MANAGEMENT DISCUSSION AND ANALYSIS REPORT
Macroeconomic Scenario & Banking Environment
The financial year 2015-16 witnessed significant volatility in global markets with commodities moving to historical low levels and the Chinese economy facing an unbrcedented slowdown. Global macro growth has been fragile, despite some momentum at the start of the year. The US Federal Reserve finally increased the Fed Funds rate by 25 bps in its December 2015 Monetary Policy, and maintained a dovish tone for future.
The Commodities market saw huge selling brssure in fiscal 2016 due to oversupply worries and muted demand in China. Brent Crude price touched a 12-year low of $27.36 on the back of continued OPEC supply as well as expectation of increased production from Iran. However, prices stabilised at around $40 levels on rumours of planned production cuts by Russia and Saudi Arabia. China’s economy grew at its slowest rate in 25 years, increasing brssure on Beijing to address fears of a prolonged slowdown and ease the jitters affecting global markets. The full-year growth of 6.9% was only just short of Government expectations of 7%, but well below the growth rate of 7.3% in 2014. The European Central Bank cut interest rates in the Eurozone to zero, expanding its Assets Purchase programme to €80bn a month, and reduced a key deposit rate further into negative territory to 0.4% as it sought to revive the economy and fend off deflation. The Bank of Japan also surprised markets by adopting negative interest rates in January, more than a year and a half after the European Central Bank became the first major institution of its kind to venture below zero. By February 2016, more than $7 trillion of Government Bonds worldwide offered yields below zero.
India recorded a GDP growth of 7.5% which was marginally lower than initial Government projections. The positive news has been on the CPI, which averaged around 4.9% in FY16 as against 6.25% in FY15 on the back of a steep fall in Commodity and Crude prices and better food supply management, despite the second straight year of deficient rainfall. The CPI has been well within RBI’s projected range, providing room for interest rate cuts and maintaining of an accommodative stance to aid growth. The IIP data has been erratic throughout the year, and did not yield any definite trend in manufacturing, though the Infrastructure Output Index showed a nascent recovery. Indian Rupee moved lower to September 2013 levels of 68.12 against the US Dollar, due to continued strengthening of the US Dollar and debrciation of the Yuan, though on relative basis it was one of the best performing currencies in the Emerging market. As on March 31, 2016, USD-INR was trading at 66.56. India’s forex reserves were at about $354bn, up from $340bn last year.
The year started with RBI keeping the policy rates steady in its first bi-monthly policy on April 7, 2015 but maintained an accommodative stance for future actions. The repo rate was, later in the year, reduced by 75 bps points to 6.75%, which was in addition to the cut of 50 bps done prior to March 2015. RBI also undertook steps to tackle the growing NPA problem in the banking system, with the banks being asked to make provisions for all the bad loans and clean up the books by March 2017. Against this backdrop, banks have managed productivity and efficiency levels through liquidity and resource mobilisation strategies that proactively factor in the changing market conditions. The Debt Markets outperformed their Equity peers with the Ten-Year benchmark yields moving lower owing to reduction in rates by RBI and the benign net Central Government borrowing target for the next fiscal. GOI 10-year yield closed at 7.46% as of March 2016, as against 8% as of April 2015.
The salient features of the Bank’s operating performance during the year 2015-16 are summarized in the table below:
Though the operating environment was quite challenging during most of the financial year, Net Profit, after considering all expenses and Provisions and Contingencies, rose by 27.47% to Rs. 2,286.45 crores as against Rs. 1,793.72 crores in the brvious year. The Operating Profit (before Debrciation and Provisions and Contingencies) rose robustly by
Though the operating environment was quite challenging during most of the financial year, Net Profit, after considering all expenses and Provisions and Contingencies, rose by 27.47% to Rs. 2,286.45 crores as against Rs. 1,793.72 crores in the brvious year. The Operating Profit (before Debrciation and Provisions and Contingencies) rose robustly by showed a drop of 67 bps at 7.25%. Net Interest Margin for the year improved well at 3.81% as compared to 3.65% achieved in the brvious year, mainly due to the composition of the Asset Portfolio, benign interest rate movements during the year, timely equity infusion in July - August 2015, and judicious mobilisation of funding resources through deposits and borrowing, including overseas borrowings and refinance from institutions.
Fee and Miscellaneous Income at Rs. 3,296.95 crores, as compared to Rs. 2,548.00 crores for the brvious year, showed strong growth of 29% y-o-y. Core Fee Income from revenue streams like Commission, Exchange, Fees on distribution of Third-Party products and earnings from foreign exchange business, etc., rose to Rs. 2,809.59 crores as against Rs. 2,230.79 crores, registering a growth of 25.95%.
The Bank expanded its branch network steadily to reach 1,000 branches, as against 801 branches at the beginning of the year. Revenue per employee remained steady at Rs. 33.88 lakhs.
Though the economy in general, and the corporate sector in particular, were under severe stress, the asset quality at the Bank remained stable, with Net Non-Performing Assets (Net NPAs) at 0.36% as at March 31, 2016 as against 0.31% a year ago. Provision Coverage Ratio (PCR) was maintained at 59%, as compared to 63% in the brvious year. Return on Assets (ROA) was placed at 1.91% for the current year, as against 1.90% in the brvious year.
During the year under review, the Bank allotted 5,12,18,640 equity shares of Rs. 10/- each at a price of Rs. 845.00 per share, aggregating Rs. 4,327.98 crores through a Qualified Institutions Placement (QIP). The Bank also made a Preferential Allotment of 87,81,360 equity shares of Rs. 10/- each at a price of Rs. 857.20 per share to its Promoters, aggregating Rs. 752.74 crores. Further, the Bank allotted 55,36,126 shares, pursuant to the exercise of Options under its Employees Stock Option Scheme, 2007. Consequently, the Capital Adequacy Ratio (CRAR) of the Bank under Basel III Capital Regulation issued by RBI showed significant improvement at 15.50% as at March 31, 2016 as against 12.09% as at March 31, 2015.
Engagement and Campaign Management
The Bank is committed to building lasting and valuable relationships with customers. Understanding the Clients’ financial needs and offering them relevant products and services in a timely and seamless manner is critical to achieving this.
The Bank is building a scalable cognitive platform towards this objective, by combining advanced analytical models with a state-of-the-art Campaign Management System. This will allow us to understand and proactively serve our clients across human and digital channels in a focused and scalable manner. We aim to leverage this capability to engage with our clients and build lasting relationships by making attractive offers at the right time, another vital step to fulfilling our promise of “Aapne Chaha Hamne Kiya”.
Kisan Credit Card (KCC) - Indus
Kisan Term Loans and Overdraft
Retail Agri Business, which was launched during the financial year, also witnessed sturdy growth through expansion into key markets. Since its launch, the Bank has built a highly diversified portfolio, ranging from funding of traditional agricultural activities to high-tech farming / Agri-allied activities. The Bank penetrated into new rural / semi-urban locations in the States of Punjab, Haryana, Rajasthan, Maharashtra, Gujarat and Madhya Pradesh. The portfolio has helped in growing exposure in ‘Priority Sector Lending’ and ‘Weaker Sections Lending’.
As an extension to the Bank’s ingrained theme of responsive innovation, multiple digital platforms have been launched during the financial year. IndusMobile, the Bank’s Mobile Banking application has been re-launched as a new and improved App, which enables clients to do banking transactions in a simple, fast and secure manner. The Banking App comes with smart features like biometric verification, instant Money Transfers, quick and easy recharges of mobile or DTH, and is truly an invitation to the next generation for new-age banking.
Another launch in digital service is QuickPay, a Payments facility, which enables transfer of funds from customers’ accounts to the beneficiary, without even knowing the latter’s Bank Account details. This 24X7 Digital payment service provides the Bank’s customers the convenience of instant transfer of funds using the IMPS facility.
In synergy with enhanced usage of social media platforms by Indian consumers, the Bank has launched ‘OnTheGo Social Banking’ which enables customers to do banking transactions on Social Media platforms like Facebook and Twitter. SwiftPay, another innovative App-based service, facilitates the Bank’s customers to pay their utility bills through an electronic platform.
The Bank opened 199 branches during the year as part of its strategy of expanding its banking network to different locations in the country, taking the total branch count to 1,000. The milestone Thousandth Branch was opened in Kala Nagar, Mumbai, in March 2016 The Bank also expanded the ATM network to 1,800 ATMs, by opening 313 new ATMs. The Bank has also partnered with White-Label ATM Operators to set up co-branded ATMs. 200 additional branches are planned to be opened during the year 2016-17 in select geographies.
The Bank’s Credit Cards business, acquired from Deutsche Bank in 2011, has scaled up and grown in distribution and profitability while remaining focused on the quality of customer receivables. The business has enhanced its online and digital brsence.
The branch infrastructure is being effectively leveraged towards new account bookings and cross-sell initiatives. The business has also leveraged its strong relationships with marketing partners and service providers towards creating strong customer-centric promotions while driving the portfolio growth and customer spends - enhancement agendas.
The Commercial Cards Business, which was launched in the last quarter of FY15, has grown and is adding significant value to the Bank’s Corporate clients. The program provides sophisticated Payment solutions for Corporates to meet some of their critical B2B payment requirements. The integrated MIS solutions have significantly simplified customers’ expense management systems.
Customer receivables have grown 53%. The Credit Bureau continues to be a key guide in Risk underwriting, and astute use of the Bureau data along with strong analytics as a tool, has ensured that the portfolio continues to perform well. Multiple portfolio actions, including Credit Line actions, were undertaken during the year. The Bank has tie-ups with all the three leading network partners, Master Card, Visa and Amex. Attractive EMI programs facilitating customer convenience are offered.
The Consumer Finance Division (CFD) extends funding for a wide range of Vehicles and Equipment, including Commercial Vehicles, viz., Heavy, Light and Small vehicles used both for goods and passenger applications, Passenger Cars, Utility Vehicles, Two-wheelers and Construction Equipment such as, Excavators, Loaders, Tippers, Cranes, etc. Finance is extended for both new and used assets in all the above segments. Tractor funding, a major initiative towards Priority Sector Lending and Financial Inclusion, was launched pan-India
The latter part of the year 2015-16 witnessed revival in the automobile segment, after two successive years of slowdown, registering growth of 3.78%. Commercial Vehicles segment recorded robust growth of 29.91% [Previous Year: (-) 2.83%], but the sale of LCV segment continued to be stagnant. Three-wheelers, stagnant until the third quarter of 2015-16, recorded growth of 1% in the last quarter. Two-wheelers grew by a mere 3.01% in 2015-16 (Source - SIAM data). Aggregate disbursements made during the year rose about 31% to Rs. 20,369 crores. New loan accounts, numbering 10.30 lakhs, were onboarded, as against 9.78 lakh loans in 2014-15. The focus during the year was on optimizing the product mix to maximize yields while maintaining portfolio quality, despite the industry slowdown. Used Vehicles loans disbursed grew 26% to Rs. 3,499 crores.
In the new vehicles segment, loans for commercial vehicles registered growth of over 50% to Rs. 6,924 crores, higher than the industry rise. Loans for Two-wheelers grew by 5%, disbursements for cars grew 20% and Tractor loans disbursements rose 250% to touch Rs. 857 crores, up sharply from Rs. 245 crores during 2014-15.
The Division also earned Commission Income of Rs. 30.74 crores through distribution of various Third-Party insurance products of Cholamandalam MS General Insurance, strategic partner of the Bank for bancassurance in the General Insurance segment.
The operations of this Division are efficiently supported by the Document Storage and Retrieval Facility at the Bank’s Karapakkam Unit (near Chennai), which handles processing of Loan Documents and maintenance of records. This Unit handled nearly 2 million Loan bookings and closure transactions and 26 million customer service / accounting transactions during the year 2015-16. The facility is equipped with state-of-the-art devices in terms of data / equipment protection mechanisms, and access rights with sensors to facilitate monitoring of document movement within the Centre.
The Bank has a Data Centre within the Airtel Data Centre facility, with a backup at the Bank’s G. N. Chetty Road brmises, as part of Business Continuity Planning. During the year, Tab-based application for Two-wheeler loans sourcing was launched to improve Turn-Around-Time (TAT) in the credit delivery process. Hand-Held Terminals have been deployed pan-India to handle CFD’s collection activity. These initiatives have significantly enhanced process efficiencies
Corporate and Commercial
Banking Group Corporate Banking
The Corporate & Investment Banking Team provides Universal Banking Solutions to several large Indian and multinational corporates. Over the years, this Unit has become a banker to almost all the large corporate houses and large market cap companies, and actively participates in their short-term and longer-term financing requirements.
The Unit has maintained a strong reputation as a provider of innovative solutions to complex funding requirements, with quick turnaround times. Structured solutions in the Trade Finance and Foreign Exchange hedging have been developed by the group to suite specific client needs.
This Unit has increased penetration in the top corporate groups through a variety of funded and non-funded transactions including trade products, foreign exchange products and Investment Banking activities.
A special focus group to serve the MNC client requirements has been initiated, which has brought in significant number of new-to-bank clients.
Over the years, the group has built a quality portfolio by minimizing exposure to high risk industries. The Unit’s business grew well during the year in both, Assets and Liabilities. Focus on cross-sell increased the fees from Trade and Forex, along with growth in CASA and Term Deposits. Investment Banking (IB)
Debt Capital Markets (DCM), Advisory (M&A and Private Equity) and Structured & Project Finance are the three main businesses of Investment Banking group. The group enables the Bank to partner with growth oriented corporates throughout their life cycles.
The Bank helps corporates raise funds through innovative structures that meet varied needs. Strong origination and structuring skills of IB Group have helped the Bank to strengthen relationships with top business houses as a trusted Investment Bank.
During the year, the Bank successfully underwrote and sold down loans to various investors and secured for itself an enviable position amongst Private Sector banks in the Loan Underwriting League Tables.
With strong domain expertise in Wind, Solar, Roads, Ports, Logistics and Power Transmission sectors, the Project Finance team was able to win Project Underwriting and Syndication mandates from several large corporates.
The ‘Real Estate Group’ was launched during the year to meet client needs in Commercial and Residential real estate space. The Group has developed strong relationships with leading players in all major markets. Public Sector Group
The Group handles relationships with more than 150 Public Sector clients, including Maharatnas and Navratnas.
The Group was successful in winning large collection mandates in issues of Tax-Free Bonds of many Public Sector Units (PSUs). The Group successfully executed several E-Procurement mandates from key PSUs, by providing reliable technology-based solutions. Financial Institutions Group
Financial Institutions Group manages relationships with domestic and international banks and Financial Institutions. The Group has intensified its geographical coverage and expanded its network of correspondent banks across the globe, which helped in scaling up of the Trade and Treasury businesses of the Bank and ensured seamless execution of cross-border deals.
The Group has also successfully raised foreign currency resources from key correspondents which helped support the lending book in Foreign Currency, thus augmenting the Bank’s liquidity and facilitating reduction in costs. Financial Services Group
Financial Services Group was launched to handle the relationship of Financial Services players in India, i.e., NBFCs, Insurance Companies, Mutual Funds and other Financial Institutions in Public and Private Sector.
The Group has achieved significant success by winning Escrow / CMS mandates from renowned names in the industry and established trade partnerships with NBFCs and FIs. Capital & Commodities Markets Division
The Capital and Commodity Markets Division focuses on serving Capital and Commodity Exchanges and their Members.
The Bank currently has membership with all Stock and Commodity Exchanges in the country and is a Clearing-cum-Settlement Banker to both NSE and BSE in the Capital and Futures Market segments.
Commercial Banking Group Set up with a view to target the ‘sweet spot’ of the Indian corporate space, the Commercial Banking Group focuses on companies in the fast growing mid-Market segment. The Bank’s initiatives in Supply Chain Finance (SCF), Agri Business Finance (ABF) and Inclusive Banking are also housed within this business unit.
The broad business theme of the Group is centred on the following:
O f f e r i n g a full bouquet of customized products to clients, for their working capital and Term / Structured Finance requirements;
Increasing the client-base to broadbase the earnings stream of the Bank;
Increase cross-sell through alignment of Relationship Managers and the Product Groups, i.e., the Transaction Banking, Global Markets and Investment Banking;
Offering structured solutions through Transactional and Investment Banking products to clients for specific needs; and
Meeting the stipulated PSL requirements through its Inclusive Business Group and Agri Business Group initiatives.
The highlights of the year are:
Focus had been on building a sustainable working capital client portfolio and the year saw further strengthening of this position. The Group’s lending business crossed Rs. 16,180 crores;
The Group has been widening its client base for higher growth and greater diversification of risk;
The Group successfully concluded investment banking transactions, evidencing the focus on capturing opportunities in this high growth segment;
Newer kinds of structured deals were successfully originated and concluded;
Special focus was laid on CA by opening of TRA accounts, giving good float.
The Inclusive Banking arm of the Group was the Market leader in launching the ‘Business Correspondent Model’, with Microfinance Institutions providing micro loans to weaker sections of society. The model is being replicated by others in the Industry. The Program is now geographically well-diversified and currently sbrad to 104 Districts across 11 States, with a network of 478 MFI branches.
This Group actively works with more than 23,27,000 clients, out of which 18,50,000 clients have been reached directly, and the remaining, about 4,77,000 clients, through indirect channels. All of them are women and are provided micro loans for productive purposes.
The Group proposes to deepen the engagement this year by building a sustainable, scalable and profitable business through a bouquet of financial products and services to the credit-worthy unbanked low-income rural, semi urban and urban households.
The range of financial services envisaged are as under:
Basic Banking Services –
Full range of Credit products to the enterprising clientele at the base of the pyramid - Micro Credit, Affordable Housing, MSME and Agri Business (Dairy, Seed, Equipment).
Agri Business Group (ABG)
The Group offers products such as Pledge Finance, Agri Promoter finance, and Agri Infrastructure finance. Its brsence is sbrad over 14 States and 59 locations, providing services to nearly 1,350 plus active clients. Its funding covers 8 broad categories of commodities, which includes 71 approved commodities. It has also entered into initiatives like Lending against Electronically Generated WHR on NCDEX-COMTRACK.
The Bank has 9 Collateral Managers. AG SME, an arm of ABG, provides specialized services to clients in the Agriculture segment. It has a team of specialized Agriculture Finance professionals to cover all segments of the Agriculture value chain. This Division has scaled up innovative and compliant products such as Agri Project Finance, Agri Trade Finance and Agri Infrastructure Finance. In its two years of operations, the vertical has been able to establish itself as a significant player in the Dairy and Agri Infrastructure segments.
Supply Channel Finance (SCF)
The SCF Group has 3 products under its ambit: Vendor Finance, Channel Finance Non-Auto (Inventory Funding), and Working Capital. The SCF Vertical provides Inventory Finance to 280 Dealers of 13 corporates having program size of Rs. 730 crores Under VF, the Group provides tailor-made solutions to the vendors of different corporates. There are 12 programs running under VF with Program Size of Rs. 715 crores. The Group also caters to the Working Capital requirements of the Dealer and Vendor Community.
Global Markets Group
Global Markets Group (GMG) comprises three main functions: Asset Liability Management (ALM), Trading in Rates, Foreign Exchange and Derivatives, and Client Risk Solutions (CRS).
The Asset Liability Management Unit manages the regulatory requirements relating to Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR), Funds Management, and Transfer Pricing. The Bank's resource mobilisation strategy proactively addressed the structural liquidity risk conditions, and achieved a significant efficiency in Bank’s sources of funds with an optimal mix of Term Deposits, Market Borrowings, and Refinance. With the increased thrust of RBI on management of Intra-day Liquidity (IDL), Liquidity Coverage Ratio (LCR), and High Quality Liquid Assets (HQLA), the ALM Desk has been judiciously balancing the resourcing and deployment of funds.
The Trading Desk in Rates and Foreign Exchange has been taking proprietary positions in the Rates and Rupee Market as well as G-7 currencies. The Interest Rate Trading Desk had increased trading volumes in SLR securities and revenue, besides dealing in Exchange-Traded Interest Rate Futures (IRF) to optimise profits. The Derivatives Desk had undertaken long-term Currency and Interest Rate Swaps and executed large size deals with established market counterparties. The Desk has established itself as an active market-maker in INR Rates (MIFOR) and has significantly added volumes to FCY / INR options, which had commenced trading in the brvious year.
The Credit Trading Desk was actively involved in originating, syndicating and underwriting Debt products, including Non-Convertible Debentures, Commercial Papers, Debentures with warrants, etc. The Desk had originated tailor-made Debt structures to suit the needs of Clients and the Investors, thus enhancing client value and fee income.
The Client Risk Solutions (CRS) Team in the Global Markets Group advises Institutional, Corporate and Consumer segment clients on their foreign exchange, and structures solutions in currency and interest rates to hedge their exposure. The team works on a hub- and-spoke model with Zonal Offices in Gurugram (Gurgaon), Kolkata, Bengaluru and Mumbai, with branches in major cities.
Exchange-Traded Currency Derivatives (ETCD) are a new asset class for diversification of investments for resident Indians. The ETCD Desk is a Trading-cum-Clearing Member in NSE, and offers a web-based platform across client segments for hedging currency exposures. The Bank completed the acquisition of the Gems & Jewellery business from Royal Bank of Scotland N.V., India, and the clientele and the products provided considerable synergy to the existing product suite of the Bank.
During the year, the team executed long tenor Currency Institutions / PSU clients. The Bank has established a relationship with a large client group through novation of trades The Bank has well laid-out operational policy guidelines, risk management policies including Client Suitability Policy, and appropriate systems support to monitor transactions and risk on real-time basis.
Given the dependency on system and trading platforms, the Bank has been conducting Business Continuity Plan drills at regular intervals. The Bank has implemented Calypso, an integrated Treasury application interfaced with the Risk monitoring system. The application covers all Client and Trading products of the Global Markets business.
Transaction Banking Group
Transaction Banking Group (TBG) provides solutions under Cash Management, Trade Services, Supply Chain Finance, Global Remittances, Digital Banking, and the Gems & Jewellery sector.
The Bank continued to be a leading player in Rupee Drawing Arrangements, acting as a brferred bank for over 60 partners worldwide. The year also saw revenue under this product increase by over 74%, as the Bank started offering real-time cross-border payments using the NPCI-promoted IMPS facility. Our Bank is among the topmost banks for cross-border flows under IMPS.
The Bank grew its e-Commerce Card acquiring business with Worldpay, one of the largest Payment Gateway providers globally, by adding new merchants. The Bank also launched new products such as Money Transfer Service Scheme (MTSS) account credits, partnering with the largest Money Transfer company globally, and also obtained approval for OPGSP (Online Payment Gateway Service Provider) services
Under the umbrella of Cash Management Services (CMS), the Bank offers customized and differentiated products to its Corporate and Consumer Banking customers, to improve their Receivables and Payables management. This offering assists the Bank to grow its Current Account base, as well as generate fee income.
CMS throughput witnessed a significant increase during the year, with several new mandates added. The year saw the Bank pursue technology-focused solutions for the corporates, Mutual Funds industry, Public Sector enterprises and NBFCs, thus solving their critical receivables management and reconciliation issues. The Bank is developing a Corporate Mobile App for its corporate customers to digitally access banking and payment services.
The Bank, in its constant endeavor to stay ahead in the digital space, has launched a full-fledged Application Programming Interface (API) platform to host various services, including Collection and Payment services targeted at corporate customers as well as third-party solutions providers. The Bank also introduced new products in the space of domestic Money Transfer, to increase its revenues from digitization initiatives.
The Bank received multiple Awards from 'The Asset', an independent leading Asian business journal, under the following categories:
The Bank continues to assist clients to participate in domestic and global trade and capital flows in an effective manner. The Bank also provides custom-made solutions to its clients that assist them to improve their efficiencies. The Cash Management Team and the Global Markets Group complement the trade offerings and facilitate providing of best services under one umbrella to clients. This multi-pronged approach has enabled the Bank to deliver a consistent and strong business performance despite a challenging macro environment. Fee Income in the Trade business grew 22% during the year. The Bank is also in the process of commencing business from Gujarat International Finance Tech City (GIFT), which is expected to open new Trade business avenues.
The Bank endeavors to offer best-in-class secured, efficient and technologically advanced online platforms to its clients to meet their entire Trade finance needs, and is at an advanced stage of implementation of the same. This will enable the Bank's clients to transact seamlessly, resulting in significant financial and operational efficiencies to them.
The Bank's Supply Chain Finance Solutions offer the suppliers cost-effective financing of Trade Receivables, enhanced by integrated online operation. Clients across sectors ranging from Automobile to Agri-Processing are offered customized Supplier Financing Solutions and dealers / distributors of large corporates are offered Channel Financing Solutions, leading to a competitive source of funding and Working Capital management to carry out the business efficiently.
Gems and Jewellery Segment
On April 10, 2015, the Bank had announced entering into an agreement to acquire the Diamond & Jewellery financing business and the related Deposits portfolio of Royal Bank of Scotland N.V. (RBS) in India, subject to regulatory approvals. On July 27, 2015, the Bank completed the acquisition and seamless migration of the entire business portfolio of RBS in India. The acquired loan portfolio was approximately Rs. 41 billion.
With the acquisition of the Diamond & Jewellery business from RBS, the Bank became one of the largest banks financing this business in India. This acquisition was part of a strategy of creating Scale with Profitability in select business segments. The acquired Business Unit has paved the way for large cross-selling possibilities, as the Diamond & Jewellery industry provides employment to more than a million skilled artisans.
A critical success factor in Diamond Financing is global client knowledge, and this is being achieved through a Long-Term Partnership Agreement with ABN AMRO Bank N.V. This strategic relationship will facilitate deeper industry and client insight, and in turn lead to improved client-servicing, enhanced revenue opportunities and better risk management. Proactive client monitoring has kept the Bank ahead of competition even in difficult market conditions
The Bank has also been recently honored with three awards from the Gems and Jewellery Export Promotion Council under the aegis of Ministry of Commerce.
Priority Sector Lending
The Bank has achieved the aggregate RBI-brscribed target for Priority Sector Advances. Priority Sector Advances aggregated Rs. 29,908.82 crores as at the end of March 2016, rebrsenting 43.03% of the Adjusted Net Bank Credit (ANBC) of the brvious year, as compared to 40.71% at the end of March 2015.
Advances to Agriculture
During the year, the Bank financed over 14,93,370 agriculturists, and its Aggregate Agricultural Advances stood at Rs. 11,021.82 crores, rebrsenting 15.86% of ANBC as at the end of March 2016. As per current guidelines, the distinction between Direct and Indirect Agricultural Advances has been removed by RBI.
Advances to other segments of Priority Sector
The Bank's finance to 'Weaker Sections' increased by Rs. 2,464.12 crores and stood at Rs. 7,209.23 crores, rebrsenting 10.37% of ANBC as at March 2016.
Finance to Small Enterprises rebrsented 18.41% of the ANBC as at March 2016.
Approach to Priority Sector Lending
The Bank continues to pursue Priority Sector advances, including those relating to Agriculture / Micro and Small Enterprises / Weaker Sections.
Business Units in Corporate, Commercial, and Consumer Banking Groups have built specialized teams to significantly enhance the Bank's footprint in the PSL segments.
Specific plans and strategies for achieving targets and sub-targets under Priority Sector Lending have been formulated, some of which are indicated below:
• Financing farmers / JLGs against hypothecation of agricultural produce.
• Financing farmers for transport of their own agricultural produce.
• Financing farmers for supply of various Agri and Allied commodities, viz., Sugarcane, Oilseeds, Milk, Rubber, etc.
• Financing Agri and Allied Projects, viz., Horticulture, Dairy Farming, Poultry Farming, Bee-keeping, Aquaculture, Floriculture, etc.
• Financing Agri Infrastructure, viz., warehouses, cold storages, godowns, market yards, silos, etc.
• Financing farmers / entities engaged in plantations of coffee, tea, rubber, and paper pulp.
• Finance upto Rs. 5 crores per borrower to dealers / sellers of fertilizers, pesticides, seeds, cattle feed, poultry feed, agricultural implements and other inputs.
• Financing dairy segment for capital expansion and working capital requirements.
Investments in Rated Asset Pools meeting the eligibility criteria for Priority Sector.
Direct lending through Service Providers under the Partnership Model for meeting the Agri, MSME and Weaker Sections.
Loans to MFIs for on-lending to farmers for agricultural and allied activities eligible for Priority Sector
Banking business is exposed to a wide spectrum of risks, and it is imperative that the various risks faced by the Bank are effectively measured, monitored and managed. A robust Enterprise-wide Risk Management (ERM) framework enables effective and proactive management of various risks, while supporting business growth. ERM helps reduce volatility in earnings and enhances shareholder value.
The Bank has an integrated Risk Management Department, independent of business functions, covering Credit Risk, Market Risk, Assets-Liabilities Management (ALM) and Operations Risk, including Information Security risk functions. Risk management practices have been aligned with the best industry practices and are adaptable to a dynamic operating environment and market conditions.
Credit Risk Management
Credit Risk is managed both at transactions level as well as portfolio level.
The key objective of Credit Risk management is to maintain credit quality within the defined risk appetite, while achieving appropriate return in relation to risks assumed. Various measures adopted for management of Credit Risk are mentioned hereunder:
Credit and other risk policies aligned with business strategies. The policies are reviewed in line with changes in RBI guidelines, economic environment and operating outlook;
Gauging Credit Risk at the time of credit approval by means of risk-rating models implemented for different segments of obligors;
Credit Portfolio Management analysis to monitor credit quality, composition of portfolios, concentration risk, yield monitoring and business growth;
Measurement and monitoring of credit quality regularly by means of Weighted Average Credit Rating (WACR) of the credit portfolio;
Prudential internal limits brscribed for assuming exposures on counterparties, industries, sectors, etc.;
Measurement of credit quality of Consumer Finance portfolios by means of Behaviour Modelling;
Management of exposures to counterparty banks and countries by setting exposure limits basis their risk profiles and monitoring the exposures regularly;
Stress Testing of credit portfolios to measure shock absorbing capacity under multiple stressed scenarios and assessment of impact of potential credit losses on profitability and capital adequacy, thus enabling initiation of appropriate risk mitigation measures
Despite the challenging environment, the Bank has been able to maintain its credit growth and the quality of its portfolio. The Bank's restructured assets are among the lowest in the industry, with the Corporate as well as the Retail Loan Books having remained resilient.
The Bank has been introducing wider range of Retail products, to have larger share of wallet and to meet customers' needs. Such products are governed by structured product programmes specific to the business, which details out the criteria on customer selection and underwriting standards.
Market Risk Management
Market Risk arises from changes in interest rates, exchange rates, equity prices and risk-related factors such as market volatilities.
The Bank manages Market Risk in trading portfolios through a robust market risk management framework brscribed in its Market Risk Management Policy.
The Bank has implemented state-of-the-art Market Risk Management System, which will enable adoption of Internal Model Approach for computation of Capital Charge towards market risk.
A robust Market Risk framework is in place, incorporating the new evolvements in Market risk management domain. The Market Risk system supports VaR, Stress Testing, and Capital Computation Framework, helping manage market risk in volatile market conditions. The framework includes monitoring of Value-at-Risk (VaR) limits PV01 limits, for Forex, Investments, Equity and Derivatives portfolios, besides Stop-Loss limits, Exposure limits, Deal-size limits, etc.
Asset-Liability Management (ALM)
The Bank's Asset-Liability Management system supports effective management of liquidity risk and interest rate risk, covering all assets and liabilities.
• Liquidity Risk is managed through Structural Liquidity Gaps, Liquidity Simulation, Liquidity
Coverage Ratio (LCR), Dynamic Liquidity monitoring, Liquidity Ratios analysis, Behavioural analysis of liabilities and assets, and prudential limits for negative gaps in various time buckets.
• Interest Rate Sensitivity is monitored through prudential limits for Rate Sensitive Gaps, Earning at Risk, Modified Duration of Equity and other risk parameters.
• Interest Rate Risk on Investment portfolios is monitored through, PV01, VaR and Modified Duration on a daily basis. Optimum risk is assumed through duration, to balance between risk containment and profit generation from market movements.
Detailed analysis of liquidity position, interest rate risks, product mix, business growth versus budgets, interest rate outlook, etc., is brsented to Asset-Liability Management Committee (ALCO) which meets frequently and deliberates on liquidity position and interest rate risk and reviews the business strategies.
ALCO provides directional guidance to Business Units towards effective management of liquidity position, while achieving Business goals. The Bank assesses its structural liquidity position on a daily basis for managing liquidity in a cost-effective manner.
Stress Testing - Liquidity Risk
The Bank carries out stress tests on liquidity position regularly to simulate impact of stressed liquidity scenarios on funding and liquidity position. Stress tests help to be better equipped to meet stressed situations and have contingency funding plans in place.
Contingency Funding Plan
Contingency Funding Plans have been developed to respond swiftly to any anticipated or actual stressed market conditions.
The Bank reviews its contingency plans considering the evolving market conditions. Contingency funding plan covers available sources of funds to supplement cash flow gaps in the event of stressed scenarios, roles and responsibilities of those involved in execution of contingency plans and the contingency triggers.
Interest Rate Risk on Banking Book (IRRBB)
Interest Rate Risk on Banking Book largely arises on account of:
• Re-pricing Risk;
• Basis Risk;
• Yield Curve Risk.
From an economic value perspective, it is the Bank's policy to minimise sensitivity to changes in interest rates on assets and liabilities. Interest Rate Risk is measured based on the re-pricing behaviour of each items under asset, liability and off-Balance Sheet products. The Bank's Assets and Liabilities Management Policy has laid down limits based on the risk appetite and the impact on NII and Economic Value of Equity (EVE) for a given change in Interest Rate.
The Bank has put in place necessary framework to measure and monitor Interest Rate Risk on Banking Book using the Duration Gap Approach, besides the Traditional Gap Approach.
Operational Risk Management
The Risk landscape for banks today is undergoing substantial changes.
Operational Risk is the risk of incurring loss due to failure of systems, technology, processes, employees, projects, disasters, external factors, frauds etc., including legal and regulatory risks. Operational Risk arises on account of human error, failed processes, inadequate systems, frauds, damage to physical assets, improper behaviour, or external events. The Bank aims to ensure that key operational risks are managed in a timely and effective manner through a meticulous framework of policies, standard operating processes and procedures and tools to identify, assess, monitor and control such inherent risks in its businesses.
Banks today face unbrcedented number of new and emerging risks that can threaten their businesses. Thus, the Bank's Risk Management Department keeps a close watch on the strategic, operational and external risks and provides necessary direction, and undertakes various initiatives under its Operational Risk Management (ORM) Framework for mitigation of such risks. The ORM Framework encompasses Policy guidelines, Risk and Control Self-Assessment (RCSA), Loss Data Analysis, Key Risk Indicators (KRIs), Risk Profiling of branches, implementation of Basel III norms and RBI Guidelines, etc. The Bank constantly endeavours to enhance its ORM framework to ensure compliance with regulatory norms and deliver greater strategic value.
RCSA of all major operations functions have been carried out and appropriate risk mitigation plans have been designed and implemented. Loss Data Analysis, based on internal as well as external loss data, is carried out periodically to identify trends and reinforce operational controls. An Incident Reporting tool has been designed and implemented for reporting operational risk incidents across the Bank and monitoring actions thereon for mitigation of risks.
The Bank has initiated scenario-based assessment of identified plausible operational risks. The scenario analysis will be used in creation of statistical models with respect to computation of operational risk capital charge under Advanced Measurement Approach of Basel II.
New products / processes are rated in a transparent manner so as to enable risk-based decision-making for introduction of the same. All new products / processes are approved by the Operational Risk Management Committee (ORMC), which identifies the risks inherent in the products and brscribes necessary controls to mitigate such risks. The products and processes risks are subjected to review post introduction / implementation to ensure proper risk management.
The Bank's audit mechanism covers a gamut of activities such as periodical on-site audit, concurrent audits and off-site surveillance enabled by Bank's advanced technology driven processes and the Core Banking System.
The acceleration in unfolding events both domestic and global has further strengthened the Bank's Business Continuity Framework. The Bank has implemented a combrhensive Bank-wide Business Continuity Plan to ensure continuity of its critical functions during disruption / disaster situations.
The Bank's Information Security Policy provides the security framework upon which all subsequent security efforts are based, and to guide the development and maintenance of a combrhensive information security program. It deals with security of information in various forms like spoken, written, printed and electronic or any other medium and handling of information in terms of creation, viewing, transportation, storage or destruction. It contains the principles that direct managerial decision-making and facilitates secure business operations. It is designed to enable management of the Bank to ensure the security of information assets and maintain accountability. It also defines the appropriate and authorized behaviour for personnel approved to use the Bank's information assets. The policies and procedures are built around the following principles:
• Treat Information Security Risk in line with Business, Regulatory & Legal requirements;
• Ensure Availability, Integrity, Confidentiality of Information, establish Accountability & provide Assurance;
• Focus on People, Process & Technology for implementation;
• Apply least privilege, need to know / use principles;
• Promote Information Security Awareness to create security-aware culture within employees, contractors, third parties and customers;
• Deal with exceptions and violations appropriately;
• Policy is sbrad across 14 domains, 171 subdomains - 101 operational & 70 technical;
• Focus on Information Security Governance, Assurance & Evolution to ensure suitability, adequacy and effectiveness;
• Participation of security team during initial stages of system acquisition & development;
• Structured approach towards Information Security Awareness;
• Integrated Framework based on Deming's PDCA Cycle;
• Organization of Information Security aligned with the Framework.
The Bank is utilizing structured data on its system for Anti-Money Laundering & Enterprise-wide Fraud Management system, risk analytics, enterprise BI. The Bank has also started aggregating unstructured data like customer IPs, devices ID, and various social / media in its repository to increase risk management capabilities.
Financial Restructuring and Reconstruction Group
All activities relating to recovery of non-performing loans and restructuring of stressed assets are handled by the Financial Restructuring and Reconstruction Group (FRRG).
The Bank has actively utilized the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 for recovering its dues, wherever considered appropriate.
During the year, the Bank recovered an amount of Rs. 60.46 crores in written-off accounts.
The Net NPAs of the Bank stand at 0.36% of the Total Advances, while the ratio of Gross NPA as percentage of Total Advances amount is 0.87%.
The Bank has strengthened the policy framework on "Know Your Customer" (KYC) norms and "Anti Money Laundering" (AML) measures from time to time, in line with the policies of Reserve Bank of India. The Bank has implemented a simplified procedure of "Know Your Customer" which will benefit lower income group persons to open accounts with minimal documentation.
The Bank had implemented a state-of-the-art Workflow and Imaging System for account opening, booking fixed deposits and processing trade finance transactions as also Third-Party Products sales operations and branch expenses processing.
The System enables faster turnaround times, and movement of work from branch locations across the country to the Central Operations Unit in real-time, thus cutting out the time that physical forms would take to arrive through courier. This has helped in freeing up manpower at the branches to tend to customer service as well as help provide online status of processing of customer requests / new applications.
The Bank is a member of Banking Codes and Standard Board of India (BCSBI), which was set up to ensure that banks in India adhere to a voluntary Code, which sets minimum standards for fair treatment to customers availing of banking services. The Bank has made a commitment to adhere to all the provisions of the Code brscribed by BCSBI. The Bank has taken steps to implement the provisions of the Code of Commitment to the Customers (Individuals). The Code is displayed at all the branches and the same is also posted on Bank's website in thirteen languages. The Code had been further revised in January 2014, and was adopted by the Bank with the approval of the Board of Directors.
The Bank has also adopted the "Code of Commitment to Micro and Small Enterprises" (MSE Code) issued in June 2008 for customers belonging to Micro and Small Enterprises segment. This Code was further revised in 2015 by BCSBI and duly adopted by the Board of Directors. It sets the minimum standards of banking practices
The Bank has also formulated the Policy on 'Financing to Micro, Small and Medium Enterprises', and the same is hosted on the Bank's website.
The Bank is participating in clearing through Cheque Truncation System (CTS). As on March 31, 2016, the Bank had 136 locations covered under the Grid Clearing, through its three CTS centres in Mumbai, Chennai and Delhi.
The Bank has also started participating in NACH (National Automated Clearing House) transactions both for Debit and Credit (ECS) at Mumbai, as also Aadhar-Based Payment System (ABPS) transactions through NPCI.
The Bank has adopted a "Combrhensive Policy", in pursuance of RBI advices, on settlement of claims in respect of deceased depositors. The Policy covers all types of deposits, and has simplified the procedure for settlement. The forms are available on the Bank's website.
The Bank has adopted the "Best Practice Code", relating to transaction processing, with the objective of documenting the procedures in line with national and international best practices.
The Bank has put in place a "Deposit Policy" and a "Fair Practice Code". The former outlines the guiding principles in respect of various products of the Bank and the terms and conditions governing the operations of the accounts and the rights of depositors. The Fair Practice Code is a voluntary Code establishing standards to be followed by all our branches in their dealings with the customers.
The Bank has framed the "Citizen's Charter" to promote fair banking practices and to give information in respect of various activities relating to customer service.
The Bank has put in place a "Compensation Policy" as part of the commitment to customers to compensate them in case of the Bank being unable to meet the service levels committed to the customers. The main objective of the Policy is to establish a system whereby the Bank shall compensate the customer for any direct and actual loss by way of internal loss / payment of charges by customer due to deficiency in service, to the extent mentioned in the policy. The Policy is based on the principles of transparency and fairness in dealings with customers.
The Bank has framed the "Unclaimed Deposit Policy" based on RBI guidelines with the objective of classification of unclaimed deposits and setting up the grievance redressal mechanism for quick resolution of complaints and record-keeping. Further, as per RBI directives, w.e.f. June 2014, balances in unclaimed deposits and other accounts are being transferred to "Deposit Education and Awareness Fund" (DEAF). Details relating to unclaimed accounts are duly uploaded on the Bank's website.
The Bank has also formulated the 'Customer Rights Policy' and the same is hosted on the Bank's website.
Corporate and Global Markets Operations
Corporate & Global Market Operations (CGMO) manages the operations related to Trade Services, Cross Border Remittances, Supply Chain Finance, Treasury, Foreign Exchange and
Derivatives, Cash Management Services, Payments, Depository and Capital Markets servicing of all clients across both the Corporate and Retail segments. CGMO continued its focus
during the year on Operational Efficiency, Risk Management and Client-centric initiatives.
The Operating Model was further strengthened during the year with enhanced focus on centralization of processing activities. The resilience of the Trade Processing Model (independent hubs in Chennai and Mumbai) was put through the severest test during the weather-related challenges faced in Chennai during December 2015. It was ensured that there was minimal client impact during the BCP situation.
During the year, processes like Letters of Credit and Collections (Trade Operations), Funding of Broker Accounts (Capital and Commodities Market Operations) and submission of various regulatory reports were centralized. This is in line with the Bank's strategy to provide increased scale of operations and improved risk management through centralized processing and improved client experience through decentralized client servicing.
The Gems and Jewellery Portfolio acquired from Royal Bank of Scotland was successfully migrated during July 2015. This has significantly increased the volumes and through-put handled by the Trade Operations Unit. Being a niche client segment, a dedicated Operations Support Desk has been operationalized in Mumbai (Client-facing) and in Chennai (Support).
There was an increase in number of locations providing support for CGMO products. This is expected to improve turnaround times and client experience. The Bank continues to be among the market leaders in handling Bankers to the Issue mandates for IPOs and in Tea Trade Settlements. Significant growth in volumes was seen in all areas.
Proactive Operational Risk Management has been one of the major focus areas, and is embedded in the organization. The Analytics, Information and Metrics Unit within the CGMO Operational Risk team is fully operational and delivers critical information and metrics that is used to identify potential risk events.
A significant achievement was the completion of an end-to-end risk review and market benchmarking of one of the key payment processes in Cash Management Operations.
Regular risk reviews were conducted across all processing centers. During the year, critical red flags and risk-related MIS were automated, to have a more robust monitoring process. There was strong emphasis on proactive identification of Trade Based Money Laundering related red flags, customized training was imparted, and improved controls were put in place to address this risk.
Client focus is another key focus area, with the objective of improving client experience through various client-centric initiatives.
"Voice of Customer" was implemented, through which structured feedback is received from top clients, across segments. The performance of the client servicing team is now measured through a dedicated "Service Quality Unit". Apart from the Corporate clients, the Client Services Team started supporting clients from the Global Remittances, Gems and Jewellery and Cash Management services segments. To further improve client servicing, a customized training program was rolled out.
CGMO continued in its journey towards 'Continuous Improvement' with the objective of delivering client satisfaction and year-on-year efficiency benefits. This program focuses on increasing 'Client Delight, 'Empowerment' and 'Rewards & Recognition'. As part of this initiative, over 650 process improvement initiatives were implemented by the Staff resulting in efficiency improvement, risk reduction on improved client experience. This is almost a 30% increase over the brvious years. An initiative to scientifically manage the operations capacity was completed during the year. This is expected to help deliver significant efficiencies in the next couple of years.
Focus on people development initiatives continued. Over 16,000 man-hours of training were delivered during the year aimed at creating a strong knowledge force. Trainings delivered covered product features, risk awareness, regulatory requirements, continuous improvement and soft skills like communication, team effectiveness and leadership skills. Various other people-centric initiatives were launched during the year including job up-skilling, cross-functional training, and Family Day at Office. A Sustainability Week was also conducted during the year, encouraging staff to participate in planned community events.
CGMO made significant progress in the re-platforming of the processing systems. New state-of-the-art systems were operationalized for
Treasury Operations, Market Risk Management (for the Global Markets Group), Bullion Operations, Currency Derivatives, Exception Management, Client-pricing Repository, Bank Guarantees, and Supply Chain Finance. Re-platforming is in progress for the Trade Finance System (for remaining Trade products) including the client front-end. These state-of-the-art systems will be capable of handling high volumes of complex Global Market products, will support effective risk management, and will significantly boost capabilities in these product segments and offer clients with world-class products and services.
Internal Control Systems and their adequacy
The Bank has laid down the policy framework related to "Know Your Customer" (KYC) norms, "Anti Money Laundering Measures" (AML) and Combating of Financing Terrorism (CFT). The policy has been framed on the basis of recommendations of the Financial Action Task Force and the Paper issued on 'Customer Due Diligence for Banks' by the Basel Committee on Banking Supervision.
The Bank has sharpened internal controls and compliance through the following:
• Separate and independent Compliance function has been set up for Bank-wide compliance;
• Instituting of the Vigilance function;
• Expenses management software has been deployed at all branches for facilitating cost control;
• Standard Operating Procedures have been defined for processes at branches to ensure consistency of delivery with the expanding branch network;
• Branch Monitoring Unit is entrusted with regular monitoring of branch operations; Voucher verification process has been operationalised for checking all the entries posted by the branches; and
• The Process Adherence and Quality function has been operationalised for attaining uniformity in processes followed by branches to minimise operational risk.
In compliance with RBI regulations, the 'Standing Committee on Customer Service' (SCCS), formerly known as 'Committee of Procedures and Performance Audit of Public Services in Banks', comprising senior Functional Heads of the Bank and a few customers has been established.
The Bank has also constituted a Customer Service Committee of the Board of Directors (CSCB) to review the performance of the SCCS.
The Bank has constituted Branch-Level Customer Service Committees (CSC) at all branches, comprising employees and customers. CSC meetings are convened every month to examine complaints / suggestions, cases of delay, difficulties faced / reported by customers / members of the Committee. Feedback and suggestions are submitted to SCCS.
SCCS examines and provides relevant feedback to the Customer Service Committee of the Board for necessary policy / procedural action.
The Bank implemented "Talisma", a 'Customer Complaints, Queries andRequests Management System'. The key objective of this solution is to have a single system to track requests, complaints and queries at customer level so that the service standards as set out by the Bank are managed and enhanced. The System has been implemented across all branches and the Bank's Contact Centres in Mumbai and Chennai.
Grievance Redressal Mechanism
The Bank follows the Board-approved "Grievance Redressal Policy", which lays down a defined escalation process for all customer complaints received at branches and at Corporate Office within the overall framework of RBI guidelines.
A Quarterly Report related to complaints received and redressed is placed before the Board of Directors. Based on the recurrence of complaints in specific areas, causative factors are identified and necessary remedial measures are initiated.
The Bank maintains a dedicated page for lodging of complaints and complaint redressal mechanism on its website www.indusind.com where information on the escalation process and the details of the Nodal Officer / Regional Managers to receive complaints has been furnished.
These details are also displayed at the Bank's branches. Details of the Banking Ombudsman
Scheme, 2006 are also displayed at Branches and provided on the website.
A link has been created in the Bank's website for a "Complaint Form", which gives opportunity to all customers to air their grievances in a simplified way and get their complaints redressed without delay. Further, customers can contact the respective Branch Manager or Call our Contact Centre on toll-free number or send email to email@example.com to lodge their grievances.
The Bank's Internal Audit function is adequately equipped to make an independent and objective evaluation of the adequacy and effectiveness of internal controls on an on-going basis to ensure that units adhere to compliance requirements and internal guidelines.
The Internal Audit function undertakes a combrhensive risk-based audit of all operating units. An Audit Plan is drawn up on the basis of a risk-profiling of auditee units. Internal audit of its operating units is accordingly undertaken at a frequency synchronized to the risk profile of each unit in line with the spirit of guidelines relating to Risk-Based Internal Audit. The scope of risk-based internal audit, besides examining the adequacy and effectiveness of internal control systems and external compliance, includes evaluation of the risk residing at the auditee units. To complement the Internal Audit Function and have real time supervision and control, critical units of the Bank are covered under concurrent audits by reputed Audit Firms.
To ensure independence, Internal Audit functionally reports to the Audit Committee of the Board, and for administrative purpose, reports to the Managing Director & CEO of the Bank. The Audit Committee of the Board reviews the performance of Internal Audit Department, the effectiveness of controls laid down by the Bank, and compliance with regulatory guidelines.
The Board and Management of the Bank are committed to high standards in maintaining a corporate culture of observing what is legally binding, and of embracing broader standards of integrity and ethical conduct.
The Bank has a Central Compliance Department that facilitates management of Compliance Risk. The Compliance Function undertakes macro level compliance activities namely, review of Compliance Policy of the Bank, monitoring compliance aspects, providing guidance on regulatory and statutory provisions pertaining to various business activities to the concerned functional units, and assisting functional units in ensuring that the Bank's Policies, Processes, and Products meet the regulatory and statutory requirements. The Compliance Function is a mandatory stakeholder of the Operations Risk Management Committee (ORMC) and provides sign-off for a new Product / Process routed through this channel. The Chief Compliance Officer is also the Principal Officer of the Bank under the Prevention of Money Laundering Act (PMLA) and reviews the KYC / AML / CFT Policy annually.
The Central Compliance Department also monitors the level of compliance through modalities like self-certification, on-site and off-site compliance testing, parameter-based testing, etc., covering branches, Corporate Office functions, and also various associate entities.
To promote and strengthen compliance-culture among the workforce, the Compliance Function regularly conducts seminars for branch staff including Operations Executives and Branch Managers; circulates short notes on important topics, and analysis of / learning from cases including the learnings. It also publishes monthly newsletter covering news articles on banking related topics.
HR has been an enabler in meeting the business ambition of the Bank. The focus of HR remains on talent acquisition, development, retention and employee engagement.
HR's strategic agenda is to implement benchmark HR practices, offer meaningful career opportunities, work-life balance, market-linked compensation and an enabling work culture to its employees.
High Potential Talent industry-wide choose the Bank as a brferred destination to build a long-term career. Negligible attrition at strategic managerial layers and leadership levels indicates
The employee headcount of the Bank increased to 23,060 employees in FY16 from 19,121 employees in FY15. The Bank used diversified hiring channels such as Employee Referral Schemes, Job Portals, Placement Agencies, Campus Hiring, Social Media, HireTrain - Deploy model, etc., for achieving scalability and efficiency in its hiring processes. The Bank's talent acquisition approach is to build a skilled pipeline for scaling the existing business initiatives and to source novel skills and knowledge for anchoring new business initiatives. In order to identify, assess and recruit right candidates, the Bank's selection process comprised multi-layered interviews and competency assessment tests.
The Bank continues to focus on developing diversified and multi-dimensional skills through carefully designed learning solutions. The key learning objective is to create a differentiated workforce with desired Knowledge, Skills and Attitude for business success of the Bank.
During FY16, the Bank conducted 7,14,000 learning man-hours for over 1,32,000 participants through classroom and e-learning modes. Several learning programs in areas of Leadership, Team Building, Managerial Effectiveness, Customer Service, Communication Skills, Banking Products, Banking Operational Processes, Credit Processes, Induction, Compliance and Technology Platforms were conducted during the year. The Bank also conducted integrated Management Trainee programs across Business Units to build entry-level
talent with cross-functional skills.
Performance Management Processes, namely, Goal Setting, Mid-year Review, and Annual Performance Review helped to outline employee performance objectives through "SMARTs", review performance, mentor and develop employees, recognize and reward, based on tangible achievement against performance objectives.
The Annual Performance Appraisal for FY15 was executed in alignment with the Bank's objective of linking rewards to performance. Mid-year performance review for FY16 was used as a platform by the Business line managers and HR to mentor employees, provide developmental feedback and develop performance plans for employees to enable achievement of their annual performance objectives.
The Bank's Compensation Policy is based on a 'Pay-for-Performance' philosophy. The key objectives include basing the Bank's compensation on business performance and market trends, differentiate amongst individuals based on performance, build long-term employee ownership and association, and be compliant with the regulatory guidelines.
The Bank pursues "Discipline and Compliance" as its core values to create a congenial workplace. Every employee has to adhere to the Bank's Code of Conduct and follow the Bank's business processes.
The Bank believes that Human Capital will be the key to its future success. The HR strategic intent would continue to be on attracting, developing and retaining quality talent and on creating a work culture where employees can maximize their potential and contribute to the Bank's business success.
Employee Stock Option Scheme
The Bank had instituted an Employee Stock Option Scheme (ESOS-2007) to enable its employees, including Whole time Directors, to participate in the future growth of the Bank. Under the Scheme, Options can be granted, which upon exercise could give rise to the issuance of a number of shares up to 7% of the issued equity capital of the Bank from time to time. The eligibility and number of Options to be granted to an employee is determined on the basis of criteria laid down in the Scheme and is approved by the Compensation Committee of the Board of Directors.
An aggregate of 3,75,70,300 Options, comprising 6.31% of the Bank's equity capital, have been granted under the Scheme. Statutory disclosures as required by SEBI Guidelines on Employee Stock Options are given at Annexure IV to the Directors' Report.
Towards more transparency and enhancing shareholder satisfaction, contact details of shareholders such as e-mail IDs, cell phone numbers and telephone numbers are obtained, so as to communicate to them about developments in the Bank. This direct communication is in addition to the regular dissemination of information through usual channels such as the Stock Exchanges, Press, Bank's website, RTA's website, etc.
Shareholders of the erstwhile IndusInd Enterprises & Finance Limited (IEFL) who did not respond to Letters, were contacted individually through Bank's branches, encouraging them to exchange Share Certificates of IEFL for Certificates of the Bank.
Shareholders shall continue to receive best-of-class shareholder services and be promptly informed of the developments in the institution.
The Bank has been at the forefront in "Green Initiatives", and through this process aspires to graduate to paperless compliances.
Shareholders are requested to furnish their e-mail IDs at firstname.lastname@example.org or inform telephonically on 022-66412487 to help accelerate the Bank's migration to paperless compliances.
With the implementation of the Companies Act, 2013, companies can send Annual Reports and other communications through electronic mode to those shareholders who have registered their email addresses with the Company or made available by the Depository.
The full text of the Report shall also be made available in an easily navigable format on the website www.indusind.com under the link 'Investors Reports and Presentation / Annual Reports'.
Shareholders have continually been informed about the easy process for claiming the dividend amounts lying unclaimed with the Bank.
As regards transmission of securities, in case of securities held in physical mode (in single name without nomination), SEBI have brscribed a threshold limit of Rs.2,00,000 (Rupees Two lakhs only), i.e., market value of securities per folio, as on date of the application for transmission, for following simplified documentation. SEBI have, however, empowered Issuer Companies to enhance the value of such securities, at their discretion.
Due to difficulties faced by the legal heirs in submission of Succession Certificate / Probate / Letters of Administration, the Board of Directors of the Bank have, for operational convenience, delegated the authority to the Share Transfer Committee for approving the transmission of securities held in physical mode, in case of market value of securities of upto Rs. 10,00,000 (Rupees Ten lakhs only) subject to simplified documentation procedure brscribed by SEBI.
Achievements: April 1, 2015 to March 31, 2016
• Golden Peacock Global Award for Excellence in Innovation Management
The Bank won the 'Golden Peacock Innovation Management Award' for the year 2015 at the awards brsentation ceremony in London. The Bank won this award for delivering innovation lead product offerings and developing a unique process of managing innovation within the Bank.
• IDRBT Banking Technology Excellence Award 2014-15
The Bank received the "Best Bank Award for Electronic Payment Systems among Mid-Size Banks" for the implementation of Electronic Payment Systems.
National Payments Excellence Awards 2015
The Bank received the following awards in the National Payments Excellence Awards function organized by National Payments Corporation of India (NPCI).
1. NFS ATM Network - Winner: The Bank was declared winner in "Small Banks Category" in recognition of excellent performance in NFS ATM Network, based on the following parameters; Acquiring and Issuing Volume growth, Chargeback ratio, Business decline ratio, Technical decline ratio and deployment of ATMs in rural areas.
2. NACH - Joint Runner Up: The Bank was declared joint runner up in "Small Banks Category" in recognition of excellent performance in National Automated Clearing House (NACH), based on parameters such as Inward volume, Return transaction %, Mapper seeding, Extension, Dispute processing TAT and Mandate TAT
IBA Awards 2016
The Bank received three awards in the IBA Banking Technology Conference Expo & Awards 2016.
1. Best Payment Initiative - Winner.
2. Best Financial Inclusion Initiative - Winner.
3. Best Fraud & Risk Management Initiative -Runner Up: Amongst Small Banks
CSOFORUM Business Impact Award
The Bank has been recognized for implementing security projects which resulted in positive business impact and has enabled the Bank to quickly launch new online services by significantly reducing the security assurance cycle while ensuring continuous protection. The award was brsented at the Cyber Security for Business Impact conference and awards ceremony organized by CSOFORUM.
The new mobile banking App of the Bank was launched on Android, iOS and Windows platform at the end of December 2015. It is a complete ground-up, re-think on User Experience with first-of-its-kind User Interface (UI). Registration is instantaneous using Net Banking, Debit Card, Credit Card credentials. Biometric-based Log-in has been enabled on compatible phones. It offers a range of banking and payment services like Check Account balances, mini-statements, transfer funds (NEFT, IMPS etc.), make bill payments, recharges, credit card payments, deposit booking, QuickPay, service requests in a simple consolidated menu.
The focus has been to simplify payments and "unbank" banking with a seamless payment experience on the app with few click checking
out for payments and other services. The App allows customers to withdraw money at ATMs without a card with its Cash on Mobile Service. '
2 lakh plus App downloads within months of launch. 50,000 registered users clocking more than 1 lakh transactions per month.
The Bank launched banking on Social Platforms like Facebook and Twitter. Customers can bank through Facebook messenger or App by sending direct Messages to the Bank. Other services like balance enquiry, mini-statement, locating nearest ATM and branch outlets are also available. Customers can send money via QuickPay to another Facebook user or to a recipient not on Facebook via e-mail or SMS. To enable this service, the user need not download any additional Mobile App or subscribe to any application on Facebook, but can simply log on to Facebook available on smart phones. Customers can also call our Video Branch or initiate QuickPay from our Face book home page (on desktops). On Twitter, customers can avail all the services mentioned above and can transfer money to another user who is on Twitter as well as to any bank account holder who is not on Twitter via E-mail or SMS.
This App, launched in November 2015 in association with Citrus Pay, allows users to set custom reminders for upcoming bills, track billing history and pay bills on time. With the IndusCube App, any user who downloads the App and sets up a bill will be reminded about upcoming bill payment automatically. It allows non-customers to register their card, receive updates on IndusInd Credit Card and make payments with a few taps on the App. There is also an option to share a bill with a family member or friend using the App. The App reads the SMS automatically and sends reminders to the user as and when a Bill Payment is up and notification comes as SMS
Quick Pay is one-of-a-kind service launched by the Bank in July 2015.
It enables the customers to send money as an e-cheque or as an e-gift card to anyone just with their E-mail ID or Mobile Number. Customers do not have to remember Account Numbers or add as beneficiaries. The initiation leg is authenticated through customers IndusNet / Debit Card credentials. On successful validation, a transaction completion link is sent to the Mobile number / Email ID of the beneficiary as per the option selected while initiating the transfer. In addition, an insta-code is sent to the initiator via SMS.
The Bank implemented the tool to expose APIs (services from banking applications) to multiple partners in a secured and controlled manner. This solution has enabled channel partners to connect their applications quite easily to the Bank's services without extensive coding. 6 partners are already using this portal to connect to the Bank's services and more than 15 partners are in different stages of development.
IndusInd Blog site was launched in November 2015. iBlogs is an interesting platform focusing on latest industry news, trends & topics related to the financial sector. These informative articles and write-ups are collated from the Management Team & Employees. Idea of the initiative is to attract digital-savvy audience to communicate news, views and perspectives of reputed leaders from organizations. Currently, 8 blogs are published and another set of articles are planned for future course.
Campaign Management System
To enhance digital marketing capabilities and to improve interaction with the customer by adopting a more targeted and personalized approach, the Bank is implementing a Campaign Management Solution. The first phase has been implemented and the Bank has started targeted campaigns through e-mails and is tracking the efficacy of the campaigns. Starting from dissemination of e-mails, to tracking of Customers' Response (Open & Click events), and maintaining a repository of customers' responses to various campaigns for Lead generation, is being done in an efficient way. In the next few months, the Bank would have the capability of launching campaigns on all customer touch-points, which would be centrally managed using advanced analytics.
Calypso - Integrated Treasury System
The Bank has gone live with Calypso ver14 and replaced OPICS. All asset classes used by the Bank are now active on Calypso, the major ones being Options, Swaps, Forex, Fixed Income, Money Market, etc.
Calypso is a cross-asset, front-to-back, real-time solution for Treasury and Liquidity Management. The application provides real-time portfolio and risk management functionality and seamlessly integrates with various trading platforms.
Calypso system has been configured to receive real-time market data feed from Reuters. Payment interfaces have been configured for NEFT, RTGS and Swift Alliance. Accounting entries from Calypso are configured to flow into the Finacle CBS. Calypso system has been configured to send emails to customers and also for system alerts. The System went live on January 11, 2016.
Commodity XL for Precious Metals (CXLPM) system
The Bank has implemented the CXLPM (Commodity XL for Precious Metals) system to cater to bullion requirements. The system supports import of gold consignment for domestic as well as export purposes, delivery of bullion to Distributors on unfixed, loan or outright basis, forwards trading with distributors / suppliers.
Trade data interface is configured with Treasury system Calypso for position reporting, covering and monitoring. Payment interfaces have been configured with Swift Alliance. Accounting entries from CXLPM are configured to flow into Finacle CBS.
The System supports a wide range of transaction reports, such as Consignment Clearance documents, Invoices, Delivery Orders, Debit / Credit advices, Interest advices, Trade confirmation, Balance confirmation, RBI Returns, Customs Returns, Sales Tax Registers, Bond Cancellation advice.
Customer Oriented - Enhancements
Environment Upgrade for Finacle - Core Banking System
Existing CBS System went live in December 2012. Since then, branches have doubled, and there is a considerable increase in transaction volumes. Considering this, and the future growth, a decision was taken to upgrade the hardware by doubling the processing capacity and deploying newer versions of other related system software components like Operating System, Application Server, database to leverage the newer hardware. Accordingly, migration of Finacle to new hardware was successfully carried out over the weekend of
June 21 - 22, 2015. Some of the key benefits of the upgrade are End-of-Day (EOD) optimization, performance improvement in job processing, scalability, etc.
Rural Banking Application
IndusInd Bank has a number of branches in rural areas where stable telecom connectivity is a challenge and therefore, Data Cards were provided as a cost-effective solution. However, considering that the new browser-based solutions like Finacle require a higher and stable bandwidth, user and customer experience had been impacted. In order to address this, the Bank has developed and deployed a custom-built, client-based solution that runs on a laptop, which requires only minimum data to be fetched from the servers resulting in fast turnaround time. This has resulted in rendering of superior customer service. This client-based solution works on low bandwidth, provides portability, supports multiple devices, viz., desktop, laptop, tab & mobile. This has, so far, been deployed at over 25 such rural unbanked branches.
New Currency Derivative System for Back-Office
In order to offer enhanced services, a new Currency Derivative System for Back-Office was implemented in August 2015. The new system, from Thomson Reuters, replaced 'Ensettle' system used earlier.
Some of the improvements over the brvious system are
iWorkS - Architectural Changes
iWorkS, an image-based workflow system has 19 Interfaces and more than 70 processes and 13 Utilities. It supports total work-item volume of more than one crore and document size of around 15 TB.
With increase in users and volume, architectural changes were made by splitting iWorkS into two cabinets or parts. Some of the benefits of this architectural change are:
1. Performance enhancement;
2. Ease in patch management and system maintenance; and
3. Increase in System uptime.
Goverment Business Applications
For various Government initiatives, the Bank has rolled out following applications:
• Atal Pension Yojana
• Moradabad Development Authority
• National Pension Scheme
• Punjab Mandi Board
• PM Jivan Jyoti Bima Yojana
• PM Suraksha Bima Yojana
• Wage Protection Board of Kerala
Insider Trading Application - ESS application
Employee Self Service (ESS) application rolled out during the year is an employee self-service application for Options grantees to comply with the Bank's Insider Trading Code in compliance with SEBI guidelines.
Security, Risk & Internal Efficiency
• Implemented Web Application Firewall to protect internet facing servers from application level attacks.
• Recertified successfully for the ISO27001:2013 Information Security Management Systems standards.
• Carried out additional perimeter network testing by a third-party to validate work of the regular testing partner.
• Implemented Data Leakage Prevention Solution across Web gateway, Email gateway and endpoints devices like laptops and desktops.
• Implemented Information Rights Management Solution to control access rights on sensitive documents and files.
• Implemented Identity & Access Management Solution for Core Banking application to achieve greater control over the entire life cycle of user access to applications.
IT Jobs Automation
Automation of various IT processes has been taken up under an initiative named 'Smart Jobs'. It aims at end-to-end automation of jobs across multiple applications, load balancing, timely error handling and corrective action, etc. Presently, processes configured are from Finacle, ECBF, iWorkS, My Revenue and Calypso applications. Many other back-end IT processes of other applications, are being taken up to reduce manual intervention.
New Service Desk
Some of the features of the Service Desk are:
• User-friendly and self-guided Service Request forms with auto-population of mandatory information from Component Management Database;
• Service Level Measurements attached to each user request and indicators, notifications and auto-escalations helps support teams in better TAT management;
• Conformance to ITIL framework for Change, Incident, Work-order and Asset Management is implemented
• MIS Reporting to stakeholders, technicians, senior management;
• Auto-assign user request to respective analyst, based on support staff availability, skills and location;
• My-IT Mobile application with universal client helps to access Service Desk having anywhere, anytime - a digitization initiative.
Business Continuity / DR
The Bank has a Business Continuity Plan document, which includes back-up strategies, archiving, and data recovery in case of disasters. All the servers of the Bank are housed in Data Centres in Mumbai and Chennai. The Bank's
Disaster Recovery (DR) Site is located in Chennai. During the year, the Bank successfully migrated Data Centres from the Offices on G.N. Chetty Road and Karapakkam to an outsourced modern state-of-the-art Airtel Data Centre facility at Siruseri, Chennai.
During the year, the Bank had successfully conducted DR Drills for 32 applications and demonstrated its disaster recovery capabilities and readiness to switch over to DR systems in case of unforeseen disaster. All these DR Drills have been audited by an External Auditor. The Bank has also participated in the DR Drills of RBI Payments Systems Applications.
There have been no significant changes / proceedings, which if determined adversely, could amendments in legislation during FY 2015-16 result in a material adverse effect on the business. affecting the Bank / the Banking Industry. However, there are certain legal proceedings in the context of banking activity which are not unusual The Bank is not involved in any legal proceedings, for a bank of comparable size. and is not aware of any threatened legal
The Bank's focus during the year 2015-16 was to sustain and maintain the Bank as a High-Street Brand. To attain this objective, the Bank adopted various initiatives which led to increasing the brand's visibility while communicating with consumers in their space using the most engaging marketing approach-digital marketing.
During the year, the Bank embraced various digital initiatives to enhance the digital quotient of the Brand and also to stay connected with the new-age digital-savvy customers.
The Bank launched many web and App-based new initiatives for its customers, such as:
An Instant money transfer service wherein IndusInd Bank customers can send money to their personal contacts and/or business parties through SMS, e-mail and social media platforms, without having the beneficiary Bank Account details.
IndusCube App, the one-stop solution from IndusInd Bank that makes bill payments a breeze to its customers as well as non-customers.
SOCIAL BANKING t^*
Social Banking, which offers customers a host of banking services including transactions through social platforms like Twitter and Facebook. Apart from providing banking services like checking account balance, enquiry of mini-statement, locating nearest ATM / branch, users can also transfer money to their phone and social contacts using Facebook and Twitter
Mobile Banking App, a simple, fast and secure way of banking on the go. The Bank's customers can now check their account balance, transfer money, recharge mobile or DTH and enjoy a host of other banking and payment services anytime, anywhere.
On the social front, the Bank has been active on Facebook, Twitter and LinkedIn throughout the year and stands tall today with more than 6.7 lakh fan-base on Facebook, 21,000 on Twitter and 38,000 on LinkedIn. Today, most of the Bank's followers are customers who use these social platforms to communicate effectively with the Bank.
The Bank has continued its journey with Radian6, an ORM (Online Reputation Management) tool which helps in listening to what the customers are talking or writing on various online platforms. This tool also helps the Bank to know about various news articles being written in the media about the Bank on real time basis. The Bank has also started a Social Media Command Center, which works for 12 hours on all 7 days to respond all customer queries / feedback, etc. received via various digital forums, social channels, news portals, etc.
While digital marketing gathered momentum, the conventional marketing formed the backbone of marketing activity of the Bank. Series of outdoor advertising campaigns were planned throughout the year at strategic locations to reinforce the brand
Another significant achievement during the year has been the opening of new branches at semi-urban and urban locations and taking the score of branch network to 1,000 and 1,800 ATMS across 623 geographical locations. The Bank had also conducted a series of short burst of intense marketing activities - all in local flavour to reach out to the regional population.
The Bank acknowledges that no communication is complete without the wholehearted support of its internal stakeholders. Keeping this factor in mind, the Bank started streaming live, in virtual mode, the Townhalls of the Managing Director across all offices and branches. This was apbrciated and valued across internal stakeholders. Apart from such quarterly Townhalls, the Bank believed in providing regular mailers on various developments to the employees thereby aligning them with the latest updates.
Yet another significant achievement which the Bank entered into was an agreement with Royal Bank of Scotland N.V. to acquire its Diamond and Jewellery financing business in India and the related deposit portfolio.
April 7, 2016 would be considered as a watershed day in the history of IndusInd Bank. For it is on that day, the Bank announced the launch of a non-banking vertical - the Sport vertical - IndusInd For Sports via a Press Conference held in Mumbai. IndusInd Bank also carried out a robust social media campaign to create and encourage engagement levels. As a feedback, the Bank was able to generate 7,100 conversations with different stakeholders on Twitter and the said hashtag was trending all India for 8 hours. During the brss conference, the Bank live-tweeted to constantly keep the audience updated.
IndusInd For Sports is an attempt to bring out the Sport in Every One, promulgating the benefits of a healthy, active lifestyle. The first project to have officially been launched through the brss conference is "IndusInd Umang" in association with the GoSports Foundation. A first-of-its-kind platform, exclusively designed for differently-abled sportspersons, the programme will provide well-structured support systems to encourage 15 emerging and elite para-athletes, who have overcome challenges and excelled in their chosen sport against all adversity. The platform would aim to carry out year-long engagement activities for all our key stake holders, viz., Clients, Employees, and Community.
Several other communication initiatives undertaken by the Bank include:
• Sponsorships / donations / events with reputed Associations / Trusts which in turn have given higher visibility and reinforced the brand image. The Bank participated in activities having multi-purpose objectives such as sports, philanthropy, music, etc., along with service organisations / NGOs and Corporate Bodies to make the Bank's brsence felt in the community. Some of the major associations were with Pandit Chaturlal Memorial Society, Sahachari Foundation, Rajmata Vijaya Raje Scindia Centre for Development (RVRSCD) among others.
• Regular client engagement activities, Debit and Credit Card promotions, regional level promotions, branch launches, an extensiveround of development of various collaterals for new products / services, and tactical promotions during festive / seasonal offers.
• Periodic concalls, one-on-one investor meetings, roadshows and annual analysts' meets have all created a positive impact on the Bank's image
Branch Network & Infrastructure
The Bank has brsence in all 29 States and 5 out of the 7 Union Territories. In addition, the Bank also has Rebrsentative Offices in London, Dubai and Abu Dhabi.
During the year 2015-16, apart from expanding its Branch network to reach pan-India network of 1,000 branches, the Bank also refurbished / re-modeled 3 branches, set up 15 new Administrative Offices and relocated 5 branches towards better business prospects.
A total of 750 seats were added across India to cater to growth in Back-Office / Controlling Office requirements, distinct from branch network capacity additions.
Apart from the Currency Chest set up in Chennai during the last year, one more Currency Chest was made operational in Kolkata during the current fiscal, and another Currency Chest is proposed in Bengaluru in the next fiscal, which are expected to significantly enhance in-house capabilities and provide support for increased business profitability.