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കമ്പനിയുടെ പേരിലെ ആദ്യത്തെ കുറച്ച് അക്ഷരങ്ങള്‍ എന്റര്‍ ചെയ്യൂ, അതിന് ശേഷം 'ഗോ' എന്നതില്‍ ക്ലിക്ക് ചെയ്യൂ

Notes to Accounts of IndusInd Bank Ltd.

Mar 31, 2023

1. Capital

1.1 Capital Issue

During the year, 12,32,035 equity shares of ''10 each fully paid (Previous Year 12,90,864 equity shares of ''10 each fully paid) were allotted on various dates to the employees who exercised their stock options, and consequently, the share capital of the Bank increased by ''1.23 crores (Previous Year ''1.29 crores) and share premium by ''84.48 crores (Previous Year ''84.79 crores).

1.2 Capital Adequacy Ratio

The Bank computes Capital Adequacy Ratio as per Basel III Capital Regulations issued by RBI.

Under Basel III Capital Regulations, the Bank has to maintain a Minimum Total Capital of 11.50% including Capital Conversion Buffer at 2.50%, of the total risk weighted assets. Out of the Minimum Total Capital (excluding CCB of 2.50%), at least 5.50% of risk weighted assets, shall be from Common Equity Tier 1 capital and at least 7.00% from Tier 1 capital. The capital adequacy ratio of the Bank.

During the current year, the bank has not raised any non-equity Tier 1 capital and Tier 2 capitals. The Bank has redeemed unsecured, redeemable, subordinated Tier 1 Basel III compliant non-convertible taxable Bonds by exercising the call option on April 18, 2022 of ''1,000 crores.

During the Previous Year, the Bank has raised unsecured, redeemable, subordinated Tier 2 Basel III compliant non-convertible taxable Bonds on October 29, 2021, through private placement basis at par, aggregating to total size of ''2,800 crores with a tenor of 10 years which will augment Capital Funds as well as the long-term resources of the Bank. Further, the Bank has redeemed unsecured, redeemable, subordinated Tier 1 Basel III compliant non-convertible taxable Bonds by exercising the call option on March 22, 2022 of ''1,000 crores.

3.2 Exchange Traded Interest Rate Derivatives

The Exchange Traded Interest Rate Derivatives undertaken during the year ended March 31,2023, and March 31, 2022, was Nil.

3.3 Risk Exposure in Derivatives

Derivatives Policy approved by the Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for appropriate risk limits for different derivative products and action to be initiated in case of breaches. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

The Bank undertakes derivative transactions for hedging customers'' exposure, hedging the Bank''s own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures, in accordance with extant regulatory guidelines. The Bank has a policy on assessing the collateral required for undertaking derivative transactions with clients as well as counterparty banks. The credit appraisal process determines the collateral requirements. The Bank retains the right to terminate transactions as a risk mitigation measure in certain circumstances.

The use of derivatives for hedging purposes is governed by the board approved Derivative policy. Bank uses derivative contracts for hedging fixed rate, floating rate or foreign currency assets/liabilities to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item. For hedge transactions, the Bank earmarks the underlying (asset or liability) at the inception of the hedge itself. The effectiveness is assessed at the time of inception of the hedge and periodically thereafter. Derivative transactions designated as "Hedges" are accounted on an accrual basis except the swap designated with an asset/ liability that is carried at market value or lower of cost or market value. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. In case any transaction fails the effectiveness, the same is re-designated as a trading deal and appropriate accounting treatment is followed.

The premium or discount arising on inception of forward exchange contracts, not intended for trading purpose, is amortized over the life of the contract as interest income/expense.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury Business Department and undertakes the following activities:

• Monitoring risk limits on derivatives portfolio against prescribed policies and limits on a daily basis;

• Daily review of product-wise profitability and activity reports for derivatives operations;

• Daily submission of MIS to the Top Management; and

• Review of collaterals that are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies many quantitative tools and methods such as Value at Risk, PV01, Greeks, stop-loss limits, counterparty limits, deal size limits and overnight position limits.

Refer Note 17.5 for the accounting policy on derivatives.

4.4 Particulars of resolution plan and restructuring

During the year ended March 31, 2023, the Bank has implemented Resolution Plan for two borrowers having total exposure of ''175.45 crores (Previous Year - Nil) in accordance with the RBI Circular dated June 7, 2019, on Prudential Revised Framework for Resolution of Stressed Assets ("Framework").

4.5 Divergence in Asset Classification and Provisioning for NPA

RBI vide circular no. DOR.ACC.REC.No.74/21.04.018/2022-23 dated October 11,2022, has directed that banks shall make suitable disclosures in the financial statement for the year ended March 31, 2023, wherever (a) the additional provisioning requirement assessed by RBI exceeds 10 percent of the reported profit before provisions and contingencies for the reference period, or (b) the additional Gross NPA identified by RBI exceeds 10 percent of the reported incremental Gross NPA for the reference period, or both. Based on the criteria mentioned in the RBI circulars, no disclosure on divergence in asset classification and provisioning for NPA is required with respect to RBI Supervisory Programme for Assessment of Risk and Capital completed during the year pertaining to the year ended March 31, 2022.

5.2 Liquidity Coverage Ratio (LCR)

The Bank has adopted the Basel III framework on liquidity standards, prescribed by the Reserve Bank of India (RBI) and has put in place requisite systems and processes to enable periodic automated computation and reporting of the Liquidity Coverage Ratio (LCR). The LCR is aimed at measuring and promoting the short-term resilience of the liquidity risk profile of banks by ensuring maintenance of sufficient High Quality Liquid Assets (HQLA) that can be easily and immediately converted into cash to meet the liquidity needs for a 30 calendar day liquidity stress scenario.

The LCR Ratio is calculated by dividing the Bank''s stock of HQLA by its total net cash flows over a 30 calendar day stress period, measured on a daily basis for the following 30 days. The prime driver of LCR is determined by its HQLA and the proportion of retail and wholesale funding sources. The HQLA comprises of two parts, i.e., Level 1 HQLA constituents which are primarily cash, excess CRR, SLR securities in excess of the minimum SLR requirement and a portion of mandatory SLR as permitted by the RBI (under MSF and FALLCR) and Level 2 HQLA constituents which are investments in highly rated non-financial corporate bonds and listed equity investments considered with the prescribed regulatory haircuts. The average HQLA for the quarter ended March 31,2023 was ''89,289 crores, as against ''98,823 crores for the quarter ended March 31,2022. The Cash outflows are determined by multiplying the outstanding balances of the various types/ categories of liabilities by the outflow run-off factor and the cash inflows are calculated by multiplying the outstanding balances of the various categories of contractual receivables by inflow run-offs at which they are expected to flow in. Expected derivative cash outflows and inflows are calculated for outstanding contracts in accordance with laid down valuation methodologies and regulatory guidelines. All significant outflows and inflows determined in accordance with the RBI guidelines and are included in the LCR computation as per the prescribed template. Other contractual funding and borrowings which are expected to run down in a 30 day time frame are included in the cash outflows. There are no intragroup exposures for the Bank.

The Bank has maintained LCR well above the minimum regulatory requirements during the FY 2022-23. The average LCR maintained by the Bank for the quarter ended March 31, 2023 was at 122.96% against 126.33% for the quarter ended March 31, 2022.

The Asset Liability Committee (ALCO) of the Bank is a decision-making unit responsible for implementing the liquidity and interest rate risk management strategies of the Bank in line with its risk management objectives and ensures adherence to the risk tolerance/ limits set by the Board. Liquidity Risk Management of the Bank is centralised and is undertaken by the Asset Liability Management Function in the Global Markets Group in accordance with the Board approved policies.

The Bank''s funding sources are diversified across various sources and tenors. The Bank monitors the concentration of funding from various counterparties and segments. The Bank adheres to the regulatory and internal limits on inter-bank liabilities and call money borrowings. Apart from LCR, the Risk Management Department measures and monitors the liquidity profile of the Bank with reference to the Board approved policy and regulatory limits and undertakes liquidity stress testing periodically.

6.5 Advances against book debts

Advances secured by tangible asset includes advances against book debts amounting to ''47,206.00 crores (Previous Year ''41,110.36 crores).

The above information is based on the methodology adopted by the management and relied upon by the auditors.

6.6 Details of factoring exposure

The factoring exposure of the Bank as at March 31, 2023, is ''4,110.32 crores (Previous Year ''2,603.48 crores).

6.7 Details of Intra-Group Exposure

Intra-Group Exposure as on March 31,2023- Nil (Previous Year Nil)

6.8 Unhedged Foreign Currency Exposure (UFCE) of Clients

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The foreign exchange positions that are not effectively hedged either by way of natural hedge or through forward contracts/ derivatives expose a client to the risk of loss due to volatility in the foreign exchange rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31,2023, included an amount of ''62 crores (Previous Year ''58.00 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31,2023, includes an amount of ''138.36 crores (Previous Year ''178.17 crores) on account of UFCE, computed at the applicable risk weights.

6.9 Single Borrower limit and Group Borrower Limit

During the year ended March 31, 2023, and year ended March 31, 2022, the Bank''s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI.

12. Penalties imposed by RBI

During the FY 2022-23, Reserve Bank of India vide their letter dated June 29, 2022 imposed a monetary penalty of '' One crore on the Bank under Sections 35, 35A, 46 and 47A of the Banking Regulation Act, 1949 in relation to transactions in accounts opened through OTP based e-KYC in non-face-to-face mode. In addition, Reserve Bank of India imposed a penalty of ''10,000 on November 14, 2022 as one of the Bank''s ATM had a "cash out" situation for more than 10 hours during August 2022. Also, there were two instances of penalty of ''10,000 each and one instance of penalty of ''20,000 levied by Reserve Bank of India on September 19, 2022, December 27, 2022 and on March 20, 2023 respectively, for non-adherence to the regulatory guidelines pertaining to exchange of mutilated/soiled notes and coins by branches.

During the year ended March 31,2022, a penalty of ''1 crore was imposed by the Reserve Bank of India for non-adherence with certain provisions of directions issued by RBI on ''Lending to Non-Banking Financial Companies (NBFCs)'', ''Bank Finance to Non-Banking Financial Companies (NBFCs)'', ''Loans and Advances - Statutory and Other Restrictions''. Also, Reserve Bank of India imposed penalty of ''50,000 vide their letter 418/08.05.09/2021-22 dated October 04, 2021 for non-reporting of Currency Chest transactions on September 27, 2021.

13. Disclosure on Remuneration

Compensation and Nomination & Remuneration Committee

Effective October 1, 2022, the Compensation Committee was merged with the Nomination and Remuneration Committee (NRC) and was renamed Compensation and Nomination & Remuneration Committee (C & NRC). The C & NRC presently comprises four members, all of these members are Independent Directors including the Chairperson of the Committee. On aspects relating to remuneration, the mandate of the C & NRC is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The Compensation and Nomination & Remuneration Committee is mandated to oversee framing, review and implementation and of the Compensation Policy of the Bank as per the RBI guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Risk Takers and Control function staff. The C & NRC is also required to ensure that the cost to income ratio of the Bank supports the remuneration expense of the Bank consistent with the objective of maintaining sound capital adequacy ratio. The Compensation and Nomination & Remuneration Committee also reviews compensation policies of the Bank with a view to attract, retain and motivate talent. The Compensation and Nomination & Remuneration Committee also looks after the administration and superintendence of grant of Options under the Employee Stock Option Schemes.

Compensation Policy

From April 1, 2020 onwards, the Bank has implemented the RBI Guidelines on Compensation of Whole Time Directors /Chief Executive Officers/Material Risk Takers and Control Function Staff, issued vide circular dated November 4, 2019.

The Bank has formulated a Compensation Policy in alignment with the RBI guidelines, covering all components of compensation including Fixed pay, Perquisites, Performance bonus, Guaranteed bonus (joining/ sign-on bonus), Share-linked instruments (Employee Stock Option Plan), Retirement benefits such as Provident Fund and Gratuity.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between Fixed and Variable pay

(iii) Pay for ''Position, Performance and Person''.

(iv) Be risk conscious and dissuade excessive risk taking (Focus on revenues and profits is balanced by emphasis on risk, operational health, compliance and governance).

(v) Build employee ownership and long term association through Long term incentive plans (ESOPs, Deferred Bonus).

(vi) Be compliant with all regulatory and statutory guidelines.

Some of the important features of the Compensation Policy are as follows:

(i) Basis the RBI description of Material Risk Takers, the Bank defines Material Risk Takers (MRTs) as critical personnel belonging to the business line functions of Corporate & Commercial Banking, Global Markets, Gems and Jewellery, Consumer, Consumer Finance Division, etc. whose functioning and decisioning impacts the Bank materially on tangible performance aspects of Revenues, Costs, and Profits. The Material Risk Takers are identified in accordance with the qualitative and quantitative criteria specified by the RBI guidelines, such as nature of their role necessitating making risk related decisions, size of business portfolio, role criticality, being amongst 0.3% of staff with highest remuneration in the Bank. The Risk controllers are defined as personnel critical to the functioning of the business support functions of Finance & Accounts, Risk, Credit, Operations, Human Resources, Inspection and Audit, Information Technology, Digital, Compliance, Investor Relations, Secretarial, Legal, Corporate Services, etc. These functions support the business line functions through back- office business processes and their functioning does not have a revenue impact through business generation.

As a governance measure, the Bank applies similar Compensation Principles applicable to the WTDs/ CEO/ MRTs to the identified Risk Controllers of the Bank.

(ii) In respect of WTDs/ CEO/ Material Risk Takers/ Risk Controllers of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating. The quantum of annual increment and increment percentages at various performance rating levels are decided on the basis of the financial performance of the Bank. Further, on a case to case basis, the Bank may provide a higher increment percentage based on the individual''s performance, role and criticality.

(iii) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Material Risk Takers and Risk Controllers may vary from year to year on the basis of the financial performance of the Bank in the financial year. Deterioration in the financial performance of the Bank in a given Financial Year would lead to a contraction in the total variable compensation, which can even be reduced to zero.

(iv) Employee compensation is linked to performance. Increments and Variable pay are linked to the annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs)/ Goals at the beginning of the financial year.

(v) The individual Variable pay is linked to the annual performance rating, and based on variable pay grids that outline variable pay

as a percentage of Fixed Pay i.e., Cost to Company at various rating levels for a grade band. Exceptional variable pay may be paid to select high performers on a case to case basis within the limits stipulated in the RBI guidelines.

(vi) As per the new RBI Compensation policy effective April 01, 2020, the overall compensation of WTDs/CEOs/Material Risk Takers/ Risk Controllers comprises Fixed Pay and Variable Pay. The Variable Pay for FY22 paid to the Material Risk Taker and Risk Controllers was a mix of cash and share linked instruments. The Bank followed the Variable pay composition and Deferral guidelines as per the RBI policy.

(vii) The Bank has made applicable the malus/ claw-back arrangements with the concerned employees in case of deferred variable pay. The criteria would be negative financial performance of the Bank and/or relevant line of business in any year, assessed divergence in the bank''s provisioning of Non-Performing Assets (NPAs), material failure of risk management controls, breach of internal rules or regulations, integrity/ staff accountability issues, etc As applicable, malus arrangement would adjust deferred remuneration before vesting and claw-back arrangement would adjust deferred remuneration after vesting.

(viii) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, joining/ sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining).

(ix) The Compensation Policy does not provide for severance pay other than the accrued benefits of Gratuity, Provident Fund, Leave encashment wherever applicable, for any employee of the Bank. Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank''s HR policies which are in line with the statutory norms.

(x) All Perquisites for WTDs/ CEO/ Material Risk Takers/ Risk Controllers are laid down in the HR Policies of the Bank.

(xi) For WTDs /CEO/ Material Risk Takers/ Risk Controllers, share linked instruments such as ESOPs form a part of the Variable pay and are a part of the total compensation. For other employees, ESOPs do not form a part of the Variable Pay. ESOPs are very selectively granted to attract and retain talent. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business continuity and growth, market value of the position/ perceived future value creation, performance and behavioural track record of the employee.

14.6 Implementation of IFRS converged Indian Accounting Standards (Ind AS)

The Reserve Bank of India (RBI) issued a circular in February 2016, requiring Scheduled Commercial Banks to implement Indian Accounting Standards (Ind AS) from April 1, 2018. Vide a press release dated 05 April 2018 the implementation was deferred by one year. The legislative amendments recommended by the Reserve Bank towards implementation of Ind AS are still under consideration of the Government of India. Accordingly, RBI had, through a notification dated March 22, 2019, deferred the Ind AS implementation until further notice.

Pursuant to the RBI Circular dated February 11, 2016, the Bank had formed a Steering Committee, comprising members from cross-functional areas, for the purpose of reviewing and monitoring the progress of implementation. The Bank had set up a Working Group under the guidance of the Steering Committee and has conducted Gap Assessment and identified the differences between the current accounting framework and Ind AS, including the identification of the accounting policy options provided under Ind AS 101, First Time Adoption.

The Audit Committee of the Board of Directors has an oversight on the progress of the Ind AS implementation. In accordance with RBI directions, the Bank has been submitting half yearly standalone pro forma Ind- AS financial statements along with other computations to the RBI, from time to time.

15.3 Contingent Liabilities

The Bank''s pending litigations include claims against the Bank by clients and counterparties and proceedings pending with tax authorities. The Bank has reviewed its pending litigations and proceedings and has adequately made, provisions wherever required and disclosed as contingent liabilities wherever applicable. Claims against the Bank not acknowledged as debts

comprise of tax demands of ''199.05 crores (Previous Year '' 334.05 crores) in respect of which the Bank is in appeal, and legal cases sub judice of ''439.19 crores (Previous Year '' 399.34 crores). The Bank carries a provision of ''11.92 crores (Previous Year '' 7.41 crores) against legal cases sub judice. The amount of contingent liabilities is based on management''s estimate, and it is not probable that any liability is expected to arise out of the same.

15.4 The Bank has a process to assess periodically all long-term contracts (including derivative contracts), for material foreseeable losses. As at March 31,2023, as well as March 31,2022, the Bank has reviewed and made adequate provision as required under any law or an accounting standard for material foreseeable losses on such long term contracts (including derivative contracts).

15.5 During the year as well as the Previous Year ended March 31, 2022, the Bank has transferred requisite amounts to the Investor Education and Protection Fund, without any delay.

15.6 Corporate Social Responsibility (CSR)

In accordance with the provisions of the Companies Act, 2013, during the year, the Bank was required to spend on CSR activities an amount of ''107.52 crores (Previous Year ''107.41 crores).

15.9. 1 On September 25, 2020, the shareholders of the Bank approved the IndusInd Bank Employee Stock Option Scheme 2020 (ESOS 2020), which comprehensively replaced the erstwhile Employee Stock Option Scheme 2007 (ESOS 2007) that was approved by the shareholders earlier on September 18, 2007. ESOS 2020 enables the Board and the Compensation Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines issued by the SEBI. The options vest at one time or at various points of time as stipulated in the Award Confirmation issued by the Compensation Committee, and there shall be a minimum period of one year between the grant of option and vesting of the option. The unvested options shall expire by such period as stipulated in the Award Confirmation or five years from the grant of options whichever is earlier, or such further or other period as the Compensation Committee may determine. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price and shall not be lower than the face value of the shares. Upon vesting, the options have to be exercised within a maximum period of five years or such period as may be determined by the Compensation Committee from time to time. The stock options are equity settled where the employees will receive one equity share per stock option.

Pursuant to a Composite Scheme of Arrangement with the erstwhile Bharat Financial Inclusion Limited, the shareholders of the Bank approved the IBL Special Incentive ESOS for BFIL Merger 2018 (ESOS 2018) on December 11,2018. ESOS 2018 was approved with a pool of 57,50,000 options which are equity settled. 50% of the options vest over a period of three years from the grant date and the remaining options vest over a period of three years from the first anniversary of the grant date. Upon vesting, the options have to be exercised within a maximum period of five years.

ESOS 2020 and ESOS 2018 are, hereinafter, collectively referred to as ESOS.

As at March 31, 2023, the Compensation Committee of the Bank has granted a total of 5,33,77,879 options that includes 48,090,073 options granted under ESOS 2020 and 52,87,806 options granted under ESOS 2018, as set out below:

RBI, vide its clarification dated August 30, 2021, on Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments granted to such personnel on the date of grant should be recognized as an expense for all the instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after March 31,2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes option pricing model and is recognized as compensation expense over the vesting period. The compensation so recognized in respect of which exercise of options is outstanding, is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest closing price prior to the date of the meeting of the Compensation Committee in which stock options are granted, available on the stock exchange on which the shares of the Bank are listed. Since shares are listed on more than one stock exchange, the exchange where the Bank''s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black - Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options, till the date of the grant.

The Bank has changed valuation of stock-based compensation to fair value using Black-Scholes model from intrinsic value starting April 1,2021. ESOPs granted from April 1, 2021 are valued at fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model and is recognized as compensation expense over the vesting period. ESOPs been granted before April 1, 2021 are still valued at intrinsic value and if these options were valued at fair value then as a result, ''Employees cost'' for the year ended March 31, 2023 would have been higher by ''8.82 crores with a consequent reduction in profit after tax.

15.12 Proposed Dividend

The Board of Directors, in their meeting held on April 24, 2023, have proposed a final dividend of '' 14 per equity share amounting to ''1,086.25 crores. The proposal is subject to the approval of shareholders at the ensuing 29th Annual General Meeting and accordingly, this proposed dividend amounting to ''1,086.25 crores are not recognized as a liability on March 31, 2023 and the same has not been considered as an appropriation from the Profit and Loss Account for the year ended March 31, 2023.

Dividend for the year ended March 31, 2022, paid during the year pursuant to the approval of the shareholders at the 28th Annual General Meeting, at the rate of ''8.50 per equity share amounting to ''658.88 crores including corporate dividend tax, has been considered as an appropriation from the Profit and Loss Account during the year.

15.13 Letters of Comfort

The Bank has not issued any letters of comfort during the year ended March 31, 2023 (Previous Year Nil).

15.14 The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

15.15 During the financial year ended March 31, 2023, other than the transactions undertaken in the normal course of banking business and in accordance with extant regulatory guidelines and Bank''s internal policies, as applicable:

1. No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Bank ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

2. No funds have been received by the Bank from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

Note: Fixed Assets, tax paid in advance and tax deducted at source (net of provisions), stationery and stamps, non-banking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus, dividend and others.

The above information is extracted from the Management Information System of the Bank and relied on by the auditors.

* RBI''s Master Direction on Financial Statements - Presentation and Disclosures, requires to sub-divide ''Retail banking'' into (a) Digital Banking and (b) Other Retail Banking segment. Accordingly, Retail banking Revenue and Results includes income from digital banking amounting to ?511.84 crore and ?176.53 crore respectively for the quarter ended March 2023.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City, Gujarat. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

17. Previous Year''s figures have been regrouped/ reclassified wherever necessary.


Mar 31, 2022

1. Capital

1.1 Capital Issue

During the year, 12,90,864 equity shares of '' 10 each fully paid (Previous year 13,18,331 equity shares of '' 10 each fully paid) were allotted on various dates to the employees who exercised their stock options, and consequently, the share capital of the Bank increased by '' 1.29 crores (Previous year '' 1.32 crores) and share premium by '' 84.79 crores (Previous year '' 57.26 crores).

In the previous year, under a Preferential Allotment, 4,76,29,768 equity shares of '' 10 each fully paid were allotted on September 2, 2020, to certain Qualified Institutional Buyers and 1,51,17,477 equity shares of '' 10 each fully paid were allotted on September 4, 2020, to other entities including one of the promoters, at a price of '' 524 per equity share, pursuant to the approval of the Finance Committee on the respective dates, in compliance with the resolution carried in the Extraordinary General Meeting held on August 25, 2020, and the applicable laws and regulations. Consequently, the equity share capital of the Bank increased by '' 62.75 crores and share premium account by '' 3,196.39 crores, net of share issue expenses.

On February 18, 2021, pursuant to approval of the Finance Committee, the Bank allotted 1,57,70,985 equity shares of '' 10 each fully paid by converting these share warrants at a price of '' 1,709 per equity share, upon the promoters exercising the conversion option by remitting the remaining 75% of the Share Warrant Price amounting to '' 2,021.45 crores. Consequently, the share capital of the Bank increased by '' 15.77 crores and share premium by '' 2,679.49 crores.

1.2 Capital Adequacy Ratio

The Bank computes Capital Adequacy Ratio as per Basel III Capital Regulations issued by RBI.

Under Basel III Capital Regulations, with effect from October 1, 2021, on an on-going basis, the Bank has to maintain a Minimum Total Capital of 11.500% (Previous year 10.875%) including Capital Conversion Buffer at 2.500% (Previous year 1.875%), of the total risk weighted assets. Out of the Minimum Total Capital, at least 8.000% (Previous year 7.375%) of risk weighted assets, which includes 2.500% (Previous year 1.875%) towards Capital Conservation Buffer, shall be from Common Equity Tier 1 capital and at least 7.000% (Previous year 7.000%) from Tier 1 capital. The capital adequacy ratio of the Bank is set out below:

The Bank has raised unsecured, redeemable, subordinated Tier 2 Basel III compliant non-convertible taxable Bonds on October 29, 2021, through private placement basis at par, aggregating to total size of ? 2,800 crores with a tenor of 10 years which will augment Capital Funds as well as the long-term resources of the Bank.

The Bank has redeemed unsecured, redeemable, subordinated Tier 1 Basel III compliant non-convertible taxable Bonds by exercising the call option on March 22, 2022 of '' 1,000 crores.

2.6 Sale / transfer from HTM category

During the year ended March 31, 2022, and the year ended March 31, 2021, the value of sale and transfer of securities to/from HTM category, excluding one-time transfer of securities from HTM and sale to RBI on account of Open Market Operation (OMO)/Conversion/ switch auctions, has not exceeded 5% of the book value of investments held in HTM category at the beginning of the year. Hence, in accordance with RBI guidelines, specific disclosures on book value, market value, and provisions if any, relating to such sale and transfers are not applicable.

The credit exposure with clients, as compared to inter-bank counterparties, are generally secured by permitted collaterals. The credit exposure includes exposure arising out of swap contracts. However, generally, the collaterals provided by the clients are not specifically earmarked towards derivatives or swaps, and hence the amount of collateral required by the Bank upon entering into swaps is reported Nil. The derivative exposures including swaps, among inter-bank counterparties, are generally without any collateral or security.

3.2 Exchange Traded Interest Rate Derivatives

The Exchange Traded Interest Rate Derivatives undertaken during the year ended March 31,2022, and March 31,2021, was '' Nil.

3.3 Risk Exposure in Derivatives

Derivatives Policy approved by the Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for appropriate risk limits for different derivative products and action to be initiated in case of breaches. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

The Bank undertakes derivative transactions for hedging customers'' exposure, hedging the Bank''s own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures, in accordance with extant regulatory guidelines. The Bank has a policy on assessing the collateral required for undertaking derivative transactions with clients as well as counterparty banks. The credit appraisal process determines the collateral requirements. The Bank retains the right to terminate transactions as a risk mitigation measure in certain circumstances.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury Business Department and undertakes the following activities:

• Monitoring transactions and limits on derivatives portfolio against prescribed policies and limits on a daily basis;

• Daily review of product-wise profitability and activity reports for derivatives operations;

• Daily submission of MIS and details of exceptions to the Top Management; and

• Review of collaterals that are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies many quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits.

Refer Note 17.5 for the accounting policy on derivatives.

Note 4: Based on the absolute value of PV01 for Currency Derivatives and Interest Rate Derivatives outstanding as at the year end.

Note 5: Based on the absolute value of PV01 for Currency Derivatives and Interest Rate Derivatives outstanding during the year.

Note 6: PV01 for Currency Derivatives and Interest Rate Derivatives are presented in absolute terms. However, aggregate of net PV01 shall remain smaller as there are opposite positions among Currency Derivatives and Interest Rate Derivatives that will get netted off.

Note 7: Currency derivatives include forward exchange contracts, currency swaps, currency options and cross currency swaps; interest rate derivatives include interest rate swaps, forward rate agreements and interest rate caps and floors.

Note 8: PV01 is computed for cross currency swaps, interest rate swaps, and interest rate cap and floor.

3.4 Credit Default Swaps

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

year Nil).

4. Asset Quality

4.1 Classification of advances and provisions held

Standard advances provision includes provision created under various RBI guidelines like stress sector provision, provision for unhedged foreign currency exposure, provision under non permissible lending limit (NPLL), provision for delay in implementation of resolution plan and restructuring related provision.

I n line with RBI guideline on "Utilisation of Floating Provisions/Counter Cyclical Provisioning Buffer" dated May 5, 2021, Bank has utilized floating provision of '' 760 crores towards provision for Non-performing advances.

The information for the year ended March 31,2021 were compiled by management and relied upon by auditors.

4.4 Particulars of resolution plan and restructuring

During the year ended March 31,2022, the Bank has not implemented Resolution Plan for any of the borrowers in accordance with the RBI Circular dated June 7, 2019, on Prudential Revised Framework for Resolution of Stressed Assets ("Framework").

During the year ended March 31, 2021, the Bank implemented a Resolution Plan in respect of two borrowers having exposure (Advances & Investment) of '' 21.08 crores as on March 31, 2021, in accordance with the Framework.

4.5 Divergence in Asset Classification and Provisioning for NPA

RBI vide circular no. DBR.BP.BC.No.32/21.04.018/2018-19 dated April 01,2019, has directed that banks shall make suitable disclosures, wherever (a) the additional provisioning requirement assessed by RBI exceeds 10 percent of the reported profit before provisions and contingencies for the reference period, or (b) the additional Gross NPA identified by RBI exceeds 15 percent of the published incremental Gross NPA for the reference period, or both. Based on the criteria mentioned in the RBI circulars, no disclosure on divergence in asset classification and provisioning for NPA is required with respect to RBI Supervisory Programme for Assessment of Risk and Capital completed during the year pertaining to the year ended March 31,2021, and during the previous year pertaining to the year ended March 31,2020.

4.10 During the year ended March 31,2022, there has been no individual purchase / sale of non-performing financial assets from/ to other banks (Previous year Nil).

4.11 The COVID-19 pandemic had led to an unprecedented level of disruption on socio-economic front which led to a nation-wide lockdown across the country in April 2020 and May 2020. The ''second wave'' peaked in April 2021-May 2021 and subsided in June-July 2021. The ''third wave'' of Covid-19 broke out at December end, which has impacted Banks operations mildly and level of uncertainty is currently reducing.

India is coming out of the disruptions caused by the COVID-19 pandemic. The extent to which any new wave of COVID-19 will impact the Bank''s operations is dependent on future developments. In view of the same, the Bank continues to hold contingent provisions of '' 3,178 crores as of March 31, 2022, including an amount of '' 1,160 crores in respect of borrower accounts restructured in accordance with Resolution Framework for Covid-19 related stress.

1. Pursuant to the RBI circular dated March 27, 2020, on the COVID 19 - Regulatory Package, the Bank offered a moratorium of loan installments and interest payable to eligible borrowers. Accordingly, while drawing the maturity pattern, contractual inflows pertaining to Loans and Advances have been adjusted to the extent considered necessary.

(Compiled by management and relied upon by auditors.)

5.2 Liquidity Coverage Ratio (LCR)

The Bank has adopted the Basel III framework on liquidity standards, prescribed by the Reserve Bank of India (RBI) and has put in place requisite systems and processes to enable periodic automated computation and reporting of the Liquidity Coverage Ratio (LCR). The LCR is aimed at measuring and promoting the short-term resilience of the liquidity risk profile of banks by ensuring maintenance of sufficient High Quality Liquid Assets (HQLA) that can be easily and immediately converted into cash to meet the liquidity needs for a 30-calendar day liquidity stress scenario.

The LCR Ratio is calculated by dividing the Bank''s stock of HQLA by its total net cash flows over a 30-calendar day stress period, measured on a daily basis, for the following 30 days. The prime driver of LCR is determined by its HQLA and the proportion of retail and wholesale funding sources. The HQLA comprises of two parts, i.e., Level 1 HQLA constituents which are primarily cash, excess CRR, SLR securities in excess of the minimum SLR requirement and a portion of mandatory SLR as permitted by the RBI (under MSF and FALLCR) and Level 2 HQLA constituents which are investments in highly rated non-financial corporate bonds and listed equity investments considered with the prescribed regulatory haircuts. The average HQLA for the quarter ended March 31, 2022, was '' 98,823 crores, as against '' 93,422 crores for the quarter ended March 31, 2021. The Cash outflows are determined by multiplying the outstanding balances of the various types / categories of liabilities by the outflow run-off factor and the cash inflows are calculated by multiplying the outstanding balances of the various categories of contractual receivables by inflow run-offs at which they are expected to flow in. Expected derivative cash outflows and inflows are calculated for outstanding contracts in accordance with laid down valuation methodologies and regulatory guidelines. All significant outflows and inflows in all currencies are determined in accordance with the RBI guidelines and are included in the LCR computation as per the prescribed template. Other contractual funding and borrowings which are expected to run down in a 30-days timeframe, are included in the cash outflows. There are no intragroup exposures for the Bank.

The Bank has maintained LCR well above the minimum regulatory requirements during the FY 2021-22. The average LCR maintained by the Bank for the quarter ended March 31,2022, was at 126.33% against 145.11% for the quarter ended March 31,2021.

The Asset Liability Committee (ALCO) of the Bank is a decision-making unit responsible for implementing the liquidity and interest rate risk management strategies of the Bank in line with its risk management objectives and ensures adherence to the risk tolerance / limits set by the Board. Liquidity Risk Management of the Bank is centralised and is undertaken by the Asset Liability Management Function in the Global Markets Group in accordance with the Board approved policies.

The Bank''s funding sources are diversified across various sources and tenors. The Bank monitors the concentration of funding from various counterparties and segments. The Bank adheres to the regulatory and internal limits on inter-bank liabilities and call money borrowings. Apart from LCR, the Risk Management Department measures and monitors the liquidity profile of the Bank with reference to the Board approved policy and regulatory limits and undertakes liquidity stress testing periodically.

6.5 Advances against book debts

Advances secured by tangible asset includes advances against book debts amounting to '' 41,110.36 crores (Previous year '' 37,741.19 crores).

The above information is based on the methodology adopted by the management and relied upon by the auditors.

6.6 Details of factoring exposure

The factoring exposure of the Bank as at March 31,2022, is '' 2,603.48 crores (Previous year '' 1,228.27 crores).

6.7 Details of Intra-Group Exposure: '' Nil (Previous year '' Nil)

6.8 Unhedged Foreign Currency Exposure (UFCE) of Clients

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The foreign exchange positions that are not effectively hedged either by way of natural hedge or through forward contracts / derivatives expose a client to the risk of loss due to volatility in the foreign exchange rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31,2022, included an amount of '' 58.00 crores (Previous year '' 58.00 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31,2022, includes an amount of '' 178.17 crores (Previous year '' 181.87 crores) on account of UFCE, computed at the applicable risk weights.

6.9 Single Borrower limit and Group Borrower Limit

During the year ended March 31, 2022, and year ended March 31, 2021, the Bank''s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI.

12. Penalties imposed by RBI

During the year ended March 31,2022, penalty was imposed by the Reserve Bank of India (RBI) in exercise of powers vested under Section 47(A)(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949. The Reserve Bank of India (RBI) imposed, monetary penalty of '' 1 crore for non-adherence with certain provisions of directions issued by RBI on ''Lending to Non-Banking Financial Companies (NBFCs)'', ''Bank Finance to Non-Banking Financial Companies (NBFCs)'', ''Loans and Advances - Statutory and Other Restrictions''.

During the year ended March 31,2021, the RBI imposed a monetary penalty of '' 4.50 crores on the Bank in exercise of powers vested under the provisions of section 47A(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949, for non-compliance with certain provisions of directions issued by RBI on Exposure Norms, Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, Supervisory Programme on Assessment of Risk and Capital - Monitoring of Information Submission by Banks, Creation of a Central Repository of Large Common Exposures Across Banks, and Disclosure in Financial Statements - Notes to Accounts.

13. Disclosure on Remuneration

Compensation and Nomination & Remuneration Committee

Effective October 1, 2021, the Compensation Committee was merged with the Nomination and Remuneration Committee (NRC) and was renamed Compensation and Nomination & Remuneration Committee (C & NRC). The C & NRC presently comprises four members, three of these members are Independent Directors including the Chairperson of the Committee, and one is a Non-Independent Director. On aspects relating to remuneration, the mandate of the C & NRC is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The Compensation and Nomination & Remuneration Committee is mandated to oversee framing, review and implementation and of the Compensation Policy of the Bank as per the RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The C & NRC is also required to ensure that the cost to income ratio of the Bank supports the remuneration expense of the Bank consistent with the objective of maintaining sound capital adequacy ratio. The Compensation and Nomination & Remuneration Committee also reviews compensation policies of the Bank with a view to attract, retain and motivate employees. The Compensation and Nomination & Remuneration Committee also looks after the administration and superintendence of grant of Options under the Employee Stock Option Schemes.

Compensation Policy

From April 1,2020, onwards, the Bank has implemented the RBI Guidelines on Compensation of Whole Time Directors / Chief Executive Officers/Material Risk Takers and Control Function Staff, issued vide circular dated November 4, 2019.

The Bank has formulated a Compensation Policy in alignment with the RBI guidelines, covering all components of compensation including Fixed pay, Perquisites, Performance bonus, Guaranteed bonus (joining / sign-on bonus), Share-linked instruments (Employee Stock Option Plan), Retirement benefits such as Provident Fund and Gratuity.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between Fixed and Variable pay.

(iii) Pay for ''Position, Performance and Person''

(iv) Be risk conscious and dissuade excessive risk taking (Focus on revenues and profits is balanced by emphasis on risk, operational health, compliance and governance).

(v) Build employee ownership and long-term association through Long-term incentive plans (ESOPs, Deferred Bonus).

(vi) Be compliant with all regulatory and statutory guidelines.

Some of the important features of the Compensation Policy are as follows:

(i) Basis the RBI description of Material Risk Takers, the Bank defines Material Risk Takers (MRTs) as critical personnel belonging to the business line functions of Corporate & Commercial Banking, Global Markets, Gems and Jewellery, Consumer, Consumer Finance Division, etc. whose functioning and decisioning impacts the Bank materially on tangible performance aspects of Revenues, Costs, and Profits. The Material Risk Takers are identified in accordance with the qualitative and quantitative criteria specified by the RBI guidelines, such as nature of their role necessitating making risk related decisions, size of business portfolio, role criticality, being amongst 0.3% of staff with highest remuneration in the Bank. Risk controllers are defined as personnel critical to the functioning of the business support functions of Finance & Accounts, Risk, Credit, Operations, Human Resources, Inspection and Audit, Information Technology, Digital, Compliance, Investor Relations, Secretarial, Legal, Corporate Services, etc. These functions support the business line functions through back- office business processes and their functioning does not have a revenue impact through business generation.

As a good governance measure, the Bank applies similar Compensation Principles applicable to the WTDs / CEO / MRTs to the identified Risk Controllers of the Bank.

(ii) In respect of WTDs / CEO / Material Risk Takers / Risk Controllers of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating. The quantum of annual increment and increment percentages at various performance rating levels are decided on the basis of the financial performance of the Bank. Further, on a case-to-case basis, the Bank may provide a higher increment percentage based on the individual''s performance, role and criticality.

(iii) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Material Risk Takers and Risk Controllers may vary from year to year on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Pre Provision Operating Profit, Profit After Tax and Return on Equity, etc. Deterioration in the financial performance of the Bank in a given Financial Year would lead to a contraction in the total variable compensation, which can even be reduced to zero.

(iv) Employee compensation is linked to performance. Increments and Variable pay are linked to the annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(v) The individual Variable pay is linked to the annual performance rating and, based on variable pay grids that outline variable pay as a percentage of Annual Guaranteed Cash at various rating levels for a grade band. Exceptional variable pay may be paid to select high performers on a case-to-case basis within the limits stipulated in the RBI guidelines.

(vi) As per the new RBI Compensation policy effective April 01, 2020, the overall compensation of WTDs/CEOs/ Material Risk Takers / Risk Controllers comprises Fixed Pay and Variable Pay. The Variable Pay for FY21 paid to the Material Risk Taker and Risk Controllers was a mix of cash and share linked instruments. The Bank followed the Variable pay composition and Deferral guidelines as per the RBI guidelines.

(vii) The Bank has made applicable the malus/claw-back arrangements with the concerned employees in case of deferred variable pay. The criteria would be negative financial performance of the Bank and/or relevant line of business in any year, assessed divergence in the Bank''s provisioning of NPAs, material failure of risk management controls, breach of internal rules or regulations, integrity / staff accountability issues, etc. As applicable, malus arrangement would adjust deferred remuneration before vesting and claw-back arrangement would adjust deferred remuneration after vesting.

(viii) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, joining/sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining).

(ix) The Compensation Policy does not provide for severance pay other than the accrued benefits of Gratuity, Provident Fund, Leave encashment wherever applicable, for any employee of the Bank. Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank''s HR policies which are in line with the statutory norms.

(x) All Perquisites for WTDs / CEO / Material Risk Takers / Risk Controllers are laid down in the HR Policies of the Bank.

(xi) For WTDs /CEO/ Material Risk Takers / Risk Controllers, share linked instruments such as ESOPs form a part of the Variable pay and are a part of the total compensation. For other employees, ESOPs would be very selectively granted to attract and retain talent. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business continuity and growth, market value of the position/ perceived future value creation, performance and behavioural track record of the employee.

(1) Working funds are reckoned as the average of total assets as per the monthly return in Form X filed with RBI during the year.

(2) Cost of deposit is computed by divding the interest expense with the average deposit as reported in Form X.

(3) Net Interest margin is computed by dividing the Net Interest Income with the Average Earning Assets as reported in form X. Net Interest Income is computed by reducing the Interest Expense from Interest Income.

(4) Return on Assets is computed with reference to average working funds.

(5) Business per employee (deposits plus gross advances) is computed after excluding inter-bank deposits.

14.6 Implementation of IFRS converged Indian Accounting Standards (Ind AS)

The Reserve Bank of India (RBI) issued a circular in February 2016, requiring Scheduled Commercial Banks to implement Indian Accounting Standards (Ind AS) from April 1, 2018. Vide a press release dated 05 April 2018 the implementation was deferred by one year. The legislative amendments recommended by the Reserve Bank towards implementation of Ind AS are still under consideration of the Government of India. Accordingly, RBI had, through a notification dated March 22, 2019, deferred the Ind AS implementation until further notice.

Pursuant to the RBI Circular dated February 11, 2016, the Bank had formed a Steering Committee, comprising members from cross-functional areas, for the purpose of reviewing and monitoring the progress of implementation. The Bank had set up a Working Group under the guidance of the Steering Committee and has conducted Gap Assessment and identified the differences between the current accounting framework and Ind AS, including the identification of the accounting policy options provided under Ind AS 101, First Time Adoption.

The Audit Committee of the Board of Directors has an oversight on the progress of the Ind AS implementation. In accordance with RBI directions, the Bank has been submitting half yearly standalone pro forma Ind- AS financial statements along with other computations to the RBI, from time to time.

15.3 Contingent Liabilities

The Bank''s pending litigations include claims against the Bank by clients and counterparties and proceedings pending with tax authorities. The Bank has reviewed its pending litigations and proceedings and has adequately made, provisions wherever required and disclosed as contingent liabilities wherever applicable. Claims against the Bank not acknowledged as debts comprise of tax demands of '' 334.05 crores (Previous year '' 107.32 crores) in respect of which the Bank is in appeal, and legal cases sub judice of '' 399.34 crores (Previous year '' 375.04 crores). The Bank carries a provision of '' 7.41 crores (Previous year '' 4.86 crores) against legal cases sub judice. The amount of contingent liabilities is based on management''s estimate, and it is not probable that any liability is expected to arise out of the same.

15.4 The Bank has a process to assess periodically all long-term contracts (including derivative contracts), for material foreseeable losses. As at March 31, 2022, as well as March 31, 2021, the Bank has reviewed and made adequate provision as required under any law or an accounting standard for material foreseeable losses on such long term contracts (including derivative contracts).

15.5 During the year as well as the previous year ended March 31,2021, the Bank has transferred requisite amounts to the Investor Education and Protection Fund, without any delay.

15.6 Corporate Social Responsibility (CSR)

In accordance with the provisions of the Companies Act, 2013, during the year, the Bank was required to spend on CSR activities an amount of '' 107.41 crores (Previous year '' 120.23 crores).

Where a Company spends an amount in excess of requirement provided under sub-section (5) of section 135, such excess amount may be set off against the requirement to spend under sub-section (5) of section 135 upto immediate succeeding three financial years subject to the conditions that -

(i) The excess amount available for set off shall not include the surplus arising out of the CSR activities, if any, in pursuance of sub-rule (2) of this rule.

15.7 Drawdown from Reserves

During the year ended March 31,2022, and year ended March 31, 2021, the Bank did not draw down from the reserves.

15.9 Employee Stock Option Scheme

15.9. 1 On September 25, 2020, the shareholders of the Bank approved the IndusInd Bank Employee Stock Option Scheme 2020 (ESOS 2020), which comprehensively replaced the erstwhile Employee Stock Option Scheme 2007 (ESOS 2007) that was approved by the shareholders earlier on September 18, 2007. ESOS 2020 enables the Board and the Compensation Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines issued by the SEBI. The options vest at one time or at various points of time as stipulated in the Award Confirmation issued by the Compensation Committee, and there shall be a minimum period of one year between the grant of option and vesting of the option. The unvested options shall expire by such period as stipulated in the Award Confirmation or five years from the grant of options whichever is earlier, or such further or other period as the Compensation Committee may determine. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price and shall not be lower than the face value of the shares. Upon vesting, the options have to be exercised within a maximum period of five years or such period as may be determined by the Compensation Committee from time to time. The stock options are equity settled where the employees will receive one equity share per stock option.

Pursuant to a Composite Scheme of Arrangement with the erstwhile Bharat Financial Inclusion Limited, the shareholders of the Bank approved the IBL Special Incentive ESOS for BFIL Merger 2018 (ESOS 2018) on December 11,2018. ESOS 2018 was approved with a pool of 57,50,000 options which are equity settled. 50% of the options vest over a period of three years from the grant date and the remaining options vest over a period of three years from the first anniversary of the grant date. Upon vesting, the options have to be exercised within a maximum period of five years.

15.9.2 Recognition of expense

RBI, vide its clarification dated August 30, 2021, on Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments granted to such personnel on the date of grant should be recognised as an expense for all the instruments granted after the accounting period ending March 31,2021. Accordingly, the Bank has changed its accounting policy from the intrinsic value method to the fair value method for all share-linked instruments granted after March 31,2021. The fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes option pricing model and is recognized as compensation expense over the vesting period. The compensation so recognised in respect of which exercise of options is outstanding, is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest closing price prior to the date of the meeting of the Compensation Committee in which stock options are granted, available on the stock exchange on which the shares of the Bank are listed. Since shares are listed on more than one stock exchange, the exchange where the Bank''s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black - Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options, till the date of the grant.

The Bank has changed valuation of stock-based compensation to fair value using Black-Scholes model from intrinsic value starting April 1, 2021. ESOP''s granted during the FY2021-22 are valued at fair value of the stock-based compensation is estimated on the date of grant using Black-Scholes model and is recognised as compensation expense over the vesting period. ESOP''s granted before April 1,2021 are still valued at intrinsic value and if these options were valued at fair value then as a result, ''Employees cost'' for the year ended March 31,2022 would have been increased by '' 17.20 crores with a consequent reduction in profit after tax.

15.12 Proposed Dividend

The Board of Directors, in their meeting held on April 29, 2022, have proposed a final dividend of '' 8.50 per equity share amounting to '' 658.46 crores. The proposal is subject to the approval of shareholders at the ensuing 28th Annual General Meeting and accordingly, this proposed dividend amounting to '' 658.46 crores is not recognised as a liability on March 31,2022 and the same has not been considered as an appropriation from the Profit and Loss Account for the year ended March 31,2022.

Dividend for the year ended March 31,2021, paid during the year pursuant to the approval of the shareholders at the 27th Annual General Meeting, at the rate of '' 5 per equity share amounting to '' 386.69 crores including corporate dividend tax, has been considered as an appropriation from the Profit and Loss Account during the year.

15.13 Letters of Comfort

The Bank has not issued any letters of comfort during the year ended March 31,2022 (Previous year Nil).

15.14 The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

15.15 During the financial year ended March 31,2022, other than the transactions undertaken in the normal course of banking business and in accordance with extant regulatory guidelines and Bank''s internal policies, as applicable:

1. No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Bank ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries;

2. No funds have been received by the Bank from any person(s) or entity(ies), including foreign entities ("Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party ("Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

15.16 Service Provider Fees

Other expenses forming a part of Schedule 16 includes service provider fees amounting to '' 2,078.43 crores (Previous Year '' 1,705.43 crores).

Note: Fixed Assets, tax paid in advance and tax deducted at source (net of provisions), stationery and stamps, non-banking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus, dividend and others.

The above information is extracted from the Management Information System of the Bank and relied on by the auditors.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City, Gujarat. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

17. Previous year''s figures have been regrouped / reclassified wherever necessary.


Mar 31, 2021

3.3 Risk Exposure in Derivatives

Derivatives Policy approved by the Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for appropriate risk limits for different derivative products and action to be initiated in case of breaches. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

The Bank undertakes derivative transactions for hedging customers'' exposure, hedging the Bank''s own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures, in accordance with extant regulatory guidelines. The Bank has a policy on assessing the collateral required for undertaking derivative transactions with clients as well as counterparty banks. The credit appraisal process determines the collateral requirements. The Bank retains the right to terminate transactions as a risk mitigation measure in certain circumstances.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

• Monitoring risk limits on derivatives portfolio against prescribed policies and limits on a daily basis;

• Daily review of product-wise profitability and activity reports for derivatives operations;

• Daily submission of MIS and details of exceptions to the Top Management; and

• Review of collaterals that are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies many quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits.

Refer Note 17.4 for the accounting policy on derivatives.

The following table presents quantitative disclosures relating to Derivatives:

Note 1: Outstanding Notional principal amount of exchange traded currency future trades was '' 420.81 crores as at March 31,2021 (Previous year '' 302.91 crores).

Note 2: Marked to Market positions include interest accrued on the swaps.

Note 3: Credit exposure is computed based on the current exposure method.

Note 4: Based on the absolute value of PV01 for Currency Derivatives and Interest Rate Derivatives outstanding as at the year end.

Note 5: Based on the absolute value of PV01 for Currency Derivatives and Interest Rate Derivatives outstanding during the year.

Note 6: PV01 for Currency Derivatives and Interest Rate Derivatives are presented in absolute terms. However, aggregate of net PV01 shall remain smaller as there are opposite positions among Currency Derivatives and Interest Rate Derivatives that will get netted off.

Note 7: Currency derivatives include forward exchange contracts, currency swaps, currency options and cross currency swaps; interest rate derivatives include interest rate swaps, forward rate agreements and interest rate caps and floors.

Note 8: PV01 is computed for cross currency swaps, interest rate swaps, and interest rate caps and floor.

4. Asset Quality

Notes:

1) Recoveries include sale to SC / RC.

2) Amounts include impact of NPAs and provisions as assessed by RBI in their Supervisory Programme for Assessment of Risk and Capital.

3) Accounts which otherwise would have been classified NPA between September 1, 2020 and March 23, 2021 but could not be classified due to an interim order of the Honorable Supreme Court dated September 3, 2021, and fully cured by the time the final judgment was delivered on March 23, 2021, are not included in the movement of Gross NPAs, movement of Net NPAs or the movement of provisions for NPAs during the year.

4.2 Provision coverage ratio

Provision coverage ratio as at March 31,2021 is 74.52% (Previous year 63.34%).

4.3 Details of technical / prudential write-offs and recoveries made thereon

('' in crores)

Items

March 31, 2021

March 31, 2020

Opening balance of technical / prudential written off accounts

44.61

-

Add: Technical / prudential write-offs during the year

-

45.01

Less : Recoveries made from previously technical / prudential written-off accounts during the year

0.54

0.40

Closing balance of technical / prudential written-off accounts

44.07

44.61

4.4 Divergence in Asset Classification and Provisioning for NPA

RBI vide circular no. DBR.BPBC.No.63/21.04.018/2016-17 dated April 18, 2017 and DBR.BPBC.No.32/21.04.018/2018-19 dated April 01, 2019, has directed that banks shall make suitable disclosures, wherever (a) the additional provisioning requirement assessed by RBI exceeds 10 percent of the reported profit before provisions and contingencies for the reference period, or (b) the additional Gross NPA identified by RBI exceeds 15 percent of the published incremental Gross NPA for the reference period, or both. Based on the criteria mentioned in the RBI circulars, no disclosure on divergence in asset classification and provisioning for NPA is required with respect to RBI Supervisory Programme for Assessment of Risk and Capital completed during the year pertaining to the year ended March 31,2020, and during the previous year pertaining to the year ended March 31,2019.

4.7 In accordance with the Prudential Framework for Resolution of Stressed Assets issued by RBI vide a circular dated June 07, 2019, the extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) were withdrawn. The Joint Lenders'' Forum as an institutional mechanism for resolution of stressed accounts was also discontinued. However, accounts where the schemes have been implemented by then were allowed to continue; the following details pertain to such accounts where the respective schemes have been implemented before the said circular became effective.

4.9 Under the RBI Prudential Framework for Resolution of Stressed Assets Directions 2019, dated June 7, 2019 ("Prudential Framework") a restructuring or granting of any concession on account of financial difficulty of the borrower entails an asset classification downgrade, except when certain conditions are met. In view of the economic fallout on account of "severe acute respiratory syndrome coronavirus 2 (SARS-CoV-2)", generally known as COVID-19 pandemic, RBI, with an intent to facilitate revival of activities and to mitigate the impact on the borrowers, vide circular dated August 6, 2020 provided a window under the Prudential Framework for implementing a resolution plan while classifying such exposures as Standard, subject to certain conditions. Details of such implementation as of March 31,2021 are given below:

d) Details of Securitization transactions:

Amount of securitized transactions outstanding at the end of the year is Nil (Previous Year Nil).

4.11 During the year ended March 31,2021, there has been no individual purchase / sale of non-performing financial assets from/ to other banks (Previous year Nil).

4.12 During the year ended March 31,2021, there was no sale of assets through securitization except sale of assets to SC/RC (Previous year Nil).

4.13 Provision on Standard Assets

In accordance with RBI guidelines, general provision on standard assets is made at the following rates:

(a) At 1% on standard advances to Commercial Real Estate Sector;

(b) At 0.25% on standard direct advances to SME and Agriculture; and

(c) At 0.40% of the balance outstanding in other standard assets.

Standard assets provision also includes additional provision made pursuant to RBI instructions including general provisions towards certain sectoral exposures and restructured standard assets.

4.14 Unhedged Foreign Currency Exposure (UFCE) of Clients

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The foreign exchange positions that are not effectively hedged either by way of natural hedge or through forward contracts / derivatives expose a client to the risk of loss due to volatility in the foreign exchange rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31,2021, included an amount of '' 58.00 crores (Previous year '' 59.00 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31,2021, includes an amount of '' 181.87 crores (Previous year '' 135.61 crores) on account of UFCE, computed at the applicable risk weights.

4.17 During the year, the Bank implemented a Resolution Plan in respect of two borrowers having exposure (Advances & Investment) of Rs 21.08 crores as on March 31,2021 in accordance with the RBI Circular dated June 7, 2019 on Prudential Revised Framework for Resolution of Stressed Assets ("Framework").

During the year ended March 31, 2020, the Bank implemented a Resolution Plan in respect of one borrower having an outstanding of '' 19.32 crores, in accordance with the Framework.

4.18 In accordance with the RBI circular dated April 07, 2021, the Bank is required to refund/adjust interest on interest charged, in respect of all borrowers including those who had availed working capital facilities during the moratorium period i.e. March 1,2020 and August 31,2020, irrespective of whether moratorium had been fully or partially availed, or not availed. As suggested in the said circular, the Indian Banks'' Association (IBA) advised the methodology for calculation of such interest on interest to be implemented uniformly by all lending institutions. Accordingly, the Bank has estimated an amount of '' 30 crores and recognized a charge in its Profit and Loss Account for the year ended March 31,2021.

6.2 Liquidity Coverage Ratio (LCR)

The Bank has adopted the Basel III framework on liquidity standards, prescribed by the Reserve Bank of India (RBI) and has put in place requisite systems and processes to enable periodic automated computation and reporting of the Liquidity Coverage Ratio (LCR). The LCR is aimed at measuring and promoting the short-term resilience of the liquidity risk profile of banks by ensuring maintenance of sufficient High Quality Liquid Assets (HQLA) that can be easily and immediately converted into cash to meet the liquidity needs for a 30 calendar day liquidity stress scenario.

The LCR Ratio is calculated by dividing the Bank''s stock of HQLA by its total net cash flows over a 30 calendar day stress period, measured on a daily basis for the following 30 days. The prime driver of LCR is determined by its HQLA and the proportion of retail and wholesale funding sources. The HQLA comprises of two parts:

• Level 1 HQLA constituents which are primarily cash, balance with RBI in excess of the Cash Reserve Ratio requirement, securities eligible to be considered for the computation of Statutory Liquidity Ratio (SLR) and held in excess of the minimum SLR requirement, and a portion of mandatory SLR as permitted by the RBI under the Marginal Standing Facility and the Facility to Avail Liquidity for Liquidity Coverage Ratio

• Level 2 HQLA constituents which are investments in highly rated non-financial corporate bonds and listed equity investments considered with the prescribed regulatory haircuts.

The average HQLA available with the Bank during the three months ended March 31, 2021 amounted to '' 93,422 crores, as compared to '' 51,432 crores available during the three months ended March 31,2020. The Cash outflows are determined by multiplying the outstanding balances of the various types / categories of liabilities by the outflow run-off factor. Cash inflows are calculated by multiplying the outstanding balances of the various categories of the contractual receivables at which they are expected to flow in. Expected derivative cash outflows and inflows are calculated for outstanding contracts in accordance with laid down valuation methodologies and regulatory guidelines. Other contractual funding and borrowings which are expected to run down in a 30 day time frame are included in the cash outflows. There are no intragroup exposures for the Bank. All significant outflows and inflows, determined in accordance with the RBI guidelines, are considered in the computation of LCR.

During the year, the Bank maintained LCR above the minimum regulatory requirements (ranging from 80% -100%). The average LCR maintained by the Bank for the quarter ended March 31, 2021 was at 145.11% as compared to 112.30% maintained for the quarter ended March 31,2020.

The Asset Liability Committee (ALCO) of the Bank is the decision-making unit responsible for implementing the liquidity and interest rate risk management strategies of the Bank in line with its risk management objectives, and ensures adherence to the risk tolerance / limits set by the Board. Liquidity Risk Management of the Bank is centralised and is undertaken by the Asset Liability Management unit in the Global Markets Group in accordance with the Board approved policies.

The funding sources of the Bank are diversified across various sources and tenors. The Bank monitors the concentration of funding from various counterparties and segments. The Bank adheres to the regulatory and internal limits on inter-bank liabilities and call money borrowings. Besides LCR, the Risk Management Department measures and monitors the liquidity profile of the Bank with reference to the Board approved policy and regulatory limits and undertakes liquidity stress testing periodically.

7.4 Single Borrower limit and Group Borrower Limit

During the year ended March 31, 2021 and year ended March 31, 2020, the Bank''s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI.

7.5 Unsecured advances

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licenses, authorizations, etc. (Previous year Nil). The Unsecured Advances of '' 49,754.63 crores (Previous year '' 49,883.38 crores) as disclosed in Schedule 9B (iii) are without any collateral or security.

7.6 Details of factoring exposure

The factoring exposure of the Bank as at March 31,2021 is '' 746.49 crores (Previous year '' 274.32 crores).

9.2 Penalties imposed by RBI

During the year, the Reserve Bank of India (RBI) imposed a monetary penalty of '' 4.50 crore on the Bank in exercise of powers vested under the provisions of section 47A(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949, for non-compliance with certain provisions of directions issued by RBI on Exposure Norms, Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to Advances, Supervisory Programme on Assessment of Risk and Capital - Monitoring of Information Submission by Banks, Creation of a Central Repository of Large Common Exposures Across Banks, and Disclosure in Financial Statements- Notes to Accounts.

During the year ended March 31,2020, no penalty was imposed by the RBI in exercise of powers vested under Section 47(A)(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949.

9.3 Fixed Assets

9.3.1 Cost of premises includes '' 4.09 crores (Previous year '' 4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having written down value of '' 1.40 crores (Previous year '' 1.44 crores) and has filed a suit for the same.

9.4 Contingent Liabilities

The Bank''s pending litigations include claims against the Bank by clients and counterparties and proceedings pending with tax authorities. The Bank has reviewed its pending litigations and proceedings and has adequately provided for where provisions are required, and disclosed as contingent liabilities where applicable. Claims against the Bank not acknowledged as debts comprise of tax demands of '' 107.32 crores (Previous year '' 122.40 crores) in respect of which the Bank is in appeal, and legal cases sub judice of '' 375.04 crores (Previous year '' 364.43 crores). The Bank carries a provision of '' 4.86 crores (Previous year '' 4.52 crores) against legal cases sub judice. The amount of contingent liabilities is based on management''s estimate, and it is not probable that any liability is expected to arise out of the same.

9.5 The Bank has a process to assess periodically all long term contracts (including derivative contracts), for material foreseeable losses. As at March 31, 2021 as well as March 31,2020, the Bank has reviewed and made adequate provision as required under any law or an accounting standard for material foreseeable losses on such long term contracts (including derivative contracts).

9.6 Overseas Asset, NPAs and Revenue

During the year, the Bank earned a revenue of '' 255.60 crores through overseas assets (Previous year '' 347.54 crores). The overseas assets as at March 31,2021 amounted to '' 6,580.34 crores (Previous year '' 6,292.62 crores) including NPAs of '' 237.80 crores (Previous year 381.52 crores). Assets for this purpose includes means client advances.

9.7 The Bank does not have any Off-Balance Sheet SPVs which is required to be consolidated as per accounting standards (Previous year Nil).

10. Employee Stock Option Scheme

10.1 On September 25, 2020, the shareholders of the Bank approved the IndusInd Bank Employee Stock Option Scheme 2020 (ESOS 2020), which comprehensively replaced the erstwhile Employee Stock Option Scheme 2007 (ESOS 2007) that was approved by the shareholders earlier on September 18, 2007. ESOS 2020 enables the Board and the Compensation Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of paid up equity shares of the Bank, in line with the guidelines issued by the SEBI. The options vest at one time or at various points of time as stipulated in the Award Confirmation issued by the Compensation Committee, and there shall be a minimum period of one year between the grant of option and vesting of the option. The unvested options shall expire by such period as stipulated in the Award Confirmation or five years from the grant of options whichever is earlier, or such further or other period as the Compensation Committee may determine. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price and shall not be lower than the face value of the shares. Upon vesting, the options have to be exercised within a maximum period of five years or such period as may be determined by the Compensation Committee from time to time. The stock options are equity settled where the employees will receive one equity share per stock option.

Pursuant to a Composite Scheme of Arrangement with the erstwhile Bharat Financial Inclusion Limited, the shareholders of the Bank approved the IBL Special Incentive ESOS for BFIL Merger 2018 (ESOS 2018) on December 11,2018. ESOS 2018 was approved with a pool of 57,50,000 options which are equity settled. 50% of the options vest over a period of three years from the grant date and the remaining options vest over a period of three years from the first anniversary of the grant date. Upon vesting, the options have to be exercised within a maximum period of five years.

ESOS 2020 and ESOS 2018 are, hereinafter, collectively referred to as ESOS.

As at March 31,2021, the Compensation Committee of the Bank has granted a total of 5,10,15,642 options that includes 4,57,27,836 options granted under ESOS 2020 and 52,87,806 options granted under ESOS 2018, as set out below:

10.2 Recognition of expense

The Bank follows the intrinsic value method to recognize employee costs relating to ESOS, in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by the ICAI. Excess of fair market price at the grant date over the exercise price of an option is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The compensation so recognised in respect of which exercise of options is outstanding, is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest closing price prior to the date of the meeting of the Compensation Committee in which stock options are granted, available on the stock exchange on which the shares of the Bank are listed. Since shares are listed on more than one stock exchange, the exchange where the Bank''s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black - Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options, till the date of the grant.

The stock-based compensation cost calculated as per the intrinsic value method for the year ended March 31,2021 is '' 0.09 crores (Previous year '' 0.37 crores). Had the Bank adopted the Black - Scholes model based fair valuation, compensation cost for the year ended March 31, 2021, would have increased by '' 32.20 crores (Previous year '' 73.01 crores) and the pro forma profit after tax would have been lower by '' 24.10 crores (Previous year '' 54.64 crores). On a pro forma basis, the basic and diluted earnings per share would have been as follows:

11. Disclosures - Accounting Standards

11.1 Employee Benefits (AS-15)

Gratuity:

Gratuity is a defined benefit plan. The Bank has obtained qualifying insurance policies from insurance companies approved by the IRDA. The following table presents a summary of the components of net expenses recognized in the Profit and Loss account, and the funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Fixed Assets, tax paid in advance and tax deducted at source (net of provisions), stationery and stamps, nonbanking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus, dividend and others.

The above information is extracted from the Management Information System of the Bank and relied on by the auditors.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City Gujarat. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

12.4 Proposed Dividend

The RBI vide its circular dated April 22, 2021 advised that banks may pay dividend on equity shares from the profits for the financial year ended March 31, 2021 subject to the quantum of dividend being not more than fifty percent of the amount determined as per the dividend payout ratio prescribed in circular DBOD.NO.BP. BC.88/ 21.02.067/2004-05 dated May 4, 2005. The Board of Directors, in their meeting held on April 30, 2021 have proposed a final dividend of '' 5 per equity share amounting to '' 386.69 crores based on the equity shares outstanding as at March 31, 2021. The proposal is subject to the approval of shareholders at the ensuing 27th Annual General Meeting.

The Bank did not declare any dividend during the year ended March 31,2020 in compliance with the RBI Circulars dated April 17, 2020 and December 4, 2020.

12.6 Letters of Comfort

The Bank has not issued any letters of comfort during the year ended March 31,2021 (Previous year Nil).

12.7 Disclosure on Remuneration Nomination and Remuneration Committee

The Nomination and Remuneration Committee (NRC) presently comprises four members, three of these are Independent Directors including the Chairperson of the Committee, and one Non-Independent Director. On aspects relating to remuneration, the mandate of the NRC is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The NRC is also mandated to oversee framing, implementation and review of the Compensation Policy of the Bank as per RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The NRC is also required to ensure that the cost to income ratio of the Bank supports the remuneration expense of the Bank consistent with the objective of maintaining sound capital adequacy ratio. The Nomination and Remuneration Committee also reviews compensation policies of the Bank with a view to attract, retain and motivate employees.

Compensation Policy

During the year, the Bank has implemented the RBI Guidelines on Compensation of Whole Time Directors /Chief Executive Officers/Material Risk Takers and Control Function Staff, issued vide circular dated November 4, 2019.

The Bank has formulated a Compensation Policy in alignment with the RBI guidelines, covering all components of compensation including fixed pay, perquisites, performance bonus, guaranteed bonus (joining / sign-on bonus), share-linked instruments such as Employee Stock Option Plan (ESOPs), retirement benefits such as Provident Fund and Gratuity.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between fixed and variable pay

(iii) Pay for ''Position, Performance and Person''

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs)

(v) Be compliant to all regulatory and statutory guidelines.

Some of the important features of the Compensation Policy are as follows:

(i) Basis the RBI description of Material Risk Takers, the Bank defines Material Risk Takers (MRTs) as personnel belonging to the business line functions of Corporate & Commercial Banking, Global Markets, Transaction Banking, Gems and Jewellery, Consumer, Consumer Finance Division, etc. whose functioning and decisions impacts the Bank materially on tangible performance aspects of Revenues, Costs, and Profits. The Material Risk Takers are identified in accordance with the criteria specified by the RBI guidelines, such as, nature of the role necessitating making risk related decisions, size of their business portfolio, role criticality and value to the Bank being key decision makers in their areas. Risk controllers are defined as personnel belonging to the business support functions of Finance, Risk Control, Credit, Operations, Human Resources, Inspection and Audit, Information Technology, Digital, Compliance, Investor Relations, Secretarial, Legal, Corporate Services, etc. who support the business line functions through back office business processes and their functioning does not have a revenue impact through business generation.

(ii) The Nomination and Remuneration Committee oversees the framing, implementation and review of the Compensation Policy in accordance with the RBI guideline''s.

(iii) In respect of WTDs / CEO / Risk Takers / Control function staff of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating and increment percentages at various performance rating levels, and are decided on the basis of the financial performance of the Bank. Exceptions are restricted to a select few high performers to reward performance and retain critical employees.

(iv) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Material Risk Takers and Risk Controllers may vary from year to year on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Profit After Tax and Return on Equity, etc.

(v) Employee compensation is linked to performance. Increments and variable pay are linked to the annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(vi) The individual variable pay is linked to the annual performance rating, and based on variable pay grids that outline variable pay as a percentage of Annual Guaranteed Cash at various rating levels for a grade band. Exceptional increments and variable pay may be paid to select high performers, within the limits stipulated in the RBI guidelines. The Bank also makes a distinction between Material Risk Takers and Risk Controllers and incorporates separate parameters on variable pay for these segments in its Compensation Policy.

(vii) In respect of all employees, the variable pay during the year did not exceed 65% of the fixed pay and there was no instance of deferral of variable pay. For the year 2019-20, the variable pay awarded during the year was in accordance with extant RBI compensation policy guidelines.

(viii) As per the new RBI Compensation policy effective April 01,2020, the overall compensation of WTDs/CEOs/ MRTs comprises Fixed Pay and Variable Pay. Variable Pay can be in the form of share linked instruments or a mix of cash and share linked instruments. Variable pay can range from 100% to 300% of the fixed pay. The Bank follows the variable pay composition and deferral guidelines as per the RBI policy.

(ix) The Bank will implement malus / claw-back arrangements with the concerned employees in case of deferred variable pay. The criteria would be negative contributions to the bank and/or relevant line of business in any year. As applicable, malus arrangement would adjust deferred remuneration before vesting and clawback arrangement would adjust deferred remuneration after vesting.

(x) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining). The Compensation Policy does not provide for severance pay for any employee of the Bank, irrespective of the reasons for severance.

(xi) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank''s HR policies which are in line with the statutory norms.

(xii) Perquisites are laid down in HR Policies of the Bank.

(xiii) For WTDs / MRTs share linked instruments such as ESOPs would form a part of the variable pay and would be a part of the total compensation. For other employees, ESOPs would be very selectively granted to attract and retain talent. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution, market value of the position, performance and behavioural track record of the employee.

Remuneration to Non-Executive Directors

The Non-Executive Directors are paid Sitting Fees for attending meetings of the Board at the rate of '' 1,00,000 per meeting, at the rate of '' 50,000 per meeting of the Audit Committee of the Board, the Committee of Directors (CoD), and the Risk Management Committee, and at the rate of '' 20,000 per meeting, in respect of all the other Committees. An amount of '' 2.18 crores was paid as sitting fees to the Non-Executive Directors during the year ended March 31,2021 (Previous year '' 1.28 crores). In accordance with RBI guidelines and the approval accorded at the 23rd Annual General Meeting, during the year, an amount of '' 0.93 crores (Previous year '' 0.82 crores) has been paid as remuneration to Non-Executive Directors.

13. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

14. Previous year''s figures have been regrouped / reclassified wherever necessary.


Mar 31, 2019

1. Capital

1.1 Capital Issue

During the year ended March 31, 2019, 24,63,681 equity shares of Rs. 10 each fully paid (Previous year 20,74,482 equity shares of Rs. 10 each fully paid) aggregating to an amount of Rs. 100.54 crores (Previous year Rs. 101.97 crores) which includes the share capital and share premium, were allotted on various dates to the employees who exercised their stock options.

1.2 Capital Adequacy Ratio

The Bank computes Capital Adequacy Ratio as per Basel III Capital Regulations issued by RBI.

Under Basel III Capital Regulations, on an on-going basis, the Bank has to maintain a Minimum Total Capital (MTC) of 10.875% (Previous year 10.875%) including Capital Conversion Buffer (CCB) at 1.875% (Previous year 1.875%), of the total risk weighted assets (RWA). Out of the MTC, at least 7.375% (Previous year 7.375%) of RWA, which includes 1.875% (Previous year 1.875%) towards CCB, shall be from Common Equity Tier 1 (CET1) capital and at least 7.00% (Previous year 7.00%) from Tier 1 capital. The capital adequacy ratio of the Bank is set out below:

Notes:

(1) Does not include amount of securities pledged with Central Counter Parties, viz., Clearing Corporation of India Limited, National Securities Clearing Corporation of India Limited and Multi Commodity Exchange of India Limited.

(2) Amounts reported under columns 4, 5, 6 and 7 are not mutually exclusive.

(3) Does not include investment in Security Receipts.

2.1 Sale / transfer from HTM category

During the year ended March 31, 2019 and year ended March 31, 2018, the value of sales and transfer of securities to/from HTM category, excluding one-time transfer of securities from HTM and sale on account of Open Market Operation (OMO), has not exceeded 5% of the book value of investments held in HTM category at the beginning of the year. As such, in line with RBI guidelines, specific disclosures on book value, market value, and provisions if any, relating to such sale and transfers are not required to be made.

2.2 Risk Exposure in Derivatives

Derivatives Policy approved by the Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for (a) appropriate risk limits for different derivative products and (b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitoring derivatives operations against prescribed policies and limits on a daily basis;

- Daily review of product-wise profitability and activity reports for derivatives operations;

- Daily submission of MIS and details of exceptions to the Top Management,

- Monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk; and

- Review of collaterals that are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits. The Bank undertakes derivative transactions for hedging customers’ exposure, hedging the Bank’s own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures.

Note 1: Outstanding Notional principal amount of exchange traded currency future trades was Rs. 7.77 crores as at March 31, 2019 (Previous year Rs. 85.76 crores).

Note 2: Marked to Market positions include interest accrued on the swaps.

Note 3: Credit exposure is computed based on the current exposure method.

Note 4: Based on the absolute value of PV01 of the derivatives outstanding as at the year end.

Note 5: Based on the PV01 of the outstanding derivatives.

Note 6: PV01 for Currency Derivatives and Interest Rate Derivatives are presented in absolute terms. However, aggregate of net PV01 shall remain smaller as there are opposite positions in Currency Derivatives and Interest Rate Derivatives that will get netted off.

Notes:

1) Recoveries include sale to SC / RC.

2) Amounts include impact of NPAs and provisions as assessed by RBI in their Supervisory Programme for Assessment of Risk and Capital.

3) Advances granted to various companies and SPVs belonging to a Group in the infrastructure sector amounting to Rs. 3,004 crores (exposure to holding company of Rs. 2,000 crores and operating companies / SPVs Rs. 1,004 crores), were classified as ‘Non-performing -sub-standard’ and provided for, in excess of Prudential Norms on Income Recognition, Asset Classification and Provisioning pertaining to the Advances Portfolio (IRAC norms) ; an accelerated provision has been made taking the provision against holding company exposure to 70% and operating companies / SPVs to 25%; a part of the loan to the holding company has been subsequently written off as at March 31, 2019.

4.1 Provision coverage ratio

Provision coverage ratio as at March 31, 2019 is 43.04% (Previous year 56.26%).

4.2 Divergence in Asset Classification and Provisioning for NPAs

RBI vide its circular no. DBR.BP.BC.No.63/21.04.018/2016-17 dated April 18, 2017 and DBR.BP.BC. No.32/21.04.018/2018-19 dated April 01, 2019, has directed that banks shall make suitable disclosure’s, wherever either (a) the additional provisioning requirements assessed by RBI exceeds 10 percent of the reported profit before provisions and contingencies for the reference period or (b) the additional Gross NPAs identified by RBI exceed 15 percent of the published incremental Gross NPAs for the reference period, or both. Based on the criteria mentioned in RBI circular, no disclosure on divergence in asset classification and provisioning for NPAs is required with respect to RBI Supervisory Programme for Assessment of Risk and Capital completed during the year, pertaining to the year ended March 31, 2018.

Notes:

1) Out of Rs. 1,350.20 crores identified by RBI as non-performing advances, four accounts amounting to Rs. 809.50 crore were fully realised during the year ended March 31, 2018. This includes one large cement company account with an exposure of Rs. 551.70 crores that was resolved as per the resolution plan arrived at the Joint Lenders Forum. Borrower accounts with an exposure of Rs. 118.80 crore were resolved by way of sale to Asset Reconstruction Companies.

2) The remaining borrower accounts were classified as non-performing advances during the year ended March 31, 2018 and provided for accordingly.

1. Provision includes diminution / FITL / NPA provision, wherever applicable.

2. Sr. No. 2 includes loan assets restructured by the Bank on account of relief to borrowers affected by natural calamities amounting to? 170.87 crores (provision T 0.18 crores), and additions to existing restructured accounts amounting to Rs.0.28 crores (provision Rs.33.41 crores).

3. Sr. No. 6 includes reductions in existing restructured accounts amounting to Rs. 141.85 crores (provision Rs.27.95 crores) due to repayments, CDR exit, OTS, sold to ARC, and restructuring failures.

4. In case of NPAs, outstanding reported is net of unrealised interest.

1. Provision includes diminution / FITL / NPA provision, wherever applicable.

2. Sr. No. 2 includes additions to existing restructured accounts of Rs.17.60 crores (provision Rs.0.02 crores).

3. Sr. No. 6 includes reductions in existing restructured accounts of Rs.197.89 crores (provision Rs.50.44 crores) due to repayment, CDR exit, OTS, sold to ARC, and restructuring failures.

4. In case of NPAs, outstanding reported is net of unrealised interest.

4.3 In accordance with the Revised Framework on Resolution of Stressed Assets issued by RBI vide a circular dated February 12, 2018, the extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) have been withdrawn. The Joint Lenders’ Forum as an institutional mechanism for resolution of stressed accounts was also discontinued. However, accounts where the schemes have been implemented by then were allowed to continue, and the following details pertain to such accounts where the respective schemes have been implemented before the said circular became effective.

d) Change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period) as at March 31, 2019: Nil (Previous year Nil)

e) Change in Ownership of Projects Under Implementation (accounts which are currently under the stand-still period) as at March 31, 2019: Nil (Previous year Nil)

f) During the year ended March 31, 2019, no MSME account was restructured.

(a) This does not include SRs issued by Trusts that were closed and the outstanding SRs were cancelled and written off in the books of the Bank.

(b) During current year, no SRs issued by Trusts more than 8 years ago, were written off in the books of the Bank and held in physical form with Nil value. (Previous year Rs.Nil)

4.4 During the year ended March 31, 2019, there has been no individual purchase / sale of non-performing financial assets from/ to other banks (Previous year Nil).

4.5 During the year ended March 31, 2019, there was no sale of assets through securitization except sale of assets to SC/RC (Previous year Nil).

4.6 Provision on Standard Assets

In accordance with RBI guidelines, general provision on standard assets is made at the following rates:

(a) At 1% on standard advances to Commercial Real Estate Sector;

(b) At 0.25% on standard direct advances to SME and Agriculture; and

(c) At 0.40% of the balance outstanding in other standard assets.

Standard assets provision also includes additional provision made pursuant to RBI instructions including provisions towards restructured standard assets.

4.7 Unhedged Foreign Currency Exposure (UFCE) of Clients

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The forex positions that are not effectively hedged either by way of natural hedge or through derivatives/forward contracts expose a client to the risk of loss due to volatility in the forex rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31, 2019, included an amount of Rs. 52.00 crores (Previous year Rs. 52.00 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31, 2019, includes an amount of Rs. 169.29 crores (Previous year Rs. 185.09 crores) on account of UFCE, computed at the applicable risk weights.

4.8 As on March 31, 2019 and March 31, 2018, no resolution plan in respect of accounts wherein aggregate exposure of the lenders amounted to Rs. 2,000 crores or above, has been implemented in accordance with the Revised Framework on Resolution of Stressed Assets issued by RBI vide a circular dated February 12, 2018.

Notes:

(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Return on Assets is computed with reference to average working funds.

(3) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

4.8 Liquidity Coverage Ratio (LCR)

Liquidity Coverage Ratio (LCR) aims to ensure that the Bank is able to maintain an adequate level of unencumbered High Quality Liquid Assets (HQLAs) to meet its liquidity needs convertible into cash under significantly severe liquidity stress scenario lasting for a 30-calendar day time horizon. LCR measures the Bank’s potential to stand under combined idiosyncratic and market-wide liquidity stress condition, where the Bank experiences accelerated withdrawal of deposits from retail as well wholesale depositors, partial loss of secured funding, increase in collateral requirements and unscheduled draw down of unused credit lines.

The Bank maintains HQLA in terms of Cash, unencumbered excess SLR, proportion of statutory SLR as allowed by RBI, excess statutory cash reserve and high rated corporate bonds issued by entities other than financial institutions. For the purposes of LCR computation, the Bank has considered all inflows and outflows that may have a quantifiable impact under the liquidity stress scenario.

4.9 Single borrower limit and Group Borrower Limit

During the year ended March 31, 2019 and year ended March 31, 2018, the Bank’s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI.

4.10 Unsecured advances

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licenses, authorizations, etc. (Previous year Nil). The Unsecured Advances of Rs. 37,444.15 crores (Previous year Rs. 29,396.20 crores) as disclosed in Schedule 9B (iii) are without any collateral or security.

4.11 Details of factoring exposure

The factoring exposure of the Bank as at March 31, 2019 is Rs. 138.95 crores (Previous year Rs. 46.59 crores).

5. Miscellaneous

5.1 Amount of Provisions for taxation during the year

5.2 Penalties imposed by RBI

During the year ended March 31, 2019, RBI imposed a penalty of Rs. 1.00 crore for non-compliance with direction issued in respect of time-bound implementation and strengthening of SWIFT-related operational controls in exercise of powers vested under Section 47(A)(1)(c) read with section 46(4)(i) of the Banking Regulation Act, 1949. This penalty was duly paid by the Bank.

During the year ended March 31, 2018, RBI imposed a penalty of Rs. 3.00 crores for non-adherence to Income Recognition and Asset Classification norms and regulatory restriction pertaining to non-fund based facilities in exercise of powers vested under Section 47(A)(1)(c) read with section 46(4) of the Banking Regulation Act, 1949. This penalty was duly paid by the Bank.

6.1 Fixed Assets

6.1.1 Cost of premises includes Rs. 4.09 crores (Previous year Rs. 4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having written down value of Rs. 1.48 crores (Previous year Rs. 1.51 crores) and has filed a suit for the same.

6.1.2 Premises owned by the Bank were revalued as at March 31, 2019 in accordance with Bank’s policy and an amount of Rs. 29.69 crores (Previous year Nil) was debited to Revaluation Reserve Account.

7.1 Contingent Liabilities

The Bank’s pending litigations include claims against the Bank by clients and counterparties and proceedings pending with tax authorities. The Bank has reviewed its pending litigations and proceedings and has adequately provided for where provisions are required, and disclosed as contingent liabilities where applicable. Claims against the Bank not acknowledged as debts comprise of tax demands of Rs. 89.41 crores (Previous year Rs. 176.28 crores) in respect of which the Bank is in appeal, and legal cases sub judice of Rs. 306.22 crores (Previous year Rs. 300.24 crores). The Bank carries a provision of Rs. 4.52 crores (Previous year Rs. 4.52 crores) against cases sub judice. The amount of contingent liabilities is based on management’s estimate, and it is not probable that any liability is expected to arise out of the same.

The Judgment of the Hon’ble Supreme Court dated February 28, 2019, in the matter of The Regional Provident Fund Commissioner (II) West Bengal vs. Vivekananda Vidyamandir and Ors sets out principles for computation of contribution towards Provident Fund where “basic wage” includes all emoluments paid to an employee as per the terms of his/ her contract of employment. The Judgment has also laid down the standards applicable to determine “basic wage” as that amount that is payable to all employees uniformly and is to be included within the definition of “basic wage’. A review petition against this decision has been filed and is pending before the SC for disposal. Since there are no other directions from the EPFO and pending decision of the review petition on the subject, no liability is currently ascertainable and consequently no effect has been given in the financial statement.

7.2 The Bank has a process to assess periodically all long term contracts (including derivative contracts), for material foreseeable losses. At the year end, the Bank has reviewed and adequate provision as required under any law or an accounting standard for material foreseeable losses on such long term contracts (including derivative contracts), has been made.

7.3 Overseas Asset, NPAs and Revenue

During the year, the Bank earned a revenue of Rs. 305.53 crores through overseas assets (Previous year Rs. 116.78 crores). The overseas assets as at March 31, 2019 amounted to Rs. 4,547.40 crores (Previous year Rs. 4,396.30 crores) and there were no NPAs (Previous year Nil). Assets for this purpose is defined to include client advances.

7.4 The Bank does not have any Off-Balance Sheet SPVs which are required to be consolidated as per accounting standards (Previous year Nil).

7.5 There is no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Bank (Previous year Nil).

7.6 Corporate Social Responsibility (CSR)

During the year, the Bank has spent an amount of Rs. 55.46 crores (Previous year Rs. 20.47 crores) towards CSR initiatives through various projects in the areas of Environment (Watershed Development, Afforestation, Lake/ Pond Rejuvenation), Education, Rural Development and Inclusiveness, Preventive Healthcare and Sports. Of the total CSR spends, no amount was incurred towards capital expenditure (Previous year Rs. 0.13 crores).

7.7 Drawdown from Reserves

During the year ended March 31, 2019 and year ended March 31, 2018, the Bank did not draw down from the reserves (refer note 12.5 of Schedule 18).

7.8 Credit Default Swaps

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2019 (Previous year Nil).

7.9 On October 14, 2017, the Board of Directors of the Bank and Bharat Financial Inclusion Limited (BFIL), at their respective meetings, approved a merger of BFIL with the Bank in an all-stock transaction through a Composite Scheme of Arrangement (Scheme). The Competition Commission of India has approved the proposed Scheme and RBI has conveyed their ‘No Objection’ for the Scheme and an approval for incorporating a Wholly-Owned-Subsidiary to act as Business Correspondent of the Bank. The Scheme has received ‘no adverse remarks’ from the National Stock Exchange of India Limited and BSE Limited, basis the comments received from the Securities and Exchange Board of India. For the purposes of implementing the Scheme, IndusInd Financial Inclusion Limited (IFIL) has been incorporated on August 06, 2018 as a wholly owned subsidiary of the Bank. Pursuant to an order of National Company Law Tribunal (NCLT), the following meetings were convened: (a) shareholders’ meeting of the Bank, on December 11, 2018; (b) shareholders’ meeting and creditors’ meetings of BFIL, on December 11, 2018; and (c) shareholders’ meeting of IFIL, on December 7, 2018. The shareholders and creditors of the Bank, BFIL and IFIL, as applicable, have approved the Scheme at the aforesaid meetings. The petition filed with NCLT to sanction the Scheme was heard on April 23, 2019 and the matter was reserved by the NCLT for final order. Accordingly, the proposed Scheme has not been given effect to in the standalone profit for the year ended March 31, 2019 or the standalone balance sheet as at that date.

8. Employee Stock Option Scheme (ESOS)

8.1 The shareholders of the Bank approved Employee Stock Option Scheme (ESOS 2007) on September 18, 2007. ESOS enables the Board and the Compensation Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines issued by the SEBI. The options vest within a maximum period of five years from the date of grant of option. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the options have to be exercised within a maximum period of five years. The stock options are equity settled where the employees will receive one equity share per stock option.

8.2 Recognition of expense

The Bank follows the intrinsic value method to recognize employee costs relating to ESOS, in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by the ICAI. Excess of fair market price over the exercise price of an option at the grant date, is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The compensation so recognised in respect of which exercise of options is outstanding, is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest closing price prior to the date of the meeting of the Compensation Committee in which stock options are granted, available on the stock exchange on which the shares of the Bank are listed. Since shares are listed on more than one stock exchange, the exchange where the Bank’s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black -Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options, till the date of the grant.

The stock-based compensation cost calculated as per the intrinsic value method for the year ended March 31, 2019 is Rs. 0.30 crores (Previous year Rs. 1.21 crores). Had the Bank adopted the Black - Scholes model based fair valuation, compensation cost for the year ended March 31, 2019, would have increased by Rs. 91.80 crores (Previous year Rs. 68.81 crores) and the pro forma profit after tax would have been lower by Rs. 59.72 crores (Previous year Rs. 44.99 crores). On a pro forma basis, the basic and diluted earnings per share would have been as follows:

9. Disclosures - Accounting Standards

9.1 Employee Benefits (AS-15)

Gratuity:

Gratuity is a defined benefit plan. The Bank has obtained qualifying insurance policies from insurance companies approved by the IRDA. The following table presents a summary of the components of net expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Contributions expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs. 35 crores (Previous year Rs. 28 crores).

Provident Fund

Contributions towards Provident Fund are made to trusts separately established for the purpose and the scheme administered by Regional Provident Fund Commissioner (RPFC), as applicable. In accordance with the guidance note on Valuation of Interest Rate Guarantees on Exempt Provident Funds under AS 15 (Revised) issued by the Institute of Actuaries of India, interest shortfall is provided for based on actuarial valuation.

9.2 Segment Reporting (AS 17)

The Bank operates in four business segments, viz. Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations. There are no significant residual operations carried by the Bank.

Note:

Fixed Assets, tax paid in advance and tax deducted at source (net of provisions), stationery and stamps, nonbanking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus, dividend and others.

The above information is provided as per MIS for internal reporting purpose and relied upon by the auditors.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City Gujarat. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

9.3 Related party transactions (AS-18)

The following is the information on transactions with related parties:

Key Management Personnel

Mr. Romesh Sobti, Managing Director

Associates

IndusInd Marketing and Financial Services Private Limited

Subsidiaries

The Bank has incorporated a wholly owned subsidiary named IndusInd Financial Inclusion Limited during the financial year ended March 31, 2019. The aforesaid subsidiary company is yet to commence its operations as on March 31, 2019.

In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided as there is only one related party in each of the above categories.

9.4 Operating Leases (AS 19)

The Bank has taken a number of premises on operating lease for branches, offices, ATMs and residential premises for staff. The Bank has not given any assets on operating lease. The details of maturity profile of future operating lease payments are given below:

The Bank has not sub-let any of the properties taken on lease. There are no provisions relating to contingent rent.

The terms of renewal and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

In respect of two borrower accounts where fraud was detected during the year ended March 31, 2018, the Bank opted to make the provision over four quarters, in accordance with the RBI circular DBR.No.BP.BC.92/21.04.048/2015-16 dated April 18, 2016. Accordingly, the Bank has charged to the Profit and Loss account an amount of Rs. 71.52 crores during the year (Previous Year Rs. 23.84 crores).

9.4 Proposed Dividend:

The Board of Directors, in their meeting held on May 22, 2019 have proposed a final dividend of Rs. 7.50 per equity share amounting to Rs. 544.93 crores, inclusive of corporate dividend tax. The proposal is subject to the approval of shareholders at the ensuing 25th Annual General Meeting and accordingly, this proposed dividend amounting to Rs. 544.93 crores is not recognised as a liability on March 31, 2019 and the same has not been considered as an appropriation from the Profit and Loss Account for the year ended March 31, 2019.

Dividend for the year ended March 31, 2018 paid during the year pursuant to the approval of the shareholders at the 24th Annual General Meeting, at the rate of Rs. 7.50 per equity share amounting to Rs. 542.94 crores including corporate dividend tax, has been considered as an appropriation from the Profit and Loss Account during the year.

9.5 Non-banking Assets acquired in Satisfaction of Claims

During the financial year 2017-18, Bank acquired a vacant land parcel, the value of which at Rs. 347.55 crores, was included under the head “Non-Banking Asset acquired in satisfaction of claims” vide item No. IV of Schedule 11 - Other Assets in the Balance Sheet as at March 31, 2018. Impairment, if any, was tested basis the valuation reports from two independent valuers / appraisers. In accordance with the clarification issued by RBI on May 8, 2019, a provision of Rs. 130.35 crores has been made by debiting Rs. 76.05 crores to the Profit and Loss Account and Rs. 54.30 crores to Reserves and Surplus - Balance in Profit and Loss Account which will be reversed, along with the corresponding charge, into the Profit and Loss Account over the next three quarters.

9.6 Letters of Comfort

The Bank has not issued any letters of comfort during the year ended March 31, 2019 (Previous year Nil).

9.7 Disclosure on Remuneration

Nomination and Remuneration Committee

The Nomination and Remuneration Committee (NRC) presently comprises four members, three of whom are Independent Directors. On aspects relating to remuneration, the mandate of the NRC is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The NRC is also mandated to oversee framing, implementation and review of the Compensation Policy of the Bank as per RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The NRC is also required to ensure that the cost to income ratio of the Bank supports the remuneration expense of the Bank consistent with the objective of maintaining sound capital adequacy ratio. The Nomination and Remuneration Committee also reviews compensation policies of the Bank with a view to attract, retain and motivate employees.

Compensation Policy

The Compensation Policy is formulated by the Board in alignment with the RBI guidelines and covers all components of compensation including fixed pay, variable pay, perquisites, retirement benefits as Provident Fund and Gratuity and Employee Stock Options.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between fixed and variable pay

(iii) Pay for ‘Position, Performance and Person’

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs)

Some of the important features of the Compensation Policy are as follows:

(i) The Bank has identified “Risk Takers and Risk Controllers” separately. Risk Takers includes all employees in Grades Senior Vice President 3 (SVP3) and above belonging to the business line functions of Corporate & Commercial Banking Group, Global Markets Group, Transaction Banking Group, Gems and Jewellery business, Consumer Banking and Consumer Finance Division, whose functioning and decisioning impacts the Bank materially on tangible financial performance aspects of revenues, costs, and profits. Risk Controllers are employees in Grades SVP3 and above belonging to the business support functions of Operations, Finance & Accounts, Information Technology, Secretarial, Credit, Risk, Financial Restructuring & Reconstruction Group, Credit Quality Loan Assurance Review, Human Resources, Inspection and Audit, Investor Relations, Marketing, Client Experience and Quality etc., who support the business line functions through back office processes and activities and their functioning does not have a revenue impact through business generation on the Bank’s financial performance.

(ii) The Nomination and Remuneration Committee will oversee the framing, implementation and review of the Compensation Policy.

(iii) In respect of WTDs / CEO / Risk Takers / Control function staff of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating and increment percentages at various performance rating levels, are decided on the basis of the financial performance of the Bank. Exceptions are restricted to a select few high performers to reward performance, motivate and retain critical employees.

(iv) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Risk Takers and Risk Controllers as defined above would vary from year to year on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Profit After Tax and Return on Equity.

(v) Employee Compensation is linked to performance. Increments and variable pay are linked to their annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(vi) The individual variable pay is linked to the annual performance rating, and based on variable pay grids that outline variable pay as a percentage of Annual Guaranteed cash at various rating levels for a grade band. Exceptional increments and variable pay may be paid to select high performers, but in no case they would violate the stipulated RBI guidelines. The Bank also makes a distinction between Risk Takers and Risk Controllers and incorporates separate parameters on variable pay for these segments in its Compensation Policy.

(vii) The individual variable pay would not exceed 70% of the fixed pay. Wherever variable pay exceeds a substantial portion of fixed pay as defined by the Bank, (currently set at 65% of fixed pay), the variable pay will be deferred over a period of 3 years in a ratio to be decided by the management in accordance with the RBI guidelines.

(viii) The Bank will implement malus/ claw-back arrangements with the concerned employees in case of deferred variable pay as defined above. The criteria would be negative contributions to the bank and/or relevant line of business in any year. As applicable, malus arrangement would adjust deferred remuneration before vesting and claw-back arrangement would adjust deferred remuneration after vesting.

(ix) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining). The Compensation Policy does not provide for severance pay for any employee of the Bank, irrespective of the reasons for severance.

(x) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank’s HR policies which are in line with the statutory norms.

(xi) Perquisites are laid down in HR Policies of the Bank.

(xii) At present, the Bank uses cash based form of variable compensation. Cash based form of variable compensation is easy to administer and leads to an instant reward to the concerned employees.

(xiii) ESOPs do not form a part of the variable pay and are kept outside the computation of total compensation of an employee. They are very selectively granted to attract and retain talent. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution, market value of the position, and performance and behavioural track record of the employee.

Disclosure on remuneration to Non-Executive Directors:

The Non-Executive Directors are paid Sitting Fees for attending meetings of the Board at the rate of Rs. 1,00,000/per meeting, at the rate of Rs. 50,000/- per meeting of the Audit Committee of the Board, the Committee of Directors (CoD), and the Risk Management Committee, and at the rate of Rs. 20,000/- per meeting, in respect of all the other Committees. An amount of Rs. 1.44 crores was paid as sitting fees to the Non-Executive Directors during the year ended March 31, 2019 (Previous year Rs. 1.28 crores). In accordance with RBI guidelines and the approval accorded at the 22nd Annual General Meeting, an amount of Rs. 0.86 crores (Previous year Rs. 0.93 crores) has been paid as remuneration to Non-Executive Directors during the year ended March 31, 2019.

10. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

11. Previous year’s figures have been regrouped / reclassified wherever necessary.


Mar 31, 2018

1. Capital

1.1 Capital Issue

During the year ended March 31, 2018, 20,74,482 equity shares (Previous year 31,62,370 equity shares) aggregating to Rs.101.97 crores (Previous year Rs.96.62 crores) were allotted on various dates to the employees who exercised their stock options.

1.2 Capital Adequacy Ratio

The Bank computes Capital Adequacy Ratio as per Basel III Capital Regulations issued by RBI.

(1) Does not include amount of securities pledged with Central Counter Parties, viz., Clearing Corporation of India Limited, National Securities Clearing Corporation of India Limited and Multi Commodity Exchange of India Limited.

(2) Excludes investment in equity shares.

(3) Excludes investment in commercial papers, Certificates of Deposit and preference shares acquired by way of conversion of debts.

(4) Amounts reported under columns 4, 5, 6 and 7 are not mutually exclusive.

2.1 Sale / transfer from HTM category

During the year ended March 31, 2018 and year ended March 31, 2017, the value of sales and transfer of securities to / from HTM category, excluding one-time transfer of securities from HTM and sale on account of Open Market Operation (OMO), has not exceeded 5% of the book value of investments held in HTM category at the beginning of the year. As such, in line with RBI guidelines, specific disclosures on book value, market value, and provisions if any, relating to such sale and transfers are not required to be made.

3.1 Risk Exposure in Derivatives

Derivatives Policy approved by the Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for (a) appropriate risk limits for different derivative products and (b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitors derivatives operations against prescribed policies and limits on a daily basis;

- Daily review of product-wise profitability and activity reports for derivatives operations;

- Daily submission of MIS and details of exceptions to the Top Management,

- Monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk; and

- Collaterals are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits. The Bank undertakes derivative transactions for hedging customers’ exposure, hedging the Bank’s own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures.

Note 1: Outstanding Notional principal amount of exchange traded currency future trades was Rs.85.76 crores as at March 31, 2018 (Previous year Nil).

Note 2: Marked to Market positions include interest accrued on the swaps.

Note 3: Credit exposure is computed based on the current exposure method.

Note 4: Based on the absolute value of PV01 of the derivatives outstanding as at the year end.

Note 5: Based on the PV01 of the outstanding derivatives.

Note 6: PV01 for Currency Derivatives and Interest Rate Derivatives are presented in absolute terms. However, total net PV01 shall remain smaller as Currency Derivatives and Interest Rate Derivatives positions net off each other.

1) Recoveries include sale to SC / RC.

2) In terms of RBI circular DBOD.BP.BC.No.98/21.04.132/2013-14 dated February 26, 2014, in respect of assets sold to SC/RCs, during the year ended March 31, 2015, the loss on sale arrived at by deducting sale consideration and provisions held as on the date of sale from the outstanding amount, was amortized over a period of two years, Accordingly, the Bank had charged to the Profit and Loss account the remaining amount of Rs.96.26 crores during the year ended March 31, 2017.

3) Amounts for the year ended March 31, 2018 includes impact of NPAs and provisions as assessed by RBI in their Supervisory Programme for Assessment of Risk and Capital for the year ended March 31, 2017 as mentioned under note no 4.4.

1) Out of Rs.1,350.20 crores identified by RBI as non-performing advances, four accounts amounting to Rs.809.50 crores were fully realised during the year ended March 31, 2018. This includes one large cement company account with an exposure of Rs.551.70 crores that was resolved as per the resolution plan arrived at the Joint Lenders Forum. Borrower accounts with an exposure of Rs.118.80 crores were resolved by way of sale to Asset Reconstruction Companies.

2) The remaining borrower accounts were classified as non-performing advances during the year ended March 31, 2018 and provided for accordingly.

1) The above includes one account that had an outstanding balance of Rs.356.00 crores as of March 31, 2016, which was fully repaid before March 31, 2017. The provision amount computed by RBI on this account amounted to Rs.142.40 crores.

2) Sr. No. 11 does not include the impact of additional provision of Rs.73.05 crores, towards a standard asset. The impact on net profit after tax due to this provision amounts to Rs.47.77 crores.

3) Above divergences pointed out by the RBI have been provided for or repaid in the year ended March 31, 2017.

1. Provision includes FITL / NPA provision in case of NPA accounts, wherever applicable, in addition to diminution in fair value provision held.

2. Sr. No. 2 includes additions to existing restructured accounts ofRs. 54.47 crores (provision Rs. 0.16 crores).

3. Sr. No. 6 includes reductions in existing restructured accounts ofRs. 118.66 crores (provision Rs. 24.65 crores). This also includes accounts which have exited CDR/ Bank has done OTS with / sold to ARC / Restructuring Failures.

$ In case of NPAs, outstanding reported is net of unrealised interest.

4.1 In accordance with the Revised Framework on Resolution of Stressed Assets issued by RBI vide a circular dated February 12, 2018, the extant instructions on resolution of stressed assets such as Framework for Revitalising Distressed Assets, Corporate Debt Restructuring Scheme, Flexible Structuring of Existing Long Term Project Loans, Strategic Debt Restructuring Scheme (SDR), Change in Ownership outside SDR, and Scheme for Sustainable Structuring of Stressed Assets (S4A) have been withdrawn. The Joint Lenders’ Forum as an institutional mechanism for resolution of stressed accounts was also discontinued. However, accounts where the schemes have been implemented by then were allowed to continue, and the following details pertain to such accounts where the respective schemes have been implemented before the said circular became effective.

** Includes Rs.129.06 crores that is also reported under restructured standard advances (refer Schedule 18 -Note 4.6).

a) Change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period): Nil (Previous year Nil).

b) Change in Ownership of Projects Under Implementation (accounts which are currently under the stand-still period): Nil (Previous year Nil).

(a) This does not include SRs issued by Trusts that were closed and the outstanding SRs were cancelled and written off in the books of the Bank.

(b) During current year, no SRs issued by Trusts more than 8 years ago, were written off in the books of the Bank and held in physical form with Nil value (Previous year Rs.11.00 crores).

4.2 During the year, there has been no individual purchase / sale of non-performing financial assets from / to other banks (Previous year Nil).

4.3 During the year, there was no sale of assets through securitisation except sale of assets to SC / RC (Previous year Nil).

4.4 Provision on Standard Assets

In accordance with RBI guidelines, general provision on standard assets is made at the following rates:

(a) At 1% on standard advances to Commercial Real Estate Sector;

(b) At 0.25% on standard direct advances to SME and Agriculture; and

(c) At 0.40% of the balance outstanding in other standard assets.

Standard assets provision also includes additional provision made pursuant to RBI instructions including provisions towards restructured standard assets.

4.5 Unhedged Foreign Currency Exposure (UFCE) of Clients

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The forex positions that are not effectively hedged either by way of natural hedge or through derivatives / forward contracts expose a client to the risk of loss due to volatility in the forex rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31, 2018, included an amount of Rs.52.00 crores (Previous year Rs.45.69 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31, 2018, includes an amount of Rs.185.09 crores (Previous year Rs.128.57 crores) on account of UFCE, computed at the applicable risk weights.

4.6 As on March 31, 2018, no resolution plan in respect of accounts wherein aggregate exposure of the lenders amounted to Rs.2,000 crores or above, has been implemented in accordance with the Revised Framework on Resolution of Stressed Assets issued by RBI vide a circular dated February 12, 2018.

Notes:

(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Returns on Assets are computed with reference to average working funds.

(3) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

5.1 Liquidity Coverage Ratio (LCR)

Liquidity Coverage Ratio (LCR) aims in ensuring the Bank to maintain an adequate level of unencumbered High Quality Liquid Assets (HQLAs) to meet its liquidity needs convertible into cash under significantly severe liquidity stress scenario lasting for 30 days horizon period. LCR measures the Bank’s potential to stand under combined idiosyncratic and market-wide liquidity stress condition, where the Bank experiences accelerated withdrawal of deposits from retail as well wholesale depositors, partial loss of secured funding, increase in collateral requirements and unscheduled draw down of unused credit lines.

LCR is the ratio of unencumbered HQLAs to Net Cash Outflows over the next 30 calendar days. From Jan 1, 2017 onwards, RBI guidelines mandate computation of LCR on daily average basis, which hitherto were measured on month-ends. The following table presents the minimum LCR to be maintained, in terms of RBI guidelines.

The Bank maintains HQLA in terms of Cash, unencumbered excess SLR, proportion of statutory SLR as allowed by RBI, excess statutory cash reserve and high rated corporate bonds issued by entities other than financial institutions. For the purposes of LCR computation, the Bank has considered all inflows and outflows that may have a quantifiable impact under the liquidity stress scenario.

Advances are computed as per the definition of Credit Exposure including derivatives as prescribed in Master Circular on Exposure Norms DBR.No.Dir.BC.12/13.03.00/2015-16 dated July 1, 2015.

Exposures are computed as per the definition in Master Circular on Exposure Norms DBR. No. Dir. BC.12/13.03.00/2015-16 dated July 1, 2015 and includes credit, derivatives and investment exposure.

6.1 Penalties imposed by RBI

During the year ended March 31, 2018, RBI imposed a penalty of Rs.3.00 crores for non-adherence to Income Recognition and Asset Classification norms and regulatory restriction pertaining to non-fund based facilities in exercise of powers vested under Section 47(A)(1)(c) read with section 46(4) of the Banking Regulation Act, 1949. This penalty was duly paid by the Bank.

During the year ended March 31, 2017, RBI imposed a penalty of Rs.2.00 crores for violation of regulatory directions / instructions / guidelines, among other things on KYC norms, in exercise of powers vested under Section 47(A)(1) (c) read with section 46(4) of the Banking Regulation Act, 1949. This penalty was duly paid by the Bank.

6.2 Fixed Assets

6.2.1 Cost of premises includes Rs.4.09 crores (Previous year Rs.4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having written down value of Rs.1.51 crores (Previous year Rs.1.56 crores) and has filed a suit for the same.

6.3 Contingent Liabilities

The Bank’s pending litigations include claims against the Bank by clients and counterparties and proceedings pending with tax authorities. The Bank has reviewed its pending litigations and proceedings and has adequately provided for where provisions are required, and disclosed as contingent liabilities where applicable, in its financial statements. Claims against the Bank not acknowledged as debts comprise of tax demands of Rs.176.28 crores (Previous year Rs.165.18 crores) in respect of which the Bank is in appeal, and legal cases sub judice of Rs.300.24 crores (Previous year Rs.357.50 crores). The Bank carries a provision of Rs.4.52 crores (Previous year Rs.4.48 crores) against cases sub judice. The amount of contingent liabilities is based on management’s estimate, and no significant liability is expected to arise out of the same.

6.4 The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account.

6.5 Overseas Asset, NPAs and Revenue

During the year, the Bank earned a revenue of Rs.116.78 crores through overseas assets (Previous year Rs.82.01 crores). The overseas assets as at March 31, 2018 amounted to Rs.4,396.30 crores (Previous year Rs.1,717.17 crores) and there were no NPA (Previous year Nil). Assets for this purpose is defined to include client advances.

6.6 The Bank does not have any Off-Balance Sheet SPVs (which are required to be consolidated as per accounting standards) (Previous year Nil).

6.7 There is no delay in transferring amounts, required to be transferred to the Investor Education and Protection Fund by the Bank (Previous year Nil).

6.8 Corporate Social Responsibility (CSR)

The Bank has spent an amount of Rs.20.47 crores (Previous year Rs.33.81 crores) towards CSR initiatives through various projects in the areas of Rural Development and Inclusiveness, Environment Sustainability, Preventive Healthcare, Education and Sports. Of the total CSR spends, an amount of Rs. 0.13 crores (Previous year Rs.21.16 crores) was incurred towards capital expenditure.

6.9 Drawdown from Reserves

During the year ended March 31, 2018 and year ended March 31, 2017, the Bank did not draw down from the reserves.

6.10 Credit Default Swaps

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended March 31, 2018 (Previous year Nil).

6.11 In March 2017, the Bank made an announcement of entering into an agreement with Infrastructure Leasing and Financial Services Ltd., (IL&FS) the Promoter shareholders of IL&FS Securities Services Ltd., (ISSL) to acquire 100% of ISSL. RBI has granted approval for the proposed acquisition. This transaction is conditional on definitive agreements and other regulatory approvals, and thus, does not have any bearing on the current financial results or the financial position of the Bank as at March 31, 2018.

6.12 On October 14, 2017, the Board of Directors of the Bank and Bharat Financial Inclusion Limited (BFIL), at their respective meetings, approved a merger of BFIL with the Bank in an all-stock transaction through a Composite Scheme of Arrangement. The Competition Commission of India has approved the proposed Scheme and RBI has accorded their “No Objection” for the merger. The incorporation of the wholly owned subsidiary of the Bank is subject to the approval of the RBI, which is pending. The Scheme is pending approval from the Securities and Exchange Board of India (SEBI) / stock exchanges, the respective shareholders and creditors of the Bank and BFIL, the National Company Law Tribunal (NCLT), and is subject to compliance with the conditions specified by RBI. As such, the proposed transaction does not have any impact on the current financial results or the financial position of the Bank as at March 31, 2018.

7. Employee Stock Option Scheme (ESOS)

7.1 The shareholders of the Bank approved Employee Stock Option Scheme (ESOS 2007) on September 18, 2007. ESOS enables the Board and the Compensation Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines issued by the SEBI. The options vest within a maximum period of five years from the date of grant of option. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the options have to be exercised within a maximum period of five years, The stock options are equity settled where the employees will receive one equity share per stock option.

7.2 Recognition of expense

The Bank follows the intrinsic value method to recognize employee costs relating to ESOS, in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by the ICAI. Excess of fair market price over the exercise price of an option at the grant date, is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The compensation so recognized in respect of which exercise of options is outstanding, is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest available closing price on the stock exchange on which the shares of the Bank are listed, prior to the date of the meeting of the Compensation Committee in which stock options are granted. Since shares are listed on more than one stock exchange, the exchange where the Bank’s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options, till the date of the grant.

The weighted average fair value of options granted during the year 2017-18 is Rs.593.37 (Previous year Rs.441.07).

8. Disclosures - Accounting Standards

8.1 Employee Benefits (AS-15)

Gratuity:

Gratuity is a defined benefit plan. The Bank has obtained qualifying insurance policies from IRDA approved insurance companies. The following table presents a summary of the components of net expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Estimates of future salary increases considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factoRs. such as supply and demand in the employment market.

Contributions expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs.28 crores (Previous year Rs.24 crores).

Provident Fund

The guidance on implementing AS 15 Employee Benefits (revised 2005) issued by the Accounting Standards Board of the Institute of Chartered Accountants of India states that employer established provident funds which require interest shortfalls to be recompensed are to be considered as defined benefit plans.

8.2 Segment Reporting (AS -17)

The Bank operates in four business segments, viz. Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations. There are no significant residual operations carried by the Bank.

Note:

Fixed Assets, tax paid in advance and tax deducted at source (net of provisions), stationery and stamps, nonbanking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus, proposed dividend and others.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City Gujarat. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

8.3 Related party transactions (AS -18)

The following is the information on transactions with related parties:

Key Management Personnel

Mr. Romesh Sobti, Managing Director

Associates

IndusInd Marketing and Financial Services Private Limited Subsidiaries

The Bank does not have any subsidiary. ALF Insurance Services Private Limited was an erstwhile subsidiary that went into a voluntary winding up. On February 24, 2016 the liquidator had repaid the entire share capital, and vide an order issued by the High Court of Madras on June 14, 2016 it has been liquidated pursuant to the voluntary winding up and the name has been struck off the Companies Register.

In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided as there is only one related party in each of the above categories.

The Bank has not sub-leased any of the properties taken on lease. There are no provisions relating to contingent rent.

The terms of renewal and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

In respect of two borrower accounts where fraud was detected, in accordance with the RBI circular DBR.No.BP. BC.92/21.04.048/2015-16 dated April 18, 2016, the Bank opted to make the provision over four quarters. Accordingly, an amount of Rs.71.52 crores remaining un-provided at the end of the year has been debited to Balance in Profit and Loss Account on March 31, 2018.

9.1 Proposed Dividend

The Board of Directors, in their meeting held on April 19, 2018, have proposed a final dividend of Rs.7.50 per equity share amounting to Rs.542.70 crores, inclusive of corporate dividend tax. The proposal is subject to the approval of shareholders at the Annual General Meeting. This proposed dividend is not recognized as a liability on March 31, 2018 and accordingly, the said amount of Rs.542.70 crores has not been considered as an appropriation from the Profit and Loss Account for the year ended March 31, 2018.

Dividend for the year ended March 31, 2017, paid during the year pursuant to the approval of the shareholders at the 23rd Annual General Meeting, at the rate of Rs.6 per equity share amounting to Rs.432.24 crores (including corporate dividend tax), has been considered as an appropriation from the Profit and Loss Account.

9.2 Letters of Comfort

The Bank has not issued any letters of comfort during the year ended March 31, 2018 (Previous year Nil).

9.3 Disclosure on Remuneration

Nomination and Remuneration Committee

The Nomination and Remuneration Committee (NRC) presently comprises four Members, three of whom are Independent Directors, On aspects relating to remuneration, the mandate of the Nomination and Remuneration Committee is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The Committee is also mandated to oversee framing, implementation and review of the Bank’s Compensation Policy as per RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The Committee is also required to ensure that the cost to income ratio of the Bank supports the remuneration expense of the Bank consistent with the objective of maintaining sound capital adequacy ratio. The Nomination and Remuneration Committee also reviews compensation policies of the Bank with a view to attract, retain and motivate employees.

Compensation Policy

The Compensation Policy is formulated by the Board in alignment with the RBI guidelines and covers all components of compensation including fixed pay, variable pay, perquisites, retirement benefits as Provident Fund and Gratuity, Long term incentive plans and Employee Stock Options.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between fixed and variable pay.

(iii) Pay for ‘Position, Performance and Person’

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs).

Some of the important features of the Compensation Policy are as follows:

(i) The Bank has identified “Risk Takers and Risk Controllers” separately. Risk Takers includes all employees in Grades Senior Vice President 3 (SVP3) and above belonging to the business line functions of Corporate & Commercial Banking Group, Global Markets Group, Transaction Banking Group, Gems and Jewellery business, Consumer Banking and Consumer Finance Division, whose functioning and decisioning impacts the Bank materially on tangible financial performance aspects of revenues, costs, and profits. Risk Controllers are employees in Grades SVP3 and above belonging to the business support functions of Operations, Finance & Accounts, Information Technology, Secretarial, Credit, Risk, Financial Restructuring & Reconstruction Group, Credit Quality Loan Assurance Review, Human Resources, Inspection and Audit, Investor Relations, Marketing, Client Experience and Quality etc., who support the business line functions through back office processes and activities and their functioning does not have a revenue impact through business generation on the Bank’s financial performance.

(ii) The Nomination and Remuneration Committee will oversee the framing, implementation and review of the Compensation Policy.

(iii) In respect of WTDs / CEO / Risk Takers / Control function staff of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating and increment percentages at various performance rating levels, are decided on the basis of the financial performance of the Bank. Exceptions are restricted to a select few high performers to reward performance, motivate and retain critical employees.

(iv) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Risk Takers and Risk Controllers as defined above would vary from year to year on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Profit After Tax and Return on Equity.

(v) Employee Compensation is linked to performance. Increments and variable pay are linked to their annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(vi) The individual variable pay is linked to the annual performance rating, and based on variable pay grids that outline variable pay as a percentage of Annual Guaranteed cash at various rating levels for a grade band. Exceptional increments and variable pay may be paid to select high performeRs. but in no case they would violate the stipulated RBI guidelines. The Bank also makes a distinction between Risk Takers and Risk Controllers and incorporates separate parameters on variable pay for these segments in its Compensation Policy.

(vii) The individual variable pay would not exceed 70% of the fixed pay. Wherever variable pay exceeds a substantial portion of fixed pay as defined by the Bank, (currently set at 65% of fixed pay), the variable pay will be deferred over a period of 3 years in a ratio to be decided by the management in accordance with the RBI guidelines.

(viii) The Bank will implement malus / claw-back arrangements with the concerned employees in case of deferred variable pay as defined above. The criteria would be negative contributions to the bank and/or relevant line of business in any year. As applicable, malus arrangement would lay down policies to adjust deferred remuneration before vesting and claw-back arrangement would lay down policies to adjust deferred remuneration after vesting.

(ix) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining). The Compensation Policy does not provide for severance pay for any employee of the Bank, irrespective of the reasons for severance.

(x) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank’s HR policies which are in line with the statutory norms.

(xi) Perquisites are laid down in HR Policies of the Bank.

(xii) At present, the Bank uses cash based form of variable compensation. Cash based form of variable compensation is easy to administer and leads to an instant reward to the concerned employees.

(xiii) ESOPs do not form a part of the variable pay and are kept outside the computation of total compensation of an employee. They are very selectively granted to attract and retain talent. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution, market value of the position, and performance and behavioural track record of the employee.

Disclosure on remuneration to Non-Executive Directors:

The Non-Executive Directors are paid Sitting Fees for attending meetings of the Board and its Committees at the rate of Rs.1,00,000/- per Board meeting, at the rate of Rs.50,000/- per meeting of the Audit Committee of the Board, and at the rate of Rs.20,000/- per meeting in respect of all the other Committees. An amount of Rs.1.28 crores was paid as sitting fees to the Non-Executive Directors during the year ended March 31, 2018 (Previous year Rs.1.11 crores). In accordance with RBI guidelines and the approval accorded at the 22nd Annual General Meeting, an amount of Rs. 0.93 crores (Previous year Rs. 0.84) has been paid as remuneration to Non-Executive Directors during the year ended March 31, 2018.

10. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

11. In terms of the clarification received from the Reserve Bank of India, the disclosure of details relating to Specified Bank Notes (SBNs) as per Notification No. G.S.R. 308(E) dated March 30, 2017 issued by the Ministry of Corporate Affairs (MCA) is not applicable to the banking companies.

12. Previous year’s figures have been regrouped / reclassified wherever necessary.


Mar 31, 2017

(b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitors derivatives operations against prescribed policies and limits on a daily basis;

- Daily review of product-wise profitability and activity reports for derivatives operations;

- Daily submission of MIS and details of exceptions to the Top Management;

- Monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk; and

- Collaterals are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits. The Bank undertakes derivative transactions for hedging customers’ exposure. hedging the Bank’s own exposure. as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures.

Note 1: There were no outstanding currency and interest rate futures as on March 31, 2017.

Note 2: Marked to Market positions include interest accrued on the swaps.

Note 3: Credit exposure is computed based on the current exposure method.

Note 4: Based on the absolute value of PV01 of the derivatives outstanding as at the year end.

Note 5: Based on the PV01 of the outstanding derivatives.

Note 6: PV01 for Currency Derivatives and Interest Rate Derivatives are presented in absolute terms.

However, total net PV01 shall remain smaller as Currency Derivatives and Interest Rate Derivatives positions net off each other.

1) Recoveries include sale to SC/RC.

2) In terms of RBI circular DBOD.BRBC.No.98/21.04.132/2013-14 dated February26, 2014, in respect of assets sold to SC/RCs, during the last quarter of the year ended March 31, 2015, the loss on sale arrived at by deducting sale consideration and provisions held as on the date of sale from the outstanding amount, is being amortized over a period of two years. Accordingly, the Bank has charged to the Profit and Loss account an amount ofRs, 96.26 crores (previous yearRs, 128.36 crores) during the year ended March 31. 2017.

1) The above includes one account that had an outstanding balance of Rs, 356.00 crores as of March 31, 2016, which was fully repaid before March 31, 2017. The provision amount computed by RBI on this account amounted to Rs, 142.40 crores.

2) SI. No.11 does not include the impact of additional provision ofRs, 73.05 crores, towards a standard asset. The impact on net profit after tax due to this provision amounts to Rs, 47.77 crores.

3) Above divergences pointed out by the RBI have been provided for or repaid in the year ended March 31. 2017.

(a) This does not include SRs issued by Trusts that were closed and the outstanding SRs were cancelled and written off in the books of the Bank.

(b) SRs amounting to Rs, 11.00 crores (previous yearRs, 0.01 crores) issued by Trusts more than 8 years ago, and written off in the books of the Bank are held in physical form with Nil value.

7 During the year, there has been no individual purchase / sale of non-performing financial assets from / to other banks (previous year Nil).

8 During the year, there was no sale of assets through securitization except sale of assets to SC / RC (previous year Nil).

9 Provision on Standard Assets:

In accordance with RBI guidelines, general provision on standard assets is made at the following rates:

(a) At1%on standard advances to Commercial Real Estate Sector;

(b) At0.25%onstandarddirectadvancestoSMEandAgriculture; and

(c) At 0.40% of the balance outstanding in other standard assets.

Standard assets provision also includes additional provision made pursuant to RBI instructions including provisions towards restructured standard assets.

10.Unhedged Foreign Currency Exposure (UFCE) of Clients:

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The forex positions that are not effectively hedged either by way of natural hedge or through derivatives / forward contracts expose a client to the risk of loss due to volatility in the forex rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31. 2017. included an amount of Rs, 45.69 crores (previous year Rs, 27.24 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31, 2017, includes an amount of Rs, 128.57 crores (previous yearRs, 52.47 crores) on account of UFCE, computed at the applicable risk weights.

Notes:

(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Returns on Assets are computed with reference to average working funds.

(3) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

11 Liquidity Coverage Ratio (LCR):

Liquidity Coverage Ratio (LCR) aims in ensuring the Bank to maintain an adequate level of unencumbered High Quality Liquid Assets (HQLAs) to meet its liquidity needs convertible into cash under significantly severe liquidity stress scenario lasting for 30 days horizon period. LCR measures the Bank’s potential to stand under combined idiosyncratic and market-wide liquidity stress condition. where the Bank experiences accelerated withdrawal of deposits from retail as well wholesale depositors. partial loss of secured funding. increase in collateral requirements and unscheduled draw down of unused credit lines.

LCR is the ratio of unencumbered HQLAs to Net Cash Outflows over the next 30 calendar days. From Jan 1. 2017 onwards. RBI guidelines mandate computation of LCR on daily average basis. which hitherto were measured on month-ends. The following table presents the minimum LCR to be maintained. in terms of RBI guidelines.

The Bank maintains HQLA in terms of Cash. unencumbered excess SLR. proportion of statutory SLR as allowed by RBI. excess statutory cash reserve and high rated corporate bonds issued by entities other than financial institutions. For the purposes of LCR computation, the Bank has considered all inflows and outflows that may have a quantifiable impact under the liquidity stress scenario.

Induslnd Bank has computed LCR on a daily basis from Jan 01. 2017 onwards for domestic and overseas operations. The previous quarters reflect LCR computed based on average of month end values. Based on simple average calculated on daily observations in domestic currency. LCR of the Bank. at consolidated level. for the quarter ended March 31. 2017 worked out to 94.61%.

12 Single borrower limit and Group Borrower Limit:

During the year ended March 31, 2017, the Bank’s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI except in case of Vodafone Mobile Services Limited / Vodafone India Limited, where the single borrower limit was exceeded. This exposure has been approved by the Board of Directors of the Bank as it was within the prudential limit.

During the year ended March 31, 2016, the Bank’s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI except in case of Vodafone Mobile Services Limited, where the single borrower limit was exceeded. This exposure has been approved by the Board of Directors of the Bank as it was within the prudential limit.

13 Unsecured advances:

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licenses, authorizations, etc. (previous year Nil). The Unsecured Advances of Rs, 14,291.58 crores (previous yearRs, 10,515.54 crores) as disclosed in Schedule 9B (iii) are without any collateral or security.

14 Contingent Liabilities:

The Bank’s pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. Claims against the Bank not acknowledged as debts comprise of tax demands of Rs, 165.18 crores (previous year of the 159.24 crores) in respect of which the Bank is in appeal and the legal cases sub judice of Rs, 357.50 crores (previous yearRs, 489.35 crores). The Bank carries a provision of Rs, 4.48 crores (previous yearRs, 4.48 crores) against cases sub judice. The amount of contingent liabilities is based on management’s estimate, and no significant liability is expected to arise out of the same.

15 The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account.

16 Overseas Asset, NPAs and Revenue:

During the year. the Bank earned a revenue of Rs, 82.01 crores through overseas assets (previous year Nil). The overseas assets as at March 31. 2017 amounted to Rs, 1,717.17 crores (previous year Nil) and there were no NPA (previous year Nil). Assets for this purpose is defined to include client advances.

17 The Bank does not have any Off-Balance Sheet SPVs (which are required to be consolidated as per accounting standards) (previous year Nil).

18 There is no delay in transferring amounts to Investor Education and Protection Fund by the Bank (previous year Nil).

19 Corporate Social Responsibility (CSR):

The Bank has spent an amount of Rs, 33.81 crores (previous year Rs, 27.32 crores) towards CSR initiatives through various projects in the areas of Rural Development and Inclusiveness, Environment Sustainability, Preventive Healthcare, Education and Sports. Of the total CSR spends, an amount of Rs, 21.16 crores (previous yearRs, 22.30 crores) was incurred towards capital expenditure.

20 Drawdown from Reserves:

The Bank has not undertaken any drawdown from reserves during the year ended March 31. 2017. There has been no drawdown from the reserves during the year ended March 31, 2016, except towards share issue expenses incurred for the equity share capital raised through a Qualified Institutions Placement (QIP) and a Preferential Allotment, which have been adjusted against the share premium account in terms of Section 52 of the Companies Act, 2013.

21 Credit default swaps:

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year (previous year Nil).

22 Pursuant to RBI circular FMRD.DIRD. 10/14.03.002/2015-16 dated May 19, 2016, the Bank has, with effect from October 3, 2016, considered its repo and reverse repo transactions under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) of RBI as collateralized borrowings and lending, as the case may be. Figures for the previous periods have been regrouped / reclassified to conform to current period’s classification. The above regrouping / reclassification has no impact on the profit of the Bank for the year. As of March 31, 2017, Money at Call and Short Notice in Schedule 7(l)(ii) included an amount of Rs, 6,300 crores on account of reverse repo transactions under LAF. Consequent to the regrouping, an amount of Rs, 2,840 crores of repo transaction under LAF as of March 31, 2016 is reported as Borrowings in Schedule 4(l)(i). Further, for the year ended March 31, 2016 Income from Investments [Schedule 13(2)] has been reported higher by Rs, 286.39 crores and Interest on Balance with RBI and Other Inter-Bank Funds [Schedule 13(3)] by Rs, 4.69 crores, and correspondingly, the Interest on RBI / Inter-Bank Borowings [Schedule 15(2)] has been reported higher by of the 291.08 crores.

23 In March 2017, the Bank made an announcement of entering into an agreement with Infrastructure Leasing and Financial Services Ltd., (IL&FS) the Promoter Shareholders of IL&FS Securities Services Ltd., (ISSL) to acquire 100% of ISSL. The proposed transaction is conditional on definitive agreements and approvals including regulatory approvals, and as such, does not have any bearing on the current financial results or the financial position of the Bank as at March 31, 2017.

24. Employee Stock Option Scheme (ESOS):

25 The shareholders of the Bank approved Employee Stock Option Scheme (ESOS) on September 18, 2007. ESOS enables the Board and / or the HR and Remuneration Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines of the Securities & Exchange Board of India (SEBI). The options vest within a maximum period of five years from the date of grant of option. The exercise price for each grant is decided bythe Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the options have to be exercised within a maximum period of five years. The stock options are equity settled where the employees will receive one equity share per stock option.

26 Recognition of expense:

The Bank follows the intrinsic value method to recognize employee costs relating to ESOS, in accordance with the Guidance Note on “Accounting for Employee Share-based Payments” issued bythe ICAI. Excess of fair market price over the exercise price of an option at the grant date. is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The compensation so recognized in respect of which exercise of options is outstanding is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest available closing price on the stock exchange on which the shares of the Bank are listed. prior to the date of the meeting of the Compensation Committee in which stock options are granted. Since shares are listed on more than one stock exchange, the exchange where the Bank’s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options. till the date of the grant.

The weighted average fair value of options granted during the year 2016-17 is Rs, 441.07 (previous year '' 382.98).

27. Disclosures - Accounting Standards:

28 Employee Benefits(AS-15)

Gratuity:

Gratuity is a defined benefits plan. The Bank has obtained qualifying insurance policies from two insurance companies. The following table summarizes the components of net expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Contributions expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs, 24.00 crores.

Provident Fund:

The guidance note on implementing AS 15, Employee Benefits (revised 2005) states that benefits involving employer established provident funds, which require interest shortfalls to be recompensed are to be considered as defined benefits plans.

Note:

Fixed Assets, tax paid in advance / tax deducted at source (net of provisions), stationery and stamps, nonbanking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus. proposed dividend and others.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City Gujarat. Since the Bank does not have material earnings emanating from foreign operations. the Bank is considered to operate only in domestic segment.

29 Related party transactions (AS-18):

The following is the information on transactions with related parties:

Key Management Personnel

Mr. Romesh Sobti, Managing Director

Associates

Induslnd Marketing and Financial Services Private Limited

Subsidiaries

ALF Insurance Services Private Limited (till February 24, 2016 on which date the liquidator had repaid the entire share capital; vide an order issued by the High Court of Madras on June 14, 2016 the subsidiary has been liquidated pursuant to a voluntary winding up and the name has been struck off the Companies Register).

In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided as there is only one related party in each of the above categories.

(Compiled by management and relied upon by auditors)

30 Proposed Dividend:

The Board of Directors, in their meeting held on April 19, 2017, have proposed a final dividend of Rs, 6.00 per equity share amounting to Rs, 431.95 crores, inclusive of corporate dividend tax. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of Accounting Standard 4 - Contingencies and Events occurring after the Balance Sheet Date, this proposed dividend is not recognized as a liability on March 31, 2017 and accordingly, the said amount ofof the 431.95 crores has not been considered as an appropriation from the Profit and Loss Account for the year ended March 31, 2017.

Appropriation towards proposed dividend during the year ended 31 March, 2017 amounting to Rs, 0.46 crores disclosed on the face of the Profit and Loss Account represents the dividend pertaining to shares allotted from April 1,2016 till the record date for declaration of dividend for the year ended March 31,2016.

31 Letters of Comfort:

The Bank has not issued any letters of comfort (previous year Nil).

32 Disclosure on Remuneration:

Nomination and Remuneration Committee:

The Board of Directors, in their meeting held on October 12,2016, approved the merger of the ‘Nomination Committee’ and the ‘HR and Remuneration Committee’, to constitute the ‘Nomination & Remuneration Committee’ (NRC). The NRC presently comprises five members, four of whom are Independent Directors. The Chairman of the NRC is also the Chairman of the Risk Management Committee of the Board. On Remuneration aspects, the mandate of the Nomination and Remuneration Committee is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The Committee is also mandated to oversee framing, implementation and review of the Bank’s Compensation Policy as per the RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The Committee is also required to ensure that the cost to income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio. The Nomination and Remuneration Committee reviews compensation policies of the Bank with a view to attract, retain and motivate employees.

Compensation Policy:

The Compensation Policy is formulated by the Board in alignment with the RBI guidelines and covers all components of compensation including fixed pay, variable pay, perquisites, retirement benefits as Provident Fund and Gratuity, Long term incentive plans and Employee Stock Options.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between fixed and variable pay.

(iii) Pay for ‘Position, Performance and Person’.

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs). Some of the important features of the Compensation Policy are as follows:

(i) The Bank has identified “Risk Takers and Risk Controllers” separately. Risk Takers includes all employees in Grades Senior Vice President 3 (SVP3) and above belonging to the business line functions of Corporate & Commercial Banking Group, Global Markets Group, Transaction Banking Group, Consumer Banking and Consumer Finance Division, whose functioning and decisioning impacts the Bank materially on tangible financial performance aspects of revenues, costs, and profits. Risk Controllers are employees in Grades SVP3 and above belonging to the business support functions of Chief Operating Officer (Operations, Finance & Accounts, Information Technology, Secretarial, etc.), Chief Risk Officer (Credit, Risk, Financial Restructuring & Reconstruction Group, Credit Quality Loan Assurance Review), Human Resources, Inspection and Audit, Investor Relations, Marketing, etc., who support the business line functions through back office processes and activities and their functioning does not have a revenue impact through business generation on the Bank’s financial performance.

(ii) The Nomination & Remuneration Committee will oversee the framing, implementation and review of the Compensation Policy.

(iii) In respect of WTDs / CEO / Risk Takers / Control function staff of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating and increment percentages at various performance rating levels, are decided on the basis of the financial performance of the Bank. Exceptions are restricted to a select few high performers to reward performance, motivate and retain critical employees.

(iv) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Risk Takers and Risk Controllers as defined above would vary from year to year on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Profit After Tax and Return on Equity.

(v) Employee Compensation is linked to performance. Increments and variable pay are linked to their annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(vi) The individual variable pay is linked to the annual performance rating, and based on variable pay grids that outline variable pay as a percentage of Annual Guaranteed cash at various rating levels for a grade band. Exceptional increments and variable pay may be paid to select high performers, but in no case they would violate the stipulated RBI guidelines. The Bank also makes a distinction between Risk Takers and Risk Controllers and incorporates separate parameters on variable pay for these segments in its Compensation policy.

(vii) The individual variable pay would not exceed 70% of the fixed pay. Wherever variable pay exceeds a substantial portion of fixed pay as defined by the Bank, (currently set at 65% of fixed pay), the variable pay will be deferred over a period of 3 years in a ratio to be decided by the management in accordance with the RBI guidelines.

(viii) The Bank will implement malus / claw-back arrangements with the concerned employees in case of deferred variable pay as defined above. The criteria would be negative contributions to the bank and / or relevant line of business in any year. As applicable, Malus arrangement would lay down policies to adjust deferred remuneration before vesting and claw-back arrangement would lay down policies to adjust deferred remuneration after vesting.

(ix) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining). The Compensation Policy does not provide for severance pay for any employee of the Bank. irrespective of the reasons for severance.

(x) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank’s HR policies which are in line with the statutory norms.

(xi) Perquisites are laid down in HR Policies of the Bank.

(xii) At present, the Bank uses cash based form of variable compensation. Cash based form of variable compensation is easy to administer and leads to an instant reward to the concerned employees.

(xiii) ESOPs do not form a part of the variable pay and are kept outside the computation of total compensation of an employee. They are very selectively granted to attract and retain employees. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution, market value of the position, and performance & behavioral track record of the employee.

Disclosure on remuneration to Non-Executive Directors:

The Non-Executive Directors are paid Sitting Fees for attending meetings of the Board and its Committees at the rate of Rs, 1.00.000/- per Board meeting. at the rate of Rs, 50,000/- per meeting of the Audit Committee of the Board. and at the rate of Rs, 20,000/- per meeting in respect of all the other Committees. An amount of Rs, 1.11 crores was paid as sitting fees to the Non-Executive Directors during the year ended March 31, 2017 (previous year Rs, 0.98 crores). In accordance with RBI guidelines and the approval accorded at the 22nd Annual General Meeting, an amount ofRs, 0.84 crores (previous year Nil) has been paid as remuneration to Non-Executive Directors during the year ended March 31, 2017.

33. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

34. In terms of the clarification received from the Reserve Bank of India, the disclosure of details relating to Specified Bank Notes (SBNs) as per Notification No. G.S.R. 308(E) dated March 30, 2017 issued by the Ministry of Corporate Affairs (MCA) is not applicable to the banking companies.

35. Previous year’s figures have been regrouped / reclassified wherever necessary.


Mar 31, 2015

SCHEDULE - 1 CONTINGENT LIABILITIES

I Claims against the Bank not acknowledged as debts 547,73,97 535,82,56

II Liability on account of outstanding Forward Exchange Contracts 96187,31,18 78491,21,24

III Liability on account of outstanding Derivative Contracts 79217,67,10 45391,62,66

IV Guarantees given on behalf of constituents

- In India 27987,92,20 18502,33,14

- Outside India - -

V Acceptances,Endorsements and Other Obligations 5019,93,18 4883,26,84

VI Other Items for which the Bank is contingently liable - -

The Depositor Education and Awareness Fund(DEAF) 12,52,58 -

TOTAL 208973,10,21 147804,26,44

* During the current year, Profit / (Loss) on derivative transactions has been classified alongwith profit on exchange transactions from Profit on sale of investments. Previous year numbers have been regrouped accordingly.

Schedule 2

Notes forming part of the financial statements

1. Capital Adequacy Ratio

The Bank computes Capital Adequacy Ratio as per RBI guidelines. Basel III Capital Regulations issued by RBI are applicable to the Bank with effect from April 1,2013. Under Basel III Capital Regulations, the Bank has to maintain a Minimum Total Capital (MTC) of 9% of the total risk weighted assets (RWAs) of which at least 5.50% (Previous year 5.00%) shall be from Common Equity Tier 1 (CET 1) capital and at least 7.00% (Previous year 6.50%) from Tier 1 capital. The capital adequacy ratio of the Bank calculated as per Basel III Capital Regulations is set out below:

Notes:

(1) Does not include amount of securities pledged with Central Counter Parties viz., Clearing Corporation of India Limited, National Securities Clearing Corporation of India Limited and Multi Commodity Exchange of India Limited.

(2) Excludes investment in RIDF scheme of NABARD and equity shares.

(3) Excludes investment in RIDF scheme of NABARD, commercial papers, Certificates of Deposit and preference shares acquired by way of conversion of debts.

(4) Includes investment in RIDF scheme of NABARD.

(5) Amounts reported under columns 4, 5, 6 and 7 are not mutually exclusive.

2.5 During the year, the value of sales and transfer of securities to / from HTM category, excluding one-time transfer of securities from HTM and sale on account of Open Market Operation (OMO), has not exceeded 5% of the book value of investments held in HTM category at the beginning of the year. As such, in line with RBI guidelines, specific disclosures on book value, market value, and provisions if any, relating to such sale and transfers are not required to be made.

3.3 Disclosures on Risk Exposure in Derivatives

Derivatives Policy approved by Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for (a) appropriate risk limits for different derivative products and (b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products as well as their competence in understanding such products and the attendant risks involved.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitors derivatives operations against prescribed policies and limits on a daily basis;

- Daily review of product-wise profitability and activity reports for derivatives operations;

- Daily submission of MIS and details of exceptions to the Top Management; and

- Monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk.

- Collaterals are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits.

The Bank undertakes derivative transactions for hedging customers' exposure, hedging the Bank's own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures.

The following table presents quantitative disclosures relating to Derivatives:

Note 1: There were no outstanding currency and interest rate futures as on March 31, 2015. Note 2: Marked to Market positions includes interest accrued on the swaps.

Note 3: Credit exposure is computed based on the current exposure method.

Note 4: Based on the PV01 ofthe outstanding derivatives.

Note 5: Based on the absolute value of PV01 of the derivatives outstanding as at the year end.

Notes:

1) RecoveriesincludesaletoSC/RC.

2) In terms of RBI circular number DBOD.BP.BC.No.98/21.04.132/2013-14 dated February 26, 2014, in respect of assets sold to SC / RCs, during the last quarter of the year ended March 31,2015, the loss on sale arrived at by deducting sale consideration and provisions held as on the date of sale from the outstanding amount, is being amortized over a period of two years. Accordingly, the Bank has charged to the Profit and Loss account an amount ofRs. 32.09 crores during the year ended March 31,2015.

3) Provisions include floating provisions, to the extent available.

4.2 Provision coverage ratio

Provision coverage ratio as at March 31,2015 is 62.61% (Previous year 70.35%).

4.7 During the year, there has been no purchase / sale of non-performing financial assets from / to other banks (Previous year Nil).

4.8 During the year, there was no sale of assets through securitization except sale of assets to SC / RC (Previous year Nil).

4.9 Provision on Standard Assets

In accordance with RBI guidelines, general provision on standard assets is made at the following rates:

(a) At 1% on standard advances to Commercial Real Estate Sector;

(b) At 0.25% on standard direct advances to SME and Agriculture; and

(c) At 0.40% of the balance outstanding in other standard assets.

Standard assets provision as at March 31,2015 also includes additional provision made on restructured standard assets in compliance with RBI guidelines.

The provision on standard assets is included in 'Other Liabilities and Provisions - Others' in Schedule 5, and is not netted off from Advances. The amount of provision held on standard assets is as below:

4.10 Unhedged Foreign Currency Exposure (UFCE) of Clients

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The forex positions that are not effectively hedged either by way of natural hedge or through derivatives/forward contracts expose a client to the risk of loss due to volatility in the forex rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31, 2015 includeds an amount of Rs. 32.00 crores (Previous year NA) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31,2015 includes an amount ofRs. 101.50 crores (Previous year NA) on account of UFCE, computed at the applicable risk weights.

In accordance with RBI guidelines, the Bank has utilized floating provision towards making specific provisions for NPAs and for absorbing loss on sale of NPAs to RC.

Notes:

(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Returns on Assets are computed with reference to average working funds.

(3) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

6.2 Liquidity Coverage Ratio (LCR)

The Bank adheres to RBI guidelines relating to the Liquidity Coverage Ratio, Liquidity Risk Monitoring Tools and the LCR Disclosure Standards pursuant to the Basel III Framework on Liquidity Standards that are applicable to banks in India with effect from January 1,2015.

LCR, as laid down in the guidelines, measures the bank's ability to manage and survive for 30 days under a significant stress scenario that combines an idiosyncratic as well as a market-wide shock that would result in accelerated withdrawal of deposits from retail as well wholesale depositors, partial loss of secured funding, increase in collateral requirements, unscheduled draw down of unused credit lines, etc.

The Bank depends on balanced funding from retail as well as wholesale depositors. The Bank computes LCR in all significant currencies using the factors mentioned in RBI guidelines. High Quality Liquid Assets (HQLA) of the Bank consist of cash, unencumbered excess SLR, a portion of statutory SLR as allowed under the guidelines, cash balance with RBI in excess of statutory cash reserve requirements, and high rated corporate bonds issued by entities other than financial institutions. Major components of the Bank's Balance Sheet are in domestic currency, and it uses foreign currency sources to predominantly fund foreign currency advances.

Collaterals are generally kept as cash or cash equivalent for securing derivative transactions. The largest absolute net 30-day collateral flows realized during the preceding 24 months has been considered as potential outflow on account of change in valuation of derivative trades.

The Asset Liability Management Committee (ALCO) of the Bank is the governing body to decide on composition of funding sources and accordingly guide different business units. The Balance Sheet Management Group (BSMG), under the guidance of the ALCO, is responsible for operationalizing liquidity management within the Bank.

Quantitative disclosure:

Following is the quantitative disclosures relating to LCR:

7.4 Single borrower limit and Group Borrower Limit During the year, the Bank has not exceeded the prudential credit exposure limit in respect of Single Borrower and Group Borrowers (Previous year Nil).

7.5 Unsecured advances

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licenses, authorizations, etc. (Previous year Nil).The Unsecured Advances of Rs. 8,818.10 crores (Previous yearRs. 5,856.34 crores) as disclosed in Schedule 9B (iii) are without any collateral or security.

8. Concentration of Deposits, Advances, Exposures and NPAs

8.1 Concentration of Deposits

Advances are computed as per the definition of Credit Exposure including derivatives as prescribed in Master Circular on Exposure Norms DBOD.No.Dir.BC.12/13.03.00/2014-15dated July 1,2014.

Exposures are computed as per the definition in Master Circular on Exposure Norms DBOD.No.Dir.BC.12/13.03.00 / 2014-15 dated July 1, 2014 and includes credit and investment exposure.

9.2 Disclosure of penalties imposed by RBI

During the year, RBI imposed penalty of Rs. 0.10 crores on the Bank under section 47A(1) read with section 46(4) of the Banking Regulation Act, 1949 in respect of deficiencies in adherence to certain RBI guidelines on advances relating to one borrower account (Previous year Nil).

9.3 Fixed Assets

9.3.1 Cost of premises includes Rs. 4.09 crores (Previous yearRs. 4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having written down value ofRs. 1.63 crores (Previous yearRs. 1.67 crores) and has filed a suit for the same.

9.3.2 Computer software

The movement in fixed assets capitalized as computer software is given below:

9.4 Contingent Liabilities

The Bank's pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. Claims against the Bank not acknowledged as debts comprise of tax demands of Rs. 127.12 crores (Previous year Rs. 118.38 crores) in respect of which the Bank is in appeal and the legal cases sub judice of Rs. 420.62 crores (Previous yearRs. 417.45 crores). The Bank carries a provision ofRs. 3.97 crores against cases sub judice. The amount of contingent liabilities is based on management's estimate, and no significant liability is expected to arise out of the same.

9.5 The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account.

9.6.1 Bancassurance business

Commission, Exchange and Brokerage in Schedule 14 include the following fees earned on Bancassurance business:

9.6.2 The Bank does not have any overseas branches and hence the disclosure regarding overseas assets, NPAs and revenue is not applicable (Previous year Nil).

9.6.3 The Bank does not have any Off-Balance Sheet SPVs (which are required to be consolidated as per accounting standards) (Previous year Nil).

9.8 There is no delay in transferring amounts to Investor Education and Protection Fund by the Bank (Previous year Nil).

9.9 Corporate Social Responsibility (CSR)

During the year under review, the Bank constituted a CSR Committee of Board of Directors to comply with provisions of sub section (2) to (5) of section 135 of the Companies Act, 2013. The Bank has spent an amount of Rs. 17.54 crores towards CSR initiatives through various projects in the areas of Rural Development and Inclusiveness, Environment Sustainability, Preventive Healthcare and certain areas of special interest such as Environmental, Education, etc. of the total CSR spends, an amount of Rs. 14.58 crores was incurred towards capital expenditure.

9.10 Drawdown from Reserves

The Bank has not undertaken any drawdown from reserves during the year (Previous year Nil).

9.11 Credit default swaps

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year (Previous year Nil).

9.12 Shares Forfeited

During the year, the Bank cancelled the shares forfeited till date. Consequently, the moneys collected on such forfeited shares amounting to Rs. 0.86 crores, consisting ofRs. 0.19 crores lying in the Share Forfeiture Account and Rs. 0.67 crores lying in the Share Premium Account, were transferred to the Capital Reserve Account.

9.13 Movement in depreciation of Fixed Assets

10. Employee Stock Option Scheme ("ESOS"):

The shareholders of the Bank approved Employee Stock Option Scheme (ESOS) on September 18, 2007. ESOS enables the Board and / or the HR and Remuneration Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines of the Securities & Exchange Board of India (SEBI). The options vest within a maximum period of five years from the date of grant of option. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the options have to be exercised within a maximum period of five years. The stock options are equity settled where the employees will receive one equity share per stock option.

Pursuant to the ESOS 2007 scheme, the HR and Remuneration Committee of the Bank has granted 3,45,67,700 options as set out below:

Recognition of expense

The Bank follows the intrinsic value method to recognize employee costs relating to ESOS, in accordance with the Guidance Note on "Accounting for Employee Share-based Payments" issued by the ICAI. Excess of fair market price over the exercise price of an option at the grant date, is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The fair market price is the latest available closing price on the stock exchange on which the shares of the Bank are listed, prior to the date of the meeting of the Compensation Committee in which stock options are granted. Since shares are listed on more than one stock exchange, the exchange where the Bank's shares have been traded highest on the said date is considered for this purpose.

Fair value methodology:

The fair value of options granted during the year has been estimated on the date of grant using the Black-Scholes option pricing model with the following assumptions:

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options, till the date of the grant.

The stock-based compensation cost calculated as per the intrinsic value method for the year is Rs. 3.48 crores. Had the Bank adopted the Black-Scholes model based fair valuation, compensation cost for the year ended March 31,2015, would have increased by Rs. 59.54 crores and the proforma profit after tax would have been lower by Rs. 39.31 crores. On a proforma basis, the basic and diluted earnings per share would have been Rs. 33.25 and Rs. 32.68 respectively.

The weighted average fair value of options granted during the year is Rs. 228.99.

11. Disclosures - Accounting Standards

11.1 Employee Benefits (AS-15)

Gratuity:

Gratuity is a defined benefits plan. The Bank has obtained qualifying insurance policies from two insurance companies. The following table summarises the components of net expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Provident Fund

The guidance note on implementing AS 15, Employee Benefits (revised 2005) states that benefits involving employer established provident funds, which require interest shortfalls to be recompensed are to be considered as defined benefits plans.

The details of the fund and plan assets position as at March 31,2015, are as follows:

11.2 Segment Reporting (AS 17)

The Bank operates in four business segments, viz. Treasury, Corporate/ Wholesale Banking, Retail Banking and Other Banking Operations. There are no significant residual operations carried by the Bank.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

11.3 Related party transactions (AS-18)

The following is the information on transactions with related parties:

Key Management Personnel

Mr. Romesh Sobti, Managing Director

Associates

Induslnd Marketing and Financial Services Private Limited Subsidiaries

ALF Insurance Services Private Limited (under liquidation)

In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided as there is only one related party in each of the above categories.

11.4 Operating Leases (AS 19)

The Bank has taken a number of premises on operating lease for branches, offices, ATMs and residential premises for staff. The Bank has not given any assets on operating lease. The details of maturity profile of future operating lease payments are given below:

The Bank has not sub-leased any of the properties taken on lease. There are no provisions relating to contingent rent.

The terms of renewal and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

11.5 Earnings per share (AS 20)

Details pertaining to earnings per share as per AS-20 are as under:

11.6 Consolidated Financial Statements - Subsidiary (AS 21)

ALF Insurance Services Private Limited (ALFIS), a wholly owned subsidiary of the Bank, could not commence operations pending regulatory approvals. Consequent to a resolution passed by its Board of Directors in March 2011, ALFIS has appointed a Liquidator under the provisions of the Companies Act, 1956 and the process of winding up is currently under progress. Since the process of winding up is already under way, control is regarded as temporary and consolidated financial statements have not been drawn up under AS-21 Consolidated Financial Statements. Such non-consolidation or the winding up proceedings does not have any material impact on the financial results or the financial status of the Bank.

12.4 Letters of Comfort

The Bank has not issued any letters of comfort (Previous year Nil).

12.5 Disclosure on Remuneration

HR and Remuneration Committee

During the year, the Board of Directors of the Bank decided to merge the Human Resources Committee and the Remuneration Committee into HR and Remuneration Committee of the Bank. The HR and Remuneration Committee of the Bank comprise four members of the Board of Directors of the Bank including one member from Risk Management Committee of the Board. The mandate of the HR and Remuneration Committee is to establish, implement and maintain remuneration policies, procedures and practices that are consistent with, and promote, sound and effective risk management to achieve effective alignment between remuneration and risks. The Committee is also mandated to oversee framing, implementation and review of the Bank's Compensation policy as per RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The Committee is also required to ensure that the cost / income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio. The HR and Remuneration committee reviews compensation structure and the policies of the Bank with a viewtoattract,retain and motivate employees.

Remuneration Policy

The Remuneration Policy is formulated by the Board in alignment with RBI guidelines and is structured to cover all

components of remuneration including fixed pay, variable pay, perquisites, retirement benefits such as Provident

Fund and Gratuity, Long term incentive plans and Employee Stock Options.

The key objectives of the policy are:

(i) Benchmark employee compensation with market for various job positions and skills and pay for 'Position, Performance & Person'

(ii) Maintain an optimal balance between fixed and variable pay

(iii) Pay for Performance

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs)

Some of the important features of the Compensation Policy are as follows:

(i) The Bank has defined "Risk Takers and Risk Controllers" and prepared separate lists of Risk Takers and Risk Controllers. Risk Takers are defined as employees in Grades Senior Vice President 3 (SVP3) and above belonging to business line functions of Corporate & Commercial Banking Group, Global Markets Group, Transaction Banking Group, Consumer Banking and Consumer Finance Division, whose functioning and decisioning impacts the Bank materially on tangible financial performance aspects of revenues, costs, and profits. Risk Controllers are defined as employees in Grades SVP3 and above belonging to support functions of Chief Operating Officer (Operations, Finance & Accounts, Information Technology, Secretarial, etc.),Chief RiskOfficer (Credit, Risk, Financial Restructuring & Reconstruction Group, Credit Quality Loan Assurance Review), Human Resources, Inspection and Audit, Investor Relations, Marketing, etc, who support the business line functions through back office processes and activities and their functioning does not have a revenue impact through business generation.

(ii) The HR & Remuneration committee will oversee the framing, implementation and review of the Compensation Policy.

(iii) Remuneration will be market linked for critical roles so as to attract and retain talent.

(iv) In respect of WTDs / CEO / Risk Takers / Control function staff of the Bank, the compensation structure provides for a reasonable increase in fixed pay in line with the market benchmarks. Their individual increments are linked to annual performance rating and increment percentages at various performance rating levels, which will be decided on the basis of the financial performance of the Bank. Exceptions will be restricted to a select few high performers to reward performance, motivate and retain critical staff. The Bank also makes a distinction between Risk Takers and Risk Controllers and incorporates separate parameters on variable pay for these segments in its compensation policy.

(v) The quantum of overall variable pay to be disbursed in a year would vary on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Profit After Tax and Return on Equity.

(vi) Remuneration is linked to performance. Increments and variable pay are linked to the annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(vii) The individual variable pay is linked to the annual performance rating, and based on variable pay grids outlining variable pay as a percentage of Annual Guaranteed cash at various rating bands for a grade level. Exceptional increments and variable pay may be paid to select high performers, but in no case they would violate the stipulated RBI guidelines.

(viii) The individual variable pay would not exceed 70% of the fixed pay. Wherever variable pay exceeds a substantial portion of fixed pay as defined by the Bank, (currently defined at 65% of fixed pay), variable pay will be deferred over a period of 3 years in a ratio to be decided by management in accordance with RBI guidelines.

(ix) The Bank will implement malus / claw-back arrangements with the concerned employees in case of deferred pay as defined above. Malus arrangement would lay down policies to adjust deferred remuneration before vesting and claw-back arrangement would lay down policies to adjust deferred remuneration after vesting. The criteria would be negative contributions to the bank and / or relevant line of business in any year.

(x) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. Sign on bonus to be paid in form of pre-hiring ESOPs, will be very selective for critical hires.

(xi) The Compensation Policy does not provide for severance pay for any employee.

(xii) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank's HR policies which are in line with the statutory norms.

(xiii) Perquisites are laid down in HR Policies of the Bank.

(xiv) At present, the Bank uses cash based form of variable remuneration. The rationale is that cash based form of variable remuneration leads to an instant reward to the concerned employees and is also easy to administer.

(xv) ESOPs do not form a part of the variable pay and are very selectively granted to attract and retain employees. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution and market value of the position, and performance and behavioural track of the employee.

Other Disclosures

Number of meetings held by RC during the financial year and remuneration paid to its members Year ended March 31, 2015

During the year, two meetings of Remuneration committee were held. The members were paid aggregate sitting fee of Rs. 1,00,000 for the two meetings.

During the year, two meetings of HR and Remuneration committee were held. The members were paid aggregate sitting fees ofRs. 1,40,000 for the two meetings. Year ended March 31,2014

During the year, two meetings of Remuneration committee were held. The members were paid aggregate sitting fee ofRs. 30,000 per meeting.

Number of employees having received a variable remuneration award during the financial year

64 employees belonging to the category of WTD / CEO / Risk Takers/Other Control function staff had received a variable remuneration award.

51 employees belonging to the category of WTD / CEO / Risk Takers had received a variable remuneration award.

Number and total amount of 'sign on' awards made during the financial year Details of guaranteed bonus if any paid as sign on bonus Details of severance pay in addition to the accrued benefits Total amount of outstanding deferred remuneration split into cash, shares and share linked instruments and other forms The outstanding deferred remuneration is Rs. 1.22 crores to be paid as cash in FY 2015-16 and FY 2016-17 The outstanding deferred remunerationis Nil.

Total amount of deferred remuneration paid out in the financial year Breakdown of amount of remuneration awards for the financial year Breakup of remuneration awards for the 66 employees defined as WTD I CEO / Risk Takers/ Other control function staff

(a) Fixed pay - Rs. 76.01 crores

(b) Variable pay - Rs. 28.66 crores for FY 2013-14

(c) Deferred remuneration - Rs. 1.22 crores

(d) Non-deferred remuneration - Rs. 27.44 crores

Breakup of remuneration awards for the 57 employees defined as WTD / CEO / Risk Takers:

(a) Fixed pay - Rs. 73.04 crores

(b) Variable pay - Rs. 21.95 crores for FY 2012-13

(c) Deferred remuneration - Nil

(d) Non-deferred remuneration - Rs. 21.95 crores

Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and implicit adjustments.

Total amount of reductions during the FY due to ex - post explicit adjustments

Total amount of reductions during the FY due to ex - post implicit adjustments

13. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

14. Previous year's figures have been regrouped / reclassified wherever necessary.

DF-1: Scope of Application

Name of the head of the banking group to which the framework applies: INDUSIND BANK LTD.

(i) Qualitative Disclosures:

Induslnd Bank Limited ('the Bank') is a commercial bank, incorporated on January 31, 1994. The Bank has only one wholly owned subsidiary viz., ALF Insurance Services Private Limited. The financials of the subsidiary are not consolidated with the Bank's financials as the said company could not commence business and has commenced proceedings for a voluntary winding up. The CRAR is computed on the financial position of the Bank alone.

(ii) Quantitative Disclosures:

c) List of group entities considered for consolidation:

As mentioned above in Para (i) above, the Bank does not have a "material non-listed Indian subsidiary" as defined in Clause 49 of the Listing Agreement. ALF Insurance Services Private Ltd. is a wholly owned subsidiary of the Bank that was set up to do the business of Insurance Corporate Broking but had not commenced operations. The Bank has since decided against entering into insurance broking business and proceedings for voluntary winding up of the company have been initiated.

d) There is no capital deficiency in any subsidiary, which is not included in the regulatory scope of consolidation.

e) As on 31st March, 2015, the Bank does not have controlling interest in any insurance entity.

f) There are no restrictions or impediments on transfer of funds or regulatory capital within the banking group. DF-2: Capital Adequacy

Applicable Regulations:

Reserve Bank of India issued Guidelines based on the Basel III reforms on capital regulation on May 2012, to the extent applicable to banks operating in India. The Basel III capital regulation has been implemented from April 01, 2013 in India in phases and it will be fully implemented as on March 31, 2019. RBI issued detailed Guidelines on Composition of Capital Disclosure Requirements on May 28, 2013. The Basel III Capital Regulations have been consolidated in Master Circular - Basel III Capital Regulations vide circular No.DBOD. No.BP.BC.6/21.06.201/2014-15 dated July 1 2014.

Basel III Capital Regulations:

Basel III Capital regulations continue to be based on three-mutually reinforcing pillars, viz., minimum capital requirements, supervisory review of capital adequacy, and market discipline. This circular also prescribes the risk weights for the balance sheet assets, non-funded items and other off-balance sheet exposures and the minimum capital funds to be maintained as ratio to the aggregate of the risk weighted assets and other exposures, as also, capital requirements in the trading book, on an ongoing basis and operational risk.

These guidelines also incorporate instructions regarding the components of capital and capital charge required to be provided for by the banks for credit, market and operational risks. It deals with providing explicit capital charge for credit and market risk and addresses the issues involved in computing capital charges for interest rate related instruments in the trading book, equities in the trading book and foreign exchange risk (including gold and other precious metals) in both trading and banking books. Trading book for the purpose of these guidelines includes securities under the Held for Trading category, Available For Sale category, open gold position limits, open foreign exchange position limits, trading positions in derivatives, and derivatives entered into for hedging trading book exposures.

Basel III capital regulations are being implemented in India with effect from April 1, 2013. In order to ensure smooth migration to Basel III without aggravating any near term stress, appropriate transitional arrangements have been made. The transitional arrangements for capital ratios began as on April 01, 2013. However, the phasing out of non-Basel III compliant regulatory capital instruments began as on January 01, 2013. Capital ratios and deductions from Common Equity will be fully phased-in and implemented as on March 31,2019.

Minimum capital requirements:

Underthe Basel III Capital Regulations, Banks are required to maintain a minimum Pillar I Capital to Risk-weighted Assets Ratio (CRAR) of 9% on an on-going basis (other than capital conservation buffer and countercyclical capital buffer etc.). Besides the minimum capital requirements, Basel III also provides for creation of capital

conservation buffer (CCB). The CCB requirement kicks in from March 31, 2016 and is to be fully implemented by March 31,2019. Over and above these requirements, Basel - III also mandates for maintenance of Counter- cyclical Capital Buffer (CCCB). The decision to maintain CCCB would be advised by RBI with a lead time.

Besides computing CRAR under the Pillar I requirement, the Bank also periodically undertakes stress testing in various risk areas to assess the impact of stressed scenario or plausible events on asset quality, liquidity, interest rate, derivatives and forex on its profitability and capital adequacy.

The assessment of future capital needs is effectively done based on the business projections, asset mix, operating environment, growth outlook, new business avenues, regulatory changes and risk and return profile of the business segments. The future capital requirement is assessed by taking cognizance of all the risk elements viz. Credit, Market and Operational risk and mapping these to the respective business segments.

Organisation Structure:

Integrated Risk Management: Objectives and Organisation Structure

The Bank has established an Enterprise-wide Risk Management Department, independent of the Business segments, responsible for Bank-wide risk management covering Credit risk, Market risk (including ALM) and Operational risk. The Risk Management Department focuses on identification, measurement, monitoring and controlling of risks across various segments. The Bank has been progressively adopting the best International practices so as to continually reinforce its Risk Management functions.

Separate Committees, as specified below, are set up to manage and control various risks:

- Risk Management Committee (RMC)

- Credit Risk Management Committee (CRMC)

- Market Risk Management Committee (MRMC)

- Asset Liability Management Committee (ALCO)

- Operational Risk Management Committee (ORMC)

Bank has articulated various risk policies which specify the risks, controls and measurement techniques. The policies are framed keeping risk appetite as the central objective. Against this background, the Bank identifies a number of key risk components. For each of these components, the Bank determines a target that represents the Bank's perception ofthe component in question.

The risk policies are vetted by the sub-committees, viz. CRMC, MRMC, etc. and are put forth to RMC, which is a sub- committee of the Board. Upon vetting of the policies by RMC, the same is placed for the approval of the Board and implemented.

Bank has put in place a comprehensive policy on ICAAP, which presents a holistic view of the material risks faced, control environment, risk management processes, risk measurement techniques, capital adequacy and capital planning.

Policies are periodically reviewed and revised to address the changes in the economy / banking sector and Bank's risk profile. Monitoring of various risks is undertaken at periodic intervals and a report is submitted to Top Management / Board.

Credit Risk

The Bank manages credit risk comprehensively; both at Transaction level and at Portfolio level. Some of the major initiatives taken are listed below :

- Bank uses a robust Risk rating framework for evaluating credit risk of the borrowers. The Bank uses segment- specific rating models that are aligned to target segment of the borrowers.

- Risks on various counter-parties such as corporates, banks, are monitored through counter-party exposure limits, also governed by country risk exposure limits in case of international trades.

- The Bank manages risk at the portfolio level too, with portfolio level prudential exposure limits to mitigate concentration risk.

- The Bank has a well-diversified portfolio across various industries and segments, as illustrated by the following data.

? Retail and schematic exposures (which provide wider diversification benefits) account for as much as 45 % of the total fund-based advances.

? The Bank's corporate exposure is fully diversified over 85 industries, thus insulated/minimised from individual industry cycles.

The above initiatives support qualitative business growth while managing inherent risks within the risk appetite. Market Risk

Key sources of Market risk are Liquidity Risk, Interest Rate Risk, Price Risk and Foreign Exchange Risk. The Bank has implemented a state-of-the-art Treasury system which supports robust risk management capabilities and facilitates Straight-through Processing.

Market Risk is effectively managed through comprehensive policy framework which provides various tools such as Mark-to-Market, Sensitivity analysis, Value-at-Risk, besides through operational limits such as stop-loss limits, exposure limits, deal-size limits, maturity ladder, etc.

Asset Liability Management (ALM)

The Bank's ALM system supports effective management of liquidity risk and interest rate risk, covering 100% of its assets and liabilities.

- Liquidity Risk is monitored through Structural Liquidity Gaps, Dynamic Liquidity position, Liquidity Ratios analysis and Behavioural analysis, with prudential limits for negative gaps in various time buckets.

- Interest Rate Sensitivity is monitored through prudential limits for Rate Sensitive Gaps and other risk parameters.

- Interest Rate Risk on the Investment portfolio is monitored through Modified Duration on a daily basis. Optimum risk is assumed through duration, to balance between risk containment and profit generation from market movements.

ALCO meetings were convened frequently during the financial year, wherein analytical presentations were made providing detailed analysis of liquidity position, interest rate risks, product mix, business growth v/s budgets, interest rate outlook, which helped to reviewthe business strategies regularly and undertake new initiatives.

Operational risk

Operational risk is managed by addressing People risk, Process risk, Systems risk as well as risks arising out of external environment.

The Bank has efficient audit mechanism, involving periodical on-site audit, concurrent audits, on the spot and off-site surveillance enabled by the Bank's advanced technology and Core Banking System.

The Bank has constituted Fraud Risk Management Committee which is involved in root cause analysis and actions taken to mitigate frauds. A separate and independent KYC/AML cell has been in place to ensure compliance with respect to customer on-boarding and transaction monitoring as per the internal framework and regulatory guidelines of KYC/AML.

The Bank has implemented various Operational Risk management tools such as Risk Events reporting framework, Risk and Control Self-Assessment (RCSA) and Loss Data (Basel 8*7 matrix) collection including Near Miss Events. The Bank weighs each new Product and Process enhancements under Operational Risk Assessment Process (ORAP) framework.

The Bank has initiated the process of putting in place Operational Risk Management Framework, using sophisticated tools, such as:

- Key Risks Indicators

- Operational Risk Incident Reporting

- Score Cards (Branch and Corporate Functions)

The framework would help in mitigation of operational risks and optimization of capital requirement towards operational risks under Basel II norms.

Systems Risk

As part of Systems-related Operational Risk Management initiatives, the Bank has achieved the following :

- The Bank has formulated and implemented a comprehensive Business Continuity Plan (BCP) to ensure continuity of its critical business functions and extension of banking services to its customers.

- The Bank has Information Security Policy in place to ensure confidentiality, integrity and accessibility of all its information security assets.

- The Bank has established an effective Disaster Recovery site at a distant location, with on-line, real-time replication of data, both in Mumbai and Chennai.

- Comprehensive IT security framework has been put in place to ensure complete data security and integrity.

- The Bank has housed its data center in a professionally managed environment, with sophisticated and fool-proof security features and assured supply of utilities.

The robust Risk Management framework created in the Bank supports rapid and qualitative growth with optimization of risks and maximization of shareholder value.

DF-3: Credit Risk: General Disclosures

"Credit Risk" is defined as the probability / potential that the borrower or counter-party may fail to meet its obligations in accordance with agreed terms. It involves inability or unwillingness of a borrower or counter-party to meet commitments in relation to lending, trading, hedging, settlement and other financial transactions.

Credit Risk is made up of two components:

1. Transaction Risk (or Default Risk), which represents the risk arising from individual credit exposures and

2. Portfolio Risk, which represents the risk inherent in the portfolio of credit assets (concentration of assets, correlation among portfolios, etc.).

Credit risk is found in a variety of transactions across the Bank's portfolio including not only loans, off balance sheet exposures, investments and financial guarantees, but also the risk of a counterparty in a derivative transaction becoming unable to meet its obligations. Credit risk constitutes the largest risk to which the Bank is exposed. The Bank has adequate system support which facilitates credit risk management and measurement across its portfolio. The system support is strengthened and expanded as and when new exposures are added to the Bank's portfolio.

The Bank has articulated comprehensive guidelines for managing credit risk as outlined in Credit Risk Policy and related Policies framework, Bank Risk Policy, Country Risk Policy, Loan Review Policy and Recovery Policy. The

credit risk management systems used at the Bank have been implemented in accordance with these guidelines and best market practices. The credit risk management process focuses on both specific transactions and on groups of specific exposures as portfolios.

The Bank's credit risk policy and related policies and systems focus are framed to achieve the following key objectives:

- Monitoring concentration risk in particular products, segments, geographies etc thereby avoiding concentration risk from excessive exposures to any particular products, segments, geographies etc.

- Assisting in building quality credit portfolio and balancing risks and returns in line with Bank's risk appetite

- TrackingCreditqualitymigration

- Determining how much capital to hold against each class of the assets

- Undertaking Stress testing to evaluate the credit portfolio strength

- To develop a greater ability to recognize and avoid potential problems

- Alignment of Risk Strategy with Business Strategy

- Adherence to regulatory guidelines

Credit Risk Management at specific transaction level

The central objective for managing credit risk at each transaction level is development of evaluation and monitoring system that covers the entire life cycle of the exposure, i.e. opportunity for transaction, assessing the credit risk, granting of credit, disbursement and subsequent monitoring, identifying the obligors with emerging credit problems, remedial action in event of credit quality deterioration and repayment or termination of the obligation.

The Credit Policies of the Bank stipulates for applicability of various norms for managing credit risk at a specific transaction level and more relevant to the target segment of the obligors. It covers all the types of obligors, viz. Corporate, SME, Traderand Schematic Loans such as Home Loan, Personal Loan, etc.

The major components of Credit Risk and related Policies are mentioned below:

- The transaction with the customer/ prospective customer is undertaken with an aim to build long term relationship.

- All the related internal and regulatory guidelines such as KYC norms, RBI prudential norms, etc. are adhered to while assessing the credit request of the borrower.

- The credit is granted with due diligence and detailed insight into the customer's circumstances and of specific assessments that provide a context for such credits.

- The facility is granted based on the customer's creditworthiness, capital base or assets to assure that the customer is able to substantiate the repayment. Due regard is also placed to the industry in which the customer is operating, the business specific risks and management capability and their risk appetite.

- Regular follow-up in the overall health of the borrower is undertaken to assess whether the basis of granting credit has changed.

- When loans and credits are granted to borrowers falling outside preferred credit rating, the Bank normally obtains sufficient collateral. However, collaterals are not the sole criterion for lending, which is generally done based on assessing the business viability of the borrower and the adequacy of the expected cash flows.

- The Bank has defined exposures limit on the basis of internal risk rating of the borrower.

- The Bank is particularly cautious when granting credits to businesses in affected or seasonal industries.

- In terms of Bank's country risk management, due caution is exercised when assuming risk in countries with an unstable economic or political scenario.

Beside the acceptability norms defined in the policies/manual for an individual transaction, Bank has also implemented various credit related product programmes which enables efficient appraisal, assessment, delivery, supervision and control of tailor made loan products targeted at specific customer segments. The customers covered under the Business Banking product programme are evaluated using a scoring/rating model developed based on the segment specific risk profile.

Consumer Finance Division apprises the loan application based on robust set criteria defined in the respective product programmes. Further as a mechanism to assess the credit quality, customers are also evaluated through application scoring models which are segment specific. Further, post disbursement, the quality of the account is tracked by means of a Behavioral score.

The customers under Credit Cards segment are evaluated by means of robust customer selection criteria that include variety of factors.

Bank has also put in place a detailed policy for portfolio acquisition which stipulates various criteria for asset selection including due diligence, transfer of risks and rewards of the underlying portfolio, credit enhancements, portfolio risk management and monitoring in accordance with RBI guidelines.

Credit Approval Committee

The Bank has put in place the principle of 'Committee' or 'Approval Grids' approach while according sanctions to the credit proposals. This provides for an unbiased, objective assessment/evaluation of credit proposals. Such Committees include atleast one official from an independent department, which has no volume or profits targets to achieve. The official of the independent department is a compulsory member of the Credit Committee and a dissent by such member cannot be overridden by others. The spirit of the credit approving system is that no credit proposals are approved or recommended to higher authorities unless all the members of the 'Committee' or 'Approval Grids' agree on the acceptability of the proposal in all respects. In case of disagreement the proposal is referred to next higher Committee whose decision to approve or decline with conditions is then final.

The following 'Approval Grids' are constituted:

? Corporate & Commercial Banking Segment :

^ Zonal Credit Committee (ZCC)

^ Corporate Office Credit Committee (COCC) - I

^ Corporate Office Credit Committee (COCC) - II

^ Executive Credit Committee (ECC)

? Consumer Banking (CB) Segment :

The scheme of delegation under Consumer Banking Segment includes Vehicle financing, personal loans, housing loans and other schematic loans under multi-tier Committee based approach as under:

^ Branch Credit Committee - Consumer Banking (BCC - CB)

^ Regional Credit Committee - Consumer Banking (RCC - CB)

^ Corporate Office Credit Committee - Consumer Banking (COCC- CB I & II)

^ Executive Credit Committee

The credit proposals which are beyond the delegated powers of ECC are placed to Committee of Directors (COD) or Board of Directors (BOD) for approval.

Risk Classification

The Bank monitors the overall health of its customers on an on-going basis to ensure that any weakening of a customer's earnings or liquidity is detected as early as possible. As part of the credit process, customers are classified according to the credit quality in terms of internal rating, and the classification is regularly updated on receipt of new information/ changes in the factors affecting the position of the customer.

The Bank has operationalised the following risk rating/ scoring models depending on the target segment of the borrower:

- Large Corporate, Small & Medium Enterprises, NBFC

- Trading entities, Capital Market Broker and Commodity Exchange Broker

- Financial Institutions/Primary Dealers and Banks

- Retail customers (Schematic Loans) - who are assigned credit scoring

The customers under Business Banking segment are assessed for credit quality using a scoring/rating model. The score serves a measure to categorise the customers into various risk classes which are further calibrated to different risk grade. Bank has also implemented rating models for assessing the risk under Lease Rental Discounting and Warehouse Receipts Financing products.

Rating grades in each rating model, other than the segments driven by product programmes, is on a scale of 1 to 8, which are further categorised by assigning /- modifiers to reflect the relative standing of the borrower within the specific risk grade. The model-specific rating grades are named distinctly. Each model-specific rating grade reflects the relative ratings of the borrowers under that particular segment. For instance, L4 indicates a superior risk profile of a Large Corporate, when compared to another Large Corporate rated L5.

In order to have a common risk yardstick across the Bank, these model specific ratings are mapped to common scale ratings which facilitate measurement of risk profile of different segments of borrower by means of common risk ladder.

The various purposes for which the rating/scoring models are used are mentioned hereunder:

^ Portfolio Management

^ Efficiency in lending decision

^ To assess the quality of the borrower - single point reference of credit risk of the borrower ^ Preferred rating norms for assuming exposures ^ Prudential ceiling for single borrower exposures - linked to rating ^ Frequency of review of exposures ^ Frequency of internal auditing of exposures ^ To measure the portfolio quality

^ Target for quality of advances portfolio is monitored by way of Weighted Average Credit Rating (WACR).

^ Pricing credit

^ Capital allocation (under Basel II - IRB approaches)

Credit Quality Assurance:

Bank has also adopted Loan Review Mechanism (LRM), which involves independent assessment of the quality of an advance, effectiveness of loan administration, compliance with internal policies of bank and regulatory framework and portfolio quality. It also helps in tracking weaknesses developing in the account for initiating corrective measures in time. LRM is carried out by Credit Quality Assurance team, which is independent of Credit and Business functions.

Credit Risk Management at Portfolio level:

The accumulation of individual exposures leads to portfolio, which creates the possibility of concentration risk. The concentration risk, ideally on account of borrowers/ products with similar risk profile, may arise in various forms such as Single Borrower, Group of Borrowers, Sensitive Sector, Industry-wise Exposure, Unsecured Exposure, Rating wise Exposure, Off Balance sheet Exposure, Product wise Exposure, etc. The credit risk concentration is addressed by means of structural and prudential limits stipulated in the Credit Risk Policy and other related policies.

Concentration risk on account of exposures to counter-parties (both single borrower and group of borrowers), Industry- wise, Rating-wise, Product-wise, etc., is being monitored by Risk Management Dept (RMD). Forthis purpose, exposures in all business units, viz. branches, treasury, investment banking, etc., by way of all instruments (loans, equity/debt investments, derivative exposures, etc.) are being considered. Such monitoring is carried out at monthly intervals. Besides, respective business units are monitoring the exposure on continuous real-time basis.

The concentration risk is further evaluated in terms of statistical measures and benchmarks. Detail analysis of portfolio risk and control measures in place is carried out on a monthly basis on various parameters. Direction of risks and controls (decreasing, stable, and increasing) and resultant net risk is also done. Further, a comprehensive Stress Testing framework based on several factors and risk drivers assessing the impact of stressed scenario on Credit quality, its impact on Bank's profitability and capital adequacy is placed to Top Management /Board every quarter. The framework highlights the Bank's credit portfolio under 3 different levels of intensity across default, i.e. mild, medium and severe, and analyses its impact on the portfolio quality and solvency level.

Impaired credit - Non Performing Assets (NPAs):

The Bank has an independent Credit Administration Department that constantly monitors accounts for irregularities, identifies accounts for early warning signals for potential problems and identifies individual NPAaccounts systematically.

Bank has also set up Financial Restructuring and Reconstruction (FRR) Dept for managing and monitoring defaulted accounts, carrying out restructuring, wherever feasible and following up for recoveries of dues.

The guidelines as laid down by RBI Master Circular No. DBOD.No.BP.BC.9/21.04.048/2014-15 dated July 1,2014, on Asset classification, Income Recognition and Provisioning to Advances portfolio are followed while classifying Non- performing Assets (NPAs). The guidelines are as under:

a) An asset, including a leased asset, becomes non-performing when it ceases to generate income for the bank

b) A non performing asset (NPA) is a loan or an advance where;

i. interest and / or installment of principal remains overdue for a period of more than 90 days in respect of a term loan,

ii. the account remains 'out of order', in respect of an Overdraft / Cash Credit (OD/ CC),

iii. the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,

iv. the installment of principal or interest thereon remains overdue for two crop seasons for short duration

crops,

v. the installment of principal or interest thereon remains overdue for one crop season for long duration crops,

vi. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation

transaction undertaken in terms of RBI guidelines on Securitisation dated February 1,2006.

vii. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the specified due date for payment.

Out of Order status: An account should be treated as 'out of order' if the outstanding balance remains continuously in excess of the sanctioned limit / drawing power. In cases where the outstanding balance in the principal operating account is less than the sanctioned limit / drawing power, but there are no credits continuously for 90 days as on the

date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts should be treated as 'out of order'.

Overdue: Any amount due to the bank under any credit facility is 'overdue' if it is not paid on the due date fixed by the bank.

Credit Risk Exposures

* Includes all exposures such as Cash Credit, Overdrafts, Term Loan, Cash, SLR securities etc., which are held in banking book.

** Off-Balance items such as Letter of Credit, Bank Guarantee and credit exposure equivalent of Inter-bank forwards, merchant forward contracts and derivatives, etc.

(b) Geographic Distribution of Exposures as on 31st March, 2015

As per the Basel II guidelines on Standardised approach, the risk weight on certain categories of domestic counter parties is determined based on the external rating assigned by any one of the accredited rating agencies, i.e. CRISIL, ICRA, CARE, India Rating Pvt. Ltd, Brickworks Ratings India Pvt. Ltd and SMERA. For Foreign counterparties and banks, rating assigned by S&P, Moody's and Fitch are used.

The Bank computes risk weight on the basis of external rating assigned, both Long Term and Short Term, for the facilities availed by the borrower. The external ratings assigned are generally facility specific. The Bank follow below mentioned procedures as laid down in the Basel II guidelines for usage of external ratings:

- Ratings assigned by one rating agency are used for all the types of claims on the borrowing entity.

- Long term ratings are used for facilities with contractual maturity of one year & above. Short term ratings are generally applied for facilities with contractual maturity of less than one year.

- If either the short term or long term ratings attracts 150% risk weight on any of the claims on the borrower, the Bank assigns uniform risk weight of 150% on all the unrated claims, both short term and long term unless the exposure is subjected to credit risk mitigation.

- In case of multiple ratings, if there are two ratings assigned to the facility that maps to different risk weights, the rating that maps to higher risk weight is used. In case of three or more ratings, the ratings corresponding to the two lowest risk weights is referred to and the higher of those two risk weights is be applied, i.e., the second lowest risk weight.

- For securitized and guaranteed transactions, SO ratings assigned by the rating agency are applied for arriving at the risk weights.

Risk Weight-wise distribution of Gross Credit Exposures

DF-5: Credit risk mitigation: Disclosures for standardised approach

The Bank mitigates credit exposure with eligible collaterals and guarantees to reduce the credit risk of obligors as stipulated under Basel II. In principle with mitigating credit risk, Bank has put in place a comprehensive policy on Credit Risk Mitigants and Collaterals for recognizing the eligible collaterals and guarantors for netting

the exposures and reducing the credit risk of obligors. Basic procedures and descriptions of controls as well as types of standard/acceptable collaterals, guarantees necessary in granting credit, evaluation methods for different types of credit and collateral, applicable "haircuts" to collateral, frequency of revaluation and release of collateral are stipulated in the Bank's credit policy, policy on collateral management and credit risk mitigant policy. The Bank uses net exposure for capital calculations after taking cognizance of eligible financial collaterals. All collaterals and guarantees are recorded and the details are linked to individual accounts. Perfection of security interest, date, currency and correlation between collateral and counterparty are also considered.

As lending is subject to default risk, Bank accepts collateral securities to minimize the impact of loss and consequently reducing the credit risk. The type of collaterals is determined based on the nature of facility, product type, counter party risk and its credit quality. However, as explained earlier, collateral is not the sole criteria for granting credit. For Corporate and SME clients, working capital facility is generally secured by charge on current assets and Term loan is secured by charge on fixed assets. In case of project financing, Bank generally stipulates escrow of receivables/project cash flows along with the charge on underlying project assets. The credit risk policy clearly defines the types of secondary securities and minimum percentage in relation to the total exposures that is required to be obtained in case of credit granted to obligors falling outside the preferred rating grade. Credit facilities are also granted against the security of assets such as cash deposits, NSC, guarantee, mortgages, pledge of shares and commodities, bank guarantees, accepted bills of exchange, assignment of receivables etc. The credit facilities, in terms of risk policies, are secured by secondary collaterals such as cash deposits, NSC, guarantee, mortgages, fixed assets etc. Bank also grants unsecured credit to the borrowers with high standing and low credit risk profile. Customers under Credit card programme are assessed by means of comprehensive customer selection parameters.

For Business Banking clients, who are driven by product programmes and templated scoring models, the facilities are ordinarily secured by adequate collaterals. The programmes have a robust mechanism for collateral acceptance, valuation and monitoring.

In case of schematic products such as Home Loan, LAP, Auto Loan, etc., Loan to value ratio, margin and valuation/revaluation of collaterals is defined in the resp


Mar 31, 2013

1. Capital Adequacy Ratio

The Bank computes Capital Adequacy Ratio as per RBI guidelines. The Bank has migrated to the New Capital Adequacy Framework (Basel II) with effect from March 31, 2009. Under the Basel II guidelines, the Bank is required to maintain Capital to Risk weighted Assets Ratio, at a minimum of 9% on an on-going basis, covering credit risk, market risk and operational risk. Further, the minimum capital to be maintained by the Bank is subjected to a prudential floor which is the higher of:

(i) Minimum capital to be maintained under the New Capital Adequacy Framework (Basel li); and

(ii) 80% of the minimum capital to be maintained under Basel I guidelines

Notes:

(1) Does not include amount of securities pledged with Central Counter Parties such as Clearing Corporation of India Ltd., National Securities Clearing Corporation of India Ltd. and Multi Commodity Exchange of India Ltd.

(2) Excludes investment in RIDF scheme of NABARD and equity shares.

(3) Excludes investment in RIDF scheme of NABARD, commercial papers, CD''s and preference shares acquired by way of conversion of debts.

(4) Includes investment in RIDF scheme of NABARD.

(5) Amounts reported under 4, 5, 6 and 7 are not mutually exclusive.

Notes:

(1) Does not include amount of securities pledged with Central Counter Parties such as Clearing Corporation of India Ltd., National Securities Clearing Corporation of India Ltd. and Multi Commodity Exchange of India Ltd.

(2) Excludes investment in RIDF scheme of NABARD and equity shares

(3) Excludes investment in RIDF scheme of NABARD

(4) Includes investment in RIDF scheme of NABARD

(5) Amounts reported under 4, 5, 6 and 7 are not mutually exclusive.

Note: In addition to the above provision for Non Performing Non SLR Investments, an amount of Rs. 1.80 crores (Previous Year Nil) is held towards diminution in fair value of restructured accounts in respect of parties having exposure reported under Schedule 8 Investments as well as Schedule 9 Advances.

2.1 During the year, the value of sales and transfer of securities to / from HTM category, excluding one-time transfer of securities from HTM and sale on account of Open Market Operation (OMO), has not exceeded 5% of the book value of investments held in HTM category at the beginning of the year. As such, in line with RBI guidelines, specific disclosures on book value, market value, and provisions if any, relating to such sale and transfers are not required to be made.

3.1 Exchange Traded Interest Rate Derivatives

The Bank has not undertaken any exchange traded interest rate derivative transactions during the year (Previous Year Nil).

3.2 Disclosures on Risk Exposure in Derivatives

The Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitors daily derivatives operations against prescribed policies and limits;

- Reviews daily product-wise profitability and activity reports for derivatives operations;

- Submits MIS and details of exceptions to the Top Management on a daily basis; and

- Ensures monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits.

The Bank undertakes derivative transactions for hedging customers'' exposure, hedging the Bank''s own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures; all trades with customers are covered back-to-back with other market makers.

The Derivatives Policy approved by Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for (a) appropriate risk limits for different derivative products and (b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify its customers on the basis . of their need for various derivative products as well as their competence in understanding such products and the attendant risks involved.

Note 1: Based on the PV01 of the outstanding derivatives as at March 31, 2013.

Note 2: Based on the absolute value of PV01 of the derivatives outstanding during the year. Derivative contracts that are "back-to-back" have not been included herein.

Note 3: Mark to Market positions above includes interest accrued on the swaps.

Note 4: There were no outstanding currency futures as on March 31, 2013.

Note 5: Credit exposure is computed based on the current exposure method.

4.1 During the year, there has been no purchase / sale of non-performing financial assets from / to other banks (Previous Year Nil).

4.2 During the year, there was no sale of assets through securitization in respect of Standard Advances (Previous Year Nil).

4.3. Floating provision:

The Bank does not carry any floating provision in the books.

Notes:

(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

(3) Return on Assets are computed with reference to average working funds.

(1) As per RBI circular RPCD.CO.PIan.BC.69/04.09.01/2010-11 dated 09/05/2011, limit for housing loan under priority sector has been changed from Rs. 20 lakhs to Rs. 25 lakhs

(2) Does not include corporate lending backed by mortgage of land and building.

5.1 Single borrower limit and Group Borrower Limit:

During the year, the Bank has not exceeded the prudential credit exposure limit in respect of Single Borrower and Group Borrowers (Previous Year Nil).

5.2 Unsecured advances:

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licences, authorizations etc. (Previous Year Nil). The Unsecured Advances of Rs. 4,211.05 crores (Previous Year Rs. 2,853.82 crores) as disclosed in Schedule 9B (iii) are without any collateral or security.

6.1 Disclosure of penalties imposed by RBI:

RBI has not imposed any penalty on the Bank u/s 46(4) of the Banking Regulation Act, 1949 (Previous Year Nil).

6.2 Fixed Assets:

Cost of premises includes Rs. 4.09 crores (Previous Year Rs. 4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having WDV of Rs. 1.70 crores (Previous Year Rs. 1.74 crores) and has filed a suit for the same.

6.3 Contingent Liabilities:

Claims against the Bank not acknowledged as debts comprise of tax demands in respect of which the Bank is in appeal of Rs. 111.40 crores (Previous Year Rs. 108.84 crores) and the cases sub judice Rs. 319.49 crores (Previous '' Year Rs. 306.06 crores). The above are based on management''s estimate, and no significant liability is expected to arise out of the same.

6.4.1 During the current year, fee income from investment banking, account processing, card operations, and client account maintenance related activities aggregating to Rs. 589.68 crores which in earlier years was classified under the head Miscellaneous Income in Schedule 14 has been classified under "Commission, Exchange and Brokerage" in Schedule 14. Corresponding previous year figures aggregating to Rs. 419.18 crores have also been reclassified to conform to the current year presentation.

6.4.2 The Bank does not have any Overseas branches and hence the disclosure regarding total assets, NPAs and revenue is not applicable.

6.4.3 The Bank does not have any Off-Balance Sheet SPVs (which are required to be consolidated as per accounting standards).

7. Employee Stock Option Scheme ("ESOS")

The shareholders of the Bank had approved Employee Stock Option Scheme (ESOS) on September 18, 2007, enabling the Board and / or the Compensation Committee to grant such number of Options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines of the Securities & Exchange Board of India (SEBI). The Options vest within a maximum period of five years from the date of grant of Option. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the Options have to be exercised within a maximum period of five years. The ESOS is equity settled where the employees will receive one equity share per Option.

Recognition of expense

Excess of fair market price over the exercise price of an Option as at the grant date, is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such Options. The fair market price is the latest available closing price prior to the date of the meeting of the Board of Directors, in which Options are granted, on the stock exchange on which the shares of the Bank are listed. Since shares are listed in more than one stock exchange, the stock exchange where the Bank''s shares have been traded highest on the said date is considered.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes Options pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on NSE, over a prior period equivalent to the expected life of the Options, till the date of the grant.

Had the Bank adopted the Black - Scholes model based fair valuation, compensation cost for the year ended March 31, 2013, would have increased by Rs. 38.29 crores and the proforma profit after tax would have been lower by Rs. 25.86 crores correspondingly. On a proforma basis, the basic and diluted earnings per share would have been Rs. 21.30 and Rs. 20.88 respectively.

The weighted average fair value of Options granted during the year ended March 31, 2013 is Rs. 159.69.

8. Disclosures - Accounting Standards

8.1 Net Profit or Loss for the period, prior period items and changes in accounting policies (AS-5):

There has been no material change in Accounting Policies adopted during the year ended March 31, 2013, from those followed for the year ended March 31, 2012.

8.2 Depreciation Accounting (AS-6):

During the year, the Bank has revised estimated useful life of automated teller machines (ATMs), software and certain other items of fixed assets. Whenever there is a revision in the estimated useful life of an asset, the unamortised depreciable amount is charged over the revised remaining useful life of the said asset. The revision in the estimated useful life has resulted in the profit after tax for year ended March 31, 2013 being higher by Rs. 12.82 crores.

8.3 Employee Benefits (AS-15):

Gratuity:

The benefit of Gratuity is a funded defined benefit plan. For this purpose the Bank has obtained qualifying insurance policies from two insurance companies. The following table summarises the components of net - expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Provident Fund:

The guidance on implementing AS 15, Employee Benefits (revised 2005) states that benefits involving employer established provident funds, which require interest shortfalls to be recompensed are to be considered as defined benefit plans.

8.4 Segment Reporting (AS 17):

The Bank operates in four business segments, viz. Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations. There are no significant residual operations carried by the Bank.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

8.5 Related party transactions (AS-18):

The following is the information on transactions with related parties:

Key Management Personnel:

Mr. Romesh Sobti, Managing Director Associates:

Induslnd Marketing and Financial Services Private Limited

Induslnd Information Technology Limited (fully divested on September 13, 2011)

Subsidiaries:

ALF Insurance Services Private Limited (under liquidation)

As on March 31, 2013, there was only one related party in the all above category; hence, in accordance with RBI guidelines, no disclosure relating to the transactions with these related parties.

The Bank has not sub-leased any of the properties taken on lease. There are no provisions relating to contingent rent.

The terms of renewal and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

8.6 Consolidated Financial Statements - Subsidiary (AS 21):

ALF Insurance Services Pvt. Ltd., subsidiary of the Bank, could not commence operations. Consequent to the resolution of Board of Directors, the process of winding up of the said company is under progress. Since the control is regarded as temporary, no consolidated financial statements have been drawn up as per AS-21 "Consolidated Financial Statements".

9.1 Letters of Comfort:

The Bank has not issued any letter of comfort.

9.2 Disclosure on Remuneration:

Remuneration Committee (RC)

The RC of the Bank comprises of four members of the Board of Directors of the Bank including one member from Risk Management Committee of the Board. The mandate of the RC is to establish, implement and maintain remuneration policies, procedures and practices that are consistent with, and promote, sound and effective risk management to achieve effective alignment between remuneration and risks. The Committee is also mandated '' to oversee framing, implementation and review of the Bank''s Compensation policy as per RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff whose professional activities have a material impact on the Bank''s risk profile. The RC is also required to ensure that the cost / income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio. The RC reviews compensation structure and the policies of the Bank with a view to attract, retain and motivate employees.

Remuneration Policy

The Remuneration Policy is formulated by the Board in alignment with RBI guidelines, and is structured to cover all components of remuneration including fixed pay, variable pay, perquisites, retirement benefits such as Provident Fund and Gratuity, long term incentive plans, and Employee Stock Options.

The key objectives of the policy are:

(i) Benchmark employee compensation with market salaries for various job positions and skills and pay for ''Position, Performance & Person''

(ii) Maintain an optimal balance between fixed and variable pay

(iii) Pay for Performance

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs and Deferred Bonus)

Some of the important features of the Compensation Policy are as below:

(i) The RC will oversee the framing, implementation and review of the Compensation Policy.

(ii) Remuneration will be market linked for critical job roles so as to attract and retain talent.

(iii) In respect of WTDs / CEO / Risk Takers, the compensation structure provides for a reasonable increase in fixed pay in line with market benchmarks. Their individual increments are linked to annual performance rating and increment percentages at various performance rating levels will be decided, on the basis of the financial performance of the Bank. Exceptions will be restricted to a select few high performers to reward performance, motivate and retain critical staff.

(iv) The quantum of overall variable pay to be disbursed in a year would vary on the basis of the financial performance of the Bank measured through various parameters such as NIM, Nil, ROA, PAT and ROE.

(v) Remuneration is linked to performance. Increments and variable pay are linked to the annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set KRAs / Goals set at the beginning of the Financial Year. The individual variable pay would be linked to annual performance rating, and would be based on variable pay grids outlining variable pay as a percentage of Annual Guaranteed cash at various rating bands for a grade level. Exceptional increments and variable pay may be paid to high performers, but in no case they would violate the stipulated RBI guidelines.

(vi) The individual variable pay would not exceed 70% of the fixed pay. Wherever variable pay exceeds 50% of the fixed pay, 50% of the variable pay will be deferred over a period of 3 years in a ratio to be decided by management, which at present is set at 33% : 33% : 34%.

(vii) Post disbursement of variable pay from Financial Year 2013-14, the Bank will enter into a Malus / Claw-back arrangement with the concerned employees. Malus arrangement would lay down policies to adjust deferred remuneration before vesting and Claw-back arrangement would lay down policies to adjust deferred remuneration after vesting. The criteria would be negative contribution by relevant business lines through supervisory oversight, excessive risk taking, integrity / staff accountability issues.

(viii) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. Sign on bonus to be paid in form of pre-hiring ESOPs will be very selective for critical hires.

(ix) The Compensation Policy does not provide for severance pay for any employee.

(x) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank''s HR policies which are broadly in line with the statutory norms.

(xi) Perquisites are laid down in HR Policies of the Bank.

(xii) At present, the Bank uses cash based form of variable remuneration. The rationale is that cash based form of variable remuneration leads to an instant reward to the concerned employees and is also easy to . administer.

(xiii) ESOPs do not form a part of the variable pay and are very selectively granted to attract and retain employees. ESOPs are not granted with a defined periodicity. The ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution and market value of the position, and performance and behavioural track of the employee.

9.3 On December 5, 2012, the Bank had issued 5,21,00,000 equity shares of Rs. 10/- each at a premium of Rs. 374 per share through a Qualified Institution Placement(QIP) and mobilised Rs. 2,000.64 crores. Bank incurred issue expenses of Rs. 17.57 crores which has been adjusted against the Share premium account.

10. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

11. Previous year''s figures have been regrouped / reclassified wherever necessary.


Mar 31, 2012

1) Capital Adequacy Ratio:

The Bank computes Capital Adequacy Ratio as per RBI guidelines. The Bank has migrated to the New Capital Adequacy Framework (Basel II) with effect from March 31, 2009. Under the Basel II guidelines, the Bank is required to maintain Capital to Risk weighted Assets Ratio, at a minimum of 9% on an on-going basis, covering credit risk, market risk and operational risk. Further, the minimum capital to be maintained by the Bank is subjected to a prudential floor which is the higher of :

i) Minimum capital to be maintained under the New Capital Adequacy Framework (Basel II); and

ii) 80% of the minimum capital to be maintained under Basel I guidelines

Note:

(1) Does not include amount of securities pledged with Central Counter Parties such as Clearing Corporation of India Ltd., National Securities Clearing Corporation of India Ltd, and Multi Commodity Exchange of India Ltd.

(2) Excludes investment in RIDF scheme of NABARD and equity shares.

(3) Excludes investment in RIDF scheme of NABARD, commercial papers, CD's and preference shares acquired by way of conversion of debts.

(4) Includes investment in RIDF scheme of NABARD.

(5) Amounts reported under 4, 5, 6 and 7 are not mutually exclusive.

Note:

(1) Does not include amount of securities pledged with Central Counter Parties such as Clearing Corporation of India Ltd., National Securities Clearing Corporation of India Ltd. and Multi Commodity Exchange of India Ltd.

(2) Excludes investment in RIDF scheme of NABARD and equity shares

(3) Excludes investment in RIDF scheme of NABARD

(4) Includes investment in RIDF scheme of NABARD

(5) Amounts reported under 4, 5, 6 and 7 are not mutually exclusive.

2.1 During the year, the value of sales and transfer of securities to / from HTM category, excluding one-time transfer of securities from HTM and sale on account of Open Market Operation (OMO), has not exceeded 5% of the book value of investments held in HTM category at the beginning of the year. As such, in line with RBI guidelines, specific disclosures on book value, market value, and provisions if any, relating to such sale and transfers are not made.

3.1 Exchange Traded Interest Rate Derivatives:

The Bank has not undertaken any exchange traded interest rate derivative transactions during the year (previous year Nil).

3.2 Disclosures on Risk Exposure in Derivatives

The Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitors daily derivatives operations against prescribed policies and limits;

- Reviews daily product-wise profitability and activity reports for derivatives operations;

- Submits MIS and details of exceptions to the Top Management on a daily basis; and

- Ensures monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits.

The Bank undertakes derivative transactions for hedging customers' exposure, hedging the Bank's own exposure, as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures; all trades with customers are covered back to back with other market makers.

The Derivatives Policy approved by Board of Directors defines the framework for carrying out derivatives business and lays down policies and processes to measure, monitor and report risk arising from derivative transactions. The policy provides for (a) appropriate risk limits for different derivative products and (b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify its customers on the basis of their need for various derivative products as well as their competence in understanding such products and the attendant risks involved.

Note 1: Based on the PV01 of the outstanding derivatives as at March 31, 2012.

Note 2: Based on the absolute value of PV01 of the derivatives outstanding during the year. Derivative contracts that are "back-to-back" have not been included herein.

Note 3: Mark to Market positions above includes interest accrued on the swaps.

Note 4: There were no outstanding currency futures as on March 31, 2012.

Note 5: As on March 31, 2012, Marked to Market receivable is Rs 481.45 crores and Marked to Market payable is Rs 307.22 crores in respect of Currency derivatives. In respect of Interest rate derivatives, Marked to Market receivable is Rs 163.47 crores and Marked to Market payable is Rs 147.96 crores.

Foreign Currency exposure not hedged by derivative instruments (Net Open Position) as on March 31, 2012 is Rs (44.73) crores (previous year Rs (5.69) crores).

4.1 During the year, there has been no purchase / sale of non-performing financial assets from / to other banks (previous year Nil).

4.2 During the year, there was no securitization transaction pertaining to Standard Advances (previous year Nil).

Note:

(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

(3) Returns on Assets are computed with reference to average working funds.

(1) As per RBI circular RPCD.CO.Plan.BC.69/04.09.01/2010-11 dated 09/05/2011, limit for housing loan under priority sector has been changed from Rs 20 lacs to Rs 25 lacs

(2) Does not include corporate lending backed by mortgage of land and building.

5.1 Single borrower limit and Group Borrower Limit:

During the year, the Bank has not exceeded the prudential credit exposure limit in respect of Single Borrower and Group Borrowers (previous year Nil).

5.2 Unsecured advances:

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licences, authorizations etc. As such, the Unsecured Advances of Rs 2853.82 crores (previous year Rs 3714.29 crores) as given in Schedule 9B (iii) are without any collateral or security.

6.1 Disclosure of penalties imposed by RBI:

RBI has not imposed any penalty on the Bank u/s 46(4) of the Banking Regulation Act, 1949 (previous year Nil).

6.2 Fixed Assets:

Cost of premises includes Rs 4.09 crores (previous year Rs 4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having WDV of Rs 1.74 crores (previous year Rs 1.78 crores) and has filed a suit for the same.

6.3 Contingent Liabilities:

Claims against the Bank not acknowledged as debts comprise of tax demands in respect of which the Bank is in appeal of Rs 108.84 crores (previous year Rs 149.64 crores) and the cases sub-judice Rs 306.06 crores (previous year Rs 159.96 crores). The above are based on the management's estimate, and no significant liability is expected to arise out of the same.

6.4 During the year, the Bank had acquired the Indian operations of the Credit Cards business of Deutsche Bank AG, as a going concern on a slump sale basis. The acquisition was fully funded from the internal accruals of the Bank. The business take-over was completed on June 01, 2011 and all the assets and mutually agreed liabilities of the said Credit Cards business became part of the Bank's Balance Sheet on that date. The price paid towards acquisition of the business was allocated to the assets and liabilities on the basis of their fair value on the acquisition date and accounted for accordingly. The incomes generated by the business on and from that date, and the assets and liabilities pertaining to the business have been duly considered in the Profit and Loss Account for the year ended and the Balance Sheet as at March 31, 2012 respectively. While the acquisition of Credit Cards business has a strategic importance in augmenting the product offerings of the Bank, it has not materially impacted the financial results forthe year ended March 31, 2012 and the state of affairs ofthe Bank as on that date.

6.5.1 Miscellaneous income includes processing fees Rs 124.73 crores (previous year Rs 83.61 crores), card operations fees Rs 64.27 crores (previous year Rs 23.62 crores), investment banking income Rs79.02 crores (previous year Rs60.53 crores) and others Rs 160.99 crores (previous year Rs 94.37 crores).

6.5.2 The Bank does not have any Overseas branches and hence the disclosure regarding total assets, NPAs and revenue is not applicable.

6.5.3 The Bank does not have any Off-Balance Sheet SPVs (which are required to be consolidated as per accounting standards).

7) Employee Stock Option Scheme ("ESOS"):

The shareholders of the Bank had approved Employee Stock Option Scheme (ESOS) on September 18, 2007, enabling the Board and / or the Compensation Committee to grant such number of Options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines of the Securities & Exchange Board of India (SEBI). The options vest at the discretion of the Compensation Committee, but within a maximum period of five years from the date of grant of option. The exercise price for each grant is decided by the Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the options have to be exercised within a maximum period of five years. The ESOS is equity settled where the employees will receive one equity share per option.

Recognition of expense

Excess of fair market price over the exercise price of an option as at the grant date, is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The fair market price is the latest available closing price prior to the date of the meeting of the Board of Directors, in which options are granted, on the stock exchange on which the shares of the Bank are listed. Since shares are listed in more than one stock exchange, the stock exchange where the Bank's shares have been traded highest on the said date is considered.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black -Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on NSE, over a prior period equivalent to the expected life of the options, till the date of the grant.

The Bank has charged Rs 3.04 crores to the Profit and Loss account being the intrinsic value of stock options granted for the year ended March 31, 2012. Had the Bank adopted the Black - Scholes model based fair valuation, compensation cost for the year ended March 31, 2012, would have increased by Rs 55.40 crores and the proforma profit after tax would have been lower correspondingly. On a proforma basis, the basic and diluted earnings per share would have been Rs 16.02 and Rs 15.70 respectively.

The weighted average fair value of options granted during the year ended March 31, 2012 is Rs 136.76.

8) Disclosures - Accounting Standards :

8.1 Net Profit or Loss for the period, prior period items and changes in accounting policies (AS-5):

There has been no material change in Accounting Policies adopted during the year ended March 31, 2012, from those followed for the year ended March 31, 2011.

8.2 Employee Benefits(AS-15):

Gratuity:

The benefit of Gratuity is a funded defined benefit plan. For this purpose the Bank has obtained qualifying insurance policies from two insurance companies. The following table summarises the components of net expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Provident Fund:

The guidance on implementing AS 15, Employee Benefits (revised 2005) states that benefits involving employer established provident funds, which require interest shortfalls to be recompensed are to be considered as defined benefit plans.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

* As on March 31, 2011, there was only one related party in the said category; hence, in accordance with RBI guidelines, no disclosure relating to the transactions with these related parties.

Note: Figures in bracket represent maximum outstanding during the year.

8.3 Consolidated Financial Statements - Subsidiary (AS 21):

ALF Insurance Services Pvt. Ltd., subsidiary of the Bank, could not commence operations. Consequent to the resolution of Board of Directors, the process of winding up of the said company is under progress. Since the control is regarded as temporary, no consolidated financial statements have been drawn up as per AS-21 "Consolidated Financial Statements".

9.1 Letters of Comfort

The Bank has not issued any letter of comfort.

10. Floating provision

The Bank does not carry any floating provision in the books.

11. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

12. Previous year's figures have been regrouped / reclassified wherever necessary.


Mar 31, 2011

1. Capital Adequacy Ratio:

The Bank computes Capital Adequacy Ratio as per RBI guidelines. The prudential norms laid down by RBI, for capital adequacy under Basel I framework (Basel I) require the Bank to maintain a Capital to Risk weighted Assets Ratio at a minimum of 9%, covering credit risk and market risk. As per RBI directions, the Bank has migrated to the New Capital Adequacy Framework (Basel II) with effect from March 31, 2009. Under the Basel II guidelines, the Bank is required to maintain Capital to Risk weighted Assets Ratio, at a minimum of 9% on an on-going basis covering, credit risk, market risk and operational risk. Further, the minimum capital to be maintained by the Bank is subjected to a prudential floor which is the higher of :

(a) Minimum capital to be maintained under the New Capital Adequacy Framework (Basel II); and

(b) 80% of the minimum capital to be maintained under Basel I guidelines

3.2 Exchange Traded Interest Rate Derivatives:

The Bank has not undertaken exchange traded interest rate derivative transactions during the year.

3.3 Disclosures on Risk Exposure in Derivatives

The Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from Derivatives transactions. Risk Management Department functions independent of the Treasury. The risk management methods generally applied are quantitative like Value at Risk, PV01, stop-loss limits, counterparty limits, deal sizes and overnight positions.

The Risk Management function undertakes the following activities:

- Monitors daily derivatives operations against the set out policies and limits

- Reviews daily profitability, product-wise, and activity reports for derivatives operations

- Reports MIS and exceptions to the Top Management on a daily basis

- Ensures monitoring of effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk.

Bank undertakes derivative transactions for hedging of customers exposure, hedging the Banks exposure and for trading purposes wherever permitted by RBI.

Derivative trades are done both for the Banks balance sheet hedging requirements and also for the customer hedging requirements. The Customers use these products offered to hedge their forex and interest rate exposure. All the trades with customers are covered on a back-to-back basis with other market makers.

The Derivatives policy, approved by Board of Directors, define the framework for carrying out the derivatives business and lays down policies and processes adopted to measure, monitor and report risk arising from derivative transactions. Derivatives Policy provides :

- Appropriate risk limits for different derivatives products

- Authority for review of limit breaches and to take appropriate actions.

Derivatives policy prescribes ‘Product Suitability and Customer Appropriateness policy which is used to classify the clients depending on their understanding of the derivative products.

Contents

* During the tenor of the hedge minimum PV01 was 15.15 lacs

Note 1: Based on the PV01 of the outstanding derivatives as at March 31, 2011.

Note 2: Based on the absolute value of PV01 of the derivatives outstanding during the year. Derivative contracts that are “back-to-back” have not been included herein.

Note 3: Mark to Market positions above includes interest accrued on the swaps.

Note 4: Forward Exchange Contracts are not included in the Currency derivates above.

Note 5: There were no outstanding currency futures as on March 31, 2011.

Foreign Currency exposure not hedged by derivative instruments (Net Open Position) as on March 31, 2011 is Rs. (5.69) crores (previous year Rs. (0.20) crores).

4. Asset Quality:

4.5 During the year, there has been no purchase / sale of non-performing financial assets from /to other banks.

4.6 During the year, there was no securitization transaction pertaining to Standard Advances (previous year Nil).

4.7 Provision on Standard Assets :

Provision towards Standard Assets has not been netted off from Advances but included in ‘Other Liabilities and Provisions – Others in Schedule 5.

5. Business ratios:

Note:

(1) Working funds are calculated at the average of working funds as per the Banks monthly returns (Form X) filed with the RBI.

(2) Business per employee (deposits plus gross advances) is computed excluding Inter-bank deposits.

(3) Returns on Assets are computed with reference to average working funds.

7.4 Single borrower limit and Group Borrower Limit:

During the year the Bank has not exceeded the prudential credit exposure limit in respect of Single Borrower and Group Borrowers.

7.5 Unsecured advances

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licences, authorizations etc. As such, the Unsecured Advances of Rs. 3,714.28 crores (previous year Rs. 2,837.18 crores) as given in Schedule 9B(iii) are without any collateral or security.

9. Miscellaneous:

9.2 Disclosure of penalties imposed by RBI :

The Reserve Bank of India has not imposed any penalty on the Bank u/s 46(4) of the Banking Regulation Act, 1949.

9.3 Fixed Assets:

Cost of premises includes Rs. 4.09 crores (previous year RS. 4.09 crores) in respect of properties for which execution of documents and registration formalities are in progress. Of these properties, the Bank has not obtained full possession of one property having WDV of Rs. 1.78 crores (previous year Rs. 1.81 crores) and has filed a suit for the same.

9.4 Changes in Accounting Estimates – Revision of estimated useful life of fixed assets

With effect from January 1, 2011, the estimated useful life of Furniture and Fixtures has been revised to 10 years from 15 years, Electrical Installation and Other Office Equipment to 10 years from 20 years, and Vehicles to 5 years from 10 years. Consequent to this revision, the depreciation charged to Profit and Loss account during the year is higher by Rs. 12.66 crores with a corresponding decrease in the carrying amount of Other Fixed Assets under Schedule 10 as at the Balance Sheet date.

9.5 Other Assets:

Other assets include stock of gold on consignment basis of Rs. 10.96 crores (previous year Rs. 13.05 crores) and Net Deferred Tax Assets Rs. 47.88 crores (previous year Rs. 23.38 crores).

9.6 Other Liabilities and Provisions:

Other Liabilities – Others include credit balances in nostro accounts aggregating Rs. 66.86 crores (previous year Rs. 86.74 crores).

9.7 Contingent Liabilities:

Claims against the Bank not acknowledged as debts comprise tax demands in respect of which the Bank is in appeal of Rs. 49.64 crores (previous year Rs. 151.41 crores) and the cases sub-judice Rs. 159.96 crores (previous year Rs. 145.92 crores). The above are based on the managements estimate, and no significant liability is expected to arise out of the same.

9.8 Other Income

9.8.2 Miscellaneous income includes recovery from bad debts written off Rs. 20.95 crores (previous year Rs. 22.23 crores), lease rentals Rs. 2.47 crores (previous year Rs. 19.68 crores) and others (processing charges, cheque return charges and depository services charges, etc.) Rs. 238.71 crores (previous year Rs. 153.62 crores).

9.9 The Bank does not have any Overseas branches and hence the disclosure regarding total assets, NPAs and revenue is not applicable.

9.10 The Bank does not have any Off-balance Sheet SPVs (which are required to be consolidated as per accounting standards).

10. Employee Stock Option Scheme (“ESOS”):

The shareholders of the Bank had approved Employee Stock Option Scheme (ESOS) on September 18, 2007, enabling the Board and /or the Compensation Committee to grant such number of Options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines of the Securities & Exchange Board of India (SEBI). The options shall vest at the discretion of the Compensation Committee, but within a maximum period of five years from the date of grant of option. The exercise price for each grant shall be decided by the Compensation Committee, which would normally be based on the latest available closing price. Upon vesting, the options shall have to be exercised within a maximum period of five years. The ESOS scheme is equity settled where the employees will receive one equity share per option.

Recognition of expense

The Bank follows the intrinsic value method to account for its ESOS in accordance with the Guidance Note on “Accounting for Employee Share-based Payments” issued by the ICAI. Excess of fair market price over the exercise price of an option as at the grant date is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The fair market price is the latest available closing price, prior to the date of the meeting of Board of Directors, in which options are granted, on the stock exchange on which the shares of the Bank are listed. Since shares are listed in more than one stock exchange, the stock exchange where the Banks shares have been traded highest on the said date is considered.

Fair value methodology:

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on NSE, over a prior period equivalent to the expected life of the options, till the date of the grant.

Bank has charged Rs. 6.48 crores to P&L being the intrinsic value of stock options granted for the year ended March 31, 2011. Had the Bank adopted the Black-Scholes model based fair valuation, compensation cost for the year ended March 31, 2011, would have increased by Rs. 25.20 crores and the proforma profit after tax would have been lower correspondingly. On a proforma basis, the basic and diluted earnings per share would have been Rs. 12.58 and Rs. 12.32 respectively.

The weighted average fair value of options granted during the year ended March 31, 2011 is Rs. 126.87.

11. Disclosures - Accounting Standards :

11.1 Net Profit or Loss for the period, prior period items and changes in accounting policies (AS-5):

There has been no material change in Accounting Policies adopted during the year ended March 31, 2011, from those followed for the year ended March 31, 2010.

11.2 Employee Benefits (AS-15):

Gratuity:

The benefit of Gratuity is funded defined benefit plan. For this purpose the company has obtained two qualifying insurance policies from LIC of India and Aviva Life Insurance Company India Limited. The following table summarises the components of net expenses recognized in the profit and loss account and funded status and amounts recognized in the balance sheet, on the basis of actuarial valuation :

Leave Encashment :

The Company provides benefits to its employees under the Leave Encashment pay plan, which is a non- contributory defined benefit plan. The employees of the company during the tenure of their employment are entitled to carry forward unutilized balance of Privilege Leave upto 180 days.

Provision for Leave Encashment has been made in the accounts on the basis of actuarial valuation as at the balance sheet date.

11.3 Segment Reporting (AS-17):

The Bank operates in four business segments, viz. Treasury, Corporate / Wholesale Banking, Retail Banking and Other Banking Operations. There are no significant residual operations carried by the Bank.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets. Since the Bank does not have material earnings emanating from foreign operations, the Bank is considered to operate only in domestic segment.

11.4 Related party transactions (AS-18):

The following is the information on transactions with related parties:

Key Management Personnel:

Mr. Romesh Sobti, Managing Director

Associates: IndusInd Information Technology Limited

IndusInd Marketing and Financial Services Private Limited

IBL Services & Solutions Private Limited

Subsidiaries : ALF Insurance Services Private Limited

11.7 Consolidated Financial Statements – Subsidiary(AS 21):

ALF Insurance Services Pvt. Ltd., subsidiary of the Bank, could not commence operations. Consequent to the resolution of Board of Directors, the process of winding up of the said company has since been initiated. Accordingly, no consolidated financial statements have been drawn up as per AS-21 “Consolidated Financial Statements”.

11.8 Taxation (AS 22):

(a). Provision for tax has been made after considering contingency provision as admissible deduction.

11.9 In the opinion of the Bank there is no impairment of its fixed Assets to any material extent as at March 31, 2010, requiring recognition in terms of Accounting Standard 28.

12.3 Letters of Comfort

Bank has not issued any letter of comfort during the year.

13. The Bank does not carry any floating provision in the books.

14. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments

15. Previous years figures have been regrouped/ reclassified wherever necessary.

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