a way that they also contribute to the development of the society with special concern for uplifting the marginalized sections of the society. The Corporate Social Responsibility initiatives of the Bank are designed to ensure that the Bank adds social, environmental and economic value in all its activities to make a positive, sustainable impact on both society and business. In this direction, your Bank has been responding well over the years through various social initiatives and has identified some core areas of intervention like healthcare, education/ livelihood enhancement, empowering women/ socially and economically disadvantaged, environmental sustainability/ green initiatives, protection of heritage/culture, promotion of sports, rural development etc. aimed at improving the overall development of the society. Further, to minimize the urban - rural divide, your Bank has been strengthening its rural orientation through initiatives aimed at imparting financial literacy and extending banking services to the people in rural unbanked areas, in a fair and transparent manner, at an affordable cost.
Further, pursuant to Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board has setup a Committee of Directors namely, ''Corporate Social Responsibility (CSR) Committee'' and has also put in place a Policy on Corporate Social Responsibility (CSR Policy) to undertake projects/programmes in pursuance to the above
Policy. The contents of the CSR Policy along with the report on amount spent on various projects/programmes during the financial year 2016-17 is detailed in Annexure VI to this report pursuant to Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014
BUSINESS RESPONSIBILITY REPORTING:
In terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, your bank is one of the Top 500 listed entities based on the market capitalization as on March 31, 2016, and is required to report Business Responsibility Reporting describing the initiatives taken by the Bank from an environmental, social and governance perspective as per the format prescribed by SEBI which is enclosed as Annexure VIII.
INTERNAL CONTROL SYSTEMS, THEIR ADEQUACY AND COMPLIANCE
An effective and sound internal audit function provides independent assurance to the board of directors and senior management on the quality and effectiveness of Bankâs internal control, risk management and governance systems and processes, thus helping the board and the senior management in protecting the organization and its reputation.
Your Bank has put in place an effective and robust internal control apparatus, commensurate with its size, geographical spread and complexity of operations. At the apex level, guidance and direction on the control aspects is vested with the Audit Committee of the Board of Directors which takes an overall view on the internal control aspects and formulates all the related policy guidelines. The Bank has put in place an independent Compliance Department in charge of the entire compliance functions of the Bank.
Historically, the internal audit system in the Bank has been concentrating on transaction testing, testing of accuracy and reliability of accounting records and financial reports, integrity, reliability and timeliness of control reports and adherence to legal and regulatory requirements. With the implementation of Risk-Based Internal Audit (RBIA), greater emphasis is placed on the internal auditor''s role in mitigating various risks. While continuing with the traditional risk management and control methods involving transaction testing etc., the risk-based internal audit would, not only offer suggestions for mitigating current risks but also on potential future risks, thereby playing an important role in the risk management process of the Bank.
The risk assessment under RBIA would cover risks at various levels (corporate and branch; portfolio and individual transactions etc.) as also the processes in place to identify, measure, monitor and control the risks. The internal audit department is devising the RBIA risk assessment methodology, with the approval of the Board of Directors, keeping in view the size and complexity of the business undertaken by the Bank. The risk assessment process would include the identification of ''inherent business risks'' in the various activities undertaken by the Bank, and evaluate the effectiveness of the control systems for monitoring the inherent risks of the business activities (''Control Risk'') and then draw up a risk-matrix by taking into account both the factors viz., inherent business and control risks.
In pursuance of seeking periodic assurances on the adequacy and efficacy of internal control functions, the Bank causes periodic Regular Inspections and Information System (IS) Audit of all the branches and offices. Besides, your Bank also covers select branches under concurrent audit, the aggregate turnover of which account for over 64.03% of the gross bank credit and over 50.37% of aggregate deposits of the Bank. Short Inspection of all the branches which are not subjected to concurrent audit is also caused besides, concurrent audit of treasury functions (both domestic and forex), International Division, Forex designated offices, Central Processing Centre, Currency Chests, Information Systems audit of Data Centre and DR Site etc. Besides, the Bank has also been causing Stock and Credit audits of large borrowal accounts by external, professional audit firms in furtherance of effective credit administration. The Bank has also taken prompt action on the implementation of the RBI Guidelines on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds.
To appraise the effectiveness of management at different levels in accomplishing the assigned tasks towards achieving the overall corporate objectives, Management Audit is also introduced by your Bank for Departments at Head Office & Regional Offices.
Your Bank has put in place the policies and procedures for ensuring orderly and efficient conduct of its business, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable and transparent financial information. The Audit Committee of the Board periodically assesses the effectiveness of the internal financial controls and their adequacy and issues directions for its strengthening wherever found necessary.
Your Bank is in the process of automating the internal audit processes during the year 2017-18.
Considering the need for having a strong collection mechanism and to contain slippages of borrowal accounts into NPAs and improve asset quality, the Credit Monitoring Department at Head Office and Credit Monitoring teams at Regional Offices ensures adherence of post sanction compliance requirements and follow up of advance through effective control and communication mechanisms.
ECONOMIC AND STATISTICAL RESEARCH CELL
Under the ever-changing business environment and to stay ahead of times in terms of product and services offering, and pricing and positioning, your Bank has setup an âEconomic & Statistical Research Cellâ at the Head Office to provide strategic inputs to the Management in devising policies and also suggestions to various business units in the matter of pricing, costing, product launching, positions etc.
CENTRALISED PAYMENT & RECONCILIATION CELL
To enable timely reconciliation of various transactions carried out through technology enabled payment channels like NEFT, RTGS, IMPS, UPI etc happening within the Bank and between banks and the settlement of these transactions between banks, a separate centralized cell is functioning at the Head Office.
RISK BASED SUPERVISION (RBS)
In view of the growing complexities in the processes, product offerings and systems & procedures in the Indian banking sector, pursuant to the recommendation of the High Level Steering Committee, Reserve Bank of India has shifted supervisory stance to risk-based approach called Supervisory Program for Assessment of Risk and Capital (SPARC) which is focusing on evaluating both present and future risks, identifying incipient problems and facilitating prompt intervention/ early corrective action etc. Your Bank has been included under the same and migrated to Risk Based Supervision since 31st March, 2015 and the system is working satisfactorily. A plan of action for monitoring various risks as advised by RBI has also been put in place.
COMPLIANCE FUNCTION
As an important element in Corporate Governance structure, the Bank has set up a robust Compliance department with sufficient independence to promote healthy compliance culture within the Bank. The compliance function in the Bank ensures strict observance of all statutory provisions, guidelines from RBI & other regulators, standards and codes prescribed by regulatory bodies besides Bank''s internal policies and fair practices code. Further, the compliance function includes interpretation/ dissemination of regulatory and statutory guidelines, observing proper standards of market conduct, managing conflicts of interest and treating customers fairly. The Bank''s compliance function assists the top management in managing the Compliance Risk effectively. The risk- based compliance programme of the bank, under the supervision of head of compliance department, ensures appropriate coverage across businesses and coordination among risk management functions besides verifying the level of compliance through ''Compliance Testing'' of branches. The Bank carries out an annual compliance risk assessment to identify and assess major compliance risks faced by it and takes steps to manage the risks effectively.
MANAGEMENT INFORMATION SYSTEM
The growth of Bankâs business, introduction of prudential norms and Basel requirements, increasing regulatory and internal reporting and the various business decision making requirements have necessitated the Bank to build a well-coordinated information transmission system. Management Information System makes available information for various requirements of branches/offices, top management, regulators and external agencies, Balance sheet reporting, Capital computation, Risk based supervision, Internal business reviews etc. The Bank has also implemented a Centralized Data Repository for Automatic Data Flow to RBI.
INFORMATION TECHNOLOGY
The Core Banking System (CBS) covers all the branches and offices of the Bank as on 31.03.2017. Alternate delivery Channels like ATM, Internet Banking, Mobile Banking, UPI App etc., have also been integrated with CBS. Disaster Recovery (DR) facilities for all the critical applications are established to ensure business continuity in the event of primary site failure. A three-way data replication aimed at zero data loss is also implemented for applications such as CBS, ATM, and Internet Banking.
The other technology enabled initiatives include the Asset Liability Management System (ALM), Central Data Repository (CDR), Lending Automation Processing Solution (LAPS) and Anti Money Laundering (AML) system, Mobile Banking, Integrated Treasury, Interactive Voice Response (IVR) System, Solutions for managing Market Risk and Operational Risk etc.
During the year under report, your Bank has undertaken several IT projects like setting up of new primary/secondary sites for SWIFT application, New switches for ATM and Card Management, Newer version of e-Banking platform, Live video streaming from Head Office to the entire bank workforce, Aadhar Enabled Payment System (AEPS), MicroATM management via FI (Financial Inclusion) Gateway, Alternative Network Lines for important business centres for ensuring business continuity, Introduction of Centralized Account Verification (CAVC) Process. Your Bank will continue to observe technological revolutions and take appropriate decision at the right time to provide premier banking services.
With a view to enhance security measures under digital banking, Enterprise Level Fraud Risk Management Solution has been implemented.
Further, in view of increased dependency on IT products and services and also increase in the volume of fraud/attacks observed in the industry, Bank has put in place a robust âCyber Security Policyâ and also initiated steps to further strengthen its IT, Cyber, and Information Security systems by putting in place required hardware/software/appliances in line with the industry best practices.
HUMAN RESOURCES
The Banking industry across the country is now being exposed to various changes which have a direct impact on the existing systems and sphere of activities. The survival and prosperity of any industry depends upon the quality of its human resource and banking industry is not an exception to this. Accordingly, your Bank attributes the greatest importance to human resource development activities.
Your Bank deputes its employees to various training and development programmes to upgrade their skills and competencies and contribute towards the growth of the Bank. The Bank has a well-established Staff Training College having state of the art infrastructure facilities and expertise in conducting training programmes. Besides, Officers requiring specialized training are being deputed to various programmes conducted at Southern India Banksâ Staff Training College, Bangalore, National Institute of Bank Management, Pune, Reserve Bankâs College of Agricultural Banking, Pune, Institute for Development and Research in Banking Technology, Hyderabad etc. During the year 2016-17, the Bank has deputed the employees to various trainings/workshops/ conferences to update/improve their knowledge. There were 1517, 378 and 192 nominations to various programmes in the category of Officers, Clerks and Substaff respectively during the year under report.
As on 31st March 2017, Bank had 7982 employees. The Business per employee (excluding interbank deposits) has improved from Rs.10.83 crore as on 31st March 2016 to Rs.11.74 crore as on 31st March 2017. Further, your Bank has maintained cordial industrial relations.
Your Bank has put in place an institutional mechanism for protection of women employees at the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, providing for protection of women employees against the sexual harassment of women at the workplace and redressal of such complaints. The details of the complaints under the above Policy for the year under report are as under:
Number of complaints pending as at the beginning of the financial year |
NIL |
Number of complaints filed during the financial year |
NIL |
Number of complaints pending as on end of the financial year |
NIL |
VIGIL MECHANISM
The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) since the year 2007 intended to promote participation of employees at all levels and detection of corruption, misuse of Office, criminal offences, suspected /actual fraud, failure to comply with the rules and regulations prescribed by the Bank and any events /acts detrimental to the interest of the Bank, depositors and the public resulting in financial loss/operational risk, loss of reputation etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower who avails such mechanism and also provides for direct access to the Chairman of the Audit Committee, in exceptional cases. The Vigil mechanism is reviewed periodically. The details of Whistle Blower Policy is posted in our website and available at the link www.karnatakabank.com /ktk/ Protected Disclosure.jsp
EMPLOYEE STOCK OPTION SCHEME (ESOP)
Your Bank had implemented Employee Stock Option Scheme (ESOS 2006) and during the year under report, a total of 13,060 equity shares were allotted to the employees under the scheme. Out of the total 15,00,000 stock options granted, 12,09,834 options were exercised and the balance 2,90,166 options lapsed due to non-exercise of the options vested in the employees. The employee stock option scheme had exercise period of 5 years from the date of last vesting date and accordingly, the scheme has come to an end on 19.10.2016, upon completion of 5 years period. Disclosure in respect of Employee Stock Options Scheme pursuant to SEBI Regulation/ guidelines is given in Annexure I to this report.
âIND ASâ IMPLEMENTATION
As per the roadmap given by Reserve Bank of India (RBI), transition to "Ind AS" in banks will commence from the accounting period beginning April 1, 2018 onwards.
STRATEGY FOR âIND ASâ IMPLEMENTATION IN THE BANK:
In order to facilitate effective Ind AS implementation in your bank, the Audit Committee of the Board has laid out the strategy for convergence and implementation of Ind AS in the Bank, which includes -
a) Diagnostic study to find out the differences between the current accounting framework and Ind AS framework.
b) Evaluating business impact on profitability, budgeting, taxation, Capital planning and Capital adequacy
c) Identifying issues having significant impact on information systems including Information technology (IT) Systems.
d) Developing/ strengthening Data capturing systems for Data analytics and Data Mining
e) Analyse impairment issues, revaluation of assets, documentation and disclosure requirements.
f) Explore the possibilities of availing the services of external resource persons/ firms in connection with implementation of Ind AS
Your Bank has set up a Steering Committee headed by the Managing Director, to facilitate the Ind AS implementation process in the Bank. M/s Ernst & Young have been appointed to provide assurance services for Ind AS implementation, to carry out diagnostic study and to provide consultancy in the preparation and submission of Proforma Ind AS Financial statements to RBI beginning from half year ended September 30, 2016, onwards. In this regard, your bank has duly submitted the Proforma Ind AS Financial statements for the half year ended September 30, 2016, after obtaining the approval of the Audit Committee of the Board. Further, your Bank would proceed to carry out the strategy laid out by its Audit Committee of the Board, for facilitating effective and successful implementation of Ind AS on the transition date in accordance with the relevant guidelines.
DIVIDEND DISTRIBUTION POLICY
During the year under report, your Bank has adopted a Policy on distribution of Dividend to the shareholders pursuant to the Regulation 43A of the SEBI (LODR) Regulations, 2015. Gist of the Dividend Distribution Policy is as under:
- Being a Banking entity, Dividend Distribution Policy is guided by the RBI Circular DBOD.No.BP.BC.88 21.02.67/2004-05 dated May 5, 2005 with regard to eligibility criteria for distribution of dividend.
- Factors considered for recommendation of dividend include both internal factors such as financial performance, dividend payout trends, tax implications, corporation actions and external factors such as shareholders expectations, macro environment.
- Factors considered for determining the quantum of dividend include financial performance, capital fund requirements to support future business growth, having regard to the dividend payout ratio prescribed under the aforesaid RBI Guidelines.
The Dividend Distribution Policy of the Bank is hosted on our Bank''s website.
DIRECTORS AND CHANGES IN THE BOARD
As on March 31, 2017, your Bank had a total of eight Directors, including a woman director. All of them, except Mr.D Surendra Kumar, Additional Director and Mr. P Jayarama Bhat, Managing Director and CEO, are Independent Directors. The details of the criteria for appointment and remuneration of Directors are provided in the report on Corporate Governance forming part of this report. During the year under report, five directors retired from their office as under:
Sl. No. |
Name of the Director |
Designation |
Remarks |
|
Mr. T R Chandrasekaran |
Independent Director |
Retired on 09.06.2016 upon attainment of upper age limit of 70 years as per RBI Guidelines. |
2 |
Mr. S V Manjunath |
Independent Director |
Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A (2A) of Banking Regulation Act, 1949 |
3 |
Mr. D. Harshendra Kumar |
Independent Director |
Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A (2A) of Banking Regulation Act, 1949 |
4 |
Dr. H. Ramamohan |
Independent Director |
Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A(2A) of Banking Regulation Act, 1949 |
5 |
Mr. Ananthakrishna |
Part Time Non-Executive Chairman (Independent Director) |
Retired on 26.10.2016 upon attainment of upper age limit of 70 years as per RBI Guidelines. |
The Board places on record its appreciation for the valuable contributions and the guidance given by the above directors during their tenure in Office.
During the year under report, Mr. D Surendra Kumar, was appointed on the Board as an Additional Director w.e.f. 29.12.2016 and as per Section 161 of the Companies Act, 2013 he would hold office upto the date of ensuing Annual General Meeting. Bank has received necessary notices under Section 160 of the Companies Act, 2013 proposing his candidature for appointment as Independent Director of the Bank and having regard to his vast experience, rich knowledge and expertise, your Directors recommend his appointment. A brief resume of Mr. D Surendra Kumar is furnished in the notice of the Annual General Meeting.
Upon attainment of upper age limit of 70 years of age, Mr. Ananthakrishna retired from office of the Part-time Non-Executive Chairman on 26.10.2016 as per extant guidelines of Reserve Bank of India. Thereafter the position of Chairman was vacant and Mr. P Jayarama Bhat resigned from his position as Managing Director & CEO and the Board of Directors at its meeting held on April 12, 2017 has, after inducting him as Additional Director on the Board, appointed him as Part time Non Executive Chairman (who assumed charge on 12.04.2017) pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt.No.12034/08.40.001/2016-17 dated April 10, 2017 in accordance with Section 10B (1A)(i) of the Banking Regulation Act, 1949.
In terms of Section 161 of the Companies Act, 2013, Mr. P Jayarama Bhat has been appointed as an Additional Director and would hold office up to the date of ensuing Annual General Meeting. Considering his experience, knowledge and expertise, and the contribution made during his tenure as MD & CEO of the Bank, your Directors recommend for approval of his appointment as a Director of the Bank. A brief resume and remuneration payable to Mr. P Jayarama Bhat is furnished in the notice of the Annual General Meeting.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER (MD & CEO)
Consequent to the appointment of Mr. P Jayarama Bhat as the Non-Executive Chairman, position of Managing Director & CEO of the Bank was vacant and the Board at its meeting held on April 12, 2017 appointed Mr. Mahabaleshwara M S as Managing Director & CEO of the Bank pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt. No.11838/08.40.001/2016-17 dated April 05, 2017 in accordance with Section 35B of the Banking Regulation Act, 1949, inducting him as an Additional Director on the Board.
Considering his experience, knowledge and expertise, your Directors recommend for approval of his appointment as Managing Director & CEO of the Bank. A brief resume and remuneration payable to Mr. Mahabaleshwara M S is furnished in the notice of the Annual General Meeting.
INDEPENDENT AND NON-EXECUTIVE DIRECTORS
Pursuant to the provisions of Section 149(6) of the Companies Act, 2013, your Bank has received necessary declarations from all the non-executive directors confirming that they meet the criteria of independence for Independent Directors. Mr. D Surendra Kumar, Additional Director has also furnished similar declaration and subject to his appointment at the ensuing Annual General Meeting, he also meets the criteria of independence.
PERFORMANCE EVALUATION OF THE BOARD
Your Board of Directors has laid down criteria for performance evaluation of Directors, Chairman, MD & CEO, Committees of the Board and Board as a whole and also the evaluation process for the same. The statement indicating the manner in which formal annual evaluation of the Directors, the Board and Committees of the Board etc., are given in detail in the report on Corporate Governance, which forms part of this Annual Report. In pursuance to the above, Independent Directors in their separate meeting held on March 27, 2017 have reviewed and evaluated the performance of Board as a whole and the Managing Director and CEO.
Further, the Board also reviewed the performance of committees of the Board and that of individual Independent Directors at its meeting held on March 27, 2017.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All related party transactions that were entered into during the financial year were in the ordinary course of the business of the Bank and were on armâs length basis. There were no materially significant related party transactions entered into by the Bank with Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of the Bank. As such disclosure in Form AOC-2 is not applicable. The policy on dealing with Related Party Transactions as approved by the Audit Committee/Board has been placed in the website of the Bank.
DIRECTORS'' RESPONSIBILITY STATEMENT
In accordance with Section 134(3)©, 134(5) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rule, 2014, your Directors state that:
(a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;
(b) the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at the end of financial year March 31, 2017 and profit and loss for that period.
(c) the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.
(d) the directors have prepared the annual accounts on a going concern basis.
(e) the directors have laid down the internal financial controls followed by the Bank and that such internal financial controls are adequate and are operating effectively.
(f) the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
STATUTORY DISCLOSURES
The disclosures under sub-section (3) of Section 134 of the Companies Act, 2013 read with Rule 8 (3) of the Companies (Accounts) Rules, 2014 are furnished below:
a) Conservation of Energy and technology absorption: Considering the nature of the Bank''s business, the provisions of Section 134(3)(m) of the Companies Act, 2013 relating to conservation of energy and technology absorption are not applicable to your Bank. The Bank has, however, used information technology in its operations extensively.
b) Foreign Exchange Earnings and outgo: During the year ended March 31, 2017, the Bank has earned Rs.21.98 crore and spent Rs.1.72 crore in foreign currency.
c) There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and Bank''s operations in future.
d) Internal Financial Control Systems and their adequacy: Your Bank has laid down standards, processes and structure facilitating the implementation of internal financial control across Bank and ensure that same are adequate and operating effectively.
e) Key Managerial Personnel: Mr. P Jayarama Bhat, MD & CEO, Mr. Chandrashekar Rao B, CFO and Mr. Y V Balachandra, Company Secretary of the Bank were the Key Managerial Personnel of the Bank as on March 31, 2017 as per the provisions of the Companies Act, 2013. None of the Key Managerial Personnel has resigned during the year under report.
f) Remuneration of directors: Disclosures pursuant to Section 197(12) of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given in Annexure VII to this report.
g) During the financial year 2016-17, there was no employee who was in receipt of remuneration requiring disclosure as per the limits prescribed under Section 197 of the Companies Act, 2013 read with Rule 5 of The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.
EXTRACT OF THE ANNUAL RETURN
Pursuant to Section 92(3) of the Companies Act, 2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014, an extract of the Annual Return of the Bank as on March 31, 2017 is annexed (Annexure IV).
NUMBER OF BOARD MEETINGS
During the year under report the Board met 17 times and the details thereof are provided in the report on Corporate Governance forming part of this report.
COMMITTEES OF THE BOARD
The Bank has 12 Committees which were constituted to comply with the requirements of relevant provisions of the applicable laws and for operational efficiency. Details of the meetings of the Board and the Committees, their composition, terms of reference, powers, roles etc are furnished in the report on Corporate Governance forming part of this report.
CORPORATE GOVERNANCE
Your Bank is committed to follow the best practices of corporate governance to protect the interests of all the stakeholders of the Bank, viz. shareholders, depositors and other customers, employees and the society in general and maintain transparency at all levels. A detailed report on corporate governance practices is given as Annexure III to this report.
AUDITORS
a. Statutory Auditors
M/s. Kamath & Rau, Chartered Accountants, Mangaluru and M/s. Abarna & Ananthan, Chartered Accountants, Bengaluru would retire as joint Statutory Central Auditors of the Bank at the ensuing Annual General Meeting after completing the term of fourth year and third year respectively. Board of Directors propose to the members the appointment of M/s. R.K. Kumar & Co, Chartered Accountants, Chennai, in place of retiring auditor M/s Kamath & Rau, Chartered Accountants who will be completing 4 years and will be rested for two years, jointly with M/s. Abarna & Ananthan, Chartered Accountants, Bengaluru for the first and the fourth year term respectively. The Bank has received consent from the above auditors and necessary confirmation from them that they are not disqualified to be appointed as auditors of the Bank pursuant to the provisions of the Companies Act, 2013 and the Rules made there under.
b. Secretarial Auditor and Secretarial Audit Report
Pursuant to Section 204 of the Companies Act, 2013 and the rules there under, your Bank had appointed M/s.Ullas Kumar Melinamogaru, Practising Company Secretary, Mangaluru as Secretarial Auditors to conduct the Secretarial Audit for the year ended March 31, 2017. The audit report from the Secretarial Auditor is annexed to this report as Annexure V.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to the Reserve Bank of India, other government and regulatory authorities, financial institutions and correspondent banks for their continued guidance and support. Your Directors also place on record their gratitude to the Bank''s shareholders, depositors and other customers for their continued support, patronage and goodwill. Your Directors express their deep sense of appreciation to all the staff members, for their contribution in your Bank''s quest for sustained growth and profitability and look forward to their continued contribution in scaling greater heights.
FOR AND ON BEHALF OF THE BOARD OF DIRECTORS
PLACE : HUBBALLI SD/-
DATE : JUNE 17, 2017 P JAYARAMA BHA
CHAIRMAN
Mar 31, 2016
The Directors have pleasure in presenting the Ninety Second Annual
Report together with the Audited Statement of Accounts for the year
ended 31st March, 2016 and the Auditors'' Report.
PERFORMANCE HIGHLIGHTS
Your Directors are pleased to inform that during the year under report,
your Bank has been able to achieve satisfactory growth in all the areas
of operation. Performance highlights for the financial year in the key
financial areas are as under: -
(Rs. in crore)
Particulars As on / for the As on / for the
year ended year ended
31.03.2016 31.03.2015
Deposits 50488.21 46008.61
Advances 33902.45 31679.99
Investments 16256.65 14031.67
Gross Income 5535.07 5205.41
Operating Profit 854.53 773.38
Net Profit 415.29 451.45
The total business turnover of the Bank was Rs.84390.66 crore as on
31st March 2016, an increase of 8.63 percent over the preceding year.
The total assets of the Bank increased from Rs.51836.60 crore to
Rs.56500.33 crore recording a growth of 8.99 percent for the year
2015-16.
The total deposits of the Bank grew from Rs.46008.61 crore as on 31st
March 2015 to Rs.50488.21 crore as on 31st March 2016, registering a
growth of 9.74 percent.
During the year, low cost deposits of the Bank, viz. Savings and
Current Account Deposits have shown growth of 15.58 percent and
constitute 26.26 percent of the total deposits of the Bank. The market
share of the Bank in deposits was 0.527 percent.
The total advances grew from Rs.31679.99 crore as on 31st March 2015 to
Rs.33902.45 crore as on 31st March 2016, an increase of 7.02 percent.
The priority sector advances increased from Rs.14344.96 crore to
Rs.16152.56 crore which, together with the Rural Infrastructure
Development Fund (RIDF) exposure, formed 47.57 percent of Adjusted Net
Bank Credit (ANBC) and agricultural advances increased from Rs.5145.55
crore to Rs.5838.07 crore which, together with eligible RIDF exposure,
constituted 17.19 percent of ANBC. Lending under various socio-economic
schemes has shown satisfactory progress. The market share of the Bank
in loans and advances was 0.497 per cent.
As on 31st March 2016, the total investments of the Bank stood at
Rs.16256.65 crore as against Rs.14031.67 crore as on 31st March 2015,
an increase of 15.85 percent.
OPERATIONAL PERFORMANCE
In the backdrop of continued stress on the assets quality and the
subdued credit off take during the year ended 31st March, 2016, the
performance of your Bank can be considered satisfactory. The gross
income of the Bank was Rs.5535.07 crore and total expenditure
(excluding provisions and contingencies) was Rs.4680.54 crore. The net
interest income was Rs.1302.87 crore.
PROFIT
Your Bank earned an operating profit of Rs. 854.53 crore for the year
2015-16 as against Rs.773.38 crore for the previous year showing a
growth of 10.49 percent. The net profit of the Bank decreased from
Rs.451.45 crore to Rs.415.29 crore on account of the increase in
provision for loan loss.
APPROPRIATIONS
The net profit of Rs.415.29 crore which along with a sum of Rs. 0.40
crore brought forward from the previous year, aggregating Rs.415.69
crore, is appropriated as under. The corresponding figure for the
previous year was Rs. 451.61 crore.
Appropriation Rs. in crore
Transfer to Statutory Reserve 230.00
Transfer to Capital Reserve 8.85
Transfer to Revenue, General &
Special Reserves 67.24
Transfer to Investment Reserve (3.84)
Transfer to Proposed Dividend
(including tax) 113.41
Balance carried to Balance Sheet 0.03
Total 415.69
DIVIDEND
Having regard to the overall performance of the Bank and the positive
outlook for the future, the Board of Directors recommended a dividend
of Rs.5 per share i.e. 50 percent on the paid up capital (previous
year 50 per cent) for the reporting year. The dividend payout ratio for
the year works out to 22 .69 percent.
EARNINGS PER SHARE/BOOK VALUE
The earnings per share (basic) and the book value per share as on 31st
March 2016 stood at Rs.22.04 and Rs. 195.83 respectively.
CAPITAL FUNDS AND CAPITAL ADEQUACY RATIO
During the year under report, the capital funds of your Bank increased
from Rs.3973.18 crore to Rs. 4185.24 crore, registering a growth of
5.34 percent. The Capital Adequacy Ratio stood at 12.03 percent as on
31st March 2016, as per BASEL III norms (Previous year 12.41 percent).
The Bank has been consistently maintaining the Ratio well above the
minimum of 9.625 percent stipulated by the Reserve Bank of India. The
market capitalisation as on March 31, 2016 was Rs. 1934.50 crore.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of
Rs.14277.44 crore in foreign exchange business as against Rs.15005.22
crore in the previous year. The outstanding advances to export sector
stood at Rs. 1633.95 crore as on March 31, 2016.
NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Bank has been focusing on containing the non- performing assets
through better credit monitoring as well as intensified efforts to
recover the impaired assets. However, in view of the continuing slow
down in the economy and delinquencies in select sectors, the Bank''s
Gross NPAs as on March 31, 2016 have increased from Rs.944.21 crore
(2.95 percent) to Rs. 1180.40 crore by the year end (3.44 percent). The
Net NPAs stood at Rs.795.47 crore (2.35 percent) as against Rs. 623.55
crore (1.98 percent) as on 31st March 2015. The Provision Coverage
Ratio (PCR) computed in accordance with the RBI guidelines works out to
48.39 percent as on March 31, 2016 (Previous year 50.54 percent).
CREDIT RATING
ICRA Limited and Credit Analysis and Research Limited, ("CARE") who had
rated the Unsecured Redeemable Non-Convertible Subordinated (Lower
Tier-II) debt instruments issued during the earlier years aggregating
Rs. 600 crore have retained the rating "ICRA A" and "CARE A"
respectively for the aforesaid instruments. The instruments with these
ratings are considered to have adequate/high degree of safety regarding
timely servicing of financial obligations. Such instruments carry very
low credit risk.
DISTRIBUTION NETWORK
During the year under report, your Bank has opened 50 new branches in 9
States  one each in the States of Andhra Pradesh, Chattisgarh, Haryana
, Kerala and Chandigarh (U.T.), 34 in Karnataka, three in Maharashtra,
four in Tamilnadu, two each in Uttar Pradesh and West Bengal. Out of
the 34 new branches opened in Karnataka, 13 are in Unbanked Rural
Centres under Financial Inclusion Initiatives of the Bank. Your Bank
has opened two more Regional Offices at Udupi & Tumakuru during the
year under report. Further, your Bank has added 275 ATM outlets at
various locations during the year 2015-16. Your Bank has also 24X7
e-lobby facility at 25 locations.
As at 31st March 2016, your Bank had 2,003 Service Outlets i.e. 725
branches, 1,275 ATMs and 3 extension counters spread across 21 States
and 2 Union Territories. Apart from the above, your Bank has 12
Regional Offices, an International Division, a Data Centre, a Customer
Care Centre, 4 Service branches, 2 Currency Chests, 2 Central
Processing Centres and 3 Asset Recovery management branches.
Further, for better ambience and improved customer service, your Bank
shifted 15 branches/offices to new premises during the year 2015-16.
EMPLOYEES STOCK OPTION SCHEME
During the year under report, a total of 9266 equity shares have been
allotted to the employees of your Bank, pursuant to the exercise of
options vested under the Employees Stock Option Scheme of the Bank.
Disclosure in respect of Employee Stock Options Scheme pursuant to SEBI
(Employees Stock Options Scheme and Employees Stock Purchase Scheme)
Guidelines, 1999 is given in Annexure II to this report.
DIRECTORS
As on March 31, 2016, your Bank had a total of twelve Directors,
including a woman director. All of them, except Messrs U R Bhat and
Keshav K Desai, Additional Directors and Mr. P Jayarama Bhat, Managing
Director and CEO, are Independent Directors. The details of the
criteria for appointment and remuneration of Directors are provided in
the report on Corporate Governance forming part of this report.
INDEPENDENT AND NON-EXECUTIVE DIRECTORS
Pursuant to the provisions of Section 149(6) of the Companies Act,
2013, your Bank has received necessary declarations from all the
non-executive directors confirming that they meet the criteria of
independence for Independent Directors. Two Additional Directors have
also furnished similar declarations and subject to their approval of
their appointment at the ensuing Annual General Meeting, they also meet
the criteria of independence for Independent Directors.
MANAGING DIRECTOR AND CHIEF EXECUTIVE OFFICER (MD & CEO)
Mr. P Jayarama Bhat, MD & CEO of the Bank has been re-appointed by the
Board for a further period of three years effective from July 14, 2015
as approved by the Reserve Bank of India vide their letter DBR.Appt.
No. 18976/08.40.001/2014-15 dated June 15, 2015 and the members of the
Bank at the Annual General Meeting held on July 16, 2015.
OTHER CHANGES IN THE BOARD
The Board of Directors has appointed Mr. U R Bhat, Mumbai a well known
investment advisor and Mr. Keshav K Desai an entrepreneur from Hubballi
as Additional Directors on February 19, 2016 and as per Section 161 of
the Companies Act, 2013 they would hold office upto the date of ensuing
Annual General Meeting. Bank has received necessary notices under
Section 160 of the Companies Act, 2013 proposing their candidature for
appointment as Independent Directors of the Bank at the ensuing Annual
General Meeting. Having regard to their vast experience, rich
knowledge and expertise, your Directors recommend their appointment. A
brief resume and other details of the above Directors are furnished in
the notice of the Annual General Meeting.
NUMBER OF BOARD MEETINGS
During the year under report the Board had met 13 times and the details
thereof are provided in the report on Corporate Governance forming part
of this report.
COMMITTEES OF THE BOARD
The Bank has 12 Committees which were constituted to comply with the
requirements of relevant provisions of the applicable laws and for
operational efficiency.
Details of the meetings of the Board and the Committees, their
composition, terms of reference, powers, roles etc are furnished in the
report on Corporate Governance forming part of this report.
CORPORATE GOVERNANCE
Your Bank is committed to follow the best practices of corporate
governance to protect the interests of all the stakeholders of the
Bank, viz. shareholders, depositors, other customers, employees and the
society in general and maintain transparency at all levels. A detailed
report on corporate governance practices is given as Annexure IV to
this report.
EXTRACT OF THE ANNUAL RETURN
Pursuant to Section 92(3) of the Companies Act, 2013 read with Rule
12(1) of the Companies (Management and Administration) Rules, 2014, an
extract of the Annual Return of the Bank as on March 31, 2016 is
annexed (Annexure V).
PERFORMANCE EVALUATION OF THE BOARD
Your Board of Directors has laid down criteria for performance
evaluation of Directors, Chairman, MD & CEO, Committees of the Board
and Board as a whole and also the evaluation process for the same. The
statement indicating the manner in which formal annual evaluation of
the Directors, the Board and Committees of the Board etc., are given in
detail in the report on Corporate Governance, which forms part of this
Annual Report. In pursuance to the above, Independent Directors in
their separate meeting held on March 18, 2016 have reviewed and
evaluated the performance of Board as a whole, Chairman of the Board
and the Managing Director and CEO.
Further, the Board also reviewed the performance of committees of the
Board and that of individual Independent Directors at its Meeting held
on March 18, 2016.
DIRECTORS'' RESPONSIBILITY STATEMENT
In accordance with Section 134(3)(c), 134(5) of the Companies Act, 2013
read with Rule 8 of the Companies (Accounts) Rule, 2014, your Directors
state that:
(a) in the preparation of the annual accounts, the applicable
accounting standards have been followed along with proper explanation
relating to material departures;
(b) the directors have selected such accounting policies and applied
them consistently and made judgments and estimates that are reasonable
and prudent so as to give a true and fair view of the state of affairs
of the Bank as at the end of financial year March 31, 2016 and profit
and loss account for that period.
(c) the directors have taken proper and sufficient care for the
maintenance of adequate accounting records in accordance with the
provisions of the Companies Act, 2013 for safeguarding the assets of
the Bank and for preventing and detecting fraud and other
irregularities.
(d) the directors have prepared the annual accounts on a going concern
basis.
(e) the directors have laid down the internal financial controls
followed by the Bank and that such internal financial controls are
adequate and are operating effectively.
(f) the directors have devised proper systems to ensure compliance with
the provisions of all applicable laws and that such systems were
adequate and operating effectively.
Management Discussion and Analysis
The Management Discussion and Analysis Report for the year under review
pursuant to Regulation 34(3) read with Schedule V of the SEBI(Listing
Obligations and Disclosure Requirements) Regulations 2015 is presented
in a separate section forming part of this report.
WHISTLE BLOWER POLICY
The Bank has implemented the Protected Disclosure Policy (Whistle
Blower Policy) since the year 2007 intended to promote participation of
employees at all levels and detection of corruption, misuse of Office,
criminal offences, suspected /actual fraud, failure to comply with the
rules and regulations prescribed by the Bank and any events /acts
detrimental to the interest of the Bank, depositors and the public
resulting in financial loss/operational risk, loss of reputation etc.
Further, the mechanism adopted by the Bank encourages the Whistle
Blower to report genuine concerns or grievances and provides for
adequate safeguards against victimization of Whistle Blower who avails
such mechanism and also provides for direct access to the Chairman of
the Audit Committee, in exceptional cases. There was no occasion when
an employee was denied access to the Audit Committee for reporting any
events under the aforesaid policy. The functioning of the Vigil
mechanism is reviewed by the Audit Committee periodically. The details
of Whistle Blower Policy is posted in our website and available at the
link: www.karnatakabank.com/ktk/Protected Disclosure.jsp
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All related party transactions that were entered into during the
financial year were in the ordinary course of the business of the Bank
and were on arm''s length basis. There were no materially significant
related party transactions entered into by the Bank with Directors, Key
Managerial Personnel or other persons which may have a potential
conflict with the interest of the Bank. As such disclosure in Form
AOC-2 is not applicable.
The policy on dealing with Related Party Transactions as approved by
the Audit Committee / Board has been placed in the website of the Bank.
STATUTORY DISCLOSURES
The disclosures under sub-section (3) of Section 134 of the Companies
Act, 2013 read with Rule 8 (3) of the Companies (Accounts) Rules, 2014
are furnished below:
a) Conservation of Energy and technology absorption
Considering the nature of the Bank''s business, the provisions of
Section 134(3)(m) of the Companies Act, 2013 relating to conservation
of energy and technology absorption are not applicable to your Bank.
The Bank has, however, used information technology in its operations
extensively.
b) Foreign Exchange Earnings and outgo: During the year ended March 31,
2016, the Bank has earned Rs.53.69 crore and spent Rs.17.24 crore in
foreign currency.
c) There were no significant and material orders passed by the
regulators or courts or tribunals impacting the going concern status
and BankRs.s operations in future.
d) Internal Financial Control Systems and their adequacy: Your Bank has
laid down standards, processes and structure facilitating the
implement- ation of internal financial control across Bank and ensure
that same are adequate and operating effectively.
e) Key Managerial Personnel: Mr. P Jayarama Bhat, MD & CEO, Mr.
Raghurama, CFO and Mr. Y V Balachandra, Company Secretary of the Bank
were the Key Managerial Personnel of the Bank as on March 31, 2016 as
per the provisions of the Companies Act, 2013. None of the Key
Managerial Personnel has resigned. However, the Board has designated
Mr. Chandrashekar Rao B as CFO in place of Mr. Raghurama w.e.f. April
23, 2016.
f) Remuneration of directors: Disclosures pursuant to Section 197(12)
of the Companies Act, 2013 read with Rule 5 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 are
given in Annexure VIII to this report.
g) Employees who are in receipt of remuneration exceeding rupees sixty
lakhs etc.: Statement showing the particulars of employees who were in
receipt of remuneration during the year 2015-16 requiring disclosure
under Rule 5(2) of the Companies (Appointment and Remuneration of
Managerial Personnel) Rules, 2014 is annexed.
AUDITORS
a. Statutory Auditors
M/s. Kamath & Rau, Chartered Accountants, Karangalpady,
Mangaluru-575003 and M/s. Abarna & Ananthan, Chartered Accountants, #
521, 3rd Main, 6th Block, 2nd Phase, BSK 3rd Stage, Bengaluru-560085
would retire as joint Statutory Central Auditors of the Bank at the
ensuing Annual Meeting of the members of the Bank and are eligible for
re-appointment subject to the approval of Reserve Bank of India. The
Bank has received consent from the above auditors and necessary
confirmation from them that they are not disqualified to be appointed
as auditors of the Bank pursuant to the provisions of the Companies
Act, 2013 and the Rules made thereunder. Accordingly having regard to
the provisions of the Companies Act, 2013, extant guidelines of Reserve
Bank of India and as approved by the Reserve Bank of India, the Board
of Directors of the Bank has recommended the re-appointment of
aforesaid auditors.
b. Secretarial Auditor and Secretarial Audit Report
Pursuant to Section 204 of the Companies Act, 2013 and the rules
thereunder, your Bank had appointed M/s. Ullas Kumar Melinamogaru,
Practising Company Secretary, Mangaluru as Secretarial Auditors to
conduct the Secretarial Audit for the year ended March 31, 2016. The
audit report from the Secretarial Auditor is annexed to this report as
Annexure VI.
CORPORATE SOCIAL RESPONSIBILITY
Businesses are an integral part of society and play a critical role in
the sustenance and improvement of a healthy ecosystem, in fostering
social inclusiveness and equity and in upholding the ethical practices
and good governance. It is believed that integrating social,
environmental and ethical responsibilities into governance of business
ensures long term successes, competencies and sustainability. With this
in mind, your Bank continues to fulfil its various social
responsibilities. The Corporate Social Responsibility initiatives of
the Bank are designed to ensure that the Bank adds social,
environmental and economic value in all its activities to make a
positive, sustainable impact on both society and business. In this
direction, your Bank has been responding well over the years through
various social initiatives and has identified some core areas of
intervention like healthcare, education/ livelihood enhancement,
empowering women/socially and economically disadvantaged, environmental
sustainability/green initiatives, protection of heritage/ culture,
promotion of sports, rural development etc. aimed at improving the
overall development of the society. The Bank firmly believes that being
an integral part of society, it is the inclusive growth of society
which contributes ultimately to the growth of the Bank and in this
direction, your Bank has been strengthening its rural orientation
through initiatives aimed at imparting financial literacy and extending
banking services to the people in rural unbanked areas, in a fair and
transparent manner, at an affordable cost. Towards this end, your Bank
had opened 13 branches in unbanked rural centres during the financial
year 2015-16 as part of its financial inclusion initiative, thus taking
the total Financial Inclusion branches to 92.
Further, pursuant to Section 135 of the Companies Act, 2013 read with
Companies (Corporate Social Responsibility Policy) Rules, 2014, the
Board has setup a Committee of Directors namely, ''Corporate Social
Responsibility (CSR) Committee'' and has also put in place a Policy on
Corporate Social Responsibility (CSR Policy) to undertake
projects/programmes in pursuance to the above Policy. The contents of
the CSR Policy along with the report on amount spent on various
projects/programmes during the financial year 2015-16 is detailed in
Annexure VII to this report pursuant to Rule 8 of the Companies
(Corporate Social Responsibility Policy) Rules, 2014.
CUSTOMER SERVICE
The customer has always been the focal point of our initiatives. We
have been endeavoring to empower our customers by rolling out
innovative products and services through optimal use of technology
without compromising on the quality of service rendered across the
counter and without losing sight of the safety and security aspects.
During the year 2015-16, your Bank has introduced several technology
based new products and solutions such as KBL mPassBook & KBL ApnaApp
(two tailor made mobile Apps), KBL Direct Pay (Mobile Recharge/Utility
Bill Payment Interface), Online Account Opening Facility and facility
of e-Filing of Income Tax Return in association with M/s Clear Tax.
In pursuit of enhancing customer convenience, the Bank has introduced
''Online Account Opening'' portal, which facilitates the customers to
open an account Online. The process is quicker and easier to open an
account through Online Account opening process from any where and any
time at customers convenience.
Your Bank is actively involved in putting in place systems and
procedures to comply with the recommendations of the Damodaran
Committee on Customer Service, constituted by the Reserve Bank of
India, to look into the banking services rendered to customers and the
grievance redressal mechanism prevalent in banks. In this direction,
the Bank has introduced the Online Customer Grievance Redressal System
to ensure quick and speedy redressal of complaints of the customers in
order to provide hassle free banking experience. Through this system,
the customer can lodge a complaint and track the status of the
complaint online, through the Bank''s website. Most of the
recommendations made by the said Committee have been complied with and
the remaining few which require up-gradation of the Bank''s Core Banking
Solution are being pursued for early compliance.
Facility of Online application system and credit proposal tracking
system for Micro, Small and Medium Enterprises (MSME) has also been put
in place under which entrepreneurs/applicants can submit applications
Online for credit facility from any branch of their choice and track
the status of such applications besides tracking the status of their
applications submitted directly at branches.
Your Bank has also established a special purpose vertical called IT
enabled Business Solution Cell i.e "IT Bus Cell" which shall
identify/provide/enable IT based solutions to the business and other
units of the Bank by conceiving/conceptualizing new products, services
and processes ultimately to enhance the customers satisfaction and
their experience with the product / services offered by the Bank.
FINANCIAL INCLUSION
Financial Inclusion means making available the full range of banking
services at an affordable cost to the people who do not have access to
banking services. It mainly focuses on the section of society not
having formal financial institutional support. Through the Financial
Inclusion Plan, Bank aims at ''connecting people'' with the Bank and not
just opening accounts. This includes meeting the small credit needs of
the rural public, giving them access to the payments system, providing
remittance facility and life and health insurance. Efforts are being
made to optimize the resources to achieve the goal of extending banking
facilities to the unbanked areas/deprived sections.
All the branches of the Bank are under Core Banking Solution (CBS) and
all the branches to be opened in future will also be under CBS. Out of
725 branches, Bank has 163 rural branches and all these branches are
provided with CBS offering all banking facilities to the rural
clientele in the gram panchayats or villages where these branches are
located. All the rural branches are also acting as Financial Literacy
Centers (FLCs) and imparting Banking literacy among the rural Populace.
In accordance with announcement of Prime Minister Jan Dhan Yojana
(PMJDY) on August 15, 2014 revised Strategy & Guidelines of Department
of Financial Services (DFS), Ministry of Finance, Govt. of India, has
been considered for implementation of Financial Inclusion activity of
the Bank. PMJDY takes in to account both rural sub service areas (SSAs)
and urban wards for Financial Inclusion. Under the revised financial
inclusion plan, in rural areas, Bank is allocated with 214 Gram
Panchayats (GPs) for Financial Inclusion, covering 297 Sub service
Areas (SSAs) consisting of 1039 villages in the states of Karnataka,
Chattisgarh Maharashtra and Andhra Pradesh and in urban areas 313 wards
are allocated in Karnataka and other States. The Gram Panchayats are
being financially included through Brick and Mortar Branches and
Business Correspondents (BC). Your Bank has been issuing RuPay PMJDY
Debit Cards under the domestic card payment scheme launch by the
National Payments Corporation of India (NPCI).
Brick and Mortar Branches:
As on March 31, 2016 Bank has covered 547 villages of 102 GPs through
Brick & Mortar Branches.
Business Correspondent Services (BC Services):
Bank has entered into an agreement with M/s BASIX Sub-ki Transaction
Ltd and M/s Integra Micro Systems Pvt. Ltd. to provide online
transaction facility and as on March 31, 2016, 121 GPs with 149 SSAs
covering 561 villages of Karnataka, Andhra Pradesh and
Chhattisgarh States were covered under the above arrangement.
Ultra Small Branches (USBs):
As permitted by the Reserve Bank of India Bank had opened USBs where
business correspondents (BCs) could conduct operations and thereby
boost confidence of customers to use their financial services. As on
31st March 2016, your Bank has 37 USBs.
Electronic Benefit Transfer (EBT) - Pilot Project of Govt. of
Karnataka:
Bank is participating in Govt. of Karnataka (GOK) EBT Pilot project for
NREGA/SSP beneficiaries under - "One District - Many Bank Model" and is
disbursing the payments under the above schemes to the beneficiaries
using smart card and hand held machines at 5 Gram Panchayat locations
in Chitradurga and Yadgir districts.
Direct Benefit Transfer (DBT):
Bank is actively participating in Direct Benefit Transfer (DBT)
Programme of Govt. India, wherein, the Govt. would transfer benefits
of various Schemes directly to the beneficiaries Aadhaar enabled bank
accounts and also accounts seeded with LPG ID in case of transfer of
subsidy for LPG. For this purpose, Bank has on boarded with NPCI for
Aadhaar Payment Bridge System (APBS) under National Automated Clearing
House (NACH). Revised DBTL was introduced on November 15, 2014 and
launched throughout the country on January 1, 2015. Both the Aadhaar
based and LPG ID based approaches are made available to customers
across all branches of the Bank.
Financial Literacy and Credit Counseling Centers (FLCCs)
Bank has sponsored 5 FLCs at B.C Road, Tiptur, Hangal, Kundagol and
Alur in a joint venture with M/s Jnana Jyothi Financial Literacy and
Credit Counseling Trust, Manipal. During the financial year 5 FLCs
sponsored by the Bank have conducted 1321 Financial Literacy campaigns
and 58161 participants had been covered. In adherence to RBI guidelines
all the rural branches of your Bank are also conducting financial
literacy Camps.
SOCIAL SECURITY SCHEMES:
Three Social Security Schemes- Prime Minister Jeeven Jyothi Bima Yojana
(PMJJBY), Prime Minister Suraksha Bima Yojana (PMSBY) and Atal Pension
Yojana (APY) have been launched by Hon''ble Prime Minister on 1st June
2015. All the branches of your Bank are actively providing the above
schemes to the customers across the country.
1) PMJJBY provides Insurance coverage of Rs.2,00,000/- by paying yearly
premium of Rs.330/-. A person aged between 18 to 50 years holding
account in a bank is eligible for the scheme. A total of 1,42,647
lives have been covered till 31.03.2016.
2) PMSBY provides Accidental insurance coverage of Rs.2,00,000 by
paying year premium of Rs.12/-. A person aged between 18 to 70 years
holding account in a Bank is eligible for the scheme. A total of
2,07,053 lives have been covered till 31.03.2016
3) APY : This scheme was launched by the Government of India on 9th
May, 2015 to address the old age income security needs of the citizen
in an affordable manner linked to auto debit facility from the bankRs.s
savings account of the subscriber. Your Bank is actively participating
in the scheme, with all branches being registered as Point of Presence
- Service Provider (POP-SP) for APY.''
Prime Minister Jan Dhan Yojana (PMJDY):
In accordance with announcement of Prime Minister Jan Dhan Yojana
(PMJDY) on August 15, 2014 revised Strategy & Guidelines of Department
of Financial Services (DFS), Ministry of Finance, Govt. of India, has
been considered for implementation of Financial Inclusion activity of
the Bank. PMJDY takes in to account both rural semi urban, urban wards
and metro for providing basic banking facilities to the unbanked
populace. PMJDY also provides scope for RuPay debit card that is
inclusive of Rs.1 Lakh accidental insurance.
All the branches across the country have opened accounts under PMJDY
and are issuing RuPay Debit Card under the domestic card payment scheme
launched by the National Payments Corporation of India (NPCI).
A total of 15,60,754 accounts have been opened under PMJDY since
15.08.2014 till 31.03.2016, with outstanding balance of Rs.1,266.42
crore. A total of 1,06,247 RuPay cards have been issued so far by the
Bank.
KBL VISION 2020
During the financial year ended March 31, 2016, the Bank has unveiled
its long term Vision document - KBL Vision 2020 reflecting the
aspirations of all the stakeholders for achieving various targets
taking advantage of emerging opportunities, upgrading IT
infrastructure, strengthening audit, vigilance and risk management
practices and compliance culture and taking steps to improve efficiency
of people, processes and products by continuously evolving new
strategies and policies and create value for our shareholders by
optimally utilizing capital resources. As per the KBL Vision 2020
document, BankRs.s total business turnover is projected to increase in
a progressive manner to touch Rs.1,80,000 crore with deposits of
Rs.1,00,000 crore and advances of Rs.80,000 crore by March 2020.
AWARDS AND RECOGNITIONS
Your Bank bagged the following awards during the year under report in
recognition of its achievement under technology initiatives, social
banking, export performance etc.
- IBA Banking Technology Award 2014-15, Runner up in the category of
Best Risk and Fraud Management Initiative, amongst Small Banks.
- ASSOCHAM Social Banking Excellece Awards 2015, under the following
categories:
- Winner - Urban Banking [Small Bank] Category.
- Winner-Agricultural Banking [Small Bank] Category
- Runner Up - Participation in government schemes [Small Bank] category
- Runner Up - Overall Best Social Bank[ Small Bank] category
- MSME Banking Excellence Awards 2015 [Runner Up] for Eco -Technology
"Emerging Banks", instituted by CIMSME [Chamber of Indian Micro Small &
Medium Enterprises].
- Banking Technology Excellence Award - "Best Bank for Evangelising
Technology Adoption" among Small Banks for the year 2014-15, instituted
by IDRBT.
- "Export Excellence award for MSME" by the Federation of Indian Export
Organisations - Western Region.
- "STP AWARD" from Bank of New York, Mellon in recognition to the
improved payment formatting and straight - Through Processing success
rate.
- "Outstanding Performance in MSME Funding" by the Federation of
Industry, Trade and Services (FITS).
Further UKAS, Management Systems, a UK based accreditation certifying
body has renewed ISO 27001:2013 certificate for our three IT set-ups
viz. Data Centre, Near Line Site and Head Office-IT Department
including Disaster Recovery Site.
Further, your Bank has been awarded with ''Sanman Patra'' by the Central
Excise & Service Tax Commissionerate, Mangaluru, for compliance to
service tax provisions, at the Central Excise Day 2016.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to
the Reserve Bank of India, other government and regulatory authorities,
financial institutions and correspondent banks for their continued
guidance and support. Your Directors also place on record their
gratitude to the Bank''s shareholders, depositors and other customers
for their continued support, patronage and goodwill. Your Directors
express their deep sense of appreciation to all the staff members, for
their contribution in your Bank''s quest for sustained growth and
profitability and look forward to their continued contribution in
scaling greater heights.
For and on behalf of the Board of Directors
Place: Bengaluru Sd/-
Ananthakrishna
Date : June 21, 2016 Chairman
Mar 31, 2014
Dear Members.
The Directors have pleasure in presenting the Ninetieth Annual Report
together with the Audited Statement of Accounts for the year ended 31s''
March 2014 and the Auditors'' Report.
PERFORMANCE HIGHLIGHTS
Your Directors are pleased to inform that during the year under report,
your Bank has been able to achieve satisfactory growth in its business,
Performance highlights for the financial year in the key financial
are3sareasunder:-
(Rs.in Crore)
Particulars As on/for the As on/for the
year ended year ended
31.03.2014 31.03.2013
Deposits 40582.83 36056.22
Advances 28345.49 25207.68
Investments 15226.78 13432.48
Grosslncome 4694.41 4161.93
Operating Profit 687.05 635.34
Net Profit 311.03 348.08
The total business turnover of the Bank was Rs.68928.32 crore as on 31 st
March 2014, an increase of 12.51 percent over the preceding year. The
total assets of the Bank increased from Rs. 41526.38 crore to Rs.47028.80
crore recording a growth of 13.25 percent fortheyear2013-14.
The total deposits of the Bank grew from Rs.36056.22 crore as on 3V''1
March, 2013 to Rs.40582.83 crore as on 31 st March 2014, registering a
growth of 12.55 percent, During the year, low cost deposits of the
Bank, viz. Savings and Current Account Deposits, have shown a growth of
14.75 percent and constitute 25.40 percent of the total deposits of the
Bank. The market share of the Bank in deposits was 0.51 percent.
The total advances grew from Rs.25207.68 crore as on 31 st March, 2013 to
728345.49 crore as on 31 st March, 2014,3P increase of 12.45 percent. The
priority sector advances increased from 79362.62 crore to 710882.20
crore which together with RIDF exposure formed 46.91 percent of
Adjusted Net Bank Credit (ANBC) and agricultural advances increased
from 73715.24 crore to Rs.4141.16 crore which together with eligible RIDF
exposure constituted 17.29 percent of ANBC. Lending under various
socio-economic schemes has shown satisfactory progress. The market
share of the Bank in loans and advances was 0.45 percent.
As on 31 st March, 2014 the total investments of the Bank stood
atRs.15226.78croreas against Rs.13432.48 crore as on 31 st March 2013, an
increase of 13.36 percent.
OPERATIONAL PERFORMANCE
In the competitive and challenging business environment, the overall
performance of your Bank during the year 2013-14 was fairly
satisfactory. The gross income of the Bank was 74694.41 crore and total
expenditure (excluding provisions and contingencies) was 74007.36
crore. The net interest income was 71056.07 crore.
PROFIT
Your Bank earned an operating profit of 7687.05 crore for the year
2013-14 as against 7635.34 crore for the previous year showing a growth
of 8.14 percent. However the net profit of the Bank decreased from
7348.08 crore to 7311.03 crore on account of higher provisioning needs.
APPROPRIATIONS
The net profit of 7311.03 crore which along with a sum of 70.09 Crore
brought forward from the previous year, aggregating 7311.12 crore, is
appropriated as under. The corresponding figure for the previous year
was 7348.11 Crore
Appropriation Rs in Crore
Transfer to Statutory Reserve 147.00
Transferto Revenue, General &
Special Reserves 87.22
Transferto Investment Reserve (11.48)
Transferto Proposed Dividend
(including tax) 88.22
Balance carried to Balance Sheet 0.16
Total 311.12
DIVIDEND
Having regard to the overall performance of the Bank and the positive
outlook for the future, the Board of Directors recommended a dividend
of 74 per share (i.e. 40 percent on the paid up capital same as the
previous year) for the reporting year. The dividend payout ratio forthe
year works out to 24.25 percent.
EARNING PER SHARE/BOOK VALUE
The earnings per share (basic) and the book value per share as on 3V
March, 2014 stood at 716.51 and 7162 respectively.
NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
During the year under report, the net owned funds of your Bank
increased from 72857.08 crore to 73052.20 crore, registering a growth
of 6.83 percent. The Capital Adequacy Ratio stood at 13.30 percent as
on
March 31, 2014, as per BASEL II norms (Previous year 13.22 percent) and
13.20 percent as per BASEL III norms. The Bank has been consistently
maintaining the Ratio well above the minimum of 9 percent stipulated by
the Reserve Bank of India. The market capitalisation
asonMarch31,2014wasRs.22D9.14crore.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of
Rs.12840.55 crore in foreign exchange business as against Rs.10083.26 crore
in the previous year. The outstanding advances to export sector stood
at Rs.1671.01 crore as on March 31,2014.
NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Bank has been focusing on containing the non- performing assets
through better credit monitoring as well as intensified efforts to
recover the impaired assets. However, in view of continuing slow down
in the economy and delinquencies in select sectors, the Bank''s, Gross
NPAs as on March 31, 2014 has increased from Rs.638.86 crore (2.51
percent) to Rs.835.93 crore (2.92 percent) by the year end. The Net NPAs
stood at Rs.538.04 crore (1.91 percent) as against Rs.377.75 crore (1.51
percent) as on 31 st March 2013. The Provision Coverage Ratio (PCR)
computed in accordance with the RBI guidelines works out to 53.21
percent as on March 31, 2014 (Previous year 55.36 percent).
CREDIT RATING
ICRA Limited and Credit Analysis and Research Limited, ("CARE") who had
rated the Unsecured Redeemable Non-Convertible Subordinated (Lower
Tier-ll) debt instruments issued during the earlier years have retained
the rating "ICRA A" and "CARE A" respectively. The instruments with
these rating are considered to have adequate / high degree of safety
regarding timely servicing of financial obligations. Such instruments
carry very low credit risk.
DISTRIBUTION NETWORK
During the year under report, your Bank has opened 50 new branches in
11 States viz. two each in Andhra Pradesh and Rajasthan, one each in
Assam, Goa, Gujarat, Maharashtra, Uttar3khand, West Bengal, 34 in
Karnataka, three in Kerala and three in Tamil Nadu. Out of 34 new
branches opened in Karnataka, 13 are in unbanked rural centres under
financial inclusion initiatives of the Bank. Further, as per the
direction of Govt, of India, your Bank has opened 17 Ultra Small
Branches in the villages where Brick & Mortar Branches are not viable.
Further, your Bank has added 196 ATM outlets at various locations
during theyear2D13Rs.14.
As at March 31, 2014, your Bank had 1,304 Service Outlets i.e. 600
branches (which include two Corporate Finance branches at Fort, Mumbai
& New Deihi-Connaught Place, ten Agricultural Development branches, 160
specialised MSME Branches and 60 Financial Inclusion Branches), four
Extension Counters & 700 ATMs spread across 21 States and two Union
Territories. Apart from the above, your bank has 10 Regional Offices,
an International Division, a Data Centre, a Customer Care Centre, five
Service branches, two Currency Chests, two Central Processing Centres
and three Asset Recovery Management Branches.
Further, for better ambience and improved customer service, your Bank
shifted 26 branches/offices to new premises during the year 2013-14.
EMPLOYEES STOCK OPTION SCHEME
A total of 69062 equity shares were allotted to the emptoyees of your
Bank, pursuant to the exercise of options vested under the Employees
Stock Option Scheme of the Bank. Disclosure in respect of Employee
Stock Option Scheme pursuant to SEBI (Employees Stock Option Scheme and
Employees Stock Purchase Scheme) Guidelines 1999 is given in Annexure I
to this report.
DIRECTORS
Mr Sitarama Murty M, retired as a Director of the Bank upon attaining
the upper age of 70 years on 18.12.2013 as per the extant guidelines of
RBI. Messrs R VShastri and URBhat completed their term of eight years
in Office and retired from the Office as Directors of the Bank on
27,01.2014, The Board places on record its appreciation of the active
involvement and useful contribution made by the above directors.
Further, the Board has appointed Mrs Usha Ganesh (IAS Retd), former
member of Karnataka Administrative Tribunal, Bangalore and Mr Rammohan
Rao Belle, former Managing Director and CEO of SB1 General Insurance
Company Ltd, as additional directors on 31.07.2013 and 21.10.2013
respectively.
Even though one third of the total number of directors were liable to
retire by rotation at the Annual General Meeting under erstwhile
Section 256 of the Companies Act, 1956, with the coming into force the
provisions of Section 149 and 152 of the Companies Act, 2013 relating
to appointment and retirement of directors by rotation at every Annual
General Meeting w. e. f April 1,2014, your Bank has received necessary
declarations from all the directors other than whole- time director as
required under Section 149(6} of the Companies Act, 2013. The Board,
after having taken into consideration the declarations and other
information is of the opinion that all the directors of the Bank other
than whole time director are ''Independent Directors'' and therefore are
not liable to retire by rotation under Section 152 of the Companies
Act, 2013. It is proposed to reappoint them for a term as required
under Section 149(10) of the Act having regard to the provisions of the
Banking Regulation Act, 1949 and the extant guidelines at the ensuing
Annual General Meeting.
The brief resume and other details relating to the above directors who
are to be re-appointed are furnished in the notice of the Annual
General Meeting (AGM).
CORPORATE GOVERNANCE
Your Bank is committed to follow the best practices of corporate
governance to protect the interests of all the stakeholders of the
Bank, viz. shareholders, depositors, other customers, employees and the
society in general and maintain transparency at all levels. A detailed
report on corporate governance practices is given as Annexure III to
this report.
DIRECTORS'' RESPONSIBILITY REPORT
As per Section 217(2AA) of Companies (Amendment) Act, 2000, your
Directors report that:
i. The accounts for the year 2013-14 were prepared by following the
accounting standards in so far as they apply to banks.
ii. Accounting policies adopted and applied consistently by the Bank
are in tune with the RBI guidelines issued from time to time.
Reasonable prudent judgments and estimates have been made in the
accounts, so as to give a true and fair view of the state of affairs of
the Bank and of the profit of the Bank for the financial year ended
31 stMarch,2014.
iii. The Bank had taken proper and sufficient care for maintaining
adequate records in accordance with the provisions of the Companies Act
1956, in so far as they apply to banks,
iv. The annual accounts for the year ended 31s! March, 2014 have been
prepared on a "Going Concern" basis.
STATUTORY DISCLOSURES
Considering the nature of the Bank''s business, the provisions of
Section 217(1)(e) of the Companies Act, 1956 relating to conservation
of energy and technology absorption do not apply to your Bank. The
Bank has, however, used information technology extensively in its
operations.
There were no employees who were in receipt of remuneration during the
year ended March 31, 2014 requiring disclosure under section 217(2A) of
the Companies Act, 1956 read with Companies (Particulars of Employees)
Rules, 1975.
SOCIAL INITIATIVES
Businesses are an integral part of society and play a critical role in
the sustenance and improvement of a healthy ecosystem, in fostering
social inclusiveness and equity and in upholding the ethical practices
and good governance. It is believed that integrating social,
environmental and ethical responsibilities into governance of business
ensures long term successes, competencies and sustainability. With this
in mind your Bank continues to fulfil its various social
responsibilities. The Corporate Social Responsibility initiatives of
the bank are designed to ensure that the bank adds social,
environmental and economic value in all its activities to make a
positive, sustainable impact on both society and business. In this
direction, your bank has been responding well over the years through
various initiatives like participation in social, cultural,
educational, environment awareness activities etc., aimed at improving
the social values, promotion of cultural heritage, knowledge, standard
of living and the quality of life of the people and the environment at
large. The Bank firmly believes that being an integral part of society,
it is the inclusive growth of society which contributes ultimately to
the growth of the Bank and in this direction, your Bank has been
strengthening its rural orientation through initiatives aimed at
imparting financial literacy and extending banking services to the
people in rural unbanked areas, in a fair and transparent manner, at an
affordable cost. Towards this end, your Bank had opened 13 branches in
unbanked rural centres during the FY 2013-14 as part of its financial
inclusion initiative, thus taking the total Financial Inclusion
branches to 60. Your Bank had also opened 17 Ultra Small Branches, thus
taking the total number of such branches to 41 as on March 31,2014.
CUSTOMER SERVICE
The customer has always been the focal point of our initiatives. We
have been endeavouring to empower our customers by rolling out
innovalive products and services through optimal use of technology
without compromising on the quality of service rendered across the
counter and without losing sight of the safety and security aspects. In
this direction, the Bank is actively involved in putting in place
systems and procedures to comply with the recommendations of the
Damodaran Committee on Customer Service, constituted by the Reserve
Bank of India, to look into the banking services rendered to customers
and the grievance redressal mechanism prevalent in banks. Most of the
recommendations made by the said Committee have been complied with 3nd
the remaining few which require up-gradation of the Bank''s Core Banking
Solution are being pursued for early compliance.
FINANCIAL INCLUSION
Financial inclusion means making available the full range of banking
services at an affordable cost to the people who do not have access to
banking services. It mainly focuses on the section of society not
having formal financial institutional support. Through the Financial
Inclusion Plan, Bank aims at ''connecting people'' with the Bank and not
just opening accounts. This includes meeting the small credit needs of
the rural public, giving them access to the payments system, providing
remittance facility and life and health insurance. Efforts are being
made to optimize the resources to achieve the goal of extending banking
facilities to the un-banked areas f deprived sections.
All the branches of the Bank are under Core Banking Solution (CBS) and
all the branches to be opened in future will also be under CBS. Out of
600 branches, Bank has 108 Rural branches and all these branches are
provided with CBS offering all banking facilities to
the rural clientele in the gram panchayats or villages where these
branches are located. All the rural branches are acting as financial
literacy centers (FLCs) and imparting Banking literacy among the rural
Populace.
In accordance with revised Strategy & Guidelines of Department of
Financial Services (DFS), Ministry of Finance, Govt, of India,
financial inclusion plan of the Bank has been revised. Under the
revised financial inclusion plan, Bank has been allocated with 207 Gram
Panchayats consisting of 1002 villages with a population of about
10,31,000 as per 2001 census, in Karnataka, Andhra Pradesh &
Chhattisgarh states. The Gram Panchayats are being financially
included through Brick and Mortar Branches and Business Correspondents
(BC),
Brick and Mortar Branches
As on March 31, 2014 bank has covered 465 villages of 94 GPs through
Brick & Mortar Branches. 10 Branches were opened during financial year
2013-14.
Business Correspondent Services {BC Services):
Bank has entered in to an agreement with M/s BASIX Sub-k (Transaction
Ltd and M/s Integra Micro Systems Pvt. Ltd. to provide online
transaction facility and as on March 31, 2014 113 GPs with 537 villages
of Karnataka, Andhra Pradesh and Chhattisgarh states were covered under
the above arrangement. Total coverage through BC Model stood at 92 GPs
covering 512 villages as on March31,2014.
Ultra Small Branches |USBs|
During the financial year, the Bank opened 17 Ultra Small Branches,
talcing the count of USBs to 41 as on March 31, 2014 (after accounting
for upgradation of two USBs into regular Branches during the Financial
Year 2013-14).
Electronic Benefit Transfer (EBT) - Pilot Project of Govt, of Karnataka
Bank is participating in Govt, of Karnataka (GOK) EBT
Pilot project for NREGA/SSP beneficiaries under -
"One District - Many Bank Model" and has started disbursing the
payments under the above schemes to The beneficiaries using smart card
and hand held machines at 5 Gram Panchayat locations in Chitradurga,
Bella ry and Yadgir districts.
Direct Benefit Transfer (DBTI
Bank is actively participating in Direct Benefit Transfer (DBT)
Programme of Govt. India, wherein, the Govt. would transfer benefits
of various Schemes directly to the beneficiaries Aadhaar enabled bank
accounts. For this purpose, Bank has on boarded with NPCI for Aadhaar
Payment Bridge System (APBS) under National Automated Clearing House
(NACH). DBT for LPG is now implemented in 284 districts and out of
this, Bank has its presence in 103 Districts with 447 branches,
Financial Literacy and Credit Counseling Centers
(FLCCs)
Bank has sponsored two FLCCs at BC Road and Kundagol in Karnataka
State. During the financial year FLCCs sponsored by the Bank has
conducted 212 Financial Literacy campaigns and 11763 participants had
been covered. In adherence to RBI guidelines all the rural branches of
our Bank are conducting financial literacy Camps.
AWARDS AND RECOGNITIONS
Your Bank bagged the following awards during the year under report in
recognition of its achievement under customer relations, risk
management, HR, technology initiatives as well as for social banking
and lending for export promotion.
1. The Sunday Standard Best Bankers'' Awards 2013:
0 Best Banker award for customer orientation amongst private sector
banks.
ii) Best Banker award for customer friendliness in midsized bank
category
iii) Best Banker for HR amongst private sector banks.
2. IDRBTawards:
i) Best Bank award among small banks for managing IT risk
ii) Best Bank award among small banks for use of IT in business
innovation
3. IBA Banking awards:
Second runner up in the category of the best customer management
initiative amongst private sector banks.
4. ASSOCHAM social banking excellence awards 2013:
i) Runner-up of ASSOCHAM social banking excellence awards 2013 under
the private sector banks category.
5. Southern region export excellence award 2012-13 from Federation of
Indian Export
Organisation (FIEO)
6. BFSI best bank (private sector} award,
Further IMQA, a leading assessment, verification and certification body
accredited to the United Kingdom Accreditation Service (UKAS) has
renewed ISO 27001:2005 certificate for our three IT set-ups viz. Data
Centre, Near Line Site and Head Office - IT Department including
Disaster Recovery Site.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to
the Reserve Bank of India, other government and regulatory authorities,
financial institutions and correspondent banks for their continued
guidance and support. Your directors also place on record their
gratitude to the Bank''s shareholders, depositors and other customers
for their continued support, patronage and goodwill. Your directors
express their deep sense of appreciation to a!l the staff members, for
their contribution in your Bank''s quest for sustained growth and
profitability and look forward to their continued contribution in
scaling greater heights,
For and on behalf of the Board of Directors
Place: Bangalore Ananthakrishna
Date : 07.06.2014 Chairman
Mar 31, 2013
The Directors have pleasure in presenting the Eighty Ninth Annual
Report together with the Audited Statement of Accounts for the year
ended, 31st March 2013 and the Auditors'' Report.
PERFORMANCE HIGHLIGHTS
Your Directors are pleased to inform that during the year under report,
your Bank has been able to achieve satisfactory growth in Its business.
Performance highlights for the financial year in the key financial
Areas areas under
(Rs.in Crore)
Particulars As on/for the As on / for the
year ended year ended
31,03,2013 31.03.2012
Deposits 36055.33 31508.32
Advances 25207,53 0720.70
Invest mints 134324 12041.23
Gross Income 41.33 3447.27
Operating Profit 35.34 510.21
Net Pruitt 345.05 246.07
The total business turnover of the Bank was Rs.61263.90 crore easy on
31st March 2013, an increase of 17.07 parent over the preceding
year. The total assets of the Bank increased team Rs.36321.57 crore to
Rs.41526.38 crorO recording a growth (Of 14.33 percent for the year
2012-13.
The total deposits of the Bank gnu from Rs. 31605.32 crore as on 31st
March, 2012 to Rs. 30055.22 crore as on 31st March 2013, registering a
growth of 14.07 percent [During Ihe year, low cost deposits of the Bank,
viz, Savings and Currant Account Deposits, have shown growth of 15.71
percent. The market share of the Bank In deposits was 0.52 percent as
against 0.51 percent last year.
The total advances grew from Rs. 20720. crore as on 31st March, 2012
to Rs.2520 /.SB crore as on 31 st March. 2013, an increase of 21.65
percent. The priority sector ad van necks increased from Rs.7570.27 re
to Rs.9362.52 crore forming 45.19 percent of ANBC as against 40 percent
stipulated by RBI and agricultural advances increased from Rs. 556.35
crore to Rs.3715.24 crore Rs.16.47 percent of ANBC as against
stipulated 15 percent, lending under various socio-economic schemes
has shoo Win sat is-actor tog rasps. The market share of the Bank in
loans and advances remained at 0.43 percent.
As on 31st March, 2013 the total investments of the Bank stood at Rs.
13432.48 crore as against Rs.12841.23 crore as on 31st March 2012,
an increase of 4.60 percent.
0PERATIONAL PERFORMANCE
In the competitive and challenging business environment, the overall
parlor née of you'' Bank during the year 3013-13 was satisfactory. The
gross income of this Bank was Rs. 4161.93 crons and total expenditure
{excluding provisions and contingencies) was Rs. 3526.59 crore. The net
interest income was Rs. 903.73 crore.
PROFIT
Your Hank earned an overhang profit of f 535.34 crore lord tint year 20
t203 as against T 510.21 crore for the previous year showing a growth
0f Rs.4,53 percent The net profit of the Bank Increased from Rs. 246.07
crore to Rs.348.08 crons.
APPROPRIATIONS
The net profit of Rs. 340.08 crore which along with a sum of
Rs.0.09 crore brought forward from the previous yeast, aggregating
Rs.343.11 crore, appropriated as under. The corresponding figure for
the previous year was. 10 Crore
Appropriation Rs.In Crore
Transfar to Statutory Raserve 160.00
Transter to Capital Reserve 3.25
Tfsnsfer to Revenue, Genera
Specie I Reserves 85.11
Transfer to Invastmenl Reserve 11.47
Transferto Proposed Dividend
(including tax) Be, is Balance
carried to Balance Sheet 0.09
TOtal 348.11
DIVIDEND
Having regard to the overall performance of the Bank and the positive
outlook for the future, the Board of Directors recommended a dividend
or 40 percent for the reporting year. The dividend payout ratio for the
year works out to 21.66 percent.
EARNINGS PER SHARE/BOOK VALUE
The earnings per share (basic) and the book value of the shares as on
31st March, 2013 stood at Rs. 18.48 and Rs. 151.70 respectively.
NET OWNED FUNDS AND CAPITAL ADECUACV RATIO
In order to augment its Capital funds, during the year under report
your Bank has raised Rs.250 crore by way of issue of Unsecured
Redeemable Non-Convertible Subordinated (lower Tier-II) debt
instruments redeem noblest the end of 10 years on private placement
basis lacing The aggregate of such funds raised to Rs. 600 crore.
During the year under review, the net owned funds of your
Bank increased from Rs. 2598.21 crore to Rs. 2857.08 crore,
registering a growth of 9.96 percent, The Capital Adequacy Ratio
stood at 13.22 percent as on 31-03-2013, as per BASEL II norms
(Previous year 12.84 percent). Tha Bank has been consistently
maintaining the Ratio well above the ininlrnum of 9 patent stipulated
by the Reserve Bank of India. The markets capitalisation as on March
31,201A was Rs.2462.59 Crore
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs.
10083.26 crors in foreign exchange business as against Rs.9243.71 crors
tha previous year. The out standing ad vanes to export set tor snood
at Rs. 1702.09 crore as on 31-03-2013.
NON PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Dank has been focusing on containing the non- performing assets
through better credit mentoring as well as intensified efforts to
recover The impaired assets Ranch''s. Cross Nash''s on 31st March, 13 had
decreased from f 6B4.72 crore (3.27 percent) to
Rs.638.88 crore by the year end (2.51 percent). The Net NPAs stood at
Rs.377.75 crors (1.51 percent) as against Rs. 435.20 crore (2.11 percent)
as on 31st March 2012. The Provision Coverage Fabio (PCR) computed in
accordance with the RBI guidelines works out to 55.36 portent as On
March 31. 2013 (Previous year 47.18 percent).
CREDIT RATING
The credit rating agency. ICRA Ltd. (ICRA) has accorded ''A1 ''rating
to the Banks Certificate of Deposit Programmed. The rating symbol,
indicates tha highest degree of safety for timely payment of
principal and interest.
The Unsecured Redeemable Non-Converti&ie Subordinated (lower Tier-H)
debt issued during the year have teen rated (pronounced A) by JCRA
Limited ("ICRA"} and ''CARE A''(s ingle A) by
Credit Analysis and Research Limited, ("CARE"). The above rating
agencies have also retained the fating "tsar A'' and "CARE A"
respective I; assigned to the subordinated debt instruments of crore
issued by the Bank during the earlier years. The instruments with
these rating are considered to have adequate/high degree of safety
regarding timely servicing or financial obligations. Such
DISTRIBUTION NETWORK
During the year under report, your Ban has opened 47 new branches in 1
Rs.slates i.e three in Andhra Pradesh
one in Delhi, one in Goo. three in Haryana, one in Jharkhand, 32 in
Karnataka one in Getafe. one in Madyapradesh, one in Maharashtra, one m
Odessa. one n laminate and one in West Bengal Out to 32 new branches
opened in Karnataka, lore Branches opened under the financial
inclusion phi Further, as per the direction of Goal. of India (GOI),
your Sank has opened £6 Ultra Small Branches in the villages where
Brick & Mortar Branches are not viable, in addition (o these branches,
your Bank also opened an Extension counter at feta Group of
Educational Institution. l. Bangalore. Further, your Bank
added 152 ATM outlets at various locations during the yea* £012-13.
As at 31st March, £01 S. your Dank had 1.056 Service Outlets I.e. 550
branches {which include one Corporate Finance branch at Fort Mumbai, an
Agricultural [development Branch at Chick magi a lure, 160 specialized
MSME branches, IB financial Inclusion branches] Four extension counters
and 504 ATMs, five service branches, two currency chests, three asset
recovery management branches, 10 Regional Offices, an
Division, a Data Centre, a Customer Care Centre, and two Central
Processing Centers spread across 20 States and two Union Territories.
Further, for better ambience and improved customer service, your Bank
had shifted 21 to new premises du ring 2012-13.
EMPLOYE STOCK OPTION SCHEM 6
A total of 59020 equity shares wore allotted to though employees of your
Bank, pursuant to the exercise of options vested under the Employee
Stock Option Scheme of the Bank. Disclosure In respect of Employee
Stock Option Scheme pursuant to SEDI (Employee Stock Option Scheme and
Employee Snick Purchase Scheme} Guidelines tS99 is given in Annexure I
to this report.
DIRECTORS
Messrs U R Bhat. Bitarama Marty m arid S V Maniunath are retiring by
rotation and are eligible for re- appointmarrt at I he forthcoming
Annual General Meeting Mr S R Hate, ret irked as Director of the Bhnk
upon attaining the upper age limit of years was Rs. 02.07,2012 as per
the extant guidelines of RBI . The Board places on record Its
appreciation of the active involvement and useful contribution made
Mr S R Hedge during his tenure a Director of the Bank
Further, the Board has appoiniad Mr Ashok Haranahalli, Senior Advocate,
Bangalore (former Advocate General - Government of Karnataka} as an
Additional Director under Section the Companies Act, 1956. The
brief resume and other details regaling to the directors who are to he
re- appointed are furnished in the notice of the Annual General Meeting
CORPOHATB governance
Your Bank is committed to following the best practices of Corporate
governance to protect the interests of ell the stakeholders old the
Bank, vii. shareholders, depositors, other customers. employees and the
society in general and maintains transparency at all levels. A detailed
report on corporate governance practices & given as Annexure ill to
this report.
DIRECTORS'' RESPONSIBILITY REPORT
As per Section ai7(2AA) to Companies (Amendment) Act. £000, your
Directors report that:
r. The accounts for the year 2012-13 were prepared by following the
accounting standards in so far as they apply to banks.
il. Accounting pedicles adopted and applied consistently by Bank
are in tune with the RBI guidelines issued from time to time.
Reasonable prudent judgments and estimates have been made m the
accounts, so as to give a true and fair view to the state orate iris
of the Bank and of the profit opt the Bank for the financial year ended
31st March, 2013.
LI. The Bank had taken proper and sufficient care for maintaining
adequate records m accordance with the provisions opt the Companies Act
195C. in so tar a* they apply to banks.
iv. The annual accounts for the year ended 31st March, 2013 have been
prepared on a "Going Concern'' basis.
STATUTORY DISCLOSURES
Considering the nature the Bank''s business, the provisions old
Section 217(1) (e) of the Companies Act. 1relating to conservation of
energy and technology absorption do not apply to your Bank. The Bank
has. however, used information tech no logy extensively in its
operations.
There were no employees who ware In receipt of remuneration during the
year ended March 31, 2D13 requiring disclosure under Section 2l7(2A) of
the Com panics Act. 195G read with Companies (Pa reticule airs of
Employees) Rules, 1975.
SOCIAL INITI ATIVES
Businesses ere an integral part of society and have a critique active
role in the sustenance and improvement of a healthy ecosystem in
fostering social inclusive nests rib aqua and u pho Id el
hi I practices and good governance. It is believed that integrating
social, environ mental and ethical responsibilities into governance of
business ensures long term successes, competencies and sustainability.
With this in mind your Bank continues to engage in accepting various
social responsibilities. The Corporate Social Responsibility
initiatives the Hank are designed to ensure Bank adds
social environmental and economic mail its activities to make a
positive. sustainable impact on both society and business. In this
direction the Bank has been responding well over the years through
various initiatives like participation in social, cultural.
educational activities etc., aimed at improving the knowledge, standard
of lowing and he quality of life of the people and society. The Bank
firmly believes that being an integral part of society, it Is the
inclusive growth of society which contributes ultimately to the growth
of If Bank.
FINANCIAL INCLUSION
Financial Inclusion means making available the full range of banking
services an affordable cost to the people who do not have access to
banking services. It mainly focuses on the section of society not
having formal financial institutional support, Through the Financial
Inclusion Phan, Bank arms at ''connecting people'' With the Bank and not
just opening accounts This includes meeting the small credit needs of
the rural public, giving them access the payments, providing
remittance facility and life and health insurance, Efforts arc being
made (a optimize the resources to achieve the goal extending banking
facilities to the un-ban rived sections.
All the branches of the Bank are under Core Banking Solution (CSS) and
all the branches to be opened in future will also be under CBS. Out of
5SQ branches, Bank has 108 Rural branches and all these branches are
provided with offering all banking facilities la the rural clientele in
the Gram or villages Where are located. the rum I branches are acting as
financial literacy centers (fl-Cs) and imparting Banking literacy among
the rural Populace
Summary of activities undertaken by the Bank under Financial Inclusion
Initiatives a re as under
1) Financial Literacy and Credit Counseling
The Ban first F LOC Center opened in B ,C Road. Banta. Karnataka
for the financial year 201l conducted 17E financial literacy
campaigns covering 55 visages The second FLCC Center was opened at
Dharma District, Karnataka on 16.03.£013, in association
with JnanaJyolhi F LCC Trust Mani pal. guidelines all
the rural branches of your Bank are conducting financial literacy camps
In the financial year 2013-14, the Bank is planning to open four
{additional FLCC Centers in Karnataka State In association worth Janna
Mythoi, Mani pal.
2) Karnatake Farmers Resource Center (KFRC)
The Bank ig one of the trustees of the Karnataka farmers Resource
Center
The Bank has contributed 50lakh towards capital
expenditure/corpus of KFPC, 3) Electronic Benefit Tan (EBT) - Pilot
Project of Govt, of Karnataka:-
The Bonk is Participating in Govt, of Karnataka (GOK) EBT Plot project
for NREGA/SSP beneficiaries under - "One District -Many Bank Model''
with tie up arrangement with M''s Integra Micrcsysle/ns for
technology as we as for providing seen/ice Payments under EBT have
commenced in five Gram Panchayath locations in Chitradunga, Bellary and
Daygirl districts. During the financial year 201 £-13. the Bank has
disbursed an amount of Rs. £0.04 laths under NREGA/5SP payments scheme
by using smart card and hand held machines
4) Revised Strategy and Guidelines for Financial Inclusion Plan
In tune with the revised Strategy & Guidelines of Department of
Financial (DFS), Ministry of Finance, GO I. the; Finn
ion Plan of the Bank has been revised . Under the revised Plan.
207 Gram consisting of 1002 villages with a (octal population
old about 10,31,000 as per census naps been allocated to The Bank
in Karnataka, Andhra Pradesh & Chhattisgarh states. Gram Panchayats
( 40s villages with a total population of about 5,23,099 as per 2001
census) are covered by brick and mortar branches. These branches wilt
be responsible for all financial inclusion activities. During
the financial year, the Bank has opened 10 small branches across the
country in rhe remaining Gram Panchayals consisting of 591 villages
with an approximate population of &, 11,059 as per Z001 census, banking
services will be provided through Business Correspondent Model with
Ultra Small Branches (USBs). As on date the Bank has o pond 2 S
USBs in Tucker, Mysore, Darwin (Karnataka agate) and Ananlhpur
Districts (Andhra Pradesh State). The remaining locations will he
covered by 31.12.2013.
5} Direct Boniest "transfer:
The Bank is actively participating in Direct Benefit Transfer (DST)
programmed of Golf wherein, benefits under various schemes will be
transferred directly to beneficiaries of ''Adhere'' enabled bank
accounts. For this purpose, the Bank has already on boarded with Nepal
for Adhere Payment Bridge System (APBS) under National Automated
Clearing House (NACH). In the directing more than lakh accounts had
been seeded with Adhere number, out of which, 40.000 accounts had been
enabled as ''Adhere Edna bled Accounts''
AWAROS A N D RE COGNIT10 N S
Bank bagged the following awards during the year unite re|jort
in recognition of its technology initiatives, operational excel e one
and I nests:
1) I BA Banking Tech no logy Awards 5011 Adjudged as Hoe Second Runner
Up for the Best Finance Inclusion Initiatives under the category of
Private Sector Banks.
2) I BA Banking Technology Awards SG11 Adjudged as the Second Runner Up
for the Best Risk Management and Security Initiatives under I he
category of Private Sector Banks.
3) NFS- Operational Excellence Awards 20i£: Special Jury Award for
Excellent Performance in Key Parameters in respect of ATMs and Switch
con nested to N FS ATM network.
4} ''Best Banker in Customer Friend Irises-Runner Up'' award in the
Midsized: Banks'' category at the ''Sunday Standard Finn 201 £ Best
Bankers'' awards instituted by the New Indian Express Group.
Further, your Bank has received ISO 27001:2005 certificate tor three IT
set-ups . Data Centre, Near Line Site and Head Office -IT Department
including Disaster Recovery Site from NQA, a leading assessment,
verification and certification body accredited to the United Kingdom
Accreditation Service Lukas)
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to
the RBi. other government and regulatory authorities, financial
institutions and correspondent banks for their continued guidance and
support. Your directors also place on record their gratitude to the
Bank''s shareholders, depositors and other Customers tor their continued
support, paranoia and goodwill. Your directors express their deep
sense of appreciation to the employees, tor their contribution In your
Banks quest for sustained growth and profitability arid look forward
to their continued confab untie in scaling greater heights
For and on behalf of he Board of Directors
Place; Mangalore Ananlhakr Istina
Date : May 15th, 2013 Chairman
Mar 31, 2012
The Directors have pleasure in presenting the Eighty Eighth Annual
Report together with the Audited Statement of Accounts for the year
ended, 31st March 2012, and the Auditors' Report.
PERFORMANCE HIGHLIGHTS
Your Directors are pleased to inform that during the year under report,
your Bank has been able to achieve three important milestones viz. (1)
the turnover of your Bank crossed Rs. 50,000 crore (2) number of branches
crossed 500 and (3) the client base has increased to over 50 lakh.
Performance highlights for the financial year in the key financial
areas are as under:
(Rs. in Crores)
Particulars As on / for the As on / for the
year ended year ended
31.03.2012 31.03.2011
Deposits 31608.32 27336.45
Advances 20720.70 17348.07
Investments 12841.23 11506.34
Gross Income 3447.27 2662.60
Operating Profit 510.21 355.29
Net Profit 246.07 204.61
The total business turnover of the Bank was Rs. 52329.02 crore as on 31st
March 2012, an increase of 17.11 per cent over the preceding year. The
total assets of the Bank increased from Rs. 31693.01 crore to Rs. 36321.57
crore recording a growth of 14.60 percent for the year 2011-12.
The total deposits of the Bank grew from Rs. 27336.45 crore as on 31st
March, 2011 to Rs. 31608.32 crore as on 31st March 2012, registering a
growth of 15.63 per cent. During the year, low cost deposits of the
Bank, viz. Savings and Current Account Deposits, have shown growth of
14.12 per cent due to the various measures undertaken by the Bank. The
market share of the Bank in deposits was 0.51 percent.
The total advances grew from Rs. 17348.07 crore as on 31st March, 2011 to
Rs. 20720.70 crore as on 31st March, 2012, an increase of 19.44 per cent.
While agricultural advances increased from Rs. 2031.23 crore to Rs. 2586.36
crore, the priority sector advances increased from Rs. 6238.36 crore to Rs.
7570.27 crore. Lending under various socio-economic schemes has shown
satisfactory progress. The market share of the Bank in loans and
advances was 0.43 per cent.
As on 31st March, 2012 the total investments of the Bank stood atRs.
12841.23 crore as against Rs. 11506.34 crore as on 31st March 2011, an
increase of 11.60 per cent.
OPERATIONAL PERFORMANCE
Under the competitive and challenging business environment, the overall
performance of your Bank during the year 2011-12 was satisfactory. The
gross income of the Bank was Rs. 3447.27 crore and total expenditure
(excluding provisions and contingencies) was Rs. 2937.06 crore. The net
interest income was Rs. 744 crore.
PROFIT
Your Bank earned an operating profit of Rs. 510.21 crore for the year
2011-12 as against Rs. 355.29 crore for the previous year showing a
growth of 43.60 per cent. The net profit of the Bank increased from Rs.
204.61 crore to Rs. 246.07 crore.
APPROPRIATIONS
The net profit of Rs. 246.07 crore which along with a sum of Rs. 0.03 Crore
brought forward from the previous year aggregating Rs. 246.10 crore, is
appropriated as under The corresponding figure for the previous year
was Rs. 204.63 crore
Appropriation Rs. in Crore
Transfer to Statutory Reserve 110.00
Transfer to Revenue, General &
Special Reserves 59.48
Transfer to Investment Reserve Account 0
Transfer to Proposed Dividend (including tax) 76.59
Balance carried to Balance Sheet 0.03
Total 246.10
DIVIDEND
Having regard to the overall performance of the Bank and the positive
outlook for the future, the Board of Directors recommended a dividend
of 35 per cent for the reporting year. The dividend payout ratio for
the year works out to 26.78 percent.
EARNING PER SHARE/BOOKVALUE
The earnings per share (basic) and the book value of the share as on
31st March, 2012 stood at Rs. 13.07 and Rs. 137.99 respectively.
NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
During the year under review the net owned funds of your Bank increased
from Rs. 2429.09 crore to Rs. 2598.21 crore, registering a growth of 6.96
per cent. The Capital Adequacy Ratio stood at 12.84 per cent as per
BASEL II norms (Previous year 13.33 per cent). The Bank has been
consistently maintaining the Ratio well above the minimum of 9 per cent
stipulated by the Reserve Bank of India. The market capitalisation as
on March 31, 2012 was Rs. 1800.94 crore.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs.9243.71
crore in foreign exchange business as against Rs. 9006.19 crore in the
previous year. The advances to export sector stood at Rs. 1454.41 crore.
NON-PERFORMING ASSETS AND PROVISION COVERAGE RATIO
Your Bank has been focusing on containing the non- performing assets
through better credit monitoring as well as intensified efforts to
recover the impaired assets. Bank's Gross NPAs as on 31st March, 2012
have decreased from Rs.702.17 Crore (3.97percent) to Rs. 684.72 crore (3.27
percent) by the year end. The Net NPAs stood at Rs. 435.20 (2.11 per
cent) as against Rs. 280.34 crore (1.62per cent) as on 31st March 2011.
The Provision Coverage Ratio (PCR) computed in accordance with the RBI
guidelines works out to 47.18% as on March 31,2012 (Previous year
60.08%).
CREDIT RATING
The credit rating agency ICRA Ltd. (ICRA) has accorded 'A1 ' rating to
the Bank's Certificate of Deposit Programme. The rating symbol, 'A1 '
indicates highest degree of safety for timely payment of principal and
interest.
Further, ICRA has revised the rating from ICRA A to "ICRA A"
(pronounced ICRA A) and Credit Analysis & Research Limited (CARE) has
re-affirmed "CARE A (Single a Plus) ratings, (indicating adequate
degree of safety regarding timely servicing of financial obligations.
Such instruments carry low credit risk), in respect of Rs. 350 crore
raised by the Bank during the previous years, byway of Unsecured
Redeemable Non-Convertible Subordinated (lower Tier-II) debt
instruments. Your Bank would continue its efforts in improving upon the
above Ratings.
DISTRIBUTION NETWORK
During the year under report, your Bank opened its 500th branch at
Shirur in Karnataka State on 29.03.2012. A total 25 new branches were
opened viz at Tanuku, Karimnagar Miryalguda and L B Nagar in Andra
Pradesh, Toranagallu Siddalingapura, Yellapur, Bangalore-
Rajarajeshwarinagar Siruguppa, Bangalore à Metropolitan Magistrate
Court, Kunigal, T Narsipura, Kairangala, Horanadu, Kampli, Sira,
Shirur, Yadgir, Indi, Nippani in Karnataka, Gwalior, in Madhyapradesh,
Rourkela in Orissa, Chennai- Velachery in Tamilnadu, Baruipur and
Memari in West Bengal. Further, your Bank added 85 ATM outlets at
various locations during theyear2011-12.
As at 31 March, 2012, your Bank had 503 branches (including one
Corporate Finance branch at Fort Mumbai and Agricultural Development
branch at Chick magalore), 352 ATM outlets, 10 Regional Offices, an
International Division, a Data Centre, a Customer Care Centre, 5
Service branches, 2 Currency Chests, 3 Extension Counters, 2 Central
Processing Centers and 3 Asset Recovery management branches spread
across 20 States and 2 Union Territories. Further, for better ambience
and improved customer service, your Bank shifted 27
branches/officestonewpremises,duringtheyear2011-12.
EMPLOYEES STOCKOPTION SCHEME
A total of 93468 equity shares were allotted to the employees of your
Bank, pursuant to the exercise of options vested under the Employees
Stock Option Scheme of the Bank. Disclosure in respect of Employee
Stock Options Scheme pursuant to SEBI (Employees Stock Options Scheme
and Employees Stock Purchase Scheme) Guidelines 1999 is given in Annexure
I to this report.
DIRECTORS
Messrs Ananthakrishna, D. Harshendra Kumar and Dr. H. Ramamohan are
retiring by rotation and are eligible for re-appointment at the forth
coming Annual General Meeting. Their brief resume and other details are
furnished in the notice of the meeting.
CORPORATE GOVERNANCE
Your Bank is committed to following the best practices of corporate
governance to protect the interests of all the stakeholders of the
Bank, viz. shareholders, depositors, customers and employees and the
society in general and maintains transparency at all levels. A detailed
report on corporate governance practices is given as Annexure III to
this Report.
DIRECTORS' RESPONSIBILITY REPORT
As per Section 217(2AA) of Companies (Amendment) Act, 2000, your
Directors report that:
i. The Accounts for the year 2011-12 were prepared by following the
Accounting Standards in so far as they apply to banks.
ii. Accounting policies adopted and applied consistently by the Bank
are in tune with the RBI guidelines issued from time to time.
Reasonable prudent judgments and estimates have been made in the
accounts, so as to give a true and fair view of the state of affairs of
the Bank and of the profit of the Bank for the financial year ended
31st March 2012.
iii. The Bank had taken proper and sufficient care for maintaining
adequate records in accordance with the provisions of the Companies Act
1956, in so far as they apply to banks.
iv. The annual accounts for the year ended 31st March 2012 have been
prepared on a "Going Concern" basis.
STATUTORY DISCLOSURES
Considering the nature of the Bank's business, the provisions of
Section 217(1) (e) of the Companies Act, 1956 relating to conservation
of energy and technology absorption do not apply to your Bank. The Bank
has, however, used information technology extensively in its
operations.
There were no employees who were in receipt of remuneration during the
year ended March 31, 2012 requiring disclosure under section 217(2A) of
the Companies Act, 1956 read with Companies (Particulars of Employees)
Rules, 1975.
SOCIAL INITIATIVES
Businesses are an integral part of society and have a critical active
role in the sustenance and improvement of a healthy ecosystem in
fostering social inclusiveness and equity and to uphold the ethical
practices and good governance. It is believed that integrating social,
environmental and ethical responsibilities into governance of business
ensures long term successes, competencies and sustainability With this
in mind your Bank continues to engage in accepting various social
responsibilities. The Corporate Social Responsibility initiatives of
the bank are designed to ensure that the bank adds social,
environmental and economic value in all its activities to make a
positive, sustainable impact on both society and business. In this
direction the bank has been responding well over the years through
various initiatives like participation in social, cultural, educational
activities etc., aimed at improving the knowledge, standard of living
and the quality of life of the people and society The Bank firmly
believes that being an integral part of society, it is the inclusive
growth of society which contributes ultimately to the growth of the
Bank.
FINANCIAL INCLUSION
Financial Inclusion is making available the full range of banking
services at an affordable cost to the people who do not have access to
Banking Services. It mainly focuses on the section of society not
having formal financial institutional support.
Your Bank has taken up implementation of Financial Inclusion in 80
villages across Karnataka, Chattisgarah and Andhra Pradesh by utilizing
appropriate information and Communication Technology (ICT) based model
using Business Correspondents Model in 69 villages and "Brick and
Mortar" branch models in 11 villages, for extending banking services
in every village having a population of over 2000. Your bank has opened
its first Financial Inclusion Branch at Kairangala and the second
on eat Horanadu.
With a view to spread awareness on financial services available from
banks to the members of general public and to spread financial
education and financial literacyto the common man at the remotest
Village in the service area of the Bank, your Bank has implemented the
mobile van model of Financial Inclusion Resource Center (FIRC) and has
covered about 854 service area villages by 31.03.2012. Further, to
educate the people in rural and urban areas regarding various financial
products and services available from the financial sector, to provide
financial counseling services regarding responsible borrowing and debt
counseling and restructuring, your Bank has opened its first Financial
Literacy Credit Counseling Center (FLCC) at B. C Road, Bantwal by
joining hands with Syndicate Bank and Vijaya Bank, as an institutional
sponsorer.
Further your Bank is a Trustee of the Karnataka Farmers Resource Center
(KFRC) set up by State Level Bankers Committee (SLBC), Karnataka at
Bagalkot, Karnataka. It serves as a resource center and provides
bridging services to the farmers to develop the managerial capacity of
farmers. It also coordinates the services of various service providers
to provide training, consultancy: counseling and reference services.
Your Bank is also participating in the pilot project of the Govt. of
Karnataka for Bio-Metric Smart Card based payment system (Electronic
Benefit Transfer) for National Rural Employment Guarantee Scheme
(NREGS) and Social Security Pension (SSP) beneficiaries covering
Chitradurga, Yadgir and Bellary Districts in Karnataka.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to
the Reserve Bank of India, other government and regulatory authorities,
financial institutions and correspondent banks for their continued
guidance and support. Your Directors also place on record their
gratitude to the Bank's shareholders, depositors and other customers
for their continued support, patronage and goodwill. Your Directors
express their deep sense of appreciation to the employees, for their
contribution in your Bank's quest for sustained growth and
profitability and look forward to their continued contribution in
scaling greater heights.
For and on behalf of the Board of Directors
Place: Mangalore Ananthakrishna
Date : 18.05.2012 Chairman
Mar 31, 2011
The Directors have pleasure in presenting the Eighty Seventh Annual
Report, the Audited Balance Sheet as at 31st March 2011 and the Profit
& Loss Account for the year ended, 31st March 2011, along with the
Auditors Report.
PERFORMANCE HIGHLIGHTS
Performance highlights for the financial year in the key financial
areas are as under: -
(Rs. in crore)
Particulars As on /for the As on / for the
year ended year ended
31.03.2011 31.03.2010
Deposits 27336.45 23730.65
Advances 17348.07 14435.68
Investments 11506.34 9992.05
Gross Income 2662.60 2354.68
Operating Profit 355.29 260.84
Net Profit 204.61 167.12
The total business turnover of the Bank was Rs. 44684.52 crore as on
31st March 2011, an increase of 17.08 per cent over the preceding year.
The total assets of the Bank increased from Rs. 27021.57 crore to Rs.
31693.01 crore recording a growth of 17.29 percent for the year
2010-11.
The total deposits of the Bank grew from Rs. 23730.65 crore as on 31st
March, 2010 to Rs. 27336.45 crore as on 31st March 2011, registering a
growth of 15.19 per cent. During the year, low cost deposits of the
Bank, viz Savings and Current Account Deposits, have shown an
impressive growth of 23.23 per cent due to the various measures
undertaken by the Bank. The market share of the Bank in deposits was
0.53 per cent.
The total advances grew from Rs. 14435.68 crore as on 31st March, 2010
to Rs. 17348.07 crore as on 31st March, 2011, an increase of 20.17 per
cent. While agricultural advances increased from Rs. 1609.16 crore to
Rs. 1961.14 crore, the priority sector advances increased from Rs.
5252.96 crore to Rs. 6238.36 crore. Lending under various
socio-economic schemes has shown satisfactory progress. The market
share of the Bank in loans and advances was 0.44 per cent.
As on 31st March, 2011 the total investments of the Bank stood at Rs.
11506.34 crore as against Rs. 9992.05 crore as on 31st March 2010, an
increase of 15.15 per cent.
OPERATIONAL PERFORMANCE
Under the competitive and challenging business environment, the overall
performance of Your Bank during the year 2010-11 was satisfactory. The
gross income of the Bank was Rs. 2662.60 crore and total expenditure
(excluding provisions and contingencies) was Rs. 2307.32 crore. The net
interest income was Rs. 612.48 crore.
PROFIT
Your Bank earned an operating profit of Rs. 355.29 crore for the year
2010-11 as against Rs. 260.84 crore for the previous year showing a
growth of 36.21 per cent. The net profit of the Bank increased from Rs.
167.12 crore to Rs. 204.61 crore.
APPROPRIATIONS
The net profit of Rs. 204.61 crore which along with a sum of Rs. 0.02
Crore brought forward from the previous year, aggregating Rs. 204.63
crore, is appropriated as under. The corresponding figure for the
previous year was Rs. 167.15 crore.
Appropriation Rs. in Crore
Transfer to Statutory Reserve 100.00
Transfer to Revenue, General & 46.40
Special Reserves
Transfer to Investment Reserve -7.20
Account
Transfer to Proposed Dividend 65.41
(including tax)
Balance carried to Balance Sheet 0.02
Total 204.63
DIVIDEND
Having regard to the overall performance of the Bank and the positive
outlook for the future, the Board of Directors recommended a dividend
of 30 per cent for the reporting year. The dividend payout ratio for
the year works out to 27.59 per cent.
EARNING PER SHARE/BOOK VALUE
The earnings per share (basic) and the book value of the share as on
31st March, 2011 stood at Rs. 15.20 and Rs. 129.08 respectively.
ISSUANCE OF FRESH EQUITY SHARES
During the year under report your Bank issued 5,37,69,935 equity shares
of Rs. 10 each at a price of Rs. 85 per share including a premium of
Rs. 75 per equity share on Rights basis in the ratio of Two equity
shares for every
Five equity shares held, aggregating Rs. 457.04 crore as permissible
under SEBI (ICDR) Regulations, 2009. The issue has been over subscribed
by 1.53 times. After keeping in abeyance entitlements to the extent of
1320 shares, as the entitlements were sub judice, the Board has
allotted 5,37,68,615 equity shares on 31.3.2011. The Board of
Directors places on record its appreciation for the confidence reposed
by the share holders of the Bank and thanks them for their response to
the Rights issue. Further 4,45,715 equity shares were allotted to the
employees of your Bank, pursuant to the exercise of options vested
under the Employees Stock Option Scheme of the Bank. The issuance of
equity shares has helped the Bank to improve its capital funds and the
Capital Adequacy Ratio as on March 31, 2011.
NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
During the year under review the net owned funds of your Bank increased
from Rs. 1832.75 crore to Rs. 2429.09 crore, registering a growth of
32.54 per cent. The Capital Adequacy Ratio stood at 13.33 per cent as
per BASEL II norms (Previous year 12.37 per cent). The Bank has been
consistently maintaining the Ratio well above the minimum of 9 per cent
stipulated by the Reserve Bank of India. The market capitalisation as
on March 31, 2011 was Rs. 2022 crore.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs.
9006.19 crore in foreign exchange business as against Rs. 8605.93 crore
in the previous year. The advances to export sector increased from Rs.
1369.12 crore to Rs. 1502.04 crore.
NON-PERFORMING ASSETS
Your Bank has been focusing on containing the non- performing assets
through better credit monitoring as well as intensified efforts to
recover the impaired assets. However in view of delinquencies in select
sectors, the Banks, Gross NPAs as on 31st March, 2011 have increased
from Rs. 549.64 crore (3.73 per cent) to Rs. 702.17 crore by the year
end (3.97 per cent). The Net NPAs stood at Rs. 280.34 (1.62 per cent)
as against Rs. 188.61 crore (1.31 per cent) as on 31st March 2010.
CREDIT RATING
The credit rating agency, ICRA Ltd. (ICRA) has accorded ÃA1+ rating to
the Banks Certificate of Deposit Programme. The rating symbol, ÃA1+
indicates highest degree of safety for timely payment of principal and
interest.
Further, ICRA and Credit Analysis & Research Limited (CARE) have
re-affirmed LA+ (pronounced L A plus) and ÃCARE A + (Single A Plus)
ratings assigned respectively
indicating adequate credit quality to Rs. 350 crore raised by the Bank
during the previous years, by way of Unsecured Redeemable
Non-Convertible Subordinated (lower Tier-II) debt instruments.
DISTRIBUTION NETWORK
Your Bank opened its ninth Regional Office in Hyderabad on 30th April,
2010 for operational convenience. During the year under report, your
Bank opened 14 new branches at Arsikere à Hoysaleshwara College Campus,
Kadur, Bangalore - Varthur, Bangalore - Raghuvanahalli, Uppinangady,
Mudhol, Bangalore - City Civil Court, Bangalore - Herohalli and Sindagi
in Karnataka, Jajpur Road and Angul in Orissa, Mumbai à Dadar (W), New
Delhi- Vikaspuri, Amtala in West Bengal. Further, your Bank added 50
ATM outlets at various locations during the year 2010-11.
As at 31 March, 2011, your Bank had 478 branches, 267 ATM outlets, 9
Regional Offices, an International Division, a Data Centre, a Customer
Care Centre, 5 Service Branches, 2 Currency Chests, 4 Extension
Counters, 2 Central Processing Centers and 3 Asset Recovery management
branches spread across 20 States and 2 Union Territories. Further, for
better ambience and improved customer service, your Bank shifted 11
branches/offices to new premises, during the year 2010-11.
EMPLOYEES STOCK OPTION SCHEME
The information pertaining to Employees Stock Options is given in
Annexure I to this report.
DIRECTORS
During the year under report, some changes have taken place in the
Board of Directors. Mr. M Bheema Bhat completed the term of 8 years and
ceased to be a director w.e.f. September 28, 2010. The Board places on
record its appreciation of the active involvement and useful
contribution made by Mr M Bheema Bhat. The Board has appointed Mr T R
Chandrasekaran, a Chartered Accountant, Chennai as an Additional
Director w.e.f. October 15, 2010. The Board welcomes the new Director
and seeks his guidance.
CORPORATE GOVERNANCE
Your Bank is committed to following the best practices of corporate
governance to protect the interest of all the stakeholders of the Bank,
viz. shareholders, depositors, customers and employees and the society
in general and maintains transparency at all levels. A detailed report
on corporate governance practices is given as Annexure III to this
Report.
DIRECTORS RESPONSIBILITY REPORT
As per Section 217(2AA) of Companies (Amendment) Act, 2000, your
Directors report that:
i. The Accounts for the year 2010-11 were prepared by following the
Accounting Standards in so far as they apply to banks.
ii. Accounting policies adopted and applied consistently by the Bank
are in tune with the RBI guidelines issued from time to time.
Reasonable prudent judgments and estimates have been made in the
accounts, so as to give a true and fair view of the state of affairs of
the Bank and of the profit of the Bank for the financial year ended
31st March 2011.
iii. The Bank had taken proper and sufficient care for
maintaining adequate records in accordance with the provisions of the
Companies Act 1956, in so far as they apply to banks.
iv. The annual accounts for the year ended 31st March 2011 have been
prepared on a ÃGoing Concernà basis.
STATUTORY DISCLOSURES
Considering the nature of the Banks business, the provisions of
Section 217(1) (e) of the Companies Act, 1956 relating to conservation
of energy and technology absorption do not apply to your Bank. The Bank
has, however, used information technology extensively in its
operations.
There were no employees who were in receipt of remuneration during the
year ended March 31, 2011 requiring disclosure under section 217(2A) of
the Companies Act, 1956 read with Companies (Particulars of Employees)
Rules, 1975.
SOCIAL INITIATIVES
As a responsible corporate citizen, your Bank has been responding well
over the years through certain initiatives like participation in
social, cultural, educational activities aimed at improving the quality
of life of the people and society. Your Bank believes firmly that being
an integral part of the society, it is the all-round growth of the
society which contributes ultimately to the growth of the Bank.
FINANCIAL INCLUSION
Financial inclusion is the availability of the full range of banking
services at an affordable cost to disadvantaged and low-income groups.
It mainly focuses on the poor who do not have formal financial
institutional support for getting them out of the clutches of local
money lenders. The RBI has simplified the KYC (Know your customer)
norms for opening a ÃNo frills account. Your Bank has been allocated
81 villages across various states to extend the outreach to the remote
corners of the country, by utilizing appropriate Information &
Communication Technology (ICT) based model including either by using
Business Correspondents Model or ÃBrick and Mortarà branch models, for
extending banking services in every village having a population of over
2000.
With a view to spread awareness on financial services available from
banks to the members of general public and spread financial education
and financial literacy to the common man at the remotest village in the
service area of the Bank, your Bank is implementing the Financial
Inclusion Resource Center (FIRC) - Mobile Van model covering about 909
service area villages by 31.03.2012.
Your Bank has launched the first two mobile van FIRC units in Hassan
and Chikmagalur Districts on 31.03.2011 in order to cover the 330
service area village of bank branches in these districts. Further, in
order to educate the people in rural and urban areas regarding various
financial products and services available from the formal financial
sector, to provide financial counseling services regarding responsible
borrowing and debt counseling and restructuring, your Bank has joined
hands with other banks in setting up of Financial Literacy and Credit
Counseling Centers (FLCCs).
Further, your Bank has joined as a Trustee of the Karnataka Farmers
Resource Center (KFRC) set up by State Level Bankers Committee (SLBC),
Karnataka at Bagalkot, Karnataka, to serve as a resource centre for
providing bridging services to the farmers to develop managerial
capacity of farmers, coordinating the services of various service
providers to provide training, consultancy, counseling and reference
services.
Your Bank is also participating in the pilot project of the Govt. of
Karnataka for Bio-Metric Smart Card based payment system (Electronic
Benefit Transfer) for National Rural Employment Guarantee Scheme
(NREGS) and Social Security Pension (SSP) beneficiaries, covering
Bellary, Chitradurga, Yadgir and Gulbarga Districts in Karnataka. Your
Bank is also taking part in the national level awareness campaign on
Financial Inclusion - ÃSWABHIMAN targeting people covered under the
Financial Inclusion Action Plan, by way of print and electronic media.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their sincere gratitude to
the Reserve Bank of India, other government and regulatory authorities,
financial institutions and correspondent banks for their continued
guidance and support. Your directors also place on record their
gratitude to the Banks shareholders, depositors and other customers
for their continued support, patronage and goodwill. Your directors
express their deep sense of appreciation to the employees, for their
contribution in your Banks quest for sustained growth and
profitability and look forward to their continued contribution in
scaling greater heights.
For and on behalf of the Board of Directors
Ananthakrishna
Chairman
Place: Mangalore
Date: 23rd May, 2011
Mar 31, 2010
The Directors have pleasure in presenting the Eighty Sixth Annual
Report, the Audited Balance Sheet as at 31st March 2010 and the Profit
& Loss Account for the year ended, 31st March 2010, along with the
Auditors Report.
PERFORMANCE HIGHLIGHTS
Performance highlights for the financial year in the key financial
areas are as under: -
(Rs. in crore)
Particulars As on /for the As on / for the
year ended year ended
31.03.2010 31.03.2009
Deposits 23730.65 20333.29
Advances 14435.68 11810.05
Investments 9992.05 8961.49
Gross Income 2354.68 2270.55
Operating Profit 260.84 480.21
Net Profit 167.12 266.70
The total business turnover of the Bank touched Rs.38166.33 crore, an
increase of 18.74 percent over the preceding year. The total assets of
the Bank increased from Rs.22857.81 crore to Rs.27035.15 crore
recording a growth of 18.28 percent for the year 2009-10
The total deposits of the Bank grew from Rs. 20333.29 crore as on 31st
March 2009 to Rs. 23730.65 crore as on 31st March 2010, registering a
growth of 16.71 percent. During the year, low cost deposits of the Bank
viz Savings and Current Account Deposits have shown an impressive
growth of 36 percent due to the various measures undertaken by the
Bank.
The total advances grew from Rs.11810.05 crore as on 31st March 2009 to
Rs.14435.68 crore as on 31st March 2010, an increase of 22.23 percent.
While agricultural advances increased from Rs.993.36 crore to
Rs.1609.16 crore, the priority sector advances increased from
Rs.4372.16 crore to Rs.5252.96 crore. The lending under various
socio-economic schemes has shown satisfactory progress. The priority
sector advances stand at 45.80 percent and agricultural advances stand
at 11.97 percent as at end March 2010.
The total investments of the Bank as on 31st March 2010 stood at
Rs.9992.05 crore as against Rs.8961.49 crore as on 31st March 2009, an
increase of 11.50 percent.
OPERATIONAL PERFORMANCE
Your Directors report that under the tough business environment in
which your Bank operated, the overall financial performance during the
year 2009-10 has been satisfactory. The gross income of the Bank was
Rs.2354.68 crore and total expenditure (excluding provisions and
contingencies) was Rs. 2093.84 crore for the year-ended 31st March
2010. The net interest income for the year ended 31st March 2010 was
Rs. 335.63 crore.
PROFIT
Your Bank earned an operating profit of Rs.260.84 crore for the year
2009-10 as against Rs.480.21 crore for the previous year. The net
profit of the Bank decreased from Rs.266.70 crore to Rs. 167.12 Crore.
APPROPRIATIONS
The net profit of Rs.167.12 Crore which along with a sum of Rs. 0.03
Crore brought forward from the previous year aggregating Rs.167.15
Crore is appropriated as under. The corresponding figure for the
previous year was Rs.266.80 Crore.
Appropriation Rs. in Crore
Transfer to Statutory Reserve 88.00
Transfer to Revenue, General 16.38
& Special Reserves
Transfer to Proposed Dividend 62.75
(including tax)
Balance carried to Balance Sheet 0.02
Total 167.15
DIVIDEND
Keeping in mind the overall performance of the Bank and the positive
outlook for the future, the Board of Directors recommended a dividend
of 40 percent for the reporting year. The dividend payout ratio for the
year stands higher at 32.09 percent as compared to 27.35 percent in the
previous year.
EARNING PER SHARE/BOOK VALUE
The earning per share (basic) and the book value of the share stood at
Rs.13.50 and Rs.136.80 respectively as on 31st March 2010.
ISSUANCE OF EQUITY SHARES
During the year under report your Bank issued and allotted 12115564
equity shares at a price of Rs. 132.75 per share including premium of
Rs. 122.75 per share to Qualified Institutional Buyers under Qualified
Institutions Placements (QIP) as per SEBI (ICDR) Regulations, 2009.
The issue has enabled your Bank to augument its long term capital
requirement and improve the CRAR. Further 285880 equity shares were
allotted to the employees of your Bank pursuant to the exercise of
options vested under the Employees Stock Option Scheme of the Bank.
NET OWNED FUNDS AND CAPITAL ADEQUACY RATIO
The net owned funds of your Bank increased from Rs.1567.03 crore to Rs
1832.75 crore, registering a growth of 16.96 percent. The capital
adequacy ratio stood at 12.37 percent as per BASEL II norms (Previous
year 13.48 percent). The Bank has been consistently maintaining Capital
Adequacy Ratio well above the minimum of 9 percent stipulated by the
Reserve Bank of India.
FOREX BUSINESS
During the year under report, your Bank achieved a turnover of Rs
8605.93 crore in foreign exchange business as against Rs. 7850.65 crore
in the previous year. The advances to export sector increased from
Rs.1277.42 crore to Rs.1369.12 Crore.
NON-PERFORMING ASSETS
Your Bank has been focusing on containing the non- performing assets
through better credit monitoring as well as intensified drive for the
recovery of the impaired assets. However in view of global recession
and delinquencies in select sectors the Banks, Gross NPAs as on 31st
March 2010 have increased to Rs.549.64 crore (3.73 percent) as against
Rs.443.20 crore (3.66 percent). The Net NPAs stood at Rs.188.61 crore
(1.31 percent) as against Rs. 116.10 crore (0.98 percent) as on 31st
March 2009.
CREDIT RATING
The credit rating agency, ICRA Ltd. (ICRA) has accorded ÃA1+ rating to
the Banks Certificate of Deposit Programme. The rating symbol, ÃA1+
indicates highest degree of safety for timely payment of principal and
interest.
Further, ICRA and Credit Analysis & Research Limited (CARE) have
re-affirmed LA+ (pronounced L A plus)
and ÃCARE A + (Single A Plus) ratings assigned respectively indicating
adequate credit quality to Rs. 350 crore raised by the Bank during the
previous years, by way of Unsecured Redeemable Non-Convertible
Subordinated (lower Tier-II) debt instruments.
DISTRIBUTION NETWORK
During the year under report, your Bank opened 17 branches in Patna,
Kanakapura, Tambaram, Vellore, Dhanbad, Kolkata - Bhowanipore,
Naganathapura, Gundlupet, New Delhi - Ashokvihar, Ujjain, Ghaziabad,
Kancheepuram, Chennai - Annanagar (West), Brahmapur, Serillingampally,
Durg and Rajarhat - Kolkata.
Further, your Bank added 46 ATM outlets at various locations during the
year 2009-10. As at 31st March 2010, we had 464 branches, 217 ATM
outlets, 8 Regional Offices, one International Division, one Data
Centre, one Customer Care Centre, 5 Service branches, 2 Currency
Chests, 6 Extension Counters and two Central processing centers, spread
across 20 states and 2 Union Territories. Further, for better ambience
and improved customer service, we shifted 16 branches/offices to new
premises, during the year 2009-10.
EMPLOYEES STOCK OPTION SCHEME
The information pertaining to Employees Stock Options is given in
Annexure I to this report.
MANAGEMENT DISCUSSION AND ANALYSIS
Macro- economic and Industry Developments The advance estimates of the
Central Statistical Organisation (CSO) released in February 2010 have
placed the real GDP growth for 2009-10 at 7.2 percent. The Final real
GDP growth for 2009-10 may settle between 7.2 and 7.5 percent. The
decline in agricultural and allied activities GDP for the year 2009-10
is expected to be much smaller at (-) 0.2 percent as per CSO advance
estimates.
Industrial output which was affected by the cyclical slowdown and
international commodity price shocks in 2007-08 and the global
recession in 2008-09 recovered substantially in 2009-10. The index of
industrial production (IIP) registered double digit growth at 10.4
percent during the year 2009-10 over the corresponding period of the
previous year.
Headline inflation, as measured by year-on-year variations in the
wholesale price index (WPI), accelerated from 0.5 percent in September
2009 to 9.9 percent in March 2010. Inflation, based on year-on-year
variation in consumer
price indices (CPIs), was in the range of 14.9 percent à 16.9 percent
in January/February 2010. The higher level of consumer price inflation
in the recent months, as compared to WPI inflation, could be attributed
to higher prices of food articles which have higher weight in CPIs.
During 2009-10, the Indian rupee generally exhibited strengthening
trend against the US dollar on the back of capital inflows and positive
growth outlook, although marked by intermittent depreciation pressures.
Reflecting the easing of supply conditions in the market led by capital
inflows, forward premia generally exhibited declining trend during
2009-10, with sporadic hardening on account of underlying demand
conditions. The Rupee/US dollar exchange rate which was Rs. 50.72 per
dollar at end-March 2009 appreciated to Rs. 44.89 per dollar as on
March 31, 2010. The Indian Rupee had appreciated by 11.49 per cent
against the US dollar in the year ended March 31, 2010 over its level
in the previous year. Further the Rupee appreciated against the pound
sterling by 6.21 per cent and EURO by 9.73 percent during the above
period.
The stronger signs of global recovery taking hold led to reduction in
risks in the international markets, which also favorably impacted the
domestic equity markets during the major part of 2009-10. Reduction in
risk perception towards EMEs along with continuance of low policy rates
in the advanced economies for the extended periods, led to revival in
capital flows to India, which in turn contributed to significant gains
by the equity markets.
With the recovery seen in the global economy, Indias external sector
witnessed further improvement, as reflected in the turnaround in
exports, buoyancy in capital inflows and further accretion to the
countrys foreign exchange reserves. During 2009-10, foreign exchange
reserves increased by US$ 27.1 billion to reach US$ 279.1 billion as at
end-March 2010 as against US$ 252.00 billion as at end-March 2009.
Development in the Banking space
During the year 2009-10, the aggregate deposits of the scheduled
commercial banks (SCBs) increased by 17.1 percent (Rs. 702514 crore) as
compared with 18.80 percent (Rs. 646627 crore) in the previous year.
Time deposits recorded growth of 16.2 per cent (year on year) at
end-March 2010 as compared to 22.6 percent a year ago, while demand
deposits grew by 22.8 percent.
During the financial year 2009-10, credit flow from scheduled
commercial banks moderated to 16.70 per cent as compared with 17.30
percent during the previous year. Food credit of SCBs increased by
Rs.2278 crore in
2009-10 as compared to Rs.1812 crore in the previous year. Non-food
credit extended by the scheduled commercial banks (SCBs) increased by
16.9 percent (Rs. 462571 crore) as compared to 17.50 percent (Rs.
406287 crore) in the previous year.
Commercial banks investment in government and other approved
securities increased by 18.51 percent (Rs.216273 crore) during 2009-10
compared to the previous years increase of 20.0 percent (Rs.194031
crore) Investment in non-SLR securities grew by 12.8 percent (Rs.26597
crore) as against the increase of 24.2 percent (Rs.41344 crore) in the
previous year.
Opportunities
The fast paced recovery in the Indian economy on the back of global
economic recovery is expected to take India on a robust growth path.
There has been a revival in investment and private consumption demand.
Indian exports have recorded impressive growth in November and December
2009 and thereafter the indications have been encouraging. The
favorable capital market conditions with improvement in capital flows
and business sentiments are also encouraging and the manufacturing
sector has been showing buoyancy in recent months. The Governments
thrust on infrastructure development may also open up avenues to Banks
to finance these projects. The Policy prounouncement by the RBI, re-
opening the ECB route for corporates to raise funds will help boost up
Investment. The improved employment situation in the country, higher
income levels etc augur well for the long term sustainable growth of
retail lending in the Indian market. Governments inclusive growth
agenda may also bring additional business to Banks in rural and semi
urban areas.
Outlook
Though the increasing inflation is worrisome, the policy measures
initiated by the Government and the Regulator is likely to rien in the
inflation and the economic growth may remain strong in the coming
years. However, surfacing of the recent economic crisis in Greece and
other European counties may over shadow the global economic recovery
which may have its effect on our economic growth also. Your Bank would
like to position itself to seize the available opportunities and
improve the business. Your Bank having networked all its branches with
its core banking solution, is looking to leverage its technology to
offer various new and sophisticated products and services.
BUSINESS GOALS FOR THE CURRENT YEAR
In the light of better outlook for industrial growth, your Bank has
envisaged to achieve a total business turnover of Rs.45000 crore,
comprising of deposits of Rs.27500 crore and advances of Rs.17500 crore
for the year ending 31st March 2011. In this direction the Bank has
opened
its 9th Regional Office at Hyderabad in April 2010. Your Bank is
confident of achieving the same through better customer services and
operational efficiency. Besides, the Bank has plans to increase its
total number of business units to 780, by increasing the total number
of branches to 480 and own ATM network to 300 by March 2011.
SEGMENT REPORTING
Pursuant to the Guidelines issued by RBI on Accounting Standard 17
(Segment Reporting) the Bank has identified four business segments
viz., Treasury, Corporate/ Wholesale banking, Retail Banking and Other
Banking Operations for the year ended 31st March 2010.
Treasury Operations
Treasury operations include the entire investment portfolio i.e.
dealing in government and other securities, money market operations and
Foreign Exchange operations.
During the year-ended 31st March 2010, your Bank has earned total
revenue of Rs.808.29 crore from Treasury operations with a net result
of Rs. (-) 77.68 crore.
Corporate / Wholesale Banking
Wholesale Banking includes all advances, not included under Retail
Banking. The revenue earned by the Bank during year under this Segment
was Rs.661.29 crore with contribution of Rs. (-) 51.35 crore.
Retail Banking
Retail Banking includes exposure which fulfills the following FOUR
criteria:
a. Orientation criterion - The total annual turnover is less then
Rs.50 crore i.e. the average turnover of the last three years in case
of existing entities and projected turnover in case of new entities.
b. Product Criterion - The exposure taking the form of revolving
credits and lines of credit (including overdrafts), term loans and
leases and small business facilities and commitments.
c. Granularity criterion - Aggregate exposure to one counterpart does
not exceed 0.20percent of the overall retail portfolio.
d. Low value of individual exposure - The maximum aggregate exposure
up to Rs.5 crore
During the year 2009-10, this Segment has earned revenue of Rs. 839.41
crore and a net result of Rs. 303.14 crore (+ve).
Other Banking Operations
Other Banking Operations include the remaining business done by the
Bank i.e. distribution of insurance and mutual fund products, Demat
services, online shopping, railway ticket booking, locker facilities
etc.
During the year-ended 31st March 2010, this segment has generated
revenue of Rs. 45.69 crore and a net result of Rs. 37.88 crore (+ve).
RISKS AND CONCERNS
Risk is inherent in all kinds of business activities and is an integral
part of the banking business. In normal course of business, a bank is
exposed to various risks namely Credit Risk, Market Risk and
Operational Risk besides other residual risks such as Liquidity Risk,
Concentration Risk, Strategic Risk, Reputation Risk etc. With a view to
efficiently manage such risks, your Bank has put in place various risk
management systems and practices. In line with the guidelines issued by
the Reserve Bank of India from time to time, we continue to strengthen
our various risk management systems that includes policies, tools,
techniques, monitoring mechanisms etc.
Your Bank aims at enhancing and maximizing the shareholder values by
achieving appropriate tradeoff between risks and returns. Your Banks
risk management objective broadly covers proper identification,
measurement, monitoring / control and mitigation of the risks with a
view to enunciating the banks overall risk philosophy. The risk
management strategy adopted by your Bank is based on clear
understanding of risks and the level of risk appetite dependent upon
the willingness to take on risks in normal course of business. A Board
level Integrated Risk Management Committee of your Bank periodically
reviews the risk profile, evaluates the overall risks faced by the
Bank, and develops policies and strategies for their effective
management.
In line with the guidelines issued by the RBI, your Bank has
implemented New Capital Adequacy Framework and is Basel II compliant
with effect from March 31, 2009. The Basel II framework, as referred,
is based on three mutually reinforcing pillars. While the first Pillar
of the revised framework addresses minimum capital requirement for
credit, market and operational risk, the second pillar (supervisory
review process) intends to ensure that the banks have adequate capital
to address all the risks in their business commensurate with banks
risk profile and control environment. The third pillar of Basel II
framework refers to market discipline. The purpose of market
discipline is to complement the minimum capital requirements detailed
under Pillar 1 and the supervisory review process detailed under Pillar
2. In this regard, the Basel II Pillar III Disclosure is annexed to
this report as Annexure II.
INTERNAL CONTROL SYSTEMS
Your Bank has put in place well articulated internal control measures
commensurate with the size of the Bank and complexity of operations. A
separate Compliance Department has also been set up. The Audit
Committee of the Board of Directors supervises the internal audit and
compliance functions. The system of regular inspection, short
inspection and EDP Audit (IS Audit) of all the branches / offices,
Concurrent IS Audit of Data Center and concurrent audit of select
branches, Treasury Department and International Division, etc., form
part of the internal control mechanism. Besides, your Bank has been
ensuring stock audit and credit audit of large borrowal accounts by
professional audit firms to further strengthen the credit
administration. As mandated by the Reserve Bank of India, Risk-based
Internal Audit system has already stabilized in the Bank and all the
branches have been subjected to such Audit. The Bank has introduced on
line marking of NPAs with effect from 30th September 2009 and has also
initiated steps for offsite monitoring of all the borrowal accounts
with limits above Rs. 25 lakh.
HUMAN RESOURCE DEVELOPMENT
The survival and prosperity of any industry depends upon the quality of
its human resource and this is true even for service oriented Banking
Industry. Human Resource Development is a key responsibility area for
your bank too. Your Bank takes special care to ensure the growth of
each individual employee in every aspect. Employees are sent for
various training and development programmes to upgrade their skills and
competencies so that they grow as an individual and contribute towards
the growth of the Bank. Your Bank has its own Staff Training College,
with state of the art infrastructure facilities and expert faculty
members to impart training to the staff members. The Officers are also
being deputed to various training programmes conducted at Southern
India Banks Training College Bangalore, National Institute of Bank
Management, Pune, College of Agriculture Banking, Pune, and Institute
for Development and Research in Banking Technology, Hyderabad, State
Bank Staff College, Hyderabad etc., wherever specialized training is
found necessary. In addition, Executives / Senior Managers are also
deputed to premier institutions. During the year 2009-10, 1752
Officers, 1260 clerks and 65 Sub-staffs were given training under
various disciplines to update / improve the knowledge.
Your Bank enjoys excellent industrial relations and there is an
atmosphere of peace and harmony in the Bank. This has helped in
maintaining a pleasant work environment
enabling the employees to perform better. The performance of individual
employees is recognized and rewarded by promotions, appreciations etc.
Further, the Employee Stock Option Scheme has also been introduced in
the Bank which provides for grant of stock options depending upon the
performance of the employees. This has greatly motivated the employees
to reach greater heights of performance. The number of employees in
the Bank stood at 5244 as on 31st March 2010. The business per employee
(excluding inter-bank deposits) has improved from Rs.6.49 crore as on
31st March 2009 to Rs. 7.27 crore as on 31st March 2010.
DIRECTORS
During the year under report, some changes in the Board of Directors
have taken place. Mr Ananthakrishna former Chairman and CEO of the Bank
retired on July 12, 2009. He has been appointed as the Part time Non-
Executive Chairman of the Bank w.e.f. July 13, 2009 and Mr. P. Jayarama
Bhat, former Chief General Manager of the Bank, has been appointed as
the Managing Director, who assumed charge on July 14, 2009. These
appointments were made with the approval of the Reserve Bank of India.
The Board of Directors places on record its appreciation and gratitude
to Mr Ananthakrishna for the contribution made by him to the overall
development of the Bank during his tenure as Chairman & CEO of the Bank
and looks forward for his continued guidance.
CORPORATE GOVERNANCE
Your Bank is committed to following the best practices of corporate
governance to protect the interest of all the stakeholders of the Bank,
viz shareholders, depositors, customers and employees and society at
large and maintains transparency at all levels. A detailed report on
corporate governance practices is given in Annexure III to this Report.
DIRECTORS RESPONSIBILITY REPORT
As per Section 217(2AA) of Companies (Amendment)
Act, 2000, your Directors report that:
i. The Accounts for the year 2009-10 were prepared by following the
Accounting Standards in so far as they apply to banks.
ii. Accounting policies adopted and applied consistently by the Bank
are in tune with the RBI guidelines issued from time to time.
Reasonable prudent judgments and estimates have been made in the
accounts, so as to give a true and fair view of the state of affairs of
the Bank and of the profit of the Bank for the financial year ended
31st March 2010.
iii. The Bank had taken proper and sufficient care for maintaining
adequate records in accordance with the provisions of the Companies Act
1956 in so far as they apply to banks.
iv. The annual accounts for the year ended 31st March 2010 have been
prepared on a ÃGoing Concernà basis.
STATUTORY DISCLOSURES
Considering the nature of the Banks business, the provisions of
Section 217(1) (e) of the Companies Act, 1956 relating to conservation
of energy and technology absorption do not apply to your Bank. The Bank
has, however, used information technology extensively in its
operations.
The information required under section 217(2A) of the Companies Act,
1956 read with Companies (Particulars of Employees) Rules, 1975 is
attached to this report as Annexure IV.
SOCIAL INITIATIVES
As a responsible corporate citizen, your Bank has been responding well
over the years through certain initiatives like participation in
social, cultural, educational activities aimed at improving the living
standard of the people at large. As a gesture of its concern and
commitment to the society, your Bank donated generously to the flood
relief fund of the Government of Karnataka when the unprecedented havoc
caused by the fury of nature struck certain parts of north Karnataka
last year. Your Bank has also sponsored events like medical check- up,
de-addiction programmes, mass marriages etc intended for the benefit of
the society at large. Your Bank believes firmly that being an integral
part of the society, it is the all-round growth of the society which
contributes ultimately to the growth of the Bank. Further with the
objective of providing basic banking services to vast sections of
underprivileged and low- income groups who tend to be excluded from the
banking system your Bank has put in place a ÃFinancial Inclusion PlanÃ
during the year. This plan envisages widening the reach of banking
services to the remote and rural areas by making use of modern
information technology and managerial capabilities of business
correspondents.
ACKNOWLEDGEMENTS
Yo ur Directors would like to place on record their sincere gratitude
to the Reserve Bank of India, other government and regulatory
authorities, financial institutions, correspondent banks for their
continued guidance and support. Your directors also place on record
their gratitude to the Banks shareholders, depositors and customers
for their continued support, patronage and goodwill. Your directors
express their deep sense of appreciation to the employees, who have
continued to display outstanding professionalism and commitment in your
Banks quest for sustained growth and profitability and look forward to
their continued contribution in scaling greater heights.
For and on behalf of the Board of Directors
Place : Mangalore Ananthakrishna
Date : 17.05.2010 Chairman