The Directors are pleased to present the Annual Report of DCB Bank Ltd (hereinafter referred to as the Bank/Your Bank/DCB Bank) together with the audited accounts for FY 2017.
In FY 2017, the Bank has posted an Operating Profit of Rs, 418.21 crore (FY 2016 Rs, 349.03 crore) and a Net Profit of Rs, 199.68 crore (FY 2016 Rs, 194.52 crore).
Total Assets have increased by Rs, 4,927.86 crore and reached Rs, 24,046.38 crore as on March 31, 2017 (Rs, 19,118.52 crore as on March 31, 2016). Customer Deposits have increased by Rs, 3,141.13 crore and Advances have increased by Rs, 2,896.24 crore. The Bank has achieved the overall Priority Sector Lending (PSL) target as required by the Reserve Bank of India (RBI).
The Net Interest Margin (NIM) has improved to 4.04% in FY 2017 from 3.94% in FY 2016 and the Current and Savings Accounts (CASA) ratio stood at 24.3% as on March 31, 2017 (23.4% as on March 31, 2016).
Cost to Income Ratio has increased to 60.0% in FY 2017 from 58.4% in FY 2016. The Bank’s Operating Cost increased mainly due to increase in number of branches, increase in number of staff and higher business volumes.
Total Branch network stood at 262 as on March 31, 2017 (198 as on March 31, 2016) and ATM network increased to 515 as on March 31, 2017 (410 as on March 31, 2016).
Provisions Other Than Tax have increased to Rs, 111.49 crore in FY 2017 from Rs, 87.91 crore in FY 2016. The increase was mainly due to provision for existing and fresh NPA slippages, higher Floating provision and Provision against Standard Assets.
Gross NPAs have increased to Rs, 254.20 crore as on March 31, 2017 from Rs, 197.38 crore as on March 31, 2016. The overall NPA Provision Coverage Ratio as on March 31, 2017 was 73.80%. Net NPAs have increased to Rs, 124.41 crore as on March 31, 2017 as against Rs, 97.46 crore as on March 31, 2016.
Capital Adequacy Ratio (CAR) under Basel III as on March 31, 2017 stood at 13.76% (14.11% under Basel III as on March 31, 2016).
In November 2016, the Bank issued Basel III compliant Tier II Bonds and raised Tier II capital of Rs, 150 crore.
(Rs, in crore)
As at March 31, 2017
As at March 31, 2016
Increase / (Decrease)
Inter Bank Deposits
[Including Total CASA]
Gross — NPA
Net - NPA
Provision for Standard Assets (including provision for unhedged foreign currency exposure)
For the year ended March 31, 2017
For the year ended March 31, 2016
Increase / (Decrease)
Profit & Loss
Net Interest Income
Non Interest Income
Total Operating Income
Net Profit Before Tax
Net Profit After Tax
Your Board is pleased to recommend a dividend of Rs, 0.50 per equity share of Rs, 10.00 each in respect of the financial year ended March 31, 2017.
MANAGEMENT DISCUSSION AND ANALYSIS Vision
The Bank’s vision is to be the most innovative and responsive neighborhood bank in India serving entrepreneurs, individuals and businesses. In line with our vision, we began implementing a new strategy in FY 2010 which has now completed 7 years. The Bank continues to make steady progress and improvements are clearly visible in most areas of its business. In order to accelerate the business momentum further, in October 2015, the Bank announced its plan to increase its network by 150 more branches in 24 months.
Keeping in view its inherent strengths, branch network and expertise, the Bank''''s target market is mainly small business owners /self-employed / small business segment (traders, shop keepers, business owners, MSMEs and SMEs). The Bank has chosen to have limited presence in the salaried segment. The MSME / SME sector plays a very important role in the growth of the Indian economy.
MSME sector plays a pivotal role in the economic and social development of the country. Some important information on MSME sector is given below:
- Number of Working Enterprises — 49 million, Employment — 111 million
- Urban — 45%, Rural — 55%
- Manufacturing — 32%, Service — 68%
- Sole Proprietor — 94%
- Market value of Fixed Assets — INR 13,637 billion
(Source: Annual Report 2014-15 Government of India, Ministry of Micro, Small and Medium Enterprise)
Also, as per DNA survey, June 2013, the Indian workforce consists of 51% self-employed.
DCB Bank Customers
Your Bank deals with several types of business owners, self-employed / small businesses for example - Trader, Commodity, Gold Trader, Vegetable Trader, Commission Agent, Retailer, Restaurant Owner, Caterer, Baker, Vending Machine Supplier, Consultant, Doctor, Contractor, Interior Decorator, Software Designer, Salon, Beauty Parlour, Printer, Electrical Engineer, Saw Mill, Flour Mill, Rice Mill, Grocery Store, Brick Maker, Builder, Fabricator, Artist, Writer, Auto Repair, Ship Repair, Pharmacy, Computer Specialist, Furniture Maker, Uniform Maker, Garment Shop, Fashion Tailor, Hardware Shop, Agri Processor, Pesticide Dealer, Auto Dealer, Scrap Dealer, Stationery Supplier, FMCG Dealer, Tool Maker, Agri Input Dealer, Tractor Dealer, Plastic Manufacturer, Mattress Manufacturer, Water Supplier, Computer Classes, Internet Cafe, Coaching Classes, Tour Operator, Hotel Owner, Transporter, Ticketing Agent, C&F Agent etc. The list of Self Employed occupation is endless. The target market is essentially Micro, Small and Medium Enterprises both in Manufacturing and Services. (Please refer to MSMED Act, 2006). Majority of lending to MSME sector qualifies for Priority Sector Lending. It is estimated that over 80% of CASA accounts and 80% of Mortgage loans are in the self-employed segment for the Bank.
The Bank continues to enjoy ICRA A (hyb)/(stable) rating for Long Term — Subordinated Debt, ICRA A1 rating for Short Term Fixed Deposits, CRISIL A1 rating for both Certificate of Deposits and Short Term - Fixed Deposits.
Your Bank received a number of awards and recognition in FY 2017:
- Best Data Center Design — Data Center Summit 2016
- Indian Express Award for Innovation — Aadhaar Based ATM
- BFSI Digital Innovators Award — Innovative Usage of Emerging Technology
- Finnoviti Innovation Award — Aadhaar Based ATM
- Best Prepaid Program — Drivers of Digital Awards 2016
Branch Expansion / ATMs
In October 2015, the Bank announced its intention to increase the number of branches by 150 in 24 months. Accordingly, in FY 2017, your Bank increased its branch network by 64 branches — 30 in Retail and 34 in Agri and Inclusive Banking (AIB). The year ended with 262 branches (150 in Retail and 112 in AIB) in 18 states and 2 union territories. Approximately 22 percent of the branches are in rural areas and 25 percent in semi-urban areas. Your Bank has created fair degree of standardization in terms of “look and feel” of the branches across India. Based on the business model adopted by the Bank, new branches generally “break even” between 18 to 22 months from the date of operation. Over time the Bank has been able to make step by step improvements in the execution of business model. The Bank believes in hiring suitable talent and ensuring proper grooming / mentoring through in-house training programs. In order to improve the overall performance, controls and customer service, the Bank strengthened the organization structure of managing branch network. The concept of Cluster Services Operations Managers (CSOM) independent of the sales team was introduced in the previous year. The entire network is grouped into manageable clusters for closer supervision. One of the key focus areas for the Branch Operations team is to simplify the existing processes in order to provide better service to customers. Accordingly, the Branch Operations team simplified 42 processes in FY 2017. Simultaneously risk management and monitoring aspects were also strengthened. The Bank has increased its ATMs from 410 in FY 2016 to 515 in FY 2017. Unfortunately, during demonetization there was not enough cash available and therefore, a large number of ATMs could not be operated. This resulted in customer inconvenience and loss of business to the Bank. While all ATMs have been recalibrated and become operational, they will become fully functional in the coming months as cash availability is steadily improving.
Retail Banking offers comprehensive range of Deposits and Advances products. At the end of FY 2017, Retail Banking has 150 branches and has a multi-product approach with focus on productivity and service excellence. In the deposit side a number of new products were introduced to address the needs of institutions as well as individuals. A large part of the retail banking responsibility is to steadily increase CASA and Term Deposits in order to provide cost effective and stable funding for Advances. In FY 2017, CA balances grew by 30 percent and SA balances grew by 36 percent. Some part of the CASA growth was due to demonetization that resulted in cash deposits into both existing and new accounts. CASA ratio was 24 percent at the end of FY 2017. Overall Term Deposits registered 29 percent growth. One of the highlights of FY 2017 is the launch of DCB Suraksha Deposit — a unique product where customers get insurance cover at zero cost if they opt for longer tenor term deposit (subject to conditions).
Mortgage and Micro Mortgage
Mortgage is the lead product of the Bank addressing primarily the self-employed segment offering tailor made solutions. It contributes approximately 43 percent of Advances of the Bank. Both home loans and business loans are offered. Almost all retail branches offer Mortgage/Micro Mortgage loans. In order to support business growth, dedicated sales teams are present in 76 locations across India. Micro or small ticket mortgage loans are most useful for customers in the Tier 2 to Tier 6 locations. Many in the rural and semi-urban areas are deriving incomes from unorganized sector. At times it becomes difficult to get proof of their capacity to repay. Therefore, the Bank needs to have the ability to assess the household income in order to determine eligibility. Personal discussion with the customer is an essential part of the credit assessment. The purpose of the loan, inter alia, may include home construction, home purchase, home repairs, business enhancement, marriage and education. In FY 2017, the retail Mortgages grew by approximately 22 percent as compared to the previous year.
Construction Finance (CF)
Construction of flats and providing housing is a critical part of a growing economy. India has a huge population which does not own flat/house. For banks, financing construction is a good opportunity. However, there are numerous risks that need to be taken into consideration. Demonetization has impacted construction business. Therefore, the Bank needs to be very cautious in CF portfolio. The focus is on reputed builders with a strong track record who are targeting the end users with reasonably priced homes catering mainly to middle and lower incomes. The positive side effect of CF is growth in CA balances and providing home loans to home buyers. Real Estate (Regulation and Development) Act 2016 (RERA) is likely to bring about major changes in the Construction Business and consequently financing.
Commercial Vehicle (CV)
CV financing was restarted in FY 2013 and is now offered in 108 locations. The main objective behind re-entering the business was to improve the Bank’s ability to achieve PSL. More than 85 percent of CV portfolio falls under PSL. Although economic conditions were weak, so far the portfolio quality has been maintained at an acceptable level. CV industry is an essential part of the Indian economy and in the coming years the Bank has a good opportunity to build a large CV portfolio. Overall CV business achieved growth of 54 percent in FY 2017 as compared to the previous year.
Loan against Gold
Loan against Gold is offered in almost all branches (Retail and AIB). In FY 2017, as part of process improvement initiatives the Bank further expanded “One hour loan approval / disbursal process” in many more branches. The Loan against Gold business slowed down during demonetization. With the increase in branches your Bank hopes to steadily build a large Loan against Gold portfolio to provide further diversity to the overall business.
In FY 2017, as compared to the previous year, Cards in Force (CIF) increased by 107 percent. The number of Point of Sale (POS) transactions increased by 149 percent in comparison to the previous year. The number of e-commerce transactions increased by 60 percent in comparison to the previous year. The demonetization initiative has been one of the key factors in rapid increase in digital transactions.
DCB Payless Cards
This is a unique product offered by the Bank and is a preferred card for those self-employed segment that are unable to provide sufficient income proof or do not have an acceptable credit track record. In FY 2017, as compared to the previous year, CIF increased by 32 percent, the number of transactions on POS increased by 45 percent and the number of e-commerce transactions increased by 46 percent.
DCB Janajeevan Prepaid Card
The Bank launched India’s first co-branded prepaid card for disbursal of small loans by Janalakshmi Microfinance in FY 2014. The product is administered in association with Jana Urban Foundation. The program aims to provide cashless disbursal which has a major positive impact on financial inclusion. In FY 2017, the total cards issued crossed 57 lakhs. As mentioned in the earlier year report the program also won two prestigious awards - (a) “The Best Prepaid Product of the Year” at the 5th IAMAI Digital Awards (b) “The Most Innovative Prepaid Card” at the Finnoviti 2015.
Distribution of Mutual Funds and Insurance
The Bank distributes Mutual Funds, Life Insurance and General Insurance products to new and existing customers. This helps in deepening relationship with Deposit and Advances customers.
Traditional Community Banking
With a vision of strengthening neighborhood banking, the Bank set up a separate vertical in FY 2010 with the aim of providing personalized attention to the community customers and winning back lost relationships. In FY 2017, as compared to the previous year, Traditional Community Banking Deposits grew by 12 percent and Advances increased by 22 percent.
Non-Resident Indian (NRI) business
In FY 2017, NRI deposits contributed 8 percent of the Total Deposits. During the year approximately 1,683 new customers were acquired. The Bank has customers across 128 countries. The NRI deposits achieved growth of 16 percent in FY 2017 as compared to the previous year.
Collections is an important function for the Bank. It helps to provide timely reminders to customers and also ensure portfolio quality. The Bank’s in-house Collections team is a common utility for all products and is present in 179 locations pan India. In the previous year, in order to assist field collections, the Bank introduced m-Collect, a smart phone based application that helps in providing system generated receipts on the field. The application also instantly provides real time updates to the loan system helping improve efficiency and provide customer convenience. Collections and recovery process was impacted by demonetization. The Bank made extra efforts to ensure portfolio quality.
One of the key strategies of the Bank is to look for alliances with entities that may have similar business objectives. The idea is to improve the product benefits to customers that helps to improve fee income and loyalty.
- Aditya Birla Health Insurance — Corporate Agency — Health Insurance
- Birla Sunlife Insurance — Corporate Agency - Life Insurance
- HDFC Standard Life Insurance — Corporate Agency - Life Insurance
- ICICI Lombard GIC — Corporate Agency - General Insurance
- Annapurna Micro finance, Lok Management Services, New Opportunity Consultancy, Pahal Financial Services, People’s Forum, Taraashna Services - Business Correspondents for sourcing Small Savings Accounts, Deposit Accounts and providing Micro Loans to JLG, SHG, individuals and micro-enterprises.
- Western Union Business Solutions (USA) — Technology Services -Foreign Exchange Remittances
- Weizmann Forex — Referral Agent Trade Related Outward Remittances
- Paul Merchants, Thomas Cook — Referral Agent Trade Related Outward Remittances
- TVS Credit Services —Car Loan Business
- Janalakshmi Financial Services — Co-branded Prepaid Card
- Madura Microfinance — Prepaid Card
- Belstar Microfinance — Prepaid Card
- India Infoline (IIFL) — Co-branded Prepaid Card
- Muthoot Finance & Muthoot Forex — Co-branded Prepaid Card
- Midland Microfinance — Prepaid Card
- Fullerton India Credit Company (FICC) — Co-branded Prepaid Card
- Satin Creditcare Network, Utkarsh Microfinance, Annapurna Microfinance, Swaabhimaan Microfinance, SV Creditline, Taraashna Services, Namra Finance, Svatantra Microfin, Fusion Micro finance, Kamal FinCap, Saarthi Credit Co-Op Society, CashPor Micro Credit - Bajaj Allianz Death Claim Settlement on Prepaid Card
- Slonkit — Co-branded Prepaid Card cum Wallet
- Euronet — ATM and switching services provider
- ATOS Worldwide — POS deployment service provider
- M2P — Prepaid program manager
- India Infoline Ltd. (IIFL) — Partner for offering security trading accounts to customers
- Transcorp — Money transfer services
- Thomas Cook - Prepaid Alliance
- Cinqo - Prepaid Alliance
- Sabpaisa - Payment Collection Solution
The Bank is also working with many “Fintech” companies to introduce new products and or unique way of acquiring / servicing customers. The Bank has partnered with Niyopay to launch a unique salary account solution. In addition the Bank has partnered with Seynse technologies and Zest Money for digital lending solutions. DCB Bank is also amongst the first few banks to have gone live on Bharat QR code solution. The Bank also launched its own wallet during the year named as “Cippy”.
MSME and SME
The importance of MSME and SME to India’s economy and the Bank’s strategy of targeting this segment have already been mentioned earlier in this discussion. The Bank has created robust sales, underwriting and portfolio monitoring capability for growing the MSME/SME business, offering a wide range of products and personalized services including Foreign Exchange, Cash Management, Trade Finance and Internet Banking. The aim is to become the business partner of this vibrant entrepreneurial segment of the economy. The Bank targets largely small ticket size MSME / SME customers. In FY 2017, MSME/SME Advances grew by approximately 18 percent as compared to the previous year. Competition is intense and therefore the Bank put in place a special unit to ensure that quality customers are retained through constant relationship efforts. MSME / SME segment needs to embrace the digitization agenda of the country. They also need to make appropriate adjustments to their business models to take advantage of Goods and Service Tax (GST) which is likely to be implemented in the coming months.
Corporate Banking is present across India with regional offices in Ahmadabad, Bengaluru, Chennai, Delhi, Hyderabad, Kolkata, and Mumbai. The business objective is to provide a complete range of commercial banking solutions including Foreign Exchange, Trade Finance and Cash Management. In FY 2017, the Bank added 36 new relationships in Corporate Banking. The Bank has a robust underwriting and credit systems to address the inherent risks in Corporate Banking exposure. The emphasis is on building a secured advances portfolio and building long term relationships with high quality large and mid-corporate houses. Regular review of the existing exposure is done with the aim of initiating timely action in case of any emerging risks. In FY 2017, we had some slippages into NPA primarily on account of economic stress in some sectors. As a result of the early warning systems in place and timely management of risky exposures, Corporate Banking portfolio quality remained stable.
AGRI AND INCLUSIVE BANKING (AIB)
AIB is a separate business unit formed to achieve financial inclusion. At the end of FY 2017, this unit had 112 branches in 10 states. There are many opportunities to offer simple yet innovative products backed by superior technology in the rural and semi-urban areas of India. Many of the new branches are located in Tier 2 to Tier 6 locations. There is a constant Endeavour to cater to under and unbanked population of the country through a wide range of products, for example, zero balance savings accounts, small recurring deposit account, small loans to match the income and cash flow cycle. AIB also coordinates the entire PSL efforts for the Bank and is primarily responsible for achieving the financial inclusion targets. In FY 2017, AIB Advances grew by approximately 25 percent as compared to the previous year.
Pradhan Mantri Jan-Dhan Yojana (PMJDY)
In FY 2017, your Bank actively participated in PMJDY and opened 26,306 PMJDY accounts as on March 31, 2017. The Bank has enabled Rupay Debit Cards for PMJDY account holders.
Pradhan Mantri Suraksha Bima Yojana (PMSBY), Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Atal Pension Yojana (APY)
The Bank successfully reached out to unbanked and economically weaker population through PMSBY, PMJJBY and APY programs that are designed to bring social security. Your Bank had 7,597 customers under PMSBY, 10,952 customers under PMJJBY and 1,331 customers in APY as on March 31, 2017.
Basic Savings Bank Deposit Account (BSBDA)
BSBDA has replaced “No frills account”. This is a wonderful product for achieving financial inclusion especially those who have limited transaction needs in the low income group and may not have proper identity, address, date of birth or signature proofs. Bank had 57,967 BSBDA accounts as on March 31, 2017.
“Kisan Mitra” as the name suggests, is a liability product which fulfils the requirement and enhances the saving habit in rural areas. It is a product specially designed for members of co-operative institutions (example dairy co-operative, sugar co-operative). It is a modified Savings Account with zero account opening amount and no Average Quarterly Balance maintenance charges. Co-operative institution payments are routed through this account.
Warehouse Construction Loan
There is a huge need in the country to provide farmers with scientific storage so that wastage and stock deterioration can be reduced. Also, proper warehousing helps famers to retain their produce and obtain fair pricing for their produce instead of selling in distress.
Retail Agriculture Loan and Kisan Credit Card
In order to meet the credit needs of the farmers, the Bank has several retail agri products namely Crop loans (example purchasing seeds, fertilizers, pesticides, manures, irrigation), Animal Husbandry loans, and loans for investment purpose like land improvement, irrigation and hi-tech agriculture.
Tractors form an integral part of the total agricultural equipment sector and is an indirect indicator of growth in the agricultural sector. The Bank has slowly built its business across Tier 2 to Tier 6 branches. Providing tractor loans helps the Bank to partly meet PSL targets for agriculture set by the RBI.
Microfinance Institutions (MFI) and Business Correspondents (BCs)
The Bank lends directly to MFIs who in turn lend to end borrowers. Over time, the Bank has created a strong network of MFI relationships across India. The Bank is also providing unsecured loans through BCs in a few states of the country. The loans are given to members of SHGs and JLGs for livelihood activities thereby enabling them to avail small loans from banking sector instead of high cost borrowing from informal channels. These loans are primarily provided to small farmers and weaker sections mainly in rural areas. In order to support the volume growth, your Bank introduced new software system for managing BC Loans. This software helps maintain adequate information about the borrowers under SHG, JLG and Microenterprises categories. It provides a common platform to both Bank and BC for smooth processing of loans and has added immense value by reducing the loan disbursal cycle time. In recent months there is some stress being faced by the entire industry in the MFI / BC business. The Bank has always adopted a cautious approach towards this sector and it is taking measured steps to maintain portfolio quality.
Commodity Based Finance (CBF)
The Bank is engaged in lending to farmers and agri processors against agricultural produce stored in the designated warehouses. The Bank has a list of approved commodities against which the loans are given. Given the volatile market conditions the Bank has chosen to be cautious in pursuing CBF opportunities.
TREASURY, MONEY MARKET AND FOREIGN
Treasury actively manages liquidity, Fixed Income Securities Trading, Investment in Equity through Initial Public Offers (IPOs), FX Trading and Customer Sales. Treasury ensures compliance with regulatory requirements such as CRR and SLR. As the Bank''''s performance continues to improve, many reputed Financial Institutions (FIs) have started subscribing to Certificate of Deposits (CDs) issued by the Bank. In FY 2017, the Bank made cautious gains by utilizing the trading opportunities in G-Sec presented by declining interest rates. The Bank invested in a number of Equity IPOs and booked moderate listing gains. The Bank also invested in medium term AAA Corporate bonds, short term Commercial Papers and Certificate of Deposits of other banks in order to earn interest income on liquidity mismatches.
The country reported Gross Domestic Product (GDP) growth of 7.1% in FY 2017. The Index of Industrial Production (IIP) growth was low mainly due to contraction in manufacturing because of decline in demand for Capital Goods. The Consumer Price Index (CPI) inflation declined to 3.81% in March, 2017 from a high of 6.07% in July, 2016 primarily driven by food and fuel prices. RBI conducted variable rate REPO and OMO in the market to maintain sufficient liquidity. Decline in global commodity prices and expectation of rate cuts by RBI led to softening of 10 year G-SEC yields. Demonetization created excess liquidity and markets remained somewhat uncertain. The Monetary Policy Committee has targeted inflation at 4% and is likely to act accordingly with respect to monetary policy in the coming months.
There were a few geo-political events in FY 2017 that affected the global and Indian markets. The two main events were Presidential Election in USA and Brexit in UK. Both British Pound vs US Dollars and Euro vs US Dollars were impacted by these massive events. In anticipation of large contracted outflow of FCNR funds, INR depreciated. However, sentiments improved towards later part of the year due the ruling party winning some crucial state assembly elections. This resulted in strengthening of INR vs US Dollars. Oil price remained range bound. Both domestic and foreign flows helped to liven up the Sensex.
TRANSACTION BANKING Cash Management Services (CMS)
The Bank provides Corporate, MSME / SMEs and Retail customers sophisticated and cost effective CMS. This helps customer to manage their payment logistics in a hassle free manner. In the last few years, the Bank has steadily increased CMS customers. At the end of FY 2017, the Bank had 4,379 active customers using the CMS facility.
Business Internet Banking (BIB)
The Bank offers state-of-the-art BIB features especially designed for MSME / SME customers. At the end of FY 2017, BIB facility was availed by 19,772 users. The BIB software is likely to be upgraded in FY 2018.
The Credit Risk unit ensures alignment with the objectives of achieving growth while maintaining portfolio quality by making appropriate risk / reward trade-offs. The idea is to ensure long term sustainable performance across business cycles. Regular efforts are made to improve risk assessment and control processes. Credit Risk unit over time has developed capabilities to assess the risks associated with various products and business segments. As far as possible, efforts are made to standardize the entire process pan India while taking into account geographic nuances. The Bank has implemented a rating model that takes into account both quantitative and qualitative factors and produces a rating that becomes one of the key inputs to credit decisions. In FY 2017, the Credit Risk unit ably supported the business / branch expansion agenda of the Bank. One of the main focus areas for the Credit function was improving productivity and customer experience. In order to continuously improve the quality of the portfolio, the Credit Risk unit invested in SAS analytics and created several insightful analysis/models which helped in refining the product offering and collections/recoveries. Key processes in credit underwriting were examined and duplication was reduced to improve speed of processing and costs. Periodic portfolio reviews were conducted with business units which helped to improve customer targeting and profitability.
Concentration risk is monitored and managed both at the customer level and at the aggregate level. The Bank continuously monitors portfolio concentrations by segment, ratings, borrower, group, sensitive sectors, unsecured exposures, industry and geography. The Bank adopts a conservative approach within the regulatory prudential exposure norms.
Besides the usual monitoring of Structural Liquidity, Interest Rate Sensitive Gap limits and Absolute Holding limits, the Bank also monitors interest rate risks using Value at Risk limits. Exposures to Foreign Exchange and Capital Markets are monitored within pre-set exposure limits, margin requirements and stop-loss limits.
Country Exposure Risk
The Bank has established specific country exposure limits which is capped at 1.5% of Total Assets. The limit also depends upon rating of individual countries. The Bank uses the mitigant of insurance cover available through the Export Credit and Guarantee Corporation (ECGC), where appropriate.
As part of the liquidity management and contingency planning, the
Bank assesses potential trends, demands, events and uncertainties that could result in adverse liquidity conditions. The Bank’s Asset Liability Management (ALM) policy defines the gap limits for the structural liquidity and the liquidity profile is analyzed on both static and dynamic basis by tracking cash inflow and outflow in the maturity ladder based on the expected occurrence of cash flow. The Bank undertakes behavioral analysis of the non-maturity products, namely CASA, Cash Credit and Overdraft accounts on a periodic basis to ascertain the volatility of balances in these accounts. The renewal pattern and premature withdrawals of Term Deposits and drawdown’s of unveiled credit limits are also captured through behavioral studies. The liquidity profile is estimated on an active basis by considering the growth in Deposits, Advances and investment obligations. The concentration of large deposits is monitored on a periodic basis. Emphasis has been placed on growing Retail deposits and avoid as far as possible bulk deposits. The Bank periodically conducts liquidity stress testing.
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or external events. The Bank’s operational risk management framework is defined in the Operational Risk Management Policy approved by the Board of Directors. While the policy provides a broad framework, Operational Risk Management Committee (ORCO) oversees the operational risk management in the Bank. The policy specifies the composition, roles and responsibilities of the ORCO. The framework comprises identification, assessment, management and mitigation of risks through advanced tools and analysis.
New products or services introduced are subject to a risk review and sign-off process so that relevant risks are identified and assessed independently from the unit proposing the product. There is a separate Management Committee for Approval of Process (MCAP) constituted to approve and review various processes in the Bank. The said committee consists of experienced bankers and subject matter experts. Internal Audit also reviews the processes that are implemented as part of the audit function.
The Bank pays attention to issues that may create a Reputational risk. Events that can negatively impact the Bank’s position are handled cautiously ensuring utmost compliance and in line with the values of the Bank.
Implementation of Basel III guidelines
In accordance with RBI guidelines, the Bank has migrated to Basel III capital adequacy disclosures with effect from Q1 FY 2014. The Bank continues to review and improve on its risk management systems and practices to align them with international best practices. The Bank has successfully implemented Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk.
INFORMATION TECHNOLOGY (IT)
The Bank has been making good progress towards “digitization”. The demonetization initiative has been a major impetus in moving
India rapidly towards a “less cash” economy. Smart phone is steadily becoming ubiquitous and customers want everything on their mobile phone. The Bank is on transformational journey to stay ahead of competition. Last year the Bank launched India''''s first Aadhaar based ATM and has installed close to 91 Aadhaar based ATMs pan India. The Bank''''s IT strategy has four pillars — 1) Core Applications — continuously upgrade to support digital transformation, 2) Mobile/ Tab — create customer convenience by optimum use of mobile devices,
3) Payments — offer innovative solutions that are dynamic, secure and fast, 4) Infrastructure — modernize to support business growth in a cost effective and secure manner. In FY 2017, the Bank implemented many new applications/upgrades for example - a) Aadhaar IRIS based tab banking solution for instant verification of KYC, b) DCB Delight (Instakit) instant account opening for Savings Account customers,
c) Online Foreign Exchange platform for retail customers, d) Loans on the Go mobility application for providing information on loans
e) Automated trade finance inward remittances process through seamless integration of SWIFT and NEFT f) Successful migration to and certification of Information Security Management based on ISO 27001:2013 standard, g) Online Mutual Funds module for ease of buying and redeeming mutual funds. The Bank also participated in a two day event “Digi Dhan Mela” organized by Ministry of Electronics and Information Technology.
The Bank''''s focus is on creating a cost effective scalable Operations unit that can deliver superior customer experience. The Bank intends to achieve optimum centralization of activities to National Processing Center (NPC) Chennai with the idea of creating a centre of excellence. The NPC faced enormous volume pressures during demonetization period (November and December 2016). In FY 2017, Cheque Truncation System process was in-housed resulting in cost savings and reduction in potential errors. On a pilot basis, the printing of debit cards and PIN was also in-housed at NPC, Chennai.
INTERNAL AUDIT (IA)
IA has a team of professionals, experienced bankers, domain experts and new comers with audit and finance background. The Audit Committee of the Board (ACB) provides direction and monitors the effectiveness of the IA function. IA forms the third line of defense in the overall risk management framework of the Bank. IA is independent and continuously evaluates and tests the internal controls to identify gaps, inadequacies and residual risks. The IA function incorporates RBI guidelines, aims to embrace the best practices from the industry, professional bodies and strives to follow high standards. IA has put in a detailed risk assessment and audit planning process in place. IA approaches each audit with adequate preparation relying on analytics to help identify areas of focus. In FY 2017, IA conducted 216 branch audits, 12 periodic audits, 7 compliance audits, 7 information system audits and 8 snap audits. IA also undertook a special audit after the demonetization exercise was completed. IA continues to appraise the Board, the ACB and the Management teams in terms of newer emerging control issues and recommend appropriate mitigating measures.
Your Bank has a dynamic and creative HR unit. In FY 2017, the HR unit continued people agenda of developing, caring, engaging and building a culture that supports performance and growth. The Bank''''s headcount went up from 4,248 in FY 2016 to 4,979 in FY 2017. More than 90% of the new employees were covered by the HR induction program. The HR unit has a special focus on “new generation” employees. This is necessary in order to build a pipeline of supervisors and leaders for the future. In order to improve the quality of supervision and supervisors, an internal survey titled “Speak” was administered in which 96% of the employee strength participated giving feedback on 7 key dimensions of people management. The survey generated 557 supervisor scorecards. As part of the talent development initiative, ACE program was launched especially for staff identified as “Hi-potential” and “Critical”. The Bank improved its Great Place to Work score from 73% in FY 2016 to 75% in FY 2017. New program called Wizcom covering four “Cs” of communication was introduced in order to improve the skills of employees. Fun elements were added to Wizcom by introduction of informal “DCB Toastmasters Club” and “Adarsh” mascot. The Bank already has several signature development programs that have been in existence for more than 5 years namely Budding Branch Manager, ASPIRE, LEAP and RISE. DCB Allympics (staff sports event) which was introduced in FY 2016 became much bigger and more exciting. All major locations in India where the Bank has its offices / branches conducted DCB Allympics in FY 2017. In order to explain the employee benefits in a creative manner a unique concept called DCB Chaupal was organised in many locations providing an opportunity to directly connect with the staff and explain the employment benefits in the Bank.
STAFF PARTICIPATION IN CORPORATE SOCIAL RESPONSIBILITY (CSR)
The Bank has a unique concept whereby each employee is allowed 2 days paid leave every year for participating in the Bank''''s CSR thrust areas. Over 300 employees participated in various activities across Bengaluru, Bhopal, Delhi, Hyderabad, Mumbai and Pune. For example the Bank staff organised delivery of water tankers for 25 days to severely drought affected Saarul (population of approximately 2,000) situated in Maharashtra. The village has only one well which had dried up. In Dongri area of Mumbai, the Bank staff joined hands with the local seniors and school children who went door to door to deliver garbage bins while conveying message of cleanliness. The event was attended by local MLA and senior BMC staff. A large contingent of the Bank staff visited Sanjay Gandhi National Park in Mumbai to learn about waste segregation and manure creation process. In Bengaluru, the Bank staff volunteered in de-weeding of Putenahalli lake. The Bank helped the Border Security Force at Wagah Border in providing visitor friendly facilities such as wheel chairs and garbage bins.
Ensuring customer delight in every interaction remains the Bank''''s core desire for growth and success. Customer complaints and satisfaction levels are monitored by the MD & CEO and Senior Management team. An independent Service Excellence team analyses customer complaints, identifies the root cause, makes suggestions for process improvements and follows up with the respective units for rectification. The Bank has a “Centralized Complaint Management” system to ensure that customer queries and complaints are not missed out. Customer queries and complaints are followed up to ensure timely resolution and quality standards are imposed on the Bank’s staff. The Bank continues to make steady progress on the concept of Power of Three - Empathy, Speed and Quality (ESQ) initiative launched 5 years ago. During demonetization most of the branches dealt with huge walk-ins (existing and new customers). The Bank staff “lived ESQ” under volume pressure and many positive comments were received on Face book, Twitter and media for the services rendered during demonetization. The Bank is continuously working on the six pillars of Service Excellence — Voice of Customer, Service Recovery, Attrition Calling, Process Simplification, Service Culture and Measures & Metrics. The Service Excellence team regularly conducts customer complaint meetings, review of progress on six pillars with key stakeholders, weekly calls with frontline staff to obtain feedback, make surprise visits to branches, conduct customer meetings, focus groups with branch staff and mystery shopping to understand frontline service culture and competence. The progress on Service Excellence is regularly monitored by the Customer Service Committee (CSC) of the Board. In FY 2017, 105 individuals and 2 teams were recognized through ESQuire (in-house newsletter to celebrate ESQ). A special edition of ESQuire was issued to recognize 21 branches, 20 individuals and 2 teams for the hard work done during demonetization period.
Your Bank provides customers the choice of accessing DCB 24 hour Customer Care Phone Banking, ATMs, Internet and Mobile Banking for completing their banking needs. The Bank strives to provide best-in-class technology and service platform and hence introduced the Missed Call Facility which enables customers to complete their basic banking by simply giving a missed call. The Bank’s mobile banking platform “DCB on the Go” is periodically upgraded. The Bank provides instant fund transfer facility through Inter Bank Mobile Payment System (IMPS). In FY 2017, DCB Bank was amongst the first banks to offer Unified Payment Interface (UPI) a truly seamless and modern payment option on mobile phone. In FY 2017, the Bank’s Customer Care Associates attended to almost 10.87 lakh calls. At DCB Bank’s 24 Hour Toll Free Customer Care, customers directly get connected with the Bank officer (Customer Care Associate) without going through the pain of IVR. Thus, customers receive personal care. The Bank offers Phone Banking services in 9 languages of India (Hindi, English, Marathi, Gujarati, Tamil, Telugu, Odiya, Kannada and Punjabi) making it one of the best in the industry.
Marketing / Brand Awareness
Marketing unit works very closely with all the business units. The approach is on creating brand awareness in a cost effective manner across our footprint. Continuous micro marketing activities are conducted in almost every branch location throughout the year. This has helped achieve brand visibility, goodwill and new business. The Bank was the official partner - SunRisers Hyderabad (SRH) in IPL
2016. DCB Bank logo was prominent on the lead arm of the official jersey of all the players throughout the 2 month long tournament.
It was wonderful to witness SRH win the IPL 2016 tournament. On the eve of World Environment Day, the Bank was the title sponsor for “Ahmadabad Go Green Marathon 2016”. The Bank’s signature customer event “Ek Mulaquat Kuch Baatein” was conducted in a few locations. Large number of customers attended and the Bank Chairman, Directors and Senior Management were able to freely exchange ideas in the meetings. As part of encouraging “start-ups”, the Bank once again tied up with BITS Pilani and presented “Conquest 2016”, a prestigious competition where young new age entrepreneurs compete to show case their products / business. At Ajmer, the Bank sponsored the “Bikers” group of Royal Enfield (North) for propagating the message of safe driving and cleanliness. At Bengaluru, the Bank organised “Captain’s Tankard Golf Tournament” at the prestigious Karnataka Golf Association. This event received overwhelming response from the club members. At Chennai, the Bank sponsored “TN Finance Conclave”. The theme was “Gearing up for a changing environment”. This event was attended by leaders from the finance function from various industries. The Bank was proud to be associated for the second time with the Indian Navy PSO Cup Golf Tournament at Ambience Golf Greens, Gurgaon. This was a unique night golf event graced by the Chief of Naval Staff and senior Navy Officers. The golf event was followed by gala dinner with music and singing by enthusiastic Navy and the Bank staff. An international boxing event at New Delhi called “Night of the Champions” was sponsored by the Bank. The match was live telecast in Star Sports and Hotstar. Your Bank was one of the sponsors for a wonderful event called “Jubilee Games” in Dubai. It was an extravagant show attended by the global community. More than 10,000 spectators and 2,500 athletes participated. Your Bank was also associated with musical events at Bengaluru, Surat, Vejalpur and Jaipur. A high profile seven day night cricket tournament in partnership with Jain Social Foundation was sponsored by the Bank at Jodhpur, Rajasthan.
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS BY THE BANK.
Not applicable being a banking company.
PARTICULARS OF CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All the transactions with related parties are in the ordinary course of business and on arm’s length basis; and there are no ‘material’ contracts or arrangement or transactions at arm’s length basis and thus disclosure in from AOC-2 is not required.
POLICY ON RELATED PARTY TRANSACTIONS OF THE BANK
The Bank has a policy on Related Party Transaction and the same has been displayed on the Bank’s website:
http: / / www.dcbbank.com//pdfs/Policj_on_Related_Partj_ Transactions_2017-18.pdf
BUSINESS RESPONSIBILITY REPORT:
In terms of Regulation 34(2)(f) of the SEBI LODR Regulations, the Bank’s Business Responsibility Report describing the initiatives taken by the Bank from an environmental, social and governance perspective forms part of this Report and has been hosted on the website of the Bank, www.dcbbank.com.
CORPORATE SOCIAL RESPONSIBILITY (CSR):
A Board level committee for CSR has already been in place as stated in the section on Corporate Governance. The report on CSR is given below: Report on Corporate Social Responsibility (CSR) Activities during the FY 2016-17:
A brief outline of the company’s CSR policy, including overview of projects or programs proposed to be undertaken and a reference to the web-link to the CSR policy and projects or programs
CSR Activities shall mean all the Corporate Social Responsibility activities / programs / initiatives of the company, either ongoing or new, dealing with the activities mentioned in thrust areas. The activities shall conform to those specified in Schedule VII to the Act (as amended from time to time) and as recommended by the CSR Committee and approved by the Board.
The Bank’s thrust area is also in keeping with the Government of India’s Swachh Bharat initiative.
Thrust areas or activities ascribed to them are defined in the Policy, as amended by the Board, from time to time.
Projects / Programmes to be undertaken:
CSR Thrust Areas for DCB Bank
Thrust areas shall mean and include any one or more of the following CSR activities:
a) Conservation of water / water storage / water usage / protecting water bodies
b) Waste Management
c) Recycling Project/s supported:
The availability of water and the stress on the water resources across cities and villages is acute as well as alarming. Sustainable methods for preservation of water bodies and resources is a dire need not only for the current generation but for all times to come. The Water situation is a grave one despite the availability of technical knowhow on rain water harvesting, water recharging structures which can give small and marginal farmers a better quality of life and livelihood.
DCB Bank’s CSR Projects are at Kishangarh and Udaipur in Rajasthan; at Nuh in Haryana, in Amritsar district in Punjab, and Ratnagiri in Maharashtra. Additionally employee volunteer projects were completed in across locations such as Bhopal, Delhi, Chennai, Gurgaon/ Sohna, Hyderabad & Pune. Adherence to the Bank’s CSR main thrust area of Water, the FY 2016-17 projects are:
a. Conservation of forests in the western ghats to enable rejuvenation of rivers, streams and natural water springs. Conservation of top soil through forestry.
b. Ground water resources development in semi-arid villages.
c. Rainwater harvesting structures in village schools as well as colleges. Creation of self sustaining water conservation structures for village schools in areas with prevalence of brackish water. Website link for DCB Bank CSR policy: http://www.dcbbank.com/pdfs/DCB-Bank-CSR-Policy.pdf
The Composition of the CSR Committee.
The members of the CSR Committee are Mr. Nasser Munjee (Chairman), Mr. Keki Elavia, Mr. S. Sridhar, Ms. Rupa Devi Singh and MD & CEO Mr. Murali M. Natrajan. Majority of the members are Independent Directors.
Average net profit of the company for last three financial years (after adjusting for brought forward accumulated losses)
Rs, 143.33 crore
Prescribed CSR Expenditure (two per cent. of the amount as in item 3 above)
Rs, 2.87 crore
Details of CSR spent during the financial year:
a) Total amount to be spent for the financial year;
b) Amount unspent, if any;
c) Manner in which the amount spent during the financial year is detailed on the following page
Rs, 0.98 crore Rs, 1.89 crore
-See the table on the following page-
Manner in which the amount spent during the financial year 2016-17
CSR project or activity identified.
Sector in which the Project is covered
Projects or programs
(1) Local area or other
(2) Specify the State and district where projects or programs were undertaken
Amount spent on the Projects or programs Sub-heads:
(1)Direct expenditure on projects or
Cumulative expenditure up to the reporting period
Amount spent Direct or through implementing agency *
Provision of water storage facility for farming, community use and recharge ground water and underground reservoirs
Water resource management & sustainable livelihood for tribal farmers
(1) Project located in other area.
(2) Project site is in the State of Rajasthan, Udaipur District.
(1) Direct expenditure Rs, 43,63,051
Overheads Rs, 6,53,260
Complete amount disbursed to the project
CSR project amount is spent through implementing agency Concern India Foundation
Conservation of forests in the western ghats to enable rejuvenation of rivers, streams and natural water springs. Conservation of top soil through forestry.
Prevention of degradation of pristine tropical forests. To arrest topsoil runoff and prevent loss of freshwater streams, springs and natural habitat
(2) Project is in the State of Maharashtra, Ratnagiri District.
(1) Direct expenditure Rs, 8,14,100
Overheads Rs, 2,25,400
Complete amount disbursed to the project
CSR project amount is spent through implementing agency Applied Environmental Research Foundation (AERF)
Rainwater harvesting structures in village schools.
Creation of self sustaining water conservation structures for village schools in areas with prevalence of brackish water
Project is in the State of Haryana, in Nuh District
(1) Direct expenditure
Overheads Rs, 95,860
Complete amount disbursed to the project
CSR project amount spent through implementation agency SM Sehgal Foundation
Installation of waterless urinals in water stressed areas to reduce usage of a scarce resource
Installed waterless urinals in areas having severely depleted underground water availability. Reducing sewerage discharge issues
Project is in the State of Punjab, in Amritsar District
Direct expenditure Rs, 1,36,806
Complete amount disbursed to the project
CSR project amount spent through implementation agency Ekam Ecosolutions
CSR impact projects with DCB Bank CSR Employee volunteers
Various activities in line with the Bank''''s CSR thrust areas: Waste management, recycling, protection of water bodies & composting
Projects in Mumbai, Navi Mumbai, Pune, Hyderabad, Delhi, Chennai, Bhopal, Bengaluru & Sohna
Expenditure '''' 3,38,345
Complete amount disbursed to the projects
Implemented directly as well as with agencies Concern India Foundation, United Way of Mumbai, Putenahalli Lake Trust, Gurgaon Mahila Sewa Samti.
* Details of implementing agency to be given
6. Reason for not spending the two per cent of the average net profit of the last three financial years or any part thereof:
The Bank''''s approach has been measured and nuanced to build the CSR project pipeline. The resources deployed, the amount spent and locations coverd has shown a remarkable increase over the previous Financial Year. The Bank will continue to assess fresh projects and explore new geographies.
7. Responsibility Statement:
The CSR Committee of the Bank hereby states that the implementation and monitoring of CSR Policy, is in compliance with CSR objectives and policy of the Bank.
Sd/- (Chief Executive Officer or Managing Director or Director) Sd/- (Chairman- CSR Committee)
POLICY ON DIRECTORS’ APPOINTMENT AND REMUNERATION INCLUDING CRITERIA FOR DETERMINING QUALIFICATIONS, POSITIVE ATTRIBUTES, INDEPENDENCE OF A DIRECTOR, KEY MANAGERIAL PERSONNEL AND OTHER EMPLOYEES
The Board shall have minimum 3 and maximum 15 directors, unless otherwise approved. No person of age less than 21 years shall be appointed as a director on the Board. The Bank shall have such person on the Board who complies with the requirements of the Companies Act, 2013, the Banking Regulation Act, 1949, Provisions of the Listing Regulations, the ‘Fit & Proper’ criteria prescribed by the Reserve Bank of India (RBI), Memorandum of Association and Articles of Association of the Bank and all other statutory provisions and guidelines as may be applicable from time to time. Composition of the Board shall be in compliance with the requirements of Regulation 17 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (the Listing Regulations). Majority of the Directors as required under BR Act, shall have specialized knowledge/experience in the areas like Agriculture, Banking, SSI, Legal, Risk Management, Accountancy, Finance etc. Except for the Chairman and the MD & CEO, no other directors are paid remuneration, but are paid only sitting fees. The Chairman and the MD & CEO are paid remuneration as approved by RBI and other applicable authorities, but are not paid sitting fees. MD & CEO, Company Secretary and Chief Financial Officer shall be the Key Managerial Personnel (KMPs) of the Bank. All persons who are Directors / KMPs, members of Senior Management and all other employees shall abide by the Code of Conduct. Independent Directors are not entitled for ESOPs. Directors/KMPs shall not acquire any disqualification and shall be persons of sound integrity and honesty, apart from knowledge, experience etc. in their respective fields.
PARTICULARS OF EMPLOYEES
The Bank had 4979 employees as on March 31, 2017. 7 employees employed throughout the year were in receipt of remuneration of more than Rs, 1.02 Crore per annum. The details of such employees in terms of Section 197(12) of the Companies Act, 2013 read with Rule
5 (2) and 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are appended separately (Annexure-I) and form part of this Report. The Report and Accounts are being sent to the shareholders excluding these particulars and any shareholder interested in obtaining the said details may write to the Company Secretary at the Registered Office of the Bank.
EMPLOYEE STOCK OPTIONS
The information pertaining to the Employee Stock Options is given in ANNEXURE-II to this Report.
PARTICULARS PURSUANT TO SECTION 197(12) AND THE RELEVANT RULES:
a) The ratio of the remuneration of each director to the median
employee’s remuneration for the financial year ended March 31, 2017 and such other details as prescribed are as given below:
Mr. Nasser Munjee (Chairman) 5 : 1
Mr. Murali M Natrajan (Managing Director & CEO) 148 : 1
b) The percentage increase in remuneration of each director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the financial year:
d) The number of permanent employees on the rolls of Bank: 4928
e) Average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year ended March 31, 2017 and its comparison with the percentile increase in the managerial remuneration and justification thereof and any exceptional circumstances for increase in the managerial remuneration: Average increase in remuneration is 11 % for Employees other than Managerial Personnel & 9 % for Managerial Personnel (KMP and Senior Management). There are no exceptional circumstances for increase in the managerial remuneration.
f) If remuneration is as