The Directors have pleasure in presenting the Ninety Third Annual Report together with the Audited Statement of Accounts for the year ended 31st March 2017 and the Auditors’ Report.


Your Directors are pleased to inform that during the year ended 31st March 2017, your Bank has been able to achieve satisfactory growth in all the areas of operation. Performance highlights for the financial year in the key financial areas are as under:

(Rs. in crore)


As on / for the year ended 31.03.2017

As on / for the year ended 31.03.2016










Gross Income



Operating Profit



Net Profit



The total business turnover of the Bank was Rs.93736.76 crore as on 31st March 2017, an increase of 11.07 per cent (Previous year Rs.84390.66 crore). The total assets of the Bank increased from Rs.56500.33 crore to Rs.64126.55 crore recording a growth of 13.50 per cent for the year 2016-17.

The total deposits of the Bank grew from Rs.50488.21 crore as on 31st March 2016, to Rs.56733.11 crore as on 31st March 2017, registering a growth of 12.37 per cent.

During the year, low cost deposits of the Bank, viz. Savings and Current Account Deposits have shown growth of 24.23 per cent and constitute 29.04 per cent of the total deposits of the Bank. The market share of the Bank in deposits was 0.53 per cent.

The total advances grew from Rs.33902.45 crore as on 31st March 2016 to Rs.37003.65 crore as on 31st March 2017, an increase of 9.15 per cent. The priority sector advances increased from Rs.16149.99 crore to Rs.17238.77 crore which, together with the Rural Infrastructure Development Fund (RIDF) exposure, formed 48.13 percent of Adjusted Net Bank Credit (ANBC) and agricultural advances increased from Rs.5836.74 crore to Rs.6582.77 crore which, together with eligible RIDF exposure, constituted 18.38 per cent of ANBC. Lending under various socio-economic schemes has shown satisfactory progress. The market share of the Bank in loans and advances was 0.48 per cent.

As on 31st March 2017 the total investments of the Bank stood at Rs.20219.73 crore, as against Rs.16256.65 crore as on 31st March 2016, showing an increase of 24.38 per cent.


In the backdrop of subdued credit off take experienced by banks, the performance of your Bank can be considered satisfactory for the year ended 31st March 2017. The gross income of the Bank was Rs.5994.74 crore and total expenditure (excluding provisions and contingencies) was Rs.4998.94 crore. The net interest income was Rs.1490.62 crore, showing a growth of 14.41 per cent over previous year.


Your Bank earned an operating profit of Rs.995.80 crore for the year 2016-17 as against Rs.854.53 crore for the previous year showing a growth of 16.53 per cent. The net profit of the Bank increased from Rs.415.29 crore to an all time high of Rs.452.26 crore showing a growth of 8.90 per cent.


The net profit of Rs.452.26 crore which along with a sum of Rs.0.03 crore brought forward from the previous year, aggregating to Rs.452.29 crore, is appropriated as under.


Rs. in crore

Transfer to Statutory Reserve


Transfer to Capital Reserve


Transfer to Revenue, General & Special Reserves


Transfer to Investment Reserve


Balance carried over to Balance Sheet (including proposed Dividend and tax)





Having regard to the overall performance of the Bank, expanded capital base on account of the successful Rights issue in the ratio of 1:2 and also the positive outlook for the future, the Board of Directors recommended a dividend of Rs.4 per share i.e. 40 percent on the paid up capital (previous year 50 per cent) for the reporting year. The dividend payout ratio for the year works out to 24.99 percent as against last year''''s 22.69 percent. In accordance with the revised Accounting Standard (AS)-4 ‘Contingencies and Events occurring after the Balance Sheet Date notified by the MCA on March 30, 2016, the proposed dividend including dividend tax amounting to Rs.136.05 crore has not been shown as appropriation from the Profit as of March 31, 2017.


The earnings per share (basic) and the book value per share as on 31st March 2017 stood at Rs.19.38 and Rs.177.12 respectively.


During the year under report, with a view to augment common equity, your Bank issued 9,42,35,441 equity shares of Rs.10 each at a price of Rs.70 per share including the premium of Rs.60per equity share on Rights basis in the ratio of 1 (One) equity share for every 2 (Two) equity shares held aggregating Rs.659.65 crore as per SEBI (ICDR) Regulations, 2009. The issue was subscribed by 1.85 times. After keeping in abeyance 98,575 entitlements pertaining to equity shares kept under Suspense Account, Board of Directors allotted 9,41,36,866 equity shares on 08.12.2016. The Board of Directors wishes to place on record its appreciation for the confidence reposed by the shareholders of the Bank and thank them for their overwhelming response to the Rights Issue.


As permitted under the extant RBI Guidelines, your Bank has revalued its Land and building having existing book value of Rs.119.39 crore. Appreciation of Rs.423.53 crore arising out of such revaluation is accounted with corresponding credit to Revaluation Reserves and the appreciation is reckoned for Tier-1 Capital after applying discount of 55 per cent as permitted under Basel III guidelines.


The capital funds of your Bank increased from Rs.4185.24 crore to Rs.5172.16 crore, registering a growth of 23.58 per cent. The Capital Adequacy Ratio stood at 13.30 per cent as on 31st March, 2017, as per BASEL III norms (Previous year 12.03 per cent). The capital funds of the bank increased during the year under report, due to the augmentation of common equity capital through Rights Issue (Rs.654.95 crore net of expenses) and revaluation of Land & Building resulting in revaluation reserves to the extent of Rs.190.59 crores after discounting etc. The Bank has been consistently maintaining the Ratio well above the minimum of 10.25 percent stipulated by the Reserve Bank of India. The market capitalization as on March 31, 2017 was Rs.3976.26 crore.


ICRA Limited ("ICRA") and Credit Analysis and Research Limited, (“CARE”) who had rated the Unsecured Redeemable Non-Convertible Subordinated (Lower Tier-II) debt instruments issued during the earlier years aggregating Rs.600 crore have retained the rating “ICRA A” and “CARE A” respectively for the aforesaid instruments. The instruments with these rating are considered to have adequate/high degree of safety regarding timely servicing of financial obligations. Such instruments carry very low credit risk.


In order to augment capital under Tier II Capital structure, your Bank had issued subordinated debt instruments under four series namely, Series I (Rs.120.50 crore), Series II (Rs.29.50 crore), Series III (Rs.200.00 crore) and Series IV (Rs.250.00 crore) issued on 30.06.2007, 29.03.2008, 27.09.2008 and 17.11.2012 respectively, with each Series having a maturity tenure of 120 months from the date of issue.

Series I (Rs.120.50 crore) is due for redemption on 30.06.2017 (upon completion of 120 months from the date of issue) and your Bank has ensured timely interest payment on the said debt instruments since the year 2007 and will redeem the said debt instruments as per the scheduled timeline. The redemption value has already been factored into while considering the capital adequacy ratio (CAR) for the financial year 2016-17 and therefore is no impact on CAR post redemption.


During the year under report, your Bank achieved a turnover of Rs.14561.52 crore in foreign exchange business as against Rs.14277.44 crore in the previous year. The outstanding advances to export sector stood at Rs.1631.02 crore as on March 31, 2017.


Your Bank has been focusing on containing the nonperforming assets through better credit monitoring as well as intensified efforts to recover the impaired assets. However, in view of the continuing slowdown in the economy and delinquencies in select sectors, the Bank''''s Gross NPAs as on March 31, 2017 has increased from Rs.1180.40 crore (3.44 per cent) to Rs.1581.59 crore by the year end (4.21 per cent). The Net NPAs stood at Rs.974.73 crore (2.64 per cent) as against Rs.795.47 crore (2.35 per cent) as on 31st March 2016. However, Provision Coverage Ratio (PCR) improved to 54.00 percent as on March 31, 2017 from 48.39 per cent as on March 31, 2016.


Pursuant to the Guidelines issued by RBI on Accounting Standard 17 (Segment Reporting), the Bank has identified four business segments viz., Treasury, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations for the year ended 31st March 2017 as under:

Treasury Operations

During the year ended 31st March 2017, your Bank has earned total revenue of Rs.1642.55 crore from Treasury operations with a contribution of Rs.442.87 crore to profit before tax and un-allocable expenditure.

Corporate / Wholesale Banking

The revenue earned by the Bank during the year under report from this Segment was Rs.1814.36 crore with a contribution of Rs.-56.12 crore to profit before tax and unallocable expenditure.

Retail Banking

During the year 2016-17, this Segment has earned revenue of Rs.2281.72 crore with a contribution of Rs.165.19 crore to profit before tax and un-allocable expenditure.

Other Banking Operations

During the year ended 31st March 2017, this segment has generated revenues of Rs.256.11 crore with a contribution of Rs.34.23 crore to profit before tax and unallocable expenditure.


The financial year 2016-17 evidenced revelation both in the international and national scenarios. The international events included political changes in the Advanced Economies (AE), fluctuations in the crude oil prices, unsettled global political climate in some of the countries etc. Factoring the international developments, India also witnessed exchange rate fluctuations, sluggish growth leading to slower pace of exports, impact on consumer prices due to fluctuations in the oil prices etc.

In order to contain the rising incidence of fake notes and black money, on 08.11.2016 the Government of India withdrew legal tender of specified bank notes (SBNs) (i.e. denominations of Rs.500 and Rs.1000) issued by the Reserve Bank of India and subject to certain conditions, SBNs held by a person could have been exchanged at the branches of Reserve Bank of India, public sector banks, private sector banks etc., up to December 30, 2016. During the said period, Bank played a crucial role in making the Government action successful and impact of demonetization was transitional in nature and momentum across all sectors has started picking up since February 2017.

The headline inflation declined to lowest levels during November 2016-January 2017. Drop in the prices of vegetables and pulses leading to downward trend in the inflation was visible during immediate months of post demonetization. This was due to cash intensive transactions in the agri-commodities in the market.

However, remonetization started firming up in the month of January 2017 leading to firmer food and fuel prices which drove the overall inflation in the month of February i.e. Consumer Price inflation showed an upward trend and stood at 3.81 per cent in March 2017 as against 3.65 per cent in February 2017 as against 3.17 per cent in January 2017. Pace of remonetization, increase in oil prices are some of the reasons for upward trend in the CPI.

With the Central Statistical Office’ provisional estimates for 2016-17, real GVA growth for 2017-18 have been projected at 7.3 per cent. Growth in the services sector and industry and also implementation of uniform GST and other structural reforms, is expected to take the GVA rate to the expected level. Reserve Bank of India has revised the inflation to an average 4 per cent for the medium-term target of the FY 2017-18. Key upside risks to inflation on the domestic front includes uncertain monsoons, 7th Pay Commission impact, gap in government deficit led by states etc. besides, fluctuations in the international crude oil prices, volatility in the global financial markets, rise in international commodity prices etc.


The overall growth in bank deposits and credit during the year remained sluggish especially during the second half of the financial year 2016-17. Banks faced unexpected surge in the flow of cash into their vault due to demonetization move by the Government. The credit off take witnessed downward trend. Post January 2017, the remonetization started picking up, which resulted in credit growth again and improvement in the consumption.

Banking sector as such, credit expanded by 5.1 per cent while deposits grew by 11.8 per cent in the financial year 2016-17. Banking sector was embroiled in NPA issues which dissuaded growth of credit to industry. On the whole, the distressed assets is posing serious problems and the Central Government, Regulator & banks are making coordinated efforts to control the said menace.

In the recent past good number of Fin-tech companies, small finance banks, payment banks, start up companies etc have emerged in the Indian financial sector and your bank treats it as an opportunity for cooperation and collaboration in furthering the agenda of financial inclusion wherever necessary.


Based on the prediction of normal monsoon, considering the pace of remonetization, the economic growth is projected at 7.3 per cent. The Government’s thrust on infrastructure development besides technological advancement in the manufacturing sector may open up avenues to Banks to finance these projects. The improved employment in the country, higher income levels etc. augur well for the long term sustainable growth of retail lending in the Indian market. Government’s inclusive growth agenda may also bring additional business to banks.

The biggest opportunity for the Indian banking system today is the Indian consumer. Demographic shifts in terms of income levels and cultural shifts in terms of lifestyle aspirations are changing the profile of the Indian consumer. This is regarded as key driver of economic growth going forward. The focus of Union Budget 2017-18 on reviving the rural economy and doubling rural income could support rural consumption demand more enduringly going forward which may ultimately lead to increased business opportunities for banks.

With an aim to promote digital payments and less-cash society, several initiatives are being taken by the Government of India. With the help of optimum utilization of technology and telecommunication system, ground-breaking methods are being encouraged for financial transactions such as Aadhar Enabled Payment Systems (AEPS), Unstructured Supplementary Service Data for feature phone based financial transactions (USSD), Mobile wallets, Unified Payments Interface (UPI) etc. and your Bank perceives ample opportunities to participate in the digital banking movement.

In order to consolidate the laws relating to insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner, the Government of India notified the “Insolvency and Bankruptcy Code, 2016” (Code) on 28.05.2016. The code defines the institutional framework, operative guidelines, adjudicating procedures for time bound insolvency resolution process and liquidation. With the implementation of the Code, Indian lending system gets advantages in dealing with stressed assets.


With the technological advancement sweeping the banking industry leading to steady migration to digital banking, the operational landscape of Banks is likely to change for the better enhancing cost effectiveness and productivity. With the expected growth in the GDP and improvement in export momentum, coupled with the growing service industry, good monsoon etc., there are great opportunities for the banks to improve their business. However, the continued deterioration in assets quality is haunting the banks and your bank is hopeful of containing the NPAs through vigorous monitoring efforts. The recovery of NPAs is also expected to be aggressive. Further, ordinance to amend the Banking Regulation Act, 1949 promulgated by the Hon’ble President of India in the month of May 2017 is a positive move for the overall banking industry.


In the normal course of business, banks are exposed to various risks, namely, Credit Risk, Market Risk and Operational Risk, besides other residual risks such as Liquidity Risk, Interest Rate Risk, Concentration Risk, Strategic Risk, Reputation Risk etc. With a view to efficiently manage such risks, your Bank has put in place various risk management systems and practices. In line with the guidelines issued by the Reserve Bank of India from time to time, your Bank continues to strengthen various risk management systems that include policies, tools, techniques, systems and other monitoring and forewarning mechanisms.

Your Bank aims at enhancing and maximizing the shareholder value by achieving appropriate trade-off between risks and returns. Your Bank''''s risk management objectives broadly cover proper identification, assessment, measurement, monitoring, controlling, mitigation and reporting of the risks across various business segments of the Bank. The risk management strategy adopted by your Bank is based on a clear understanding of the risks and the level of risk appetite, which is dependent on the willingness of your Bank to take risks in the normal course of business. A Board level committee, viz., Integrated Risk Management Committee periodically reviews the risk profile, evaluates the overall risks faced by the Bank and develops policies and strategies for its effective management.

Various senior management committees such as Credit Policy Committee (CPC), Asset-Liability Management Committee (ALCO), Operational Risk Management Committee (ORMC) etc operate within the broad policy framework of the Bank to ensure and enhance the risk control and governance framework within the Bank.

The Risk Management Department at Head Office oversees the overall implementation of various risk management initiatives across the Bank.

In line with the guidelines issued by RBI, your Bank has implemented the New Capital Adequacy Framework and is Basel II compliant with effect from March 31, 2009, by adopting the basic approaches available under the guidelines. While complying with all the requirements of the basic approaches under Basel II, your Bank has taken the necessary steps to move over to Basel II Advanced Approaches as per the Road Map approved by the Bank''''s Board in this regard. As a part of the Basel III, Pillar III -Market Disclosure requirement, your Bank has made a detailed Pillar III Disclosure, which is appended to this report as Annexure II. The Bank conforms to the Basel III guidelines from April 1, 2013 and has also assessed the future capital impacts.

In compliance with Basel guidelines, the Bank has put in place a policy document for Internal Capital Adequacy Assessment Process (ICAAP) to evaluate its capital adequacy relative to its risks. Stress testing framework for various stress scenarios is also put in place for better understanding of the likely impact of adverse market movements/events on the capital and earnings. The results of the ICAAP and Stress testing are reviewed periodically to assess the capital requirement for the projected business growth, keeping in view the risk appetite and risk profile of the Bank. A Board level committee, viz., Internal Capital Adequacy Assessment Committee (ICAAC), reviews the risk appetite, risk profile, business projections as well as capital assessment of your Bank at periodical intervals

To evaluate and review the performance of various business units/ products/ customers etc, your Bank has introduced a scientific Fund Transfer Pricing (FTP) and Customer Profitability Management System (CPMS) for better management of risk and return. FTP & CPMS enable the Bank to assess the profitability at various levels like branch, product, customers, accounts, regions etc. The system enables the Bank to perform various profitability related analysis and helps the Bank to make more business-focused decisions to increase the long-term profitability.

For continuous monitoring of customer induced transactions under various Alternate Delivery Channels (ADC) and Core Banking Solution (CBS), your Bank has implemented Enterprise Level Fraud Risk Management System (ELFRMS) in September 2016. This is an automated transaction monitoring system for detection of frauds in customer accounts. Based on a range of scenarios, various alerts triggered by the system are monitored by ELFRMS team from various risk and fraud angles. The system acts as a check on potential fraud incidents as a preventive measure and is intended to identify the potential fraudulent transactions covering various channels like internet banking, mobile banking, debit card, POS, CBS etc on real time basis, based on predefined probable fraud scenarios.

In line with guidelines issued by RBI, your Bank has nominated a Chief Information Security Officer (CISO), who is responsible for articulating and enforcing the policies that Bank uses to protect the information assets apart from coordinating security related issues in implementation of new systems under Information Technology in the Bank.


Your Bank has adopted the KBL Vision 2020, a five year business plan guiding the path of the Bank for achieving set goals. Bank’s Vision 2020 document reflects the aspirations of all the stakeholders for achieving various targets by taking advantage of emerging opportunities, upgrading IT infrastructure, strengthening audit, vigilance and risk management practices and compliance culture and taking steps to improve efficiency of people, processes and products by continuously evolving new strategies and policies and create value for its shareholders by optimally utilizing capital resources. As per the KBL Vision 2020 document, Bank’s total business turnover is projected to increase to Rs.1,80,000 crore with deposits of Rs.1,00,000 crore and advances of Rs.80,000 crore by March 2020 besides recording significant improvement in key financial parameters. Bank is moving progressively towards reaching above targets.


During the year under report, your Bank opened 40 new branches in 9 States - one each in the States of Punjab and West Bengal, 2 each in the states of Andhra Pradesh, Delhi [U.T], Kerala and Tamil Nadu, 3 in Gujarat, 4 in Maharashtra and 23 in Karnataka. Out of these 40 branches, 10 branches [9 in the state of Karnataka and one in Kerala] have been opened in Unbanked Rural Centres under Financial Inclusion Initiatives of the Bank. Further, your Bank has added 117 ATM outlets at various locations during the year 2016-17. Your Bank has also 24X7 e-lobby/mini e-lobby facility at 110 locations. Bank also has 10,314 POS (Point of Sale) machines across India (Previous year 3123 POS machines).

As at 31st March 2017, your Bank had 2,148 Service Outlets i.e. 765 branches, 1,380 ATMs and 3 extension counters spread across 21 States and 2 Union Territories. Apart from the above, your Bank has 12 Regional Offices, an International Division, a Data Centre, a Customer Care Centre, 4 Service branches, 2 Currency Chests, 2 Central Processing Centres and 3 Asset Recovery Management branches.

Further, for better ambience and improved customer service, your Bank shifted 17 branches/offices to new premises during the year 2016-17.


Every customer is important to us. Keeping this in mind, several customer-centric initiatives have been introduced by your Bank during the year under report. To improve customer service and to reduce waiting time of customers at branches, Bank has rolled out the Single Window Service concept on a trial basis at 20 branches during 2016-2017. The Single Window Service for non-cash transactions with Queue Management System (QMS) has helped in reducing the processing time at branches. Your Bank also introduced the New Pension Scheme (NPS) for the unorganized sector and facilitated investment to Sovereign Gold Bond Scheme-2016-17.

Bank is actively involved in putting in place systems and procedures to comply with the recommendations of the Damodaran Committee on Customer Service, constituted by the Reserve Bank of India, to look into the banking services rendered to customers and the grievance redressal mechanism prevalent in banks. Your Bank has complied with all the recommendations made by the said Committee.

Being a member of the Banking Codes and Standards Board of India (BCSBI), your Bank adheres to standards of banking practices while dealing with individual customers and micro and small enterprises. BCSBI conducts survey of select branches of the member bank from time to time and provide its ‘Code Compliance Rating’ and your Bank is ranked 17th amongst 51 banks considered for the study during the year 2016-17.


Bank has adopted the strategy of ‘Managing Channels instead of Managing Branches’ and is always pioneer in adopting technology driven delivery channels i.e., digital channels and bringing out innovations & value additions in its existing digital channels. The major digital initiatives taken by the Bank during the FY 2016-17 are:

- Introduction of “KBL POS Manager” Android mobile app for POS merchants to keep track of in-store transactions;

- Mobile Banking App “KBL mobile” to ensure instantaneous remittance;

- “KBL SMARTz” Android mobile App on Unified Payments Interface (UPI) platform of NPCI facilitating Interoperability, Push - Pull Payments & fund transfer through virtual address;

- Fincale e-Banking Application (FEBA) with a host of new features such as IMPS, bulk upload, online term deposit account opening, dashboard etc.

- RuPay International Platinum Debit Card for privileged customers of the Bank with enhanced withdrawal / purchase limit coupled with bundled offers

- Co-branded credit Card in collaboration with State Bank of India

Apart from the above, Bank has also introduced “KBL Loan Junction” for submission of online loan application. Besides, in order to promote entrepreneurship amongst SC/ST, women, schemes viz. “Start-up India”, “Stand-up India” were introduced. “KBL Contractor Mitra “; KBL Commodity pledge Loan were the other new Schemes initiated during the year. Your Bank will continue to put efforts in the direction of introducing products/services to cater to the needs of present and prospective customer base and to be a ‘one-stop-shop’ for all financial requirements.


With an aim to provide diversified financial products and services and to maximize value addition to the customers, your Bank provides para-banking third party products such as Bancassurance, Mutual Funds, Online Trading etc and during the year under report, Bank has tied up with 5 institutions.


Your Bank bagged the following awards during the year under report in recognition of its achievement under technology initiatives, social banking, export performance etc.

- ASSOCHAM Social Banking Excellence Awards 2016, under Small Banks category, received on 03-03-2017

1. Winner - Government Schemes.

2. Winner - Priority Sector Lending

3. Runner up - Agricultural Banking.

4. Runner up - Overall Best Social Bank.

- IBA - Banking Technology Awards 2017, under the following categories.

1. Winner - Best Financial Inclusion Initiatives (Small Bank category).

2. Runner up - Best use of Digital and Channels Technology (Small Bank Category).

- "Best MSME Bank Award 2016" under Private Sector, instituted by the Associated Chambers of Commerce & Industry of India (ASSOCHAM), New Delhi, received on 06-12-2016.

- FIEO - Southern Region Export Excellence Award : Best Financial Institution (Southern Region) for the support extended to Export Business, for the year 2013-14 under the Gold Category, instituted by Federation of Indian Export Organizations, received on 08-10-2016.

- Greentech Safety Award 2016 - GOLD AWARD, for significant achievements made in the field of safety and security, instituted by Greentech Foundation, received on 29-08-2016.

- "Certificate of Special Mention for use of Technology for Financial Inclusion among small banks" instituted by IDRBT, received on 18-07-2016.

- CFBP Jamnalal Bajaj Awards 2015 for Fair Business Practices - Certificate of Merit under the category "Service Enterprises - Large", received on 14-06-2016.

- Award of Excellence for Outstanding Performance in MSME Funding, instituted by Federation of Industry Trade & Services [FITS], received on 03-05-2016.


Financial Inclusion means making available the full range of banking services at an affordable cost to the people who do not have access to banking services. It mainly focuses on the section of society not having formal financial institutional support. Through the

Financial Inclusion Plan, Bank aims at ''''connecting people'''' with the Bank and not just opening accounts. This includes meeting the small credit needs of the rural public, giving them access to the payments system, providing remittance facility and life and health insurance. Efforts are being made to optimize the resources to achieve the goal of extending banking facilities to the unbanked areas/deprived sections.

All the branches of the Bank are under Core Banking Solution (CBS) and all the branches to be opened in future will also be under CBS. Out of 765 branches, Bank has 174 rural branches and all these branches are provided with CBS offering all banking facilities to the rural clientele in the gram panchayats or villages where these branches are located. All the rural branches are also acting as Financial Literacy Centers (FLCs) and imparting Banking literacy among the rural Populace.

In accordance with announcement of Prime Minister Jan Dhan Yojana (PMJDY) on August 15, 2014 revised Strategy & Guidelines of Department of Financial Services (DFS), Ministry of Finance, Govt. of India, has been considered for implementation of Financial Inclusion activity of the Bank. PMJDY takes in to account both rural sub service areas (SSAs) and urban wards for Financial Inclusion. Under the revised financial inclusion plan, in rural areas, Bank is allocated with 214 Gram Panchayats (GPs) for Financial Inclusion, covering 297 Sub service Areas (SSAs) consisting of 1039 villages in the states of Karnataka, Chattisgarh, Maharashtra and Andhra Pradesh and in urban areas, 313 wards are allocated in Karnataka and other States. The Gram Panchayats are being financially included through Brick and Mortar Branches and Business Correspondents (BC). Your Bank has been issuing RuPay PMJDY Debit Cards under the domestic card payment scheme launched by the National Payments Corporation of India (NPCI) and has also introduced Aadhaar Enabled Payments System (AEPS) at all BC locations of the Bank.


As on March 31, 2017 Bank has covered 547 villages of 105 GPs through Brick & Mortar Branches.


Bank has entered into an agreement with M/s BASIX Sub-ki Transaction Ltd and M/s Integra Micro Systems Pvt. Ltd. to provide online transaction facility and as on March 31, 2017, 113 GPs with 141 SSAs covering 517 villages of Karnataka, Andhra Pradesh and Chhattisgarh States were covered under the above arrangement.


As permitted by the Reserve Bank of India Bank had opened USBs where business correspondents (BCs) could conduct operations and thereby boost confidence of customers to use their financial services. As on 31st March 2017, your Bank has 37 USBs.


Bank is participating in Govt. of Karnataka (GOK) EBT Pilot project for NREGA/SSP beneficiaries under - “One District - Many Bank Model” and is disbursing the payments under the above schemes to the beneficiaries using smart card and hand held machines at 5 Gram Panchayat locations in Chitradurga and Yadgir districts.


Bank is actively participating in Direct Benefit Transfer (DBT) Programme of Govt. India, wherein, the Govt. would transfer benefits of various Schemes directly to the beneficiaries Aadhaar enabled bank accounts and also accounts seeded with LPG ID in case of transfer of subsidy for LPG. For this purpose, Bank has on boarded with NPCI for Aadhaar Payment Bridge System (APBS) under National Automated Clearing House (NACH). Revised DBTL was introduced on November 15, 2014 and launched throughout the country on January 1, 2015. Both the Aadhaar based and LPG ID based approaches are made available to customers across all branches of the Bank.


Bank has sponsored 5 FLCs at B.C Road, Tiptur, Hangal, Kundagol and Alur in a joint venture with M/s Jnana Jyothi Financial Literacy and Credit Counseling Trust, Manipal. During the financial year 5 FLCs sponsored by the Bank have conducted 1227 Financial Literacy campaigns and 50024 participants had been covered. In adherence to RBI guidelines all the rural branches of our Bank are also conducting financial literacy Camps.


Three Social Security Schemes- Prime Minister Jeeven Jyothi Bima Yojana (PMJJBY), Prime Minister Suraksha Bima Yojana (PMSBY) and Atal Pension Yojana (APY) have been launched by Hon’ble prime Minister on 1st June 2015. All the branches of your Bank are actively involved in providing the above benefits of the schemes to the customers across the country.

1) PMJJBY provides life Insurance coverage of Rs.2,00,000/- by paying yearly premium of Rs.330/-. A person aged between 18 to 50 years holding account in a bank is eligible for the scheme. A total of 1,36,200 lives have been covered till 31.03.2017.

2) PMSBY provides Accidental insurance coverage of Rs.2,00,000 by paying yearly premium of Rs.12/-. A person aged between 18 to 70 years holding account in a Bank is eligible for the scheme. A total of 1,99,390 lives have been covered till 31.03.2017

3) APY : This scheme was launched by the Government of India on 9th May, 2015 to address the old age income security needs of the citizen in an affordable manner linked to auto debit facility from the bank''''s savings account of the subscriber. Your Bank is actively participating in the scheme, with all branches being registered as Point of Presence-Service Provider (POP-SP) for APY. As on 31-32017 Bank has opened 23181 APY accounts.


In accordance with announcement of Prime Minister Jan Dhan Yojana (PMJDY) on August 15, 2014, revised Strategy & Guidelines of Department of Financial Services (DFS), Ministry of Finance, Govt. of India, has been considered for implementation of Financial Inclusion activity of the Bank. PMJDY takes in to account both rural, semi urban, urban wards and metro for providing basic banking facilities to the unbanked populace. PMJDY also provides scope for RuPay debit card that is inclusive of Rs.1 lakh accidental insurance.

All the branches across the country have opened accounts under PMJDY and are issuing RuPay Debit Card under the domestic card payment scheme launched by the National Payments Corporation of India (NPCI).

A total of 25,10,929 accounts have been opened under PMJDY since 15.08.2014 till 31.03.2017, with outstanding balance of Rs.2545.80 crore. A total of 2,09,197 RuPay cards have been issued so far by the Bank.


The Bank has introduced AEPS transaction services offered by National Payments Corporation of India (NPCI) at all Business Correspondent (BC) locations of the Bank. Any bank customer having any type of SB account that is Aadhaar enabled can now transact at the BC point.


Businesses play an important role in the growth of an economy. The growth of the economy becomes meaningful only when it translates to the welfare of the society. Towards this end, business establishments have to align their objectives in such a way that they also contribute to the development of the society with special concern for uplifting the marginalized sections of the society. The Corporate Social Responsibility initiatives of the Bank are designed to ensure that the Bank adds social, environmental and economic value in all its activities to make a positive, sustainable impact on both society and business. In this direction, your Bank has been responding well over the years through various social initiatives and has identified some core areas of intervention like healthcare, education/ livelihood enhancement, empowering women/ socially and economically disadvantaged, environmental sustainability/ green initiatives, protection of heritage/culture, promotion of sports, rural development etc. aimed at improving the overall development of the society. Further, to minimize the urban - rural divide, your Bank has been strengthening its rural orientation through initiatives aimed at imparting financial literacy and extending banking services to the people in rural unbanked areas, in a fair and transparent manner, at an affordable cost.

Further, pursuant to Section 135 of the Companies Act, 2013 read with Companies (Corporate Social Responsibility Policy) Rules, 2014, the Board has setup a Committee of Directors namely, ''''Corporate Social Responsibility (CSR) Committee'''' and has also put in place a Policy on Corporate Social Responsibility (CSR Policy) to undertake projects/programmes in pursuance to the above

Policy. The contents of the CSR Policy along with the report on amount spent on various projects/programmes during the financial year 2016-17 is detailed in Annexure VI to this report pursuant to Rule 8 of the Companies (Corporate Social Responsibility Policy) Rules, 2014


In terms of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, your bank is one of the Top 500 listed entities based on the market capitalization as on March 31, 2016, and is required to report Business Responsibility Reporting describing the initiatives taken by the Bank from an environmental, social and governance perspective as per the format prescribed by SEBI which is enclosed as Annexure VIII.


An effective and sound internal audit function provides independent assurance to the board of directors and senior management on the quality and effectiveness of Bank’s internal control, risk management and governance systems and processes, thus helping the board and the senior management in protecting the organization and its reputation.

Your Bank has put in place an effective and robust internal control apparatus, commensurate with its size, geographical spread and complexity of operations. At the apex level, guidance and direction on the control aspects is vested with the Audit Committee of the Board of Directors which takes an overall view on the internal control aspects and formulates all the related policy guidelines. The Bank has put in place an independent Compliance Department in charge of the entire compliance functions of the Bank.

Historically, the internal audit system in the Bank has been concentrating on transaction testing, testing of accuracy and reliability of accounting records and financial reports, integrity, reliability and timeliness of control reports and adherence to legal and regulatory requirements. With the implementation of Risk-Based Internal Audit (RBIA), greater emphasis is placed on the internal auditor''''s role in mitigating various risks. While continuing with the traditional risk management and control methods involving transaction testing etc., the risk-based internal audit would, not only offer suggestions for mitigating current risks but also on potential future risks, thereby playing an important role in the risk management process of the Bank.

The risk assessment under RBIA would cover risks at various levels (corporate and branch; portfolio and individual transactions etc.) as also the processes in place to identify, measure, monitor and control the risks. The internal audit department is devising the RBIA risk assessment methodology, with the approval of the Board of Directors, keeping in view the size and complexity of the business undertaken by the Bank. The risk assessment process would include the identification of ''''inherent business risks'''' in the various activities undertaken by the Bank, and evaluate the effectiveness of the control systems for monitoring the inherent risks of the business activities (''''Control Risk'''') and then draw up a risk-matrix by taking into account both the factors viz., inherent business and control risks.

In pursuance of seeking periodic assurances on the adequacy and efficacy of internal control functions, the Bank causes periodic Regular Inspections and Information System (IS) Audit of all the branches and offices. Besides, your Bank also covers select branches under concurrent audit, the aggregate turnover of which account for over 64.03% of the gross bank credit and over 50.37% of aggregate deposits of the Bank. Short Inspection of all the branches which are not subjected to concurrent audit is also caused besides, concurrent audit of treasury functions (both domestic and forex), International Division, Forex designated offices, Central Processing Centre, Currency Chests, Information Systems audit of Data Centre and DR Site etc. Besides, the Bank has also been causing Stock and Credit audits of large borrowal accounts by external, professional audit firms in furtherance of effective credit administration. The Bank has also taken prompt action on the implementation of the RBI Guidelines on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds.

To appraise the effectiveness of management at different levels in accomplishing the assigned tasks towards achieving the overall corporate objectives, Management Audit is also introduced by your Bank for Departments at Head Office & Regional Offices.

Your Bank has put in place the policies and procedures for ensuring orderly and efficient conduct of its business, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records and timely preparation of reliable and transparent financial information. The Audit Committee of the Board periodically assesses the effectiveness of the internal financial controls and their adequacy and issues directions for its strengthening wherever found necessary.

Your Bank is in the process of automating the internal audit processes during the year 2017-18.

Considering the need for having a strong collection mechanism and to contain slippages of borrowal accounts into NPAs and improve asset quality, the Credit Monitoring Department at Head Office and Credit Monitoring teams at Regional Offices ensures adherence of post sanction compliance requirements and follow up of advance through effective control and communication mechanisms.


Under the ever-changing business environment and to stay ahead of times in terms of product and services offering, and pricing and positioning, your Bank has setup an ‘Economic & Statistical Research Cell’ at the Head Office to provide strategic inputs to the Management in devising policies and also suggestions to various business units in the matter of pricing, costing, product launching, positions etc.


To enable timely reconciliation of various transactions carried out through technology enabled payment channels like NEFT, RTGS, IMPS, UPI etc happening within the Bank and between banks and the settlement of these transactions between banks, a separate centralized cell is functioning at the Head Office.


In view of the growing complexities in the processes, product offerings and systems & procedures in the Indian banking sector, pursuant to the recommendation of the High Level Steering Committee, Reserve Bank of India has shifted supervisory stance to risk-based approach called Supervisory Program for Assessment of Risk and Capital (SPARC) which is focusing on evaluating both present and future risks, identifying incipient problems and facilitating prompt intervention/ early corrective action etc. Your Bank has been included under the same and migrated to Risk Based Supervision since 31st March, 2015 and the system is working satisfactorily. A plan of action for monitoring various risks as advised by RBI has also been put in place.


As an important element in Corporate Governance structure, the Bank has set up a robust Compliance department with sufficient independence to promote healthy compliance culture within the Bank. The compliance function in the Bank ensures strict observance of all statutory provisions, guidelines from RBI & other regulators, standards and codes prescribed by regulatory bodies besides Bank''''s internal policies and fair practices code. Further, the compliance function includes interpretation/ dissemination of regulatory and statutory guidelines, observing proper standards of market conduct, managing conflicts of interest and treating customers fairly. The Bank''''s compliance function assists the top management in managing the Compliance Risk effectively. The risk- based compliance programme of the bank, under the supervision of head of compliance department, ensures appropriate coverage across businesses and coordination among risk management functions besides verifying the level of compliance through ''''Compliance Testing'''' of branches. The Bank carries out an annual compliance risk assessment to identify and assess major compliance risks faced by it and takes steps to manage the risks effectively.


The growth of Bank’s business, introduction of prudential norms and Basel requirements, increasing regulatory and internal reporting and the various business decision making requirements have necessitated the Bank to build a well-coordinated information transmission system. Management Information System makes available information for various requirements of branches/offices, top management, regulators and external agencies, Balance sheet reporting, Capital computation, Risk based supervision, Internal business reviews etc. The Bank has also implemented a Centralized Data Repository for Automatic Data Flow to RBI.


The Core Banking System (CBS) covers all the branches and offices of the Bank as on 31.03.2017. Alternate delivery Channels like ATM, Internet Banking, Mobile Banking, UPI App etc., have also been integrated with CBS. Disaster Recovery (DR) facilities for all the critical applications are established to ensure business continuity in the event of primary site failure. A three-way data replication aimed at zero data loss is also implemented for applications such as CBS, ATM, and Internet Banking.

The other technology enabled initiatives include the Asset Liability Management System (ALM), Central Data Repository (CDR), Lending Automation Processing Solution (LAPS) and Anti Money Laundering (AML) system, Mobile Banking, Integrated Treasury, Interactive Voice Response (IVR) System, Solutions for managing Market Risk and Operational Risk etc.

During the year under report, your Bank has undertaken several IT projects like setting up of new primary/secondary sites for SWIFT application, New switches for ATM and Card Management, Newer version of e-Banking platform, Live video streaming from Head Office to the entire bank workforce, Aadhar Enabled Payment System (AEPS), MicroATM management via FI (Financial Inclusion) Gateway, Alternative Network Lines for important business centres for ensuring business continuity, Introduction of Centralized Account Verification (CAVC) Process. Your Bank will continue to observe technological revolutions and take appropriate decision at the right time to provide premier banking services.

With a view to enhance security measures under digital banking, Enterprise Level Fraud Risk Management Solution has been implemented.

Further, in view of increased dependency on IT products and services and also increase in the volume of fraud/attacks observed in the industry, Bank has put in place a robust ‘Cyber Security Policy’ and also initiated steps to further strengthen its IT, Cyber, and Information Security systems by putting in place required hardware/software/appliances in line with the industry best practices.


The Banking industry across the country is now being exposed to various changes which have a direct impact on the existing systems and sphere of activities. The survival and prosperity of any industry depends upon the quality of its human resource and banking industry is not an exception to this. Accordingly, your Bank attributes the greatest importance to human resource development activities.

Your Bank deputes its employees to various training and development programmes to upgrade their skills and competencies and contribute towards the growth of the Bank. The Bank has a well-established Staff Training College having state of the art infrastructure facilities and expertise in conducting training programmes. Besides, Officers requiring specialized training are being deputed to various programmes conducted at Southern India Banks’ Staff Training College, Bangalore, National Institute of Bank Management, Pune, Reserve Bank’s College of Agricultural Banking, Pune, Institute for Development and Research in Banking Technology, Hyderabad etc. During the year 2016-17, the Bank has deputed the employees to various trainings/workshops/ conferences to update/improve their knowledge. There were 1517, 378 and 192 nominations to various programmes in the category of Officers, Clerks and Substaff respectively during the year under report.

As on 31st March 2017, Bank had 7982 employees. The Business per employee (excluding interbank deposits) has improved from Rs.10.83 crore as on 31st March 2016 to Rs.11.74 crore as on 31st March 2017. Further, your Bank has maintained cordial industrial relations.

Your Bank has put in place an institutional mechanism for protection of women employees at the workplace and adopted a policy pursuant to Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, providing for protection of women employees against the sexual harassment of women at the workplace and redressal of such complaints. The details of the complaints under the above Policy for the year under report are as under:

Number of complaints pending as at the beginning of the financial year


Number of complaints filed during the financial year


Number of complaints pending as on end of the financial year



The Bank has implemented the Protected Disclosure Policy (Whistle Blower Policy) since the year 2007 intended to promote participation of employees at all levels and detection of corruption, misuse of Office, criminal offences, suspected /actual fraud, failure to comply with the rules and regulations prescribed by the Bank and any events /acts detrimental to the interest of the Bank, depositors and the public resulting in financial loss/operational risk, loss of reputation etc. Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower who avails such mechanism and also provides for direct access to the Chairman of the Audit Committee, in exceptional cases. The Vigil mechanism is reviewed periodically. The details of Whistle Blower Policy is posted in our website and available at the link www.karnatakabank.com /ktk/ Protected Disclosure.jsp


Your Bank had implemented Employee Stock Option Scheme (ESOS 2006) and during the year under report, a total of 13,060 equity shares were allotted to the employees under the scheme. Out of the total 15,00,000 stock options granted, 12,09,834 options were exercised and the balance 2,90,166 options lapsed due to non-exercise of the options vested in the employees. The employee stock option scheme had exercise period of 5 years from the date of last vesting date and accordingly, the scheme has come to an end on 19.10.2016, upon completion of 5 years period. Disclosure in respect of Employee Stock Options Scheme pursuant to SEBI Regulation/ guidelines is given in Annexure I to this report.


As per the roadmap given by Reserve Bank of India (RBI), transition to "Ind AS" in banks will commence from the accounting period beginning April 1, 2018 onwards.


In order to facilitate effective Ind AS implementation in your bank, the Audit Committee of the Board has laid out the strategy for convergence and implementation of Ind AS in the Bank, which includes -

a) Diagnostic study to find out the differences between the current accounting framework and Ind AS framework.

b) Evaluating business impact on profitability, budgeting, taxation, Capital planning and Capital adequacy

c) Identifying issues having significant impact on information systems including Information technology (IT) Systems.

d) Developing/ strengthening Data capturing systems for Data analytics and Data Mining

e) Analyse impairment issues, revaluation of assets, documentation and disclosure requirements.

f) Explore the possibilities of availing the services of external resource persons/ firms in connection with implementation of Ind AS

Your Bank has set up a Steering Committee headed by the Managing Director, to facilitate the Ind AS implementation process in the Bank. M/s Ernst & Young have been appointed to provide assurance services for Ind AS implementation, to carry out diagnostic study and to provide consultancy in the preparation and submission of Proforma Ind AS Financial statements to RBI beginning from half year ended September 30, 2016, onwards. In this regard, your bank has duly submitted the Proforma Ind AS Financial statements for the half year ended September 30, 2016, after obtaining the approval of the Audit Committee of the Board. Further, your Bank would proceed to carry out the strategy laid out by its Audit Committee of the Board, for facilitating effective and successful implementation of Ind AS on the transition date in accordance with the relevant guidelines.


During the year under report, your Bank has adopted a Policy on distribution of Dividend to the shareholders pursuant to the Regulation 43A of the SEBI (LODR) Regulations, 2015. Gist of the Dividend Distribution Policy is as under:

- Being a Banking entity, Dividend Distribution Policy is guided by the RBI Circular DBOD.No.BP.BC.88 21.02.67/2004-05 dated May 5, 2005 with regard to eligibility criteria for distribution of dividend.

- Factors considered for recommendation of dividend include both internal factors such as financial performance, dividend payout trends, tax implications, corporation actions and external factors such as shareholders expectations, macro environment.

- Factors considered for determining the quantum of dividend include financial performance, capital fund requirements to support future business growth, having regard to the dividend payout ratio prescribed under the aforesaid RBI Guidelines.

The Dividend Distribution Policy of the Bank is hosted on our Bank''''s website.


As on March 31, 2017, your Bank had a total of eight Directors, including a woman director. All of them, except Mr.D Surendra Kumar, Additional Director and Mr. P Jayarama Bhat, Managing Director and CEO, are Independent Directors. The details of the criteria for appointment and remuneration of Directors are provided in the report on Corporate Governance forming part of this report. During the year under report, five directors retired from their office as under:



Name of the Director



Mr. T R Chandrasekaran



Retired on 09.06.2016 upon attainment of upper age limit of 70 years as per RBI Guidelines.


Mr. S V Manjunath



Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A (2A) of Banking Regulation Act, 1949


Mr. D. Harshendra Kumar



Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A (2A) of Banking Regulation Act, 1949


Dr. H. Ramamohan



Retired on 24.10.2016 upon completion of 8 years in office in terms of Selection 10A(2A) of Banking Regulation Act, 1949


Mr. Ananthakrishna

Part Time





Retired on 26.10.2016 upon attainment of upper age limit of 70 years as per RBI Guidelines.

The Board places on record its appreciation for the valuable contributions and the guidance given by the above directors during their tenure in Office.

During the year under report, Mr. D Surendra Kumar, was appointed on the Board as an Additional Director w.e.f. 29.12.2016 and as per Section 161 of the Companies Act, 2013 he would hold office upto the date of ensuing Annual General Meeting. Bank has received necessary notices under Section 160 of the Companies Act, 2013 proposing his candidature for appointment as Independent Director of the Bank and having regard to his vast experience, rich knowledge and expertise, your Directors recommend his appointment. A brief resume of Mr. D Surendra Kumar is furnished in the notice of the Annual General Meeting.

Upon attainment of upper age limit of 70 years of age, Mr. Ananthakrishna retired from office of the Part-time Non-Executive Chairman on 26.10.2016 as per extant guidelines of Reserve Bank of India. Thereafter the position of Chairman was vacant and Mr. P Jayarama Bhat resigned from his position as Managing Director & CEO and the Board of Directors at its meeting held on April 12, 2017 has, after inducting him as Additional Director on the Board, appointed him as Part time Non Executive Chairman (who assumed charge on 12.04.2017) pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt.No.12034/08.40.001/2016-17 dated April 10, 2017 in accordance with Section 10B (1A)(i) of the Banking Regulation Act, 1949.

In terms of Section 161 of the Companies Act, 2013, Mr. P Jayarama Bhat has been appointed as an Additional Director and would hold office up to the date of ensuing Annual General Meeting. Considering his experience, knowledge and expertise, and the contribution made during his tenure as MD & CEO of the Bank, your Directors recommend for approval of his appointment as a Director of the Bank. A brief resume and remuneration payable to Mr. P Jayarama Bhat is furnished in the notice of the Annual General Meeting.


Consequent to the appointment of Mr. P Jayarama Bhat as the Non-Executive Chairman, position of Managing Director & CEO of the Bank was vacant and the Board at its meeting held on April 12, 2017 appointed Mr. Mahabaleshwara M S as Managing Director & CEO of the Bank pursuant to the approval received from the Reserve Bank of India vide their letter DBR Appt. No.11838/08.40.001/2016-17 dated April 05, 2017 in accordance with Section 35B of the Banking Regulation Act, 1949, inducting him as an Additional Director on the Board.

Considering his experience, knowledge and expertise, your Directors recommend for approval of his appointment as Managing Director & CEO of the Bank. A brief resume and remuneration payable to Mr. Mahabaleshwara M S is furnished in the notice of the Annual General Meeting.


Pursuant to the provisions of Section 149(6) of the Companies Act, 2013, your Bank has received necessary declarations from all the non-executive directors confirming that they meet the criteria of independence for Independent Directors. Mr. D Surendra Kumar, Additional Director has also furnished similar declaration and subject to his appointment at the ensuing Annual General Meeting, he also meets the criteria of independence.


Your Board of

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