Classification of assets and liabilities under the different maturity buckets is based on the same estimates and assumptions as used by the Bank for compiling the return submitted to the RBI, which has been relied upon by the auditors. Maturity profile of foreign currency assets and liabilities is excluding off balance sheet items.
* For the purpose of disclosing the maturity pattern, loans and advances that have been subject to risk participation vide Inter-Bank Participation Certificates (''''IBPCs'''') and Funded Risk Participation (''''FRPs'''') have been classified in the maturity bucket corresponding to the contractual maturities of such underlying loans and advances gross of any risk participation. The IBPC and FRP amounts have been classified in the respective maturities of the corresponding underlying loans.
Amount outstanding under restructuring facilities and other facilities is as on 31 March, 2017:
1. Amount reported here represents outstanding as on 31 March, 2017. Actual amount subjected to restructuring determined as on the date of approval of restructuring proposal is Rs,1,001.35 crores for the FY 2016-17
2. Includes Rs,213.53 crores of fresh/additional sanction to existing restructured accounts (Rs,3.56 crores under restructured facility and Rs,209.97 crores under other facility)
3. Includes accounts which were not attracting higher provisioning and/or additional risk weight at the beginning of FY
4. Includes accounts partially written-off during the year
5. Amount outstanding under restructuring facilities and other facilities is as on the date of write-off in the books
6. Includes Rs,881.83 crores of reduction from existing restructured accounts by way of sale/recovery (Rs,716.59 crores from restructured facility and Rs,165.24 crores from other facility)
7. The cumulative value of net restructured advances after reducing the provision held for diminution in fair value and balance in interest capitalization account up to 31 March, 2017 aggregated Rs,5,379.10 crores
8. Information appearing under substandard, doubtful and loss category also include accounts slipped into NPAs from restructured standard advances along with restructured NPAs
Amount outstanding under restructuring facilities and other facilities is as on 31 March, 2016:
1. Amount reported here represents outstanding as on 31 March, 2016. Actual amount subjected to restructuring determined as on the date of approval of restructuring proposal is Rs,2,266.67 crores for the FY 2015-16
2. Includes accounts on account of re-work of restructuring and these accounts are not included in opening balance of standard restructured accounts
3. Includes Rs,497.23 crores of fresh/additional sanction to existing restructured accounts (Rs,93.21 crores under restructured facility and Rs,404.02 crores under other facility)
4. Includes accounts which were not attracting higher provisioning and/or additional risk weight at the beginning of FY
5. Includes accounts partially written-off during the year
6. Amount outstanding under restructuring facilities and other facilities is as on the date of write-off in the books
7. Includes Rs,802.72 crores of reduction from existing restructured accounts by way of sale/recovery (Rs,623.75 crores from restructured facility and Rs,178.96 crores from other facility)
8. The cumulative value of net restructured advances after reducing the provision held for diminution in fair value and balance in interest capitalization account upto 31 March, 2016 aggregated Rs,8,072.42 crores
9. Information appearing under substandard, doubtful and loss category also include accounts slipped into NPAs from restructured standard advances along with restructured NPAs
10. Disclosure on risk exposure in Derivatives
(a) Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants:
Derivatives are financial instruments whose characteristics are derived from an underlying asset, or from interest and exchange rates or indices. The Bank undertakes over the counter and Exchange Traded derivative transactions for Balance Sheet management and also for proprietary trading/market making whereby the Bank offers derivative products to the customers to enable them to hedge their interest rate and currency risks within the prevalent regulatory guidelines.
Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK), and Currency Options. The Bank also undertakes transactions in Cross Currency Swaps, Principal Only Swaps, Coupon Only Swaps and Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks, primarily credit, market, legal, reputation and operational risk. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions.
There is a functional separation between the Treasury Front Office, Treasury Mid Office and Treasury Back Office to undertake derivative transactions. The derivative transactions are originated by Treasury Front Office, which ensures compliance with the trade origination requirements as per the Bank''''s policy and the RBI guidelines. The Market Risk Group within the Bank''''s Risk Department independently identifies measures and monitors the market risks associated with derivative transactions and apprises the Asset Liability Management Committee (ALCO) and the Risk Management Committee of the Board (RMC) on the compliance with the risk limits. The Treasury Back Office undertakes activities such as trade confirmation, settlement, ISDA documentation, accounting, valuation and other MIS reporting.
The derivative transactions are governed by the derivative policy, market risk management policy, hedging policy and the Asset Liability Management (ALM) policy of the Bank as well as by the extant RBI guidelines. The Bank has also implemented policy on customer suitability & appropriateness approved by the Board to ensure that derivatives transactions entered into are appropriate and suitable to the customer. The Bank has also put in place a detailed process flow on documentation for customer derivative transactions for effective management of operational risk/ reputation risk.
Various risk limits are set up and actual exposures are monitored vis-a-vis the limits allocated. These limits are set up taking into account market volatility, risk appetite, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, VaR, Stop Loss, Delta, Gamma and Vega. Actual positions are monitored against these limits on a daily basis and breaches, if any, are dealt with in accordance with board approved Risk Appetite Statement. Risk assessment of the portfolio is undertaken periodically. The Bank ensures that the Gross PV01 (Price value of a basis point) position arising out of all non-option rupee derivative contracts are within 0.25% of net worth of the Bank as on Balance Sheet date.
Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash flow of the underlying Balance Sheet item. These deals 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. These transactions are tested for hedge effectiveness and in case any transaction fails the test, the same is redesignated as a trading deal with the approval of the competent authority and appropriate accounting treatment is followed.
(b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts
The Hedging Policy approved by the RMC governs the use of derivatives for hedging purpose. Subject to the prevailing RBI guidelines, the Bank deals in derivatives for hedging fixed rate and floating rate coupon or foreign currency assets/ liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identifies the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge derivative transactions are accounted for in accordance with the hedge accounting principles. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the Profit and Loss Account. The premium on option contracts is accounted for as per FEDAI guidelines. Derivative transactions are covered under International Swaps
and Derivatives Association (ISDA) master agreements with respective counterparties. The exposure on account of derivative transactions is computed as per the RBI guidelines and is marked against the credit limits approved for the respective counterparties.
(c) Provisioning, collateral and credit risk mitigation
Derivative transactions comprise of swaps, FRAs, futures and options which are disclosed as contingent liabilities. Trading swaps/FRAs/futures/options are revalued at the Balance Sheet date with the resulting unrealized gain or loss being recognized in the Profit and Loss Account and correspondingly in other assets or other liabilities respectively. Hedged swaps are accounted for as per the RBI guidelines. In accordance with RBI guidelines, any receivables (crystallized receivables and positive MTM) under derivatives contracts, which remain overdue for more than 90 days, are reversed through the Profit and Loss Account and are held in a separate Suspense account.
Collateral requirements for derivative transactions are laid down as part of credit sanction terms on a case by case basis. Such collateral requirements are determined, based on usual credit appraisal process. The Bank retains the right to terminate transactions as a risk mitigation measure in certain cases.
The credit risk in respect of customer derivative transactions is sought to be mitigated through a laid down policy on sanction of Loan Equivalent Risk (LER) limits, monitoring mechanism for LER limits and trigger events for escalation/ margin calls/termination.
11. Disclosure on Remuneration Qualitative disclosures
a) Information relating to the bodies that oversee remuneration: - Name, composition and mandate of the main body overseeing remuneration:
The Nomination and Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank on behalf of the Board. The Committee works in close co-ordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks.
As at 31 March, 2017, the Nomination and Remuneration Committee comprises of the following Non Executive Directors:
1. Shri Prasad R. Menon - Chairman
2. Shri V R. Kaundinya
3. Shri Rohit Bhagat
4. Shri Rakesh Makhija
In respect of Remuneration/HR matters, the Nomination and Remuneration Committee of the Board, functions with the following main objectives:
a. Review and recommend to the Board for approval, the overall remuneration framework and associated policy of the Bank (including remuneration policy for Directors and key managerial personnel) including the level and structure of fixed pay, variable pay, perquisites, bonus pool, stock-based compensation and any other form of compensation as may be included from time to time to all the employees of the Bank including the Managing Director & CEO (MD & CEO), other Whole-Time Directors (WTD) and senior managers one level below the Board.
b. Review and recommend to the Board for approval, the total increase in manpower cost budget of the Bank as a whole, at an aggregate level, for the next year.
c. Recommend to the Board the compensation payable to the Chairman of the Bank.
d. Review the Code of Conduct and HR strategy, policy and performance appraisal process within the Bank, as well as any fundamental changes in organization structure which could have wide ranging or high risk implications.
e. Review and recommend to the Board for approval, the talent management and succession policy and process in the Bank for ensuring business continuity, especially at the level of MD & CEO, the other WTDs, senior managers one level below the Board and other key roles and their progression to the Board.
f. Review and recommend to the Board for approval:
- the creation of new positions one level below MD & CEO
- appointments, promotions and exits of senior managers one level below the MD & CEO
g. Set the goals, objectives and performance benchmarks for the Bank and for MD & CEO, the other WTDs for the financial year and over the medium to long term.
h. Review the performance of the MD & CEO and other WTDs at the end of each year.
i. Review organization health through feedback from employee surveys conducted on a regular basis.
j. Perform such other duties as may be required to be done under any law, statute, rules, regulations etc. enacted by Government of India, Reserve Bank of India or by any other regulatory or statutory body.
- External consultants whose advice has been sought, the body by which they were commissioned, and in what areas of the remuneration process:
The Nomination and Remuneration Committee has commissioned McLagan Aon Hewitt, a globally renowned compensation benchmarking firm, to conduct market benchmarking of employee compensation. The Bank participates in the salary benchmarking survey conducted by Aon Hewitt every year. Aon Hewitt collects data from multiple private sector peer banks across functions, levels and roles which is then used by the Bank to assess market competitiveness of remuneration offered to Bank employees.
- A description of the scope of the Bank''''s remuneration policy, including the extent to which it is applicable to foreign subsidiaries and branches:
The Committee monitors the remuneration policy for both domestic and overseas branches of the Bank on behalf of the Board. However, it does not oversee the compensation policy for subsidiaries of the Bank.
- A description of the type of employees covered and number of such employees:
Employees are categorized into following three categories from remuneration structure and administration standpoint:
MD & CEO and WTDs. This category includes 4 employees.
All the employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance. This category includes 31 employees.
Category 3: Other Staff
''''Other Staff'''' has been defined as a "group of employees who pose a material risk". This category includes all the employees of the Bank in the grade of Executive Vice President (EVP) and above and also few other key business roles in case they are below the grade of Executive Vice President. This category includes 35 employees.
Information relating to the design and structure of remuneration processes: - An overview of the key features and objectives of remuneration policy:
The compensation philosophy of the Bank aims to attract, retain and motivate professionals in order to enable the Bank to attain its strategic objectives and develop a strong performance culture in the competitive environment in which it operates. To achieve this, the following principles are adopted:
- Affordability: Pay to reflect productivity improvements to retain cost-income competitiveness
- Maintain competitiveness on fixed pay in talent market
- Pay for performance to drive meritocracy through variable pay
- Employee Stock Options for long-term value creation
- Benefits and perquisites to remain aligned with market practices and provide flexibility
Apart from the above, the compensation structure for MD & CEO and WTDs is aligned to RBI''''s guidelines for sound compensation practices (effective FY 2012-13) and addresses the general principles of:
- Effective and independent governance and monitoring of compensation
- Alignment of compensation with prudent risk-taking through well designed and consistent compensation structures
- Clear and timely disclosure to facilitate supervisory oversight by all stakeholders Accordingly, the compensation policy for MD & CEO and WTDs seeks to:
a) Ensure that the compensation, in terms of structure and total amount, is in line with the best practices, as well as competitive vis-a-vis that of peer banks
b) Establish the linkage of compensation with individual performance as well as achievement of the corporate objectives of the Bank
c) Include a significant variable pay component tied to the achievement of pre-established objectives in line with Bank''''s scorecard while ensuring that the compensation is aligned with prudent risk taking
d) Encourage attainment of long term shareholder returns through inclusion of equity linked long-term incentives as part of compensation
Compensation is structured in terms of fixed pay, variable pay and employee stock options (for selective employees), with the last two being highly contingent on employee performance. The compensation policy of the Bank is approved by the Nomination and Remuneration Committee. Additional approval from Shareholders and RBI is obtained specifically for compensation of MD & CEO and WTDs.
- Whether the remuneration committee reviewed the firm''''s remuneration policy during the past year, and if so, an overview of any changes that were made:
The Nomination and Remuneration committee reviews the Bank''''s remuneration policy every year. There were no major changes made in the remuneration policy during the year.
- A discussion of how the Bank ensures that risk and compliance employees are remunerated independently of the businesses they oversee:
The Bank ensures that risk and compliance employees are remunerated independently of the businesses they oversee and is guided by the individual employee performance. The remuneration is determined on the basis of relevant risk measures included in the Balanced Scorecard / key deliverables of staff in these functions. The parameters reviewed for performance based rewards are independent of performance of the business area they oversee and commensurate with their individual role in the Bank. Additionally, the ratio of fixed and variable compensation is weighed towards fixed compensation.
c) Description of the ways in which current and future risks are taken into account in the remuneration processes:
- An overview of the key risks that the Bank takes into account when implementing remuneration measures:
The business activity of the Bank is undertaken within the limits of the following risk measures to achieve the financial plan:
- NPA-net slippages
- Ratio of Risk Weighted Assets to Total Assets
- Liquidity Coverage Ratio
- An overview of the nature and type of key measures used to take account of these risks, including risk difficult to measure:
The Bank has a robust system of measuring and reviewing these risks. The risk parameters are a part of the Balanced Scorecard used for setting of performance objectives and for measuring performance which includes, besides financial performance, adherence to internal processes, compliance and people perspectives. Weight age is placed on not only financial or quantitative achievement of objectives but also on qualitative aspects detailing how the objectives were achieved.
- A discussion of the ways in which these measures affect remuneration:
The relevant risk measures are included in the scorecards of MD & CEO and WTDs. Inclusion of the above mentioned measures ensures that performance parameters are aligned to risk measures at the time of performance evaluation. The Nomination and Remuneration Committee takes into consideration all the above aspects while assessing organizational and individual performance and making compensation related recommendations to the Board.
- A discussion of how the nature and type of these measures have changed over the past year and reasons for the changes, as well as the impact of changes on remuneration:
During FY 2016-17, the risk measures were reviewed and no major changes were made to the performance parameters in the Balanced Scorecards.
d) Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration:
The Bank''''s performance management and compensation philosophies are structured to support the achievement of the Bank''''s on-going business objectives by rewarding achievement of objectives linked directly to its strategic business priorities. These strategic priorities are cascaded through annualized objectives to the employees.
The Bank follows the Balanced Scorecard approach in designing its performance management system. Adequate attention is given to the robust goal setting process to ensure alignment of individual objectives to support the achievement of business strategy, financial and non-financial goals across and through the organization. The non-financial goals for employees includes customer service, process improvement, adherence to risk and compliance norms, self-capability development and behaviors such as integrity and team management.
- An overview of main performance metrics for Bank, top level business lines and individuals:
The Bank follows a Balanced Scorecard approach for measuring performance for the Bank, top business lines and individuals. The approach broadly comprises financial, customer, internal processes, compliance and people perspectives and includes parameters on revenue and profitability, business growth, customer initiatives, operational efficiencies, regulatory compliance, risk management and people management.
- A discussion of how amounts of individual remuneration are linked to the Bank-wide and individual performance:
Performance appraisals are conducted annually and initiated by the employee with self-appraisal. The immediate supervisor reviews the appraisal ratings in a joint consultation meeting with the employee and assigns the performance rating. The final ratings are discussed by a Moderation Committee comprising of senior officials of the Bank. Both relative and absolute individual performances are considered for the moderation process. Individual fixed pay increases, variable pay and ESOPs are linked to the final performance ratings. In addition, the fixed pay increase is also influenced by an employee''''s position in the salary range.
- A discussion of the measures the Bank will in general implement to adjust remuneration in the event that performance metrics are weak:
In cases where the performance metrics are weak or not well defined to measure the performance effectively, the Bank uses discretion to reward such employees. The remuneration is then influenced by the performance of previous years and supervisor reviews.
Whilst determining fixed and variable remuneration, relevant risk measures are included in scorecards of senior employees. Identified risk parameters that are taken into account are as under:
- NPA-net slippages
- Ratio of Risk Weighted Assets to Total Assets
As a prudent measure, a portion of variable pay if it exceeds a certain threshold is deferred and is paid proportionately over a period of 3 years. The deferred variable pay amount of reference year would be held back in case of any misrepresentation or gross inaccuracy resulting in a wrong risk assessment.
e) Description of the ways in which the Bank seeks to adjust remuneration to take account of the longer term performance:
- A discussion of the Bank''''s policy on deferral and vesting of variable remuneration and, if the fraction of variable remuneration that is deferred differs across employees or groups of employees, a description of the factors that determine the fraction and their relative importance:
The deferral of the Variable Pay for the three categories of employees as stated earlier is given below:
Category 1: MD & CEO and WTDs
Variable Pay will not exceed 70% of the Fixed Pay
To ensure that risk measures do not focus only on achieving short term goals, variable payout is deferred. If the variable pay exceeds 40% of fixed pay, 45% of the variable pay to be deferred proportionately over a period of three years.
Category 2: All the employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance
- Variable Pay will be paid on the basis of laid down risk control, compliance and process improvement parameters in the balanced scorecard / key deliverables of staff in this function
- The parameters will be independent of performance of the business area they oversee and will commensurate with their key role in the Bank
- The ratio of fixed and variable compensation will be weighed towards fixed compensation
- Percentage of variable pay to be capped at 70% of fixed pay
- Appropriate deferral structure as approved by the Nomination and Remuneration Committee will be applicable to this category of employees
Category 3: Other Staff
- Variable Pay will be paid on the basis of performance against key deliverables and overall business performance for the financial year
- Percentage of variable pay to be capped at 70% of fixed pay
- Appropriate deferral structure as approved by the Nomination and Remuneration Committee will be applicable to this category of employees
- A discussion of the Bank''''s policy and criteria for adjusting deferred remuneration before vesting and (if permitted by national law) after vesting through claw back arrangements:
The deferred portion of the variable pay may be delayed in the event of an enquiry determining gross negligence or breach of integrity. The deferred portion is withheld by the Bank till the completion of such enquiries, if any. As a result, no claw back arrangements are made on the deferred portion of the variable pay.
f) Description of the different forms of variable remuneration that the Bank utilizes and the rationale for using these different forms:
- An overview of the forms of variable remuneration offered:
- Variable Pay: Variable Pay is linked to corporate performance, business performance and individual performance and ensures differential pay based on the performance levels of employees
- Employee Stock Options (ESOPs): ESOPs are given to selective set of employees at senior levels based on their level of performance and role. ESOP scheme has an inbuilt deferred vesting design which helps in directing long term performance orientation among employees
- A discussion of the use of different forms of variable remuneration and, if the mix of different forms of variable remuneration differs across employees or group of employees, a description of the factors that determine the mix and their relative importance:
Variable pay in the form of performance based bonus is paid out annually and is linked to performance achievement against balanced performance measures and aligned with the principles of meritocracy. The proportion of variable pay in total pay shall be higher at senior management levels. The payment of all forms of variable pay is governed by the affordability of the Bank and based on profitability and cost income ratios. At senior management levels (and for certain employees with potential to cause material impact on risk exposure), a portion of variable compensation may be paid out in a deferred manner in order to drive prudent behavior as well as long term & sustainable performance orientation. Long term variable pay is administered in the form of ESOPs with an objective of enabling employee participation in the business as an active stakeholder and to usher in an ''''owner-manager'''' culture. The quantum of grant of stock options is determined and approved by the Nomination and Remuneration Committee, in terms of the said Regulations and in line with best practices, subject to the approval of RBI. The current ESOP design has an inbuilt deferral intended to spread and manage risk.
a) The quantitative disclosures pertaining to the MD & CEO, Whole Time Directors and other risk takers for the year ended 31 March, 2017 and 31 March, 2016 are given below. Other risk takers include all employees in the grade of Executive Vice President (EVP) and above and also cover certain select roles in case they are below the grade of EVP
1.1.44 Unheeded Foreign Currency Exposure
The Bank''''s Corporate Credit Policy lays down the framework to manage credit risk arising out of unhedged foreign currency exposures of the borrowers. Both at the time of initial approval as well as subsequent reviews/renewals, the assessment of credit risk arising out of foreign currency exposure of the borrowers include details of imports, exports, repayments of foreign currency borrowings, as well as hedges done by the borrowers or naturally enjoyed by them vis-a-vis their intrinsic financial strength, history of hedging and losses arising out of foreign currency volatility. The extent of hedge/ cover required on the total foreign currency exposure including natural hedge and hedged positions, is guided through a matrix of internal ratings. The hedging policy is applicable for existing as well as new clients with foreign currency exposures above a predefined threshold. The details of un-hedged foreign currency exposure of customers for transactions undertaken through the Bank are monitored periodically. The Bank also maintains additional provision and capital, in line with RBI guidelines.
During the year ended 31 March, 2017, there is a write back of Rs,13.88 crores (previous year incremental provision of Rs,1.62 crores) in provision for un-hedged foreign currency exposures. As on 31 March, 2017, the Bank held incremental capital of Rs,300.05 crores (previous year Rs,249.19 crores) towards borrowers having un-hedged foreign currency exposures.
13 Disclosure on Liquidity Coverage Ratio
The Bank has adopted the Basel III framework on liquidity standards as prescribed by RBI and has put in place requisite systems and processes to enable periodical computation and reporting of the Liquidity Coverage Ratio (LCR). The mandated regulatory threshold as per the transition plan is embedded into the Risk Appetite Statement of the Bank thus subjecting LCR maintenance to Board oversight and periodical review. The Risk department computes the LCR and reports the same to the Asset Liability Management Committee (ALCO) every month for review as well as to the Risk Management Committee of the Board.
The Bank computes LCR on a daily basis and in accordance with RBI guidelines the quarterly disclosures of LCR commencing from March 2017 contains data on the simple average calculated on daily observations over a period of 90 days.
The Bank follows the criteria laid down by RBI for month-end calculation of High Quality Liquid Assets (HQLA), gross outflows and inflows within the next 30-day period. HQLA predominantly comprises Government securities viz. Treasury Bills, Central and State Government securities. A relatively smaller part of HQLA is accounted for by the corporate bonds rated AA- and above with mandated haircuts applied thereto.
The Bank monitors the concentration of funding sources from significant counterparties, significant instruments/products as part of the asset liability management framework. The Bank adheres to the regulatory and internal limits on Inter-bank liability and call money borrowings which form part of the ALM policy. The Bank''''s funding sources are fairly dispersed across sources and maturities.
Expected derivative cash outflows and inflows are calculated for outstanding contracts in accordance with laid down valuation methodologies. Cash flows, if any, from collaterals posted against derivatives are not considered.
The Bank monitors the LCR in US Dollar currency which qualifies as a significant currency for monitoring LCR as per RBI guidelines.
The liquidity risk management of the Bank is undertaken by the Asset Liability Management group in the Treasury in accordance with the Board approved policies and ALCO approved funding plans. The Risk department measures and monitors the liquidity profile of the Bank with reference to the Board approved limits, for both domestic as well as overseas operations, on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and periodical liquidity stress testing. Periodical reports are placed before the Bank''''s ALCO for perusal and review.
All significant outflows and inflows determined in accordance with RBI guidelines are included in the prescribed LCR computation template.
14 Other disclosures
15 During the year, the Bank has appropriated Rs,755.57 crores (previous year Rs,55.84 crores) to the Capital Reserve, net of taxes and transfer to statutory reserve, being the gain on sale of HTM investments in accordance with RBI guidelines. As advised by RBI, during the previous year, the Bank appropriated Rs,6.20 crores (net of taxes and transfer to statutory reserve) to the Capital Reserve, being the profit earned on sale of premises.
16 During the year, the Bank has appropriated an amount of Rs,1.75 crores (previous year Rs,1.74 crores) to Reserve Fund account towards statutory reserve in accordance with guidelines issued by Central Bank of Sri Lanka in respect of Colombo branch operations.
Dilution of equity is on account of 9,429,479 (previous year 13,010,331) stock options.
17 Employee Stock Options Scheme (''''the Scheme'''') in February 2001, pursuant to the approval of the shareholders at the Extraordinary General Meeting, the Bank approved an Employee Stock Option Scheme. Under the Scheme, the Bank is authorized to issue up to 65,000,000 equity shares to eligible employees. Eligible employees are granted an option to purchase shares subject to vesting conditions. Further, over the period June 2004 to July 2013, pursuant to the approval of the shareholders at Annual General Meetings, the Bank approved an ESOP scheme for additional options aggregating 175,087,000. The options vest in a graded manner over 3 years. The options can be exercised within three/five years from the date of the vesting as the case may be. Within the overall ceiling of 240,087,000 stock options approved for grant by the shareholders as stated earlier, the Bank is also authorized to issue options to employees and directors of the subsidiary companies. 239,119,950 options have been granted under the Scheme till the previous year ended 31 March, 2016.
On 26 April, 2016, the Bank granted 7,153,000 stock options (each option representing entitlement to one equity share of the Bank) to its eligible employees/directors of the Bank/subsidiary companies at a price of ''''469.90 per option.
18 Proposed Dividend
The Board of Directors, in their meeting held on 26 April, 2017 have proposed a final dividend of Rs,5 per equity share amounting to Rs,1,403.99 crores, inclusive of corporate dividend tax. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of revised Accounting Standard (AS) 4 ''''Contingencies and Events occurring after the Balance sheet date'''' as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, dated 30 March, 2016, such proposed dividend has not been recognized as a liability as on 31 March, 2017.
Dividend paid during the year, represents dividend (''''5 per equity share) for the year ended 31 March, 2016 paid pursuant to approval of shareholders at Annual General Meeting held on 22 July, 2016.
19 Segmental reporting
The business of the Bank is divided into four segments: Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business. These segments have been identified based on the RBI''''s revised guidelines on Segment Reporting issued on 18 April, 2007 vide Circular No. DBOD.No.BPBC.81/21.04.018/2006-07. The principal activities of these segments are as under.
Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses.
Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classified under this segment, fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses.
Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and internal benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment.
20 Related party disclosure
The related parties of the Bank are broadly classified as:
The Bank has identified the following entities as its Promoters.
- Administrator of the Specified Undertaking of the Unit Trust of India (SUUTI)
- Life Insurance Corporation of India (LIC)
- General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Limited, National Insurance Co. Limited, United India Insurance Co. Limited and The Oriental Insurance Co. Limited.
b) Key Management Personnel
- Ms. Shikha Sharma (Managing Director & Chief Executive Officer)
- Mr. V. Srinivasan (Deputy Managing Director)
- Mr. Rajesh Dahiya [Executive Director (Corporate Centre)] with effect from 4 August, 2016
- Mr. Rajiv Anand [Executive Director (Retail Banking)] with effect from 4 August, 2016
- Mr. Sanjeev K. Gupta [Executive Director (Corporate Centre)] up to 18 March, 2016
c) Relatives of Key Management Personnel
Mr. Sanjaya Sharma, Ms. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Ms. Gayathri Srinivasan, Ms. Vanjulam Varadarajan, Mr. V Satish, Ms. Camy Satish, Ms. Ananya Srinivasan, Ms. Anagha Srinivasan, Ms. Geetha N., Ms. Chitra R., Ms. Sumathi N., Mr. S. Ranganathan, Mr. R. Narayan, Ms. Gitanjali Anand, Ms. Tara Anand, Ms. Nandita Anand, Mr. PL. Narain, Mr. P Srinivas, Ms. Ratna Rao Shekar, Ms. P Kamashi, Ms. Hemant Dahiya, Ms. Arooshi Dahiya, Ms. Mallika Dahiya, Ms. Jal Medha, Ms. Pooja Rathi, Mr. Jai Prakash Dahiya.
d) Subsidiary Companies
- Axis Capital Limited
- Axis Private Equity Limited
- Axis Trustee Services Limited
- Axis Asset Management Company Limited
- Axis Mutual Fund Trustee Limited
- Axis Bank UK Limited
- Axis Finance Limited
- Axis Securities Limited
- A.Treds Limited with effect from 23 May, 2016
- Axis Securities Europe Limited (under voluntary winding up ason31 March, 2017)
The significant transactions between the Bank and related parties during the year ended 31 March, 2017 and 31 March, 2016 are given below. A specific related party transaction is disclosed as a significant related party transaction wherever it exceeds 10% of the aggregate value of all related party transactions in that category:
- Dividend paid: Administrator of The Specified Undertaking of the Unit Trust of India Rs,137.42 crores (previous year Rs,126.43 crores), Life Insurance Corporation of India Rs,174.43 crores (previous year Rs,130.91 crores)
- Dividend received: Axis Securities Ltd. Rs,17.70 crores (previous year Rs,14.45 crores), Axis Trustee Services Ltd. Rs,12.38 crores (previous year Rs,11.25 crores), Axis Capital Ltd. Rs,51.45 crores (previous year Rs,51.45 crores), Axis Finance Ltd. Rs,94.94 crores (previous year Rs,62.60 crores)
- Interest paid: Administrator of The Specified Undertaking of the Unit Trust of India Rs,73.12 crores (previous year Rs,70.97 crores), Life Insurance Corporation of India Rs,543.21 crores (previous year Rs,530.85 crores)
- Interest received: Life Insurance Corporation of India Rs,1.48 crores (previous year Rs,0.37 crores), Axis Asset Management Company Ltd. Nil (previous year Rs,2.29 crores), Axis Bank UK Ltd. Rs,8.89 crores (previous year Rs,7.94 crores), Axis Finance Ltd. Rs,4.91 crores (previous year Rs,1.81 crores)
- Investment of the Bank: Axis Finance Ltd. Rs,100.00 crores (previous year Rs,100.00 crores), A.Treds Ltd. Rs,16.75 crores (Previous year not applicable)
- Investment in non-equity instruments of related party: Axis Finance Ltd. Rs,347.32 crores (Previous year Nil), National Insurance Company Ltd. Rs,110.00 crores (previous year Nil)
- Investment of related party in the Bank: Ms. Shikha Sharma Rs,29.66 crores (previous year Rs,16.08 crores), Mr. V Srinivasan Rs,12.03 crores (previous year Rs,11.52 crores) , Mr. Sanjeev K. Gupta N.A. (previous year Rs,11.43 crores)
- Investment of related party in bonds of the Bank: Life Insurance Corporation of India Rs,1,000 crores (previous year Nil), United India Insurance Company Ltd. Rs,50.00 crores (previous year Nil)
- Redemption of debt: Life Insurance Corporation of India Nil (previous year Rs,50.00 crores), General Insurance Corporation Rs,50.00 crores (previous year Nil), United India Insurance Company Ltd. Rs,20.00 crores (previous year Nil)
- Sale of Investments: General Insurance Corporation of India Rs,390.00 crores (previous year Rs,195.00 crores), New India Assurance Company Ltd. Rs,200.00 crores (previous year Nil), National Insurance Company Ltd. Rs,50.00 crores (previous year Rs,80.12 crores), United India Insurance Company Ltd. Rs,55.09 crores (previous year Rs,50.00 crores)
- Management Contracts: Axis Securities Ltd. Rs,6.18 crores (previous year Rs,5.02 crores), Axis Trustee Services Ltd. Rs,3.43 crores (previous year Rs,3.21 crores), Axis Finance Ltd. Rs,2.99 crores (previous year Rs,2.91 crores), Axis Capital Ltd. Rs,3.84 crores (previous year Rs,1.73 crores), Ms. Shikha Sharma Rs,5.42 crores (previous year Rs,5.37 crores), Mr. V. Srinivasan Rs,3.36 crores (previous year Rs,3.39 crores) , Mr. Sanjeev K. Gupta N.A. (previous year Rs,4.41 crores)
- Contribution to employee benefit fund: Life Insurance Corporation of India Rs,15.75 crores (previous year Rs,15.67 crores)
- Placement of Deposit by the Bank (net): Life Insurance Corporation of India Nil (previous year Rs,0.08 crores)
- Call/Term lending to related party: Axis Bank UK Ltd. Rs,10.05 crores (previous year Rs,66.00 crores)
- Swap/forward contracts: Axis Bank UK Ltd. Rs,97.59 crores (previous year Rs,48.19 crores)
- Advance granted (net): Life Insurance Corporation of India Rs,0.67 crores (previous year Nil), Axis Finance Ltd. Nil (previous year Rs,65.11 crores)
- Advance repaid: Axis Finance Ltd. Rs,97.17 crores (previous year Nil), Axis Asset Management Company Ltd. Nil (previous year Rs,44.69 crores)
- Advance to related party against rendering of services: Axis Securities Ltd. Nil (previous year Rs,24.00 crores)
- Receiving of services: Oriental Insurance Company Ltd. Rs,75.00 crores (previous year Rs,57.88 crores) and Axis Securities Ltd. Rs,583.77 crores (previous year Rs,418.56 crores)
- Rendering of services: Axis Asset Management Company Ltd. Rs,121.38 crores (previous year Rs,63.59 crores), Axis Bank UK Ltd. Rs,1.19 crores (previous year Rs,0.84 crores) and Axis Capital Ltd. Rs,7.43 crores (previous year Rs,4.55 crores)
- Purchase of equity shares from related party: Axis Capital Ltd. Nil (previous year Rs,19.02 crores)
- Refund of share capital from related party: Axis Securities Europe Ltd. Rs,8.36 crores (previous year Nil) Axis Private Equity Ltd. Nil (previous year Rs,13.50 crores)
- Other reimbursement from related party: Axis Securities Ltd. Rs,0.47 crores (previous year Rs,0.66 crores), Axis Asset Management Company Ltd. Rs,3.05 crores (previous year Rs,1.94 crores), Axis Bank UK Ltd. Rs,0.41 crores (previous year Rs,0.67 crores) and Axis Capital Ltd. Rs,4.73 crores (previous year Rs,4.20 crores)
- Other reimbursement to related party: Life Insurance Corporation of India Rs,0.41 crores (previous year Rs,0.40 crores) and Axis Bank UK Ltd. Rs,0.12 crores (previous year Nil)
The transactions with Promoters and Key Management Personnel excluding those under management contracts are in nature of the banker-customer relationship.
Details of transactions with Axis Mutual Fund and Axis Infrastructure Fund-I, the funds floated by Axis Asset Management Company Ltd. and Axis Private Equity Ltd., the Bank''''s subsidiaries have not been disclosed since these entities do not qualify as Related Parties as defined under the Accounting Standard 18, Related Party Disclosure, as notified under Section 2(2) and Section 133 of the Companies Act, 2013 and as per RBI guidelines.
* Up to 31 December, 2014, the Bank had entered into an arrangement with Axis Asset Management Company Ltd. (Axis AMC), the Bank''''s subsidiary, in terms of which payment of brokerage in respect of distribution of certain schemes is scheduled over the period of the schemes. This arrangement, however, has no effect on the accounting policy of the Bank, as such brokerage income is recognized by the Bank as and when the same is due. Other receivables include such brokerage recoverable from Axis AMC as on the reporting date.
21 Small and Micro Industries
Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.
22 Corporate Social Responsibility (CSR)
a) Amount required to be spent by the Bank on CSR during the year Rs,196.46 crores (previous year Rs,163.03 crores).
b) Amount spent towards CSR during the year and recognized as expense in the statement of profit and loss on CSR related activities is Rs,135.39 crores (previous year Rs,137.41 crores), which comprise of following -
23 Description of contingent liabilities
a) Claims against the Bank not acknowledged as debts
These represent claims filed against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax authorities and disputed by the Bank. Apart from claims assessed as possible, the Bank holds provision of Rs,26.23 crores as on 31 March 2017 (previous year Rs,25.67 crores) towards claims assessed as probable.
b) Liability on account of forward exchange and derivative contracts
The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. Interest rate futures are standardized, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time. An Exchange Traded Currency Option contract is a standardized foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a specified date on the date of expiry. Currency Futures contract is a standardized, exchange-traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a specified price.
c) Guarantees given on behalf of constituents
As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfill its financial or performance obligations.
d) Acceptances, endorsements and other obligations
These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank''''s customers that are accepted or endorsed by the Bank.
e) Other items
Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account, notional principal on account of outstanding Tom/Spot foreign exchange contracts, commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporate as at the year end, demands raised by statutory authorities (other than income tax) and disputed by the Bank and amount transferred to Depositor Education and Awareness Fund (DEAF).
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 recorded adequate provision as required under any law/accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements, where applicable.
24 Disclosure on Specified Bank Notes (SBNs)
As advised by RBI, the disclosure on SBNs as required in accordance with notification of Ministry of Corporate Affairs dated 30 March, 2017 is not applicable to banks. Accordingly, the same has not been disclosed.
25 Previous year figures have been regrouped and reclassified, where necessary to conform to current year''''s presentation.