FUTURE ANDHRA BANK Directors Report

The Directors of your Bank are happy to present the Annual Report of the
Bank together with the audited Statement of Accounts and Auditors''''
Report for the financial year ended March 31, 2016.

2. PERFORMANCE HIGHLIGHTS OF THE BANK

2.1 Business

For the financial year ended 31st March 2016, Andhra Bank''''s Business
stood at Rs. 3,10,673 recording an increase of Rs. 26085 Crore from
Rs.2,84,588 Crore as on 31.03.2015, with a growth rate of 9.2% (y-o-y).

2.2 Deposits

Andhra Bank''''s Total Deposits stood at Rs. 174302 Crore as on
31.03.2016, recording an incremental growth of Rs 19290 Crore (12.4 %)
over the previous year. The share of CASA deposits (current and
savings) in Total Deposits stood at 26.08%.

- Current Deposits stood at Rs. 7541 Crore as on 31.03.2016 as compared
to Rs. 9706 Crore as on 31.03.2015.

- Savings Bank Deposits increased to Rs 37924 Crore as on 31.03.2016,
from Rs. 32696 Crore as on 31.03.2015, growing at a rate of 16%.

- Term Deposits increased from Rs. 112610 Crore as on 31.03.2015 to Rs.
128828 Crore as on 31.03.2016, registering a growth rate of 14.4%.

2.3 Advances

Gross Bank Credit increased by 5.2% from Rs. 129576 Crore as on
31.03.2015 to Rs. 136371 Crore as on 31.03.2016.

Credit to Agriculture Sector (incl RIDF & non priority) stood at Rs.
24679 Crore as on 31.03.2016 as against Rs. 20338 Crore as on
31.03.2015 registering a growth rate of 21.3%.

Credit to Micro, Small and Medium Enterprises (MSME) increased from Rs.
20258 Crore as on 31.03.2015 to Rs. 23278 Crore as on 31.03.2016
registering a growth rate of 14.9%.

2.4 Profitability

2.4.1 Total Income for the financial year 2015-16 increased by 7.4%,
from Rs.17,868 Crore during financial year 2014-15 to Rs. 19,199
Crore. Non-Interest Income increased to Rs. 1,564 Crore compared to Rs.
1,499 Crore in the previous year. Operating Profit of the Bank
increased to Rs.3,960 Crore compared to Rs. 3,298 Crore in the
previous year registering a growth rate of 20.1%. Net Proft stood at
Rs. 540 Crore for the financial year 2015-16.

2.4.2 The Total Interest Income recorded a growth rate of 7.7% and
increased from Rs. 16,369 Crore during 2014-15 to Rs. 17,635 Crore
during 2015-16. Of this, Interest Income from Advances grew by 5.7%
from Rs. 12,742 Crore during 2014-15 to Rs. 13,467 Crore during
2015-16. Interest Income from investments increased by 10.5% from
Rs.3509 Crore during 2014- 15, and stood at Rs.3876 Crore during
2015-16.

2.4.3 Out of total Non Interest Income, Fee Based Income for the
financial year ended 31.03.2016 stood at Rs.158 Crore.

2.4.4 Total Expenses during the financial year 2015-16 were Rs. 15,239
Crore against Rs. 14,570 Crore during the previous year. Of this,
Operating Expenses stood at Rs. 2925 Crore. Establishment Expenditure
as a percentage of Total Expenditure stood at 11.38% for the financial
year ended 31.03.2016.

Table 1: Highlights of Revenue, Expenditure and Profitability

(Rs. in Crore)

2014-15 2015-16 Absolute Percentage
Growth Growth

Total Interest Income 16368.61 17634.67 1266.06 7.73%

Total Interest
Expenditure 11830.57 12313.71 483.14 4.08%

Net Interest Income 4538.04 5320.96 782.92 17.25%

Other Income 1499.84 1564.47 64.63 4.31%

Profit on sale of
Investments 366.5 230.97 -135.53 -36.98%

Core Other Income 1133.34 1333.5 200.16 17.66%

Operating Expenses 2739.44 2925.43 185.99 6.79%

Operating Profit 3298.44 3960 661.56 20.06%

Provisions and
Contingencies 2660 3420.16 760.16 28.58%

Net Profit 638.44 539.84 -98.6 -15.44%

APPROPRIATIONS

The appropriations made out of Net Profit are shown in Table 2. An
amount of Rs. 134.96 Crore was transferred to statutory reserves during
2015-16, and with this, the statutory reserves now stand at Rs. 2751.91
Crore. Transfer towards Dividend (including Dividend Tax) amounted to
Rs. 41.43 Crore.

Table 2: Appropriations out of Net Profit

(Rs. in Crore)


2015-16

Appropriation out of Net Profit 539.84

Balance brought forward 94.99

Transfer to Statutory Reserves 134.96

Transfer to Capital Reserve 36.80

Transfer to Revenue Reserves 126.64

Transfer to Special Reserve 200.00

Transfer to proposed Dividend (including Dividend Tax) 41.43

Profit carried over to Balance Sheet 95.00

2.5 KEY FINANCIAL RATIOS

The Bank has done considerably well in key financial ratios, given the
performance of the Industry as a whole. Net Interest Margin (NIM) stood
at 3.18% compared to 3.00% in the previous year. Cost to Income Ratio
stood at 42.49%, as compared to 45.37% for the previous year. Earnings
per Share (EPS) stood at Rs.8.60 and Book Value per Share (BVPS) stood
at Rs.150.68

Gross Non-Performing Assets to Gross Advances stood at 8.39% and Net
Non-Performing Assets to Net Advances stood at 4.61% for the financial
year ended 31.03.2016.

Table 3: Key Financial Ratios

Parameter 31.03.2015 31.03.2016

Yield on Advances (%) 11.38 10.71

Cost of Deposits (%) 7.73 7.18

Net Interest Margin (%) 3.00 3.18

Yield on Funds (%) 9.64 9.25

Cost of Funds (%) 6.97 6.46

Cost-to-income Ratio (%) 45.37 42.49

CRAR ? Basel III (%) 10.63 11.58

Return on Assets (%) 0.38 0.28

Earning Per Share (Rs.) 10.82 8.60

Book Value Per Share (Rs.) 153.83 150.68

Net NPA (%) 2.93 4.61

Gross NPAs (%) 5.31 8.39

2.6 CAPITAL & NET WORTH

(Rs. in Crore)

Parameter 31.03.2015 31.03.2016

Equity Capital 603 681

Reserves Surplus 9461 9623

Networth of the Bank (Tangible) 9274 10264

2.7 CAPITAL ADEQUACY

As per the Reserve Bank of India guidelines, the start date for
implementation of Basel III guidelines in India is w.e.f. April 1,
2013. Accordingly, w.e.f. April 1, 2013, the Bank has been assessing
its Capital Adequacy as per Basel III prescriptions.

The total Capital Funds of the Bank are at Rs.15732.74 as on March 31,
2016 and the Capital Adequacy Ratio at 11.58% is above the required RBI
prescribed norm of 9.625%.

The Bank has in place an "Internal Capital Adequacy Assessment Process"
(ICAAP) for assessing the adequacy of Capital levels keeping in view
the expected increase in business levels and enhanced Capital
requirements in the Basel III regime. The assessment process also
includes a framework for inclusion of Pillar-II risks under Basel-III
guidelines, such as Credit concentration risk, interest rate risk in
the banking book, liquidity risk, etc.

Table 4: CRAR Position (Rs. in crore)

31st March 2016 (Basel III)

CE Tier-1 Capital 10553

Additional Tier-1 Capital 1412

Tier-II Capital 3768

Total 15733

3. BUSINESS REVIEW

The Total Business (Total Deposits plus Gross Bank Credit) of the Bank
registered a growth rate of 9.2%, up from Rs.284588 Crore as on
31.03.2015 to Rs. 310673 Crore as on 31.03.2016.

3.1 Aggregate Deposits

Aggregate Deposits (excluding inter-bank deposits) went up from
Rs.154974 Crore as on 31.03.2015 to Rs.174233 Crore as on 31.03.2016,
registering a growth rate of 12.4%. Aggregate Deposits comprised of
current deposits of Rs. 7482 Crore, savings deposits of Rs. 37924 Crore
and term deposits of Rs. 128828 Crore.

Table 5: Category-wise classification of Aggregate Deposits

(Rs. in Crore)

Sl. Type of Deposits Amount Percentage of
No. 31.03.2016 Aggregate
Deposits

1 Current Deposits 7481.54 4.29%

2 Savings Bank Deposits 37923.89 21.77%

3 Term Deposits 128827.93 73.94%

4 TOTAL (1 2 3) 174233.36 100.00%

Growth rate over previous year (%) 12.43%

Area-wise distribution of Aggregate Deposits (excl inter-bank deposits)
as on 31.03.2016 is set forth in the following Table.

Table 6: Area-wise classification of Aggregate Deposits

(Rs. in Crore)

Sl. Category of % to
No. Branches Amount total

1 Rural 13141.99 (19.4%) 7.54%

2 Semi-Urban 30208.16 (25.4%) 17.34%

3 Urban 49035.35 (16.5%) 28.14%

4 Metro 81847.88 (5.2%) 46.98%

5 TOTAL (1 2 3 4) 174233.38 (12.4%) 100.00%

Note: Figures in ( ) indicate annual growth rate over the previous year

3.2 Gross Bank Credit

For the Financial Year ended 31.03.2016, Bank registered a growth rate
of 5.2% in Gross Bank Credit over the previous year adding Rs. 6794
Crore during the year, to reach Rs. 136371 Crore as compared to
Rs.129576 Crore for the Financial Year ended 31.03.2015.

Table 7: Classification of Advances portfolio

(Rs. in Crore)

Category 31.03.2015 31.03.2016 Variance

1. Food Credit 1746.73 1877.87 131.14

2. Non-Food Credit (2.1 to 2.4) 127829.41 134492.75 6663.34

2.1 Agricultural Advances

(Excl. RIDF) 19797.78 24373.12 4575.34

2.2 Advances to MSME Sector 20257.62 23277.77 3020.15

2.3 Retail Credit (incl. DLs) 19846.12 24428.29 4582.17

2.4 Large Industries & Other
Advances 67927.89 62413.57 -5514.32

GROSS BANK CREDIT (1 2) 129576.14 136370.62 6794.48

Of which, Lending to Priority
sector 44960.46 54545.38 9584.92

3.2.1 Priority Sector Lending

Priority Sector advances of the Bank stood at Rs. 54,545 Cr (including
Rs.416 Cr Under RIDF and other funds) at the end of March 2016,
registering a y-o-y growth of 21.31% and absolute increase of Rs.9585
Cr. As against statutory requirement of 40% of ANBC, Bank recorded
41.88% under Priority Sector as on 31.03.2016.

Table 8: Priority Sector Lending (as on 31.03.2016)

(Rs. in Crore)

Category 2015-16

1. Priority Sector Advances (2 to 8) 54545.38

2. Agriculture-Priority (2.1 2.2) 24079.91

2.1 Agriculture Loans-Priority 23774.03

2.2 Eligible Investments (RIDF) 305.88

3. Micro, Small and Medium Enterprises 20988.48

3.1 out of which, Eligible Investment in SIDBI 24.13

4. Educational Loans 1780.60

5. Housing Loans (including indirect finance) 7650.82

5.1 out of which, Eligible Investment in NHB 85.67

6. Social Infrastructure 17.10

7. Renewable Energy 25.68

8. Others 2.79

I. Priority Sector Advances (% to ANBC) 41.88%

II. Agriculture Advances (% to ANBC) 18.49%

III. Small & Marginal Farmers (% to ANBC) 10.24%

IV. Direct Lending to Non-Corporate farmers (% to ANBC) 14.35%

V. NPA under Agriculture as on 31.03.2016 (% Gross NPA) 4.44%

3.2.1.1 Credit to Agriculture

Total agricultural (Priority) lending of the bank stood at Rs.24,080 Cr
as at the end of March, 2016, which includes eligible investment under
RIDF of Rs.306 Cr. as against statutory requirement of 18% of ANBC,
Bank has reached 18.49% as on 31.03.2016.

3.2.1.2 Lending to Self Help Groups (SHGs)

Bank has extended financial assistance to 239133 self help groups with
total exposure of Rs.5,376 Cr as on 31.03.2016.

3.2.2 Lending to Micro & Small Enterprises (MSE)

Total advances to micro & small enterprises of the bank was at
Rs.20,988.48 Crores as at the end of March''''16, registering a y-o-y
growth of 21.79%. The absolute growth during the period is Rs.3033
Crores.

3.2.3 Credit to Weaker Sections

Advances to weaker sections stood at Rs.16,054 Crores i.e., 12.33% of
ANBC as against norm of 10%.

3.2.4 Credit to Minorities

Total credit extended to minority communities was at Rs.4983 Crores
i.e., 11.08% of Priority Sector advances as against norm of 15%.

3.2.5 Credit to Women

Total credit extended to women beneficiaries was at Rs.16,203 Crores
i.e., 11.88 % of Net Bank Credit as against norm of 5%.

3.2.6 NPA under Agriculture

Out of Total Agricultural advances of Rs.24679 Cr (including Agri-Non
priority) as on 31.03.2016, NPA under Agriculture is Rs.1094.83 Cr
i.e., 4.44% of Gross NPA as against 5.29% of Gross NPA as on 31.03.2015

3.2.7 Andhra Bank Rural Development Trust:

Andhra Bank Rural Development Trust is running 13 Rural Self Employment
Training Institutes in A.P (9), Telangana (1), Odisha (2), Kerala (1)
states and imparting need based training for capacity
building/entrepreneurial development and dissemination of knowledge to
farmers, SHG women, Rural unemployed youth and artisans.

Since inception, 148947 candidates have been trained through 5049
programs by the Institutes and around 79% of the trained candidates are
engaged in gainful ventures. During the year, the institutes imparted
training to 11023 candidates through 447 programs.

All our eleven RSETIs (2 RSETIs were recently opened) have been awarded
with highest rating "AA" by Ministry of Rural Development, Government
of India for the year 2014-15.

3.2.8 Financial Literacy and Credit Counseling Centres

Bank has established Jana Chetana Financial Literacy and Credit
Counseling Trust and running six Financial Literacy Centres in all Lead
Districts. Bank is in the process of opening another 25 FLC centres at
various places in A.P. These centers are promoting financial literacy
activities through campaign mode and providing service related
extension services. All our Rural Branches and RSETIs are organizing
Financial Literacy Camps in the villages by utilizing the services of
local artists/ magicians and organizing Kala Jataras.

3.2.9 Village Visits:

Bank has started ''''Village Visits'''' (Palle Bata) on every Wednesday in
Andhra Pradesh state w.e.f 06.01.2016 as per the advice of SLBC, AP.
All Rural/Semi-urban branches having service area villages have to
visit the villages on every Wednesday and Urban/Metro/Newly opened
branches, having no service area, have to conduct ''''Customer Meet'''' at
branch premises. Now it is being implemented across the country in
Andhra Bank. This program is being implemented by all branches to
improve their ''''CONNECT'''' with the target group.

3.3 Credit to MSME Sector

MSME Sector is playing a crucial role in the economic development of
our country. Our Bank has accorded high priority in lending to this
sector since a long time.

(Rs in crore)

%of Growth (March 14-
31.03.15 31.03.16 achieve March 15)
ment to
Achiev- target Amount % of
Actuals Target ement growth

Micro & 15936.36 20665 17746.68 85.87% 1810.32 11.35%
Small En
terprises

Total 20257.62 26395 23277.77 88.19% 3020.15 14.90%
MSME

- As on 31.03.2016 216094 MUDRA loans are sanctioned and an amount of
Rs. 1569.36 crores is disbursed.

- Keeping in view of the importance of MSME sector in the economy our
Bank introduced the following:

- 25% of assessed turnover can be allowed as working capital credit
limit under turnover method up to Rs. 6.00 crores instead of the
existing 20% of the projected turnover.

- ABHIVRUDHI Scheme "Financing to MSEs (Micro and Small Enterprises) up
to Rs. 3.00 crore against property" wherein assessment of credit limits
is simplified and obtention of CMA data is waived.

- To bring down the Turnaround Time (TAT), our Bank has established
SMExpress for centralized processing of MSME proposals in eight places
i.e. at Hyderabad, Chennai, Pune, Coimbatore, Visakhapatnam, Guntur
Bangalore and Hyderabad.

- There are 19 Specialized MSME branches operating in the states of
Andhra Pradesh, Telangana, Orissa, Tamilnadu, Punjab and Chattisgarh to
tap the potential business in MSME sector.

Our performance under CGTMSE scheme:

Year No of A/cs Amount (Rs. Crores)

31.03.15 13212 543.59

31.03.16 23427 740.31

3.4 Retail Lending

The Bank''''s Retail Credit portfolio stood at Rs. 24,428 crore as on
31.03.2016 as against Rs.19846 crores as on 31.03.2015, with year on
year growth of Rs.4582 crs. The segment has registered a growth of 23%
on YOY basis including deposit loans and credit card.

Housing loans portfolio has increased from Rs 9688 Crs as on 31.03.2015
to Rs.11,811 Crs as on 31.03.2016 with absolute growth of Rs 2123 crs
registering a growth rate of 22%.

Vehicle Loans portfolio has increased from Rs 819 Crs as on 31.03.2015
to Rs.1046 Crs as on 31.03.2016 with absolute growth of Rs 227 crs
registering a growth rate of 28%.

Education loans portfolio has increased from Rs.1831 Crores as on
31.03.2015 to Rs.2234 Crores as on 31.03.2016 with absolute growth of
Rs.403 Crores registering a growth rate of 22%

Loans against property (Mortgage Loans) portfolio has increased from
Rs.331 Crores as on 31.03.2015 to Rs.1027 Crores as on 31.03.2016 with
absolute growth of Rs.696 Crores registering a growth rate of 210%.

Bank has waived processing charges on Housing Loans and Vehicle Loans
from 14.09.2015 to 30.06.2016.

Bank has reduced rate of interest on Loans against property (Mortgage
Loans) portfolio from 12.90% p.a to 12.15% p.a.

3.5 Advances - Industry wise Exposure

Bank has loan exposure to various sectors like Power, Housing Loans,
NBFCs, Iron & Steel, textiles, etc. Exposure to top 10 industries
constitutes 51.53% of gross bank credit as on 31.03.2016, signifying a
diversified loan portfolio.

Table 9: Industry wise Exposure of Advances

(Rs. in Crore)

Ceilings as Actual Exposure as
% of Fund % of Total
Sl. Total based Advances of
No. Industry Advances exposure Previous
of previous as on Quarter i.e.
Quarter 31.03.2016 31.12.2015

1 Power 22.00% 14382.63 10.58%

2 Housing Loans 15.00% 14388.18 10.58%

3 NBFC 10.00% 11316.05 8.32%

4 Iron & Steel 10.00% 7403.05 5.44%

5 Textiles 9.00% 6042.85 4.44%

6 Construction & Contractors 10.00% 4618.57 3.40%

7 Commercial Real Estates 7.00% 3786.14 2.78%

8 Rice Mills 6.00% 3494.62 2.57%

9 Engineering (Heavy & Light) 5.00% 2564.44 1.89%

10 Drugs & Pharmaceuticals 5.00% 2279.84 1.68%

Total 70276.37

3.6 Area-wise position of Gross Bank Credit

The population group wise distribution of Credit as on 31.03.2016 is as
under:

Table 10: Gross Bank Credit-Population Group Wise as on 31.03.2016

Sl.
No. Category Amount % to total

1 Rural 15173.01 (1.9%) 11.13%

2 Semi-Urban 30835.91 (69.9%) 22.61%

3 Urban 20801.95 (-26.1%) 15.25%

4 Metro 69559.75 (1.7%) 51.01%

5 TOTAL 136370.62 (5.2%) 100.00%

Note: Figures in ( ) indicate annual growth rate over the previous year

4. INVESTMENTS

In terms of RBI guidelines, the Bank is required to invest in SLR
securities to the extent of 21.50% of NDTL. Bank''''s investment decisions
are based on risk-return trade-off and bank is scrupulously following
the regulatory and internal guidelines. Statutory prescriptions
relating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio
(SLR) are complied with and being monitored on a continuous basis. Risk
Management in treasury operations has been strengthened further by
undertaking stress testing and back testing of the investment portfolio
at quarterly intervals, besides daily monitoring of Duration and
Value-at-Risk (VaR). External rating migration of the bonds and
debentures portfolio is also being monitored on quarterly basis.

As on 31.03.2016, the Investments (net of depreciation) increased by
15.84% and stood at Rs.53864.19 Crore, up from Rs. 46499.43 Crore as on
31.03.2015. SLR maintained as on 31.03.2016 was Rs. 45623.95 Crore,
which constituted 25.41% of Net Demand and Time Liabilities (NDTL).
Interest income from investments increased from Rs. 3508.55 Crore in
2014-15 to Rs. 3875.86 Crore in 2015-16. Proft on sale of investments
stood at Rs. 230.55 Crore during 2015-16, while it was Rs.374.07 Crore
during 2014-15.

Table 11: Classification of Investments

(Rs. in Crore)

2014-15 2015-16 Var (%)

1. Government Securities 42504.78 49671.88 16.86%

2. Other Approved Securities 0.00 0.00 -

3. Shares 315.77 312.52 -1.03%

4. Debentures & Bonds 1966.45 2027.17 3.09%

5. Subsidiaries and / or Joint
Ventures 316.79 361.79 14.20%

6. Others 1395.64 1490.83 6.82%

TOTAL (1 to 6) 46499.43 53864.19 15.84%

4.1 Strategic Investments

4.1.1 Joint Venture Insurance

Our Bank is having Joint venture in insurance with Bank of Baroda and
Legal and General Plc of UK christened India First Life Insurance Co.
Ltd. Our stake in the venture is 30% while Bank of Baroda holds 44% and
Legal and General Plc holds 26% stake. Both the banks have commenced
sale of insurance policies through their branch outlets. Our investment
in the life insurance venture is Rs. 187.50 Crore.

4.1.2 Banking subsidiary in Malaysia

The Bank, along with Bank of Baroda and Indian Overseas Bank, has
entered into a tie up for setting up a banking subsidiary in Malaysia.
The Bank''''s stake in the venture is 25%, amounting to RM 82.50 Million
(book value Rs. 143.28 Crore), in a total subscribed capital of RM 330
Million (approximately Rs.559.35 Crore @ 1 RM = Rs. 16.9500 as on
31.03.2016).

The joint venture viz. INDIA INTERNATIONAL BANK (MALAYSIA) BHD
commenced business on 11.07.2012. The joint venture bank has a business
of Rs 328.58 Crore at the end of 31.12.2015.

4.1.3 Bombay Stock Exchange

United Stock Exchange of India Ltd which was promoted by a consortium
of banks, Canara Bank, Bank of Baroda, Allahabad Bank, Bank of India,
Indian Overseas Bank and Oriental Bank of Commerce of which our bank is
also a partner. The Bank''''s Investment in United Stock Exchange of India
Ltd. is Rs. 3 Crore. During the year, USE is amalgamated with Bombay
Stock Exchange and we were allotted 77922 shares of BSE with a Face
Value of Rs. 1 per share @ Rs 385 per share amounting to Rs 3 crore.

4.1.4 Metropolitan Stock Exchange of India Ltd. (MCX Stock Exchange
Ltd.

The Bank''''s investment in the equity of MSEI is Rs 25 Crore. The
Exchange commenced trading in Equity Cash and Equity Derivatives from
February 11, 2013.

4.2 Treasury & Forex Business

The Bank is an ''''Authorised Dealer'''', to deal in foreign exchange
business through 56 designated B category branches of the Bank. The
Bank has speed remittance arrangements with two Exchange Houses based
in Gulf.

Systems have been put in place for management of country risk, exchange
risk and other foreign exchange risks. The country risk exposures for
single country risk limit and aggregate risk limits for the group of
countries under each risk category are fixed and are being monitored on
daily basis.

During the year 2015-16, the Bank recorded a merchant turnover of Rs
34,059.08 Crore in Forex. The bank achieved Inter-Bank turnover of Rs
4,94,560.91 Crore as on 31.03.2016 compared to Rs 4,83,250.08 Crore as
on 31.03.2015. Export fnance of the Bank stood at Rs 4467.02 crore as
on 31.03.2016.

5. CREDIT CARD BUSINESS

Our Bank is a Pioneer in Credit Card Business, both as Issuer and
Acquirer (Merchant Business) since 1981. Excluding SBI, among other
Public Sector Banks, our Bank is having major Market Share in the
Credit Card Business.

Card Issuance: At present, our card base is 1.49 lakh cards.

No. of Cards No. of Cards %
Sl. Card Type issued in issued in Increase
2015 2016

1 Credit Cards 11513 15930 38%

2 Prepaid Cards Gift Cards 15716 18210 16%

Travel Cards 1882 2869 52%

3 A.P./Telangana Govt.,
ART Cards 77919 89335 15%

(Rs. In Crs.)

Card Dues outstanding 2015 2016 % Increase

At the year ending 165.18 177.83 8.00
31st March

Gross Income 60.14 67.06 11.50

Card Turnover 614.00 663.00 8.00

- We have launched Complaint Tracking System through FINACLE menu for
speedy redressal of Card holders grievances.

- We have introduced EMI facility to our card holders.

- WE have now launched Application Processing software in FINACLE for
sanction of Credit Card under HCCDAPP Menu. All Branch Heads are
delegated with powers to sanction card limit up to Rs.1.00 lakh. This
is a historic development by which card can be delivered to the
applicant within T 5 days.

- SMS based services ? 9 types of card holders requirements are
enabled.

6. MERCHANT BANKING SERVICES

A Shareholders and Investor Relation Section is functioning as a part
of the Division. The Bank has received 9 complaints and 6553 requests
during the Financial Year 2015-16. All the complaints and requests have
been redressed by the Bank.

The Bank has raised Rs.500.00 Crores by issuance of 8.58% - 10 years
Basel-III Compliant Tier-II Bonds (Series-A) and Rs.500.00 Crores by
issuance of 8.63% - 10 years Basel-III Compliant Tier-II Bonds
(Series-B) on private placement basis through bidding route to augment
Tier-II capital and overall capital of the Bank for strengthening the
Capital Adequacy as per Basel-III requirements and for enhancing the
long term resources.

The Bank has also raised Rs.800 Crores through the issuance of 10.95% -
Basel-III Compliant Additional Tier-I Perpetual Debt Bonds on private
placement basis to augment Additional Tier-I Capital and overall
capital of the Bank for strengthening the Capital Adequacy as per
Basel- III requirements.

An Annual General Meeting of shareholders of the Bank was held on
08.07.2015 seeking shareholders'''' approval for adoption of audited
annual accounts of the Bank for the FY 2014-15, to declare dividend on
equity shares of the Bank for the FY 2014-15 and to approve raising of
capital through Qualified Institutional Placement / Follow-on Public
Offer, etc.

The Bank has declared a dividend of Rs.2/- per share on 60,28,46,791
equity shares of the Bank for the FY 2014-15 amounting to Rs. 120.57
Crores with the dividend pay-out date as 17.07.2015.

The Bank conducted an Extraordinary General Meeting of shareholders of
the Bank on 23.09.2015 and sought shareholders'''' approval on raising of
capital by issuance of equity shares by way of preferential allotment
to Government of India on infusion of Rs.378 Crores by Government of
India towards share capital of the Bank. The Bank issued and allotted
4,94,63,491 equity shares of Rs.10/- each at a premium of Rs.66.42p.
per share to Government of India on preferential basis. With this
infusion, the Government''''s stake has increased from 61.0183% to
63.9742% of the total share capital of the Bank of Rs.652.31 Crores

The Bank has also conducted an Extraordinary General Meeting of
shareholders of the Bank on 21.03.2016 and obtained approval of
shareholders for raising of capital by issuance of 2,88,53,210 equity
shares of Rs.10/- each at a premium of Rs.37.30p. per share aggregating
to Rs.136.48 Crores to Life Insurance Corporation of India. With this,
the holding of Life Insurance Corporation of India has increased from
10.7181% to 14.50% of total paid-up capital of the Bank. After this
allotment, the total paid-up capital of the Bank is Rs. 681.16 Crores
and the stake of Government of India has come down from 63.9742% to
61.2643%.

Application Supported by Blocked Amount (ASBA):

SEBI vide Notification dated 10.11.2015, has mandated that all the
investors applying in a public issue shall use only Application
Supported by Blocked Amount (ASBA) facility for making payment. ASBA
facility was enabled on August 24th, 2009 through our bank. As on March
31st, 2016, total 2749 branches of the Bank across PAN India were
enabled to accept ASBA applications. We have also extended the facility
through our Net Banking Channel where customers can bid online hassle
free .

7. BANCASSURANCE & FEE-BASED PRODUCTS

The Bank has been constantly focusing on augmenting non-interest income
through diversification of income streams by taking up marketing of
life and non-life insurance products, Mutual fund products, Depository
Services, Direct taxes, Commercial taxes, Municipal taxes, utility
payments, Payment gateway services, Auto-Debit facilities etc.

7.1 Insurance

The Bank along with Bank of Baroda and Legal & General Group Plc of UK
has formed a joint venture life insurance company named India First
Life Insurance Co Ltd and it was formally launched in the month of
March 2010. The Bank has shareholding of 30% in the company, while Bank
of Baroda has 44% and 26% is held by Legal and General Group Plc.

During the FY 2015-16, total New Business premium (including Retail and
Group business) of Rs. 131.38 Cr was mobilized. Renewal premium of Rs.
114.70 Cr was collected up to 31.03.2016. Bank earned commission of Rs.
16.17 Cr from sale of Life Insurance Policies.

7.2 Mutual Fund Business

The Bank is having tie ups with Mutual Fund companies, namely, UTI
Mutual Fund, SBI Mutual Fund, Principal Mutual Fund, Tata Mutual Fund,
Sundaram Mutual Fund, Reliance Mutual Fund, Birla Sun Life Mutual Fund,
Fidelity Mutual Fund, Kotak Mutual Fund, LIC Mutual Fund and Baroda
Pioneer Mutual Fund.

7.3 Depository Services

Bank is offering depository Services to the public under the brand name
of "AB Demat". The Bank is a Depository Participant (DP) with Central
Depository Services (India) Limited (CDSL) as well as with National
Securities Depository Limited (NSDL).

7.4 Government Business Department

- Interface with Website of Central Board of Excise and Customs to
facilitate collection of Excise duty, Customs and Service Tax for our
Net Banking constituents is completed and is in live operation.

- Customization of online payment system for VAT and Commercial Tax in
the State of Uttar Pradesh is completed and the module is in live.

- Collection of Delhi VAT in the NCT of Delhi through e-mode is
completed and the module is in live.

- Collection of all Tamil Nadu Govt. taxes ? Online is completed and
the module is in live.

- Government of Madhya Pradesh & Chhattisgarh have approved our Bank
for collection of Commercial Tax viz. Central Sales Tax, VAT, Entry
Tax, Trade Tax through E-mode. Customisation is in progress.

- Government of Karnataka & Gujarat have approved our Bank for
collection of Commercial Tax viz. Central Sales Tax, VAT, Entry Tax,
Trade Tax through E-mode. Customisation is in progress.

- E-mode for collection of fees for online citizen services using
Payment Gateway under e-Panchayat initiative in the State of Andhra
Pradesh. ? In Live.

- Electronic Fund Management System (EFMS) for Aarogyasri Trust (AP) to
enable bulk upload of payments to various beneficiaries including
hospitals. ?Testing is completed and will go live shortly.

- Online upload of e-receipts of both the States of AP and Telangana
pertaining to Govt Treasury to the portal of RBI E-Kuber.

- Direct fund transfer to the beneficiaries under Swachha Andhra
Corporation and Swachha Bharat Mission.

- Collection of fees for AP Skill Development Corporation under
Personnel Management Skill Development and general trainings.

- Online collection of processing fee/EMD and other receipts using
NEFT/RTGS for AP Industrial Infrastructure Corporation Ltd.

- Distribution of welfare grants to beneficiaries from Labour Welfare
Commissioner, Andhra Pradesh.

- CBDT- Approval received for collection of Direct Taxes for 521
Branches additionally (earlier 817 Branches) ? Total 1338 branches were
enabled with CBDT module.

- COLLECTION OF DIRECT TAXES ? Total of 41 Focal Point Branches have
been authorized by RBI.

- Govt. Business during 2015-16 has witnessed a y-o-y growth of 19%.

- Income on Govt. Business is to the tune of Rs. 11.24 cr for the year
(2015-16).

- Large Govt. corporate like A.P. Pollution Control Board, AP Waqf
Board, AP Labour Welfare Dept.,NREGS are in our fold.

- We were given the Principal Banker status for the AP Capital Regional
Development Authority (APCRDA).

- Senior Citizen Savings Scheme (SCSS) : A total of 418 branches were
enabled to operate this scheme.

- The software developed on the portal for AP Sarva Siksha Abhiyan
provides for the generation of grant-wise information (intervention)
from any of the accounts linked to this portal. Our bank has also
provided two helpdesks one at DIT and another at HO.

- We have provided the BILLCOLL facility to AP state board of
Intermediate education (APSBIE), TSBIE and Sthreenidhi credit coop Fed
Ltd, A.P. (loan recoveries)

- We have provided National Automated Clearing House (NACH ?
disbursement module) facility to MEMPA, A.P., APSRTC, Labour Welfare
Board, TS Livestock Development agency (TSLDA) etc.

- Collection of Traffic police challans ? online , Govt. of Telangana
through Payment Gateway ? Module is completed and live.

- Sukanya Samriddhi Scheme and Kisan Vikas patra Scheme have been
implemented successfully in 418 authorised branches of our bank.

- Fee Based Income under Government Business ? Achievement as on
31-03-2015 / 31-03-2016.

Rs. (in crores)

S. Description - Mar Mar
No. Fee Based Income 2015 2016

1. Government Business: (Direct 9.29 11.24
Taxes, Treasury Business,
Comm. Taxes, Pensions Etc.)

Fee Based Income : Y-o-Y growth : 20.99%

8. IT INITIATIVES Crop Insurance:

Branches are providing loans to farmers for the purpose of crop
production requirements. Currently, branches are computing premium
manually and debiting accounts. Declaration forms are prepared
manually and submitted to Agriculture Insurance Company (AIC). The
problem Associated in the above practice is wrong premium collection,
missing of accounts from the coverage and non-remittance of premium to
AIC.

To minimize the above difficulties Finacle system support for debiting
crop insurance is provided:

- As a onetime measure user has to create the land database for the
crops financed by them. Then based on the State/ District/Mandal/
Village, land extent, amount of advance and category of farmer system
will calculate the premium amount and debit the accounts. System will
also provide the details of accounts for which insurance premium is not
debited.

- System will also generate the declarations as per AIC formats.

- Crop wise/Village wise/Insurance scheme wise declarations in the
format given by AIC can be generated from the system.

Customs Duty/Excise/Service Tax payment:

Bank is authorized to collect different types of Indirect tax payments
like Customs duty, Excise and Service tax online. The feature is now
made available on Internet Banking for retail and corporate customers
which will allow the users to pay the tax using IEC code/Assesse code
assigned by the department.

Payment Gateway Integration with SBIePay, Payu, Citrus, EBS, and Times
of Money:

Bank has tied up with Payment Gateway services provider like SBIePay,
Payu, Citrus, EBS, and Times of Money and integrated the same with
Internet Banking through which Internet Banking Retail customers can
pay different types of utility bills to the merchants enabled at the
payment gateways.

Online IB Transaction password resetting:

A new feature has been introduced to retail and corporate Internet
Banking customers to allow them to set transaction password on their
own. Retail customers can use ATM debit card and reset where as
corporate customer should have registered and activated Hardware Token.
User can also enable/disable the transaction password using the option
provided under Manage tab in Internet Banking.

PMJBY/PMSBY request seeding through Internet Banking / ATM :

Internet Banking Retail customers can give a request for PMSBY and
PMJBY insurance schemes using the option provided under PM Jan Dhan''''s
Jan Suraksha Scheme Enrollment link provided in Home page of Internet
Banking. This facility is enabled in Banks ATMs / SMS / Internet
Banking Channel.

PMJDYTOD through SMS Mode

For enrolment to Pradhan Mantri Jan Dhan Yojana TOD, a new module is
developed for receiving request from customer through SMS / ATMs. The
customer mobile number should be registered with the bank for SMS
alerts and should be eligible for the scheme. Customer will receive two
SMS i.e confirmation SMS on enrollment and on TOD Approval.

Online RD opening through Net Banking:

Retail customers can now open online Recurring deposit through Internet
banking using the option provided under REQUESTS tab. Once the account
is opened the same will appear in self funds transfer to allow further
credits.

Online Standing Instructions:

This facility is enabled for retail customers in Internet Banking.
Under ''''Standing Instructions Request'''' module customer can place request
for Modify / Delete / Inquire a standing instruction through Net
Banking. Standing instructions can be created by the retail customers
for periodical transfer of funds to RD account, Loan account and other
accounts of self/third party.

Online e-TDR & Online Term Deposit / Recurring Deposit Closure:

Retail customers can give a request for closure of term deposit and
recurring deposits using the option provided under REQUESTS tab of
Internet Banking. The accounts opened through online will only come for
closure. In case the deposit receipt is printed at the branch end,
those accounts will not appear for closure even though the account is
opened through online.

Mobile Banking Registration/Deregistration/mPIN Generation:

Internet Banking Retail customers can give a request for registration,
deregistration and MPIN using requests tab. The requests will be
processed offine and the facility is not available for the users having
VIEW only facility in Internet Banking.

Immediate Payment Service (IMPS) through Branches:

New module is developed in Finacle to enable IMPS transaction at
branches. Using IMPS through Branch module, customer can remit funds to
other bank customers instantly using account number and IFSC. Facility
is enabled for both walkin customer and our Bank customers. Walkin
customer can remit funds through cash upto Rs. 49,999/- and our Bank
customers can remit through account upto Rs. 2 lacs per transaction.

Utility Bill Payments For Retail Customers Through M/S Paytm PG
Services Provider:

PayTM payment gateway services was integrated with our internet banking
on 30/12/2015. With this facility our Bank retail internet banking
customers can make payments online for merchandise purchased from the
merchants enrolled by PayTm.

Andhra Bank Cube:

Bank has launched cobranded wallet with M/s Citrus. Using this digital
personal finance manager Mobile App, Customers can perform following
activities

a. Create payment reminders for Digital, Cash and Cheque payments.

b. Integrated Payment Gateway supporting Card based, Account based and
Citrus'''' Digital Cash based payments.

c. The Wallet capability in the app supports Saved Cards and Prepaid
Cash payments seamlessly.

d. Payment tracker by account presents 6 month view of the payments
made through AB Cube or Offline.

e. Ability to replace cash collection ? education, P2B (Merchant
Payments), P2G (Govt Taxes) type payments using AB Cube

f. Now available in Android version; iOS version will be launched
shortly.

Speedpay:

Bank in association with BSNL and Pyro has successfully launched the
cobranded prepaid card SpeedPay. SpeedPay is an open loop mobile wallet
which can be used by customers for Airtime Recharges, DTH Recharges,
Postpaid Bill Payments, Landline Bill Payments & Utility Bill Payments.
Its a open loop mobile wallet which allows transfer of funds from
wallet to bank account and also cash withdrawals.

Social Media listening and response management:

Bank has implemented Social Media listening and response management on
an opex model. The basic idea of implementing this solution is to have
insight into what young generation is talking about Bank on social
media, understand their expectations, to get information on complaints
made by customers on social media, to get honest feedback from
customers on e-products etc.

Social Media Listening:

The solution provided has crawlers/connectors, which gathers data from
various social media platforms ( eg: facebook, twitter, Google ,
mouthshut etc) and news sources ( NDTV, CNN IBN etc) on the internet.
It gathers information as to what people are talking about Andhra Bank.
The tool has the ability to monitor billions of conversations and
generate text analytics based on predefined criteria. The tool used is
Radian6. The dashboards are shared daily showing the details of total
number of posts, duly classified as positive, negative & netural.

Social Media response management:

The customer comments are categorized as "Positive", "Neutral" and
"Negative" and report is provided to bank team daily. Bank staff is
providing the required response which will be posted as responses for
the customer comments, on the respective website.

Further Bank has also created official pages in Facebook and Twitter
and we are making frequent posts about our various products and
services.

Sovereign Gold Bonds

To reduce the demand for physical gold, Government of India has
introduced Sovereign Gold Bond Scheme. Necessary customization was done
in Finale in order to facilitate the branches to enter the subscription
details in Finale without using RBI e-kuber portal. At end of the day,
the entire data will be sent to RBI in electronic form for issue of the
bonds.

Housing Loan Lead through Mobile Application

A new option is enabled on AB e-Passbook Mobile App to capture Housing
Loan Lead. This option is available for our existing customers as well
as for new customers. Once lead is captured, immediately it shows the
lump-sum eligible amount as per data entered. This data is shared with
Retail Credit Department along with mobile number of the prospective
customer. The lead will be processed by Retail Credit Department by
contacting them. Retail Credit Department is provided with a portal
where all leads are displayed and authorised users are allowed to
access this portal to process the leads.

Online SB Account Opening

Online SB Account Opening is enabled through our website
www.andhrabank.co.in (Online Services>Online Savings Account Opening).
Using this facility, any resident Indian can apply for opening of
Saving Bank Account online. Each application submitted online is
identified using a Unique Tracking ID for each successful request.

Branch has to verify all the online customer requests pertaining to
branch using menu ''''HSBOA'''' in CBS. The request will be available for
verification after T 1, where T is the date of online request
submission. Branch can verify the request using Track ID, on personal
visit of the customer to his/her opted branch within 15 days. After 15
days, system will automatically delete customer account opening
requests which are in entry status.

APY through SMS Mode

For enrolment to Atal Pension Yojana, a new module is developed for
receiving request from customer through SMS. The customer mobile
number should be registered with the bank for SMS alerts and should be
eligible for the scheme. This data will be sent to FI Cell HO for
further processing.

Vidyalaxmi Portal

This portal was developed for processing the education loan
applications received on Government Vidyalaxmi portal. The applications
once uploaded to this portal gets automatically updated to LAPS module.
XML file generation for reverse upload to government site for updating
applications'''' status is also developed.

Integration of Online Application Entry and Tracking System with LAPS
Module:

In tune with market demands, option is now provided in Bank website to
let prospective borrowers place loan requisitions online. This facility
would enable prospective borrowers to calculate eligible loan amount
online, after entry of preliminary details. When borrower submits these
details seeking the loan, a unique reference number would be generated,
and this number would be communicated to the borrower by SMS and
e-mail. This reference number would help borrowers track the status of
their loan proposal, online. Further processing of loan proposal, would
take place procedurally, after completion of KYC compliance and due
diligence.

Online contribution to PPF:

Internet Banking Retail customers can now link their PPF accounts and
carry out funds transfer to PPF accounts. Retail customers can link
their own PPF accounts or third party accounts by initiating
transaction to that PPF account, and can generate the statement for the
credits done through branch as well as through internet banking.

Cash Recyclers:

Bank has installed 1133 Cash Recyclers, which can accept as well as
dispense cash 24 x 7 & credit to loan account is also enabled in Cash
Recyclers.

APEPDCL bill payment through ATM:

APEPDCL Power bill payment is enabled through Andhra Bank ATM. Users
with Bank debit card can make payment through this facility.

Sukanya Samridhi Yojna

The Sukanya Samridhi Yojna, also known as girl child prosperity scheme
was introduced by Govt of India. Sukanya Samridhi account is to ensure
a bright future for girl children in India. This yojna is to facilitate
them proper education and carefree marriage expenses. This scheme
offers a small deposit investment for the girl children. One of the key
benefits of the scheme is that it is quite affordable and offers one of
the highest rates of interest. Interest rates are fixed and will be
communicated by GOI every year. The module was developed in Finacle
wherein branches which are designated for PPF & SCSS can open accounts
under this scheme.

Rupay Platinum Debit Card

Rupay Platinum Debit Card was launched by Bank on NPCI platform which
is loaded with premium usage offers. The cash withdrawal limit on ATMs
is Rs. 50,000.00 and purchase limit on POS terminals is Rs.
1,00,000.00. The card carries a personal accident insurance coverage of
Rs. 2.00 lacs.

Online validation of Customer details with CFT list

The United Nations periodically circulates the following two lists of
individuals and entities, suspected of having terrorist links, and as
approved by its security council (UNSC). Banks are required to update
the lists and take them into account for implementation of Section 51A
of the Unlawful Activities (Prevention) (UAPA) Act 1967. Banks should
ensure that they do not have any account in the name of
individuals/entities appearing in the above lists. Details of accounts
resembling any of the individuals/entities in the lists should be
reported to FIU-IND invariably.

To meet the above regulatory requirement, Bank has customized CBS
system such that whenever branch goes for creation of new customer
master, the customer name is checked against CFT database on real time
basis. When the customer name is present in the CFT list a warning
message is prompted to the branch user along with matched names from
the CFT list. If no matching record are found then no message will be
displayed and the branch user can go ahead to onboard the customer.

Offsite Monitoring ? Alert Management

A new facility is provided for the alert mechanism wherein the Branches
can directly access alerts online and respond the same, without sending
and receiving any mails. Presently, the facility is available for 12
types of daily alerts.

Integrated e-surveillance system for ATMs

Bank is implementing centralized integrated security surveillance
system to prevent ATM related physical crimes which include Intrusion
detection sensors, Fire detection, Smoke/Heat Detection, Intrusion
alarm, Hooter/Burglar Alarms, User Alarm activation switch, Speaker,
Microphone, other sensors to raise alerts during various contingencies.
Purchase order placed on the 3 vendors for all the 2500 sites for
implementation of the solution. Implementation under progress.

ATM Switch migration to FSSnet Switch:

Hitherto Bank was maintaining its own ATM switch. To save on cost, Bank
decided to take ATM switch service on Opex model. Accordingly Bank has
successfully migrated ATM Switch Services to FSS Switch on opex model
on 20.02.2016.

Online Booking of lockers:

On Banks website now option is provided to prospective customers to
view the details of the vacant lockers available at different branches.
The customer can then book locker based on the availability and can
approach the branch for further processing of the request.

Dashboard for Top Management using SAS tools:

Bank in-house team has developed different 15 dashboards on various
important parameters giving details of the performance of the Bank
using SAS tools. These dashboards are being used by Top Management to
take informed decisions.

Kisan Vikas Patra scheme

Govt Of India has launched Kisan Vikas Patra (KVP)2014 scheme which is
available to the investors in the denomination of Rs. 1000, 5000,
10,000 and 50,000. Kisan Vikas Patras have unique liquidity feature,
where an investor can, if he so desires, encash his certificates after
the lock-in period of 2 years and 6 months and thereafter in any block
of six months on pre-determined maturity value. The certificate can
also be pledged as security to avail loans from the banks and in other
case where security is required to be deposited. Accordingly our bank
has also customized the scheme in Finacle and released to the
designated 418 branches.

9. NETWORK EXPANSION

During the Financial Year 2015-16, Bank opened 296 Branches (including
up-gradation of 4 Extension Counters) and added 1404 ATMs/BNA/CRS. With
this, as on 31.03.2016, Bank had 6477 Delivery Channels consisting of
2803 Branches, 4 Extension Counters, 34 Satellite Offices and 3636
ATMs& BNA/CRs spread over 26 States and 3 Union Territories. The Bank
has 45 Specialized Branches catering to the needs of the specific
segments of clientele. The Bank also has two Representative (overseas)
Offices at Dubai (U.A.E) (opened in May 2006) and New Jersey (U.S.A)
(opened in November, 2008).

Table 13: Population Group Wise classification of Branches

Sl.
No. Category Number % to total

1 Rural 827 29.5%

2 Semi-Urban 757 27.0%

3 Urban 756 27.0%

4 Metro 463 16.5%

TOTAL 2803 100.0%

As on 31.03.2016 the Bank had 45 Specialized Branches, as detailed
hereunder:

Table 14: Specialized Branches

S. No. of
Category of Specialised Branches
No. Brs.

Specialised SME Branches 18

Specialised Argicultural Finance Branches 2

Specialised Agri - Hitech Branches 6

Specialised Housing Finance Branches 4

Specialised Personnel Banking Branches 4

Specialised NRI Branches 3

Corporate Finance Branches 2

Auto-Tech Finanace Branch 1

Overseas Branch 1

Asset Recovery Management Branch 3

Small B Branch 1

TOTAL 45

9.1 Presence in Minority-Dominated Districts

At the end of 31.03.2016 we are having 306 branches in Minority
dominated Districts. Of the Bank''''s total network across the country,
the percentage of Branches in minority dominated Districts stood at
11.08 % as on 31.03.2016.

9.2 Navshakti Initiatives

1. The number of Navshakti Branches crossed the land mark figure of
1000 on 18.03.2016.

2. 343 Branches were converted to Navshakti model during the current
financial year, of which 133 are Rollout Branches and 210 are New
Branches. As on 31.03.2016, there are 1035 Navshakti Branches, of which
400 are Rollout Branches and 635 are new branches.

3. The first Delite Banking Branch, at Road No.45, Jubilee Hills and
Hyderabad was inaugurated on 15.10.2015. This is the first of its kind
branch, catering to the needs of the HNI Customers.

4. 4 RLEs and 2 SMEs were opened during the current financial year.
With this, the total number of RLEs and SMEs as on 31.03.2016 is 17 and
10 respectively.

5. 113 Officers under MM-III cadre were identified and inducted into
the talent pool created for Succession Planning

10. QUALITATIVE ASPECTS:

10.1 Risk Management

The Bank has a comprehensive "Integrated Risk Management Policy" for
the management of Credit risk, Market risk and Operational risk as per
the guidance notes/guidelines issued by the Reserve Bank of India.
Accordingly, all the risk management functions, viz., Credit Risk,
Asset- Liability Management (ALM), Mid-office of the Treasury and
Operational risk functions have been integrated. The "Integrated Risk
Management Policy" of the Bank is being reviewed every year in tune
with the regulatory guidelines.

10.1.1 Credit Risk

- Credit Risk Management Committee is responsible for implementation of
the Credit policies approved by the Board and RMC.

- The Bank has a well defined ''''Loan Policy'''' duly approved by the Board
prescribing standards for presentation of credit proposals, financial
covenants, rating standards and benchmarks, delegation of credit
approving powers, prudential limits on large credit exposures, asset
concentrations, standards for loan collateral, portfolio management,
loan review mechanism, risk concentrations, risk monitoring and
evaluation, pricing of loans, provisioning, regulatory/legal
compliance, etc.

- Bank also is having in place the Credit Risk Management Policy,
Credit Risk Mitigation & Collateral Management Policy, Credit Risk
Rating Policy, Loan Recovery and NPA Management Policy.

- The Bank has in place comprehensive risk rating system for various
categories of exposures. Bank has established a Rating cell for
assigning internal ratings for all exposures of Rs 5 Crore and above.
The Rating cell vets the internal rating given by the branch / Zonal
office and assigns final rating.

- The Rating cell ensures comprehensive rating coverage, integrity of
rating process and proper data maintenance.

- The Bank utilizes industry reports from CRISIL and the industry risk
score service from CRISIL Research.

10.1.2 Market Risk

Market risk implies possibility of loss arising out of adverse
movements of market determined rates and prices. The objective of
market risk management is to avoid excessive exposure of Bank''''s
earnings and equity to such losses and to reduce Bank''''s exposure to the
volatility inherent in financial instruments such as securities,
foreign exchange contracts, equity and derivative instruments, as well
as balance sheet or structural positions. The Bank has in place a
well-defined ''''Market Risk Management Policy'''' and an organizational
structure for market risk management functions. The Bank manages market
risk through ''''Asset-Liability Management (ALM) policy and
''''Investments/Forex policy''''.

A high level Executive Committee viz. Asset-liability Committee (ALCO)
oversees the ALM in the Bank and deliberates on liquidity and interest
rate scenario in the market and decides upon the pricing of various
products. ALCO regularly monitors the identification, measurement,
monitoring and mitigation of market risk in liquidity, interest rates,
equity and forex areas.

The ''''liquidity risk'''' is measured and managed through ''''gap analysis'''' for
maturity mismatches based on residual maturity. For assets and
liabilities, which are of non-maturity nature. Bank is conducting
behavioural studies and factoring the observations in the gap analysis.
The behavioural study findings are subjected to back-testing and are
validated regularly. Prudential limits are fixed for net gaps and also
for cumulative gap up to one year and these limits are measured and
monitored regularly. Liquidity profile of the Bank is also measured
regularly through various liquidity ratios and monitoring of the same
is done with the help of prudential limits fixed thereon.

The ''''interest rate risk'''' is monitored on a regular basis through
''''Maturity gap analysis'''' and ''''Duration gap analysis''''. Tolerance limits
have been fixed for impact on Net Interest Income (NII) due to adverse
changes in interest rates. To measure the impact of interest rate
changes on Bank''''s equity, duration gap analysis is done and prudential
limit is set for modified duration of equity. Modified duration of
equity is within the prudential limits set for this purpose. VaR and
duration analysis are used for measuring market risk including treasury
operations. The Interest Rate Risk in Banking Book (IRRBB) is also
being assessed on a monthly basis.

Other market related risks to which any bank is exposed are foreign
exchange risk on foreign currency positions, liquidity or funding risk
and price risk on trading portfolios. The Bank has clearly articulated
policies to control and monitor its treasury functions. These policies
comprise management practices, procedures, prudential risk limits,
review mechanisms and reporting systems. These policies are revised
regularly at fixed intervals in line with the changes in financial and
market conditions.

10.1.3 Operational Risk:

Management of Operational Risk is a part of the ''''Integrated Risk
Management Policy'''' and the Bank has a focused attention for management
of the Operational Risk, in the light of the Reserve Bank of India
guidelines. Operational Risk Management Cell is responsible for
coordinating all the operational risk management activities of the bank
and these include building an understanding of the risk profile,
implementing tools related to operational risk management and working
towards the goals of improved controls and lower risk. Operational Risk
Management Committee [ORMC] ensures implementation and compliance of
the Operational Risk policies and reports to the Board/Risk Management
Committee [RMC].

The Bank has been computing capital charge for Operational risk by
adopting ''''Basic Indicator Approach'''' (BIA) as stipulated by the RBI.

10.1.4 Approaches followed for computation of Capital to Risk Weighted
Assets Ratio (CRAR)

As per RBI guidelines, all Commercial banks in India shall follow the
Standardised Approach for Credit risk, Standardized Duration Approach
for Market risk and Basic Indicator Approach for Operational risk under
the ''''New Capital Adequacy Framework".

Credit Risk: Bank at present is following the Standardized Approach for
estimation of capital requirements for Credit Risk which also includes
the HTM portfolio of Investments. Bank is gearing itself to move over
to Advanced approaches for Credit risk. In this regard, Bank has
developed a Credit Risk Rating Model (CRRM) with the consultancy
assistance of National Institute of Bank Management (NIBM), Pune. This
model is further strengthened internally by making it a WAN (Wide Area
Network) based CRRM model so that it is accessible from any of the
locations of the bank. This model is capable of providing transition
matrices and default probabilities (Probability of default) and would
help the Bank in moving over to the Advanced Approaches in future.

Market Risk: Bank is using the Standardized Duration method for
computing capital charge for Market risk (investments in HFT and AFS
categories) as per RBI guidelines.

Operational Risk: Bank is providing capital for Operational risk as per
the Basic Indicator Approach (BIA).

10.1.5 Preparation for moving over to Advanced Approaches

Bank is in the process of migrating to Advanced Approaches through
implementation of an Integrated Risk Management Solution

10.1.6 Bank''''s compliance to RBI guidelines on Basel requirements:

Pillar - I (Minimum Capital requirements)

RBI has introduced in its Basel III guidelines the following enhanced
capital requirements and has also prescribed transitional arrangements
to conform to these requirements in a phased manner by March 31, 2019.

Regulatory Capital As % to RWAs

(i) Minimum Common Equity Tier 1 ratio 5.5

(ii) Capital conservation buffer 2.5
(comprised of Common Equity)

(iii) Minimum Common Equity Tier 1 ratio plus 8.0
capital conservation buffer [(i) (ii)]

(iv) Additional Tier 1 Capital 1.5

(v) Minimum Tier 1 capital ratio [(i) (iv)] 7.0

(vi) Tier 2 capital

CIN: U67190WB2003PTC096617. Trading in Commodities is done through our Group Company Dynamic Commodities Pvt. Ltd. The company is also engaged in Proprietory Trading apart from Client Business.
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Disclaimer: There is no guarantee of profits or no exceptions from losses. The investment advice provided are solely the personal views of the research team. You are advised to rely on your own judgment while making investment / Trading decisions. Past performance is not an indicator of future returns. Investment is subject to market risks. You should read and understand the Risk Disclosure Documents before trading/Investing.

Disclosure: We, Dynamic Equities Private Limited are also engaged in Proprietory Trading apart from Client Business. In case of any complaints/grievances, clients may write to us at compliance@dynamiclevels.com

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