dhanlaxmi bank limited - bombay stock exchange...dhanlaxmi bank limited (the “issuer” or the...
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Placement Document Not for Circulation Serial Number: [●]
Strictly Confidential
DHANLAXMI BANK LIMITED
(A public company incorporated in the Republic of India with limited liability under the Companies Act, 1913 with corporate identification number L6519KL1927PLC000307 and a scheduled commercial bank within the meaning of the Reserve Bank of India Act, 1934 (the “RBI Act”).
Dhanlaxmi Bank Limited (the “Issuer” or the “Bank”) is issuing up to 15,023,300 equity shares of face value of ` 10 each (the “Equity Shares”) at a price of ` 46.50 per Equity Share, including a premium of ` 36.50 per Equity Share, aggregating up to ` 698.58 million (the “Issue”).
ISSUE IN RELIANCE UPON CHAPTER VIII OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE “SEBI REGULATIONS”)
THIS ISSUE AND THE DISTRIBUTION OF THIS PLACEMENT DOCUMENT IS IN RELIANCE UPON CHAPTER VIII OF THE SEBI REGULATIONS. THIS PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC, OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN OR OUTSIDE INDIA OTHER THAN TO QUALIFIED INSTITUTIONAL BUYERS (“QIBs”), AS DEFINED IN THE SEBI REGULATIONS. Invitations, offers and sales of Equity Shares shall be made only pursuant to this Placement Document, the Application Form and the Confirmation of Allocation Note. For further information, see the section titled “Issue Procedure” on page 145. The distribution of this Placement Document or the disclosure of its contents without the prior consent of our Bank to any person, other than QIBs, and persons retained by QIBs to advise them with respect to their purchase of the Equity Shares, is unauthorised and prohibited. Each prospective investor, by accepting delivery of this Placement Document, agrees to observe the foregoing restrictions and not to make copies of this Placement Document or any documents referred to in this Placement Document. This Placement Document and the Preliminary Placement Document have not been reviewed by the Securities and Exchange Board of India (the “SEBI”), the Reserve Bank of India (the “RBI”), the BSE Limited (the “BSE”), the National Stock Exchange of India Limited (the “NSE”), the Cochin Stock Exchange Limited (the “CSE”, and together with the BSE and the NSE, the “Stock Exchanges”) or any other regulatory or listing authority and is intended for use by QIBs only. This Placement Document has not been and will not be registered as a prospectus with the Registrar of Companies in India, and will not be circulated or distributed to the public in India or any other jurisdiction and will not constitute a public offer in India or any other jurisdiction. The placement of Equity Shares proposed to be made pursuant to this Placement Document is meant solely for QIBs on a private placement basis and is not an offer to the public or to any other class of investors. Investments in equity shares involve a degree of risk, and prospective investors should not invest in this Issue unless they are prepared to take the risk of losing all or part of their investment. Prospective investors are advised to read the section titled “Risk Factors” on page 32 carefully before taking an investment decision related to this Issue. Each prospective investor is advised to consult its advisors about the consequences of its investment in the Equity Shares being issued pursuant to this Placement Document. The information on our website or any website directly or indirectly linked to our website does not form part of this Placement Document and prospective investors should not rely on such information contained in, or available through, such websites for their investment in this Issue. Our outstanding Equity Shares are listed on the BSE, the NSE and the CSE. However, our Equity Shares have not been traded on the CSE since 2002. Applications shall be made for the listing of the Equity Shares offered through this Placement Document on the Stock Exchanges. The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Equity Shares to trading on the Stock Exchanges should not be taken as an indication of the merits of our Bank or the Equity Shares. YOU ARE NOT AUTHORIZED TO AND MAY NOT (1) DELIVER THIS PLACEMENT DOCUMENT TO ANY OTHER PERSON; OR (2) REPRODUCE THIS PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER. ANY DISTRIBUTION OR REPRODUCTION OF THIS PLACEMENT DOCUMENT IN WHOLE OR IN PART IS UNAUTHORIZED. FAILURE TO COMPLY WITH THIS INSTRUCTION MAY RESULT IN A VIOLATION OF THE SEBI REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS. A copy of the Preliminary Placement Document has been delivered to each of the Stock Exchanges. A copy of this Placement Document has been filed with each of the Stock Exchanges. THIS PLACEMENT DOCUMENT HAS BEEN PREPARED BY OUR BANK SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH THE PROPOSED ISSUE OF THE EQUITY SHARES DESCRIBED IN THIS PLACEMENT DOCUMENT. The Equity Shares have not been and will not be registered under the United States Securities Act of 1933, as amended (the ‘‘Securities Act’’) and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S (the “Regulation S”) under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold only outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdiction where those offers and sales occur. For further information, see “Selling Restrictions” and “Transfer Restrictions” on page 155 and 158, respectively. This Placement Document is dated April 3, 2013
BOOK RUNNING LEAD MANAGERS
ICICI Securities Limited H.T. Parekh Marg Churchgate, Mumbai 400 020 India Telephone: +91 22 2288 2460 Facsimile: +91 22 2282 6580
Motilal Oswal Investment Advisors Private Limited Motilal Oswal Tower 12th Floor, Junction of Gokhale & Sayani Road Prabhadevi, Mumbai 400 025 India Telephone: +91 22 3980 4380 Facsimile: +91 22 3980 4315
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TABLE OF CONTENTS NOTICE TO INVESTORS.................................................................................................................................. 1
REPRESENTATIONS BY INVESTORS .......................................................................................................... 3
OFFSHORE DERIVATIVE INSTRUMENTS.................................................................................................. 8
DISCLAIMER CLAUSE OF THE STOCK EXCHANGES ............................................................................ 9
PRESENTATION OF FINANCIAL AND OTHER INFORMATION ......................................................... 10
INDUSTRY AND MARKET DATA................................................................................................................. 12
FORWARD-LOOKING STATEMENTS ........................................................................................................ 13
ENFORCEMENT OF CIVIL LIABILITIES .................................................................................................. 15
EXCHANGE RATES......................................................................................................................................... 16
CERTAIN DEFINITIONS AND ABBREVIATIONS..................................................................................... 17
SUMMARY OF BUSINESS .............................................................................................................................. 22
SUMMARY OF THE ISSUE ............................................................................................................................ 27
SELECTED FINANCIAL INFORMATION OF OUR BANK...................................................................... 29
RISK FACTORS ................................................................................................................................................ 32
USE OF PROCEEDS ......................................................................................................................................... 52
CAPITALISATION ........................................................................................................................................... 53
MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE EQUITY
SHARES .............................................................................................................................................................. 54
DIVIDEND POLICY ......................................................................................................................................... 57
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................................................................................................................................... 58
INDUSTRY OVERVIEW.................................................................................................................................. 85
OUR BUSINESS................................................................................................................................................. 97
SELECTED STATISTICAL INFORMATION............................................................................................. 116
REGULATION AND POLICIES ................................................................................................................... 127
BOARD OF DIRECTORS AND SENIOR MANAGEMENT...................................................................... 134
PRINCIPAL SHAREHOLDERS.................................................................................................................... 142
ISSUE PROCEDURE ...................................................................................................................................... 145
PLACEMENT................................................................................................................................................... 153
SELLING RESTRICTIONS ........................................................................................................................... 155
TRANSFER RESTRICTIONS........................................................................................................................ 158
THE SECURITIES MARKET OF INDIA..................................................................................................... 159
DESCRIPTION OF THE SHARES................................................................................................................ 162
STATEMENT OF TAX BENEFITS............................................................................................................... 166
LEGAL PROCEEDINGS................................................................................................................................ 174
OUR AUDITORS ............................................................................................................................................. 176
GENERAL INFORMATION.......................................................................................................................... 177
FINANCIAL STATEMENTS ......................................................................................................................... 178
DECLARATION .............................................................................................................................................. 179
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NOTICE TO INVESTORS Our Bank has furnished and accepts full responsibility for the information contained in this Placement Document and to the best of our knowledge and belief, having made all reasonable enquiries, we confirm that this Placement Document contains all information with respect to our Bank and the Equity Shares, which is material in the context of this Issue. The statements contained in this Placement Document relating to our Bank and the Equity Shares are, in all material respects, true and accurate and not misleading, the opinions and intentions expressed in this Placement Document with regard to our Bank and the Equity Shares are honestly held, have been reached after considering all relevant circumstances, are based on information presently available to us and are based on reasonable assumptions. There are no other facts in relation to our Bank and the Equity Shares, the omission of which would, in the context of the Issue, make any statement in this Placement Document misleading in any material respect. Further, all reasonable enquiries have been made by us to ascertain such facts and to verify the accuracy of all such information and statements. The Book Running Lead Managers have not separately verified all the information contained in this Placement Document (financial, legal or otherwise). Accordingly, neither the Book Running Lead Managers nor any of their respective members, employees, counsel, officers, directors, representatives, agents or affiliates make any express or implied representation, warranty or undertaking, and no responsibility or liability is accepted, by the Book Running Lead Managers, as to the accuracy or completeness of the information contained in this Placement Document or any other information supplied in connection with the issue of Equity Shares or their distribution. Each person receiving this Placement Document acknowledges that such person has neither relied on the Book Running Lead Managers nor on any person affiliated with the Book Running Lead Managers in connection with its investigation of the accuracy of such information or representation, or its investment decision, and each such person must rely on its own examination of our Bank and the merits and risks involved in investing in the Equity Shares issued pursuant to the Issue. No person is authorised to give any information or to make any representation not contained in this Placement Document and any information or representation not so contained must not be relied upon as having been authorised by or on behalf of our Bank or the Book Running Lead Managers. The delivery of this Placement Document at any time does not imply that the information contained in it is correct as at any time subsequent to its date. The Equity Shares have not been approved, disapproved or recommended by the U.S. Securities and Exchange Commission, any state securities commission in the United States or the securities commission of any non-U.S. jurisdiction or any other U.S. or non-U.S. regulatory authority. None of these authorities has passed on or endorsed the merits of this Issue or the accuracy or adequacy of this Placement Document. Any representation to the contrary is a criminal offence in the United States and may be a criminal offence in other jurisdictions. The Equity Shares have not been recommended by any foreign federal or state securities commission or regulatory authority. As such, this Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by anyone in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by our Bank and the Book Running Lead Managers which would permit an issue of the Equity Shares or distribution of this Placement Document in any jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Placement Document nor any other Issue-related materials in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction, except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Equity Shares are transferable only in accordance with the restrictions described in the section titled “Selling Restrictions” on page 155. All purchasers will be required to make the applicable representations set forth in the section titled “Transfer Restrictions” on page 158. The information contained in this Placement Document has been provided by our Bank and other sources identified herein. Distribution of this Placement Document to any person other than the investor specified by the Book Running Lead Managers or their representatives, and those persons, if any, retained to advise such investor with respect thereto, is unauthorised, and any disclosure of its contents, without prior written consent of our Bank, is prohibited. Any reproduction or distribution of this Placement Document, in whole or in part, and any disclosure of its contents to any other person is prohibited. The distribution of this Placement Document and the issue of the Equity Shares in certain jurisdictions may be
2
restricted by law. In making an investment decision, investors must rely on their own examination of our Bank and the terms of this Issue, including the merits and risks involved. Investors should not construe the contents of this Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, investment, legal, tax, accounting and related matters concerning this Issue. In addition, neither our Bank nor the Book Running Lead Managers are making any representation to any investor, purchaser, offeree or subscriber of the Equity Shares in relation to this Issue regarding the legality of an investment in the Equity Shares in this Issue by such investor, subscriber or purchaser under applicable legal, investment or similar laws or regulations. Each such investor, subscriber, offeree or purchaser of the Equity Shares in this Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in our Bank under Indian law, including Chapter VIII of the SEBI Regulations and is not prohibited by SEBI or any other statutory, regulatory or judicial authority in India or any other jurisdiction from buying, selling or dealing in securities. This Placement Document contains summaries of certain terms of certain documents, which summaries are qualified in their entirety by the terms and conditions of such documents. The information on our website, www.dhanbank.com, or on the website of the Book Running Lead Managers, does not constitute or form part of this Placement Document. Prospective investors should not rely on the information contained in, or available through such websites.
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REPRESENTATIONS BY INVESTORS All references to “you” or “your” in this section are to the prospective investors in the Issue. By Bidding for and subscribing to any of the Equity Shares under the Issue, you are deemed to have represented, warranted, acknowledged and agreed to our Bank and the Book Running Lead Managers, as follows: • you (i) are a QIB as defined under Regulation 2(1)(zd) of the SEBI Regulations, (ii) have a valid and
existing registration under applicable laws of India, (iii) undertake to acquire, hold, manage or dispose of any Equity Shares that are Allotted to you for the purposes of your business in accordance with Chapter VIII of the SEBI Regulations, and (iv) undertake to comply with the SEBI Regulations and all other applicable laws, including in respect of reporting requirements, if any;
• you confirm that if you are Allotted Equity Shares pursuant to the Issue, you shall not, for a period of one year from the date of Allotment (hereinafter defined), sell the Equity Shares so acquired, except on the Stock Exchanges;
• you are aware that the Equity Shares have not been and will not be registered under the Companies Act, the SEBI Regulations or under any other law in force in India. This Placement Document has not been reviewed by the SEBI, the RBI, the Stock Exchanges or any other regulatory or listing authority and is intended only for use by QIBs. Further, this Placement Document has not been verified or affirmed by the SEBI or the Stock Exchanges and will not be filed or registered with the Registrar of Companies. This Placement Document has been filed with the Stock Exchanges and has been displayed on the websites of our Bank and the Stock Exchanges;
• you are permitted to subscribe to the Equity Shares under the laws of all relevant jurisdictions which
are applicable to you and that you have fully observed such laws and have all necessary capacity and have obtained all necessary consents and authorities as may be required, to enable you to commit to this participation in the Issue and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorizations to agree to the terms set out or referred to in this Placement Document) and complied with all the necessary formalities and that you will honour such obligations;
• none of our Bank, any Book Running Lead Manager or any of their respective shareholders, directors,
officers, employees, counsels, advisors, representatives, agents or affiliates is making any recommendations to you, or advising you regarding the suitability of any transactions they may enter into in connection with the Issue, and that your participation in the Issue is on the basis that you are not and will not be a client of the Book Running Lead Managers and that the Book Running Lead Managers have no duties or responsibilities to you for providing the protection afforded to their clients or customers or for providing advice in relation to the Issue and are in no way acting in a fiduciary capacity;
• all statements other than statements of historical fact included in this Placement Document, including,
without limitation, those regarding our Bank’s financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to our Bank’s business), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to be materially different from future results, performances or achievements expressed or implied by such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding our Bank’s present and future business strategies and environment in which our Bank will operate in the future. You should not place undue reliance on forward-looking statements, which speak only as at the date of this Placement Document. Our Bank or any of our shareholders, Directors, officers, employees, counsels, advisors, representatives, agents or affiliates assumes no responsibility to update any of the forward-looking statements contained in this Placement Document;
• you are aware and understand that the Equity Shares are being offered only to QIBs and are not being offered to the general public and the Allotment of the same shall be on a discretionary basis, at the discretion of our Bank in consultation with the Book Running Lead Managers;
• you have made, or been deemed to have made, as applicable, the representations, warranties,
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acknowledgements and undertakings as set forth under the section titled “Transfer Restrictions” on page 158;
• you have been provided a serially numbered copy of this Placement Document and have read this Placement Document in its entirety, in particular the section titled “Risk Factors”, on page 32;
• that in making your investment decision, (i) you have relied on your own examination of our Bank and
the terms of the Issue, including the merits and risks involved, (ii) you have made and will continue to make your own assessment of our Bank, the Equity Shares and the terms of the Issue based on such information as is publicly available, (iii) you have relied upon your own investigations and resources in deciding to invest in the Equity Shares, (iv) you have consulted your own independent advisors (including tax advisors) or otherwise have satisfied yourself concerning, without limitation, the effects of local laws and taxation matters, (v) you have relied solely on the information contained in this Placement Document and no other disclosure or representation by our Bank or any other party and (vi) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of our Bank and the Equity Shares;
• none of the Book Running Lead Managers or their affiliates has provided you with any tax advice or
otherwise made any representations regarding the tax consequences of the Equity Shares (including, but not limited to, the Issue and the use of the proceeds from the Equity Shares). You will obtain your own independent tax advice from a reputable service provider and will not rely on the Book Running Lead Managers when evaluating the tax consequences in relation to the Equity Shares (including, but not limited to, the Issue and the use of the proceeds from the Equity Shares). You waive and agree not to assert any claim against any of our Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates with respect to the tax aspects of the Equity Shares or as a result of any tax audits by tax authorities, wherever situated;
• you have such knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of the investment in the Equity Shares, and you and any accounts for which you are subscribing the Equity Shares (i) are each able to bear the economic risk of the investment in the Equity Shares, (ii) will not look to our Bank or any of the Book Running Lead Managers or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered, (iii) are able to sustain a complete loss on the investment in the Equity Shares, (iv) have no need for liquidity with respect to the investment in the Equity Shares, and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Equity Shares;
• that where you are acquiring the Equity Shares for one or more managed accounts, you represent and
warrant that you are authorized in writing by each such managed account to acquire the Equity Shares for each such managed account and to make (and you hereby make) the representations, warranties, acknowledgements and undertakings herein for and on behalf of each such managed account, reading the reference to “you” to include such accounts;
• in relation to our Bank, you have no rights under a shareholders’ agreement or voting agreement, no
veto rights or right to appoint any nominee director on our Board other than the rights acquired, if any, in the capacity of a lender not holding any Equity Shares;
• you will have no right to withdraw your Bid after the Bid Closing Date;
• you are eligible to Bid and hold the Equity Shares so Allotted to you pursuant to this Issue, together
with any Equity Shares held by you prior to the Issue. You further confirm that your holding, upon the issue of the Equity Shares, shall not exceed the level permissible as per any applicable law;
• the Bid submitted by you would not eventually result in triggering a tender offer under the Securities
and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Code”);
• to the best of your knowledge and belief together with other QIBs in the Issue that belong to the same
5
group or are under common control as you, the Allotment under this Issue to you shall not exceed 50.0% of the Issue. For the purposes of this representation:
a. the expression ‘belongs to the same group’ shall be interpreted by applying the concept of
‘companies under the same group’ as provided in sub-section (11) of section 372 of the Companies Act; and
b. ‘control’ shall have the same meaning as is assigned to it by clause (e) of sub-regulation 1 of
regulation 2 of the Takeover Code; • you are aware that if you are Allotted more than 5.0% of the Equity Shares in this Issue, we shall be
required to disclose your name, the number of Equity Shares Allotted to you, the pre and post issue shareholding pattern of our Bank in the format prescribed in clause 35 of the Listing Agreements to the Stock Exchanges and the Stock Exchanges will make the same available on their website and you consent to such disclosure being made by us;
• you acknowledge, represent and agree that your total interest in the paid-up share capital of our Bank, whether direct or indirect, beneficial or otherwise (any such interest, your “Holding”), when aggregated together with any existing Holding and/or Holding of any of your “associated enterprises” (as defined under section 92A of the IT Act), does not exceed 5.0% of the total paid-up share capital of our Bank, unless you are an existing shareholder who already holds 5.0% or more of the underlying paid up share capital of our Bank pursuant to the acknowledgment of the RBI, provided that your Holding does not, without the further acknowledgment of the RBI, exceed your existing Holding after Allotment;
• you are aware that after the completion of the allotment process, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, and that in the event that RBI does not grant the post facto approval in respect of Allotment of Equity Shares to you, you shall be required to comply with the instructions received from the RBI in this regard;
• you are aware that pursuant to the Allotment of the Equity Shares in the Issue, applications shall be
made by our Bank to the Stock Exchanges for listing approvals and that the applications for obtaining the final listing and trading approvals will be made to the Stock Exchanges only after the credit of the Equity Shares to the beneficiary account with the Depository Participant, and that there can be no assurance that such approvals will be obtained on time or at all;
• you shall not undertake any trade in the Equity Shares credited to your beneficiary account with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares under this Issue are granted by the Stock Exchanges;
• you are aware and understand that the Book Running Lead Managers will have entered into a
Placement Agreement with our Bank whereby the Book Running Lead Managers have, subject to the satisfaction of certain conditions set out therein, undertaken severally and not jointly to use their reasonable endeavours to seek to procure subscription for the Equity Shares on the terms and conditions set forth therein;
• the contents of this Placement Document are exclusively the responsibility of our Bank and none of the
Book Running Lead Managers nor any person acting on their behalf or any of the counsels, advisors, to the Issue has or shall have any liability for any information, representation or statement contained in this Placement Document or any information previously published by or on behalf of our Bank and will not be liable for your decision to participate in the Issue based on any information, representation or statement contained in this Placement Document or otherwise. By accepting a participation in this Issue, you agree to the same and confirm that you have neither received nor relied on any other information, representation, warranty or statement made by or on behalf of the Book Running Lead Managers or our Bank or any other person and that none of the Book Running Lead Managers nor our Bank nor any other person including their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates will be liable for your decision to participate in the Issue based on any other information, representation, warranty or statement that you may have obtained or received;
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• that the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Equity Shares is contained in this Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Equity Shares and that you have neither received nor relied on any other information given or representations, warranties or statements made by any of the Book Running Lead Managers (including any view, statement, opinion or representation expressed in any research published or distributed by any of the Book Running Lead Managers or their respective affiliates or any view, statement, opinion or representation expressed by any staff (including research staff) of any of the Book Running Lead Managers or their respective affiliates) or our Bank or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates and neither the Book Running Lead Managers nor our Bank or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates will be liable for your decision to accept an invitation to participate in the Issue based on any other information, representation, warranty, statement or opinion;
• you agree to indemnify and hold our Bank and the Book Running Lead Managers or its affiliates
harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements and undertakings in this section. You agree that the indemnity set forth in this paragraph shall survive the resale of the Equity Shares Allotted under this Issue by or on behalf of the managed accounts;
• you understand that none of the Book Running Lead Managers or its affiliates have any obligation to
purchase or acquire all or any part of the Equity Shares purchased by you in the Issue or to support any losses, directly or indirectly sustained or incurred by you for any reason whatsoever in connection with the Issue, including non-performance by our Bank of any of our respective obligations or any breach of any representations or warranties by our Bank, whether to you or otherwise;
• that you are eligible to invest in India under applicable law, including the Foreign Exchange
Management (Transfer or Issue of Security by Person Resident Outside India) Regulations, 2000, as amended from time to time, and have not been prohibited by the SEBI or any other regulatory authority, statutory authority or otherwise, from buying, selling or dealing in securities;
• any dispute arising in connection with the Issue will be governed and construed in accordance with the
laws of the Republic of India, and the courts in Mumbai, Maharashtra, India shall have the exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Placement Document;
• that you are a sophisticated investor who is seeking to purchase the Equity Shares for your own
investment and not with a view to distribution. In particular, you acknowledge that (i) an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment, (ii) you have sufficient knowledge, sophistication and experience in financial and business matters so as to be capable of evaluating the merits and risk of the purchase of the Equity Shares, and (iii) you are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions and have such knowledge and experience in financial, business and investment matters that you are capable of evaluating the merits and risks of your investment in the Equity Shares;
• you confirm that either (i) you have not participated in or attended any investor meetings or
presentations by our Bank or our agents with regard to our Bank or this Issue (“Bank Presentations”); or (ii) if you have participated in or attended any Bank Presentations, (a) you understand and acknowledge that the Book Running Lead Managers may not have the knowledge of the statements that our Bank or our agents may have made at such Bank Presentations and are therefore unable to determine whether the information provided to you at such Bank Presentation may have included any material misstatements or omissions, and, accordingly you acknowledge that the Book Running Lead Managers have advised you not to rely in any way on any such information that was provided to you at such Bank Presentations, and (b) confirm that, to the best of your knowledge, you have not been provided any material information that was not publicly available;
• you are, at the time the Equity Shares are purchased pursuant to Regulation S, located outside of the
United States (within the meaning of Regulation S) and you not an affiliate of our Bank, or a person acting on behalf of such an affiliate;
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• you are purchasing the Equity Shares in an offshore transaction complying with the requirements of
Rule 903 or 904 of Regulation S of the Securities Act;
• you understand that the Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws;
• that each of the representations, warranties, acknowledgements and agreements set out above shall continue to be true and accurate at all times up to and including the Allotment of the Equity Shares in the Issue;
• that our Bank, the Book Running Lead Managers, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements and agreements which are given to the Book Running Lead Managers on their own behalf and on behalf of our Bank and are irrevocable;
• all statements other than statements of historical fact included in this Placement Document, including without limitation, those regarding our Banks’s financial position, business strategy, plans and objectives of management for future operations (including development plans) are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to be materially different from future results, performance or achievements expressed or implied through such forward-looking statements. Such forward-looking statements are based on numerous assumptions regarding the present and future business strategies and the environment in which our Bank would operate in the future. You should not place undue reliance on forward-looking statements, which speak only as of the date of this Placement Document. Our Bank assumes no responsibility to update any of the forward-looking statements contained in this Placement Document;
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OFFSHORE DERIVATIVE INSTRUMENTS
Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 15A(1) of the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995, as amended (“FII Regulations”) an FII may issue or otherwise deal in offshore derivative instruments such as participatory notes, equity-linked notes or any other similar instruments against underlying securities (all such offshore derivative instruments are referred to herein as “P-Notes”) listed or proposed to be listed on any stock exchange in India only in favour of those entities which are regulated by foreign regulatory authorities in the countries of their incorporation or establishment subject to compliance with “know your client” requirements. An FII shall also ensure no further issue or transfer is made of any offshore derivative instruments issued by or on behalf of it to any person other than a person regulated by an appropriate foreign regulatory authority. P-Notes have not been and are not being offered or sold pursuant to this Placement Document. This Placement Document does not contain any information concerning P-Notes, including, without limitation, any information regarding any risk factors relating thereto. In terms of the FII Regulations, with effect from May 22, 2008, no sub-account of an FII is permitted to, directly or indirectly, issue P-Notes. Any P-Notes that may be issued are not securities of our Bank and do not constitute any obligation of, claims on or interests in our Bank. Our Bank has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to any P-Notes. Any P-Notes that may be offered are issued by, and are the sole obligations of, third parties that are unrelated to us. Our Bank does not make any recommendation as to any investment in P-Notes and does not accept any responsibility whatsoever in connection with the P-Notes. Any P-Notes that may be issued are not securities of the Book Running Lead Managers and do not constitute any obligations or claims on the Book Running Lead Managers. FII affiliates of the Book Running Lead Managers may purchase, to the extent permissible under law, Equity Shares in the Issue, and may issue P-Notes in respect thereof. Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosures as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes. Neither SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult with their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations.
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DISCLAIMER CLAUSE OF THE STOCK EXCHANGES As required, a copy of this Placement Document has been submitted to the Stock Exchanges. The Stock Exchanges do not in any manner: 1. warrant, certify or endorse the correctness or completeness of any of the contents of the Placement
Document; 2. warrant that the Equity Shares will be listed or will continue to be listed on the Stock Exchanges; or 3. take any responsibility for the financial or other soundness of our Bank, our management or any
scheme or project of our Bank; and it should not for any reason be deemed or construed to mean that the Placement Document has been cleared or approved by the Stock Exchanges. Every person who desires to apply for or otherwise acquire any Equity Shares may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever by reason of any loss which may be suffered by such person consequent to or in connection with such subscription/acquisition whether by reason of anything stated or omitted to be stated herein or for any other reason whatsoever.
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PRESENTATION OF FINANCIAL AND OTHER INFORMATION
In this Placement Document, unless the context otherwise indicates or implies, references to “you,” “offeree,” “purchaser,” “subscriber,” “recipient,” “investors” and “potential investor” are to the prospective investors in this Issue, references to, “our”, “us”, “we”, our “Bank”, the “Bank”, or the “Issuer” are to Dhanlaxmi Bank Limited. In this Placement Document, references to (a) “Rs.”, “Rupees”, “INR” or “`” are to the legal currency of the Republic of India; (b) “U.S.$” and “U.S. Dollars” are to the legal currency of the United States; (c) “EURO” are to the single currency of the participating member states in the Third Stage of the European Economic and Monetary Union of the Treaty establishing the European Community, as amended from time to time; and (d) “GBP” are to the legal currency of the United Kingdom. All references herein to the “U.S.” or the “United States” are to the United States of America and its territories and possessions and all references to “India” are to the Republic of India and its territories and possessions. All references herein to the “Government of India” are to the Central Government of India and all references to the “Government” are to Government of India or an Indian state government as applicable. All the numbers in this document, other than in sections titled “Selected Financial Information of our Bank” and “Financial Statements” on pages 29 and 178, respectively, have been presented in million or in whole numbers where the numbers have been too small to present in million, unless stated otherwise. Our Bank publishes its financial statements in Rupees. Our Bank's financial statements are prepared in accordance with Indian GAAP and the Companies Act. Unless otherwise indicated, all financial data in this Placement Document are derived from our financial statements prepared in accordance with Indian GAAP. Indian GAAP differs in certain significant respects from International Financial Reporting Standards (“IFRS”). Our Bank does not provide a reconciliation of its financial statements to IFRS financial statements. We have not attempted to explain those differences or quantify their impact on the financial information included herein. The degree to which the financial statements included in this Placement Document will provide meaningful information is entirely dependent on the reader’s level of familiarity with the respective accounting practices. We urge you to consult your own advisors regarding such differences and their impact on our financial information. Our reformatted financial statements as of and for fiscal 2010, 2011 and 2012 included in this Placement Document (the “Reformatted Financial Statements”) are extracted from our audited financial statements for these periods. The examination report issued by our current statutory auditors, Sagar & Associates, Chartered Accountants on the Reformatted Financial Statements is also included in this Placement Document. Sagar & Associates have not audited the financial statements as of and for fiscal 2010, 2011 and 2012, however, they have issued an examination report on the financial statements for these periods, for which they have entirely relied upon the audit conducted by the previous auditors, Walker Chandiok & Co, Chartered Accountants ("WCC") and Shah & Gupta, Chartered Accountants (who have jointly audited the financial statements as of and for fiscal 2010) and WCC and Sharp & Tannan, Chartered Accountants (who have jointly audited the financial statements as of and for fiscal 2011 and 2012). Sagar & Associates have also performed a limited review in accordance with the procedures specified by the ICAI for review of interim financial information in the Standard on Review Engagements 2410 (Review of Interim Financial Information Performed by the Independent Auditor of the Company ("SRE 2410")), of the unaudited financial statements of our Bank as at and for the nine months period ended December 31, 2012 and December 31, 2011. WCC and Sharp & Tannan have performed a limited review in accordance with SRE 2410 of the unaudited financial statements of our Bank as at and for the nine months ended December 31, 2011. Sagar & Associates have relied upon the limited review report jointly issued by WCC and Sharp & Tannan with respect to the unaudited financial statements of the Bank as at and for the nine months period ended December 31, 2011. The unaudited financial statements as at and for the nine months ended December 31, 2011 and 2012 are hereinafter referred to collectively as the ("Unaudited Interim Financial Statements"). The Reformatted Financial Statements together with the Unaudited Interim Financial Statements are collectively referred to as “the Financial Statements”. The presentation of the Unaudited Interim Financial Statements may not be comparable to the presentation of the Reformatted Financial Statements included in this Placement Document.
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Unless otherwise stated, references in this Placement Document to a particular year are to the calendar year ended on December 31 and to a particular “financial year”, “Fiscal” or “FY” are to the financial year of our Bank ending on March 31 of a particular year. Any discrepancies in the tables included herein between the amounts listed and the totals thereof are due to rounding off.
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INDUSTRY AND MARKET DATA
Information regarding market position, growth rates and other industry data pertaining to the businesses of our Bank contained in this Placement Document consists of estimates based on data reports compiled by government bodies, professional organizations and analysts, data from other external sources and knowledge of the markets in which our Bank competes. The statistical information included in this Placement Document relating to the various sectors in which our Bank operates has been reproduced from various trade, industry and regulatory/government publications and websites, including that of the RBI. This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey. Neither our Bank nor any of the Book Running Lead Managers have independently verified this data and neither our Bank nor any of the Book Running Lead Managers makes any representation regarding the accuracy or completeness of such data. Similarly, while we believe that our internal estimates are reasonable, such estimates have not been verified by any independent sources, and neither our Bank nor the Book Running Lead Managers can assure potential investors as to their accuracy.
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FORWARD-LOOKING STATEMENTS Certain statements contained in this Placement Document that are not statements of historical fact constitute “forward-looking statements.” Investors can generally identify forward-looking statements by terminology such as “aim”, “anticipate”, “believe”, “continue”, “could”, “estimate”, “expect”, “intend”, “may”, “objective”, “plan”, “potential”, “project”, “pursue”, “shall”, “should”, “will”, “would”, or other words or phrases of similar import. All statements regarding our Bank’s expected financial condition and results of operations and business plans, including potential acquisitions, and prospects are forward-looking statements. These forward-looking statements include statements as to our business strategy, revenue and profitability, planned projects and other matters discussed in this Placement Document that are not historical facts. These forward-looking statements involve known and unknown risks, uncertainties, assumptions and other factors that may cause our Bank’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by such forward-looking statements or other projections. Important factors that could cause actual results, performance or achievements to differ materially include, among others: • volatility in interest rates and other market conditions;
• our exposure to the priority lending sectors;
• certain failures, including internal or external fraud, operational errors, systems malfunctions, or cyber
security incidents;
• volatility in the market price of gold;
• decrease in the value of our collateral or delays in enforcing our collateral upon default by borrowers on their obligations to us;
• our inability to control the level of NPAs in our portfolio effectively;
• material changes in the regulations and policies governing the banking industry by the RBI or other regulatory authorities;
• our inability to comply with the capital adequacy standards of the advanced Basel II Accord or the proposed Basel III Accord;
• adverse change in the economy of India;
• competition in the banking industry;
• any other factors beyond our control;
• changes in tax laws in India;
• any inability to manage maturity and interest rate mismatches between our assets and liabilities; and
• our dependence on, and ability to retain, our senior management team.
Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited, to those discussed under the sections titled “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry Overview”, “Business” and “Selected Statistical Information” on pages 32, 58, 85, 97 and 116, respectively. The forward-looking statements contained in this Placement Document are based on the beliefs of our management, as well as the assumptions made by and information currently available to the management. Although our Bank believes that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and
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uncertainties materialize, or if any of our Bank’s underlying assumptions prove to be incorrect, our Bank’s actual results of operations, cash flows or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent written and oral forward-looking statements attributable to our Bank are expressly qualified in their entirety by reference to these cautionary statements.
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ENFORCEMENT OF CIVIL LIABILITIES
We are a limited liability company incorporated under the laws of India. All our Directors and key managerial personnel are residents of India. A substantial portion of our assets are located in India. As a result, it may be difficult for the investors to affect service of process upon our Bank or such persons outside India or to enforce judgments obtained against such parties outside India. India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments and execution of a foreign judgment is provided for under Sections 13 and 44A respectively, of the Code of Civil Procedure, 1908 (the “Civil Procedure Code”) on a statutory basis. Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon except: (i) where the judgment has not been pronounced by a court of competent jurisdiction; (ii) where the judgment has not been given on the merits of the case; (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable; (iv) where the proceedings in which the judgment was obtained were opposed to natural justice; (v) where the judgment has been obtained by fraud, or (vi) where the judgment sustains a claim founded on a breach of any law in force in India. Under Section 14 of the Civil Procedure Code, a court in India shall, upon the production of any document purporting to be a certified copy of a foreign judgment, presume that the judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on record; but such presumption may be displaced by proving want of jurisdiction. A foreign judgment which is conclusive under Section 13 of the Civil Procedure Code can be enforced in India (i) by instituting execution proceedings; or (ii) by instituting a suit on such judgment. Foreign judgments may be enforced by proceedings in execution in certain cases. Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court within the meaning of that section in any country or territory outside India which the Government has by notification declared to be in a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a like nature or in respect of a fine or other penalties and does not include arbitration awards. Furthermore, the execution of the foreign decree under Section 44A of the Civil Procedure Code is also subject to the exceptions under Section 13 of the Civil Procedure Code, as mentioned above. Each of the United Kingdom, Singapore and Hong Kong has been declared by the Government of India to be a reciprocating territory for the purposes of Section 44A of the Civil Procedure Code but the United States has not been so declared. A judgment of a court in a jurisdiction which is not a reciprocating territory may be enforced only by a fresh suit upon the judgment and not by proceedings in execution. The suit must be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy. Further, any judgment or award denominated in a foreign currency would be converted into Rupees on the date of such judgment or award and not on the date of payment. A party seeking to enforce a foreign judgment in India is required to obtain approval from the RBI to repatriate outside India any amount recovered pursuant to the execution of such a judgement.
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EXCHANGE RATES
Fluctuations in the exchange rate between the Rupee and the U.S. Dollar will affect the U.S. Dollar equivalent of the Rupee price of the Equity Shares on the Stock Exchanges. These fluctuations will also affect the conversion into U.S. Dollars of any cash dividends paid in Rupees on the Equity Shares. The exchange rate between the Rupee and the U.S. Dollar has been volatile over the past year. The following table sets forth, for the periods indicated, information with respect to the exchange rate between the Rupee and the U.S. Dollar (in Rupees per U.S. Dollar) based on the reference rate released by the RBI. The exchange rate as at March 28, 2013 was ` 54.39 = U.S. Dollar 1.00. No representation is made that the Rupee amounts actually represent such U.S. dollar amounts or could have been or could be converted into U.S. Dollar at the rates indicated, any other rate, or at all.
Exchange Rate (` Per U.S. Dollar) Period End Average High Low Financial year ended March 31, 2012 51.16 47.95 54.24 43.95 Financial year ended March 31, 2011 44.65 45.27 45.95 44.65 Financial year ended March 31, 2010 45.14 47.42 50.53 44.94 Months ended: March 31, 2013 54.39 54.40 55.05 54.10 February 28, 2013 53.77 53.77 54.48 52.97 January 31, 2013 53.29 54.32 55.33 53.29 December 31, 2012 54.78 54.65 55.09 54.20 November 30, 2012 54.53 54.78 55.70 53.66 October 31, 2012 54.12 53.02 54.17 51.62 September 30, 2012* 52.70 54.61 55.97 52.70 August 31, 2012 55.72 55.56 56.08 55.15 July 31, 2012 55.81 55.49 56.38 54.55
* Period end figures as on September 28, 2012 which was the last working day of the month ____ Source: www.rbi.org.in No representation is made that the Rupee amounts actually represent such U.S. Dollar amounts or could have been or could be converted into U.S. Dollars at the rates indicated, or at all.
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CERTAIN DEFINITIONS AND ABBREVIATIONS Our Bank has prepared this Placement Document using certain definitions and abbreviations which you should consider when reading the information contained herein. Capitalised terms used in this Placement Document shall have the meaning set forth below, unless specified otherwise or the context indicates or requires otherwise, and references to any statute or regulations or policies shall include amendments thereto, from time to time. Terms Related to our Bank
Term Description Our “Bank”, the “Bank” or the “Issuer”
Dhanlaxmi Bank Limited, a public limited company incorporated under the Companies Act, 1913 and a scheduled commercial bank within the meaning of the RBI Act, having its registered office at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001.
“Articles” or “Articles of Association”
The articles of association of our Bank.
“Board of Directors” or “Board”
Our board of directors or any duly constituted committee thereof.
Chairman The part-time chairman of our Board, Mr. T. Y. Prabhu. Directors Directors of our Bank. Equity Shares or Shares Equity shares of our Bank of face value of ` 10 each. ESOS Scheme ‘Employees Stock Option Scheme 2009’ as adopted by our members in the AGM dated
July 31, 2009. Financial Statements Our Reformatted Financial Statements and Unaudited Interim Financial Statements. Managing Director and CEO Our managing director and chief executive officer, Mr. P. G. Jayakumar. Memorandum/ MoA/ Memorandum of Association
The memorandum of association of our Bank.
Reformatted Financial Statements
Our reformatted financial statements as of and for fiscal 2010, 2011 and 2012 included in the Preliminary Placement Document and this Placement Document, extracted from our audited financial statements for these periods.
Registered Office The registered office of our Bank located at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001.
“Registrar of Companies” or “RoC”
Registrar of Companies, Kerala & Lakshadweep.
Current Statutory Auditors The current statutory auditors of our Bank, M/s Sagar & Associates, Chartered Accountants with registration no. 003510S, with their offices at H. No 6-3-244/5, Sarada Devi Street, Prem Nagar, Hyderabad, Andhra Pradesh-500 004.
Unaudited Interim Financial Statements
The unaudited financial statements as at and for the nine months ended December 31, 2011 and December 31, 2012
Issue Related Terms
Term Description “Allocated” or “Allocation” The allocation of Equity Shares, in consultation with the Book Running Lead Managers,
following the determination of the Issue Price to QIBs on the basis of the Application Forms submitted by them in compliance with Chapter VIII of the SEBI Regulations.
Allotees Persons to whom Equity Shares are Allotted pursuant to the Issue. “Allotment” or “Allotted” Unless the context otherwise requires, the issue and allotment of Equity Shares pursuant to
the Issue. Application Form The form pursuant to which a QIB shall submit a bid in the Issue. Bid An indication of interest by a QIB, including all revisions and modifications of interest, as
provided in the Application Form, to subscribe for Equity Shares in the Issue. Bidding Period The period between the Bid Opening Date and Bid Closing Date, inclusive of both dates,
during which QIBs can submit their Bids. Bid Closing Date April 3, 2013, which is the date on which our Bank (or the Book Running Lead Managers
on behalf of our Bank) shall cease acceptance of the Application Forms. Bid Opening Date April 2, 2013, which is the date on which our Bank (or the Book Running Lead Managers
on behalf of our Bank) shall commence acceptance of the Application Forms. “Book Running Lead Managers” or “BRLMs”
Book Running Lead Managers to the Issue, being ICICI Securities Limited and Motilal Oswal Investment Advisors Private Limited.
“CAN” or “Confirmation of Allocation Note”
Note or advice or intimation to not more than 49 QIBs confirming the Allocation of Equity Shares to such QIBs after discovery of the Issue Price and to pay the entire Issue Price for all the Equity Shares allocated to such QIBs.
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Term Description Discounted Floor Price The Floor Price less discount of not more than 5%, if any, offered by our Bank in
accordance with SEBI Regulations. In case no discount is offered by our Bank, the Discounted Floor Price shall be the Floor Price. The Issue Price shall not be less than the Discounted Floor Price.
Escrow Account The bank account opened by our Bank with the Escrow Agent into which application money received towards subscription of the Equity Shares shall be deposited by the QIBs.
Escrow Agreement Agreement dated March 20, 2013 amongst the Bank, the Book Running Lead Managers and the Escrow Agent in relation to the Issue.
Escrow Agent ICICI Bank Limited, Nariman Point Branch, with which the Escrow Account has been opened.
Floor Price The price of ` 46.94 per Equity Share which has been calculated in accordance with Chapter VIII of the SEBI Regulations.
Issue The offer and issuance of up to 15,023,300 Equity Shares to QIBs, pursuant to Chapter VIII of the SEBI Regulations.
Issue Price ` 46.50 per Equity Share, which shall be equal to or more than the Discounted Floor Price. Issue Size The issue of up to 15,023,300 Equity Shares aggregating up to ` 698.58 million. Listing Agreements The agreements entered into between our Bank and each Stock Exchange in relation to
listing of the Equity Shares on such Stock Exchange. Pay-In Date The last date specified in the CAN for payment of subscription money in relation to the
Issue. Placement Agreement The placement agreement dated March 20, 2013 entered into between our Bank and the
BRLMs. Placement Document This placement document issued in accordance with Chapter VIII of the SEBI Regulations. Preliminary Placement Document
The preliminary placement document dated April 2, 2013 issued by our Bank for the Issue, issued in accordance with Chapter VIII of the SEBI Regulations.
“QIBs” or “Qualified Institutional Buyers”
Qualified institutional buyers as defined in Regulation 2(1) (zd) of the SEBI Regulations.
QIP Qualified Institutions Placement under Chapter VIII of the SEBI Regulations. Sanctions Any sanctions administered or enforced by the U.S. Department of Treasury's Office of
Foreign Assets Control, the United Nations Security Council, the European Union, Her Majesty's Treasury, or other relevant sanctions authority.
Industry related terms
Term Description AFS Available for sale. ALCO Asset liability management committee. ALM Asset liability management. AML Anti money laundering. ATM Automatic teller machine. AUM Assets under management. Base Rate Minimum lending rate set by our Bank in accordance with applicable laws and regulations. BPLR Benchmark prime lending rate. CAR Capital adequacy ratio. CASA Current account saving account. CBLO Collateralised borrowing and lending obligations. CBS Core banking solutions. CD Certificate of deposit. CDMAOSC Committee to decide and monitor augmentation of share capital. CDR Corporate debt restructuring. CP Commercial paper. CRAR Capital to risk asset ratio. CRM Credit risk mitigation. CRMC Credit risk management committee. CRR Cash reserve ratio. CTS Cheque truncation system. DRI Differential rate of interest. ECS Electronic clearing services. EEFC Exchange earners' foreign currency. EFT Electronic funds transfer.
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Term Description FCNR Account Foreign currency non resident account. FCNR(B) Foreign currency non resident (banks). HFT Held for trading. HTM Held to maturity. IBA Indian Banks Association. IRDM Integrated Risk Management Department of our Bank. IST Indian Standard Time. KYC Know your customer. LAF Liquidity adjustment facility. LC Letter of credit. LFAR Long form audit report. MSE Micro and small enterprises. MSF Marginal standing facility. MSME Micro, small and medium enterprises. NDTL Net demand and time liabilities. NEFT National electronic fund transfer. NPA Non performing advances. NPI Non performing investments. NRNR Non resident non repatriable. OTS One time settlement. PCR Provisioning coverage ratio. RAROC Risk adjusted return on capital. RFC Account Resident foreign currency account. RoNW Return on net worth. RTGS Real time gross settlement. SLBC State Level Bankers’ Committee. SLR Statutory liquidity ratio. Tier II bonds Unsecured subordinated bonds issued for Tier II capital adequacy purposes. Tier I capital The core capital of a bank which provides the most permanent and readily available
support against unexpected losses. It comprises paid up capital and reserves consisting of statutory reserves, free reserves and capital reserves representing surplus arising out of sale of assets, innovative capital instruments (like innovative perpetual debt instruments and perpetual non cumulative preference shares eligible for inclusion in Tier I Capital which comply with the specified regulatory requirements) as reduced by equity investments in subsidiaries, deferred tax assets, intangible assets, and losses in the current period and those brought forward from the previous period.
Tier II capital The undisclosed free reserves, investment reserves, hybrid debt capital instruments (like perpetual cumulative preference shares, redeemable non cumulative preference shares, redeemable cumulative preference shares eligible for inclusion in Tier II Capital which comply with the specified regulatory requirements) & subordinated debt eligible for inclusion in Tier II Capital which comply with the specified regulatory requirements, revaluation reserves (at a discount of 55.0%), general provisions and loss reserves (allowed up to a maximum of 1.25% of risk-weighted assets).
VaR Value at risk. Conventional and General Terms/ Abbreviations
Term Description AAIFR Appellate Authority for Industrial and Financial Reconstruction. AGM Annual general meeting. AIF(s) Alternative investment funds, as defined and registered with SEBI under the Securities and
Exchange Board of India (Alternative Investment Funds) Regulations, 2012. AMFI Association of Mutual Funds in India. AS Accounting Standards issued by the Institute of Chartered Accountants of India. Banker's Books Evidence Act Banker's Books Evidence Act, 1891. Banking Regulation Act Banking Regulation Act, 1949. BIFR Board of Industrial and Financial Reconstruction. BSE BSE Limited. CAIIB Certified Associate of the Indian Institute of Banking and Finance. CAGR Compounded annual growth rate. CDSL Central Depository Services (India) Limited. Civil Procedure Code, Civil Code
The Code of Civil Procedure, 1908.
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Term Description Companies Act The Companies Act, 1956. CSE Cochin Stock Exchange Limited. Delisting Regulations The Securities and Exchange Board of India (Delisting of Equity Shares) Regulations,
2009. Depositories Act The Depositories Act, 1996. Depository A depository registered with SEBI under the Securities and Exchange Board of India
(Depositories and Participant) Regulations, 1996. Depository Participant A depository participant as defined under the Depositories Act. DIPP The Department of Industrial Policy and Promotion, Ministry of Commerce and Industry,
GoI. DTC The direct tax code. EBITDA Earnings before interest, tax, depreciation and amortisation. EGM Extra ordinary general meeting. EPS Earnings per share. FDI Foreign direct investment. FEDAI Foreign Exchange Dealers Association of India. FEMA The Foreign Exchange Management Act, 1999 and the regulations issued thereunder. FERA Foreign Exchange Regulation Act, 1973. FII Foreign Institutional Investor (as defined under the FII Regulations) registered with SEBI. FII Regulations The Securities and Exchange Board of India (Foreign Institutional Investors) Regulations,
1995. “financial year”, “fiscal” or “FY”
Unless stated otherwise, financial year of our Bank ending on March 31 of a particular year.
FVCI Foreign venture capital investors (as defined and registered with SEBI under the (Foreign Venture Capital Investors) Regulations, 2000).
GAAP Generally Accepted Accounting Principles. GDP Gross domestic product. Government Government of India or State Government, as applicable. Government of India Central government of India. HUF Hindu undivided family. ICAI Institute of Chartered Accountants of India. IFRS International Financial Reporting Standards of the International Accounting Standards
Board. IND-AS Indian Accounting Standards. Indian GAAP Generally Accepted Accounting Principles in India, as applicable to a bank. IT Information technology. Listing Agreements The listing agreements entered into by our Bank with the Stock Exchanges. IT Act The Income Tax Act, 1961. MAT Minimum alternate tax. MFIs Micro finance institutions. MICR Magnetic ink character recognition. MoU Memorandum of understanding. Mutual Fund / MF A mutual fund registered with SEBI under the Securities and Exchange Board of India
(Mutual Funds) Regulations, 1996. NABARD National Bank for Agriculture and Rural Development. NBFC Non-banking financial company. Negotiable Instruments Act Negotiable Instruments Act, 1881. NPCI National Payments Corporation if India. NRI Non resident Indian. NSDL National Securities Depository Limited. NSE The National Stock Exchange of India Limited. p.a. Per annum. PAN Permanent Account Number. PAT Profit after tax. PBT Profit before tax. PIO Persons of Indian origin. Portfolio Investment Scheme Portfolio investment scheme under the FEMA. PSU Public sector undertaking. RBI Reserve Bank of India. RBI Act or the Reserve Bank of India Act
The Reserve Bank of India Act, 1934.
Regulation S Regulation S under the Securities Act. “Rs.”, “Rupees”, “INR” or The legal currency of the Republic of India.
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Term Description “`” SARFAESI Act The Securitization and Reconstruction of Financial Assets and Enforcement of Security
Interest Act, 2002. SAT Securities Appellate Tribunal. SCRA Securities Contracts (Regulation) Act, 1956. SCRR Securities Contracts (Regulation) Rules, 1957. SEBI Securities and Exchange Board of India. SEBI Act The Securities and Exchange Board of India Act, 1992. SEBI Regulations The Securities and Exchange Board of India (Issue of Capital and Disclosure
Requirements) Regulations, 2009. SENSEX The index of a basket of 30 constituent stocks traded on the BSE representing a sample of
liquid securities of large and representative companies. State Government Government of a state of the Republic of India. Stock Exchanges The BSE, the NSE and the CSE. STT Securities Transaction Tax. Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeover)
Regulations 2011. “U.S.$”, or “U.S. Dollars” The legal currency of the United States. “U.S.” or “United States” United States of America. U.S. GAAP Generally accepted accounting principles in the U.S. Securities Act The United States Securities Act of 1933, as amended. VCF A venture capital fund (as defined and registered with SEBI under the erstwhile Securities
and Exchange Board of India (Venture Capital Funds) Regulations, 1996).
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SUMMARY OF BUSINESS Overview We are a private sector bank with a pan-India presence through a network of 676 customer outlets which includes 280 branches and 396 ATMs across 13 states and two union territories, as of December 31, 2012. We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of December 31, 2012. We offer a comprehensive range of products and services including savings accounts, current accounts, term deposits, corporate salary accounts, international debit cards and credit cards, gift cards, corporate and retail loans, depository services, locker facilities, mobile and internet banking services, bill payment services, e-IT return filing services, foreign exchange services, export and import services, payment and remittance services, repatriation schemes, online broking services and cash management services. We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively. We also distribute the mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Mutual Fund, FIL Fund Management Private Limited and UTI Asset Management Company Limited. We have organized our business model around our branch network wherein we focus on the following four segments: (i) retail banking; (ii) wholesale banking group; (iii) small and medium enterprises ("SMEs") banking; and (iv) micro finance and agriculture lending. The retail banking group covers all loans and advances to individuals including NRIs. The wholesale banking group covers corporations with a net worth of ` 500 million and above. The SMEs banking covers all loans and advances to the SMEs and emerging corporations (entities having a net worth below ` 500 million). The micro finance and agriculture lending covers all loans and advances to micro-finance institutions, non-governmental organisations ("NGOs") and certain self-help groups. Our retail banking group covers retail liabilities and a non-interest income and fee-based services that cover distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking and demat operations. In addition, our treasury operations comprise liquidity management by seeking to maintain an optimum level of liquidity, while complying with the cash reserve ratio (“CRR”) and the statutory liquidity ratio (“SLR”). We maintain the SLR through a portfolio of government and corporate debt securities that we actively manage to optimize yield and benefit from price movements. We are also involved in investing in sovereign debt instruments, commercial papers, mutual funds, certificates of deposits and floating rate instruments in order to manage short-term surplus liquidity. We have remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services. We also provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account with Destimoney Securities Private Limited ("DSPL") providing a complete trading platform. We have received an BS EN ISO 9001-2008 quality certification for management of banking operations at our corporate office located at Thrissur. We have been awarded the Best Bank in the private sector banks category by the State Forum of Banker's Club in 2008-2009. In 2011, we have been awarded the "Best mid-sized Bank" in terms of growth by Business Today-KPMG's Best Bank's Survey. We have also been awarded for excellence in IT by the Computer Society of India in 2011 and the EDGE Award for IT Transformation by the International Week Edge Award in 2011. We have also received the Asian Banker Technology Award 2012 international award for Best Branch Automation. Our total assets were ` 80,868.9 million as at March 31, 2010, ` 142,681.5 million as at March 31, 2011 and ` 146,764.9 million as at March 31, 2012. Further, our total assets were ` 131958.9 million as at December 31, 2012. Our profit/(loss) after tax for fiscal 2010, 2011 and 2012 was ` 233.0 million, ` 260.6 million and ` (1,156.3) million, respectively. Our loss for the nine months ended December 31, 2012 was ` (260.4) million. As at March 31, 2012, our total capital was ` 8,276.6 million and our CRAR was 9.5%, as per Basel II (8.8% as per Basel I), with Tier 1 Capital at 7.4% as per Basel II (6.9% as per Basel I) and Tier II Capital at 2.1% as per
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Basel II (1.9% as per Basel I) while as at December 31, 2012, our total capital was ` 8,693.7 million and our CRAR was 11.6%, as per Basel II (10.4% as per Basel I), with Tier 1 Capital at 8.3% as per Basel II (7.4% as per Basel I) and Tier II Capital at 3.3% as per Basel II (3.0% as per Basel I). Our Competitive Strengths We believe that the following strengths distinguish us in a competitive Indian banking industry: Wide distribution network across India and diverse customer base We offer a diverse range of retail and commercial products and services across retail banking, wholesale banking, microfinance and agricultural lending and small and medium enterprises group, including short-term and long-term deposits, secured and unsecured loans, internet banking, credit cards, mutual fund distribution and life and general insurance distribution. Our nationwide network allows us to provide banking services to a wide variety of customers, including large and medium to small corporations, institutions and state-owned enterprises, as well as commercial, agricultural, industrial and retail customers throughout India. As of December 31, 2012, we had approximately 1.77 million customers, reflecting our large and diverse customer base. We are focused on further improving access of our customers to our wide range of products and services. As of December 31, 2012, our operations cover 13 states and two union territories across India, with approximately 676 customer outlets which includes 280 branches and 396 ATMs (173 on-site and 223 off-site ATMs). We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of December 31, 2012. Long history and long standing customer relationships We were incorporated in November 1927 at Thrissur, Kerala and have been in existence for around 85 years. Over the years, the Bank has significantly grown its operations from being a regional bank to a banking institution covering a wide spectrum across several states in India. We further seek to leverage our strong brand recall across India, especially in the Southern India. With over 85 years of banking experience, we believe we have built strong and long standing relationships with many of our customers, which has been one of the key drivers of our growth, including numerous temple trusts, churches and non-governmental organisations ("NGOs") in Southern India. For instance, we are among the principal bankers to certain prominent religious bodies such as Sabarimala (Travancore Devaswom Board), and Guruvayur Devaswom for over three decades. We have also been among the principal bankers for large government and other institutions including, for example, the Kerala State Co-operative Marketing Federation Limited, Kochi Metro Rail Ltd, Kerala Headload Workers Welfare Board, Amrita Vishwa Vidyapeetham, Amrita Institute of Medical Sciences and Research Centre and Roads and Bridges Development Corporation of Kerala Limited. Continue to strengthen our risk management policies and procedures We believe that prudent risk management policies, procedures and controls are critical for the long-term sustainable development of our business. We have implemented enhanced risk management procedures for all our credit exposures, including credit evaluation and credit rating methodology, credit scoring and risk pricing models and risk monitoring and control mechanisms. Our risk management committee, inter alia, monitors our overall risk profile, reviews our risk models, approves risk management framework and policies, oversees the credit approval process and periodically reviews investment and credit portfolios. For further information on our risk management committee, see – “Risk Management Framework” on page 113. Further to enhance overall risk-adjusted margins, we have introduced risk management systems covering the entire credit process to enhance efficiency, improve controls and achieve better asset quality. We have also introduced advanced technology, robust controls and processes, and analytical tools for credit evaluation. In addition, we maintain a centralized credit evaluation process across all consumer and commercial banking products in order to improve the quality of new loans and the recovery of our non-performing loans. We continue to maintain high standards of asset quality through risk management and mitigation practices that are actively focused on evaluations of credit management policy, asset liability management policy, market and operational risk management policy and interest rate policy. In conjunction with these practices, we intend to
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optimize our capital needs as we grow our business. For further information on the various risk management policies of the Bank, see – “Risk Management Framework” on page 113. Modern and efficient IT infrastructure for both internal systems and customer services We have an efficient IT infrastructure, which we believe will provide opportunities to extract further cost efficiencies and to improve the quality and utility of our products. We have made significant investments to upgrade our existing IT infrastructure. In fiscal 2010 and 2011, we had invested approximately ` 279.7 million and ` 320.1 million, respectively, in order to upgrade our IT systems and infrastructure. We have networked all of our branches and offices to facilitate core banking solutions ("CBS"). It allows our customers to operate their accounts from remote locations and use banking services from any of our service points, regardless of where our customers maintain their accounts. With the CBS platform, we currently offer all the technology enabled products such as internet banking, online bill payments, mobile banking, telephone banking, debit cards and credit cards. We have also successfully implemented the Real Time Gross Settlement ("RTGS") and the National Electronic Funds Transfer ("NEFT") payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. All of our branches are RTGS and NEFT enabled to facilitate large value payments and settlements online in real time, on a transaction-by-transaction basis. We have increased our delivery channels through internet banking, mobile banking and ATMs. We have also implemented an automated NPA management software system, which monitors asset classification and provisioning based on current RBI rules. The software empowers us to arrive at potential NPAs and tentative provisioning at any point in time, which increases our ability to effectively monitor standard assets and take action in a timely manner to avoid slippage of asset quality. Additionally, we have established a master data mart that enables us to understand the customers across relationships and help track the progress. We have installed information security systems to protect the data and also periodically test the disaster recovery run on a working day covering all offices and branches as part of our business continuity program in the event of technological problems or disasters. Professional and experienced management Our senior management team led by Mr. P.G. Jayakumar, our Managing Director and CEO, have extensive experience in the banking and financial industry and have been associated with our Bank for more than a decade. For further information, see “Board of Directors and Senior Management” on page 134. We have been able to build a team of professionals with relevant experience, including credit evaluation, risk management, treasury, technology and marketing. We have been able to attract qualified persons, including MBAs, engineers, chartered accountants, cost accountants and agriculturists. As of December 31, 2012, our total employee strength was 2,658. Our Business Strategy Continue to strengthen our branch centric business model focused around our wide branch network across India In the first quarter of fiscal 2013, we have transformed our vertical business model to a decentralized (branch-centric) business model in order to improve the efficiency of the bank and have a better focus and strengthen relationship with our customers. Pursuant to the branch-centric business model, the decision making process and the product innovations are taken place at the branch level which we believe will enable us to enhance our services at the consumer level and expand our reach across India. However, we will continue with a centralised account opening system to better service the customers across India. Further to improve our operational efficiency, we have undertaken various initiatives to create an efficient and scalable operating platform. We have significantly expanded our branch network in the recent past and intend to expand our customer base through our existing network thereby optimizing the branch efficiency. Increase CASA deposits and improve interest margins We seek to increase our current account and savings accounts ("CASA") deposits and reduce bulk deposits in order to reduce cost of funds. In order to increase our CASA and retail deposits, we intend to promote our bank and introduce new products through marketing efforts at our branches. In addition, we also regularly review and continuously monitor our CASA growth. We believe that our CBS and alternate channels such as internet and mobile banking systems, will enable us to increase our customer base, thereby increasing CASA deposits and reducing the costs of such deposits.
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We focus on a number of areas where there is potential for significant improvement in our financial strength, including improving our net interest margin, further strengthening the quality and profile of our loan portfolio and broadening our revenue base by developing our fee-based products and services. We continue to focus on reducing certain of our low-yield corporate loans in order to further improve our net interest margins. For instance, our improving yields have resulted in improving our net interest margins to 2.3% in the nine months ended December 31, 2012 compared to 1.9% in the nine months ended December 31, 2011. Continuous efforts to reduce our operational costs In order to reduce our operational costs, we are currently in the process of realigning our employee costs as we have significantly reduced our employee strength from 3,850 as of December 31, 2011 to 2,658 as of December 31, 2012. We are also in the process of further rationalizing our existing distribution network by relocation from high cost premises and surrendering excess office premises while maintaining our points of presence across India. We have also reduced costs to a considerable extent by discontinuing the outsourcing of certain activities relating to our day-to-day business and operations and further rationalizing our total advertisement and publicity costs. Leveraging core competencies in our target business segments. As a result of increased focus on our retail and SME business segments along with our increased exposure to gold loans, our yields on advances improved to 12.7% in the nine months ended December 31, 2012 compared to 11.3% in the nine months ended December 31, 2011. We further intend to leverage our extensive experience and presence in the retail banking, small-to-medium enterprises banking and microfinance and agricultural lending segments . and consolidate our growth and operations within these segments. We believe that this will diversify our loan portfolio and also result in an improvement in our yields and returns. Our retail, SME and microfinance and agricultural loan books represented 43.9%, 15.4% and 17.1% of our total loan book as at December 31, 2012, respectively, as compared to 48.0%, 14.2% and 9.2%, respectively, of our total loan book as at December 31, 2011. We continue to focus on products and segments within each of these target markets where growth and revenue are relatively high. We intend to continue this trend by pricing our products to reflect the risk profile of borrowers and to remain competitive. In each area, we seek to deepen our customer knowledge and understanding, to better tailor our products and services and to improve the use of our branch network in order to grow our customer base and maximize customer retention Increase fee-based revenue and income through a range of various product offerings We intend to focus on increasing our fee-based income by expanding our non-fund based business, sale of gold coins/bullions and third-party product offerings including mutual fund products and insurance products. We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as well as mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Mutual Fund, FIL Fund Management Private Limited and UTI Asset Management Company Limited. In addition, we have introduced certain forex products. We also continue to focus on cross-selling fee based services We typically provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account through DSPL. We are currently in the process of renewing our agreement with DSPL. For further information relating to our investment in DSPL, see "Risk Factors - We may not be able to achieve desired returns from our investments, which may adversely affect our business, financial condition and results of operations" on page 36. Continue to focus on increasing NRI deposit base We are focused on increasing our non-resident Indian ("NRI") deposit base by providing access to easy and speedy remittance facilities. All of our branches offer specialized services to NRI customers. We closely monitor the growth of our NRI business. As of December 31, 2012, we had inward remittance arrangements with various exchange houses and one bank. As at December 31, 2012, our total NRI deposit was ` 9,589.0 million compared to ` 7,456.0 million, as at March 31, 2012.
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To focus on leveraging technology for improved customer service and business growth Technology has driven products and services in the banking industry and we have devoted substantial resources to achieve seamless integration of our people, processes, data and applications. Information technology is a strategic tool for our business operations to gain a competitive advantage and to improve overall productivity and efficiency in the organization. All of our technology initiatives are aimed at enhancing value, offering customer convenience and improving service levels while optimizing costs. We expect to continue with our policy of making investments in technology to achieve a significant competitive advantage. Also, we will focus on increasing our customer feedback points and enhancing the value-added services feature of our ATMs, as well as expanding our application systems with other consumer service providers to broaden the scope of our payment services. We also intend to implement a customer relationship management initiative and continue to improve our internet banking suite and ensure effective use of our data mining tools.
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SUMMARY OF THE ISSUE The following is a general summary of the terms of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, more detailed information appearing elsewhere in this Placement Document, including under the sections titled “Issue Procedure” and “Description of the Shares” on pages 145 and 162, respectively.
Issuer Dhanlaxmi Bank Limited. Issue Size Up to 15,023,300 Equity Shares aggregating up to ` 698.58 million.
A minimum of 10.0% of the Issue Size, or at least 1,502,330 Equity Shares, shall be available for Allocation to Mutual Funds only, and the balance 13,520,970 Equity Shares shall be available for Allocation to all QIBs, including Mutual Funds. In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allocated to other QIBs.
Face Value ` 10 per Equity Share. Issue Price ` 46.50 per Equity Share. Floor Price The floor price for the Issue calculated on the basis of Chapter VIII of the SEBI
Regulations is ` 46.94 per Equity Share. Discounted Floor Price The Floor Price less discount of 0.9%, i.e. ` 46.50 per Equity Share.
In case no discount is offered by our Bank, the Discounted Floor Price shall be the Floor Price. The Issue Price shall not be less than the Discounted Floor Price.
Eligible Investors QIBs as defined in Regulation 2(1)(zd) of the SEBI Regulations to whom the Preliminary Placement Document and the Application Form is circulated and who are eligible to bid and participate in the Issue. The list of QIBs to whom the Preliminary Placement Document and Application Form is delivered shall be determined by the Book Running Lead Managers in consultation with our Bank, at their sole discretion.
Equity Shares issued and outstanding immediately prior to the Issue
8,51,36,319 Equity Shares.
Equity Shares issued and outstanding immediately after the Issue
100,159,619 Equity Shares.
Listing Our Bank has received in principle approvals dated April 2, 2013 from the NSE, the BSE and the CSE, under Clause 24(a) of the Listing Agreements. Our Bank shall apply to the Stock Exchanges for the listing approvals and the final listing and trading approvals, after the Allotment and after the credit of Equity Shares to the beneficiary account with the Depository Participant, respectively.
Lock-up See the sub-section titled “Placement-Lock-up” on page 153 for a description of restrictions on our Bank in relation to Equity Shares.
Transferability Restriction The Equity Shares being Allotted pursuant to this Issue shall not be sold for a period of one year from the date of Allotment, except on the Stock Exchanges. For further transfer restrictions, see the section titled “Transfer Restrictions” on page 158.
Use of Proceeds The net proceeds of the Issue, after deduction of fees, commissions and expenses in relation to the Issue, would be approximately ` 673.58 million. See the section titled “Use of Proceeds” on page 52.
Risk Factors See the section titled “Risk Factors” on page 32 for a discussion of factors that you should consider before participating in this Issue.
Closing Date
The Allotment is expected to be made on or about April 8, 2013 (the “Closing Date”).
Ranking
The Equity Shares being issued pursuant to the Issue shall be subject to the provisions of the Memorandum and Articles of Association and shall rank pari passu in all respects with the existing Equity Shares including rights in respect of dividends after the closing. The holders of such Equity Shares will be entitled to participate in dividends and other corporate benefits, if any, declared by our Bank after the Closing Date, in compliance with the Companies Act. The holders of such Equity Shares may attend and vote in shareholders’ meetings in accordance with the provisions of the Companies Act. See the section titled “Description of the Shares” on page 162. ISIN INE680A01011 BSE Code 532180
Security Codes for the Equity Shares
NSE Code DHANBANK
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CSE Code -
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SELECTED FINANCIAL INFORMATION OF OUR BANK
The following selected financial information which is extracted from our Reformatted Financial Statements , should be read in conjunction with the sections titled “Financial Statements” and “Management’s Discussion and Analysis of Financial Conditions and Results of Operations” on pages 178 and 58, respectively.
REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE REPORTING YEARS
(Rs in Millions)
Schedule As at March 31,2012
As at March 31,2011
As at March 31, 2010
CAPITAL AND LIABILITIES Capital 1 851.4 851.4 641.2 Reserves and Surplus 2 6,431.1 7,595.0 3,759.6 Deposits 3 118,044.1 125,296.3 70,984.8 Borrowings 4 17,215.1 6,261.1 3,175.5 Other Liabilities and Provisions 5 4,223.2 2,677.7 2,307.8 TOTAL 146,764.9 142,681.5 80,868.9 ASSETS Cash and Balances with Reserve Bank of India 6 8,679.5 8,028.0 6,129.0 Balances with Banks and Money at call and short notice 7 581.2 1,323.6 1,374.3 Investments 8 43,601.6 36,396.8 20,277.9 Advances 9 87,580.5 90,651.5 50,062.6 Fixed Assets 10 1,486.9 1,343.6 794.7 Other Assets 11 4,835.2 4,938.0 2,230.4 TOTAL 146,764.9 142,681.5 80,868.9 Contingent Liabilities 12 33,615.6 32,508.5 5,575.3 Bills for collection 3,633.8 1,806.5 552.4 Significant Accounting Policies 18 Notes to the Financial Statements 19 The schedules referred to above form an integral part of the Financial Statements
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REFORMATTED STATEMENT OF PROFITS AND LOSSES FOR THE LAST THREE REPORTING
YEARS (Rs in Millions)
Schedule Year ended March 31, 2012
Year ended March 31,2011
Year ended March 31, 2010
INCOME Interest Earned 13 13,936.5 9,064.2 5,345.7 Other Income 14 1,436.4 1,467.7 909.9 Total 15,372.9 10,531.9 6,255.6 EXPENSE Interest expended 15 11,461.3 6,412.9 3,940.2 Operating Expenses 16 4,890.7 3,444.7 1,928.6 Provisions and Contingencies 17 177.2 413.7 153.8 Total 16,529.2 10,271.3 6,022.6 Net Profit/Loss for the year (1,156.3) 260.6 233.0 Profit brought forward 0.1 0.1 0.1 Transfer from Dividend Payable Account including Dividend Tax - 37.5 - (1,156.2) 298.2 233.1 Appropriations Transfer to Statutory Reserve - 78.2 69.9 Transfer to Capital Reserve 45.7 2.3 64.9 Transfer to Special Reserve U/s.36(1)(viii) of Income Tax Act - 18.6 15.9 Transfer to Other Reserve - 149.2 7.3 Proposed Dividend - 42.6 64.1 Dividend Tax - 7.2 10.9 Balance Carried forward to Balance Sheet (1,201.9) 0.1 0.1 Total (1,156.2) 298.2 233.1 Earnings Per Share (in Rupees) Basic EPS (13.6) 3.3 3.6 Diluted EPS (13.6) 3.3 3.6 Significant Accounting Policies 18 Notes to the Financial Statements 19
The schedules referred to above form an integral part of the Financial Statements
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REFORMATTED CASH FLOW STATEMENT FOR THE LAST THREE REPORTING YEARS
(Rs in Millions) Particulars Year ended
March 31, 2012 Year ended
March 31,2011 Year ended
March 31, 2010 Cash Flow from Operating Activities Net Profit before Income Tax (1,167.3) 396.8 277.0 Adjustments for: Depreciation on fixed assets 294.7 155.9 103.1 (Profit)/Loss on Revaluation of Investments 71.2 64.4 6.7 Amortisation of premia on investments 75.7 62.8 43.7 Loan Loss provisions including write offs 86.2 63.3 22.2 Provision against standard assets 4.2 146.1 74.2 Provision for wealth tax 0.5 0.4 0.4 Provision for NPA(Investments) (4.1) - (5.8) Provisions for restructured assets 3.7 3.4 4.1 Profit on sale of fixed assets (10.5) (5.2) (7.1) 521.6 491.1 241.5 Adjustments for: Increase in Investments (7,347.6) (16,246.0) (4,649.0) (Increase)/Decrease in Advances 2,976.9 (40,652.2) (18,124.2) Decrease in Borrowings 10,854.0 3,010.5 1,205.5 Increase/(Decrease in Deposits (7,252.2) 54,311.5 21,296.7 (Increase)/Decrease in Other Assets 188.9 (2,672.9) (677.5) Increase in Other Liabilities and Provisions 1,595.1 245.3 553.7 1,015.1 (2,003.8) (394.8) Direct Taxes paid( net of refunds) (75.0) (171.0) (125.5) Net cash flows from operating activities 294.4 (1,286.9) (1.8) Cash flows from investing activities Purchase of fixed assets (457.5) (718.9) (543.9) Proceeds from sale of fixed assets 27.2 17.1 113.3 Net cash flows from investing activities (430.3) (701.8) (430.6) Cash flows from financing activities Proceeds from sale of equity shares 0.0 210.2 - Proceeds from issue of Upper and Lower Tier II capital instruments net of repayment 100.0 75.0 1,150.0 Adjustments towards share issue expenses/Proceeds from Share premium(net of share issue expenses) (4.9) 3,589.3 - Dividend provided last year paid during the year including dividend tax (50.1) (37.5) (75.0) Net cash generated from financing activities 45.0 3,837.0 1,075.0 Net increase in cash and cash equivalents (91.0) 1,848.3 642.6 Cash and cash equivalents as at April 1st 9,351.6 7,503.3 6,860.7 Cash and cash equivalents as at March 31st 9,260.6 9,351.6 7,503.3
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RISK FACTORS
Investing in the Equity Shares offered in this Issue involves a high degree of risk. Before investing in our Equity Shares, you should carefully consider all the information in this Placement Document, including the risks and uncertainties described below and in the sections "Management's Discussion and Analysis of Financial Condition and Results of Operations" and "Our Business" as well as the "Financial Statements" and related notes prepared in accordance with the Indian GAAP, beginning on pages 58, 97 and 178, respectively. Unless otherwise stated, the financial information of our Bank used in this section is derived from our audited financial statements as of and for the fiscal 2010, 2011 and 2012 and our limited reviewed unaudited financial information, comprising of our profit and loss account, for the nine months ended December 31, 2012 and December 31, 2011, respectively. If any of the following risks, or other risks that are not currently known or are now deemed immaterial, actually occur, our business and financial results could be materially and adversely affected, the trading price of the Equity Shares could decline significantly and you may lose all or part of your investment. BUSINESS AND INDUSTRY RELATED RISK FACTORS 1. We were not profitable in fiscal 2012 and may incur losses in the future which will have an adverse
effect on our reputation and financial condition. We experienced a net loss of ` 1,156.3 million in fiscal 2012, primarily due to an increase in our operating expenses from ` 3,444.7 million in fiscal 2011 to ` 4,890.7 million in fiscal 2012 and in the interest on deposits from ` 5,842.4 million in fiscal 2011 to ` 10,155.9 million in fiscal 2012. The increase in our operating expenses was primarily due to our significant growth in operations between fiscal 2009 to fiscal 2011 while the increase in the interest on deposits was primarily due to increase in deposit volumes and the general increase in the interest rates. We have implemented a plan to streamline our operations and improve the management of our growth. For further information, see "We are required to comply with a turnaround plan submitted to the RBI and if any of our plans do not succeed, it could impede our future growth and adversely affect our business, results of operations and financial condition" on page 33. Our future profitability is dependent upon many factors, including our ability to implement our growth management plan, interest rate fluctuations and economic conditions in India. We cannot assure you that we will be able to maintain our profitability or that we will not incur operating losses in the future. 2. If we fail to meet capital adequacy requirements in the future, the RBI may take certain actions
including restricting our lending and investment activities and our ability to pay dividends.
We are required by the RBI to maintain a minimum capital adequacy ratio of 9% in relation to our total risk- weighted assets, or capital to risk-weighted asset ratio ("CRAR"), of which 6% should be Tier 1 Capital. In addition, in May 2012, the RBI published final guidelines on the Basel III standards with a requisite phased in implementation period commencing April 1, 2013 and full implementation required by January 1, 2019. Among other changes, we will be required to disclose capital ratios computed under both the Basel II and Basel III standards starting in 2013. See "Regulations and Policies" on page 127. Our capital adequacy ratio increased to 11.6% as per Basel II, of which 8.3% was Tier 1 Capital, as at December 31, 2012 from 9.5% as per Basel II as at March 31, 2012. Even though we currently meet or exceed the applicable capital adequacy requirements, certain adverse developments could affect our ability to continue to satisfy such capital adequacy requirements, including deterioration in our asset quality, declines in the values of our investments and changes in the minimum capital adequacy requirements. We cannot assure you that we will be able to maintain the required capital-to risk asset ratio. Furthermore, our ability to support and grow our business could be limited by a declining capital adequacy ratio if we are unable to access or have difficulty accessing the capital markets or have difficulty obtaining capital in any other manner. We cannot assure you that we will be able to obtain additional capital on commercially reasonable terms in a timely manner, or at all. If we fail to meet capital adequacy requirements, the RBI may take certain actions, including restricting our lending and investment activities and our ability to pay dividends. These actions could materially and adversely affect our business, results of operations, cash flows and financial condition. 3. Our business is vulnerable to interest rate risk. Any such volatility or increase in the interest rates may
adversely impact our business and financial results.
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Net interest income constituted 22.5%, 25.2%, 16.1% and 19.7% of our income for fiscal 2010, fiscal 2011 and fiscal 2012 and for the nine months ended December 31, 2012, respectively. Interest rates are highly sensitive to many external factors beyond our control, including growth rates in the economy, inflation, money supply, the RBI's monetary policies, deregulation of the financial sector in India and domestic and international economic and political conditions. An increase in interest rates applicable to our liabilities, without a corresponding increase in interest rates applicable to our assets, will result in a decline in our net interest income. Furthermore, in the event of rising interest rates, our borrowers may not be willing to pay correspondingly higher interest rates on their borrowings and may choose to repay their loans with us if they are able to switch to more competitively priced loans offered by other banks. In addition, increases in interest rates would adversely affect the rate of growth of the Indian economy, which could decrease the demand for loans and other products that we offer and adversely affect the ability of borrowers to service their debt. In the event of falling interest rates, we may face more challenges in retaining our customers if we are unable to offer competitive rates as compared to other banks in the market. Any inability on our part to retain customers as a result of changing interest rates may adversely affect our business, result of operations and financial condition. 4. If we are unable to control or reduce the level of NPAs in our portfolio, it could adversely affect our
business, results of operations and financial condition.
Our net NPAs were ` 419.4 million, ` 274.7 million, ` 580.0 million and ` 2,160.2 million as at March 31, 2010, March 31, 2011, March 31, 2012 and December 31, 2012, respectively, while our gross NPAs were ` 775.0 million, ` 670.9 million, `1,042.7 million and ` 3,128.4 million, as at the same respective dates. Our net NPA ratio was 0.8%, 0.3%, 0.7% and 2.9% as at March 31, 2010, March 31, 2011, March 31, 2012 and December 31, 2012, respectively, while our gross NPA ratio was 1.5%, 0.7%, 1.2% and 4.2% as at the same respective dates. Further, our ratio of net NPAs to net advances increased from 0.4% in the nine months ended December 31, 2011 to 2.9% in nine months ended December 31, 2012 primarily due to the slippage of borrowal accounts on account of the slowdown faced by our borrowers engaged in the sectors relating to real estate, infrastructure and engineering industries which in turn had an adverse impact on their ability to repay the loans on a timely basis or at all. Our ability to contain or reduce the level of our gross and net NPA ratios may be affected by a number of factors beyond our control, such as competition, depressed economic conditions, including material changes in specific industries to which we are exposed, decreases in agricultural production, decline in commodity prices, adverse fluctuations in interest and exchange rates or adverse changes in Indian policies, laws or regulations. Any increase in NPAs will reduce the net interest-earning asset base and increase provisioning requirements, thereby adversely affecting our results of operations and financial condition. In addition, the RBI requires banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions from time to time. As at December 31, 2012, our total provision for NPAs was ` 965.8 million, which was 31.5% of our gross NPAs. Although we complied with the RBI requirement as at December 31, 2012, we cannot assure you that we will be able to maintain such compliance, the failure of which may have an adverse impact on our business, financial condition and results of operations. 5. We could be subject to volatility in income from our treasury operations that could adversely impact our
results of operations, cash flows and our business.
Approximately, 21.3%, 21.1%, 22.0% and 24.4%, of our total income in fiscal 2010, fiscal 2011 and fiscal 2012 and for the nine months ended December 31, 2012, respectively, was derived from our treasury operations. Our treasury operations are vulnerable to changes in interest rates, exchange rates, equity prices and other factors. In particular, if interest rates rise, we may not be able to realize the same level of income from treasury operations as we have in the past. Any decrease in our income from our treasury operations could adversely affect our result of operations if we cannot offset the same by increasing returns on our loan assets. 6. We are required to comply with a turnaround plan submitted to the RBI and if any of our plans do not
succeed, it could impede our future growth and adversely affect our business, results of operations and financial condition
During fiscal 2009, we initiated a rapid growth plan to expand our business operations. However, during this period of rapid growth, we experienced a decrease in net profit from ` 233.0 million in fiscal 2010 to a net loss
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of ` 1,156.3 million in fiscal 2012, largely due to a disproportionate growth in our operating expenses and our inability to manage our aggressive expansion plans effectively. To address this decrease in net profit, the increase in operating expenses and the impact of our growth plans, we had submitted a strategic turnaround plan to the RBI to better manage our expansion and focus on key operating areas in order to reduce cost inefficiencies and improve our financial performance. Our strategic turnaround plan implemented since the beginning of fiscal 2013 has focused on rationalisation of our employee base and decreasing our employee costs, reducing property and office expenditures, reducing excess office premises and space and relocating certain high cost premises to lower cost locations. For further information, see "Business - Our Business Strategies" on page 99. We believe our ability to manage our operating expenses and improve operating efficiencies is a significant factor in our ability to increase profitability. Pursuant to the implementation of our strategic turnaround plan, we have reduced our losses since fiscal 2012. As of December 31, 2012, our net loss decreased to ` 260.4 million compared to a net loss of ` 1,156.3 million in fiscal 2012 and our operating expenses have decreased to ` 2,620.5 million from ` 4,890.7 million in fiscal 2012. While we continue to implement these measures, the effect of these cost and operational efficiency measures and the impact of these measures on our financial results may not be fully reflected in the short term. In addition, we also submit reports to the RBI on the progress of our plan's implementation on a regular basis. We may also incur significant costs and the attention of our management may be diverted in order to implement the plan in a timely manner. If we are unable to successfully implement the plan, we may be subject to further restrictive conditions set by the RBI which would adversely affect our business, results of operations and financial condition. 7. We face maturity and interest rate mismatches between our assets and liabilities. Our depositors may not
roll over term deposits on maturity and we may be otherwise unable to attract a sufficient number of new term deposits on desirable terms.
We meet our funding requirements through short-term and long-term deposits from retail and wholesale depositors. However, a significant portion of our assets (such as loans) have maturities with longer terms than our liabilities (such as deposits). As at December 31, 2012, we had a negative liquidity gap extending over one year and up to three years of ` 23,538.6 million (in each case inclusive of swaps). However, we have a positive liquidity gap over three years and up to five years of ` 4, 179.8 million (in each case inclusive of swaps). If a substantial number of our depositors do not roll over their funds upon maturity, our liquidity position could be adversely affected. We may be required to pay higher interest rates in order to attract and/or retain other deposits. Even if we pay higher interest rates, we may be unable to attract a sufficient number of new deposits. If we, including our competitors in the banking industry, are required to pay higher interest rates or are unable to attract a sufficient number of new deposits, the business, results of operations and financial condition could be adversely affected. 8. We may not be fully compliant with certain RBI and Stock Exchange requirements.
During the course of periodic reviews, the RBI indicated that we are not fully compliant with certain RBI requirements. We have also been inconsistent in our periodic filings with the Stock Exchanges, including replies to notices received from them and certain filings are neither traceable nor available on record. Although we believe that such non-compliance is with respect to matters that do not materially affect our business operations, there can be no assurance that our business operations will not be adversely affected in the future by any action initiated by the RBI or the Stock Exchanges, including any action prescribed under section 35(4), section 35A and section 47(b) of the Banking Regulation Act, 1949 or otherwise. There can be no assurance that the RBI or any other regulator will issue any approvals in the time-frame required by us for our operations or at all. These may be considered as a failure to comply with the rules and regulations of the respective Stock Exchanges, requirements of the listing agreement and the listing conditions by the regulator and may, inter alia, render us liable to penalties, suspension of security for dealings and delisting., We may also be liable to penalties, including levy of fine of up to ` 10 million for each such failure, under the Securities Contracts (Regulation) Act, 1956, which may adversely affect our business and operations. 9. We are involved in certain legal proceedings, including criminal matters.
Our Bank is involved in various civil, consumer and tax related litigations which are at different stages of adjudications before various forums. We are involved in litigations for a variety of reasons, which generally arise in the usual course of business, when we seek to recover our dues from borrowers who default in payment
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of the loans or when customers seek claims against us during the process of recovery of our dues or for other service related issues. Currently, there is one criminal proceeding outstanding against us, represented by our Managing Director and CEO, and two senior executives, for an alleged act of criminal breach of trust and the offence of cheating in relation to a service provider agreement that we entered into with the complainant. While we have been granted a stay in the matter by the High Court of Andhra Pradesh, we cannot assure you that the matter will be decided in our favour. In the event, any of the cases pending is decided against us and/or our officers, it may have a material adverse effect on our businesses, reputation, financial condition and results of operations. For further information, please see “Legal Proceedings” on page 174. 10. We have a regional concentration in southern India, particularly Kerala. A sustained downturn in these
economies may adversely affect our business, results of operations and financial condition.
Although we have recently expanded to other regions of India, in particular, western and northern India, we have a regional concentration in southern India, particularly in Kerala. Further, our concentration in South India exposes us more acutely to any adverse economic and/or political circumstances in the southern region of India as compared to other public and private sector banks that have a more diversified national presence. If there is a sustained downturn in the economies of South India, particularly in Kerala, our business, results of operations and financial condition may be adversely affected. 11. Our results of operations and financial condition could be materially and adversely affected by the
materialization of our contingent liabilities.
The following table provides our contingent liabilities as at December 31, 2012 and March 31, 2012:
Particulars As at December 31, 2012
As at March 31, 2012
(` in millions) Claims against the bank not acknowledged as debts........................... 39.4 39.4Liabilities on account of outstanding forward exchange contracts ..... 8,177.6 20,149.8Guarantees given on behalf of constituents in India ........................... 3,992.8 5,384.2Acceptance endorsements and other obligations................................. 1,026.4 1,182.3Liability on account of interest rate swaps ………………………… 1,500.0 6,500.0Other items for which the Bank is contingently liable ....................... (disputed income tax liability)
359.9 359.9
Total Contingent Liabilities ............................................................. 15,096.1 33,615.6 If any of these contingent liabilities materialize, fully or partially, our results of operations and financial condition could be materially and adversely affected.
12. We are required to maintain certain minimum cash reserve and statutory liquidity ratios and increases in
these requirements could materially and adversely affect our business, results of operations and financial condition.
As a result of certain statutory reserve requirements stipulated by the RBI, we may be more exposed structurally to interest rate risk than banks in other countries. RBI regulations regarding the cash reserve ratio require us to keep 4% of our net demands and time liabilities in a current account with the RBI. While the RBI has decreased this ratio since April 2010, however, we cannot assure you that RBI would not increase the cash reserve ratio requirement to a significantly higher proportion than at present as a monetary policy measure. The scheduled commercial banks, including us, do not earn interest on any portion of our cash reserve. In addition, under RBI regulations regarding the statutory liquidity ratio, 23% of our demand and time liabilities must be invested in Government securities, state government securities and other approved securities, which earn lower levels of interest as compared to advances to customers or investments made in other securities. Any future increase in the statutory liquidity ratio requirements would reduce the amount of cash that we (including the other scheduled commercial banks) could use to lend and otherwise deploy in our business, which could materially and adversely affect our business, results of operations and financial condition. 13. Any slowdown in the performance of our retail products or if the increase in our portfolio of retail loan
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assets causes the level of our NPAs to increase, our business, results of operations and financial condition could be materially and adversely affected.
As at December 31, 2012, our retail loans constituted 43.9% of our total loan book. Our plan to increase retail assets could result in increased lending to customers that do not already have an established credit history and may thereby require us to invest substantial resources to manage inherent risks. Such an increase in our portfolio of retail loan assets may cause the level of our NPAs to increase. Retail loans may carry a higher risk for delinquency, particularly if there is an increase in unemployment, prolonged recessionary conditions or a sharp rise in interest rates. If the level of our NPAs were to increase as a result of the growth of our retail business, our business, results of operations and financial condition could be materially and adversely affected. 14. We may not be able to achieve desired returns from our investments, which may adversely affect our
business, financial condition and results of operations.
We believe our strategic investment in certain entities will further augment our growth, broaden our product portfolio and provide investment-savvy customers cost-effective financial solutions. However, there can be no assurance that the investments we have made will be profitable in nature. The value of our investments depends on the success and continued viability of the businesses in which we have invested. Further, there can be no assurance that we will be able to fully realize gains from such investments or ascertain any risks involved. For instance, regarding our investment in Destimoney Securities Pvt. Ltd. ("DSPL"), we have been directed by the RBI to disassociate ourselves and consider full divestment of our equity stake. Imposition of similar conditions by regulatory authorities on our investments may result in failure to obtain projected returns on our investments and in certain situations may also result in us losing our investments in whole or in part. However, NSE has directed that no further change in our shareholding in DSPL affected without their prior approval. Hence, our disinvestments may be subject to various approvals from regulatory authorities, which may further restrict our ability to divest our investments. We also may be unable to realize any value in a company we have invested in if we are unable to sell our equity interest in such investee company due to various internal or external factors. Write-offs or write-downs in respect of our investments may adversely affect our financial performance and the price of our Equity Shares. In addition, the ability of these investee companies to make dividend payments is subject to applicable laws and regulations in India relating to payment of dividends. 15. We have failed to comply with certain provisions of FEMA, as amended, and the regulations framed
thereunder. In the event, RBI imposes a monetary penalty, confiscates our shares or repatriates our foreign exchange, our business, financial condition and results of operations would be materially and adversely affected.
FEMA requires an Indian company to submit a report to the RBI describing the consideration and other details of any shares purchased by a nonresident, within 30 days of receiving the consideration for such shares. FEMA also requires Indian companies to allot shares to nonresident purchasers within 180 days of receiving the consideration for such shares and, within 30 days of an allotment of shares, to file a report with the RBI notifying the RBI of the allotment and also to submit an annual report describing any foreign investment received by the company in the preceding financial year. On certain occasions, we failed to timely allot shares and have not submitted the above mentioned reports to the RBI. We believe the maximum penalty that can be imposed against us for each violation is three times the amount of each noncompliance or ` 0.2 million, depending whether or not the amount of the noncompliance is quantifiable. The RBI may also impose an additional penalty of ` 5,000 for each day that each of our violations continue. In addition to monetary penalties RBI has the authority to confiscate any shares issued by us in violation of FEMA and order our foreign exchange holdings, if any, to be repatriated to India or be retained outside India. We are not aware of similar circumstances that have resulted in the maximum monetary penalties or non-monetary penalties being imposed by the RBI, however, we cannot assure you that the RBI will not impose a penalty, and, to the extent they do, the amount of any penalty that will be imposed. Further, we cannot assure you that the RBI will not confiscate our shares or repatriate our foreign exchange. Were the RBI to impose a monetary penalty, confiscate our shares or repatriate our foreign exchange, our business, financial condition and results of operations would be materially and adversely affected.
16. There have been in the past certain media reports that contained unsubstantiated allegations regarding
our business operations and financial reporting procedures. Such unsubstantiated media reports, even if
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determined to be without merit, could adversely affect our reputation and share price.
There have been in the past, particularly relating to fiscal 2012, certain media reports that contained unsubstantiated allegations regarding our business operations and financial reporting procedures. Any such unsubstantiated media reports in the future, even if determined to be without merit, could generate negative publicity and damage our reputation. Furthermore, the occurrence of any such allegations in the future may also have a negative impact on our business, financial results, share price and results of operations. 17. We are exposed to liquidity risks as a consequence of the adverse conditions in the global financial
markets.
The recent global financial crisis and economic downturn have adversely affected economies and businesses around the world, including those in India. For example, several European countries experienced sovereign debt crises in 2011, which caused governments such as Greece, Portugal and Spain to enact severe austerity measures. These and other related events have had a significant impact on the global credit and financial markets as a whole, including reduced liquidity, greater volatility, widening of credit spreads and a lack of price transparency in the global credit and financial markets. In particular, liquidity in India has been adversely affected since late 2008, leading to a significant increase in the cost of funds for the banking sector during this period. Further deterioration in the financial markets may cause recessionary conditions to prevail in many economies, which may lead to significant declines in employment, household wealth, consumer demand and lending and as a result, may adversely affect economic growth globally, including India. In response to such developments, legislators and financial regulators in the U.S., Europe and other jurisdictions, including India, have implemented a number of policy measures designed to add stability to the financial markets. For information on development in India, please see “Industry Overview” and “Regulations and Policies” on page 85 and on page 127, respectively. However, the overall impact of these and other legislative and regulatory efforts on the global financial markets is uncertain, and they may not have the intended stabilizing effects. Furthermore, recent pre-emptive actions taken by the RBI in response to the market conditions, especially the provision of liquidity support and a reduction in policy rates, may not continue in the future and there can be no assurance that we will be able to access the financial markets for fundraising if we need to do so. In the event that the current difficult conditions in the global credit markets continue or if there is any significant financial disruption, such conditions could have an adverse effect on our business, results of operations and financial condition. 18. Our measures to prevent money laundering may not be completely effective, which could adversely affect
our reputation and in turn have an adverse impact on our business and results of operations.
Our implementation of anti-money laundering measures required by the RBI, including KYC policies and the adoption of anti-money laundering and compliance procedures in all our branches, may not be effective. There can be no assurance that attempts to launder money using us as a vehicle will not be made. For instance, certain concerns were raised in the past by the RBI regarding our failure to adhere to the KYC policies while opening the accounts for certain of our customers and that we had accepted deposits from certain ineligible entities which made us vulnerable to money laundering issues. If there is any instance of money laundering, our reputation may be adversely affected, which in turn could have an adverse impact on our business and results of operations. 19. Regulations in India requiring us to extend a minimum level of loans to the priority sector, which
includes agriculture, small-scale industries and housing finance, could subject us to higher delinquency rates, which would adversely impact our results of operations and financial condition. In addition, if we do not meet the minimum level of lending to the agriculture sector, it could have an adverse effect on our results of operations.
The RBI-directed lending norms require that every bank in India should extend an aggregate of 40% of its net bank credit to certain eligible priority sectors, such as agriculture, small-scale industries and housing finance, etc., as at the last reporting Friday of each fiscal year, of which at least 18% of our adjusted net bank credit must be extended to the agricultural sector. As at the last reporting Friday of fiscal 2012, priority sector advances aggregated ` 28,084.40 million and represented 30.9% of our adjusted net bank credit. As at the last reporting Friday of fiscal 2012, lending to the agriculture sector constituted 9.8% of our adjusted net bank credit.
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In the case of any shortfall in our required lending to the agriculture sector or the total priority sector, we would be required to place up to a maximum of the difference between the required lending level and our actual agriculture sector or the total priority sector lending in specified funds like Rural Infrastructure Development Fund and NABARD and such other funds as specified by RBI, from which we typically earn interest at lower rates as compared to loans made to the agriculture sector/other priority sector. For instance, we were unable to meet the priority sector lending requirements as prescribed by the RBI during fiscal 2012 and in the nine months ended December 31, 2012. Since we were not able to achieve our priority sector targets, we are required to make compulsory investments in the Rural Infrastructure Development Fund ("RIDF") established with the NABARD or funds with certain other financial institutions. As of December 31, 2012, we have made a total investment of ` 766.3 million in NABARD, Small Industries Development Bank of India ("SIDBI"), RIDF and National Housing Bank ("NHB") schemes. Any change in RBI's regulations may require us to increase our lending to relatively riskier segments, which may result in an increase in NPAs in the directed lending portfolio. There is little scope for expanding our agricultural loan portfolio through corporate borrowers due to the limited involvement of corporate entities in agricultural activities in India. As a result, we are required to target individual farmers. There is inadequate historical data of delinquent loans to farmers, which increases the risk of such exposures. Any failure by these third parties to perform their obligations may adversely impact our agricultural asset portfolio and lead to an increase in delinquency rates that may adversely impact our results of operations and financial condition. Any significant difficulty in a particular priority sector, driven by events not within our control, such as regulatory action or policy announcements by government authorities or natural disasters, would adversely impact the ability of borrowers in that sector to service their debt obligations to us, which could have a material adverse effect on our results of operations and financial condition. 20. Any downgrade of our debt ratings or increase in interest rates on our outstanding debt and any
refinancing thereof would increase our financing costs.
Our debt is currently rated investment-grade by ICRA Limited and Credit Analysis and Research Limited ("CARE"). On June 25, 2012, CARE has rated our Lower Tier II Bonds aggregating to ` 4,100 million as 'CARE BBB' and Upper Tier II Bonds aggregating to ` 2,000 million as 'CARE BBB-' while the certificate of deposits amounting to ` 15,000 million have been rated as 'CARE A2'. In August 2012, ICRA has placed the rating of 'ICRA BBB' with negative outlook for ` 270 million Lower Tier II Bonds on ‘rating watch with negative implications’. Additionally, India Ratings & Research from the Fitch Group maintained our 'IND BBB-' long term issuer rating and the 'IND BBB-' rating on its ` 170 million subordinated debt on Rating Watch Negative and Brickwork Ratings has rated our long term bond issue for the unutilized amount of ` 1,313 million as 'BWR BBB+', which is valid up to May 2, 2013.Any downgrade in our credit ratings may increase interest rates on our outstanding debt or any refinancing thereof which would increase our financing costs, and adversely affect our ability to raise new capital on a competitive basis, which may adversely affect our business, results of operation, and financial condition. 21. Changes in Indian banking regulations could materially affect our business, results of operations and
the market value of our Equity Shares.
The banking and financial sector in India is highly regulated and extensively supervised, including by the RBI. In accordance with the current RBI guidelines, all banks in India, including us, are subject to directed lending regulations. We are also subject to an annual financial inspection by the RBI. In the past, the RBI has made certain observations during such inspection concerning our business and operations, including accounting policies of the bank, solvency and capital adequacy requirements, asset quality, compliance with statutory and regulatory norms, credit administration, NPA analysis, quality of non-SLR portfolio, corporate governance, earnings appraisal, information technology systems, treasury funds and liquidity management, risk assessment and acquisition of retail portfolios. In the event that we are unable to meet or adhere to the guidance or requirements of the RBI, the RBI may impose strict enforcement of its observations on us, which may have an adverse effect on our business, financial condition, cash flows and results of operations. Further, our business could be directly affected by any changes in laws, regulations and policies for banks, including if we are compelled to increase lending to certain sectors and increase our reserves. For instance, pursuant to a letter dated March 13, 2012, RBI has, inter alia, withdrawn the general permission granted to us for setting up branches or administrative offices in Tier II and Tier VI cities. Therefore, we are now required to obtain prior permission of RBI for opening any new offices or branches, which may impede our ability to expand our operations. Any such changes may require us to modify our business. In addition, any action by any regulator to curb cash inflows into India could negatively affect our business and results of operations.
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Increased restrictions on our ability to pay dividends could adversely impact the market value of our Equity Shares. Our business may also be adversely affected by changes in other laws, governmental policies, enforcement decisions, income tax laws, foreign investment rules and accounting principles. For further details, please see “Regulations and Policies” on page 127. 22. Significant security breaches could adversely affect our business and results of operations.
We seek to protect our security systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems caused by our use of the internet. Computer break-ins and power disruptions could affect the security of information stored in and transmitted through these computer systems and network infrastructure. We employ security systems, including firewalls and password encryption, designed to minimize the risk of security breaches. Although we intend to continue to implement security measures, technology and establish operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures will be successful. For instance, the RBI had raised certain concerns relating to our IT systems including certain software deficiencies, increased manual intervention in our NPA identification systems and failure to securely maintain and update the passwords for our vault operations on a regular basis. Although, we have adequately addressed and taken measures to rectify these concerns raised by the RBI, we cannot assure that we will not face any such threats in the future. Our business operations have a high volume of transactions and although we believe we take adequate measures to safeguard against system-related and other failures, there can be no assurance that we will be able to prevent fraud or theft of data. Our reputation could adversely be affected by significant fraud or theft of confidential information committed by employees, customers or other third parties. A significant failure in security measures could have a material adverse effect on our business and results of operations. 23. Our banking business entails operational risks, including employee misconduct and fraud which could
affect our goodwill and reputation.
We are exposed to operational risk that could arise from any inadequacy or failure of our internal processes or systems or from fraud. For example, we are susceptible to fraud or misconduct by employees or outsiders, unauthorized transactions by employees and operational errors, including clerical or record keeping errors. Given our high volume of transactions, errors may be repeated or compounded before they are discovered and rectified. In addition, certain banking processes are carried out manually, which may increase the risk that human error, tampering or manipulation will result in losses that may be difficult to detect. Employee misconduct could also involve the improper use or disclosure of confidential information, which could result in regulatory sanctions. As a result of any of these occurrences, we may suffer monetary losses which may not be covered by our insurance coverage and may thereby adversely affect our results of operations and financial condition. 24. The value of the collateral held by us may decline in the future, which would adversely affect our results
of operations and financial condition.
There can be no assurance that our loans are collateralized at adequate levels. The collateral may not accurately reflect its liquidation value, which is the maximum amount that we are likely to recover from a sale of collateral less the expenses on such sale. . In the past, we have not been able to realize the value of the collateral despite having been granted a decree in our favour from a court of competent jurisdiction, on account of failure to find appropriate buyers. Any such instances, or a decline in the value of the collateral securing our loans, including with respect to any future collateral taken by us, would mean that its provisioning may be inadequate and require an increase in our provisions. Any increase our provisions would adversely affect our capital adequacy ratio, results of operations and financial condition and may require us to raise additional capital. 25. We are highly dependent on our senior management and our personnel to meet our business challenges.
If we were to lose one or more of our key personnel or were unable to attract or retain talented professionals, our business, results of operations and financial condition could be adversely affected.
Our future success is highly dependent on our senior management to maintain our strategic direction, manage our current operations and meet future business challenges. Nevertheless, our employment agreements with these personnel do not obligate them to work for us for any specified period and do not contain non-compete or non-solicitation clauses in the event of termination of employment. We also do not maintain key man insurance for any of our senior managers or key personnel. If we were to lose one or more of our key persons, we may not
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be able to replace them with persons of comparable skill and expertise promptly or at all, which could have a material adverse effect on our business, results of operations and financial condition. 26. A substantial portion of our loans have a tenor exceeding one year exposing us to risks associated with
economic cycles.
As at December 31, 2012, loans with a tenor exceeding one year (based on the RBI's asset-liability management guidelines) constituted 53.3% of our total loans. The long tenor of these loans may expose us to risks arising out of economic cycles. Risks arising out of a recession could lead to rise in delinquency rates and in turn, adversely impact our future financial performance and our market price of the Equity Shares. 27. An increase in restructured assets may adversely affect our results of operations and financial condition.
Our gross restructured assets as a proportion of gross customer assets was 1.3% as at December 31, 2012. We restructure assets based upon a borrower's potential to restore its financial health. However, certain assets classified as restructured may subsequently be reclassified as delinquent or non-performing in the event a borrower fails to restore its financial visibility and honour its loan servicing commitments to us. There can be no assurance that the debt restructuring criteria approved by us will be adequate or successful and that borrowers will be able to meet their obligations under restructured loans. Any resulting increase in delinquency levels may adversely impact our results of operation and financial condition. 28. We may not be able to renew, maintain or obtain necessary statutory and regulatory permits and
approvals required to operate our business or new business lines, which could materially and adversely affect our business and results of operations.
We are required to maintain various licenses issued by the RBI, IRDA and SEBI for our banking and other operations. Our registration with SEBI as a banker to an issue was has expired on November 30, 2012, and we have applied for the renewal of such registration, which is currently under process and we have not received any communication from SEBI in relation to the application. We cannot assure you that SEBI will grant us a renewal certificate and any inability on our part may result in loss of business which may adversely affect our business and financial condition. Further, a license we have obtained from RBI or IRDA may be revoked if we fail to comply with any of the terms or conditions relating to such license, or restrictions may be placed on our operations. Any such failure to obtain, renew or maintain any required approvals, permits or licenses, may result in the interruption of all or some of our operations, which could materially and adversely affect our business and results of operations. 29. Our current independent auditor, Sagar & Associates, have not audited certain financials which have
been included in the Placement Document. Our auditors are typically appointed on an annual basis through an annual general meeting from a panel of auditors that are recommended by our senior management, as approved by the RBI. As a result of this annual selection process, our former statutory auditors, Walker Chandiok & Co, Chartered Accountants ("WCC") and Shah & Gupta, Chartered Accountants, have jointly audited, our financial statements as of and for fiscal 2010 whereas WCC and Sharp & Tannan, Chartered Accountants, have jointly audited our financial statements as of and for fiscal 2011 and 2012. RBI has recently appointed our new statutory auditors, Sagar & Associates to act as our independent auditor. Our current auditors, Sagar & Associates have not audited the financial statements for fiscal 2010, 2011 and 2012 which have been included in this Placement Document. However, Sagar & Associates have issued an examination report on the financial statements for fiscal 2010, 2011 and 2012, for which they have entirely relied upon the audit conducted by the previous auditors. Further, Sagar & Associates have conducted a limited review of our financial statements as of and for the nine months ended December 31, 2012 and for the purposes of such review report have relied upon the limited review report jointly issued by WCC and Sharp & Tannan relating to the financial statements as of and for the nine months ended December 31, 2011. 30. If customers or counter parties fail to meet their contracted obligations to us, it could adversely affect our
results of operations and financial condition.
Some or all of our customers or counterparts may be unable or unwilling to meet their respective contractual commitments in relation to lending, trading, hedging, settlement and other financial transactions. This may materially and adversely affect our operations and may require us to engage in protracted litigation and recovery
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proceedings, which may not adequately compensate us for losses suffered by us. Such occurrences could adversely affect our results of operations and financial condition. 31. We depend on the accuracy and completeness of information about customers and counterparties and
any wrong or misleading information could have an adverse impact on our results of operations and financial condition.
In deciding whether to extend credit or enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. Our results of operations and financial condition could be adversely affected by relying on financial statements that do not comply with generally accepted accounting principles or contain information that is materially misleading. 32. We are vulnerable to failures of our information technology systems and any such failure could
adversely impact our business operations.
Our information technology systems are a critical part of our business and help us manage, among other things, our risk management, deposit servicing and loan origination functions. Even though we have a disaster recovery system, any technical failures associated with our information technology systems or network infrastructure, including those caused by power failures and breaches in security caused by computer viruses and other unauthorized tampering, may cause interruptions or delays in our ability to provide services to our customers on a timely basis or at all, and may also result in costs for information retrieval and verification. Corruption of certain information could also lead to errors when we provide services to our customers. In addition, we may be subject to liability as the result of any theft or misuse of personal information stored on our systems. 33. Our risk management policies and procedures may not adequately address unidentified or unanticipated
risks, which may adversely affect our business, results of operations and financial condition.
We have devoted significant resources to develop our risk management policies and procedures and plan to continue to do so in the future. Some of our methods of managing risk are based upon the use of observed historical market behaviour. As a result, these methods may not accurately predict future risk exposures that could be greater than indicated by the historical measures. Management of operational, legal and regulatory risks require, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies and procedures may not be fully effective. As we seek to expand the scope of our operations, we also face a challenge to develop risk management policies and procedures that are properly designed for those new business areas or to manage the risks associated with the growth of our existing businesses. Implementation and monitoring may prove particularly challenging with respect to businesses that we plan on developing, such as our retail business. Inability to develop and implement effective risk management policies may adversely affect our business, results of operations and financial condition. Our success will also depend, in part, on our ability to respond to new technological advances and emerging banking, capital markets, and other financial services industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails technical and business risks. There can be no assurance that we will successfully implement new technologies or adapt our transaction processing systems to customer requirements or improving market standards. 34. The microfinance business poses unique risks. Our customer base in our microfinance business could
have a higher risk of default compared to our other borrowers and any such failure to repay the loans could negatively impact our business, financial condition and results of operations.
Typically, microfinance customers are individuals living in rural India with limited sources of income, savings and credit histories. These individuals may not be able to provide us with any collateral or security for their borrowings. In addition, we have extended and may extend loan repayment moratoriums of approximately two to three weeks to microfinance customers who have been victims of flood conditions or other natural disasters. While we do extend such moratoriums on a case by case basis, emergency conditions due to natural disasters could adversely affect the ability of our members to make loan payments on time and in turn negatively impact our results of operations. Moreover, we typically seek non-traditional guarantees for microfinance loans, which may generally include informal individual and group guarantees rather than tangible assets. As a result, the
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microfinance business products, particularly loans, may create a higher degree of risk than loans secured with physical collateral. As a result, the customer base in the microfinance business could have a higher risk of default than borrowers with greater financial resources or with more established credit histories. Due to the circumstances of the microfinance customers, we may experience increased levels of non-performing loans and related provisions and write-offs that could negatively impact our business, financial condition and results of operations. 35. We intend to increase our gold loan business, which may bring risks that are generally not associated
with other forms of lending in India. In addition, any change in the RBI policy or the volatility of gold prices could adversely affect our gold loan business.
We plan to grow our loan business to customers who provide gold jewellery as collateral. Although we view this as an opportunity to diversify and stabilize our deposit base, the extension of gold loans could also introduce us to different risks not associated with our other business segments. For example, an economic downturn or sudden downward movement in the market price of gold could result in a decline in the value of gold collateral. We may also incur losses in the event that a customer defaults on loan payments and although we typically sell the pledged gold of customers who default on such loans, we cannot assure you that we will be able to fully cover the loan amounts in default. As a result of the above factors, our business, financial condition and results of operation could be adversely affected by our gold loan business. 36. We may be unable to foreclose on, or experience delays in enforcing, collateral when borrowers default
on their obligations, which could adversely affect our business, result of operations and financial condition.
We may be unable to foreclose on collateral when borrowers default on their obligations to us, which may result in failure to recover the expected value of such collateral security. A substantial portion of our loans to retail and corporate customers is secured by tangible collateral, predominantly property and equipment financed by us. A portion of our loans to corporate customers is secured by assets, including property, plant and equipment. Our loans to corporate customers also include working capital credit facilities that are typically secured by a first lien or charge on inventory, receivables and other current assets. In some cases, we may have taken further security of a first or second lien or charge on fixed assets, a pledge of financial assets (such as marketable securities), corporate guarantees and personal guarantees. As at December 31, 2012, the ratio of secured to unsecured funded lending by us was approximately 89.6%. Even though there has been recent legislation strengthening the rights of creditors, which may lead to faster realization of collateral in the event of default, there can be no assurance that such legislation will have a favourable impact on our efforts to reduce our levels of NPAs and we may not be able to realize the full value of our collateral, due to, among other things, delays in foreclosure proceedings, defects in the perfection of collateral, fraudulent transfers by borrowers and decreases in the values of collateral. Such difficulties in realizing our collateral fully or at all, including if we are instead compelled to restructure our loans, could adversely affect our business, results of operations and financial condition. 37. We lease most of our business premises and any failure to renew such leases or their renewal on terms
unfavorable to us may affect our business operations. As of December 31, 2012, our operations cover 13 states and two union territories across India, with approximately 676 customer outlets which include 280 branches and 396 ATMs. Although, we own our Registered Office premises at Thrissur, Kerala, majority of our branches and other properties we operate from are located on leased premises. In addition, some of our lease agreements with respect to our immovable properties may not be duly registered or may be inadequately stamped. Unless such documents are adequately stamped or duly registered, such documents may be rendered as inadmissible as evidence in a court in India or attract penalty as prescribed under applicable law, which may result in a material and adverse effect on the continuance of our operations and business, and we may not be able to enforce these agreements. Further, we are yet to renew the lease agreement dated April 1, 2007 with Mata Amritanandamayi Math for one of our branches. In case the agreement for such premises is not renewed, or is not renewed on terms and conditions that are favorable to us, we may have to vacate the premises and alternative premises may not be
43
available at the same or similar cost. Any failure to renew these lease agreements on terms and conditions favorable to us may require us to shift the concerned branch offices, regional offices, zonal offices or the ATMs to new premises, which could adversely affect our business and result in increased costs. 38. We have substantial exposure to certain borrowers and our business, results of operations and financial
condition could be materially and adversely affected by difficulties experienced by these borrowers.
As at December 31, 2012, our exposure to our ten largest customers across all our business segments, in aggregate, was ` 8,636.5 million, representing approximately 11.0% of our total exposure to our customers. None of our ten largest customer exposures were classified as non-performing as at December 31, 2012. If any of our ten largest customer exposures were to become non-performing, the quality of our portfolio, and our business, results of operations and financial condition could be adversely affected. 39. We face strong competition from banks and financial institutions that are much larger than we are, and
the effects of such competition could materially and adversely affect our business, results of operations and financial condition.
The Indian banking industry is highly competitive. We face strong competition in all lines of our business, and many of our competitors are relatively much larger and may have more experience in certain verticals of the banking industry. We compete directly with large public sector banks, which generally have much larger customer and deposit bases, larger branch networks and more capital than we do. On the same bases, many of the major private sector banks in India are also much larger than we are. We also compete with foreign banks with operations in India, including some of the largest multinational banks and financial institutions in the world, and, for certain products, non-banking financial institutions. In 2004, the GoI permitted foreign banks to establish subsidiaries in India and the FDI limit as on date for the private sector banks is 49% (under the automatic route) and 74% (under the approval route). Such measures may increase competition from such foreign banks. Such competitors could have a substantial advantage over us in achieving economies of scale, such as in purchasing technology and other capabilities, improving organizational efficiencies, marketing, promotion and pricing. Moreover, the Government has indicated its willingness to consider giving new banking licenses to private sector companies (including the industrial houses and the non-banking financial companies) which would increase competition in the banking industry. Recently, the RBI has issued certain guidelines relating to the issuance of new bank licences which will permit a broader set of entities to enter the banking sector. Due to such intense competition, we may be unable to successfully execute our growth strategy and offer competitive products and services that generate reasonable returns and retain our competitive advantages, which could negatively impact our profit margins and in turn materially and adversely affect our business, results of operations and financial condition. 40. We may in the future enter into certain strategic tie-ups and partnerships, exposing us to certain
regulatory and operating risks.
We intend to continue to pursue suitable tie-ups and strategic partnership opportunities in India, in particular to enhance and diversify our fee based operations and revenue in the future. We may not be able to identify suitable tie-ups or strategic partners or we may not complete transactions on terms commercially acceptable to us, or at all. We cannot assure you that we will be able to successfully form such tie-ups and partnerships or realize the anticipated benefits of such tie-ups and partnerships. Further, such partnerships may be subject to regulatory approvals, which may not be received in a timely manner, or at all. In addition, we cannot assure you that the expected strategic benefits or synergies of any future tie-ups/partnerships will be realized. Such initiatives may place significant strains on our management, financial and other resources and any unforeseen costs or losses could adversely affect our business, profitability and financial condition. 41. Consolidation in the banking sector in India may adversely affect our business, results of operations and
financial condition.
The Government has expressed a preference for consolidation in the banking sector in India. Mergers among public sector banks may result in enhanced competitive strengths in pricing and delivery channels for merged entities. If there is liberalization of the rules for foreign investment in private sector banks, this could result in consolidation in the banking sector. We may face greater competition from larger banks as a result of such
44
consolidation, which may pose increased competition to our business thereby affecting our results of operations and financial condition. 42. We are exposed to fluctuations in foreign exchange rates, which could adversely affect our results of
operations
We are exposed to fluctuation in foreign currency rates on our limited unhedged exposure, which may directly affect non-interest income. Such fluctuations could also affect our treasury revenue adversely. Movements in foreign exchange rates may also adversely affect our borrowers and this may, in turn, affect the quality of our exposure to these borrowers. Any such developments could adversely affect our results of operations. 43. Our success depends on our ability to successfully introduce new products and services.
We continue to introduce new banking products and services to our customers to address the needs of our customers. Further, we may not accurately anticipate our customers' needs and preferences, which are likely to change over time. The success of our new products and services also depends on certain criteria beyond our control, such as general economic conditions. Any failure to successfully develop or launch new products or services could damage our ability to compete effectively and divert management time and financial resources from other areas that could have been more successful. Any such failure could also result in a loss in our investment in time and funds, which could have a material adverse impact on our business, reputation, and financial condition. 44. We do not own the trademark and logo and our ability to use the trademark
and logo may be impaired.
The trademark and logo is pending registration and our ability to use the trademark and logo may be impaired. We are in a business where customer trust is critical and if the customers no longer identify us, it may affect our financial condition and result of operations. Further, in the event we lose our right to use the trademark and our logo, our business could be adversely affected. In addition, any unauthorized use of our logo by third parties could also adversely affect our reputation, which could in turn adversely affect our business, financial condition, cash flows and results of operations. 45. We may face labour disruptions that may interfere with our operations.
We are exposed to the risk of strikes and other industrial action. A majority of our employees are members of different trade unions. While we have had certain employee strikes in the past five years, such strikes and temporary disruptions in our operations have not had a materially adverse impact on our business and financial condition and while we believe our relationship with our employees to be good, we cannot give any assurance that our employees will not participate in strikes, work stoppages and other industrial action in the future. Any such event may have a material adverse effect on our business, result of operations and financial condition. 46. We cannot assure you that we will be able to pay dividends in the future.
Dividends that we have paid in the past may not be reflective of the dividends that we may pay in the future. Our ability to continue paying dividends in the future will depend on a variety of factors, including our earnings, financial condition, capital requirements and capital expenditures. We cannot assure you at we will be able to generate sufficient income to cover our operating expenses and pay dividends to our shareholders. Our ability to pay dividends could also be restricted subject to covenants in future financing arrangements. EXTERNAL RISK FACTORS Risk Factors Related to Investments in Indian Companies 47. Financial difficulty and other problems at long-term lending institutions and investment institutions in
India could have a negative impact on our business, results of operations and financial condition.
We are exposed to the risks of the Indian financial system that in turn may be affected by financial difficulties and other problems faced by Indian financial institutions. As an emerging market economy, the Indian financial system faces risks of a nature and to an extent not typically faced in developed countries, including the risk of deposit runs notwithstanding the existence of a national deposit insurance scheme. Certain Indian financial
45
institutions have experienced difficulties during recent years. Some cooperative banks have also faced serious financial and liquidity crises. The problems faced by individual Indian financial institutions and any instability in or difficulties faced by the Indian financial system generally could create adverse market perception about Indian financial institutions and banks. This in turn could adversely affect our business, results of operations and financial condition. 48. The Indian economy has sustained varying levels of inflation in the recent past
According to India's Ministry of Finance Department of Economic Affairs' Monthly Economic Report January 2013, the inflation in terms of the wholesale price index for January 2013 was 6.62% as compared to 7.18% in December 2012 and 7.23% in the corresponding month last year. In addition, the average inflation rate in terms of the wholesale price index for last the 12 months (from February 2012 to January 2013) was 7.48% as compared to 9.28% during the corresponding period in 2011-2012. While the inflation rate has decreased slightly in 2013 compared to 2012, inflation levels in India present a challenge to economic growth according to the World Economic Outlook published by the International Monetary Fund in 2012. In the event that rates of inflation continue to be high or further increase, our costs, such as salaries, wages or any other of our expenses may also increase. Accordingly, high rates of inflation in India could increase our costs which could have an adverse effect on our results of operations. 49. Political, economic and social developments in India could adversely affect our business.
The Indian government has traditionally exercised and continues to exercise a significant influence over many aspects of the economy. Our business, and the market price and liquidity of our Equity Shares, may be affected by changes in the Indian government's policies, including taxation. Social, political, economic or other developments in or affecting India, acts of war and acts of terrorism could also adversely affect our business. Since 1991, successive governments have pursued policies of economic liberalization and financial sector reforms. However, there can be no assurance that such policies will be continued and any significant change in the Indian government's policies in the future could affect business and economic conditions in India in general and could also affect our business and industry in particular. In addition, any political instability in India or geopolitical stability affecting India will adversely affect the Indian economy and the Indian securities markets in general, which could also affect the trading price of our Equity Shares. 50. Any revisions to India's credit ratings for domestic and international debt by international rating
agencies may adversely affect our business, results of operations and financial condition.
Any adverse revisions to India's credit ratings for domestic and international debt by international Rating agencies may adversely impact our ability to raise additional financing and the interest rates and other commercial terms at which such financing is available. In the spring of 2012, both Fitch and Standard and Poor's downgraded the credit outlook of India's sovereign credit debt to "negative" (BBB-) from "stable". Any further downgrade by a statistical rating organization of India's credit ratings could negatively impact our ability to obtain further financing, which, in turn, could have an adverse effect on our business, future growth and results of operations. 51. A slowdown in economic growth in India may adversely affect our business and results of operations.
Our financial performance is significantly dependent on the overall health of the Indian economy. All of our income for fiscal 2010, fiscal 2011, fiscal 2012 and in the nine months ended December 31, 2012 was from India. As a result, a slowdown in the Indian economy could adversely affect our business. 52. Our ability to raise foreign capital may be constrained by Indian law. The limitations on foreign debt
may have an adverse effect on our business growth, financial condition and results of operations.
As an Indian company, we are subject to exchange controls that regulate borrowing in foreign currencies, which could constrain our ability to obtain financings on competitive terms and refinance existing indebtedness. In addition, we cannot assure you that the required approvals will be granted to us without onerous conditions, or at all. The limitations on foreign debt may have an adverse effect on our business growth, financial condition and results of operations. 53. Terrorist attacks, civil unrest and other acts of violence could adversely affect the financial markets,
result in a loss of customer confidence and adversely affect our business, results of operations, financial
46
condition and cash flows.
Certain events that are beyond our control, including terrorist attacks and other acts of violence or war, which may adversely affect worldwide financial markets and potentially lead to economic recession, could have an adverse effect on our business, results of operations and financial condition. Additionally, any of these events could lower confidence in India's economy. South Asia has, from time to time, experienced instances of civil unrest and political tensions and hostilities among neighbouring countries. Political tensions could create a perception that there is a risk of disruption of operations, which could have an adverse effect on the market for our services. 54. A significant change in economic liberalization and deregulation policies in India could adversely affect
our business.
All of our assets and customers are located in India. The Government of India has traditionally exercised and continues to exercise a dominant influence over many aspects of the economy. Its economic policies have had, and could continue to have, a significant effect on the banking and financial sector, including on us, and on market conditions, and prices of Indian securities, including securities issued by us. Any significant shift in the Government's economic liberalization policies could adversely affect business and economic conditions in India and could also adversely affect our business and financial results. 55. Natural disasters and other disruptions could adversely affect the Indian economy and could cause our
business and operations to suffer.
Our operations, including our branch network, may be damaged or disrupted as a result of natural disasters such as earthquakes, floods, heavy rainfall, epidemics, tsunamis and cyclones and other events such as protests, riots, regional hostilities and labour unrest. Such events may lead to the disruption of information systems and telecommunication services for sustained periods. They also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our provision of services could adversely affect our reputation, our relationships with our customers, our senior management team's ability to administer and supervise our business or it may cause us to incur substantial additional expenditure to repair or replace damaged equipment or rebuild parts of our branch network. We may also be liable to our customers for disruption in services resulting from such damage or destruction. Our bank indemnity insurance coverage for such liability may not be sufficient. Any of the above factors may adversely affect our business and results of operations. 56. Investors in our Equity Shares may not be able to enforce a judgment of a foreign court against us, our
directors or our executive officers.
The Bank is incorporated as a public limited company under the laws of India. Its assets are all located in India. Most of its Directors and executive officers are residents of India only and virtually all of their assets are located in India. As a result, you may be unable to:
• effect service of process in jurisdictions outside India upon us or any of these other persons or entities; or other persons or entities; or
• enforce in Indian courts, judgments obtained in courts outside India against us or against any of these
other persons or entities.
India has reciprocal recognition and enforcement of judgments in civil and commercial matters with only a limited number of jurisdictions. In order to be enforceable, a judgment from a jurisdiction with reciprocity must meet certain requirements of the Indian Code of Civil Procedure, 1908 (the "Civil Code"). Judgments or decrees from jurisdictions which do not have reciprocal recognition with India cannot be enforced in India without filing a new suit upon the judgment. A final judgment for the payment of money rendered by any court in a non- reciprocating territory for civil liability, whether or not predicated solely upon the general laws of the non- reciprocating territory would not be enforceable in India. Even if an investor obtained a judgment in such a jurisdiction against us, our officers or Directors, it will be required to institute a new proceeding in India and obtain a decree from an Indian court. If, and to the extent that, an Indian court were of the opinion that fairness and good faith so required, it would, under current practice, give binding effect to the final judgment that had been rendered the non-reciprocating territory, unless such a judgment contravenes principles of public policy in India. It is unlikely that an Indian court would award damages on the same basis or to the same extent as was
47
awarded in a final judgment rendered by a court in another jurisdiction if the Indian court believed that the amount of damages awarded was excessive or inconsistent with Indian practice. In addition, any person seeking to enforce a foreign judgment in India is required to obtain prior approval of the RBI to repatriate any amount recovered. For more information, please see “Enforcement of Civil Liabilities, on page 15. 57. Financial instability in other countries, particularly countries with emerging markets, could disrupt
Indian markets and the Bank's business and cause volatility in our Equity Share prices.
The Indian financial markets and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Although economic conditions are different in each country, investors' reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy. This in turn could negatively impact the movement of exchange rates and interest rates in India. Accordingly, any significant financial disruption could have an adverse effect on the Bank's business, future financial performance and our Equity Share price. 58. We cannot guarantee the accuracy of facts and other statistics with respect to India, the Indian economy,
and the Indian banking industry contained in this Placement Document.
Facts and other statistics in this Placement Document relating to India, the Indian economy and the Indian banking industry have been derived from various government publications and obtained in communications with various Indian government agencies that we believe to be reliable. However, we cannot guarantee the quality or reliability of such source of materials. While our directors have taken reasonable care in the reproduction of the information, they have not been prepared or independently verified by us, the BRLMs or any of our or their respective affiliates or advisers and, therefore, we make no representation as to the accuracy of such facts and statistics, which may not be consistent with other information compiled within or outside India. Due to possibly flawed or ineffective collection methods or discrepancies between published information and market practice and other problems, the statistics herein may be inaccurate or may not be comparable to statistics produced for other economies and should not be unduly relied upon. Further, there is no assurance that they are stated or compiled on the same basis or with the same degree of accuracy as may be the case elsewhere. In all cases, investors should give consideration as to how much weight or importance they should attach to or place on such facts or statistics. 59. A decline in India's foreign exchange reserves may affect liquidity and interest rates in the Indian
economy, which could have an adverse impact on the Bank. A rapid decrease in reserves would also create a risk of higher interest rates and a consequent slowdown in growth.
India's foreign exchange reserves increased year on year from Fiscal 2009 until Fiscal 2011. However, in Fiscal 2012, India's foreign exchange reserves decreased by US$11.1 billion to US$294.4 billion. A further decline in these reserves could result in reduced liquidity and higher interest rates in the Indian economy. On the other hand, high levels of foreign fund inflows could add excess liquidity into the system, leading to policy interventions, which will also slow economic growth. Either way, an increase in interest rates in the economy following a decline in foreign exchange reserves could adversely affect our business, results of operations and financial condition. 60. Significant differences exist between Indian GAAP and other accounting principles, such as IFRS,
which may be material to investors' assessment of our financial condition. Our failure to successfully adopt IFRS effective April 2014 could have a material adverse effect on the price of our Equity Shares.
Our financial statements, including the financial statements provided in this Placement Document are prepared in accordance with Indian GAAP, which differs in certain respects from IFRS. As a result, our financial statements and reported earnings could be different from those, which would be reported under IFRS. Such differences may be material. We have not attempted to quantify the impact of IFRS on the financial data included in this Placement Document, nor do we provide a reconciliation of our financial statements to those of IFRS. Each of IFRS differs in significant respects from Indian GAAP. In addition, this Placement Document does not include any information in relation to the differences between Indian GAAP and IFRS. Accordingly, the degree to which the Indian GAAP financial statements included in this Placement Document will provide meaningful information is entirely dependent on the reader's level of familiarity with Indian accounting
48
practices. Had the financial statements and other financial information been prepared in accordance with IFRS, the results of operations and financial position may have been materially different. Because differences exist between Indian GAAP and IFRS, the financial information in respect of the Bank contained in this Placement Document may not be an effective means to compare us with other companies that prepare their financial information in accordance with IFRS. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Placement Document should accordingly be limited. In making an investment decision, investors must rely upon their own examination of the Bank, the terms of the Issue and the financial information relating to the Bank. Potential investors should consult their own professional advisors for an understanding of these differences between Indian GAAP and IFRS, and how such differences might affect the financial information contained herein. The Institute of Chartered Accountants of India, the regulatory body for all accounting firms in India, has announced a road map for the adoption of, and convergence with, IFRS, pursuant to which all public companies in India, including ours, will be required to prepare their annual and interim financial statements under IFRS beginning with the Fiscal commencing April 1, 2011 or April 1, 2014, as the case may be, depending on the net worth of the Bank. We expect to have to prepare annual and interim financial statements under IFRS beginning with the Fiscal commencing April 1, 2014. Because there is significant lack of clarity on the adoption of and convergence with IFRS and there is not yet a significant body of established practice on which to draw in respect of forming judgments regarding the implementation and application of IFRS, we have not determined with any degree of certainty the impact that such adoption will have on our financial reporting. There can be no assurance that our financial condition, results of operations, cash flows or changes in shareholder's equity will not appear materially worse under IFRS than under Indian GAAP. As we transition to IFRS reporting, we may encounter difficulties in the ongoing process of implementing and enhancing our management information systems and internal controls. Moreover, there is increasing competition for the small number of IFRS- experienced accounting personnel available as more Indian companies begin to prepare IFRS financial statements. There can be no assurance that our adoption of IFRS will not adversely affect our reported results of operations or financial condition and any failure to successfully adopt IFRS by April 2014 could have a material adverse effect on the price of our Equity Shares. Risk Factors related to the Equity Shares 61. Future issuances or sales of the Equity Shares could significantly affect the trading price of the Equity
Shares. The future issuance of Equity Shares by us, including pursuant to our ESOP Scheme, or the disposal of Equity Shares by any of our major shareholders or the perception that such issuance or sales may occur may significantly affect the trading price of the Equity Shares. Except for the restrictions described in “Placement” “Description of the Shares” and “Regulations and Policies” on page 153 and 162, respectively, there is no restriction on our ability to issue Equity Shares or the ability of any of our shareholders to dispose of, pledge or otherwise encumber their Equity Shares, and there can be no assurance that we will not issue Equity Shares or that our shareholders will not dispose of, pledge or otherwise encumber their Equity Shares. The Bank also intends to further alter its capital structure by way of a preferential issue of the equity shares. We have obtained an approval from the RBI on February 8, 2013 for a preferential allotment. The Board of Directors by resolution dated February 15, 2013 have also approved the preferential allotment of approximately 85,00,000 equity shares in accordance with the SEBI Regulations and such preferential issue shall also be subject to compliance with applicable laws by the Bank and receipt of approval from the Stock Exchanges. A preferential allotment issue notice was issued by the Bank to all its shareholders and the necessary approval has already been received from the shareholders at the extraordinary general meeting which was held on March 30, 2013 in Thrissur. The preferential allotment has to be concluded within 15 days from the date of such shareholder's approval. In the event we do propose to undertake the preferential allotment, your holding in the Issue will get diluted to the extent of such preferential issue. 62. We are required to apply for a post facto approval from the RBI, upon completion of the Issue.
As specified by RBI in its letter dated November 16, 2012, and as required in terms of the RBI circular dated April 20, 2010, upon completion of the Issue, we are required to obtain a post facto approval from the RBI. The requirement to obtain post facto approval from RBI is irrespective of the Issue resulting in an entity/group holding 5% or more of the paid-up capital of our Bank. Upon completion of the Issue, we would be required to furnish complete details of the Issue, including details of the investors, to RBI for seeking their post facto
49
approval. We cannot assure you that the RBI may not impose any adverse condition upon us, while providing their approval. Pursuant to the letter dated February 7, 2013 we had received an approval from the RBI regarding the extension of the timelines for the completion of this Issue until March 31, 2013. However, we are currently in the process of seeking further extension from the RBI for the completion of the QIP Issue within a period of 45 days from March 31, 2013. In the event, we are unable to comply with these revised timelines, we may be subject to certain adverse consequences including any action that may initiated by the RBI against us which may have an adverse impact on our reputation and business operations.
63. Our Equity Shares may experience price and volume fluctuations.
The Issue Price will be determined by us in consultation with the Lead Managers, based on the Bids received in compliance with Chapter VIII of the ICDR Regulations, and it may not necessarily be indicative of the market price of the Equity Shares after this Issue is complete. The price of the Equity Shares after this Issue may fluctuate as a result of several factors, including volatility in the Indian and global securities markets, the results of our operations, the performance of our competitors, developments, adverse media reports about us or the banking industry, changes in the estimates of our performance or recommendations by financial analysts, significant developments in India’s economic liberalization and deregulation policies, and significant development in India’s fiscal regulations. You may be unable to resell your Equity Shares at or above the Issue Price due to share price volatility and, as a result, you may lose all or part of your investment. 64. Restrictions on ownership in private sector banks by the RBI could discourage or prevent a change of
control or other business combination involving us.
The RBI has issued guidelines restricting ownership in private sector banks in India to not more than 10% of the paid-up share capital, directly or indirectly, for any entity or group of related entities. The guidelines state that no entity or group of related entities will be permitted to own or control, directly or indirectly, more than 10% of the paid up capital of a private sector bank without RBI approval. The implementation of such a restriction will discourage or prevent a change in control, merger, consolidation, takeover or other business combination involving us that might be beneficial to our shareholders. Further, RBI approval is required before the acquisition of 5% or more of our Equity Shares (paid up capital) by an individual or group. 65. You will not be able to acquire or transfer Equity Shares if such acquisition or transfer would result in
an individual or group holding 5% or more of our share capital without prior written acknowledgement by the RBI.
Pursuant to the Guidelines for Acknowledgement of Shares in Private Banks dated February 3, 2004 (the “Acknowledgement Guidelines”), any acquisition or transfer of shares in a private sector bank, directly or indirectly, beneficial or otherwise, that will take the aggregate holding of an individual or a group to 5% or more of the paid-up capital of the private bank requires the prior written acknowledgement of the RBI. Shareholders in a private bank require the prior permission of the RBI in order to acquire shares. The term “holding” refers to both direct and indirect holdings, beneficial or otherwise and is computed with reference to the holding of the applicant, relatives (where the applicant is a natural person) and associated enterprises. “Relative” has the meaning under Section 6 of the Companies Act, and “associated enterprises” has the meaning under Section 92A of the IT Act. In considering whether the RBI will grant an acknowledgement to any application for an acquisition or transfer resulting in a holding of 5% or more of the paid-up capital of a private bank, the RBI examines whether the proposed acquirer and all entities connected with the acquirer meet certain fitness and propriety tests. The RBI will apply additional criteria if the acquisition or transfer will take the aggregate shareholding of the applicant or proposed acquirer to 10% or more or 30% or more of the paid-up capital of the private bank. The RBI may require the applicant or proposed acquirer to seek further RBI approval for subsequent acquisitions at any higher threshold specified by the RBI. Further, the RBI may, by passing an order, restrict any person holding more than 5% of the total voting rights of a bank from exercising voting rights in excess of 5%, if such person is deemed to be not fit and proper by the RBI. Recently, the RBI has observed that the nomination committee has accepted the fitness of a shareholder (holding voting rights in excess of 5%), without the nomination committee calling for details in relation to a first information report filed against such shareholder. In the event of any directive by the RBI to comply with RBI guidelines will materially alter the ownership of the Bank. Such sale of Equity Shares could adversely affect the market price of the Equity Shares. 66. Holders of Equity Shares could be restricted in their ability to exercise pre-emptive rights under Indian
law and could thereby suffer future dilution of their ownership position.
50
Under the Companies Act, any company incorporated in India must offer its holders of equity shares pre-emptive rights to subscribe and pay for a proportionate number of shares to maintain their existing ownership percentages prior to the issuance of any new equity shares, unless the pre-emptive rights have been waived by the adoption of a special resolution by holders of three-fourths of the shares voted on such resolution, unless the Bank has obtained Government approval to issue without such rights. However, if the law of the jurisdiction that you are in does not permit the exercise of such pre-emptive rights without us filing an offering document or registration statement with the applicable authority in such jurisdiction, you will be unable to exercise such pre-emptive rights unless we make such a filing. We may elect not to file a registration statement in relation to pre-emptive rights otherwise available by Indian law to you. To the extent that you are unable to exercise pre-emptive rights granted in respect of the Equity Shares, your proportional interests in us would be reduced. 67. There may be less information available about entities listed on Indian stock exchanges than entities
listed on stock markets in other countries.
The Equity Shares will be publicly listed on the Stock Exchanges and will not be listed on any stock exchange in any other country other than India. While the SEBI has issued regulations and guidelines on disclosure requirements, insider trading and other matters, there may be less publicly available information about Indian entities than is regularly made available by public entities in many other countries. As a result, you may have access to less information about our business, result of operations and financial condition, and those of our competitors listed on Indian stock exchanges, on an ongoing basis, than entities subject to the reporting requirements of other countries. 68. Conditions in Indian stock exchanges may affect the price or liquidity of our Equity Shares.
Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities and other problems that have affected the market price and liquidity of the securities of Indian entities. These problems have included temporary closure of the Stock Exchanges to manage extreme market volatility, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time restricted securities from trading, limited price movements and imposed margin requirements. If similar problems occur in the future, the market price and liquidity of our Equity Shares could be adversely affected. For more information on the securities market in India, please see “The Securities Market of India” on page 159. 69. Currency exchange rate fluctuations may affect the value of the Equity Shares.
The exchange rate between the Rupee and other foreign currencies has changed substantially in recent years and may fluctuate substantially in the future. If you purchase Rupees to purchase our Equity Shares, fluctuations in the exchange rate between the Rupee and the foreign currency with which you purchased the Rupees may affect the value of your investment in our Equity Shares, including, specifically, such foreign currency equivalent of:
• the Rupee trading price of our Equity Shares in India; • the proceeds that you would receive upon the sale in India of any of our Equity Shares; and • cash dividends, if any, on our Equity Shares, which will be paid only in Rupees.
70. An investor will not be able to sell any of our Equity Shares purchased in the Issue other than on a
recognized Indian stock exchange for a period of one year from the date of issue of such Equity Shares.
Pursuant to the ICDR Regulations, for a period of one year from the date of the issue of our Equity Shares in the Issue, investors purchasing our Equity Shares in the Issue may only sell their shares on the NSE, the BSE and the CSE and may not enter into any off-market trading in respect of their Equity Shares. We cannot assure that these restrictions will not have an impact on the market price of any Equity Shares purchased by you. 71. Investors may be subject to Indian taxes arising out of capital gains on the sale of our Equity Shares.
Capital gains arising from the sale of our Equity Shares are generally taxable in India. Any gain realized on the sale of our Equity Shares on a stock exchange held for more than 12 months will not be subject to capital gains tax in India if the securities transaction tax, or STT, has been paid on the transaction. The STT will be levied on and collected by an Indian stock exchange on which our Equity Shares are sold. Any gain realized on the sale of our Equity Shares held for more than 12 months to an Indian resident, which are sold other than on a recognized
51
stock exchange and as a result of which no STT has been paid, will be subject to capital gains tax in India. Further, any gain realized on the sale of our Equity Shares held for a period of 12 months or less will be subject to capital gains tax in India. Capital gains arising from the sale of our Equity Shares will be exempt from taxation in India in cases where an exemption is provided under a treaty between India and the country of which the seller is a resident. Generally, Indian tax treaties do not limit India's ability to impose tax on capital gains. As a result, residents of other countries may be liable for tax in India as well as in their own jurisdictions on gains arising from a sale of Equity Shares. For more information, please see "Statement of Tax Benefits" on page 166. 72. Your ability to sell your Equity Shares to a resident of India may be subject to delays if RBI approval is
required.
Under current Indian regulations and practice, RBI approval is required for the sale of Equity Shares by a non-resident to a resident of India, unless the sale is made on a stock exchange in India through a stock broker or a merchant banker registered with SEBI at the market price. RBI approval may not be obtained on terms favourable to a non-resident investor, in a timely manner or at all. Because of possible delays in obtaining requisite approvals, investors in the Equity Shares may be prevented from realizing gains during periods of price increases or limiting losses during periods of price declines. 73. A third party could be prevented from acquiring control over us because of anti-takeover provisions
under Indian law. Indian takeover regulations contain certain provisions that may delay, deter or prevent a future takeover or change in control. These provisions may discourage a third party from attempting to take control of the Bank, even if a change in control would result in the purchase of our Equity Shares at a premium to the market price or would otherwise be beneficial to the investor. Please see "The Securities Market of India” on page 159. For further information on issue procedure, please see "Issue Procedure" on page 145.
52
USE OF PROCEEDS The total gross proceeds of the Issue will be ` 698.58 million. After deducting the estimated Issue expenses of approximately ` 25.00 million, the net proceeds of the Issue will be approximately ` 673.58 million. Purpose of Issue Subject to compliance with applicable laws and regulations, our Bank intends to use the net proceeds received from the Issue to enhance our capital adequacy and for general corporate purposes.
53
CAPITALISATION
Our Bank’s authorized share capital is ` 2,000 million divided into 20,00,00,000 Equity Shares. As on the date of this Placement Document, our Bank’s issued, subscribed and paid up capital is ` 851.36 million divided into 8,51,36,319 fully paid up Equity Shares. The following table sets forth our Bank’s capitalization (including indebtedness) as at December 31, 2012 on the basis of our unaudited interim financial statements for the nine months ended December 31, 2012, prepared in accordance with Indian GAAP and as adjusted to give effect to the receipt of the gross proceeds of the Issue and the application thereof. This table should be read in conjunction with the sections titled “Management Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” on pages 58 and 178, respectively.
(` in millions) As at December 31, 2012* As adjusted for the Issue**
Shareholders’ funds Equity share capital(a) 851.36 1,001.59 Share application money pending allotment Nil Nil Reserve and surplus 6,170.72 6,719.07 Total shareholders’ funds 7,022.08 7,720.66 Indebtedness Deposits 112,266.56 112,266.56 Borrowings 8,731.07 8,731.07 Other liabilities and provisions 3,939.17 3,939.17 Total indebtedness 124,936.80 124,936.80 Total 131,958.88 132,657.46 *Derived from the Unaudited Interim Financial Statements. ** Excludes 85,00,000 Equity Shares, proposed to be allotted pursuant to the preferential allotment by our Bank. (a) The equity share capital of the Bank excludes 991,670 outstanding employee stock options issued to the eligible
employees, as on December 31, 2012 with an exercise price of ` 118.35 per option. There has been no material change in the total capitalization of our Bank since December 31, 2012, except for decrease in deposits to ` 107,089.6 million and increase in borrowing to ` 12,154.9 million as at February 28, 2013. For further details, see the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Recent Development” and “Legal Proceedings” on pages 84 and 174, respectively.
54
MARKET PRICE INFORMATION AND OTHER INFORMATION CONCERNING THE EQUITY SHARES
As on the date of this Placement Document, our Bank’s issued, subscribed and paid up capital totals ` 851.36 million divided into 8,51,36,319 fully paid up Equity Shares. The Equity Shares are listed on the BSE, NSE and CSE. The closing price of the Equity Shares on the BSE as of April 1, 2013 was ` 48.70 and on the NSE as of April 1, 2013 was ` 48.80. Since, our Equity Shares have not been traded on the CSE since 2002, no market price information relating to the same has been disclosed. The tables set forth below provide certain stock market data for the BSE and the NSE and is for the periods that indicate the high and low closing prices of the Equity Shares and also the volume of trading activity. 1. The high, low and average market prices of the Equity Shares during the preceding three calendar year
periods: BSE
Equity Shares Traded in the
Periods
Period High (`)
Date of
High
No. of Equity Shares Traded on Date of High
Total Volume
of Equity Shares Traded on Date of High
(` in millions)
Low (`)
Date of
Low
No. of Equity Shares Traded on Date of Low
Total Volume
of Equity Shares Traded on Date of Low
(` in millions)
Average Price
for the Period*
(`.) Volume Value
(` in millions)
2012 79.20 9-Apr-12
2332921 177.48 42.55 30-Aug-
12
70477 3.10 58.40 82562672 5,278
2011 135.90 25-Apr-
11
293062 39.14 42.40 29-Dec-
11
186659 8.42 95.11 55060966 4,483
2010 212.50 28-Oct-10
378173 76.42 124.00 12-May-
11
112628 14.18 160.04 40743029 6,708
____ (Source: www.bseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been used * Average of the daily closing prices. NSE
Equity Shares traded in the Periods
Period High (`)
Date of
High
No. of Equity Shares Traded on Date of High
Total Volume
of Equity Shares Traded on Date of High
(` in millions)
Low (`)
Date of Low
No. of Equity Shares Traded on Date of Low
Total Volume
of Equity Shares Traded on Date of Low
(` in millions)
Average Price
for the Period
*(`.)
Volume Value (` in
millions)
2012 79.20 9-Apr-
12
8660927 658.97 42.70 30-Aug-12
291133 12.80 58.38 291073084 18,588
2011 135.95 25-Apr-
11
919657 122.92 41.95 29-Dec-11
1701889 76.57 95.15
191801130 15,543
2010 212.20 28-Oct-
10
830442 168.14 124.00 13-May-
11
479687 61.36 160.11
91967911 15,259
55
____ (Source: www.nseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been used. * Average of the daily closing prices 2. Monthly high and low prices of the Equity Shares for the six months preceding the date of filing of the
Placement Document: BSE
Equity Shares traded in the Month
Months High (`) Date of High
No. of Equity Shares Traded on Date of High
Total Volume
of Equity Shares Traded on Date of High
(` in millions)
Low (`)
Date of Low
No. of Equity Shares Traded on Date of Low
Total Volume
of Equity Shares Traded on Date
of Low (`in
millions)
Average Price
for the Month*
(`.)
Volume Value (` in
millions)
March 2013
55.35 11-Mar-
13
84910 4.51 44.10 26-Mar-
13
72881 3.28 49.33 2178666 107
February 2013
68.20 8-Feb-13
114592 7.00 50.10 28-Feb-
13
126560 6.62 58.59 3511983 209
January 2013
72.30 7-Jan-13
1287306 91.62 62.20 24-Jan-
13
349499 22.95 67.46 10184488 698
December 2012
73.30 11-Dec-
12
1865305 131.93 63.55 3-Dec-
12
2781721 189.56 67.48 18919258 1,299
November 2012
68.40 30-Nov-
12
251748 17.00 54.45 23-Nov-
12
435368 25.00 58.33 9755506 601
October 2012
63.00 17-Oct-
12
231089 13.82 53.10 31-Oct-
12
62230 3.39 57.75 3844874 226
_____ (Source: www.bseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been considered * Average of the daily closing prices. NSE
Equity Shares traded in the Month
Months High (`)
Date of High
No. of Equity Shares
Traded on Date of High
Total Volume
of Equity Shares Traded on Date of High
(` in millions)
Low (`) Date of Low
No. of Equity Shares
Traded on Date of
Low
Total Volume
of Equity Shares Traded on Date
of Low (` in
millions)
Average Price for
the Month*
(`.)
Volume Value (` in
millions)
March 2013
54.50 11-Mar-
13
250496 13.28 44.05 26-Mar-13
387565 17.39 49.34 7231445 357
February 2013
64.65 1-Feb-13
279283 17.84 50.00 28-Feb-13
487944 25.57 58.57 8832767 521
January 2013
72.40 7-Jan-13
4422642 315.17 62.10 24-Jan-13
1051129 69.28 67.44 31564068 2,171
December 2012
73.25 11-Dec-
12
6052507 428.27 63.55 3-Dec-12
8962814 612.16 67.50 57693851 3,962
November 2012
68.30 30-Nov-
744498 50.27 54.60 23-Nov-12
1329824 76.41 58.32 29815661 1,831
56
Equity Shares traded in the Month
Months High (`)
Date of High
No. of Equity Shares
Traded on Date of High
Total Volume
of Equity Shares Traded on Date of High
(` in millions)
Low (`) Date of Low
No. of Equity Shares
Traded on Date of
Low
Total Volume
of Equity Shares Traded on Date
of Low (` in
millions)
Average Price for
the Month*
(`.)
Volume Value (` in
millions)
12 October 2012
62.90 16-Oct-12
2645644 161.40 52.80 31-Oct-12
225974 12.30 57.75 12655090 743
____ (Source: www.nseindia.com) Notes: High and low prices are of the daily closing prices. In case of two days with the same closing price, the date with higher volume has been considered * Average of the daily closing prices. 3. Market Price on the first working day following the Board meeting approving the Issue, i.e. on
November 1, 2012 and December 12, 2012: BSE
Date
Open High Low Close Traded Volume (No. of Equity
Shares)
Total Value of Equity Shares traded (` in millions)
November 1, 2012 55.55 56.75 55.5 56.45 64082 3.60 December 12, 2012 68.60 70.00 67.15 69.05 1167716 80.31
_____ (Source: www.bseindia.com) NSE
Date
Open High Low Close Traded Volume
(No. of Equity Shares)
Total Value of Equity Shares traded (` in millions)
November 1, 2012 55.15 56.6 55.15 56.35 287804 16.14 December 12, 2012 68.55 70.10 67.20 69.05 3167944 217.91
____ (Source: www.nseindia.com)
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DIVIDEND POLICY
Our Bank generally declares and pays dividends in the fiscal year following the year to which they relate. The details of the dividends declared by our Bank in respect of the financial years ended March 31, 2012, 2011 and 2010 are set out below:
(` in millions, except percentages) Particulars Financial Year Ended
March 31, 2012 Financial Year Ended
March 31, 2011 Financial Year Ended
March 31, 2010 Issued and paid up share capital 851.36 851.36 641.16Rate of dividend (%) Nil 5 5Amount of dividend* Nil 42.57 32.06
* Excludes the dividend distribution tax paid by the Bank. For a summary of certain Indian tax consequences of dividend distributions to shareholders, see the section titled “Statement of Tax Benefits” on page 166. Future dividends will depend on our Bank’s revenue, cashflows, financial condition (including capital position) and other factors. For a description of regulation of dividends, see the section titled “Regulations and Policies – Restrictions on Payment of Dividend” on page 133.
58
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
You should read the following discussion of our financial condition and results of operations together with the financial statements included elsewhere in this Placement Document, along with the section "Selected Statistical Information" on page 116 which presents important statistical information about our business. Our actual results and the timing of selected events could differ materially from those anticipated in forward-looking statements contained in this discussion as a result of various factors, including those set forth under "Risk Factors” on page 32 and elsewhere in this Placement Document. See the section "Forward Looking Statements" on page 13. Unless otherwise stated, the financial information of our Bank used in this section is derived from our audited financial statements as of and for the fiscal 2010, 2011 and 2012 and our limited reviewed unaudited financial information, comprising of our profit and loss account, for the nine months ended December 31, 2012 and December 31, 2011, respectively. The following discussion is based on our financial statements, which have been prepared in accordance with Indian GAAP and the Banking Regulation Act, 1949. Indian GAAP differs in certain significant respects from U.S. GAAP and IFRS. Our fiscal year ends on March 31 of each year, so all references to a particular "fiscal" are to the 12-month period ended March 31 of that fiscal year. Overview We are a private sector bank with a pan-India presence through a network of 676 customer outlets which includes 280 branches and 396 ATMs in 13 states and two union territories, as of December 31, 2012. We had 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of December 31, 2012. In fiscal 2010, we initiated a rapid growth plan to expand our business operations. We significantly expanded our business and our branch network and infrastructure with deposits increasing from ` 70,984.8 million as at March 31, 2010 to ` 118,044.1 million as at March 31, 2012, and net advances increasing from ` 50,062.6 million as at March 31, 2010 to ` 87,580.5 million as at March 31, 2012. We also pursued an aggressive expansion of our customer outlets, which increased from 550 as at March 31, 2010 to 680 as at March 31, 2012. In addition, our employee headcount also increased significantly in this period and our employee compensation related expenses, particularly expenses relating to attracting and retaining senior executives, also increased significantly. In this period of rapid growth, we experienced a net loss of ` 1,156.3 million in fiscal 2012 compared to a net profit of ` 233.1 million in fiscal 2010, primarily on account of a disproportionate increase in our operating expenses from ` 1,928.6 million in fiscal 2010 to ` 4,890.7 million in fiscal 2012. In order to address the rapid increase in operating expenses and the impact of our aggressive growth plans, we embarked on a strategic plan after fiscal 2012 to better manage our expansion and focus on key operating areas in order to reduce cost inefficiencies and improve our financial performance. Since the first quarter of fiscal 2013, we have implemented certain organizational changes, including the return to a business model focused on our branch network rather than a segment-based business vertical in order to improve efficiencies across the Bank. We have also refocused our core target market segments and are now prioritizing our businesses relating to the retail banking, SME and microfinance and agricultural lending sectors. In addition, we intend to increase certain of our bank deposits and advances, reduce operational expenses through changes in compensation practices and the relocation of leased properties to lower rent areas and increase our fee-based revenue from the distribution of third-party products. The implementation of our strategic plan has resulted in decreasing our losses since fiscal 2012. In the nine months ended December 31, 2012, our net loss was ` 260.4 million compared to ` 1,156.3 million in fiscal 2012 and our operating expenses were ` 2,620.5 million compared to ` 4,890.7 million in fiscal 2012. We continue to implement our strategic plan and monitor our financial performance closely to increase operational efficiencies and return to profitability. In the quarter ended December 31, 2012, our net profit was ` 43.9 million compared to a net loss of ` 368.7 million in the quarter ended December 31, 2011. Revenue Our revenue, which is referred to herein and in our financial statements as income, consists of interest earned and other income.
59
Interest earned includes interest on advances, income on investments and interest on balances with the RBI and other inter-bank funds. Income on investments consists of interest from securities and our other investments. We also earn interest income from deposits that we keep with other banks. Our investment portfolio consists primarily of Central Government and State Government securities. We meet SLR requirements through investments in these and other approved securities. We also hold equity shares, debentures and bonds issued by public sector undertakings and government-controlled companies, commercial paper and mutual fund units. Our other income consists of fees, commission, foreign exchange and brokerage income, net profit on the sale of investments and net profit/loss on the sale of land, buildings and other assets, net profit/loss on exchange transactions, income earned from the distribution of life and general insurance products and miscellaneous income (which includes recovery from written- off accounts, processing fees, service and incidental charges such as account keeping fees and sundry charges). Expenditures Our expenditures consist of interest expended, operating expenses and provisions and contingencies. Our interest expended consists of interest on deposits, interest on borrowing from RBI and interbank for call money and term money and other interest. Other interest consists of interest on subordinated debt. Operating expenses consist principally of payments to and provisions for employees, lease rentals and related expenses such as electricity charges paid on premises, depreciation on fixed assets, insurance, postage and telecommunications and other expenses, printing and stationery, advertisement and publicity, director’s fees, auditor’s fees and repairs and maintenance. Our provisions and contingencies consist principally of provisions for non-performing assets, standard assets and income tax and other taxes. Factors Affecting our Financial Results A number of general factors affected our financial performance during each of fiscal 2010, fiscal 2011 and fiscal 2012 and the nine months ended December 31, 2012. These factors may affect our financial performance in the future as well. Set forth below are explanations for some of the major factors that affect our results of operations. The Macroeconomic Environment The recent global financial crisis and economic downturn have adversely affected economies and businesses around the world, including those in India. These and other related events, such as collapse of a number of financial institutions, have had and continue to have a significant adverse impact on the availability of credit and the confidence of the financial markets, globally. The deterioration in the financial markets has heralded a recession in many countries, which has led to significant declines in employment, household wealth, consumer demand and lending and, as a result, has adversely affected economic growth. Further, the enhanced perception of liquidity and solvency risks led to an almost total reluctance on the part of banks and financial institutions to expose themselves to the money and credit markets. Despite the slowdown in the global economic environment, the Indian economy was one of the fastest growing economies since the global economic crisis in 2008, with a growth rate of 6.5% in fiscal 2012. India's GDP is projected to grow at a rate of 5.9% in 2013 and 6.4% in 2014.(Source: International Monetary Fund, World economic Outlook, January 2013). However, the Indian economy has also witnessed shortages of liquidity which led to an increase in the interest rates for loans provided by banks and financial institutions. Moreover, India has experienced high levels of inflation during recent years. While the inflation rate has decreased slightly in 2012 compared to 2011, inflation levels in India present a challenge to economic growth according to the World Economic Outlook published by the International Monetary Fund in 2012. In the event that rates of inflation continue to be high or further increase, our costs, such as salaries, wages or any other of our expenses may also increase. Accordingly, high rates of inflation in India could increase our costs which could have an adverse effect on our results of operations. Availability of cost-effective funding sources The ratio of our current and savings account ("CASA") deposits to total deposits, expressed as a percentage (or CASA percentage), for fiscal 2010, fiscal 2011 and fiscal 2012 and the nine months ended December 31, 2012 were 21.9%, 22.9%, 19.3% and 21.2%, respectively. Our ability to meet demand for new loans will depend on
60
our ability to broad base our deposit profile and our continued access to term deposits from the retail, corporate and inter-bank market. Our debt service costs and cost of funds depend on many external factors, including developments in the Indian credit markets and, in particular, interest rate movements and the existence of adequate liquidity in the inter-bank markets. Internal factors that will impact our cost of funds include changes in our credit ratings, available credit limits and our ability to mobilize low-cost deposits. Impact of interest rate volatility Our results of operations depend to a great extent on our net interest income. Net interest income represents the excess of interest earned from interest-bearing assets (performing loans and investments) over the interest paid on customer deposits and borrowings. Changes in interest rates affect the rates we charge on our interest-earning assets and that we pay on our interest-bearing liabilities. Since the maturities of our loans and investments tend to be more long-term than our deposits, such interest rates may change differently and decrease our net interest income. For further information, please see "Risk Factors - Our business is vulnerable to interest rate risk" and "Selected Statistical Information - Asset Liability Gap" on pages 32 and 116, respectively. The following table sets forth the bank rate, the reverse repo rate and the repo rate as at the dates set forth in the table.
Bank Rate* Reverse Repo Rate Repo Rate As at March 31, 2010 6.00% 3.50% 5.00% As at March 31, 2011 6.00% 5.75% 6.75% As at March 31, 2012 9.00% 7.50% 8.50% With effect April 17, 2012 9.00% 7.00% 8.00% With effect from January 29, 2013 8.75% 6.75% 7.75%
(Source: Reserve Bank of India) *Bank rate refers to the general rate applicable to the banks and does not refer to our Bank rates. Ability to manage operating expenses and achieve operating efficiencies Our operating expenses have fluctuated significantly in the recent past. During fiscal 2010, 2011, 2012 and the nine months ended December 31, 2012, our operating expenses were ` 1,928.6 million, ` 3,444.7 million, ` 4,890.7 million and ` 2,620.5 million, respectively. The primary components of our operating expenses during fiscal 2010, 2011, 2012 and the nine months ended December 31, 2012 and December 31, 2011 were: (i) payments to and provisions for employees including increased employee costs due to the considerable increase in the total number of employees during fiscal 2010 and fiscal 2011, respectively; (ii) rent, taxes and lighting; (iii) depreciation of our property; (iv) postage, telegram, telephone; and (v) advertisement and publicity and other office expenses like ATM expenses, travelling expenses. We experienced an increase in most of these expenses in fiscal 2010, 2011, 2012 primarily resulting from our expanded business operations during these fiscal years. Our employee headcount increased significantly in that period and our employee compensation expenses, particularly costs relating to attracting and retaining senior executives, also increased significantly. Our strategic turnaround plan implemented since the beginning of fiscal 2013 has focused on rationalisation of our employee base and decreasing our employee costs, reducing property and office expenditures, reducing excess office premises and space and relocating certain high cost premises to lower cost locations. While we continue to implement these measures, the effect of these cost and operational efficiency measures and the impact of these measures on our financial results may not be fully reflected in the short term. We believe our ability to manage our operating expenses and improve operating efficiencies is a significant factor in our ability to increase profitability. Successful implementation of our strategic plan Since the beginning of fiscal 2013, we have commenced a strategic plan under which we are refocusing our business operations to increase profitability based on our operational strengths. Specifically, we are prioritizing our businesses relating to the retail banking, SME and microfinance and agricultural lending sectors. We have also entered into the gold business since June 2011. Our success in building customer relationships in these sectors, refocusing our businesses and introducing relevant new products will be significant factors in our results of operations and financial condition. Ability to manage NPAs and risk as well as our provisioning for NPAs
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As at March 31, 2010, March 31, 2011, March 31, 2012 and December 31, 2012 our net NPAs were ` 419.4 million, ` 274.7 million, ` 580.0 million and ` 2,160.2 million, respectively, and our gross NPAs were ` 775.0 million, ` 670.9 million, ` 1,042.7 million and ` 3,128.4 million, respectively. As at March 31, 2010, March 31, 2011, March 31, 2012 and December 31, 2012 our net NPA ratio was 0.8%, 0.3%, 0.7% and 2.9%, respectively, while our gross NPA ratio was 1.5%, 0.7%, 1.2% and 4.2% , respectively. Our ability to continue to reduce or contain the level of our gross and net NPA ratios depend on a number of factors beyond our control, such as increased competition, depressed economic conditions, including with respect to specific industries to which we are exposed, decreases in agricultural production, decline in commodity prices, adverse fluctuations in interest and exchange rates or adverse changes in Indian policies, laws or regulations and also on our ability to manage our risk. In addition, the RBI requires banks to augment their provisioning cushions consisting of specific provisions against NPAs as well as floating provisions. As at December 31, 2012, our total provision for NPAs was ` 965.8 million, which along with Export Credit Guarantee Corporation's (ECGC) collection was 31.5% of our gross NPAs. The effort to maintain continued compliance with the RBI requirements, or failure to do so, may have a material adverse effect on our results of operations in periods thereafter. Government policies and regulations in relation to the Indian banking system Our operations are regulated by the RBI. The Government, through the RBI, is actively involved in the management of the Indian economy and in implementing their social policies. Accordingly, we are subject to: • Changes in the two kinds of statutory reserve requirements: Cash Reserve Ratio ("CRR") and Statutory
Liquidity Ratio ("SLR"). Under these requirements, all banks are required to maintain a certain stipulated proportion of their net demand and time liabilities ("NDTL") in the form of cash, gold, balances with RBI, current account balances with other banks and unencumbered Government and/or other approved securities. The basic objective of the CRR and the SLR requirements is to ensure that banks hold sufficient liquid resources to meet any unexpected contingencies.
• Requirements to lend to certain priority sectors; • Requirements discouraging lending in certain specified sectors, such as real estate, commodities and
capital markets. • The RBI's prudential norms in respect of income recognition, asset classification and provisioning. Any
changes in the regulatory framework regarding provisioning for NPAs could adversely affect our profitability and consequently our net worth.
For further details, please see "Regulations and Policies" on page 127. In the recent past the banking industry has witnessed increased intervention by government and regulatory authorities in India, both at the monetary policy level (through decreases in interest rates and liquidity injections into the financial system) as well as at the fiscal policy level. The base rate system replaced the benchmark prime lending rate (BPLR) system in July 2010. It has contributed in improving the pricing of loans, enhancing transparency in lending rates and improving the assessment of the transmission of monetary policy. This, combined with no interest rates being levied on export credit in foreign currency from May 5, 2012 onwards has resulted in complete deregulation of interest rates on lending by commercial banks. Since the inception of the base rate system, liquidity in the financial system has remained in deficit mode. Repo rates strongly influence the determination of base rate by banks and a change in repo rate is clearly reflected as a corresponding change in the base rate. As the economy was migrating from surplus mode to deficit mode during July to December 2010, the pace of responsive change in bank rate with respect to repo rate was slow. The base rate increased, on an average by 58 basis points following the increase in repo rate by 75 basis points during this period. Thereafter, the momentum increased and continued till March 2011 which was followed by a moderation in growth during the second half of 2011-2012. The RBI reduced its repo rate by 50 basis points in April 2012, 24 banks accounting for around 63% of the aggregate credit reduced their base rates by an average 23 basis points until July 2012. In the period from April to November 2011, there was an increase in the repo rate mainly due to the prevailing inflationary pressure and anticipated inflation trajectory. According to the Third Quarter Review of Monetary Policy, dated Jan 23, 2013, a further reduction by 25 basis points has been contemplated in the
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future. However, the inflationary pressure posed to be a persistent concern throughout 2011-2012.(Source: RBI Annual Report 2012) The table below sets forth certain information relating to the changes in our base rate as well as the BPLR for the periods indicated below:
Effective Date Benchmark Prime Lending Rate Base Rate April 9, 2007 15.00% - June 26, 2008 15.50% - August 8, 2008 16.00% - July 1, 2010 - 7.00% October 9, 2010 16.50% 7.50% January 1, 2011 17.25% 8.25% March 10, 2011 - 8.75% April 7, 2011 18.25% 9.25% May 21, 2011 19.00% 10.00% July 7, 2011 19.25% 10.25% August 1, 2011 20.25% 10.75% September 19, 2011 20.75% 11.00% November 2, 2011 21.00% 11.25%
Critical Accounting Policies The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and in compliance with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the RBI from time to time, Accounting Standards (‘AS’) issued by the Institute of Chartered Accountants of India (‘ICAI’) and notified by the Companies Accounting Standard Rules, 2006 to the extent applicable and incompliance of the current practices prevailing within the banking industry in India. The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expense for the reporting period. We believe that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may differ from these estimates. Any revision in the accounting estimates is recognized prospectively in the current and future period. Revenue Recognition • Items of income and expenditure are accounted for on accrual basis, except as stated hereunder:
- Interest / Discount on loans & advances / Bills is recognized on accrual basis other than on those stipulated in RBI’s prudential norms on income recognition, asset classification and provisioning relating to NPAs where the income is recognized on realization.
- Rent on safe deposit lockers, dividends, depository participant business etc. are accounted for on cash basis.
• Loan processing fee on retail assets is accounted for upfront when it becomes due. Loan processing fees for
buyout/other loans would be recognized over the period of tenor of the loan on constant yield basis. Service charges to be paid on buyout loans would be recognized as and when due.
• Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee.
• Interest on income tax refunds is accounted in the year in which the same is received / adjusted by the income tax department.
• In respect of accounts covered under one time settlement, the recoveries are adjusted against book balance and the net balance is written off.
• Income accounted for in the preceding year and remaining unrealized is de-recognized in respect of advances classified as NPA during the year. Interest on NPA is transferred to interest suspense account and recognised in Profit and Loss Account when realized.
• In respect of sale of Assets under securitization the Bank has followed RBI guidelines as under:
o Sale price received shall be duly accounted for and shall be apportioned to each asset on the basis of respective valuations given to the asset.
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o If the sale price is below Net Book Value (i.e. Outstanding book balance less interest suspense and provisions held) {Net NPA}, then short fall should be debited to profit and loss account.
o If sale value is higher than the Net NPA balance, then excess provisions shall not be reversed but should be utilized to meet the short fall / loss on account of sale of other non-performing assets.
o At the end of each reporting year, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts are limited to the actuarial realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting year end. The cash consideration received in respect of accounts written off shall be credited to Profit and Loss Account and the value of Security Receipts shall be classified under investments and the corresponding provision shall be retained.
• All income other than the transactions specified above are accounted on proportionate basis over the period of the contract
Investments
Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation as mentioned below: a) Classification
Investments in Government, other approved securities, shares, debentures, bonds and other securities are categorized into (a) Held to Maturity (b) Held for Trading and (c) Available for Sale in terms of RBI guidelines.
b) Basis of Classification
Investments that are held principally for resale within 90 days from the date of purchase are classified under “Held for Trading” category.
Investments which the Bank intends to hold till maturity are classified as HTM securities.
Investments which are not classified in the above categories are classified under “Available for Sale” category.
c) Acquisition Cost In determining acquisition cost of an investment:
• Brokerage, Commission, etc. paid at the time of acquisition, are charged to revenue at the time of
settlement. • Broken period interest (the amount of interest from the previous interest payment date till the date of
purchase/sale of instruments) on debt instruments is treated as a revenue item. • Cost of investments is based on the following basis:
- Held to Maturity – Weighted Average - Held for Trading – Weighted Average - Available for sale – Weighted Average
d) Valuation of Investments is done as under
• Held to Maturity: ‘Held to Maturity’ securities are carried at their acquisition cost or at amortised cost, if acquired at a premium over the face value. Any premium over the face value of fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on a constant yield basis.
• ‘Available for Sale’ and ‘Held for Trading’ securities are valued periodically as per RBI guidelines.
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The quoted investments are valued based on the trades/quotes on the recognized stock exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association ("FIMMDA"), periodically. The market/fair value of unquoted Government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the ‘Available for Sale’ and ‘Held for Trading’ categories is as per the rates published by FIMMDA. The valuation of other unquoted fixed income securities wherever linked to the Yield-to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for Government securities published by FIMMDA.
Unquoted equity shares are valued as per the RBI guidelines which is presently at the break-up value, if the latest balance sheet is available, or at `1, per company. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each category. Net appreciation in each category, if any, being unrealised, is ignored, while net depreciation is provided for. Investment valuation norms for various categories is as given in table below:
Particulars Valuation Norms Central Government Securities Prices published by Primary Dealers Association of India
("PDAI")/FIMMDA State Government Securities At YTM published by PDAI/FIMMDA Other Approved Securities
YTM published by PDAI/FIMMDA duly adjusted as per RBI guidelines
Bonds, Debentures and Preference Shares As per rates / methodologies prescribed by FIMMDA Equity Shares
Quoted: Valued as per currently traded quotes on the stock exchange. Unquoted : Valued at book value as per the latest Balance Sheet. Where Balance Sheets are not available, at ` 1/- per Company
Units of Mutual Fund
Re-purchase price / NAV declared by the Mutual Fund as at the close of the year
Other Securities As per guidelines prescribed by RBI Non-performing investments are identified and depreciation/provision is made thereon based on the RBI guidelines. The depreciation / provision is not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit or Loss Account until received. e) Sale of Investments Profit on sale of investments in the ‘Held to Maturity’ category is credited to the profit and loss account and is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit on sale of investments in ‘Available for Sale’ and ‘Held for Trading’ categories is credited to profit and loss account. The shifting of securities from one category to another is done with the approval of the Board as per RBI guidelines. The shifting is effected at acquisition cost/book /market value on the date of transfer, whichever is the least and the depreciation if any at the time of shifting is fully provided for. Repo and Reverse Repo Transactions: In a repo transaction, the Bank borrows monies against pledge of securities. The book value of the securities pledged is credited to the investment account. Borrowing costs on repo transactions are accounted for as interest expense. In respect of repo transactions outstanding at the balance sheet date, the difference between the sale price and book value, if the former is lower than the latter, is provided as a loss in the income statement. In a reverse repo transaction, the Bank lends monies against incoming pledge of securities. The securities purchased are debited to the investment account at the market price on the date of the transaction. Revenues thereon are accounted as interest income.
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In respect of repo transactions under Liquidity Adjustment Facility ("LAF") with RBI, monies borrowed from RBI are credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LAF, monies paid to RBI are debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income. Advances
Advances are classified as performing and non-performing based on the RBI guidelines and further into Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of bills rediscounted, specific provisions, floating provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation.
Specific loan loss provisions in respect of Non-Performing Advances ("NPAs") are made based on management’s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed in the RBI guidelines. The Bank maintains general provision for standard assets at levels stipulated by RBI from time to time. Provision for standard assets is included under Other Liabilities. Provisions made in excess of these regulatory levels or provisions which are not made with respect to specific non-performing assets or assets which are restructured / securitized are categorized as floating provisions. The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance/securities, which would generally include, among others, alteration of repayment period/repayable amount/the amount of instalments/rate of interest (due to reasons other than competitive reasons). Restructured accounts are reported as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made. The Bank buys loans through the direct assignment route. In respect of direct assignment, where the purchase consideration is higher than the principal amount of the portfolio, the resultant additional upfront amount is classified as ‘Other assets’ which will amortise during the life of the advances on constant yield basis. In other cases, these are accounted at the deal value. Fixed Assets and Depreciation
Fixed assets, except those revalued, are stated at cost less accumulated depreciation. Cost includes cost of purchase and all expenditure like site preparation, installation costs, professional fees and other expenses incurred on the asset before it is ready to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the futures benefit/functioning capability from/of such assets. Depreciation is charged over the estimated useful life of the fixed asset on a written down value basis except on computers. The rates of depreciation are given below: • owned premises at 5.00% per annum. • office equipment at 18.10% per annum • motor cars at 25.89% per annum • electrical items at 13.91% • items (excluding staff assets) costing less than ` 5,000 are fully depreciated in the year of purchase. • computer hardware expenditure at 33.33% per annum on straight line basis. • computer software and system development expenditure at 20.00% per annum on straight line basis. • all other assets are depreciated as per the rates specified in Schedule XIV of the Companies Act, 1956.
Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of five year. For assets purchased and sold during the year, depreciation is provided on pro rata basis by the Bank. Impairment of Assets
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The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment of loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount. Transactions Involving Foreign Exchange • Monetary assets and liabilities are translated at the exchange rates prevailing at the close of the year as
advised by Foreign Exchange Dealers Association of India ("FEDAI") and the resulting net gain/loss is recognized in the revenue account.
• Profit or loss on outstanding forward foreign currency contracts are accounted for at the exchange rates prevailing at the close of the year as per FEDAI/ RBI guidelines.
• Income and expenditure items are accounted at the exchange rates ruling on the date of transaction. • Contingent liabilities in respect of outstanding forward foreign currency exchange contracts, guarantees and
letters of credit are stated at the exchange rates prevailing at the close of the year. • Premium /discount on hedge swaps are recognized as interest income/expenses and are recognized/
amortized over the period of the transactions.
Lease Accounting
Lease payments for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term in accordance with the AS - 19, Leases. Income Tax
Income tax expense comprises current tax provision, the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized. Accounting for Provisions, Contingent Liabilities and Contingent Assets
In accordance with AS - 29, Provisions, Contingent Liabilities and Contingent Assets, issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made. Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements. Contingent Assets, if any, are not recognized in the financial statements since this may result in the recognition of income that may never be realized. Changes in Accounting Policies There have been no material changes in our accounting policies during fiscal 2010, fiscal 2011, fiscal 2012 and the nine months ended December 31, 2012 other than that stated below: • Until fiscal 2011, the Bank consistently recognised the discount on bills upfront, at the time of
disbursement, where the tenure of the bills did not exceed one year. As per the directives of the RBI, the
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former accounting policy on bill discounting was changed and from January 1, 2012 the discount on bills was to be recognised over the tenure of the instrument. In the event, the Bank had continued to follow the former accounting policy, income for fiscal 2012 would have increased by ` 20.5 million while the loss for this period would have decreased to ` 1,135.8 million.
Summary of Our Financial Results The following sets forth a summary of our financial statements containing significant items of our income and expenditure based on our audited financial statements in fiscal 2010, 2011 and 2012 and the financial statements for the nine months ended December 31, 2011 and December 31, 2012: Statement of Profits and Losses
Year ended March 31, Nine months ended December
31,
Nine months ended
December 31, 2010 2011 2012 2011 2012
(` in millions) Income Interest earned 5,345.7 9,064.2 13,936.5 10,459.6 9,823.7 Other income 909.9 1,467.7 1,436.4 1,259.2 706.8 Total income 6,255.6 10,531.9 15,372.9 11,718.8 10,530.5 Expenditure Interest expended 3,940.2 6,412.9 11,461.3 8,507.8 7,752.3 Operating expenses 1,928.6 3,444.7 4,890.7 3,422.9 2,620.5 Provisions and contingencies
153.8 413.7 177.2 79.3 418.1
Total expenditure 6,022.6 10,271.3 16,529.2 12,010.0 10,790.9 Net profit 233.0 260.6 (1,156.3) (291.2) (260.4) Nine Months ended December 31, 2012 compared to the Nine Months ended December 31, 2011 Summary of Performance
Nine Months ended December 31, 2011 2012 % change
(` in millions) Net interest income 1,951.8 2,071.4 6.1% Other income 1,259.2 706.8 (43.9%) Operating (non interest) expenses 3,422.9 2, 620.5 (23.4%) Provisions and contingencies 79.3 418.1 427.2% Net profit (291.2) (260.4) 10.6% Net Interest Income Our net interest income increased by 6.1% from ` 1,951.8 million in nine months ended December 31, 2011 to ` 2,071.4 million in nine months ended December 31, 2012. The following table sets forth the components of our net interest income:
Nine Months ended December 31, 2011 2012 % change
(` in millions) Total interest income 10,459.6 9,823.7 (6.1%) Total interest expense 8,507.8 7,752.3 (8.9%) Net interest income 1,951.8 2,071.4 6.1% Interest income The following table sets forth a breakdown of our interest income for nine months ended December 31, 2011 and 2012:
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Nine Months ended December 31, 2011 2012 % change
(` in millions) Interest/discount on advances/bills 8,161.5 7,401.4 (9.3%) Income on investments 2,278.8 2,381.8 4.5% Interest on balances with RBI and other inter-bank funds 16.5 40.2 143.6% Others 2.8 0.3 (89.3%) Total interest income 10,459.6 9,823.7 (6.1%) Our total interest income decreased by 6.1% from ` 10,459.6 million in the nine months ended December 2011 compared to ` 9,823.7 million in the nine months ended December 31, 2012. The decrease in our interest income was primarily due to the decrease in interest/discount on advances/bills on account of reduction in advances as a part of the strategy to exit low yielding high value advances. Our interest/discount on advances/bills decreased by 9.3% on a year on year basis from ` 8,161.5 million in the nine months ended December 31, 2011 compared to ` 7,401.4 million in the nine months ended December 31, 2012. This decrease was primarily due to a decrease in advances from ` 95,532.8 million as of December 31, 2011 to ` 73,747.6 million as of December 31, 2012 resulting from our strategy of exiting low-yielding high value advances. Our income on investments increased by 4.5% from ` 2,278.8 million in the nine months ended December 31, 2011 compared to ` 2,381.8 million in the nine months ended December 31, 2012. This increase was primarily due to the redeployment of the excess liquidity. Our income on balances with RBI and other inter-bank funds increased by 143.6% from ` 16.5 million in the nine months ended December 31, 2011 compared to ` 40.2 million in the nine months ended December 31, 2012. This increase was primarily due to the increase in inter-bank deposit placements which increased significantly from ` 4.3 million as of December 31, 2011 to ` 3,164.3 million as of December 31, 2012. Interest Expense
Nine Months ended December 31, 2011 2012 % change
(` in millions) Interest on deposits 7,521.8 6,917.6 (8.0)% Interest on RBI and inter-bank borrowings 710.4 269.1 (62.1%) Others 275.6 565.6 105.2% Total interest expended 8,507.8 7,752.3 (8.9%) Our total interest expense decreased by 8.9% from ` 8,507.8 million in the nine months ended December 31, 2011 compared to ` 7,752.3 million in the nine months ended December 31, 2012. This decrease was primarily due to a decrease in our total deposits and borrowings from ` 146,144.3 million as of December 31, 2011 to ` 120,997.7 million as of December 31, 2012 as a part of the Bank’s policy to liquidate high interest bearing liabilities. Interest on deposits decreased by 8.0% from ` 7,521.8 million in the nine months ended December 31, 2011 compared to ` 6,917.6 million in the nine months ended December 31, 2012. This decrease was due to the decrease in total deposits by 16.3% from ` 134,056.9 million as of December 31, 2011 to ` 112,266.6 million as of December 31, 2012 resulting from our efforts to liquidate high interest bearing liabilities. Interest on balances with the RBI and other inter-bank funds decreased by 62.1% from ` 710.4 million in the nine months ended December 31, 2011 compared to ` 269.1 million in the nine months ended December 31, 2012. This decrease was primarily due to a reduction in RBI borrowings by 86.6% from ` 1,750 million as of December 31, 2011 to ` 234.8 million as of December 31, 2012 and a reduction in foreign borrowings by 52.2% from ` 3,371.2 million as of December 31, 2011 to ` 1,612.5 million as of December 31, 2012 consistent with the decrease in business volumes. Our other interest expense increased by 105.2% from ` 275.6 million in the nine months ended December 31, 2011 compared to ` 565.6 million in the nine months ended December 31, 2012. This increase was primarily due to the increase in subordinated debt held by the Bank which increased by 57.1% from ` 2,045.0 million as
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of December 31, 2011 to ` 3,212.0 million as of December 31, 2012. This was effected to maintain applicable capital adequacy requirements. Other Income
Nine Months ended December 31, 2011 2012 % change
(` in millions) Commissions, exchange and brokerage 61.8 61.9 0.2% Profit on sales of investments 38.1 94.9 149.1% Profit on sale of land, buildings and other assets 10.4 2.1 (79.8%) Profit on exchange transactions 84.3 53.6 (36.3%) Income from insurance 66.5 100.8 51.6% Miscellaneous income 998.1 393.5 (60.6%) Total other income 1,259.2 706.8 (43.9%)
Our other income decreased by 43.9% from ` 1,259.2 million in the nine months ended December 31, 2011 compared to ` 706.8 million in the nine months ended December 31, 2012. Commissions, exchange and brokerage Income from commissions, exchange and brokerage fees marginally increased by 0.2% from ` 61.8 million in the nine months ended December 31, 2011 compared to ` 61.9 million in the nine months ended December 31, 2012. Profit on sales of investments Profit on sales of investments was increased by 149.1% from ` 38.1 million in the nine months ended December 31, 2011 compared to ` 94.9 million in the nine months ended December 31, 2012, primarily due to decrease in the yield of Government securities. Profit on sale of land, buildings and other assets Profit on the sale of land, buildings and other assets decreased by 79.8% from ` 10.4 million in the nine months ended December 31, 2011 compared to ` 2.1 million in the nine months ended December 31, 2012 primarily due to a decrease in the sales of land, buildings and other assets during this period. Profit on exchange transactions Profit on exchange transactions (net) decreased by 36.3% from ` 84.3 million in the nine months ended December 31, 2011 compared to ` 53.6 million in the nine months ended December 31, 2012 primarily due to a decrease in clients resulting in a decrease in trading volumes. In addition, high volatility in the forex market required us to reduce our forex business. Income from insurance Income from insurance increased by 51.6% from ` 66.5 million in the nine months ended December 31, 2011 compared to ` 100.8 million in the nine months ended December 31, 2012 primarily resulting from the change in insurance policies from single premium to regular premium where the revenue earnings by way of percentages is higher. Miscellaneous income Miscellaneous income decreased by 60.6% from ` 998.1 million in the nine months ended December 2011 compared to ` 393.5 million in the nine months ended December 31, 2012 primarily due to a reduction in processing fees by 90.0% from ` 594.5 million as of December 31, 2011 to ` 60.9 million as of December 31, 2012 on account to decrease in the volume of advances. Operating Expenses
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Our operating expenses decreased by 23.4% from ` 3,422.9 million in the nine months ended December 31, 2011 compared to ` 2,620.5 million in the nine months ended December 31, 2012. This decrease was primarily due to a decrease in the expenditure towards payroll costs which decreased by 27.2% from ` 2,010.1 million in the nine months ended December 31, 2011 compared to ` 1,463.5 million in the nine months ended December 31, 2012, resulting from a reduction in the number of employees from 3,850 as at December 31, 2011 to 2,658 employees as at December 31, 2012 as well as a reduction in the pay structure. The decrease in operating expenses also resulted from revised contracts for various other operating expenditure items at reduced costs including ATMs and rent paid for our branches and termination of certain contracts entered into by the Bank for outsourcing certain activities. Provisions and Contingencies The components of our provisions and contingencies are indicated below:
Nine Months ended December 31,
2011 2012
(` in millions)
% change
Provision for NPAs (Advances) 2.0 505.5 25,175.0% Provision for Standard Assets 38.6 (69.1) (279.0%) Provision for Restructured Advances 3.7 (13.9) (475.7%) Bad Debts Written Off 12.0 8.9 25.8% Provision for Depreciation on Investments (Net) (5.5) (13.2) (140%) Provision for NPA (Investments) (4.1) - (100%) Provision for Income Tax / Wealth Tax / FBT 32.6 - 100% Total 79.3 418.2 427.4%
Provisions and contingencies increased by 427.4% from ` 79.3 million in the nine months ended December 31, 2011 compared to ` 418.2 million in nine months ended December 31, 2012. This increase was primarily due to increase in provision for non-performing assets as repayment from certain of our retail advances were delayed due to a change over in the reporting system as well as a result of a few large size accounts turning into NPAs. Our ratio of net NPAs to net advances increased from 0.4% in the nine months ended December 31, 2011 to 2.9% in nine months ended December 31, 2012 primarily due to the slippage of borrowal accounts on account of the slowdown faced by our borrowers engaged in the sectors relating to real estate, infrastructure and engineering industries which in turn had an adverse impact on their ability to repay the loans on a timely basis or at all. Net Loss As a result of the foregoing factors, we had a net loss of ` 260.4 million in the nine months ended December 31, 2012, compared to a net loss of ` 291.2 million in the nine months ended December 31, 2011. Year ended March 31, 2012 compared to the Year ended March 31, 2011 Summary of Performance
Year ended March 31, 2011 2012 % change
(` in millions) Net interest income 2,651.3 2,475.2 (6.6%) Other income 1,467.7 1,436.4 (2.1%) Operating (non interest) expenses 3,444.7 4,890.7 42.0% Provisions and contingencies 413.7 177.2 (57.2%) Net profit 260.6 (1,156.3) (543.7%)
Net Interest Income Our net interest income decreased by 6.6% from ` 2,651.3 million in fiscal 2011 to ` 2,475.2 million in fiscal 2012. The following table sets forth the components of our net interest income:
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Year ended March 31, 2011 2012 % change
(` in millions) Total interest income 9,064.2 13,936.5 53.8% Total interest expense 6,412.9 11,461.3 78.7% Net interest income 2,651.3 2,475.2 (6.6%)
Interest Income The following table sets forth a breakdown of our interest income in fiscal 2011 and 2012:
Year ended March 31, 2011 2012
(` in millions) % change
Interest/discount on advances/bills 6,991.0 10,753.9 53.8% Income on investments 2,017.3 3,135.8 55.4% Income on balances with RBI and other inter-bank funds 55.9 43.6 (22.0%) Others - 3.2 - Total interest income 9,064.2 13,936.5 53.8%
Our total interest income increased by 53.8% from ` 9,064.2 million in fiscal 2011 to ` 13,936.5 million in fiscal 2012. The increase in interest income was primarily due to an increase in interest/discount on advances/bills and an increase in income on investments. Our interest/discount on advances/bills increased by 53.8% from ` 6,991.0 million in fiscal 2011 to ` 10,753.9 million in fiscal 2012. This increase was primarily due to an increase in cash credits, overdrafts and loans repayable on demand, which increased by 34.7% from ` 11,203.7 million as at March 31, 2011 to ` 15,088.8 million as at March 31, 2012 as well as an increase in term loans, which increased by 3.3% from ` 67,921.0 million as at March 31, 2011 to ` 70,139.8 million as at March 31, 2012. Our income on investments increased by 55.4% from ` 2,017.3 million in fiscal 2011 to ` 3,135.8 million in fiscal 2012. This increase was primarily due to an increase in investments, which increased by 19.8% from ` 36,396.8 million as at March 31, 2011 to ` 43,601.6 million as at March 31, 2012. The increase in investments was primarily due to an increase in the purchase of Government securities (including approved securities), which increased by 25.9% from ` 33,081.1 million as at March 31, 2011 to ` 41,636.7 million as at March 31, 2012. Our income on balances with RBI and other inter-bank funds decreased by 22.0% from ` 55.9 million in fiscal 2011 to ` 43.6 million in fiscal 2012. This decrease was primarily due to a reduction in interbank deposit placement, which decreased by 95.5% from ` 822.5 million as at March 31, 2011 to ` 37.1 million as at March 31, 2012 on account of the investment of the inter-bank funds into certain high-yielding Government securities and providing advances to our customers. We also recorded income of ` 3.2 million as other income in fiscal 2012. Interest Expense
Year ended March 31, 2011 2012 % change
(` in millions) Interest on deposits 5,842.4 10,155.9 73.8% Interest on RBI and inter-bank borrowings 327.4 851.2 160.0% Others 243.1 454.2 86.8% Total interest expended 6,412.9 11,461.3 78.7%
Our total interest expense increased by 78.7% from ` 6,412.9 million in fiscal 2011 to ` 11,461.3 million in fiscal 2012. This increase was primarily due to an increase in our borrowings including collateralized borrowing and lending obligation ("CBLO") borrowings, refinancing from financial institutions and subordinated debt to fund the growth of our business.
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Interest on deposits increased by 73.8% from ` 5,842.4 million in fiscal 2011 to ` 10,155.9 million in fiscal 2012. This increase was primarily due to increase in deposit volumes and the general increase in the interest rates as indicated in the table below.
Rate (% p.a.) for
Term Deposits
less than ` 1.5 million
Rate (% p.a.) for Term Deposits of ` 1.5 million &
above and upto & inclusive of ` 10
million
Rate (% p.a.) for
Term Deposits
less than ` 1.5 million
Rate (% p.a.) for
Term Deposits of ` 1.5 million & above and
upto & inclusive of `
10 million
Rate (% p.a.) for
Term Deposits
less than ` 1.5 million
Rate (% p.a.) for
Term Deposits of ` 1.5 million & above and
upto & inclusive of `
10 million
Period
From February 24, 2011 to April 10, 2011
From April 11, 2011 to June 5, 2011
June 6, 2011 onwards
7 days to 14 days
3.50 3.50 3.50 3.50 3.50 3.50
15 days to 45 days
5.00 5.00 5.00 5.00 5.00 5.00
46 days to 90 days
9.00 9.00 6.25 6.25 6.25 6.25
91 days - 179 days
8.75 8.75 6.50 6.50 7.00 7.00
180 days to 365 days
9.25 9.25 8.50 8.50 8.50 8.50
366 days to 499 days
8.60 8.60 8.60 8.60 9.00 9.00
500 days 9.00 9.35 9.50 9.60 9.50 9.60 501 days & above upto & inclusive of 2 years
8.60 8.60 8.60 8.60 9.00 9.00
Above 2 years upto & inclusive of 3 years
8.75 8.75 8.75 8.75 8.75 8.75
Above 3 years upto & inclusive of 5 years
8.75 8.75 8.75 8.75 8.75 8.75
Above 5 years upto & inclusive of 10 years - individual category for less than `1.5 million
8.25 Quoted by treasury 8.25 Quoted by treasury
8.25 Quoted by treasury
Interest on balances with the RBI and other inter-bank funds increased by 160.0% from ` 327.4 million in fiscal 2011 to ` 851.2 million in fiscal 2012 primarily due to additional foreign currency borrowings amounting to ` 2,539.2 million during fiscal 2012 well as an increase in call borrowings. Our other interest expense increased by 86.8% from ` 243.1 million in fiscal 2011 to ` 454.2 million in fiscal 2012. This increase was primarily due to the issue of tier II subordinated debt of ` 100 million during the year as well as an increase in refinancing availed from RBI and financial institutions such as NABARD and NHB. Other Income
Year ended March 31, 2011 2012 % change
(` in millions) Commissions, exchange and brokerage 87.2 85.0 (2.5%) Profit on sales of investments 96.8 88.7 (8.4%) Profit on sale of land, buildings and other assets 5.2 10.5 101.9%
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Year ended March 31, 2011 2012 % change
(` in millions) Profit on exchange transactions 56.6 118.8 109.9% Income from insurance 66.1 82.9 25.4% Miscellaneous income 1,155.8 1,050.5 (9.1%) Total other income 1,467.7 1,436.4 (2.1%) Our other income decreased by 2.1% from ` 1,467.7 million in fiscal 2011 to ` 1,436.4 million in fiscal 2012. Commissions, exchange and brokerage Income from commissions, exchange and brokerage fees decreased by 2.5% from ` 87.2 million in fiscal 2011 to ` 85.0 million in fiscal 2012 consistent with the decrease in business volume. Profit on sales of investments Profit on sales of investments, primarily relating to sale of Government securities, decreased by 8.4% from ` 96.8 million in fiscal 2011 compared to ` 88.7 million in fiscal 2012, primarily due to the unfavourable debt markets. The debt market yields were increasing during this period on account of the increase in the repo rates by the RBI. The repo rates were increased from 6.8% during March 2011 to 8.5% during March 2012 which consequently had an adverse impact on the performance of the debt market segment thereby affecting our profits. Profit on sale of land, buildings and other assets Profit on the sale of land, buildings and other assets increased by 101.9% from ` 5.2 million in fiscal 2011 compared to ` 10.5 million in fiscal 2012, primarily due to an increase in the sales of land, buildings and other assets during this period. Profit on exchange transactions Profit on exchange transactions (net) increased by 109.9% from ` 56.6 million in fiscal 2011 to ` 118.8 million in fiscal 2012 primarily due to increased volume and the favourable exchange rate scenarios. Income from insurance Income from insurance increased by 25.4% from ` 66.1 million in fiscal 2011 to ` 82.9 million in fiscal 2012 primarily due to increased deployment of resources in the insurance business. Miscellaneous income Miscellaneous income was ` 1,050.5 million in fiscal 2012 compared to ` 1,155.8 million in fiscal 2011. Miscellaneous income primarily includes commitment fees received from distributing life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as well as processing fees and service charges on deposit accounts. Operating Expenses Our operating expenses increased by 42.0% from ` 3,444.7 million in fiscal 2011 to ` 4,890.7 million in fiscal 2012. This increase was partly due to an increase in payments to and provisions for employees by 36.0% from ` 2,014.6 million in fiscal 2011 to ` 2,739.6 million in fiscal 2012, which resulted from an increase in the number of employees from 3,665 in fiscal 2011 to 3,468 employees in fiscal 2012. In addition, our operating expenses also increased due an increase in the depreciation on our property by 89.0% from ` 155.9 million in fiscal 2011 to ` 294.7 million in fiscal 2012. This increase in the depreciation on our property was on account of the capitalization of certain assets during the end of fiscal 2012. The outsourcing policy followed by the Bank also contributed to the increased cost. Provisions and Contingencies The components of our provisions and contingencies are indicated below:
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Year ended March 31, 2011 2012 % change
(` in millions) Provision for NPAs (Advances) 44.1 69.3 57.1% Provision for Standard Assets 146.1 4.2 (97.1%) Provision for Restructured Advances 3.4 3.7 8.8% Bad Debts Written Off 19.2 16.9 (12.0%) Provision for Depreciation on Investments (Net) 64.3 75.6 17.6% Provision for NPA (Investments) - (4.1) - Provision for Income Tax / Wealth Tax / FBT 166.2 0.5 (99.7%) Deferred Tax Assets (29.6) 11.1 (137.5%) Total 413.7 177.2 (57.2%) Provisions and contingencies decreased by 57.2% from ` 413.7 million in fiscal 2011 to ` 177.2 million in fiscal 2012. This decrease was primarily due to (i) a decrease in provisions for taxes on account of loss accounted and (ii) a decrease in provisions for standard assets on account of decrease in advances Our ratio of net NPAs to net advances increased from 0.3% in fiscal 2011 to 0.7% in fiscal 2012 as the net advances portfolio drastically shrunk from ` 90,651.5 million in March 2011 to ` 87,580.5 million in March 2012. Net Profit As a result of the foregoing factors, in fiscal 2012 we had a net loss of ` 1,156.3 million compared to a net profit of ` 260.7 million in fiscal 2011. Year Ended March 31, 2011 Compared to the Year Ended March 31, 2010 Summary of Performance
Year ended March 31, 2010 2011 % change
(` in millions) Net interest income 1,405.5 2,651.3 88.6% Other income 909.9 1,467.7 61.3% Operating (non interest) expenses 1,928.6 3,444.7 78.6% Provisions and contingencies 153.8 413.7 169.0% Net profit 233.0 260.6 11.8%
Net Interest Income Our net interest income increased by 88.6% from ` 1,405.5 million in fiscal 2010 to ` 2,651.3 million in fiscal 2011. The following table sets forth the components of our net interest income:
Year ended March 31, 2010 2011 % change
(` in millions) Total interest income 5,345.7 9,064.2 69.6% Total interest expense 3,940.2 6,412.9 62.8% Net interest income 1,405.5 2,651.3 88.6% Interest earned
Year ended March 31, 2010 2011 % change
(` in millions) Interest/discount on advances/bills 4,193.9 6,991.0 66.7% Income on investments 1,078.5 2,017.3 87.0% Income on balances with RBI and other inter-bank funds 53.1 55.9 5.3% Others 20.2 - - Total 5,345.7 9,064.2 69.6%
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The increase in interest income was primarily due to an increase in interest/discount on advances/bills and an increase in income on investments. Interest/discount on advances/bills increased by 66.7% from ` 4,193.9 million in fiscal 2010 to ` 6,991.0 million in fiscal 2011. This increase was primarily due to a significant increase in bills purchased and discounted, which increased by 950.7% from ` 1,097.1 million as at March 31, 2010 to ` 11,526.8 million as at March 31, 2011 as well as an increase in term loans, which increased by 117.7% from ` 31,194.6 million as at March 31, 2010 to ` 67,921.0 million as at March 31, 2011. Until fiscal 2011, the Bank consistently recognised the discount on bills upfront, at the time of disbursement, where the tenure of the bills did not exceed one year. As per the directives of the RBI, the former accounting policy on bill discounting was changed and from January 1, 2012 the discount on bills was to be recognised over the tenure of the instrument. In the event, the Bank had continued to follow the former accounting policy, income for fiscal 2012 would have increased by ` 20.5 million while the loss for this period would have decreased to ` 1,135.8 million. Our income on investments increased by 87.0% from ` 1,078.5 million in fiscal 2010 to ` 2,017.3 million in fiscal 2011 primarily due to an increase in investments by 79.5%, from ` 20,277.9 million as at March 31, 2010 to ` 36,396.8 million as at March 31, 2011. Our income on balances with RBI and other inter-bank funds increased by 5.3% from ` 53.1 million in fiscal 2010 to ` 55.9 million in fiscal 2011 primarily due to an increase in inter-bank deposit placements which increased by 7.0% from ` 768.5 million in fiscal 2010 to ` 822.5 million in fiscal 2011. Our other income was ` 20.2 million in fiscal 2010 as compared to nil in fiscal 2011. Interest expense
Year ended March 31, 2010 2011 % change
(` in millions) Interest on deposits 3,702.3 5,842.4 57.8% Interest on RBI and inter-bank borrowings 108.2 327.4 (202.6)% Others 129.7 243.1 (87.4)% Total interest expenses 3,940.2 6,412.9 62.8% Our total interest expenses increased by 62.8% from ` 3,940.2 million in fiscal 2010 to ` 6,412.9 million in fiscal 2011 primarily due to an increase in interest on deposits. Interest on deposits increased by 57.8% from ` 3,702.3 million in fiscal 2010 to ` 5,842.4 million in fiscal 2011, primarily due to an increase of 76.5% in deposits from ` 70,984.8 million as at March 31, 2010 to ` 125,296.3 million as at March 31, 2011. Interest on balances with the RBI and other inter-bank funds increased by 202.6% from ` 108.2 million in fiscal 2010 to ` 327.4 million in fiscal 2011 primarily due to an increase in borrowings from RBI in fiscal 2011. Our other interest expense increased by 87.4% from ` 129.7 million in fiscal 2010 to ` 243.1 million in fiscal 2011. This increase was primarily due to increase in the subordinated debt. Other Income
Year ended March 31, 2010 2011 % change
(` in millions) Commissions, exchange and brokerage 70.3 87.2 24.0% Profit on sales of investments 177.9 96.8 (45.6%) Profit on sale of land, buildings and other assets 7.1 5.2 (26.8%) Profit on exchange transactions 23.3 56.6 142.9% Income from insurance 57.0 66.1 16.0% Miscellaneous income 574.2 1,155.8 101.3% Total other income 909.8 1467.7 61.3%
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Our other income increased by 61.3% from ` 909.8 million in fiscal 2010 to ` 1,467.7 million in fiscal 2011, mainly on account of increase in processing fees and other miscellaneous income as well as the commitment fees received distributing life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, Commissions, exchange and brokerage Income from commissions, exchange and brokerage fees increased by 24.0% from ` 70.3 million in fiscal 2010 to ` 87.2 million in fiscal 2011 consistent with the increase in volume of business in fiscal 2011. Profit on sales of investments Profit on sales of investments decreased by 45.6% from ` 177.9 million in fiscal 2010 compared to ` 96.8 million in fiscal 2011 , primarily due to the unfavourable debt markets. The debt market yields were increasing during this period on account of the increase in the repo rates by the RBI. The repo rates were increased from 5.3% during March 2010 to 6.8% during March 2011 which consequently had an adverse impact on the performance of the debt market segment thereby affecting our profits. Profit on sale of land, buildings and other assets Profit on the sale of land, buildings and other assets decreased by 26.8% from ` 7.1 million in fiscal 2010 compared to ` 5.2 million in fiscal 2011 primarily due to an increase in the sales of land, buildings and other assets during this period. Profit on exchange transactions Profit on exchange transactions increased by 142.9% from ` 23.3 million in fiscal 2010 to ` 56.6 million in fiscal 2011 primarily due to increased volume and favourable exchange rate conditions. Income from Insurance Income from insurance increased by 16.0% from ` 57.0 million in fiscal 2010 to ` 66.1 million in fiscal 2011 resulting from a growth in the insurance business. Miscellaneous income Miscellaneous income increased by 101.3% from ` 574.2 million in fiscal 2010 to ` 1,155.8 million in fiscal 2011. Miscellaneous income primarily includes commitment fees received from distributing life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as well as processing fees and service charges on deposit accounts. Operating Expenses Our operating expenses increased by 78.6% from ` 1,928.6 million in fiscal 2010 to ` 3,444.7 million in fiscal 2011. This increase was primarily due to an increase by 84.7% in payments to and provisions for employees from ` 1,090.8 million in fiscal 2010 to ` 2,014.6 million in fiscal 2011, which was primarily due to an increase in total employees from 3,275 in fiscal 2010 to 3,665 employees in fiscal 2011 due to our growth in operations and increased outsourcing of business activities as well rent and infrastructure related expenditure. Our operating expenses also increased due to 112.6% increase in rent, taxes and lighting expenses from ` 216.0 million in fiscal 2010 to ` 459.2 million in fiscal 2011 as a result of our growth strategy including an increase in the total number of customer outlets from 550 in fiscal 2010 to 734 in fiscal 2011 and an increase in business volumes. Provisions and Contingencies The components of our provisions and contingencies are as indicated below:
Year ended March 31, 2010 2011 % change
(` in millions) Provision for NPAs (including write off) 22.2 44.1 98.6% Provision for Standard Assets 74.2 146.1 96.9%
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Year ended March 31, 2010 2011 % change
(` in millions) Provision for Restructured Advances 4.1 3.4 (17.1%) Bad Debts Written Off 7.9 19.2 143.0% Provisions for Depreciation on Investments (Net) 6.7 64.3 859.7% Provision for Non Performing Investments (5.8) - N/A Provision for Income Tax / Wealth Tax / FBT 51.2 166.2 224.6% Deferred Tax Assets (6.7) (29.6) 341.8% Total 153.8 413.7 169.0% Our total provisions and contingencies increased by 169.0% from ` 153.8 million in fiscal 2010 to ` 413.7 million in fiscal 2011. This increase was primarily due to (i) an increase in our provision in taxation due to an increase in profits and (ii) an increase in provision for standards assets on account of increase in advances (iii) an increase in depreciation on investments. These increases were partially offset by an increase in deferred tax assets primarily due to tax benefits on account of employee benefits in terms of AS-15 (Revised) and provision for standard assets. Our ratio of net NPAs to net advances was 0.8% in fiscal 2010 and 0.3% in fiscal 2011. Net Profit As a result of the foregoing factors, our net profit increased by 11.9%, from ` 233.0 million in fiscal 2010 to ` 260.7 million in fiscal 2011. Liquidity and Capital Resources Cash Flows
Year ended March 31,
Nine months ended
December 31,
Nine months ended
December 31, 2010 2011 2012 2011 2012
(` in millions) Net cash (used in)/from operating activities
(1.8) (1,286.9) 294.4 5,333.9 1,363.6
Net cash flows from investing activities
(430.6) (701.8) (430.3) (289.2) (124.6)
Cash flow from (used in) financing activities
1,075.0 3,837.0 44.9 (4.9) 1,067.0
Total cash flow during the year 642.6 1,848.3 (91.0) 5,039.8 2,306.0 We need cash primarily to finance new borrowers and meet working capital requirements. We fund these requirements through a variety of sources, including deposits, cash from interest income, short-term borrowings and long-term borrowings such as debentures, refinancing from financial institutions and banks and securitization transactions. Greater deployment of funds to provide loans generally results in decreasing our cash flow. Operating Activities Our net cash flow from operating activities reflects interest received during the period from advances and investments and other income and non-cash charges such as depreciation and provisions (mainly for non- performing and standard assets) made during the period, as well as adjustments for cash charges. In addition, our net cash from operating activities reflects changes in operating assets and liabilities, including investments, advances, deposits and borrowings, as well as other assets and liabilities. In the nine months ended December 31, 2012, our net cash generated from operating activities was ` 1,363.6 million, primarily due to cash inflow through the net reduction of advances including the purchase of bi-lateral assignment of retail loan portfolio by ` 13,327.0 million as well as the sale of various securities which generated
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net cash flows of ` 2,474.6 million. This inflow was partially offset due to the net repayment of deposits and borrowings, amounting to ` 15,328.5 million. In the nine months ended December 31, 2011, our net cash generated from operating activities was ` 5,333.9 million, which was primarily due to cash inflow in the form of increased borrowings (net) to the tune of ` 5,826.0 million as well as fresh deposits (net) of ` 8,760.6 million taken up by the Bank to fund its growth. This inflow was partially offset by the purchase of investments and disbursement in advances. In fiscal 2012, our net cash generated from operating activities was ` 294.4 million, which was primarily due an increase in borrowings of due to additional borrowings in the form of foreign currency borrowings and refinance from financial institutions. This increase was partially offset by the purchase of additional securities and the repayment of deposits. In fiscal 2011, our net cash used in operating activities was ` 1,286.9 million, primarily resulting from acceptance of deposits to facilitate the growth of the business as well as additional borrowings, which was partly used in the purchase of securities. In fiscal 2010, our net cash used in operating activities was ` 1.8 million, primarily due to increase in business activities of the Bank in form of purchase of securities and repayment of advances. Investing Activities Our net cash used in investing activities reflects the purchase or sale of fixed assets. In the nine months ended December 31, 2012, our net cash invested investing activities was ` 124.6 million, which was primarily due to ` 170.0 million used for payment of fixed assets, mainly IT related software, for some of which contractual obligations had been entered into during 2012. In the nine months ended December 31, 2011, our net cash invested in investing activities was ` 289.2 million, which was primarily due to ` 315.4 million used for the purchase of fixed assets. In fiscal 2012, our net cash invested in investing activities was ` 430.3 million, which was primarily due to ` 457.6 million used for the purchase of fixed assets which resulted in a net cash outflow at the end of the year. In fiscal 2011, our net cash used in investing activities was ` 701.8 million, which was primarily due to ` 718.9 million used for the purchase of fixed assets. In fiscal 2010, our net cash used in investing activities was ` 430.6 million, which was primarily due to ` 543.9 million used for the purchase of fixed assets. Financing Activities Our net cash from financing activities reflects proceeds of the issuance of equity shares, proceeds from issue of subordinated debt and dividends proposed and written back. In the nine months ended December 31, 2012, our net cash generated from financing activities was ` 1,067.0 million which primarily constitutes the net proceeds from the issue of subordinated debt. In the nine months ended December 31, 2011, our net cash used in financing activities was ` 4.9 million, primarily relating to expenses incurred in connection with the issue of equity shares. In fiscal 2012, our net cash generated from financing activities was `44.9 million, which was primarily due to a net inflow of ` 100 million from an issue of upper and lower Tier II capital instruments net of repayment, partially offset by ` 50.1 million for the payment for dividends (net) declared in fiscal 2011 but paid out in fiscal 2012. In fiscal 2011, our net cash generated from financing activities was ` 3,837.0 million, which was primarily due to a net inflow of ` 3,589.3 million from share premium net of partial adjustment towards share issue expenses and ` 210.2 million from net proceeds from the issue of equity shares.
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In fiscal 2010, our net cash generated from financing activities was ` 1,075.0 million, which was primarily due to an inflow of ` 1,150.0 million from an issue of upper and lower Tier II capital instruments (net of repayment), partially offset by ` 75.0 million for the payment for dividends (net) declared in fiscal 2009 but paid out in fiscal 2010. Liquidity We regularly monitor our funding levels to ensure we are able to satisfy the requirements of our loan disbursements and those that would arise upon maturity of our liabilities. We maintain diverse sources of funding and liquid assets to facilitate flexibility in meeting our liquidity requirements. Liquidity is provided principally by deposits and borrowings from banks, financial institutions and retained earnings. Surplus funds, if any, are invested in accordance with our investment policy. In addition, we monitor and manage our asset-liability gap with respect to our maturing assets and liabilities. As at December 31, 2012, our assets maturing within 28 days exceeded our liabilities maturing within the same period by ` 19,854.4 million. Our liabilities maturing in between 29 days and one year exceeded our assets maturing during the same period by ` 15,678.5 million and our liabilities maturing in over one year to three years exceeded our assets maturing in the same period by ` 23,538.57 million. Our assets maturing between three and five years exceeded our liabilities maturing during the same period by ` 4,179.8 million. Our assets maturing over five years also exceeded our liabilities maturing within the same period by ` 15,182.9 million. For further information, please see "Selected Statistical Information" on page 116. Credit Ratings Our debt is currently rated investment-grade by ICRA Limited and Credit Analysis and Research Limited ("CARE"). On June 25, 2012, CARE has rated our Lower Tier II Bonds aggregating to ` 4,100 million as 'CARE BBB' and Upper Tier II Bonds aggregating to ` 2,000 million as 'CARE BBB-' while the certificate of deposits amounting to ` 15,000 million have been rated as 'CARE A2'. In August 2012, ICRA has placed the rating of 'ICRA BBB' with negative outlook for ` 270 million Lower Tier II Bonds on ‘rating watch with negative implications’. Additionally, India Ratings & Research from the Fitch Group maintained our 'IND BBB-' long term issuer rating and the 'IND BBB-' rating on its ` 170 million subordinated debt on Rating Watch Negative and Brickwork Ratings has rated our long term bond issue for the unutilized amount of ` 1,313 million as 'BWR BBB+', which is valid up to May 2, 2013. Discussion on Assets and Liabilities Assets The following table sets forth the principal components of our assets as at March 31, 2010, 2011 and 2012 and December 31, 2012:
As at March 31, As at December 31, 2010 2011 2012 2012
(` in millions) Cash and balances with the RBI 6,129.0 8,028.0 8,679.5 8,140.3 Balances with banks and money at call and short notice
1,374.3 1,323.6 581.2 3,426.2
Investments 20,277.9 36,396.8 43,601.6 41,140.2 Net Advances 50,062.6 90,651.5 87,580.5 73,747.6 Fixed assets 794.7 1,343.6 1,486.9 1,380.1 Other assets 2,230.4 4,938.0 4,835.2 4,124.5 Total assets 80,868.9 142,681.5 146,764.9 131,958.9 Our total assets increased by 76.4% from ` 80,868.9 million as at March 31, 2010 to ` 142,681.5 million as at March 31, 2011 primarily due to the increase in advances as a result of an increase in our business activities and expansion of our operations during the year. Our total assets remained relatively constant between fiscal 2011 and fiscal 2012, with ` 142,681.5 million as at March 31, 2011 and ` 146,764.9 million as at March 31, 2012. Our total assets decreased by 10.1% from ` 146,764.9 million as at March 31, 2012 to ` 131,958.9 million as at December 31, 2012, primarily due to decrease in advances and investments.
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Our investments primarily include investments in Government securities as required by the RBI and surplus funds held in short-term liquid investments. Our net investments increased by 79.5% from ` 20,277.9 million as at March 31, 2010 to ` 36,396.8 million as at March 31, 2011 and further increased by 19.8% to ` 43,601.6 million as at March 31, 2012 primarily due to an increase in Government Securities. Our investments /decreased by 5.6% from ` 43,601.6 million as at March 31, 2012 to ` 41,140.2 million as at December 31, 2012, primarily due to the liquidation of our Government securities. Our advances primarily include (i) bills purchased and discounted, (ii) cash credits, overdrafts and loans repayable on demand and (iii) term loans. Our net advances increased by 81.1% from ` 50,062.6 million as at March 31, 2010 to ` 90,651.5 million as at March 31, 2011 primarily due to an increase in bills purchased and discounted and term loans. Our net advances decreased by 3.4% from ` 90,651.5 million as at March 31, 2011 to ` 87,580.5 million as at March 31, 2012 primarily due to a decrease in bills purchased and discounted, partially offset by an increase in cash credits, overdrafts and loans repayable on demand and term loans. Our net advances decreased by 15.8% from ` 87,580.5 million as at March 31, 2012 to ` 73,747.6 million as at December 31, 2012 primarily due to a decrease in bills discounted from ` 2,351.9 million as of March 31, 2012 to ` 1467.2 million as of December 31, 2012 as well as the reduction in term loans from ` 70,139.8 million as of March 31, 2012 to ` 56,458.1 million as of December 31, 2012. Other assets, which include interest accrued, tax paid in advance/tax deducted at source (net of provisions), inter office adjustments, deferred tax assets, stationery and stamps and others, increased by 121.4% from ` 2,230.4 million as at March 31, 2010 to ` 4,938.0 million as at March 31, 2011 primarily due to the increase in interest accrued on investments, a direct result of the increase in our investment portfolio. There was also an increase in the stock of stamp and stationary held by the Bank as well as the deferred tax asset due to increase in the tax benefits arising due to the revision of pension option to employees for which amount has been provided in terms of AS-15(Revised). Other assets decreased by 2.1% from ` 4,938.0 million as at March 31, 2011 to ` 4,835.2 million as at March 31, 2012. Other assets decreased by 14.7% from ` 4,835.2 million as at March 31, 2012 to ` 4,124.5 million as at December 31, 2012 primarily due to decrease in business volumes. Liabilities and Shareholders' Funds The following table sets forth a breakdown of our liabilities and shareholders' funds as at March 31, 2010, 2011 and 2012 and December 31, 2012:
As at March 31, As at December 31, 2010 2011 2012 2012
(` in millions) Shareholders' Funds Capital (issued, subscribed and paid-up) 641.2 851.4 851.4 851.4 Reserves and Surplus 3,759.6 7,595.0 6,431.1 6,170.7 Liabilities Deposits 70,984.8 125,296.3 118,044.1 112,266.5 Borrowings 3,175.5 6,261.1 17,215.1 8,731.1 Other Liabilities and Provisions 2,307.8 2,677.7 4,223.2 3,939.2 Total Liabilities and Shareholders' funds 80,868.9 142,681.5 146,764.9 131,958.9 Our total liabilities and shareholders' funds increased by 76.4% from ` 80,868.9 million as at March 31, 2010 to ` 142,681.5 million as at March 31, 2011, primarily due to an increase in deposits as a result of our growth initiatives and expansion of operations during the year. Our total liabilities and shareholders' funds increased by 2.9% from ` 142,681.5 million as at March 31, 2011 to ` 146,764.9 million as at March 31, 2012, primarily due to an increase in borrowings. Our borrowings and cash and bank balances may significantly fluctuate from time to time depending on the need to strategically reduce high cost deposits and/or increase in investments, particularly increase in the investments in Government securities. Our total liabilities and shareholders' funds decreased by 10.1% from ` 146,764.9 million as at March 31, 2012 to ` 131,958.9 million as at December 31, 2012, primarily due to our strategic focus on reduction of high cost deposits, repayment of borrowings from RBI, and reduction in the net worth due to higher NPA provisioning for the period ended December 31, 2012. Components of Liabilities and Shareholder's Funds
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Our capital increased from ` 641.2 million as at March 31, 2010 to ` 851.4 million as at March 31, 2011, primarily due to the issue of equity shares. Our capital remained constant at ` 851.4 million as at March 31, 2011, March 31, 2012 and the nine months ended December 31, 2012. Our reserves and surplus increased by 102.0% from ` 3,759.6 million as at March 31, 2010 to ` 7,595.0 million as at March 31, 2011 primarily due to the addition of share premium during 2011. Our reserves and surplus decreased by 15.3% from ` 7,595.0 million as at March 31, 2011 to ` 6,431.1 million as at March 31, 2012 primarily due to the loss of ` 1156.3 million sustained by the Bank during 2012. Our reserves and surplus decreased by 4.0% from ` 6431.1 million as at March 31, 2012 to ` 6170.7 million as at December 31, 2012 primarily due to the net loss of ` 260.4 million incurred by the Bank during the nine month period ended December 31, 2012. Our deposits increased by 76.5% from ` 70,984.8 million as at March 31, 2010 to ` 125,296.3 million as at March 31, 2011 primarily due to our growth initiatives and expansion of operations. Specifically, the growth in deposits as at March 31, 2011 was due to an increase by 171.7% in demand deposits from banks and others, an increase by 35.4% in savings bank deposits and an increase by 74.2% in term deposits from banks and others. Our deposits decreased by 5.8% from ` 125,296.3 million as at March 31, 2011 to ` 118,044.1 million as at March 31, 2012 primarily due to a decrease in demand deposits from banks and others. Our deposits decreased by 4.9% from ` 118,044.1 million as at March 31, 2012 to ` 112,266.5 million as at December 31, 2012 primarily due to the reduction in term deposits by 7.0% from ` 95,204.0 million as at March 31, 2012 to ` 88,536.7 million as at December 31, 2012 as a part of the strategic decision to not renew bulk deposits at higher rates. Our borrowings increased by 97.2% from ` 3,175.5 million as at March 31, 2010 to ` 6,261.1 million as at March 31, 2011 primarily due to a significant increase in borrowings from RBI to finance the growth of the business. Our borrowings increased by 175.0% from ` 6,261.1 million as at March 31, 2011 to ` 17,215.1 million as at March 31, 2012 primarily due to an increase in borrowings from (i) RBI, (ii) refinance from other non-bank institutions and agencies in India and (iii) borrowings outside India. Our borrowings decreased by 49.3% from ` 17,215.1 million as at March 31, 2012 to ` 8,731.1 million as at December 31, 2012 primarily due to repayment of RBI borrowings namely ` 599.7 million CBLO borrowings and ` 7,250 million of repo borrowings. Other liabilities and provisions increased by 16.0% from ` 2,307.8 million as at March 31, 2010 to ` 2,677.7 million as at March 31, 2011 and further increased by 57.7% to ` 4,223.2 million as at March 31, 2012 primarily due to an increase in interest accrued resulting from an increase in borrowings as well as the provision for expenses as a result of growth in operations. Other liabilities and provisions decreased by 6.7% from ` 4,223.2 million as at March 31, 2012 to ` 3,939.2 million as at December 31, 2012 primarily due to a dip in the provision for expenses due to a decrease in operating expenditure. The table below sets forth further details regarding our borrowings as at March 31, 2010, 2011 and 2012 and December 31, 2012:
As at March 31, As at December 31,
2010 2011 2012 2012
(` in millions) Borrowings in India RBI 20.0 3,790.0 7,979.8 234.8 Other Banks - - - - Other Institutions and Agencies 3,155.5 426.1 4,551.1 3,671.7 Debt issuances Upper Tier II Bonds - 275.0 275.0 275.0 Lower Tier II Bonds - 1,770.0 1,870.0 2,937.0 Borrowings Outside India - - 2,539.2 1,612.5 Total 3,175.5 6261.1 17,215.1 8731.0 Loan Portfolio As of March 31, 2012 and March 31, 2011, our gross loan portfolio was ` 88,040.8 million and ` 91,042.5 million, respectively. As of December 31, 2012 and December 31, 2011, our gross loan portfolio was ` 74,713.4
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million and ` 95,925.7 million, respectively. As of each date, almost all our gross loans were to borrowers in India and were denominated in Indian Rupees. The following table sets forth our loan concentration classified by our business segments as of the dates indicated:
As of March 31, 2010 2011 2012
As of December 31, 2011
As of December 31, 2012
Business segments
(in ` millions) Wholesale Banking 30,150.0 34,020.1 19,894.4 27,335.8 17,599.3 SME Banking 8,575.0 12,832.9 13,112.2 13,645.1 11,513.3 Retail Banking* 5,573.5 35,954.4 45,641.4 46,085.3 32,796.1 Micro Finance and Agricultural Lending
6,111.1 8,235.1 9,392.8 8,859.5 12,804.7
Total Gross Loans 50,409.6 91,042.5 88,040.8 95,925.7 74,713.4 *Retail banking includes the buy-out amounts relating to the purchase of retail assets from certain third-party financiers.
From fiscal 2010 to fiscal 2012, we focused on our loan portfolio with customers in the wholesale banking segment. However, as part of our strategic plan commencing in fiscal 2013, we are in the process of focusing more on our customers in the retail banking, SME banking and micro finance and agricultural lending sectors. The following table sets forth, as of December 31, 2012, the interest rate sensitivity and maturity of our gross loans:
1 year or less
1-5 years After 5 years
Total Interest Rate Classification of Loans by Maturity
(in ` millions) Variable rates 24,007.3 8,105.4 6,990.7 39,103.4 Fixed rates 19,957.5 14,150.2 1,502.3 35,610.0 Total Gross Loans 43,964.8 22,255.6 8,493.0 74,713.4
For further information regarding our loan portfolio, see "Our Business" and "Selected Statistical Information" on page 97 and 116, respectively. Off-Balance Sheet Items Contingent liabilities The following table sets forth the principal components of our contingent liabilities as at March 31, 2010, 2011 and 2012 and December 31, 2012:
As at March 31, As at December 31, 2010 2011 2012 2012
(` in millions) Contingent Liabilities Claims against the Bank not acknowledged as debts
26.8 24.6 39.4 39.4
Liability on account of outstanding forward exchange contracts
3,151.0 27,832.8 20,149.8 8,177.6
Guarantees given on behalf of constituents in India
1,282.6 3,356.9 5,384.2 3,992.8
Acceptances, endorsements and other obligations 382.1 585.9 1,182.3 1,026.4 Liability on account of interest rate swaps - - 6,500.0 1,500.0 Other items for which the Bank is contingently liable (Disputed Income Tax Liability)
732.8 708.3 359.9 359.9
Total 5,575.3 32,508.5 33,615.6 15,096.1 Our contingent liabilities increased significantly from ` 5,575.3 million as at March 31, 2010 to ` 32,508.5 million as at March 31, 2011 primarily due to an increase in our outstanding forward exchange contracts as well as guarantees given on behalf of constituents in India. This increase was due to rise in business volumes.
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Our contingent liabilities increased from ` 32,508.5 million as at March 31, 2011 to ` 33,615.6 million as at March 31, 2012 primarily due to interest rate swaps resulting from forward exchange contracts entered into by the Bank and an increase in guarantees given on behalf of constituents in India. This increase was partially offset by a 27.6% decrease in our outstanding forward exchange contracts, as the volatility in the market brought down our clientele base. Our contingent liabilities decreased by 55.1% from ` 33,615.6 million in March 2012 to ` 15,096.1 million in December 31, 2012. The decrease was primarily due to volatility in exchange rates, reduction in the clientele base and the general recession in the global market. Description of Key Components of Contingent Liabilities: Claims against the Bank not acknowledged as debts consists of legal claims made against the banks. Our foreign exchange contracts arise out of spot and forward foreign exchange transactions with corporate and non-corporate customers and inter-bank counter parties. We earn profit on inter-bank and customer transactions due to the spread between the purchase rate and the sale rate. We record income from foreign exchange transactions as income from exchange transaction, income from derivatives transactions in the hedging book as interest income and income from the proprietary book as trading income Guarantees given on behalf of constituents in India consist of guarantees issued by the Bank in foreign currency as well as local currency. Acceptances, endorsements and other obligations primarily consists of letters of credit issued by the Bank in foreign currency as well as local currency. We have done interest rate swaps of ` 6,500.0 million as at March 31, 2012 in relation to the forward exchange contracts undertaken as on March 31, 2012. Our disputed liability represents certain income tax claims principally relating to bad debts written off, disallowance of the proportionate expenditure incurred for earning tax free income, disallowance of deduction claimed in respect of rural debts and amortisation cost of Government securities. Capital Adequacy We are subject to the capital adequacy requirements of the RBI. We are required to maintain a minimum capital adequacy ratio of 9% (of which Tier 1 Capital is 6%) prescribed by RBI guidelines based on total capital to risk weighted assets. For a description of the RBI's capital adequacy guidelines, please see "Regulations and Policies" on page 127. Our capital adequacy ratios as at March 31, 2010, 2011 and March 31, 2011 and December 31, 2012 were as follows:
As at March 31, As at December 31, 2010 2011 2012 2012
(in ` millions)
Basel I Basel II Basel I Basel II Basel I Basel II Basel I Basel II Capital to Risk-weighted Assets Ratio ("CRAR") (%)
12.47 12.99 10.81 11.80 8.79 9.49 10.35 11.58
CRAR - Tier I capital (%)
8.45 8.80 8.62 9.41 6.88 7.42 7.39 8.27
CRAR - Tier II capital (%)
4.02 4.19 2.19 2.39 1.91 2.07 2.96 3.31
As at March 31, As at December 31, 2010 2011 2012 2012
(in ` millions) Tier I capital (` in millions)
4,141.6 8,076.0 6,472.2 6,211.9
Tier II capital (` in millions)
1,970.6 2,055.4 1,804.4 2,481.8]
Total Tier I and Tier II capital (` in millions)
6,112.2 10,131.4 8,276.6 8693.7
Amount of Subordinated debt raised as Tier II capital
1,662.0 1,583.0 1,329.0 2,076.0
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(` in millions) Risk Weighted Assets 47,050.9 85,860.1 87,236.8 75,093.1 Capital Expenditure Our capital expenditures consists principally of branch network expansion as well as investments in technology and communication infrastructure. Our capital expenditures for the years ended March 31, 2010, 2011 and 2012 and the nine months ended December 31, 2012 were ` 279.7 million, ` 320.1 million, ` 191.0 million and ` 56.20 million, respectively. Qualitative Disclosure about Risks and Risk Management Risk is associated with all of our businesses. Risks are broadly classified in three major categories, namely, credit risk, operational risk and market risk. We have developed our risk management systems to optimize an appropriate balance between risk and return and we have implemented comprehensive policies and procedures to identify, measure, monitor and control risk throughout the organisation. Our risk management strategy is based on understanding the various types of risk, policies and processes to assess risk and continuous monitoring of risk. For details about the types of risks and our risk management policies and structures, please see "Business - Risk Management Framework" on page 113. Recent Developments after December 31, 2012 Except as stated in this Placement Document, to our knowledge no circumstances have arisen since the date of the last financial statements as disclosed in this Placement Document which materially and adversely affect or are likely to affect, our operations or profitability, or the value of our assets or our ability to pay our material liabilities within the next 12 months.
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INDUSTRY OVERVIEW
The information in this section has been extracted from various industry related and regulatory websites and publicly available documents including officially prepared materials by the certain ministries of the Government of India ("GoI") including the Reserve Bank of India ("RBI"). Wherever we have relied on figures published by the RBI, unless stated otherwise, we have relied on the RBI Annual Report 2011-2012, Report on Trend and Progress of Banking in India 2011-2012 and the accompanying explanatory notes, RBI's annual publication on "Profile of banks", RBI’s Macroeconomic and Monetary Developments Second Quarter Review 2012-2013 and certain RBI bulletins. The data may have been re-classified by us for the purpose of presentation. Neither we nor any other person connected with the Issue has independently verified the information provided in this section. Further, industry sources and publications, referred to in this section, generally state that the information contained therein has been obtained from sources generally believed to be reliable but their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured, and, accordingly, investment decisions should not be based on such information. The Global Economy The global economy in the past few years has been volatile and in the process of recovering from the 2008-2009 financial crisis. In 2012, significant fiscal and monetary policies were seen in Europe which contributed to considerable improvements in the markets worldwide. In addition, monetary policies have also been eased in certain developing countries (Source: International Monetary Fund," World Economic Outlook, October 2012"). In 2011, the global GDP was approximately 3.9% which has decreased to an estimated 3.2% in 2012. However, the global GDP is expected to increase to an estimated 3.5% in 2013 and will continue to increase to an estimated 4.1% by 2014. In 2012, the global growth was 3.2% and is projected to grow at the rate of 3.5%, in 2013. (Source: International Monetary Fund, World economic Outlook, January 2013). The Indian Economy The Indian economy was one of the fastest growing economies since the global economic crisis in 2008, with a growth rate of 6.5% in fiscal 2012. India's GDP is projected to grow at a rate of 5.9% in 2013 and 6.4% in 2014.(Source: International Monetary Fund, World economic Outlook, January 2013). Global Banking Industry The global banking industry was affected by the volatile global economy, escalation of the sovereign debt crisis and financial market stress. The fundamentals of the banking sector in emerging economies were better as compared to major developed economics globally, reflecting higher economic growth and relative balance sheet strength on account of higher domestic funding and sound capital base. Although, the global growth rate has declined to 3.8% in 2011 from 5.1% in 2010, substantial progress has been made in the regulatory regime in order to facilitate speedy recovery of the economies. These include implementation of certain measures relating to the systemically important financial institutions ("SIFIs"), shadow banking and Basel III Capital Regulations. (Source: Report on Trend and Progress of Banking in India by the RBI, 2011-2012) These measures will enable the economies to cope with the market stress to a considerable extent. However, as per the RBI, the banking industry globally would continue to face challenges in the near future. Indian Banking Industry Until the 1980s, the Indian financial system was strictly controlled. Interest rates were administered by the GoI. Formal and informal parameters governed asset allocation, and strict controls limited entry into and expansion within the financial sector. Bank profitability was low, non-performing assets ("NPAs") were comparatively high, capital adequacy was diminished, and operational flexibility was hindered. The GoI's economic reform programme, which began in 1991, encompassed the financial sector. The first phase of the reform process began with the implementation of the recommendations of the committee on the financial system, primarily, the Narasimham Committee I. Following that, reports were submitted in 1998 by other committees, such as the second committee on banking sector reform, i.e., the Narasimham Committee II, and the Tarapore Committee on capital account convertibility. This in turn led to the second phase of reforms relating to capital adequacy requirements, asset classification and provisioning, risk management and merger
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policies. The deregulation of interest rates, the emergence of a liberalised domestic capital market, and the entry of new private sector banks have progressively intensified the competition among banks. Banks in India may be categorised as scheduled banks and non-scheduled banks, where the former are banks which are included in the second schedule to the Reserve Bank of India Act, 1934 (the "RBI Act"). These banks comprise scheduled commercial banks and scheduled co-operative banks. The scheduled commercial banks listed in the second schedule to the RBI Act, may further be classified as public sector banks, private sector banks, foreign banks and regional rural banks. The focus of commercial banks in India has largely been on meeting the financing needs of industry, trade and agriculture in India. As of March 31, 2012 there were a total of 169 scheduled commercial banks with a network of around 81,240 branches across India. In the fiscal year ended March 31, 2011, the aggregate deposits for all scheduled commercial banks was 17.9% which declined to 13.8% as of March 31, 2012 while the gross bank credit for all scheduled commercial banks was 21.9% which declined to 18.3% as of March 31, 2012. (Source: Commercial Banking at a glance, RBI Quarterly Report dated December 11, 2012, (“Commercial Banking Report, 2012”) Constituents of Indian Banking Industry The Reserve Bank of India
The RBI is the central bank as well as the regulatory and supervisory authority for the Indian banking sector. Besides regulating and supervising the banking system, RBI performs the following important functions: • acts as the central bank and the monetary authority; • issuer of currency; • debt manager for the central and state governments; • regulator and supervisor for non-banking financial companies ("NBFCs"); • manages the country’s foreign exchange reserves; • manages the capital account of the balance of payments; • designs and operates payment systems; • operates grievance redressal scheme for bank customers through the banking ombudsmen and
formulates policies for fair treatment of banking customers; and • promotes development initiatives like financial inclusion and the strengthening of the credit delivery
mechanisms for agriculture, and small and micro-enterprises, especially in rural areas. The RBI issues guidelines on various issues relating to the financial reporting of entities under its supervision. These guidelines regulate exposure standards, income recognition practices, asset classification, provisioning for non-performing and restructured assets, investment valuation and capital adequacy. All the institutions under the purview of the RBI are required to furnish information relating to their businesses on a regular basis. Public Sector Banks Public sector banks are scheduled commercial banks with significant GoI shareholding and constitute the largest category in the Indian banking system. In the year 2011-2012, this category included the State Bank of India (“SBI”) and its six associate banks, 19 nationalised banks and 82 regional rural banks. As at March 31, 2012, the public sector banks had approximately 67,466 branches. (Source: Annual Report on Trend and Progress of Banking in India (the "TPBI Report, 2012")- (appendix table IV.6)) The public sector banks’ large network of branches enables them to fund themselves through access to low cost deposits. The SBI is the largest public sector bank in India. As at March 31, 2012, the SBI and its associate banks had around 18,830 branches across India. (Source: TPBI Report, 2012 - (appendix table IV.6))
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As of March 31, 2012, the public sector banks (excluding regional rural banks) in total accounted for approximately 77.5% of the deposits of scheduled commercial banks. Of this, SBI and its associates accounted for approximately 21.8% and nationalized banks accounted for approximately 55.7% of the deposits of the scheduled commercial banks. As for the advances, the public sector banks (excluding regional rural banks) in total accounted for 76.4% of the scheduled commercial banks, of which SBI accounted for approximately 22.7% and nationalized banks accounted for approximately 53.7% of the advances of the scheduled commercial banks, as of March 31, 2012. (Source: Report on Trend and Progress of Banking in India by the RBI, 2011-2012) Private Sector Banks After bank nationalisation was completed in 1969 and 1980, the majority of Indian banks were public sector banks. Some of the existing private sector banks, which showed signs of an eventual default, were merged with state-owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry by the private sector into the banking system. This resulted in the emergence of nine private sector banks. These banks are collectively known as the “New Private Sector Banks”. During 2012, there were 20 private sector banks, of which seven were New Private Sector Banks. In addition, 13 private sector banks existing prior to July 1993 were still operating in the period 2011-2012. These were collectively known as the “Old Private Sector Banks”. (Source: Profile of Banks in India - RBI). New Private Sector Banks have seen significant growth in both assets and infrastructure during the last decade. The entry of New Private Sector Banks has increased the industry competitiveness, enhanced customer service orientation, product innovation and technological advancement. As at March 31, 2012, the private sector banks (including the New Private Sector Banks and Old Private Sector Banks) had a network of 36,079 branches across India. (Source: TPBI Report, 2012 -(appendix table IV.6)). As of March 31, 2012, the private sector banks accounted for approximately 18.2% of the deposits and approximately 19.0% of the advances of the scheduled commercial banks. (Source: Source: TPBI Report, 2012) Foreign Banks As at March 31, 2012, there were a total of 41 foreign banks with 323 branches operating in India. (Source: TPBI Report, 2012 -(appendix table IV.6). As of March 31, 2012, the foreign banks accounted for approximately 4.3% and 4.5% of the deposits and advances of scheduled commercial banks, respectively. (Source: Report on Trend and Progress of Banking in India by the RBI, 2011-2012) As part of the liberalisation process, the RBI has permitted foreign banks to operate more freely, subject to requirements largely similar to those imposed on domestic banks. Foreign banks operate in India through branches of the parent bank. While the primary activity of most foreign banks in India has traditionally been in the corporate segment, some of the larger foreign banks have increasingly made consumer financing a larger part of their portfolios offering an array of products such as automobile finance, home loans, credit cards and household consumer finance. Co-operative Banks Co-operative banks cater to the financing needs of agriculture, small industry and self-employed businessmen in urban, semi-urban and rural areas of India. The state land development banks and the primary land development banks provide long-term credit for agriculture. The Banking Regulation (Amendment) and Miscellaneous Provisions Act, 2004, which came into effect from September 24, 2004, specifies that all multi-state co-operative banks are under the supervision and regulation of the RBI. Accordingly, the RBI is currently responsible for the supervision and regulation of urban co-operative societies, National Bank for Agricultural and Rural Development, state co-operative banks and district central co-operative banks. Non-Bank Finance Companies (NBFCs) As at June 30, 2012, there were approximately 12,385 NBFCs in India registered with the RBI (Source: TPBI Report, 2012) Based on their liability structure, all NBFCs may be categorized into entities which take public deposits and those which do not. The primary activities of the NBFCs are consumer credit, including automobile finance, home finance and consumer durable products finance, wholesale finance products such as bill discounting for small and medium sized companies, and fee-based services such as investment banking and underwriting. The RBI has implemented a set of directions to regulate the activities of the NBFCs. The
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directions are aimed at controlling the deposit acceptance activities of the NBFCs. The NBFCs that accept public deposits are subject to strict supervision and the capital adequacy requirements of the RBI. Long Term Lending Institutions
The long-term lending institutions were established to provide medium-term and long-term financial assistance to various industries for setting up new projects and for the expansion and modernization of existing facilities. These institutions provide fund-based and non-fund-based assistance to industry in the form of loans, underwriting, direct subscription to shares, debentures and guarantees. The long-term lending institutions were expected to play a critical role in Indian industrial growth and, accordingly, had access to concessional GoI funding. However, in recent years, the operating environment of the long-term lending institutions has changed substantially. Although the initial role of these institutions was largely limited to providing a channel for GoI funding to industry, the reform process required them to expand the scope of their business activities. Their new activities included: • fee-based activities such as investment banking and advisory services; and • short-term lending activity including issuing corporate finance and working capital loans Other Financial Institutions Housing Finance Companies Housing finance companies form a distinct sub-group of the NBFCs. As a result of various incentives given by the GoI for investing in the housing sector in recent years, the scope of this business has grown substantially. The National Housing Bank Act, 1987 provides for refinancing and securitisation of housing loans, foreclosure of mortgages and establishment of the mortgage credit guarantee scheme. As per the amendment to priority sector guidelines, dated October 17, 2012, the priority sector would include bank loans to housing finance companies for lending for housing up to ` 1 million per borrower provided the interest rate charged to the ultimate borrower does not exceed the lowest lending rate of the lending bank for housing loans plus two per cent per annum. (Source: TPBI Report, 2012) Insurance As at September 30, 2012, there were a total of 52 insurance companies in India, of which 24 were life insurance companies, 27 were non-life insurance companies and one was a reinsurance company Of the 24 life insurance companies, 23 were in the private sector while one company was in the public sector, as of September 30, 2012. In fiscal 2012, the premiums income for life insurance companies was ` 2.87 trillion. In fiscal 2012, gross direct premium by general insurance companies was ` 528.76 billion. (Source: Insurance Regulatory and Development Authority, Annual Report 2011-2012). Mutual Funds Securities and Exchange Board of India (Mutual Fund) Regulations, 1993 was the first regulation governing all mutual funds except the Unit Trust of India. The industry is now regulated by the more comprehensive Securities and Exchange Board of India (Mutual Fund) Regulations, 1996, which replaced the previous regulations. Both these regulations have been issued by Securities and Exchange Board of India. In the quarter ending December 31,2012, there were 44 mutual funds in India with total average assets under management (excluding domestic funds of funds, but including overseas funds of funds) of ` 786.5 trillion.. (Source: Association of Mutual Fund in India, Average Assets under Management (AAUM)). From 1963 to 1987, the Unit Trust of India was the only mutual fund operating in the country. It was set up in 1963 together by the GoI and the RBI. From 1987 onwards, several other public sector mutual funds entered this sector. These mutual funds were established by the public sector banks, the Life Insurance Corporation of India and General Insurance Corporation of India. The mutual funds industry was opened up to the private sector in 1993. Specialized Financial Institution In addition to the long-term lending institutions, there are various specialized financial institutions which cater to the specific needs of different sectors by offering technical and financial assistance. They include the National Bank for Agricultural and Rural Development, Export Import Bank of India, Small Industries Development
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Bank of India, Risk Capital and Technology Finance Corporation Limited, Tourism Finance Corporation of India Limited, National Housing Bank, Power Finance Corporation Limited and the Infrastructure Development Finance Corporation Limited. State-Level Financial Institutions State-level financial institutions broadly consist of state financial corporations and state industrial development corporations. State financial corporations operate at the state level and form an integral part of the institutional financing system. State financial corporations were set up to finance and promote small and medium-sized enterprises. State financial corporations are expected to achieve balanced regional socio-economic growth by generating employment opportunities and widening the ownership base of industry. At the state level, there are also state industrial development corporations, which provide finance primarily to medium and large-sized industrial projects. Key Banking Industry Trends in India The domestic and international economic developments posed challenges to the banking sector during the year 2011-2012. Though asset impairment increased, the resilience of the Indian banking sector was manifested in an improvement in the capital base and maintenance of profitability. A series of stress tests conducted by the RBI in respect of credit, liquidity and interest rate risks showed that banks remained reasonably resilient. However, under extreme shocks, some banks could face moderate liquidity problems and their profitability could be affected. The consolidated balance sheet of scheduled commercial banks recorded slower growth during 2011-2012, as compared to the previous year mainly due to the steep increase in the interest expenditure. Consequently, the return on assets, the return on equity and the net interest margin also declined marginally. However, commercial banks remained well-capitalized and the capital to risk-weighted asset ratio remained well above the stipulated minimum. The deteriorating asset quality of the banking sector emerged as a major concern, with gross NPAs of banks registering a sharp increase as compared with the previous year. (Source: TPBI Report, 2012) In response to the financial crisis, GoI acknowledged the need for convergence and announced final guidelines on BASEL III on May 2, 2012. Steps have been initiated towards improved cross boarder supervision and cooperation.
Consumer Credit The consumer credit market in India has undergone a significant transformation over the last decade. This is because consumer credit has become cheaper and funding avenues are more widely available and increasingly acceptable for consumers. The market has changed dramatically due to the following factors: • increased focus by banks and financial institutions on consumer credit resulting in a market shift
towards regulated players from unregulated moneylenders/financiers; • increasing desire by customers to acquire assets such as cars, goods and houses on credit; • fast emerging middle class and growing number of households in our target segment; • improved terms of credit; • legislative changes that offer greater protection to lenders against fraud and potential default increasing
the incentive to lend; and • growth in assignment and securitisation arrangements for consumer loans has enabled non- deposit based
entities to access wholesale funding and compete in the market, based on the ability to originate, underwrite and service consumer loans.
Commercial Banking Trends Credit
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The decline in the bank credit was broad-based with credit off-take by all major sectors slowing down during 2011-2012. The credit to the industry and services sector, which together constituted more than two-thirds of total bank credit, recorded slower growth in the non-food bank credit during 2011-2012. (Source: TPBI Report, 2012) Sectoral Deployment of Gross Bank Credit
Variation (year-on-year)
Fiscal 2011 Fiscal 2012 Amount Outstanding
as on March 23, 2012(1) Absolute(1) (%) Absolute(1) (%)
Sector
(in ` billion) Gross Bank Credit(2) 43,713.5 6,429.0 20.8 6,398.9 17.1 Food Credit 816.1 155.5 32.0 175.0 27.3 Non-Food Gross Credit 42,897.4 6,273.5 20.6 6,233.9 17.0 Agriculture and Allied Activities 5225.3 442.0 10.6 622.0 13.5 Industry (Small, Medium and Large)
19,659.8 3,094.0 23.6 3,451.3 21.3
Personal Loans 10,329.3 1,740.1 23.9 1,321.3 14.7 Consumer Durables 728.1 129.5 24.7 73.5 11.2 Hosing (Including Priority Sector Housing
638.9 168.7 38.9 36.1 6.0
Advances against Fixed Deposits (Including foreign currency non-resident bank account FCNR(B), non-resident non-repatriable term deposit account (NRNR) Deposits etc.)
2,208.8 217.9 13.2 345.9 18.6
Credit Card Outstanding 1,205.2 197.1 21.4 86.8 7.8 Education 2,218.1 621.4 54.8 462.4 26.3 Services 7,683.1 997.4 17.0 829.4 12.1 Transport Operations 88.0 18.6 22.4 -13.6 -13.4 Professional Services 3,880.2 451.8 15.0 419.1 12.1 Trade 684.9 118.7 24.4 79.7 13.2 Commercial Real State 204.4 -20.5 -10.2 23.4 12.9 NBFCs 501.9 68.5 18.6 64.8 14.8 Note: 1. Data are provisional and relate to select banks which cover 95% of total non-food credit extended by all scheduled commercial
banks. 2. Gross bank credit data include bills rediscounted with Reserve Bank, Exim Bank, other financial institutions and inter-bank
participations. (Source: RBI Annual Report 2011-2012, ("RBI Annual Report 2012")) Base Rate System and Inflation The base rate system replaced the benchmark prime lending rate (BPLR) system in July 2010. It has contributed in improving the pricing of loans, enhancing transparency in lending rates and improving the assessment of the transmission of monetary policy. This, combined with no interest rates being levied on export credit in foreign currency from May 5, 2012 onwards has resulted in complete deregulation of interest rates on lending by commercial banks. Since the inception of the base rate system, liquidity in the financial system has remained in deficit mode. Repo rates strongly influence the determination of base rate by banks and a change in repo rate is clearly reflected as a corresponding change in the base rate. As the economy was migrating from surplus mode to deficit mode during July to December 2010, the pace of responsive change in bank rate with respect to repo rate was slow. Base rate increased, on an average by 58 basis points following the increase in repo rate by 75 basis points during the period. Thereafter, the momentum increased and continued till March 2011 which was followed by a moderation in growth during the second half of 2011-2012. the RBI reduced its repo rate by 50 basis points in April 2012, 24 banks accounting for around 63% of the aggregate credit reduced their base rates by an average 23 basis points until July 2012. In the period from April to November 2011, there was an increase in the repo rate mainly due to the prevailing inflationary pressure and anticipated inflation trajectory. According to the Third Quarter Review of Monetary Policy, dated Jan 23, 2013, a further reduction by 25 basis points has been contemplated in the future. However, the inflationary pressure posed to be a persistent concern throughout 2011-2012. (Source: RBI Annual Report 2012)
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The table below sets forth certain information relating to the extent of increase in both deposit rate and base rate and time taken by the public and private sector banks for the periods indicated below: Period (Month
over Month Change in Repo Rate
(bps)
Change in Cash Reserve Ratio (CRR)
(bps)
Change in Deposit Rate
(bps)
Average change in Base Rate
(bps)
Average Number of
days taken to change in Base Rate
No. of Banks
changed the Base
Rate
Share of credit of
bank that
changed their base Rate
July-December 2010
75 (-)* 25-325 58 141 41 93.1
December 2010-March 2011
50 (-)* 25-450 73 96 47 96.5
March-May 2011
50 (-)* 10-275 55 85 38 89.0
May-October 2011
125 (-)* 05-425 95 129 46 94.5
October 2011-March 2012
(-)* -125 05-500 29 93 13 9.7
March -July 2012
-50 (-)* (-25)- (-400) -23 247 24 62.6
(-)* : Indicates no change. (Source: RBI Annual Report, 2012) Capital to Risk Weighted Assets Ratio ("CRAR") Even though the asset quality of scheduled commercial banks deteriorated during 2011-2012, the banks remained well-capitalized. The CRAR of the scheduled commercial banks at the end of 2011- 2012 was approximately 14.1%, much above the prescribed 9% standard and only marginally less than the 14.2%, in the previous year. The core CRAR, however, increased to 10.3% at the end of 2011-2012 from 10.0% in 2010-2011. The CRAR, as per Basel II, at the system-level improved marginally compared with the previous year. (Source: TPBI Report, 2012) Income and Profitability Despite the accelerated growth in total income, the consolidated net profit of the banking sector increased at a slower rate in fiscal 2012, as compared with the previous year. This was mainly due to the steep increase in interest expended. There was an increase in the proportion of relatively high-cost term deposits, which led to the acceleration in the interest cost of banks. In addition, retail deposits became more costly in the backdrop of a high interest rate environment. The return on assets for all scheduled commercial banks decreased from 1.10% in 2010-2011 to 1.08% in 2011-2012, while the return on equity dropped to 14.60% in 2011-2012 from 14.95% in the 2010-2011. The decrease in these two major indicators of profitability reflects the slowdown in net profit caused by increased interest expenditure. (Source: TPBI Report, 2012) Trend in Income and Expenditure of Scheduled Commercial Banks The following table sets forth certain information relating to the income and expenditure of the scheduled commercial banks for the periods indicated below:
2010-2011 2011-2012
Amount Variation (%) Amount Variation (%) Particulars
in ` billion Income 5,712 15.5 7,408 29.7 Interest Income 4,913 18.3 6,551 33.3 Other Income 799 0.7 857 7.3 Expenditure 5,009 14.5 6,591 31.6 Interest Expended 2,989 9.9 4,305 44.0 Operating Expenses 1,231 23.1 1,371 11.3
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2010-2011 2011-2012 Amount Variation (%) Amount Variation (%)
Particulars
in ` billion Wage Bill 727 31.6 780 7.3 Pension and Contingencies 788 20.8 915 16.1 Operating Profit 1,491 22.0 1,732 16.1 Net Profit 703 23.2 817 16.1 Net Interest Income 1,924 34.5 2,245 16.7 Net Interest Margin (NII as percentage of average assets)
2.91 2.90
Note: Percentage variation could be slightly different as absolute numbers have been rounded off to billion. (Source: TPBI Report, 2012) Asset Quality The asset quality of scheduled commercial banks, which recorded improvement during 2010-2011, witnessed a decline during 2011-2012. In absolute terms, the gross NPAs of the scheduled commercial banks, especially the public sector banks, increased significantly during 2011-2012. The declining asset quality was primarily due to the slowdown prevailing in the domestic economy as well as inadequate appraisal and monitoring of credit proposals. The decline in income from securities trading due to higher risk provisioning was reflected in the net profit of scheduled commercial banks which also recorded a decline. The net profit of the scheduled commercial banks was ` 703 billion with a percentage variation of 23.2% in the year 2010-2011 while it decreased by 16.1% in the year 2011-2012 with a net profit of ` 817 billion. (Source: TPBI Report, 2012) As a result of increase in NPAs, there has also been a rise in restructuring of loans in the year 2011-2012. Several firms opted for corporate debt restructuring during this period. Considering the increase in restructuring of loans, a working group was constituted by the RBI in January, 2011 to review the existing prudential guidelines on restructuring of loans and advances by banks and financial institutions.(Source: RBI Press Release "Report of the working group to review the existing prudential guidelines on restructuring of advances by banks/financial institutions", dated July 20, 2012) The report of the working group was submitted in July 2012. The recommendations are currently under examination and draft guidelines are expected to be issued by the first half of the calendar year 2013. (Source: RBI Annual Report, 2012) In addition, in order to expedite the process of debt recovery, the parliament has passed the Enforcement of Security Interest and Recovery of Debts Law (Amendment) Bill, 2011 (the "ESIRDL Bill"). Upon approval, the ESIRDL Bill will amend the debt recovery regulations, primarily the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 and Recovery of Debts due to Banks and Financial Institutions Act, 1993 to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions and to enable banks and financial firms to effectively deal with the increasing NPAs. Bank-Group wise NPAs Ratio The following table sets forth certain information relating to the NPAs of the scheduled commercial banks for the periods indicated below:
Scheduled Commercial Banks -
Group
End March Net NPAs to Gross Advances (%)
Net NPAs to Net Advances (%)
Restructured Standard Advance to
Total Standard Advances (%)
2010 2.28 1.09 5.07 2011 2.32 1.04 4.30
Public Sector Banks
2012 3.17 1.47 5.92 2010 4.26 1.82 0.54 2011 2.54 0.66 0.23
Foreign Banks
2012 2.68 0.61 0.14 2010 3.22 1.18 1.68 2011 2.62 0.60 0.65
New Private Sector Banks
2012 2.18 0.44 1.08 2010 2.31 0.82 3.62 2011 1.97 0.53 2.95
Old Private Sector Banks
2012 1.80 0.59 3.49
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(Source: RBI Annual Report, 2012) Banking Regulations and Reforms in India Proposed Amendments to the Banking Regulations Banking Amendment Bill, 2011 The Banking Laws (Amendment) Bill 2011 (the "Banking Bill"), aims to strengthen the regulatory powers of RBI and further develop the banking sector in India. The Banking Bill has been passed by both the houses of parliament in December 2012 and has come into force vide Notification dated January 17, 2013. The Banking Bill is expected to issue new bank licenses as issued by the RBI resulting in opening of new banks and branches across the country. Further, it would enable the nationalized banks to raise capital by issue of preference shares or rights issue or issue of bonus shares and also enable them to increase or decrease the authorized capital with approval of the GoI and the RBI without being limited by the ceiling of a maximum of ` 30 billion as prescribed under the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980. Under the anticipated regulatory regime, RBI would be given more control over the banking companies- it would have the right to collect information and inspect associate enterprise of banking companies, right to supersede the board of directors of banking company and appointment of administrator till alternate arrangements are made. Prior approval of RBI would be required for acquisition of 5% or more shares or voting rights in a banking company. RBI's approval would also be required for primary co-operative societies to carry on their business. (Source: Press Information Bureau, GoI, press release- "Salient Features of Banking Laws (Amendment) Bill 2012", dated December 21, 2012) For further information relating to the banking regulations, see "Regulations and Policies" on page 127. Debt Recovery Regulations in India
Recovery of Debts due to Banks and Financial Institutions Act ("RDBF Act"): The RDBF Act was passed pursuant to the recommendations of Narsimham Committee in 1993. It establishes the Debt Recovery Tribunals (the "DRTs") for the purpose of providing expeditious adjudication to the banks with reference to debts owed to them. The RDBF Act was amended in 2000 and again in 2003 to further strengthen the functioning of the DRTs.
Securitization and Reconstruction of Financial Institutions Act ("SARFESI Act"): The SARFAESI Act passed in Parliament in 2002 gives powers of “seize and desist” to banks. Banks can give a notice in writing to the borrower requiring it to discharge its liabilities within a period of 60 days, failing which the secured creditor may take possession of the assets constituting the security for the loan and exercise management rights in relation thereto. The SARFAESI Act also provides for the establishment of asset reconstruction companies regulated by the RBI to acquire assets from banks and financial institutions. In addition to the SARFAESI Act, several states also have revenue recovery acts and lok adalats (People’s Courts). Enforcement of Security Interest and Recovery of Debts Law (Amendment) Bill, 2011 ("ESIRDL Bill"): The ESIRDL Bill was approved by the Parliament in 2012 and has come into force vide Notification dated January 15, 2013. The ESIRDL Bill seeks to amend the SARFAESI Act and RDBF Act in order to strengthen the regulatory and institutional framework related to recovery of debts due to banks and financial institutions and to enable banks and financial firms to effectively deal with the increasing NPAs. The proposed amendments would strengthen the ability of banks to recover debts due from the borrowers, enhance the ability of the banks to extend credit to both corporate and retail borrowers, reduce the cost of funds for banks and their customers and reduce the level of NPAs. If implemented, it would enable banks, inter alia, to improve their operational efficiency, deploy more funds for credit disbursement to retail investors, home loan borrowers, without fearing for recovery, thus bringing about equity. Further, mandatory registration of subsisting security interest (equitable mortgages) would promote innovation in credit information. Banking Sector Reforms
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Strengthening Banking Soundness through Basel III Capital Regulations In order to effectively deal with the issues faced during the recent global financial crisis, the Basel Committee has introduced comprehensive reforms and guidelines through the Basel III framework to address both firm-specific and broader systemic risk. Basel III Capital regulations essentially enhance the regulatory framework introduced by Basel II at the level of individual banks and aims to limit the systemic risks. The measures relate to enhancing the quality and quantity of capital, liquidity risk management, valuation practices dealing with procyclicality issues and dealing with systemically important banks. It also covers resolution mechanism, compensation practices, stress testing, disclosures to enhance transparency and reducing systemic risk inderivative markets by moving over the counter derivatives to central clearing and settlement mechanisms. The Basel III Capital Regulations were proposed to come into effect on January 1, 2013 and the implementation was expected to be carried out in a phased manner with the Basel III capital ratios to be fully implemented by the end of March 2018. However, the effective date of the implementation of Basel III Capital Regulations has currently been deferred until April 2013. (Source: RBI Press Release relating to Basel III Capital Regulations dated December 28, 2012). The main features of Basel III Capital Regulations are briefly set forth below: Under the Basel III Capital Regulations, total capital of a bank in India must be at least 9% of risk weighted assets ("RWAs") (the Basel II requirement is a minimum 8% of RWAs). Tier I capital must be at least 7% of RWAs (6% as specified by the Basel Committee on Banking Supervision ("BCBS")); and common equity Tier I capital must be at least 5.5% of RWAs (4.5% as specified by BCBS). Due to the transitional arrangements, the capital requirements of banks may be lower during the initial periods and higher during later years. Therefore, banks have been advised to do their capital planning accordingly. In addition to the minimum requirements as indicated above, a capital conservation buffer ("CCB") in the form of common equity of 2.5% of RWAs is required to be maintained by banks. Under the Basel III Capital Regulations, total capital with CCB has been fixed at 10.5% (8% CRAR + 2.5% CCB). Under the Basel III Capital Regulations, a simple, transparent, non-risk based leverage ratio has been introduced. The BCBS will test a minimum Tier I leverage ratio of 3% during the parallel run period from January 1, 2013 to January 1, 2017. The RBI has prescribed that during this parallel run period, banks should strive to maintain their existing leverage ratios but in no case should a bank’s leverage ratio fall below 4.5%. Banks whose leverage is below 4.5% have been advised to achieve this target as early as possible. This leverage ratio requirement will be finalized taking into account the final proposals of the BCBS. Dynamic Provisioning Guidelines
Currently, the banks generally make two types of provisions, primarily, relating to the general provisions on standard assets and specific provisions on the NPAs. Since the level of NPAs varies through the economic cycle, the resultant level of specific provisions also acts cyclically. Consequently, the lower provisioning during upturns, and higher provisions during downturns have procyclical effect on the real economy. To address pro-cyclicality of capital and provisioning, efforts at international level are being made to introduce countercyclical capital and provisioning buffers. The RBI accordingly has prepared a discussion paper on the countercyclical (dynamic) provisioning framework that was published on March 30, 2012.
The dynamic provisioning guidelines is based on the concept of 'expected loss'. The average level of losses a bank can reasonably expect to experience is referred to as the 'expected loss' and is the cost of doing business. It is generally covered by provisioning and pricing. The objective of the dynamic provisioning guidelines are to smoothen the impact of incurred losses on the profit and loss account through the cycle, and not to provide general provisioning cushion for the expected losses. Furthermore, the dynamic provisioning guidelines created during a year will be the difference between long run average expected loss of the portfolio for one year and the incremental specific provisions made during the year. (Source: RBI Annual Report 2012)
Risk Based Supervision by the RBI
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With a view to improve the quality of RBI's supervisory processes/techniques and benchmarking them with the international best practices, RBI had set up a high level steering committee (the "Steering Committee") in August 2011. The Steering Committee in its report dated June 11, 2012 has recommended to transform the existing supervisory approach of examining the past performance of the banks through a transaction-testing based framework to identify risk drivers and accordingly predict the elements of risks in the banks’ accounts. Currently, a phased approach for transition to risk based supervision is being adopted by the banks. In line with the Steering Committee’s recommendations, the banks have been advised to assess their risk management policies, practices and related processes against the prerequisites of the risk based supervision framework. (Source: Monetary Policy for 2012-13 (Second Quarter Review) by the RBI, dated November 12, 2012)
Financial Sector Legislative Reforms Commission (FSLRC)
The GoI constituted a financial sector legislative reforms commission (the "FSLRC") in March 2011 to redraft and streamline the various applicable laws and regulations relating to the financial sector. In its approach paper released on October 1, 2012, the FSLRC has proposed a two-agency model with the RBI as the monetary authority, banking regulator and payment systems regulator, and a single regulator for the remaining of the financial sector. (Source: FSLRC Approach Paper dated October 1, 2012). Introduction of Bank Holding Company/Financial Holding Company Structure in India In June 2012, the RBI constituted a working group to, inter alia, examine the introduction of different holding company structures for banks and other financial entities prevalent globally in the financial sector (Source: Report of the working group on introduction of financial holding company structure in India by the RBI, dated May 23, 2011). The financial holding companies ("FHCs") own or control one or more banks or NBFCs. Currently, banks in India are organised under a bank-subsidiary model in which the bank is the parent of all the subsidiaries of the group. In its report, the working group has recommended that FHCs model should be pursued as a preferred model for the financial sector in India and that the RBI should be designated as the regulator for such FHCs. The recommendations have currently not been implemented. There are, however, numerous challenges in implementing the FHCs model in India. The implementation of this model would require a new legislative framework, providing the right incentives to the existing financial corporations through appropriate tax treatment and resolution of strategic and public policy issues in the case of public sector banks. (Source: Reflections on Regulatory Challenges and Dilemmas, RBI bulletin dated September 13, 2011). Other Initiatives in the Banking Industry in India Payment/Settlement Systems and Technology Mobile Banking: The RBI issued its first set of guidelines relating to mobile banking in October 2008. The guidelines defined mobile banking as undertaking banking transactions using mobile phones by bank customers that would involve credit and debits to their accounts. The bank-led model for mobile banking has come to occupy an important place in banking in India. As at June 30, 2012, 69 banks were granted approval to provide mobile banking facility, of which 49 have started operations. (Source: TPBI Report, 2012). The transaction limit for mobile banking previously imposed has now been removed by RBI. The banks are now free to fix their own per transaction limit based on their risk perception with the approval of their respective boards. Real Time Gross Settlement System ("RTGS"): In order to recover operational costs and efficiency in the system, the RBI has introduced service charges in the RTGS system on October 1, 2011. These charges are applicable under three different heads, namely, monthly membership fee, transaction fee and time varying tariff. Of these, the banks can pass on only the time varying tariff to their customers. Since the introduction of the service charges, the volume and value of transactions through RTGS increased rapidly. The value of gross transactions in RTGS registered a growth of 11.2% increasing from `394.5 trillion in fiscal 2011 to `484.9 trillion in fiscal 2012 while the volume registered a growth of 11.7% from `49.3 trillion in fiscal 2011 to `55.0 trillion in fiscal 2012. The value of gross transactions in RTGS constituted 51% of the total value of non-cash payments in fiscal 2012. (Source: RBI Annual Report, 2012) In order to keep pace with the increasing volume of transaction, RBI is currently in the process of replacing the existing RTGS system with new generation-real time gross settlement system ("NG-RTGS") that provides more functions and facilities. The NG-RTGS is expected to adopt messaging standards that are technologically more advanced than the ones in use in the RTGS system for example it would use Java and extensible mark-up language as opposed to currently used swift-MT standard by central banks.
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Pre-Payment Instruments ("PPIs":) PPIs are payment instruments that facilitate purchase of goods and services against the value stored on such instruments. As at June 30, 2012, around 40 banks (including the Department of Posts, GoI) and 21 non-bank entities were granted approval and authorisation under the Payment And Settlement System Act, 2007 to issue PPIs in India. Three types of PPIs are typically issued primarily, the paper voucher, cards and m-wallets, of which, the paper vouchers are the most popular in terms of numbers and value. RBI is working towards replacing such paper based PPIs with electronic modes. (Source: TPBI Report, 2012)
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OUR BUSINESS
Overview We are a private sector bank with a pan-India presence through a network of 676 customer outlets which includes 280 branches and 396 ATMs across 13 states and two union territories, as of December 31, 2012. We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of December 31, 2012. We offer a comprehensive range of products and services including savings accounts, current accounts, term deposits, corporate salary accounts, international debit cards and credit cards, gift cards, corporate and retail loans, depository services, locker facilities, mobile and internet banking services, bill payment services, e-IT return filing services, foreign exchange services, export and import services, payment and remittance services, repatriation schemes, online broking services and cash management services. We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively. We also distribute the mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Mutual Fund, FIL Fund Management Private Limited and UTI Asset Management Company Limited. We have organized our business model around our branch network wherein we focus on the following four segments: (i) retail banking; (ii) wholesale banking group; (iii) small and medium enterprises ("SMEs") banking; and (iv) micro finance and agriculture lending. The retail banking group covers all loans and advances to individuals including NRIs. The wholesale banking group covers corporations with a net worth of ` 500 million and above. The SMEs banking covers all loans and advances to the SMEs and emerging corporations (entities having a net worth below ` 500 million). The micro finance and agriculture lending covers all loans and advances to micro-finance institutions, non-governmental organisations ("NGOs") and certain self-help groups. Our retail banking group covers retail liabilities and a non-interest income and fee-based services that cover distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking and demat operations. In addition, our treasury operations comprise liquidity management by seeking to maintain an optimum level of liquidity, while complying with the cash reserve ratio (“CRR”) and the statutory liquidity ratio (“SLR”). We maintain the SLR through a portfolio of government and corporate debt securities that we actively manage to optimize yield and benefit from price movements. We are also involved in investing in sovereign debt instruments, commercial papers, mutual funds, certificates of deposits and floating rate instruments in order to manage short-term surplus liquidity. We have remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services. We also provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account with Destimoney Securities Private Limited ("DSPL") providing a complete trading platform. We have received an BS EN ISO 9001-2008 quality certification for management of banking operations at our corporate office located at Thrissur. We have been awarded the Best Bank in the private sector banks category by the State Forum of Banker's Club in 2008-2009. In 2011, we have been awarded the "Best mid-sized Bank" in terms of growth by Business Today-KPMG's Best Bank's Survey. We have also been awarded for excellence in IT by the Computer Society of India in 2011 and the EDGE Award for IT Transformation by the International Week Edge Award in 2011. We have also received the Asian Banker Technology Award 2012 international award for Best Branch Automation. Our total assets were ` 80,868.9 million as at March 31, 2010, ` 142,681.5 million as at March 31, 2011 and ` 146,764.9 million as at March 31, 2012. Further, our total assets were ` 131958.9 million as at December 31, 2012. Our profit/(loss) after tax for fiscal 2010, 2011 and 2012 was ` 233.0 million, ` 260.6 million and ` (1,156.3) million, respectively. Our loss for the nine months ended December 31, 2012 was ` (260.4) million. As at March 31, 2012, our total capital was ` 8,276.6 million and our CRAR was 9.5%, as per Basel II (8.8% as per Basel I), with Tier 1 Capital at 7.4% as per Basel II (6.9% as per Basel I) and Tier II Capital at 2.1% as per
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Basel II (1.9% as per Basel I) while as at December 31, 2012, our total capital was ` 8,693.7 million and our CRAR was 11.6%, as per Basel II (10.4% as per Basel I), with Tier 1 Capital at 8.3% as per Basel II (7.4% as per Basel I) and Tier II Capital at 3.3% as per Basel II (3.0% as per Basel I). Our Competitive Strengths We believe that the following strengths distinguish us in a competitive Indian banking industry: Wide distribution network across India and diverse customer base We offer a diverse range of retail and commercial products and services across retail banking, wholesale banking, microfinance and agricultural lending and small and medium enterprises group, including short-term and long-term deposits, secured and unsecured loans, internet banking, credit cards, mutual fund distribution and life and general insurance distribution. Our nationwide network allows us to provide banking services to a wide variety of customers, including large and medium to small corporations, institutions and state-owned enterprises, as well as commercial, agricultural, industrial and retail customers throughout India. As of December 31, 2012, we had approximately 1.77 million customers, reflecting our large and diverse customer base. We are focused on further improving access of our customers to our wide range of products and services. As of December 31, 2012, our operations cover 13 states and two union territories across India, with approximately 676 customer outlets which includes 280 branches and 396 ATMs (173 on-site and 223 off-site ATMs). We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of December 31, 2012. Long history and long standing customer relationships We were incorporated in November 1927 at Thrissur, Kerala and have been in existence for around 85 years. Over the years, the Bank has significantly grown its operations from being a regional bank to a banking institution covering a wide spectrum across several states in India. We further seek to leverage our strong brand recall across India, especially in the Southern India. With over 85 years of banking experience, we believe we have built strong and long standing relationships with many of our customers, which has been one of the key drivers of our growth, including numerous temple trusts, churches and non-governmental organisations ("NGOs") in Southern India. For instance, we are among the principal bankers to certain prominent religious bodies such as Sabarimala (Travancore Devaswom Board), and Guruvayur Devaswom for over three decades. We have also been among the principal bankers for large government and other institutions including, for example, the Kerala State Co-operative Marketing Federation Limited, Kochi Metro Rail Ltd, Kerala Headload Workers Welfare Board, Amrita Vishwa Vidyapeetham, Amrita Institute of Medical Sciences and Research Centre and Roads and Bridges Development Corporation of Kerala Limited. Continue to strengthen our risk management policies and procedures We believe that prudent risk management policies, procedures and controls are critical for the long-term sustainable development of our business. We have implemented enhanced risk management procedures for all our credit exposures, including credit evaluation and credit rating methodology, credit scoring and risk pricing models and risk monitoring and control mechanisms. Our risk management committee, inter alia, monitors our overall risk profile, reviews our risk models, approves risk management framework and policies, oversees the credit approval process and periodically reviews investment and credit portfolios. For further information on our risk management committee, see - "Risk Management Framework" on page 113. Further to enhance overall risk-adjusted margins, we have introduced risk management systems covering the entire credit process to enhance efficiency, improve controls and achieve better asset quality. We have also introduced advanced technology, robust controls and processes, and analytical tools for credit evaluation. In addition, we maintain a centralized credit evaluation process across all consumer and commercial banking products in order to improve the quality of new loans and the recovery of our non-performing loans. We continue to maintain high standards of asset quality through risk management and mitigation practices that are actively focused on evaluations of credit management policy, asset liability management policy, market and operational risk management policy and interest rate policy. In conjunction with these practices, we intend to
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optimize our capital needs as we grow our business. For further information on the various risk management policies of the Bank, see - "Risk Management Framework" on page 113. Modern and efficient IT infrastructure for both internal systems and customer services We have an efficient IT infrastructure, which we believe will provide opportunities to extract further cost efficiencies and to improve the quality and utility of our products. We have made significant investments to upgrade our existing IT infrastructure. In fiscal 2010 and 2011, we had invested approximately ` 279.7 million and ` 320.1 million, respectively, in order to upgrade our IT systems and infrastructure.We have networked all of our branches and offices to facilitate core banking solutions ("CBS"). It allows our customers to operate their accounts from remote locations and use banking services from any of our service points, regardless of where our customers maintain their accounts. With the CBS platform, we currently offer all the technology enabled products such as internet banking, online bill payments, mobile banking, telephone banking, debit cards and credit cards. We have also successfully implemented the Real Time Gross Settlement ("RTGS") and the National Electronic Funds Transfer ("NEFT") payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. All of our branches are RTGS and NEFT enabled to facilitate large value payments and settlements online in real time, on a transaction-by-transaction basis. We have increased our delivery channels through internet banking, mobile banking and ATMs. We have also implemented an automated NPA management software system, which monitors asset classification and provisioning based on current RBI rules. The software empowers us to arrive at potential NPAs and tentative provisioning at any point in time, which increases our ability to effectively monitor standard assets and take action in a timely manner to avoid slippage of asset quality. Additionally, we have established a master data mart that enables us to understand the customers across relationships and help track the progress. We have installed information security systems to protect the data and also periodically test the disaster recovery run on a working day covering all offices and branches as part of our business continuity program in the event of technological problems or disasters. Professional and experienced management Our senior management team led by Mr. P.G. Jayakumar, our Managing Director and CEO, have extensive experience in the banking and financial industry and have been associated with our Bank for more than a decade. For further information, see “Board of Directors and Senior Management” on page 134. We have been able to build a team of professionals with relevant experience, including credit evaluation, risk management, treasury, technology and marketing. We have been able to attract qualified persons, including MBAs, engineers, chartered accountants, cost accountants and agriculturists. As of December 31, 2012, our total employee strength was 2,658. Our Business Strategy Continue to strengthen our branch centric business model focused around our wide branch network across India In the first quarter of fiscal 2013, we have transformed our vertical business model to a decentralized (branch-centric) business model in order to improve the efficiency of the bank and have a better focus and strengthen relationship with our customers. Pursuant to the branch-centric business model, the decision making process and the product innovations are taken place at the branch level which we believe will enable us to enhance our services at the consumer level and expand our reach across India. However, we will continue with a centralised account opening system to better service the customers across India. Further to improve our operational efficiency, we have undertaken various initiatives to create an efficient and scalable operating platform. We have significantly expanded our branch network in the recent past and intend to expand our customer base through our existing network thereby optimizing the branch efficiency. Increase CASA deposits and improve interest margins We seek to increase our current account and savings accounts ("CASA") deposits and reduce bulk deposits in order to reduce cost of funds. In order to increase our CASA and retail deposits, we intend to promote our bank and introduce new products through marketing efforts at our branches. In addition, we also regularly review and continuously monitor our CASA growth. We believe that our CBS and alternate channels such as internet and mobile banking systems, will enable us to increase our customer base, thereby increasing CASA deposits and reducing the costs of such deposits.
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We focus on a number of areas where there is potential for significant improvement in our financial strength, including improving our net interest margin, further strengthening the quality and profile of our loan portfolio and broadening our revenue base by developing our fee-based products and services. We continue to focus on reducing certain of our low-yield corporate loans in order to further improve our net interest margins. For instance, our improving yields have resulted in improving our net interest margins to 2.3% in the nine months ended December 31, 2012 compared to 1.9% in the nine months ended December 31, 2011. Continuous efforts to reduce our operational costs In order to reduce our operational costs, we are currently in the process of realigning our employee costs as we have significantly reduced our employee strength from 3,850 as of December 31, 2011 to 2,658 as of December 31, 2012. We are also in the process of further rationalizing our existing distribution network by relocation from high cost premises and surrendering excess office premises while maintaining our points of presence across India. We have also reduced costs to a considerable extent by discontinuing the outsourcing of certain activities relating to our day-to-day business and operations and further rationalizing our total advertisement and publicity costs. Leveraging core competencies in our target business segments. As a result of increased focus on our retail and SME business segments along with our increased exposure to gold loans, our yields on advances improved to 12.7% in the nine months ended December 31, 2012 compared to 11.3% in the nine months ended December 31, 2011. We further intend to leverage our extensive experience and presence in the retail banking, small-to-medium enterprises banking and microfinance and agricultural lending segments and consolidate our growth and operations within these segments. We believe that this will diversify our loan portfolio and also result in an improvement in our yields and returns. Our retail, SME and microfinance and agricultural loan books represented 43.9%, 15.4% and 17.1% of our total loan book as at December 31, 2012, respectively, as compared to 48.0%, 14.2% and 9.2%, respectively, of our total loan book as at December 31, 2011. We continue to focus on products and segments within each of these target markets where growth and revenue are relatively high. We intend to continue this trend by pricing our products to reflect the risk profile of borrowers and to remain competitive. In each area, we seek to deepen our customer knowledge and understanding, to better tailor our products and services and to improve the use of our branch network in order to grow our customer base and maximize customer retention Increase fee-based revenue and income through a range of various product offerings We intend to focus on increasing our fee-based income by expanding our non-fund based business, sale of gold coins/bullions and third-party product offerings including mutual fund products and insurance products. We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively, as well as mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Mutual Fund, FIL Fund Management Private Limited and UTI Asset Management Company Limited. In addition, we have introduced certain forex products. We also continue to focus on cross-selling fee based services We typically provide a 3-in-1 bank account to our customers comprising a savings bank account, a demat account and a trading account through DSPL. We are currently in the process of renewing our agreement with DSPL. For further information relating to our investment in DSPL, see "Risk Factors - We may not be able to achieve desired returns from our investments, which may adversely affect our business, financial condition and results of operations" on page 36. Continue to focus on increasing NRI deposit base We are focused on increasing our non-resident Indian ("NRI") deposit base by providing access to easy and speedy remittance facilities. All of our branches offer specialized services to NRI customers. We closely monitor the growth of our NRI business. As of December 31, 2012, we had inward remittance arrangements with various exchange houses and one bank. As at December 31, 2012, our total NRI deposit was ` 9,589.0 million compared to ` 7,456.0 million, as at March 31, 2012.
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To focus on leveraging technology for improved customer service and business growth Technology has driven products and services in the banking industry and we have devoted substantial resources to achieve seamless integration of our people, processes, data and applications. Information technology is a strategic tool for our business operations to gain a competitive advantage and to improve overall productivity and efficiency in the organization. All of our technology initiatives are aimed at enhancing value, offering customer convenience and improving service levels while optimizing costs. We expect to continue with our policy of making investments in technology to achieve a significant competitive advantage. Also, we will focus on increasing our customer feedback points and enhancing the value-added services feature of our ATMs, as well as expanding our application systems with other consumer service providers to broaden the scope of our payment services. We also intend to implement a customer relationship management initiative and continue to improve our internet banking suite and ensure effective use of our data mining tools. History
We were incorporated in November 1927 in Thrissur, Kerala, India and we opened our first branch outside Kerala in 1975. In 1977, we were designated as the 'Scheduled Commercial Bank' by RBI. In 1996, we have listed our Equity Shares on the NSE, BSE and the CSE.
Our Products and Services The products and services that we offer to our individual or corporate customers can be divided into five categories, primarily: (i) deposit products; (ii) corporate products; (iii) retail products; (iv) technology related products; and (v) other services. Deposits Products Corporate Products Retail Products Technology Related
Products Other Services
Current Account Cash Credit Agriculture/Kissan Vahana Loan/Kissan Card
Retail and Corporate Banking
Forex Services
Savings Account Overdraft Home Loan/ Loan against Property
Bill Payment Cash Management Services
Term Deposit Term Loans/Real Estate Loans
Gold Loan
Mobile Banking Depository Services
Corporate Salary Corporate loans Vehicle Loan e-IT Return Filing Locker Services
Non-Resident External Account
Project Finance Live Stock Loan Online Trading Draft Drawing
Non-Resident Ordinary Account
Bill Advance and Packing Credit Advance
Personal/Educational Loan
SMS/Email alerts Remittances- Real Time Gross Settlement (RTGS)/National Electronic Funds Transfer (NEFT)
Foreign Currency Non-Repatriable Fixed Deposit Account
Foreign Currency Loan Loan against insurance policy/Deposit/Overdraft against shares
Forex Card
Invoice/Dealer Financing
Micro Credit Loan/Self Help Group Loans
Lease Rental Discounting
Medical Equipment loan
3-in-one account (Saving Account, Demat Account and Trading Account) Office Equipment Loan International Debit
Cards/Credit Cards/Gift Cards
Money Transfer
Import Export Related
Deposit Products Our deposit products target different customer segments among consumers and corporate customers. We also receive term deposits from other banks. Our deposits are broadly classified into current (also known as demand) deposits, savings deposits and term (also known as time) deposits, the details of which are as follows:
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Current account. The amounts deposited in the current accounts are non-interest bearing;. We typically offer a wide range of products under the current account facility including the regular current account, premium current account and suvidha current account. Savings account. The amounts deposited in the savings accounts accrue interest at a rate as determined by the Bank. We typically offer a wide range of products under the savings account facility including the regular savings account, Dhanam + and Dhanam ++ savings account including 'no frills' account called the Dhanam basic savings bank. Term Deposits. Term deposits are deposits on which interest is paid, either on maturity or at stipulated intervals depending upon the deposit scheme under which the money is placed. Term deposits include:
• fixed deposits on which a fixed rate of interest is paid at fixed, regular intervals;
• re-investment deposits, under which the interest is compounded quarterly and paid on maturity, along with the principal amount of the deposit; and
• recurring deposits, under which a fixed amount is deposited at regular intervals for a fixed term and the repayment of principal and interest is made at the end of the term.
Corporate salary. This account allows for easy management of any corporation's payroll while providing the employees with a convenient salary account. The employees' salaries can be paid with single cheque while availing certain features that benefit both the corporate and the employees.
Non-Residential ("NRE") account. NRE account facility allows the NRIs to open a savings, current or a term deposit account for operation in Indian rupees. The amount deposited in the NRE account is tax free and is typically used by the NRIs to repatriate their funds outside India.
Non-Resident Ordinary ("NRO") account. NRO account facility allows the NRIs to open a savings, current, term deposit or a cumulative account and deposit their local income or any funds generated in India into such accounts. The NRO account can also be jointly held by the NRIs and the resident Indians as well.
Recurring Term Deposit. This account allows for the investment of a small initial amount with recurring additions on a monthly basis for a predetermined fixed period of time. Interest accrued is added to the balance on a quarterly basis, which is then added to the invested amount. The principal and the cumulative interest is paid on maturity of the deposit.
Foreign Currency Non-Repatriable Fixed Deposit ("FCNR FD") account. The foreign currency non-repatriable deposits are accepted in five currencies, namely US dollars, Pounds, Euros, Australian dollars and Canadian dollars. These fixed deposits are typically accepted for maturities ranging from one year to five years.
3-in-1 account (Saving Account, Demat Account and Trading Account). 3 in one account provides an integrated platform for trading to the customers bringing together three different accounts, primarily, savings account, Demat and trading account. The customer can avail of all the facilities by opening a single account with the Bank. This facility also provides for an efficient and paperless medium for transactions in securities.
The following table provides certain information relating to our total deposits as at March 31, 2010, 2011, 2012 and as at December 31, 2012:
As at March 31, 2010
As at March 31, 2011
As at March 31, 2012
As at December 31, 2012
Particulars
(` in millions) A Current Deposits 5634.7 15,311.9 8,642.6 8,832.6 B Savings Deposits 9880.8 13,380.2 14,197.5 14,897.3 C CASA (A + B) 15,515.5 28,692.1 22,840.1 23,729.9 D CASA (%) to Total Deposits 21.9% 22.9% 19.3% 21.2% E Term Deposits 55,469.3 96,604.2 95,204.0 88,536.7 F Total Deposits (C + E) 70,984.8 125,296.3 118,044.1 112,266.6
G NRI Deposits (NR CASA + NR Term Deposits) 3,472.3 5,214.6 7,456.0 9,589.0
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The regional distribution of our deposits as at March 31, 2010, 2011 and 2012 and as at December 31, 2012 is set out in the table below:
Region States and Union
Territories
As at March 31, 2010
As at March 31, 2011
As at March 31, 2012
As at December 31, 2012
(` in millions) Southern India Kerala, Tamil
Nadu, Karnataka, Andhra Pradesh,
52,974.3 82,343.7 75,646.9 79,773.3
Northern India New Delhi, Punjab, Chandigarh, Haryana, Madhya Pradesh Uttar Pradesh, Rajasthan;
6,025.6 15,454.7 23,470.5 20,229.5
Western India Maharashtra, Gujarat, Goa
11,030.0 23,096.4 15,244.2 10,351.6
Eastern India West Bengal 954.9 4,401.5 3,682.5 1,912.2 Total 70,984.8 125,296.3 118,044.1 112,266.6
Corporate Products We offer a range of loans and funded advanced products to assist our corporate customers in meeting their financial needs. Cash credit. The cash credit facilities are the most common form of working capital financing in India. We offer revolving credit facilities secured by working capital assets, such as inventory and receivables. We may take additional security in the form of liens on fixed assets, including mortgages of immovable property, pledges or hypothecation of marketable securities and personal guarantees. We also provide working capital demand loans, working capital term loans and bill discounting facilities to our corporate and commercial borrowers. Overdrafts. We give to our customers the flexibility to withdraw an amount of money which exceeds the total amount of money existing in their account. The overdraft facility is typically available only for current accounts. Term Loans/Real Estate Loans. Our term loans primarily finance the creation and improvement of assets, including project finance. These loans are typically secured by the project assets and personal property financed, as well as by other assets of the borrower wherever required. Repayment is made in installments over the loan period. Corporate Loans. We provide financial assistance to our corporate or commercial customers for setting up new business and/or expanding their existing businesses. Project Finance. Project finance is typically provided for acquiring land and building, plant and machinery, and equipment. We also provide finance to address the growth and investment requirements of our customers, including the funding of developmental initiatives or technology procurement Bill Advance and Packing Credit Advance. We provide packing credit advance, which is a short term loan provided to exporters prior to the shipment of their goods. This loan typically enables the exporter to purchase raw material, package good and transport such goods to required destination. In addition, we also provide bill advance which is a post shipment financing tool. Foreign Currency Loans. We offer loan facilities in foreign currencies to our domestic customers. Foreign currency denominated loans in India are granted out of the Bank's FCNR (B) funds, in terms of RBI guidelines.
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Invoice /Dealer Financing. We enable our customers to draw a part of their unpaid invoice from our bank. For this purpose, the invoice itself is used as security. We also provide short term, unsecured financial assistance to dealers of large corporate to meet their cash flow needs ensuring smooth functioning of their respective businesses.
Lease Rental Discounting. We provide lease rental discounting on the basis of the rental income received by our customers from their commercial or residential property. The maximum loan amount is provided against the rental income received by the borrowers. We offer flexible repayment options for a period of seven years. We also provide for special schemes whereby one can benefit from an extended lease period which would be considered for rental income.
Office Equipment Loan. We provide capital expenditure loans to businesses including loans for machineries and for purchase of fixed assets so as to enable them to invest in advanced equipment required for their businesses.
The table below provides details of our corporate loans and funded advances by product type as at March 31, 2010, 2011, 2012 and for the nine months ended December 31, 2012:
As at March 31, 2010 2011 2012
As of December 31,
2012
Classification of Loans and Advances
(in Rs. millions) Bills purchased and discounted 1,097.0 11,526.8 2,351.9 1,467.2 Cash credits, overdrafts and loans repayable on demand
17,771.0 11,203.7 15,088.8 15,822.3
Term loans 31,194.6 67,921.0 70,139.8 56,458.1 Total Net Loans and Advances 50,062.6 90,651.5 87,580.5 73,747.6
Retail Loan Products
In fiscal 2011, we re-launched our retail banking business with re-branded loan products as well as new loan products and simplified loan documentation. We intend to significantly increase our retail loan book, which was 51.8% and 43.9% of our total loan book as at March 31, 2012 and in the nine months ended December 31, 2012. Our wide range of retail asset products includes the following:
Agricultural/Kissan Vahana Loan and Kissan Card. We provide agriculture assistance to the farmers which includes investments in agricultural technology, farm loans; warehouse receipt funding; and agriculture gold loans (loan against liquid collateral) and other related expenses. Such loans are typically secured by the gold ornaments owned by the borrowers. We also offer products such as the Kissan Vahana loan and the Kissan card. Kissan Vahana, is a specially structured two-wheeler loan for farmers with significant benefits for their agricultural operations. Kissan card directly addresses a farmer’s short-term and contingent credit needs. It facilitates adequate and timely credit for a farmer’s comprehensive credit requirements under a single window.
Home Loan/Loan Against Property. We provide financing options to our customers to enable them to purchase, construct, repair and renovate their homes and apartments. We provide flexible repayment options ranging from three years to 20 years at attractive interest rates. The loan against property includes: loans for the purchase of property for residential purposes; loans for the purchase of property for commercial usage; loans against residential property; loans against commercial property; lease rental discounting; and construction financing. The repayment tenure in this cases ranges in between three years and 20 years.
Gold Loan. In gold loan transactions, we provide loans to borrowers against gold and gold jewellery collaterals.
Vehicle Loan. Our vehicle financing products include: new car loans and pre-owned vehicle loans and dealer funding. Further, our commercial vehicle loans products also include: new commercial vehicle loans; used commercial vehicle loans; new construction equipment loans; used construction equipment loans and dealer funding.
Live Stock Loans. We provide live stock loans to facilitate purchase, raring or feeding of cattle. This particular product can be modified to suit an individual customer's specific needs.
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Personal Loans/ Educational Loans. Our personal loans enable our customers to address their diverse financial needs. We offer loans to finance the purchase of home appliances, computers, audio/video systems and other home equipment. Our education loan products include all the education fees, accommodation and travel expense, insurance premiums and computers. Loan against Insurance Policy/Deposit/Overdraft against shares. The loans against shares/securities help the borrowers to leverage their equity investments without disposing off such investments. In addition, we also provide loans against gold which help the customers by addressing their funding needs. Micro-credit scheme for micro financial institutions and self-help groups. These schemes provide financial assistance at lower rates to the individuals below the poverty line in rural, semi urban and urban areas for enabling them to raise their income levels and improve their living standards. We believe it enables the underprivileged sections of the society by improving their access to formal credit system. Loans provided through these schemes can be used for consumption, production and/or to undertake any income-generating activities. Medical Equipment Loans. We provide financing for purchasing modern medical equipment's to cater to the diverse needs of our customers in this sector. International Credit Card/Debit Card/Gift Cards. We offer our customers platinum and gold credit cards and international debit cards under the VISA banner. The credit cards provide holders with a 45-day interest-free credit period, irrespective of the date of purchase, which we believe distinguishes them from most of our competition. The other facilities include cash bank on purchase, priority pass and concierge services. Our credit cards are targeted at premium customers. The International debit cards offer the holder an easy access to their deposits on a 24/7 basis with which they can shop, dine and travel conveniently. In addition, we also provide for gift cards which are available in all denominations and can be used by our customer at over 450,000 VISA merchant outlets across the country. Technology Products Retail and Corporate Internet Banking. We offer the entire range of retail and corporate products and services to our customers via the internet. Our retail and corporate internet banking products includes current and savings account information, e-statements, deposits, loans, credit cards, fund transfers options such as NEFT and RTGS, bill payments and setting up standing instructions. Bill Payment. The bill payment services offers a convenient and secure way to view and pay electricity, telephone, insurance and other bills and book railway tickets via the internet banking. Our customer can also visit merchants' website and pay their bills by using our payment gateway option. Mobile Banking. With the mobile banking channel, the customers can conduct financial and non-financial transactions securely, including making fund transfers through the interbank mobile payments service and/or checking account information. The customer can also view details of their loans and term deposits as well. InstaPay. Instapay is a convenient and secure way for customers to pay their bills online through net banking or by using debit cards. With this facility, customers can make payments for utility bills such as telephone, mobile, electricity, and insurance premiums online instantly without having to register for it. e-Income Tax Return Filing. The e-IT return filing service allows the customers to file their income tax returns and directly make income tax payments. This service is completely secure and confidential as it is by the government e-return intermediary. SMS Banking. We also provide SMS banking service through which our customers can access or receive their account information instantly. Online Trading. We provide online trading services that offers an online platform for our customers to buy and sell securities on the stock exchanges in India, including the BSE and the NSE. SMS/Email Alerts. We provide for real time notification of certain transactions including debit card, financial and non-financial transactions, via the short messaging services ("SMS") and email. An email or the SMS alerts are sent once a bill is received wherein the customers pay such bills via the bill payment feature of our bank.
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Our customers can also choose to receive email or SMS alerts where a transaction is made via the credit card or debit card called the push service. Forex Card. The forex card, which is a pre-paid traveler's card, allows the customers to withdraw foreign exchange from the VISA ATMs across the world and shop at several VISA merchant outlets. Other Services Forex Services. We provide the following forex services to our corporate and commercial customers: (i) cash purchases and sales of foreign currency against Indian rupees for outward foreign currency
payments on the same day; (ii) forward purchases and sales of foreign currency against Indian rupees or other permitted currencies to
cover exchange risk on contracted, committed imports and exports of goods and services (iii) forward contracts to cover risks on foreign currency loans including external commercial borrowings;
and (iv) covering of inward remittances and payments against exports. We also offer retail forex to customers travelling abroad for leisure, business, education and/or to avail medical services. Cash Management Services. We provide cash management services to our corporate customers through speedy collection of cheques, demand drafts and pay orders from various locations. Our service encompasses integrated collection, payments, liquidity and receivables management in order to efficiently manage cash flow to reduce risk, minimize costs and maximize profit. Depository Services. As a depository participant of National Securities Depository Services Ltd (“NSDL”), we provide all depository-related services, including converting physical shares into electronic form, creating physical share certificates from electronic holdings, broker trading, pledging shares against any loan, account management, and all corporate depository actions. Locker Services. Our safe deposit lockers provide 24-hour protection for our customer's precious possessions. With convenient locker operation timings, customers can deposit and retrieve their valuables in Remittance Services Draft drawing. We offer rupee drawing arrangements with a large number of exchange houses in the Middle East. Currently, we have approximately 174 authorized branches to receive and pay the drafts issued by the exchange houses at par. Remittances (Real Time Gross Settlement (RTGS)/ National Electronics Finds Transfer (NEFT). We have successfully implemented the RTGS and the NEFT payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. We help remittances and the movement of funds between India and abroad for transactions permitted by RBI/FEMA guidelines. The “Dhanam Express” service transfers funds remitted from abroad to any customer of any bank in India. Our customers will receive a credit on-line, and customers of other banks will have funds transmitted on a real time basis. We have remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services. Import and Export Related. We provide various types of credit facilities and other services to importers and exporters. We offer a comprehensive range of import services which includes: (i) import letters of credit; (ii) import collection bill services; (iii) advance payment towards imports; (iv) arranging for buyers and suppliers credit; and (v) bank guarantees.
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We also offer a wide range of export services which includes: (i) packing credit; (ii) export bill negotiation; (iii) export bill purchase and discounting; (iv) export bill collection services; (v) bank guarantees; and (vi) export letter of credit advising. Fee-based Income services
We offer a range of non-funded advance products to assist our corporate customers in meeting their financial needs.
Letter of Credit. We provide letter of credit facilities, with our fee varying with the term of the facility as well as amount drawn. Letter of credit facilities are often partially or fully secured by assets, including cash deposits, documents of title to goods, stocks and receivables. These facilities are generally provided as part of a package of working capital financing products or term loans. Guarantees. We issue guarantees on behalf of our customers to guarantee their financial and performance obligations. These are generally secured by counter guarantees and/or a fixed or floating charge on the assets of the borrower, including cash deposits. The table below provides details of our non-funded advances by product type as at March 31, 2010, 2011, 2012 and for the nine months ended December 31, 2012:
As at March 31, As at December 31, 2012 2010 2011 2012
(` in millions) Letter of Credit 382.1 585.9 1,182.3 1,026.4 Guarantees 1,282.6 3,356.9 5,384.2 3,992.8 Total Non-Fund Advances
1,664.7 3,942.8 6,566.5 5,019.2
Financial Planning
We offer financial planning services to our retail customers. We do not charge for this services and we earn commission from the sale of third party life and non-life insurance products and mutual fund products, details of which are given below.
Insurance We distribute life and general insurance products of Bajaj Allianz Life Insurance Company Limited and Bajaj Allianz General Insurance Company Limited, respectively. Mutual Funds We also distribute the mutual fund products of certain entities including HDFC Mutual Fund, ICICI Prudential Asset Management Company Limited, Kotak Mahindra Asset Management Company Limited, L&T Investment Management Limited, Birla Sun Life Mutual Fund, FIL Fund Management Private Limited and UTI Asset Management Company Limited. Online Broking We launched our online broking service by entering into an arrangement with DSPL in January 2010. We provide a 3-in-1 savings account, demat account and trading account to the customer and DSPL provides a complete trading platform. We are currently in the process of renewing our agreement with DSPL. Specialized Services to NRI Customers Recognizing the growing involvement of the Indian diaspora in the growth of the Indian economy, we have focused on widening our NRI base through special measures. As at December 31, 2012, our total NRI deposit was ` 9,589.0 million compared to ` 7,456.0 million, as at March 31, 2012. We have remittance and rupee drawing arrangements with major exchange houses in the Middle East (including UAE Exchange Centre WLL, Al Ahalia Money Exchange Bureau, Al Fardan Exchange, Al Rostamani International Exchange, Kuwait
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Bahrain International Exchange Co, Redha Al-Ansari Exchange, Majan Exchange and Oman & UAE Exchange Centre & Co LLC) and various foreign correspondent banks to enhance our capability of providing international remittance services. In addition to the remittance and rupee drawing arrangements, we have also entered into money transfer service agreements with M/s UAE Exchange & Financial Services Ltd for MoneyGram and Xpressmoney, Wall Street Financial Limited for Instant Cash and Weizmann Forex Limited for Western Union Money Transfer to facilitate inward remittance under the money transfer services scheme. These money transfer service schemes help NRIs remit money from locations abroad to India. Our Business Segments We have organized our business into four segments: (i) retail banking; (ii) wholesale banking; (iii) SMEs banking; and (iv) micro finance and agriculture lending. The composition of our asset book by these business segments as at March 31, 2012 and as at December 31, 2012 is set forth in the table below:
As at March 31, 2012
Percentage of Total Advances
As at December 31, 2012
Percentage of Total Advances
Business Segments
(` millions) (%) (` millions) (%) Wholesale Banking 19,894.4 22.6 17,599.3 23.6 SME Banking 13,112.2 14.9 11,513.3 15.4 Retail Banking* 45,641.4 51.8 32,796.1 43.9 Micro Finance and Agricultural Lending
9,392.8 10.7
12,804.6 17.1
Total Gross Loans 88,040.8 100.0 74,713.4 100.0 *Retail banking includes the buy-out amounts relating to the purchase of the retail assets from certain third-party financiers.
Retail Banking The retail banking covers all loans and advances to individuals including NRIs. In addition, the retail banking also covers retail liabilities and a non-interest income/fee-based services including distribution of third party life insurance and non-insurance policies and mutual funds, foreign exchange, broking, demat and treasury operations. For retail banking customers, we offer trade services centered around international trade. We provide foreign currency services at all B-category branches, and allow customers to deposit foreign currency cheques, demand drafts and traveller's cheques into all savings or current accounts held at the Bank. We also issue foreign currency demand drafts to facilitate overseas transactions and assist with remittances with international transactions. Wholesale Banking The wholesale banking covers corporations with a net worth of ` 500 million and above. Small and Medium Enterprises Banking The SME banking provides fund based and non-fund based services to customers and their affiliates in the SME sector and emerging corporations (entities having a net worth below ` 500 million). Micro Finance and Agriculture Lending The micro finance and agriculture lending covers all activities falling in those segments. It caters to micro finance institutions, self-help groups and several non-governmental organizations, including group/non-individual lending. It also caters to individuals in these sectors. Treasury Operations Our treasury department manages our funding position and maintains our regulatory reserve requirements. Our treasury department invests in sovereign and corporate debt instruments while complying with the CRR and the SLR. The primary components of our investment portfolio are government securities and corporate debt securities. Our treasury department also invests in commercial paper, mutual funds, certificates of deposits and floating rate instruments as part of its function to manage short-term surplus liquidity. In addition based on our Board approved policy, we have put in place intra-day limits, overnight limits and monthly gap limits in each
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currency with stop loss along with the total exposure limits and our exposures have always been well below the minimum approved exposure limits. Further, we do not have large foreign currency exposures to any clients. Even while sanctioning smaller foreign currency limits, if the customer does not have a natural hedge, we ensure that the customer books forward contract while releasing/disbursing the limits. We believe that any movement of exchange rates will have a minimum impact on our profitability and asset quality on account of the appropriate policies in place. As at March 31, 2012 and as at December 31, 2012, the total value of our gross investments was approximately ` 43,765.5 million, and ` 41,295.8 million, respectively, and the total value of our net investments was approximately ` 43,601.6 million and ` 41,140.2 million, respectively. The average yield on our gross investments was 7.9% and 8.2% for fiscal 2012 and for the nine months ended December 31, 2012, respectively. We have complied with the requirements to the maintain the SLR and CRR ratios as per the RBI guidelines. As of December 31, 2012, our SLR ratio was 30.1% As at March 31, 2012, government securities constituted 76.1% of our gross investments, compared with 76.8% as at March 31, 2011 and 88.2% as at March 31, 2010. Further, as at December 31, 2012, the government securities constituted 71.5% of our gross investments. The CRR has to be maintained on an average basis for the fortnight and should not be below 70% of the required cash reserve ratio on any day of the fortnight. As of December 28, 2012 (Reporting Friday), our cash reserve ratio maintained was 4.3% against the requirement of 4.25%, as per the RBI guidelines. For further information, please see “Selected Statistical Information - Investment Portfolio".
Our treasury department also undertakes trading in fixed income securities and foreign exchange.
In addition to proprietary trading and liquidity management, our treasury department currently book forex forward contracts for a period of 12 months for our customers and intend to continue providing this service even in the future.
Distribution Network
We have a distribution network comprising branches, ATMs, mobile and internet banking channels and a telephone contact centre, which provide access to, and markets, our retail banking products and services.
The composition of our distribution network as at March 31, 2010, 2011 and 2012 and December 31, 2012 is set out in the table below:
As at March 31, 2010
As at March 31, 2011
As at March 31, 2012
As at December 31, 2012
Branches 270 275 280 280 ATMs 280 459 400 396 Total Customer Outlets
550 734 680 676
Branches:
As of December 31, 2012, our operations cover 13 states and two union territories across India with approximately 280 branches and 396 ATMs. We have 62 branches in metropolitan cities, 89 branches in urban areas, 101 branches in semi-urban areas and 28 branches in rural areas, as of December 31, 2012.
All of our branches are fully networked and connected to a central database in Bangalore on a real-time basis with a disaster recovery facility in Thrissur. All branches are licensed by the RBI to lend and to accept deposits.
Non-branch delivery channels:
ATMs: As at December 31, 2012, we had 396 ATMs, which includes 173 on-site and 223 off-site ATMs. Our ATMs are part of the Visa, Cashtree and Cashnet shared payment networks which enable our Visa cardholders to access numerous ATMs of member banks.
Internet banking: We offer internet banking services to our retail and corporate customers.
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Mobile banking service: With the mobile banking service, our customers can access their bank accounts on their mobile phones and conduct financial and non-financial transactions.
Customer Service
We are focused on providing the highest quality service to our customers. Our Customer Service Committee periodically monitors the implementation of customer service measures. Similar committees have been formed at the corporate, zonal and branch levels to monitor service quality and bring about ongoing improvements in the customer service area. We are also a member of the Banking Codes and Standards Board of India ("BCSBI") and are actively implementing the code of commitment to customers as formulated by the BCSBI. The implementation of these customer service measures at branch offices is reviewed each time an executive visits a branch office.
We have also recently reorganized our business from a vertical model to a branch centric business model to improve the efficiency of the bank and have a better focus and strengthen relationship with our customers across our nationwide network. We also offer doorstep banking facilities to our customers
Contact centre: We have entered into an agreement with Aegis Limited ("Aegis") for providing call centre and other related services to our customers subject to the payment of certain fees and charges. Aegis has agreed to provide 24/7 call centre and telesourcing services in various languages from their Bangalore and Pune centres. This telephone contact centre acts as our customer facilitation centre and also provides a distribution channel for our deposits, loans and wealth management products and services across India, which we intend to also use as a marketing channel to cross-sell our products and services. Back Office Operations
A key component of our business model includes centralization of all our back office operations. This component was implemented to allow the branches to focus on customer-facing activities such as customer acquisition, sales and customer service. The result of these efforts was accelerated growth and improved profitability. We have made considerable progress in the implementation of this component, including setting up the Dhanam Centralized Solutions at Thrissur to handle:
• opening of all CASA and loan accounts;
• centralized issue of combi packs (cheque book and debit card);
• centralized processing of service requests, internet banking operations (retail and corporate);
• monitoring and processing of RTGS and NEFT transactions;
• reconciliation of ATM, debit card, NEFT, RTGS and other electronic transactions;
• processing of forex and credit cards;
• centralized doorstep banking; and
• centralized demat and trading operations.
A variety of other functions were also centralized at regional processing centres, including fixed deposits processing (new and renewals), electronic clearing services, clearing (inward and outward), and outstation cheques for collection and corporate salary processing. Priority Sector Lending and Export Credit
The RBI requires all Indian banks to allocate a minimum of 40% of their adjusted net bank credit ("ANBC") as at March 31 of the applicable prior year to the “priority sector”, which includes the agricultural sector, economically weaker sections of the community, small scale industries (“SSIs”), professionals and self-employed individuals. The RBI also specifies sub-allocation requirements, including a minimum of 18% of ANBC or credit equivalent amount of off-balance sheet exposure, whichever is higher, to the agricultural sector, 10% of
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ANBC to economically weaker sections of the community and a minimum of 1% of the applicable prior year's total advances outstanding as at the end of the previous year to the differential interest rate scheme, under which Indian banks are required to provide financial assistance at concessional rates of interest to selected low income groups. If our lending falls below the RBI's directed lending requirements, we are required to fulfil our obligations to the RBI by investing in securities specified by the RBI and/or in deposits under RBI-specified deposit schemes of the National Bank for Agriculture and Rural Development ("NABARD") and the National Housing Bank ("NHB"). These deposits have a maturity ranging up to seven years and carry interest rates lower than market rates. Priority sector advances increased from ` 25,652.3 million as at the end of March 2011 to ` 28,103.4 million as at the end of March 2012, an increase of 9.6%. During the period the priority sector advances was 30.9% of the adjusted net bank credit ("ANBC") against the RBI's mandated benchmark of 40%. The priority sector advances was ` 23,731.9 million as at December 31, 2012 which is 26.9% of ANBC, against the RBI's mandated benchmark of 40%. Since we were unable to meet the priority sector lending requirements as prescribed by the RBI during fiscal 2012 and in the nine months ended December 31, 2012, we are required to make compulsory investments in the Rural Infrastructure Development Fund ("RIDF") established with the NABARD or funds with certain other financial institutions. As of December 31, 2012, we have made a total investment of ` 776.3 million in NABARD, Small Industries Development Bank of India ("SIDBI"), RIDF and National Housing Bank ("NHB") schemes. Weaker section advances as at March 31, 2012 was ` 7,628.0 million compared with ` 8,142.9 million as at March 31, 2011 whereas the weaker section advances was ` 10,174.3 million as at December 31, 2012. Weaker section advances were 16.2%, 8.4% and 11.5% of the ANBC as at March 31, 2011, March 31, 2012 and December 31, 2012, respectively, against the RBI benchmark of 10.0%. The RBI also requires all banks to lend to exporters at concessional rates of interest to enable them to have access to an internationally competitive financing option. We provide export credit for pre-shipment and post-shipment requirements of exporter customers in Indian rupees and foreign currencies. As at December 31, 2012, our exposure by way of export credit was ` 901.8 million. For further information, please see “Selected Statistical Information - Priority Sector Lending.” Financial Inclusion and Micro Credit As part of our overall efforts towards financial inclusion, we are in the process of opening certain customer service points ("CSPs"), known as the business correspondent location that will have a representative from the Bank to guide and educate customers on various banking services. These CSPs will be responsible for sourcing 'no-frills' accounts, which can be opened and operated with zero balance, and service the deposit and withdrawal requirements of the customer after opening of these accounts. The Bank will facilitate the use of biometric cards for day-to-day operations. Other banking services, such as insurance and loan products, will also be offered from the CSP location. The CSPs are being offered marketing, technology and training support required to deliver the above services. We also intend to enter into tie-ups with certain NGOs for expanding our overall inclusion activities.
The number of 'no-frill' savings bank accounts opened by the Bank as part of our financial inclusion endeavors increased from 100,000 as at March 31, 2010, to 145,000 as at December 31, 2012. The balance under this head as at December 31, 2012, was ` 236.0 million, which works out to ` 1627 per account.
We also continued our thrust on micro credit as an instrument of inclusive banking. The outstanding loans under this head increased from ` 971.9 million as at March 31, 2010 to ` 1,711.0 million as at March 31, 2012, an increase of 76.0% while the outstanding loans were ` 439.5 million as at December 31, 2012. We also enhanced our product suite under this portfolio by investing in structured products such as pass-through and portfolio buy-outs.
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Credit Policy and Process
Credit Policy: To manage the credit risk, a comprehensive credit policy has been put in place and the main objectives of our credit policy as approved by the Board of Directors are as follows: to maintain the quality of our loan assets, to ensure reasonable return on assets, to maintain an acceptable risk profile, to achieve proper sectoral and geographical risk profile and also to ensure compliance with all the regulatory norms in respect of exposure caps, pricing, income recognition and asset classification guidelines and targeted credits.
Credit Process: Our credit process primarily includes the following stages: credit sourcing, credit appraisal and assessment, credit sanction and credit monitoring and administration. Considering the need to improve credit quality, reduce the turnaround time and follow the industry best practices, specific functional groups have been formed to deliver the process in a timely and structured manner. The relationship managers typically initiate the credit sourcing under the select segments while the credit officers under the credit sanction group are responsible for the credit appraisal. Specific authorities at the branch, zonal and corporate levels are responsible for the sanctioning the credit proposals. The post-sanction process is under the purview of the credit administration officer located at the commercial branch who would also be responsible for security creation and asset management.
• Credit sourcing. We typically ensure that our credit growth is aligned with the specific sectors and products while maintaining a balanced sectoral and geographic distribution of assets. In line with our corporate policy, we target the clients in the following segments: (a) large corporates, (ii) small and medium enterprises, (iii) agriculture and micro credit, and (iv) retail assets. The credit sourcing relationship managers located at the commercial and regional branches typically report to the respective branch /zonal heads.
• Credit Appraisal and Assessment. The credit appraisal process involves the following stages: (i) collection of detailed data, (ii) assessment of the requirements; (iii) financial analysis; (iv) verification of credentials; (v) security; (vi) rating of the applicant and the proposal; (vii) risk analysis and mitigation; (viii) compliance with the exposure norms, know-your-customer and anti-money laundering guidelines and other regulatory requirements. In order to reduce the turnaround time required during the appraisal and sanctioning stages, we have implemented certain softwares which are also used at the credit monitoring stage once the loan has been sanctioned to the borrowers. Pursuant to our working capital assessment methods, we aim at providing need based finance in accordance with the prudential guidelines and the exposure norms as prescribed by the RBI.
• Credit Rating. We have adopted a system of rating individual assets taking into consideration financial, managerial and industrial factors. The rating exercise is carried out based on the audited financials of the previous years. In case of new business activities and green field ventures, rating would be based on the projected numbers. We typically take exposure only on the assets which are of an acceptable rating. The ratings are reviewed on a yearly basis based on the audited financials by the integrated risk management group.
• Credit Sanction. Post the appraisal process, every credit proposal is submitted to the appropriate internal authorities for sanction. The credit sanctioning process involves considering and evaluating the financial analysis, credit rating of the applicant and the proposal, risk assessment and mitigation, compliance status, exposure norms, industry prospectus, overall relationship value, security, pricing and covenants proposed in the financing/loan agreements. In line with the market standards and to ensure that the credit approval and decision making process is speedy, credit sanction powers have been delegated to certain authorities at the bank subject to periodical revisions. While the individual approval powers have been delegated to the branch head (jointly with the branch operations manager) and regional credit head, the zonal credit committee and the corporate credit committee have been constituted at the zonal and corporate office levels to consider the credit proposals. Further, we have also adopted a separate Board approved scheme of delegated powers for the credit approval of retail asset products and micro-credit. Any material changes in the terms and conditions relating to the security, margins, cover period, capital infusion, issuance of no-objection certificates for mergers and extension of time for creation of securities beyond a period of six months in respect of the committee of directors ("COD")/Board approved sanctions, are required to be approved by the COD/Board.
• Credit Supervision, Monitoring and Administration. The credit administration officers at the commercial branch take care of the post sanction credit process relating to complete and accurate documentation,
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security creation, account management, monitoring of the assets, quality of asset portfolio, reporting of irregularities, compliance with the policy prescriptions and redressal of customer grievances and ensuring adherence to terms of sanction. This process enables us to closely monitor the performance of the accounts and take remedial action in time, if required.
Anti-Money Laundering ("AML")
All the transactions are monitored in accordance with the standard guidelines prescribed for the banking industry. We typically file reports such as cash transaction reports, suspicious transaction reports, non-profit organization's transaction, and counterfeit currency report on a regular basis to the Financial Intelligence Unit of the GoI. We are also in the process of further strengthening the AML control in accordance with the guidelines of the Indian Banks Association.
Risk Management Framework
As a financial intermediary, we are exposed to risks that are peculiar to our lending, investment and trading activities and the environment within which we operate. The goal of our risk management is to ensure that we identify, assess, measure, manage, control and report credit, market and operational risks and that we adhere strictly to the policies and procedures that have been established to address those risks.
We have adopted an integrated approach for the management of risks. The risk management policies - asset liability policy, stress testing policy, operational risk management policy, credit policy, credit monitoring policy and integrated risk management policy have been evolved in tune with our business requirements and best practices and address requirements relating to credit, market and operational risks.
Our Board of Directors have overall responsibility for risk management. The Board of Directors has delegated its functions and responsibilities relating to risk management policy, direction and supervision thereof to our risk management committee, an independent sub-committee of the Board. The risk management committee, inter alia, monitors our overall risk profile, reviews our risk models, approves risk management framework and policies, oversees the credit approval process and periodically reviews investment and credit portfolios. Our risk management committee of executives deals with issues relating to integration and aggregation of risks and provides a consistent framework and understanding at the implementing level for all our business units and functions.
Our asset liability management functions are governed and reviewed by the asset liability management committee (ALCO), which is responsible for managing liquidity, interest rate and earnings risks. We are Basel II compliant and assess our capital adequacy as per the RBI's guidelines. We have put in place an internal capital adequacy assessment process (ICAAP) policy to integrate capital planning with budgetary planning.
Our credit risk management committee (CRMC) is responsible for monitoring our adherence to prudential limits, recommends to the Board of Directors policies on rating standards and benchmarks and monitors our credit risk.
Our operational risk management committee (ORMC) oversees the implementation of operational risk management policy, which is designed to ensure that all our operational risks are identified and monitored in a structured manner. To mitigate operational risks arising from fraud, we have put in place a fraud risk management policy that lays down the steps to be adopted for preventive vigilance.
Our integrated risk management group handles daily risk management including risk assessment, measurement, control and reporting.
In addition, our audit committee, a sub-committee of the Board, provides direction to, and monitors the quality of, the internal audit function and also monitors the risk management and control environment, including the adequacy of internal controls. Inspection and Audit Our inspection and audit function is independent and centrally controlled, reporting directly to the Board of Directors. It conducts an internal audit of all our branches at a frequency linked to the risk rating assigned to
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each branch by the department. Each of these branches is also given a rating based on the audit findings. Our inspection department, which complies with the RBI requirements on risk-based supervision, also conducts audits of various corporate office functions. During fiscal 2012, risk-based internal audits of all branches which are due as per the frequency defined based on the risk levels and our integrated treasury were completed.
The department also controls and reviews concurrent audit of branches undertaken by internal and/or external auditors. As at December 31, 2012, the business volume covered by the concurrent audit was approximately 62.6% of our business. Vigilance Our vigilance function is independent, reporting directly to the managing director and the chief executive officer of the Company. Our vigilance team takes care of all the investigations relating to frauds and other serious irregularities and also ensures the submission of various returns/reports to the RBI on a regular basis and the audit committee of the Board. Compliance
Our compliance department is independent and centrally controlled. It is headed by our Chief Compliance Officer who reports to our Chief Executive Officer. Our Chief Compliance Officer has the right to report serious compliance matters directly to our Board of Directors. The department monitors compliance with various laws, regulations and guidelines, rules of self-regulatory bodies and industry associations and our internal policies. We aim to embrace best practices and follow a higher standard of compliance than that required by law.
Competition
We face strong competition in all our principal lines of business. Our primary competitors are public sector banks, other private sector banks, foreign banks with operations in India and, for certain products, non-banking financial institutions.
In retail banking, our principal competitors are public sector banks, other private sector banks, foreign banks and, for retail loan products, non-banking financial companies. Some foreign banks have a significant share of the NRI market for remittances and deposits. We also have significant competition from new private sector banks, foreign banks and certain public sector banks in offering credit cards. Mutual funds are another source of competition. Mutual funds offer tax advantages and have the capacity to earn competitive returns and have increasingly become a viable alternative to bank deposits. In mutual fund sales and other investment related products, our principal competitors are brokerage houses, foreign banks and private sector banks. We compete with banks, brokers, corporate agents and financial consultants and advisors with respect to sales of life and general insurance products.
Our principal competitors in corporate and commercial banking are public sector banks, private sector banks and foreign banks. Large public sector banks have traditionally been market leaders in this segment. Foreign banks have focused primarily on serving the needs of multinational companies and larger Indian corporates with cross-border financing requirements, including trade, transactional and foreign exchange services. Large public sector banks typically have extensive branch networks and large local currency funding capabilities.
In our treasury advisory services for corporate customers, we compete principally with public sector banks, private sector banks and foreign banks in the foreign exchange and money markets businesses.
Information Technology
We have a modern IT infrastructure, which we believe will provide opportunities to extract further cost efficiencies and to improve the quality and utility of our products. We have networked all of our branches and offices to facilitate core banking solutions ("CBS"). We have upgraded CBS to the latest version with Oracle 11g. It allows our customers to operate their accounts from remote locations and use banking services from any of our service points, regardless of where our customers maintain their accounts. With the CBS platform, we currently offer all the technology enabled products such as internet banking, online bill payments, mobile banking, telephone banking, debit cards and credit cards. We have also successfully implemented the Real Time Gross Settlement ("RTGS") and the National Electronic Funds Transfer ("NEFT") payment and settlement system in accordance with the RBI directive to facilitate inter-bank and customer-based transactions. All of our
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branches are RTGS and NEFT enabled to facilitate large value payments and settlements online in real time, on a transaction-by-transaction basis. We have increased our delivery channels through Internet banking, mobile banking and ATMs.
We have also implemented an automated NPA management software system, which monitors asset classification and provisioning based on current RBI rules. The software empowers us to arrive at potential NPAs and tentative provisioning at any point in time, which increases our ability to effectively monitor standard assets and take action in a timely manner to avoid slippage of asset quality. Additionally, we have established a master data mart that enables us to understand the customers across relationships and help track the progress. We have installed information security systems to protect the data and also periodically test the disaster recovery run on a working day covering all offices and branches as part of our business continuity program in the event of technological problems or disasters. Further, the data centre and disaster recovery centre audit were conducted by the external auditors which covered all applications deployed, network and other delivery channels to ensure that the required controls are in place. Insurance
We maintain insurance policies with respect to our registered and corporate offices, premises, furniture and fixtures and banker's indemnity applicable to all branches in India. We do not have insurance for business interruption as it is not industry practice. We currently have an employee group insurance policy issued by Birla Sun Life Insurance group Protection Solutions.
Intellectual Property Rights
In January 2010, we launched our new “DhanlaxmiBank” brand and since then all of our branches and offsite branding colours have been changed to improve brand visibility across India. Currently, our trademark and logo are pending registration.
Human Resources
We moved from a vertical based business model to a branch centric business model in order to accelerate growth, improve profitability and enhance service quality. This decision has led to restructuring of the organization pursuant to which manpower rationalization measures were put in place and are still continuing. As of December 31, 2012, our total employee strength was 2,658. A majority of our employees are members of different trade unions.
We provide the employee stock option scheme (ESOP) to our employees which are linked to their grade, term of service with the Bank and their performance. In addition, we have also recently introduced a comprehensive performance management system that measures the individual performance levels of our employees.
Further, we also offer concessional loans to our employees subject to certain limits, and certain employee benefit schemes including the provident fund, gratuity and pension plans. Since training is an integral part of our organization, our learning and development division regularly provides training to all our employees pursuant to the recent move to the branch centric model. Properties We own our Registered Office premises at Thrissur, Kerala. Majority of our branches and other properties we operate from are located on leased premises.
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SELECTED STATISTICAL INFORMATION
The following unaudited information should be read together with our reformatted financial statements included in this Placement Document and the section “Management’s Discussion and Analysis of Financial Condition and Results of Operations”. All amounts presented in this section have been prepared in accordance with Indian GAAP. Footnotes appear at the end of each related section of tables. Certain information included in this section has been derived from the periodic returns filed with the RBI which are based on our books of account and underlying records. Unless otherwise stated, amounts are on an unconsolidated basis. Average Balance Sheet The table below presents the average balances for interest-earning assets and interest-bearing liabilities together with the related interest income and expense amounts, resulting in the presentation of the average yields and cost for each period. The average yield on average interest-earning assets is the ratio of interest income to average interest-earning assets. The average cost on average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. The average balances of loans include NPAs and are net of allowances for credit losses. We have not recalculated tax exempt income on a tax equivalent basis.
Year ended March 31, 2010 2011 2012
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost (%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost (%)
Average Balance(1)
Interest Income/ Expense
Average Yield/
Cost (%)
(in ` millions, except percentages) Interest-earning assets: Advances 40,480.9 4,193.9 10.4 68,549.2 6,991.0 10.2 94,247.9 10,753.9 11.4 Investments
19,569.2 1,078.6 5.5 30010.6 2,017.3 6.7 42,276.6 3,135.8 7.4
Balances with RBI/Other Inter Bank funds
724.4 53.1 7.3 819.1 55.9 6.8 166.1 28.3 17.1
Others(2) - - - - - - - - - Total interest-earning assets
60,774.5 53,25.6 8.8 99,378.9 9,064.2 9.1 136,690.6 13,918.0 10.2
Non-interest earning assets
1314.4 - - 2,179.9 - - 1,626.4 - -
Fixed assets
570.1 - - 1,033.3 - - 1,423.4 - -
Other assets(3)
4475.6 20.1 0.5 9,295.9 - - 19,220.8 18.5 0.1
Total assets
67,134.6 5,345.7 - 111,888.0 9,064.2 - 158,961.2 13,936.5 -
(1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts. In the case of Balances with RBI/Other Inter Bank funds, the daily average balance of the assets have been considered.
(2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest.
As at December 31, 2011 2012
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost
(%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost
(%)
(in ` millions, except percentages) Interest-earning assets: Advances 95,461.0 8,161.5 11.4 77,286.0 7,401.4 12.8
117
As at December 31, 2011 2012
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost
(%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost
(%)
(in ` millions, except percentages) Investments 41,478.6 2,278.8 7.3 41,165.5 2,381.8 7.7 Balance with RBI/Other Inter Bank funds
142.4 9.5 8.9 509.0 31.5 8.3
Others(2) - - - - - - Total interest-earning assets
137,082.0 10,449.8 10.2 118,960.5 9,814.7 11.0
Non-interest earning assets
1,647.4 - - 1,635.9 - -
Fixed assets 1,411.2 - - 1,442.1 - - Other assets(3) 21,220.0 9.9 0.1 9,069.0 9.0 0.1 Total assets 161,360.6 10,459.7 - 131,107.5 9,823.8 - (1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with
the RBI which is from books of accounts. In the case of Balances with RBI/Other Inter Bank funds, the daily average balance of the assets have been considered.
(2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest.
Year ended March 31, 2010 2011 2012
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost (%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost (%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost (%)
(in ` millions, except percentages) Interest-bearing liabilities: Deposits 56,125.4 3,702.3 6.6 93,244.1 5,842.4 6.3 126,626.2 10,155.9 8.0 Borrowings(4) 2,900.0 237.9 8.2 6,000.4 570.5 9.5 17,850.1 1,305.4 7.3 Others - - - - - - - - - Total interest-bearing liabilities
59,025.4 3,940.2 6.7 99,244.5 6,412.9 6.5 144,476.3 11,461.3 7.9
Other liabilities(5)
3,853.1 - - 5,325.8 - - 6,030.0 - -
Capital and reserves
4,256.1 - - 7,317.7 - - 8,454.9 - -
Total non-interest bearing liabilities and capital
8,109.2 - - 12,643.5
- - 14,484.9 - -
Total capital and liabilities
67,134.6 - - 111,888.0
- - 158,961.2 - -
(1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts.
(2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest. (4) Includes subordinate debt in nature of Tier II bonds and Upper Tier II bonds issued. (5) Excludes subordinate debt in nature of Tier II bonds and Upper Tier II bonds.
As at December 31, 2011 2012
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost
(%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost(6)
(%)
(in ` millions, except percentages) Interest-bearing liabilities:
118
As at December 31, 2011 2012
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost
(%)
Average Balance(1)
Interest Income/ Expense
Average Yield/ Cost(6)
(%)
(in ` millions, except percentages) Deposits 126,922.0 7,521.8 7.9 108,982.5 6,917.6 8.5 Borrowings(4) 20,303.3 986.0 6.5 7,281.9 834.7 15.3 Others - - - - - -
Total interest-bearing liabilities
147,225.4 8,507.8 7.7 116,264.4 7,752.3 8.9
Other liabilities(5) 5,675.1 - - 7,529.4 - - Capital and reserves 8,460.3 - - 7,313.7 - - Total non-interest bearing liabilities and capital
14,135.4 - - 14,843.1 - -
Total capital and liabilities 161,360.7 - - 131,107.5 - -
(1) Average Balance is computed as the simple average of the monthly balances extracted from the monthly returns in Form X filed with the RBI which is from books of accounts.
(2) Excludes balances with RBI held for CRR which do not carry interest. (3) Includes balances with RBI held for CRR which do not carry interest. (4) Includes subordinate debt in nature of Tier II bonds and Upper Tier II bonds issued. (5) Excludes subordinate debt in nature of Tier II bonds and Upper Tier II bonds. (6) Average Yield / Cost % for the nine months ended December 31, 2012 have been expressed in an annualized manner. Annualization
has been done by multiplying the numerator by a factor of 4/3. Financial Indicators
Year ended March 31, 2010 2011 2012
Nine months ended
December 31, 2012(13)
(in ` millions, except percentages) Average interest-earning assets(1) 60,774.5 99,378.9 136,690.6 118,960.5 Average interest-bearing liabilities(2) 59,025.4 99,244.5 144,476.3 116,264.4 Average total assets(3) 67,134.6 111,888.0 158,961.2 131,107.5 Average shareholders' equity(4) 4,245.6 6,301.4 7,698.5 6,987.7 Average interest-earning assets as a percentage of average total assets (%)
90.5 88.8 86.0 90.7
Average interest-bearing liabilities as a percentage of average total assets (%)
87.9 88.7 90.9 88.7
Average interest-earning assets as a percentage of average interest-bearing liabilities (%)
103.0 100.1 94.6 102.3
Yield on interest earning assets (%)(5) 8.8 9.1 10.2 11.0 Cost of Funds (%)(6) 6.7 6.5 7.9 8.9 Spread (%)(7) 2.1 2.7 2.3 2.1 Net Interest Margin (%)(8) 2.1 2.4 1.6 2.1 Return on Assets (%)(9) 0.4 0.2 (0.7) (0.3) Return on Equity (%)(10) 5.5 4.1 (15.0) (3.7) Cost to Income Ratio (%)(11) 83.3 83.6 125.0 94.3 Revenue per Employee(12) 1.9 2.9 4.4 4.0
(1) Average Interest-earning Assets is the simple average of the monthly balances of interest earning assets, extracted from the monthly returns in Form X filed with the RBI.
(2) Average Interest-bearing Liabilities is the simple average of the monthly balances of interest bearing liabilities, extracted from the monthly returns in Form X filed with the RBI.
(3) Average Total Assets is the simple average of the monthly balances of total assets, extracted from the monthly returns in Form X filed with the RBI.
(4) Average Shareholders' Equity is the simple average of the balances of Shareholders' Equity at the beginning and at the end of the period. Shareholders' Equity consists of Share Capital, ESOS outstanding, Reserves and Surplus excluding Revaluation Reserves.
(5) Yield is the ratio of interest income to Average Interest-earning Assets. (6) Cost of Funds is the ratio of interest expense to Average Interest-bearing Liabilities. (7) Spread is the difference between Yield and Cost of Funds. (8) Net Interest Margin is the ratio of Net Interest Income to the Average Total Assets. Net Interest Income is the excess of interest income
over interest expense. (9) Return on assets is the ratio of Net Profit to Average Total Assets. (10) Return on Equity is the ratio of Net Profit to Average Shareholders' Equity.
119
(11) Cost to Income Ratio is the ratio of Operating Expenditure to Total Revenue. Operating Expenditure does not include Interest Expenditure or Provisions and Contingencies. Total Revenue is the sum of Net Interest Income and Other Income.
(12) Revenue per Employee is computed by dividing Total Revenue by the average number of employees as at the end of the period. (13) Yield, Cost of Funds, net Interest Margin, Return on Assets and Return on Equity for the nine months ended December 31, 2012 have
been expressed in an annualized manger. Annualization has been done by multiplying the numerator by a factor of 4/3. Core Fee/Other Income
Fiscal year ended March 31, 2010 2011 2012
Nine months ended December 31, 2012
(` in millions) Commissions, exchange and brokerage 70.3 87.2 85.0 61.9 Profit on sales of investments 177.9 96.8 88.7 94.9 Profit on sale of land, buildings and other assets 7.1 5.2 10.5 2.1 Profit on exchange transactions 23.3 56.6 118.8 53.6 Income from insurance 57.0 66.1 82.9 100.8 Miscellaneous income 574.2 1,155.8 1,050.5 393.5 Total Fee/Other income 909.8 1,467.7 1,436.4 706.8 Deposits
As of March 31, 2010 2011 2012
As of December 31, 2012
Amount % Amount % Amount % Amount % (` in millions, except percentages)
Current Accounts (CA) 5,634.7 8.0 15,311.9 12.2 8,642.6 7.3 8,832.6 7.9 Savings Accounts (SA) 9,880.8 13.9 13,380.2 10.7 14,197.5 12.0 14,897.3 13.3 CASA 15,515.5 21.9 28,692.1 22.9 22,840.1 19.3 23,729.9 21.2 Term deposits 55,469.3 78.1 96,604.2 77.1 95,204.0 80.7 88,536.7 78.8 Total Deposits 70,984.8 100.0 125,296.3 100.0 118,044.1 100.0 112,266.6 100.0 Borrowings The following table sets forth, for the periods indicated, information related to our short-term borrowings and long-term borrowings, which comprised primarily of refinancing from financial institutions and banks and subordinated debt.
Years ended March 31,
2010 2011 2012 Nine months
ended December 31, 2012
(` in millions, except percentages) Period end balance 3,175.5 6,261.1 17,215.1 8,731.1 Average balance during the period(1) 2,900.0 6,000.3 17,850.1
10,647.1 Interest expense 237.9 570.5 1,305.4 834.7 Average interest rate during the period(2)(%) 8.2% 9.5% 7.3% 10.4%
(1) Average is the simple average of the monthly balances of borrowings, extracted from the monthly returns in Form X filed with the RBI. In respect of the nine months ended December 31, 2012, as the month end balances for certain borrowings as per Form X was "NIL"; daily balances were taken to calculate the average balances.
(2) Represents the ratio of interest expense on borrowings to the average balances of borrowings. (3) Average interest rate was annualised for the nine months ended December 31, 2012. Lower Tier II Debt/Subordinated We obtain funds from the issuance of unsecured non-convertible subordinated debt securities, which qualify as lower Tier II capital under RBI guidelines for assessing capital adequacy. As of March 31, 2012 and December 31, 2012, our outstanding subordinated debt aggregated ` 2,145.0 million and ` 3,212.0 million, respectively. The following table sets forth information with respect to subordinated debt issued by us, as of December 31, 2012:
Series Date of Allotment Rate of Interest Date of Redemption Amount (in ` millions)
Series 6 30.03.2006 9.0% 30.06.2013 100.0 Series 7 30.09.2006 9.7% 29.12.2013 170.0 Series 8 30.09.2009 10.3% 30.04.2015 1500.0
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Series Date of Allotment Rate of Interest Date of Redemption Amount (in ` millions)
Series 9 20.01.2012 11.0% 20.07.2018 100.0 Series 10A 29.05.2012 11.9% 29.04.2018 545.0 Series 10B 29.05.2012 12.0% 29.05.2019 142.0 Series 11A 03.08.2012 11.9% 03.05.2018 293.0 Series 11B 03.08.2012 12.0% 03.08.2019 37.0 Series 13B 10.12.2012 12.0% 10.12.2019 50.0
Total 2937.0 Upper Tier II instruments outstanding as of December 31, 2012
Series Date of Allotment Rate of Interest Date of Redemption Amount (in Rs. millions)
Series 1 28.07.2010 10.0% 30.07.2025 275.0 Investment Portfolio The following tables set forth, as of the dates indicated, information related to our investments:
As of March 31, 2010 2011 2012
Held to Maturity
Available for Sale
Held for
Trading
Held to Maturity
Available for Sale
Held for
Trading
Held to Maturity
Available for Sale
Held for
Trading
Particulars
(` in millions) Government securities
15,728.4 2,770.4 50.0 23,262.1 8,529.9 1,306.9 28,135.6 12,756.5 0.0
Other approved securities
0.0 0.0 0.0 0.0 1.2 0.0 0.0 0.2 0.0
Shares 0.0 33.0 0.0 0.0 33.0 0.0 0.0 151.3 0.0 Debentures and bonds
0.0 330.0 0.0 0.0 622.1 1,465.6 0.0 802.7 0.0
Subsidiaries and joint ventures
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0
Others including deposits under Rural Infrastructure Development Scheme with NABARD, security receipts and pass through certificates
1,315.9 131.3 0.0 1,220.7 47.7 0.0 935.0 984.2 0.0
Total 17,044.3 3,264.7 50.0 24,482.8 9,233.9 2,772.5 29,070.6 14,694.9 0.0
As of December 31, 2012 Held to Maturity Available for Sale Held for Trading
Particulars
(` in millions) Government securities 25,043.9 10,242.2 101.1 Other approved securities 0.0 0.2 0.0 Shares 0.0 151.3 0.0 Debentures and bonds 0.0 1,032.7 0.0 Subsidiaries and joint ventures 0.0 0.0 0.0 Others including deposits under Rural Infrastructure Development Scheme with NABARD, security receipts and pass through certificates
1,383.4 3,341.0 0.0
Total 26,427.3 14,767.4 101.1 Asset Liability Gap
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The following table sets forth our asset-liability gap position with respect to INR assets and liability as of December 28, 2012, which was the last statutory reporting Friday in the nine months ended December 31, 2012 prepared in line with the RBI guidelines on asset liability management:
Next Day
2 days to 7 days
8 days to 14 days
15 days to
28 days
29 days and up
to 3 months
Over 3 months & up to
6 months
Over 6 months & up to 1 year
Over 1 year & up to 3 years
Over 3 years & up to 5 years
Over 5 years
Total OUT FLOWS
(` in millions) Capital 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 851.4 851.4 Reserves & Surplus
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 6,430.7 6,430.7
Deposits 615.8 1,739.6 3,913.5 2,039.4 12,634.4 8,538.5 16,847.3 51,101.1 6,125.4 895.2 104,450.1
Borrowings
0.0 374.1 626.1 42.6 2,310.4 1,691.1 3,968.7 1,649.2 589.0 0.0 11,251.2
Other Liabilities*
799.6 3,219.9 3,744.0 7.9 44.5 88.4 325.3 4,314.6 246.6 1,525.6 14,316.5
A. Total Outflows
1,415.4 5,333.6 8,283.6 2,089.9 14,989.3 10,318.0 21,141.3 57,064.9 6,961.0 9,702.9 137,299.9
Next Day
2 days to 7 days
8 days to 14 days
15 days to 28 days
29 days and up
to 3 months
Over 3 months & up to
6 months
Over 6 months & up to 1 year
Over 1 year & up to 3 years
Over 3 years & up to 5 years
Over 5 years
Total IN FLOWS
(` in millions) Cash 2,137.6 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 2137.6 Balances with RBI
67.1 144.3 177.2 18.8 104.7 134.5 298.1 3133.5 46.8 409.4 4534.2
Balances with other Banks
105.1 250.0 500.0 1,504.2 1,000.0 160.0 0.0 0.0 0.0 0.0 3519.3
Investments
9,134.8 2,580.4 726.6 0.0 240.2 2,029.2 1,353.2 2604.7 6752.0 14428.6 39849.6
Advances 512.2 1,597.7 2,682.3 2,997.3 8,867.0 7,443.7 9,131.1 26928.7 4495.4 9220.0 73875.3
Fixed Assets
0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 0.0 1390.8 1390.8
Other Assets*
544.8 4,518.5 3,816.3 0.0 0.0 0.0 0.0 2252.0 0.0 861.5 11993.1
B. Total Inflows
12,501.6
9,090.9 7,902.4 4,520.3 10,211.9 9,767.4 10,782.4 34918.9 11,294.2 26,310.3
137,299.9
C - GAP (B - A)
11,086.2
3,757.3 (381.2) 2,430.4 (4,777.4) (550.6) (10,358.9)
(22,146.0)
4,333.2 16,607.4
0.0
*Other liabilities and Other Assets does not include interest accrued. Loan Portfolio As of March 31, 2012 and December 31, 2012, our gross loan portfolio was ` 88,040.8 million and ` 74,713.4 million, respectively. As of each date, almost all our gross loans are to borrowers in India and are denominated in Indian Rupees. For description and further information on our loan products, see "Our Business" on page 97. The following table sets forth, as of the dates indicated, our net portfolio classified by product groups:
As at March 31, 2010 2011 2012
As of December 31, 2012
Classification of Loans and Advances
(in Rs. millions)
122
As at March 31, 2010 2011 2012
As of December 31, 2012
Classification of Loans and Advances
(in Rs. millions) Bills purchased and discounted 1,097.0 11,526.8 2,351.9 1,467.2 Cash credits, overdrafts and loans repayable on demand
17,771.0 11,203.7 15,088.8 15,822.3
Term loans 31,194.6 67,921.0 70,139.8 56,458.1 Total Net Loans and Advances 50,062.6 90,651.5 87,580.5 73,747.6
The following table sets forth, as of the dates indicated, our gross outstanding loans and advances categorized by activity:
As at March 31, 2010 2011 2012
As of December 31, 2012
Loans % Loans % Loans % Loans %
Classification of Loans and Advances
(in ` millions excluding percentages)
Infrastructure 11,594.1 23.0 12,403.6 13.6 7,504.5 8.5 11,878.9 15.9 NBFCs 8,307.2 16.5 5,186.7 5.7 4,107.3 4.7 4,033.3 5.4 Engineering 1,663.5 3.3 1,823.0 2.0 698.0 0.8 1,672.8 2.2 Cement 1,400 2.8 1,022.7 1.1 440.3 0.5 305.0 0.4 Textiles 1,387.6 2.8 1,797.1 2.0 1,975.7 2.3 1,880.9 2.5 Chemicals 1,364.4 2.7 1,543.6 1.7 1,443.0 1.6 1,643.9 2.2 Paper & Paper products
1,322.8 2.6 1,380.2 1.5 126.5 0.1 131.1 0.2
Gems & Jewellery 1,081.3 2.1 2,244.5 2.5 2,306.7 2.6 3,811.8 5.1 Rubber Products 559.1 1.1 1,010.4 1.1 434.3 0.5 363.7 0.5 Metal Products 250.0 0.5 226.7 0.2 2,951.7 3.4 1,869.9 2.5 Automobiles 200.0 0.4 863.1 1.0 469.9 0.5 1,172.0 1.6 Wood Products 0.0 0.0 0.0 0.0 0.0 0.0 95.2 0.1 Mining & Non-metallic mineral products
27.0 0.1 21.8 0.0 0.0 0.0 124.8 0.2
Sugar, tea & food processing
287.5 0.6 148.1 0.2 529.9 0.6 2,044.2 2.7
Others 20,965.0 41.6 61,371.0 67.4 65,053.0 73.9 43,685.9 58.5 Total Outstanding Gross loans(1)
50,409.5 100.0 91,042.5 100.0 88,040.8 100.0 74,713.4 100.0
(1) Gross loans is the total loan outstanding as of a date without reducing the provisions made for non-performance assets. Recognition of Non-Performing Assets As a commercial bank operating in India, we recognize NPAs strictly in accordance with the RBI's guidelines. The guidelines require Indian banks to classify their NPAs into three categories, as described below, based on the period for which the asset has remained non-performing and the estimated realization of amounts due in relation to such asset. Further, the NPA classification is at the borrower level, rather than at the facility level, and, accordingly, if one of the loans granted to a borrower becomes non-performing, such borrower is classified as non-performing and all loans due from him are so classified. Substandard Assets
An asset becomes non-performing if interest and/or installment of principal in relation thereto remain overdue for more than 90 days (an exception to this rule is that loans to agricultural borrowers are classified as non- performing only if the loan remains overdue for more than two harvest seasons). With effect from March 31, 2005, in accordance with RBI guidelines, a substandard asset is an asset that has remained non-performing for a period of up to 12 months.
Doubtful Assets
123
With effect from March 31, 2005, in accordance with RBI guidelines, a doubtful asset is an asset that has remained non-performing for a period exceeding one year. Further, with effect from March 31, 2005, doubtful assets are to be classified further into Doubtful-I, Doubtful-II and Doubtful-III, depending on the period such assets have been classified as doubtful, in the following manner:
a. If the asset has remained in the doubtful category for a period of up to one year, it is classified as a Doubtful-I asset;
b. If the asset has remained in the doubtful category for a period of more than one year but less than three years, it is classified as a Doubtful-II asset; and
c. If the asset has remained in the doubtful category for a period of more than three years, it is classified as a Doubtful-III asset.
Loss Assets
In accordance with the RBI guidelines, a loss asset is an asset that is considered irrecoverable with little or no salvage value.
In cases of serious credit impairment, an asset is required to be immediately classified as doubtful or as a loss asset, as appropriate. Further, erosion in the value of the security provided may also be considered significant when the realizable value of the security is less than 50% of the value as assessed by us or as accepted by the RBI at the time of the last inspection of the security, as the case may be. In such a case, the assets secured by such impaired security may immediately be classified as doubtful. If the realizable value of the security, as assessed by our appraisers or by the RBI, is less than 10% of the amount outstanding from the borrower providing such security, the value of the security is ignored and the asset is immediately classified as a loss, which is either written off or fully provided for.
The table below sets forth our NPA position as of the dates specified:
As of March 31,
2010 2011 2012 As of December 31,
2012
(` in millions, except percentages) Sub-standard loans:
Amount 355.7 187.8 535.9 2,615.3 As a percentage of total NPAs 45.9 28.0 51.4 83.6
Doubtful loans: Amount 285.7 324.9 358.5 357.3 As a percentage of total NPAs 36.9 48.4 34.4 11.4
Loss loans: Amount 133.6 158.2 148.3 155.9 As a percentage of total NPAs 17.2 23.6 14.2 5.0
Gross NPAs 775.0 670.9 1,042.7 3,128.5
As of March 31,
2010 2011 2012 As of
December 31, 2012
Category of Advance - Business segments
(` in millions) Gross Advances 50,409.5 91,042.5 88,040.8 74,713.4 Retail Banking 589.1 400.7 826.3 1,318.3 Wholesale Banking 0.0 0.0 0.0 1351.6 SME Banking 123.3 136.4 76.3 329.5 Micro Finance and Agricultural Lending 62.6 133.8 140.1 129.1 Gross NPAs 775.0 670.9 1,042.7 3,128.5 Net NPAs 419.4 274.7 580.0 2160.2
As of December 31, 2012, gross NPA as a proportion of gross loans were 4.2% and net NPA as a proportion of net loans were 2.9%. We had, as of December 31, 2012, effected a provision cover of 31.5% of our gross NPAs.
124
Analysis of Non-Performing Loans by Industry Sector
As of March 31, 2011 2012
As of December 31, 2012
Gross Loans/
Advances
Gross NPA
% of Gross
NPA to Gross Loans/
Advances
Gross Loans/
Advances
Gross NPA
% of Gross
NPA to Gross Loans/
Advances
Gross Loans/
Advances
Gross NPA
% of Gross
NPA to Gross Loans/
Advances
(` in millions, except percentages) Agriculture 9,222.7 59.9 0.6 9,081.3 61.1 0.7 11,835.7 58.3 0.5 Small scale industries
12,149.8 62.7 0.5 16,054.0 28.5 0.2 10,186.5 26.0 0.3
Other Priority Sector
4,279.9 254.3 5.9 2,968.1 277.1 9.3 1,709.6 594.0 34.7
Total Priority Sector
25,652.4 376.9 1.5 28,103.4 366.7 1.3 23,731.8 678.3 2.9
Total Non-Priority Sector
65,390.1 294.0 0.4 59,937.4 676.0 1.1 50,981.6 2,450.2 4.8
NPAs Among Public Sector
0.0 0.0 0.0 0.00 0.0 0.00 0.0 0.0 0.0
Grand Total
91,042.5 670.9 0.7 88,040.8 1,042.7 1.2 74,713.4 3,128.5 4.2
Provision for Non-Performing Assets The following table sets forth, for the periods indicated, movements in our provisions against NPAs:
For the year ended March 31, 2010 2011 2012
For the nine months ended December 31,
2012
Particulars
(` in millions) NPA Provisions: Total NPA provisions at the beginning of the year/period 355.5 346.9 391 460.3 Additions during the year/period 128.5 159.1 233.0 683.2 Reductions during the period on account of recovery and write-offs
137.1 115.0 164.0 177.7
Total NPA provisions at the end of the year/period 346.9 391.0 460.0 965.8 Non-Accrual Policy When an asset is classified as non-performing, interest accrual thereon is stopped and the unrealized interest is reversed by a debit to our profit and loss account. In accordance with RBI guidelines, interest realized on NPAs may be credited as income, provided that the interest does not relate to additional credit facilities sanctioned to the borrower. The RBI has also stipulated that in the absence of a clear agreement between us and the borrower for the purpose of appropriating recoveries in NPAs (i.e. towards principal or interest due), banks should adopt an accounting principle and exercise the right of appropriation of recoveries in a uniform and consistent manner. In the case of NPAs where recoveries are effected, our policy is to appropriate the same against interest. If any of a borrower's loans are classified as an NPA, all loans to such borrower are classified as NPAs. Policy for making Provisions for Non-Performing Assets The RBI policy on provisioning for NPAs is described below:
125
Substandard assets 15% for the secured advance & 25% for unsecured of the amount outstanding
Doubtful-I — 100% of the unsecured portion and 25% of the secured portion Doubtful-II — 100% of the unsecured portion and 40% of the secured portion
Doubtful assets
Doubtful-III — 100% of the unsecured portion and 100% of the secured portion Loss assets 100% to be provided or written-off.
We follow the policy of NPA provisioning prescribed by the RBI. The tables below set out our cost of credit as of the dates specified.
As at March 31, 2010 2011 2012
As of December 31, 2012
(` in millions, except percentages) A. Bad debts written off and provisions for NPA - corporate loan book
- - - 234.9
B. Bad debts written off, diminution in value/loss on sale of repossessed vehicles and provisions for NPA - retail loan book
136.4 178.2 268.5 455.1
Total credit costs (A + B) 136.4 178.2 268.5 690.0 Credit costs (basis points on advances) (%) 0.3% 0.3% 0.3% 0.9% Net NPAs 419.4 274.7 580.0 2,160.2 Provisioning Coverage Ratio (%) 48.0 60.5 45.6 31.5
Provisions on standard loans
In accordance with the RBI guidelines, the general provision on standard assets has been made at 0.40% of the outstanding amount on a portfolio basis except in the case of direct advances to agriculture and SME sectors, where the provision has been made at 0.25% of the outstanding amount. NPA Strategy The Bank extensively utilizes the provisions of the SARFESI Act to enforce our interest in securities charged to us in case of defaulting borrowers as well as takes appropriate portfolio intervention such as reporting to CIBIL and RBI as Wilful defaulter, initiating legal actions, engaging Recovery Agencies for timely recovery of impaired assets and sale of non-performing loans to specialised asset reconstruction companies. We have also restructured loans to customers who have faced cash flow problems causing delay or default in servicing their loan obligations. Restructuring of Debt In case of restructured or rescheduled accounts we make provisions for the sacrifice against erosion/ diminution in fair value of restructured loans, in accordance with the general framework of restructuring of advances issued by the RBI pursuant to its circular dated August 27, 2008 and subsequently modified pursuant to its circular dated April 9, 2009. The erosion in fair value of advances is computed as difference between the fair values of the loan before and after restructuring. The fair value of the loan before restructuring is computed as the present value of cash flows representing the interest at the existing rate charged on the advance before restructuring and the principal, discounted at a rate equal to our BPLR or Base Rate as on the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. The fair value of the loan after restructuring is computed as the present value of cash flows representing the interest at the rate charged on the advance on restructuring and the principal, discounted at a rate equal to our BPLR or Base Rate as at the date of restructuring plus the appropriate term premium and credit risk premium for the borrower category on the date of restructuring. The restructured accounts have been treated as standard (unless the account was an NPA at the time of restructuring or slipped into NPA subsequently).
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As on March 31, 2012 As on December 31, 2012 No. Amount No. Amount
Particulars
(` in millions, except percentages) Restructured Loans (Net) 8.0 320.0 11.0 1,075.2 Total Gross Advances 170,200.0 88,040.8 233,665.0 74,713.4 % Restructured Loans (net) to Total Advances 0.0% 0.4% 0.0% 1.4% Capital Adequacy We are subject to the capital adequacy requirements of the RBI. We are required to maintain a minimum capital adequacy ratio of 9% (of which Tier 1 Capital is 6%) prescribed by RBI guidelines based on total capital to risk weighted assets. For a description of the RBI's capital adequacy guidelines, please see "Regulations and Policies". Our capital adequacy ratios as at March 31, 2010, 2011 and 2012 and December 31, 2011 and 2012 were as follows:
As of March 31, As at December 31, 2010 2011 2012 2011 2012
(` in millions) Tier I Capital 4,141.6 8,076.0 6,472.3 7,397.0 6,211.9 Tier II Capital 1,970.6 2,055.4 1,804.4 1,738.8 2,481.8 Total Capital Funds 6,112.2 10,131.4 8,276.6 9,135.8 8,693.7 Risk Weighted Assets under Credit Risk 43,821.2 80,110.1 80,339.1 86,327.8 65,850.2 Risk Weighted Assets under Operational Risk 2,580.2 3,129.1 4,632.8 4,632.8 5,685.1 Risk Weighted Assets under Market Risk 649.5 2,621.0 2,264.9 1,517.1 3,557.8 Total Risk Weighted Assets 47,050.9 85,860.2 87,236.8 92,477.7 75,093.1 CRAR (%) 13.0% 11.8% 9.5% 9.9% 11.6% Tier I Capital to Risk Weighted Assets (%) 8.8% 9.4% 7.4% 8.0% 8.3% Tier II Capital to Risk Weighted Assets (%) 4.2% 2.4% 2.1 1.9% 3.3% CRAR (%) (If Net Profit is considered) 13.0% 11.8% 9.5% 9.9% 11.6% Tier I Capital to Risk Weighted Assets (%) 8.8% 9.4% 7.4% 8.0% 8.3% Tier II Capital to Risk Weighted Assets (%) 4.2% 2.4% 2.1 1.9% 3.3% The following table sets forth the growth in Risk Weighted Assets pertaining to Credit Risk and Credit Exposure for the periods indicated below:
As of March 31, 2011 over that of March 31, 2010
As of March 31, 2012 over that of March 31,
2011
As of December 31, 2012 over that of March 31,
2012 Growth in Risk Weighted Assets – Credit
82.8% 0.3% (18.0%)
Growth in Exposure* 82.1% 1.0% (12.6%) *Exposure as per RBI guidelines.
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REGULATION AND POLICIES
Our Bank is a scheduled commercial bank within the meaning of RBI Act. The following is an overview of the certain sector specific Indian laws and regulations which are relevant to our Bank’s business. Taxation statutes such as the IT Act, labour laws such as Contract Labour (Regulation and Abolition) Act, 1970 and other miscellaneous regulations and statutes such as the Trade Marks Act, 1999, apply to us as they do to any other Indian company. The description of laws and regulations set out below are not exhaustive, and are only intended to provide general information to QIBs and is neither designed nor intended to be a substitute for professional legal advice. The statements below are based on the current provisions of Indian law, and the judicial and administrative interpretations thereof, which are subject to change or modification by subsequent legislative, regulatory, administrative or judicial decisions. The main legislation governing commercial banks in India is the Banking Regulation Act. Other important laws include the Reserve Bank of India Act, the Negotiable Instruments Act and the Banker's Books Evidence Act. Additionally, the RBI, from time to time, issues guidelines to be followed by banks. Banking companies are also subject to the purview of the Companies Act, to the extent applicable, and if such companies are listed on a stock exchange in India then various regulations of the SEBI would additionally apply to such companies, including the Listing Agreements. Banking Regulations
Banking Regulation Act, 1949
Commercial banks in India are required to obtain a license from the RBI to carry on banking business in India. Such license is granted to the bank subject to compliance of certain conditions including (i) that the bank has the ability to pay its present and future depositors in full as their claims accrue; (ii) that the affairs of the bank will not be or are not likely to be conducted in a manner detrimental to the interests of present or future depositors; (iii) that the bank has adequate capital and earnings prospects; and (iv) that public interest will be served if such license is granted to the bank. The RBI has the power to cancel the license if the bank fails to meet the qualifications or if the bank ceases to carry on banking operations in India. Additionally, the RBI has issued various reporting and record keeping requirements for such commercial banks. The appointment of the auditors of the banks is subject to the approval of the RBI. The RBI can direct a special audit in the interest of the depositors or in the public interest. It also sets out the provisions in relation to the loan granting activities of a banking company. The Banking Regulation Act specifies the business activities in which a bank may engage. Banks are prohibited from engaging in business activities other than the specified activities. No shareholder in a bank can exercise voting rights on poll in excess of 10% of total voting rights of all the shareholders of the bank. However, the RBI may increase this ceiling to 26% in a phased manner.
Further, the Banking Regulation Act, as amended, requires any person to seek prior approval of the RBI, to acquire or agree to acquire, shares or voting rights of a bank, by himself or with persons acting in concert, wherein such acquisition (taken together with shares or voting rights held by him or his relative or associate enterprise or persons acting in concert with him) results in aggregate shareholding of such person to be 5% or more of paid up capital of a bank or entitles him to exercise 5% or more of the voting rights in a bank.
Further, the RBI requires the banks to create a reserve fund to which it must transfer not less than 20% of the profits of each year before dividends. If there is an appropriation from this account, the bank is required to report the same to the RBI within 21 days, explaining the circumstances leading to such appropriation.
Recent amendments also permit the RBI to establish a “Depositor Education and Awareness Fund”, which will take over the deposit accounts which have not been claimed or operated for a period of 10 years or more.
The recent amendments also confer power on the RBI (in consultation with the central government) to supersede the board of directors of a banking company for a period not exceeding a total period of 12 months, in public interest or for preventing the affairs of the bank from being conducted in a manner detrimental to the interest of the depositors or any banking company or for securing the proper management of any banking company.
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The RBI may impose penalties on banks and its employees in case of infringement of regulations under the Banking Regulation Act. The penalty may be a fixed amount or may be related to the amount involved in any contravention of the regulations. The penalty may also include imprisonment. The banks are also required to disclose the penalty in their annual report.
Restrictions on Investments in a Single Company
A bank may hold shares in a subsidiary company in accordance with the provisions of the Banking Regulation Act. Further the “Investments in subsidiaries and other companies – Guidelines”, issued by the RBI on December 12, 2011 lay down the framework for banks’ investments in companies which are not subsidiaries.
Regulatory Reporting and Examination Procedures
The RBI is empowered under the Banking Regulation Act to inspect a bank. The RBI monitors prudential parameters at quarterly intervals. To this end and to enable off-site monitoring and surveillance by the RBI, banks are required to report to the RBI on various aspects. The RBI also conducts periodical on-site inspections on matters relating to the bank's portfolio, risk management systems, internal controls, credit allocation and regulatory compliance, at intervals ranging from one to three years. The RBI also conducts on-site supervision of selected branches with respect to their general operations and foreign exchange related transactions.
Maintenance of Records
The Banking Regulation Act specifically requires banks to maintain books and records in a particular manner and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to the Bank as in the case of any company. The “KYC / AML Guidelines” framed by the RBI also provide for certain records to be maintained for a minimum period of ten years from the cessation of relationship with the client.
Regulations Relating to the Opening of Branches
As per the “Master Circular on Branch Authorization” dated July 2, 2012, banks are required to obtain licenses from the RBI to open or shift its branches. However, prior approval from RBI is not required to shift a branch to any location within the city, town or village. From August 2005, the process of giving authorization to individual branches was replaced by a system of aggregated approvals on an annual basis. Permission of the RBI is not required for installation of on-site ATMs. Further since June 2009 RBI has permitted installation of off-site ATMs at centres identified by banks, without the need for permission from the RBI in each case. Further, new private sector banks are required to ensure that at least 25% of their total branches are in semi-urban and rural centres on an ongoing basis.
Capital adequacy requirements
As per the RBI “Master Circular on Prudential Norms on Capital Adequacy- Basel I framework”, the Bank is required to maintain a minimum CRAR of 9%.
The total capital of a banking company is classified into Tier I capital and Tier II capital. Tier I capital, the core capital, provides the most permanent and readily available support against unexpected losses. It comprises paid up capital, reserves consisting of any statutory reserves and innovative perpetual debt instruments issued in compliance with extant regulations issued by the RBI for inclusion in Tier I capital. Tier II capital includes provision for standard assets, revaluation reserves, hybrid debt capital instruments (which combine certain features of both equity and debt securities and are able to support losses on an ongoing basis without triggering liquidation), and subordinated debt. Deductions permitted from Tier I capital are (a) Intangible assets and losses in the current period and those brought forward from previous periods and (b) deferred tax asset. Further the investments of a bank in the equity as well as non-equity capital instruments issued by a subsidiary, which are reckoned towards its regulatory capital as per norms prescribed by the respective regulator, should be deducted at 50 per cent each, from Tier I and Tier II capital of the parent bank..
Further in May 2012, the RBI issued guidelines on the Basel III capital regulations. These guidelines would become effective from April 1, 2013 in a phased manner. The Basel III capital ratios will be fully implemented as on March 31, 2018. In January 2006, the RBI issued guidelines permitting banks to issue perpetual debt with a call option after not less than 10 years, to be exercised with its prior approval, for inclusion in Tier I Capital up to a maximum of 15% of total Tier I Capital as on March 31, of the previous financial year. The RBI also
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permitted banks to issue debt instruments with a minimum maturity of 15 years and a call option after not less than 10 years, to be exercised with its prior approval, for inclusion in Tier II capital. In July 2006, the RBI issued guidelines permitting the issuance of Tier I and Tier II debt instruments denominated in foreign currencies. In October 2007, the RBI issued guidelines for issuance of certain type of preference shares as part of the regulatory capital.
To further ensure compliance with the guidelines of Basel II, the RBI has set out compliance periods for banks to transition into the Internal Ratings Based and Advanced Measurement Approach methods of risk assessment. Under the RBI’s guidelines, banks were to submit their revised methodologies by April 1, 2012, with the RBI set to approve these no later than March 31, 2014.
Prudential norms on income recognition, asset classification and provisioning pertaining to advances (“Prudential Norms”)
The RBI, pursuant to its “Master Circular on Prudential Norms on Income Recognition, Asset Classification and Provisioning Pertaining to Advances” (“Prudential Norms”) issued on July 2, 2012, has classified NPAs as (i) sub-standard assets; (ii) doubtful assets; and (iii) loss assets. These guidelines specify provisioning requirements specific to the classification of the assets.
In July 2005, the RBI issued guidelines on sales and purchases of NPAs between banks, financial institutions and NBFCs. These guidelines require that the board of directors of a bank must establish a policy for purchases and sales of NPAs. An asset must have been classified as non-performing for at least two years by the seller bank to be eligible for sale. In October 2007, the RBI issued guidelines regarding valuation of NPAs being put up for sale. Further, the RBI has advised banks to maintain provisioning coverage ratio of at least 70%.
The RBI has also issued a separate set of prudential guidelines on restructuring of advances by banks in relation to the norms/conditions, which must be fulfilled in order to maintain the category of the restructured account as a ‘standard asset’. The earlier guidelines issued by the RBI on restructuring of advances specified that “standard” advances should be re-classified as a “sub-standard” immediately on restructuring. Post August 2008 the RBI has issued a series of circulars on special regulatory treatment on restructuring of advances by banks. The RBI has specified that during the pendency of the application for restructuring of the advance, the usual asset classification norms continue to apply. However, as an incentive for quick implementation of the package, if the approved package is implemented by the bank as per the specified time schedule (within 120 days from the date of approval under the corporate debt restructuring (“CDR”) mechanism or within 90 days from the date of receipt of application by the bank in cases other than those restructured under the CDR mechanism), the asset classification status may be restored to the position which existed when the reference was made to the CDR cell in respect of cases covered under the CDR mechanism or when the restructuring application was received by the bank in non-CDR cases. This special regulatory treatment is not applicable to consumer and personal advances, advances classified as capital market exposures and advances classified as commercial real estate exposures.
Corporate debt restructuring mechanism (“CDR system”)
The institutional mechanism for restructuring has been set up through establishment of the CDR system in 2001. It is a joint forum of all banks and financial institutions and operates as a non-judicial body. The CDR system operates on the principle of super-majority amongst the participating banks and financial institutions for a particular advance. The Bank has signed the inter-se agreement (amongst the banks and financial institutions) and is accordingly a member of the CDR system. The Prudential Norms as mentioned above equally apply to the accounts restructured under the CDR system.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”)
The SARFAESI Act provides for sale of financial assets by banks and financial institutions to asset reconstruction companies. The Prudential Norms issued by the RBI describe the process to be followed for sales of financial assets to asset reconstruction companies. The banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realisation. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or PTCs issued by the asset reconstruction company or trusts set up by it to acquire the financial assets.
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Priority sector lending
The RBI circular on Priority Sector Lending- Targets and Classification dated July 20, 2012 sets out the broad policy in relation to priority sector lending. In accordance with this circular, the priority sectors for all scheduled banks include (i) agriculture; (ii) micro and small enterprises (“MSE”); (iii) education; and (iv) housing. While export credit is no longer a separate category under this circular, export credit for eligible activities under agriculture and MSE will be reckoned for priority sector lending under respective categories. Under the RBI guidelines, the priority sector lending targets are linked to adjusted net bank credit (net bank credit plus investments made by banks in non-statutory liquidity bonds included in the HTM category and not taking into account the recapitalisation bonds floated by the Government) or credit equivalent amount of off-balance sheet exposure, whichever is higher, as on March 31 of the previous year.
Export credit
As per the Master Circular on Export Credit issued on July 2, 2012, banks can offer export credit at interest rates at or above the Base Rate. Pre-shipment and post-shipment export credit can be provided in both Indian Rupees and foreign currencies. Banks are required to reach a level of outstanding export credit equivalent of 12% of each bank's adjusted net bank credit.
Exposure norms
As a prudent measure aimed at better risk management and avoidance of concentration of credit risk, the RBI has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). The RBI has prescribed exposure ceiling for a single borrower as 15% of capital funds and group exposure limit as 40% of capital funds. Relaxations are permitted in exceptional circumstances and lending to infrastructure sector. The total exposure to a single NBFC has been limited to 10% of the bank’s capital funds while exposure to non-banking asset finance company has been restricted to 15% of the bank’s capital funds. The limit may be increased to 15% and 20%, respectively, provided that the excess exposure is on account of funds lent by the NBFC to the infrastructure sector.
The aggregate exposure of a bank to the capital markets in all forms (both fund based and non-fund based) should not exceed 40% of its net worth, on both standalone and consolidated basis as on March 31 of the previous year.
Short-selling of Government securities
As per the “Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks” dated July 2, 2012, banks and primary dealers are allowed to undertake short sale of Government dated securities, subject to the short position being covered within a maximum period of three months, including the day of trade. Further, such short positions shall be covered only by outright purchase of an equivalent amount of the same security.
Regulations relating to Making Loans
The provisions of the Banking Regulation Act govern the making of loans by banks in India. The RBI issues directions covering the loan activities of banks. Some of the major guidelines of the RBI, which are now in effect, are as follows:
• The RBI has prescribed norms for banks lending to non-bank financial companies and the financing of public sector disinvestment.
• RBI introduced the “Base Rate” in place of the BPLR with effect from July 1, 2010. For loans sanctioned up to June 30, 2010, BPLR would be applicable. However, for those loans sanctioned up to June 30, 2010 which come up for renewal from July 1, 2010 onwards, Base Rate would be applicable.
• Section 21A of the Banking Regulation Act provides that the rate of interest charged by a bank shall not be reopened by any court on the ground that the rate of interest charged by a bank is excessive. The Banking Regulation Act provides for protection to banks for interest rates charged by them.
Regulations relating to interest rates on Rupee deposits held in domestic, Ordinary Non-Resident (“NRO”) and Non-Resident (External) (“NRE”) accounts
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As per the master circular on “Interest Rates on Rupee Deposits held in Domestic, Ordinary Non-Resident (NRO) and Non-Resident (External) (NRE) Accounts”, dated July 2, 2012, the RBI has permitted banks to independently determine their interest rates on savings and term deposits (minimum period of 7 days) under domestic/NRO accounts. Banks are also free to determine interest rates for savings deposits and term deposits of maturity of one year and above under NRE deposit accounts. However, interest rates offered by banks on NRO and NRE deposits cannot be higher than those offered by them on comparable domestic rupee deposits.
Regulations relating to Know Your Customer (“KYC”) and anti-money laundering
The RBI issued a master circular on July 2, 2012 prescribing the guidelines for KYC and anti-money laundering procedures. With effect from April 1, 2012, banks are not permitted to make payment of cheques/drafts/pay orders/banker’s cheques bearing that date or any subsequent date, if they are presented beyond the period of three months from the date of such instrument. Further, banks are required to frame their KYC policies incorporating (i) customer acceptance policy, (ii) customer identification procedures (including the allotment of unique customer identification code for existing customers by end-May 2013), (iii) monitoring of transactions and (iv) risk management.
Regulations relating to maintenance of statutory reserves
A bank is required to maintain, on a daily basis, CRR, which is a specified percentage of its NDTL, excluding interbank deposits, by way of a balance in a current account with the RBI. At present the required CRR is 4%. The RBI does not pay any interest on CRR balances. The CRR has to be maintained on an average basis for a fortnightly period and should not be below 70% of the required CRR on any day of the fortnight. The RBI may impose penal interest at the rate of 3% above the bank rate on the amount by which the reserve falls short of the CRR required to be maintained on a particular day and if the shortfall continues further the penal interest charged shall be increased to a rate of 5% above the bank rate in respect of each subsequent day during which the default continues.
In addition to the CRR, a bank is required to maintain SLR, a specified percentage of its NDTL by way of liquid assets like cash, gold or approved unencumbered securities. The percentage of this liquidity ratio is fixed by the RBI from time to time, pursuant to Section 24 of the Banking Regulation Act. At present, the RBI requires banks to maintain SLR of 23%. Further, in December 2011, the RBI has permitted banks to avail funds from the RBI on an overnight basis, under the Marginal Standing Facility, against their excess SLR holdings. Additionally, they can also avail themselves of funds, on an overnight basis below the stipulated SLR, up to 1% of their respective NDTL outstanding at the end of the second preceding fortnight.
Regulations relating to authorised dealers for foreign exchange and cross-border business transactions
The foreign exchange and cross border transactions undertaken by banks are subject to the provisions of the Foreign Exchange Management Act. All branches should monitor all non-resident accounts to prevent money laundering. The RBI master circular on External Commercial Borrowings and Trade Credits, dated July 2, 2012, states that no financial intermediary, including banks, will be permitted to raise external commercial borrowings or provide guarantees in favour of overseas lenders for external commercial borrowings.
The RBI master circular on risk management and interbank dealings, dated July 2, 2012, states that all categories of overseas foreign currency borrowings of banks, including existing external commercial borrowings and loans or overdrafts from their head office, overseas branches and correspondents and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 50% of their unimpaired Tier I capital or U.S$ 10 million (or its equivalent), whichever is higher. Overseas borrowings for the purpose of financing export credit, capital funds raised/augmented by the issue of innovative perpetual debt instruments and debt capital instruments in foreign currency, subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital and any other overseas borrowings with the specific approval of the RBI would continue to be outside the limit of 50%.
Secrecy obligations
A bank’s obligations relating to maintaining secrecy arise out of Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (for public sector banks specifically) and common law principles governing its relationship with its customers. Subject to certain exceptions, a bank cannot disclose any information to third parties. Further, the RBI may, in the public interest, publish the information obtained from the bank.
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Ownership restrictions
In terms of the Consolidated FDI Policy effective from April 10, 2012 (the “FDI Policy”) and the RBI Master Circular on Foreign Investment in India, effective from July 2, 2012, the total foreign ownership in a private sector bank cannot exceed 74% (49% under the automatic route and beyond 49% and up to 74% under the approval route) of the paid-up capital subject to guidelines for setting up branches or subsidiaries of foreign banks issued by the RBI. Shares held by foreign institutional investors within this limit of 74% cannot exceed 49% of the paid-up capital of the bank. The RBI’s acknowledgement is required for the acquisition or transfer of a bank’s shares, which will take the aggregate holding (both direct and indirect, beneficial or otherwise) of an individual or a group to equivalent of 5% or more of its total paid up capital. Further, the Banking Regulation Act, as amended, requires any person to seek prior approval of the RBI, to acquire or agree to acquire, shares or voting rights of a bank, by himself or with persons acting in concert, wherein such acquisition (taken together with shares or voting rights held by him or his relative or associate enterprise or persons acting in concert with him) results in aggregate shareholding of such person to be 5% or more of paid up capital of a bank or entitles him to exercise 5% or more of the voting rights in a bank. The RBI may grant acknowledgement for acquisition or transfer of shares that takes the acquirer’s shareholding to 10% or more and up to 30% of a private sector bank’s paid-up capital subject to consideration of various additional factors.
Guidelines for merger and amalgamation of private sector banks
The RBI issued guidelines in May 2005 on mergers and amalgamation of private sector banks. The guidelines relate to: (i) an amalgamation of two banking companies; and (ii) an amalgamation of a NBFC with a banking company. In the case of an amalgamation of two banking companies, the draft scheme of amalgamation must be approved by the board and majority of the shareholders of each of the banking companies. Additionally, such approved draft scheme must also be submitted to the RBI for sanction.
Where a NBFC is proposed to be amalgamated into a banking company, the banking company should obtain the approval of the board and the RBI before it is submitted to the relevant high court for approval.
Special status of banks in India
The special status of banks is recognised under various statutes including the SICA, Recovery of Debts Due to Banks and Financial Institutions Act, 1993, and the SARFAESI Act. As a bank, the Bank is entitled to certain benefits under the provisions of these legislations.
The Banking Ombudsman Scheme, 2006
The Banking Ombudsman Scheme, 2006 provides the extent and scope of the authority and functions of the Banking Ombudsman for redressal of grievances against deficiency in banking services, concerning loans and advances and other specified matters. On February 3, 2009, the said scheme was amended to provide for revised procedures for redressal of grievances by a complainant under the scheme.
Regulations governing International Operations
The Bank’s international operations are governed by regulations in the countries in which the Bank has a presence.
Consolidated Supervision Guidelines
In financial year 2003, the RBI issued guidelines for consolidated accounting and consolidated supervision for banks. These guidelines became effective on August 1, 2003. The principal features of these guidelines are:
• Consolidated financial statements: Banks are required to annually prepare consolidated financial statements intended for public disclosure
• Consolidated prudential returns: Banks are required to submit to the RBI, at periodic intervals, consolidated prudential returns reporting their compliance with various prudential norms on a consolidated basis, excluding insurance subsidiaries
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Restrictions on payment of dividends
The guidelines on payment of dividends by banks issued by the RBI in 2004 shifted focus from the “quantum of dividend” to “dividend payout ratio”. These guidelines have since been revised in 2005 and the banks have been given general permission to declare dividends subject to compliance with certain norms. Classification and Reporting of Fraud Cases The RBI issued a master circular on July 2, 2012 on the classification and reporting of fraud cases dated July 2, 2012. The fraud cases have been classified into misappropriation and criminal breach of trust, fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property, unauthorised credit facilities extended for reward or for illegal gratification, negligence and cash shortages, cheating and forgery, irregularities in foreign exchange transactions and any other type of fraud not coming under the specific heads as above. According to the RBI circular dated January 4, 2013, information relating to frauds for the quarters ending June, September and December may be placed before the Audit Committee of the Board of Directors during the month following the quarter to which it pertains, irrespective of whether or not these are required to be placed before the Board/Management Committee in terms of the Calendar of Reviews prescribed by RBI. Banks are also required to conduct an annual review of the frauds and place a note before the Board of Directors/Local Advisory Board for information. The reviews for the year-ended March may be put up to the Board before the end of the next quarter i.e. for the quarter ended June 30th and such reviews need not be sent to RBI. These may be preserved for verification by the Reserve Bank’s inspecting officers.
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BOARD OF DIRECTORS AND SENIOR MANAGEMENT Board of Directors The composition of our Board is governed by the provisions of the Companies Act, the Banking Regulation Act, the Listing Agreements and our Articles of Association. Our Articles of Association provide that the number of Directors shall not be less than three or more than 11, unless otherwise determined by our members in a general meeting. Our Board currently comprises of five Directors comprising of one executive Director and four non executive independent Directors. The Banking Regulation Act requires that at least 51.0% of our Directors shall have specialized knowledge or practical experience in one or more prescribed areas. Also, these directors must not have substantial interest in, or be connected with, whether as an employee, manager or managing agent, of any company (not being a company registered under Section 25 of the Companies Act) or firm which carries on any trade, commerce or industry which is not a small scale industrial concern, or be proprietors of any trading, commercial or industrial concern which is not a small scale industrial concern. As on the date of this Placement Document, all the Directors possess the prescribed special knowledge or practical experience and meet the conditions specified in the Banking Regulation Act. Our Articles of Association provide that at every Annual General Meeting of our Bank, one-third of the Directors for the time being or if their number is not three or multiples of three, then the number nearest to one-third shall retire from office. Two-thirds of the total number of Directors shall be persons whose period of office is liable to determination by the retirement of Directors by rotation and shall be appointed by the Bank in a general meeting. The remaining one-third of the Directors shall be appointed by the Board and shall not be liable to retirement by rotation nor taken into consideration in determining the retirement of Directors by rotation. The Directors so appointed by the Board shall be persons who possess one or more of the qualifications specified in the Banking Regulation Act. The Chairman any other whole time Director and Managing Director shall not retire by rotation and shall be within the one-third to be appointed by the Board. The Directors to retire are those who have been the longest in the office since their last appointment. A retiring Director is eligible for re-appointment. However under the Banking Regulation Act, none of our Directors, other than the Chairman, the Managing Director and CEO or any other whole time director can hold office continuously for a period exceeding eight years. Our Board of Directors may appoint any person as an additional director, but such a director shall hold office only up to the date of the next AGM, and he shall be eligible for appointment as a director at that meeting in accordance with the provisions of the Companies Act. The quorum for meetings of the Board of Directors is one-third of the total number of Directors (any fraction contained in that one-third being rounded off as one) or two Directors, whichever is higher. The following table sets forth details regarding the Board of Directors as at the date of this Placement Document:
Name Designation Mr. T.Y Prabhu Chairman, non executive, independent Director Mr. P.G Jayakumar Managing Director and CEO, executive Director Mr. K. Srikanth Reddy Non executive, independent Director Mr. K. Vijayaraghavan Non executive, independent Director Mr. P. Mohanan Non executive, independent Director
Brief Biographies of the Directors Mr. T.Y Prabhu aged 61 years, is the part time Chairman of our Board. Mr. Prabhu holds a bachelor’s degree in commerce from Mysore University, a bachelor’s degree in law from Bangalore University and is a certified associate of the Indian Institute of Banking and Finance (erstwhile Indian Institute of Bankers). Mr. Prabhu has previously held the post of chairman and managing director at the Oriental Bank of Commerce and served as executive director of Union Bank of India. He has also been associated with Canara Bank as the zonal head of Canara Bank’s New Delhi office. Mr. Prabhu has over 40 years of experience working with public sector banks. Mr. Prabhu was also appointed by the RBI as a member of the advisory group on FEMA and regulations
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relating to services like remittance. Mr. Prabhu was appointed as the part time Chairman with effect from November 7, 2012. Mr. P.G Jayakumar, aged 60 years, is our Managing Director and CEO. Mr. Jayakumar holds a bachelor’s degree in science from Kerala University and is a certified associate of the Indian Institute of Banking and Finance. Mr. Jayakumar took charge as the Managing Director and CEO our Bank, with effect from May 18, 2012. He has 35 years of experience with our Bank, working with the regional and zonal offices before joining the corporate office as general manager in 2006. Mr. K. Srikanth Reddy, aged 59 years, is a non executive independent Director on the Board of our Bank. Mr. Reddy holds a bachelor’s degree in commerce from Sri Venkateswara University, a master’s degree in business administration from Andhra University and has participated in the Long Defense Management Course at the College of Defence Management. He has previously worked with the Ministry of Planning and Programme Implementation, Ministry of Food Processing Industries, Ministry of Defence, Ministry of Communications, Ministry of Welfare, Ministry of Welfare and Tourism and the Ministry of Civil Aviation. Mr. Reddy was also a member of the Indian Civil Services for over 16 years. Mr. Reddy has been on the Board of our Bank since October 29, 2007. Mr. K. Vijayaraghavan, aged 66 years, is a non executive independent Director on the Board of our Bank. Mr. Vijayaraghavan holds a bachelor’s degree in economics and a master’s degree in economics from Kerala University and is a certified associate of the Indian Institute of Banking and Finance. He has previously worked with the RBI and retired in 2003 as chief general manager. Mr. Vijayaraghavan has served as the RBI’s nominee director on the board of The Catholic Syrian Bank Limited, The South Indian Bank Limited, The Nedungadi Bank Limited, State Bank of Travancore, South Malabar Gramin Bank, State Bank of Patiala, Himachal Pradesh Financial Corporation and Syndicate Bank. He has also worked as a lecturer in SD College, Alleppy, Kerala. Mr. Vijayaraghavan has been on the Board of our Bank since October 31, 2012. Mr. P. Mohanan, aged 64 years, is a non executive independent Director on the Board of our Bank. Mr. Mohanan holds a bachelor’s degree in law and a master’s degree in arts from Kerala University. He has participated in management programs at the Indian Institute of Management, Ahmedabad, the Indian School of Business, Hyderabad and undergone training in microfinance at Bank Rakia, Indonesia. He has previously worked with Canara Bank and retired as general manager, in charge of Canara Bank’s operations in the state of Kerala. While at Canara Bank, he was part of the core team involved in Canara Bank’s initial public offer. He has also contributed in the formulation of the Bank’s corporate governance policy. Mr. Mohanan has 35 years of experience in the field of banking. Mr. Mohanan has been on the Board of our Bank since October 31, 2012. Borrowing Powers of our Board of Directors Pursuant to a resolution passed by our members in the AGM dated September 28, 1994, in terms of Section 293(1) (d) of the Companies Act, the Board of Directors of our Bank are authorized to borrow monies as and when required in excess of the limitations placed or intended to be placed pursuant to Section 293 (1) (d) of the Companies Act, such that the aggregate borrowings of our Bank shall not at any time exceed `1,000 million. Interest of Directors of our Bank Our Managing Director and CEO may be deemed to be interested to the extent of remuneration paid by our Bank, as well as to the extent of reimbursement of expenses payable to him. Our non executive Directors may be deemed to be interested to the extent of fees, payable to them for attending meetings of the Board or a committee thereof as well as to the extent of other reimbursement of expenses payable to them. Our Directors, including independent Directors, may also be regarded as interested in the Equity Shares or options under the ESOS Scheme, if any, held by them and also to the extent of any dividend payable to them and other distributions in respect of the Equity Shares. The Directors, including independent Directors, may also be regarded as interested in the Equity Shares held by or that may be subscribed by and allotted to the companies, firms and trust, in which they are interested as directors, members, partners or trustees. For details of the Equity Shares and options held by our Directors, please refer to the sub-sections titled “Shareholding of the Directors and Key Managerial Personnel” and “Employees Stock Option Scheme” on page 140. Our Directors may be deemed to be interested in the contracts, agreements/ arrangements entered into or to be entered into by our Bank with any company in which they hold directorships or any partnership firm in which
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they are partners. Except as otherwise stated in this Placement Document and statutory registers maintained by our Bank in this regard, we have not entered into any contract, agreements, arrangements during the preceding two years from the date of this Placement Document in which our Directors are interested directly or indirectly and no payments have been made to them in respect of these contracts, agreements, arrangements which are proposed to be made with them. Terms of Employment and Remuneration of our Chairman and Managing Director and CEO Pursuant to a resolution passed by our Board on November 3, 2012 and approval of the RBI dated November 2, 2012, Mr. T. Y. Prabhu has been appointed as our part time Chairman for a period of three years with effect from November 7, 2012 up to November 6, 2015. The terms and conditions of the appointment of Mr. Prabhu, as approved by our Board of Directors and members, include: (a) Coverage of telephone charges for official purposes; (b) Free conveyance for official purposes and conveyance for private purposes on payment of ` 250 per month
by the Chairman to the Bank.
Mr. Prabhu is eligible for sitting fees for attending the meetings of our Board and Board committees. Pursuant to a resolution passed by our Board on May 30, 2012, and the approval of the RBI dated May 16, 2012, P. G. Jayakumar has been appointed as our Managing Director and CEO for a period of one year from May 18, 2012. The current terms and conditions of the remuneration payable to Mr. Jayakumar, with effect from May 18, 2012, include: (a) salary of ` 3.6 million per annum; (b) Bank may approach RBI for a separate approval at the time of paying variable pay; (c) furnished accommodation; (d) free use of the Bank’s car for official use; (e) full reimbursement of medical expenses for Mr. Jayakumar and his family; (f) provident fund and gratuity as included in the salary Mr. Jayakumar is not eligible for any sitting fees for attending the meetings of our Board and Board committees. Remuneration of our Non Executive Directors In fiscal 2012, our non executive Directors, were paid a sitting fee of Rs 20,000 for each meeting of our Board and ` 10,000 for each meeting of a committee of the Board. The following table sets forth the sitting fees paid by our Bank to our non executive directors for financial year 2012:
(` in millions) Name Sitting Fees
Mr. G.N Bajpai* 0.33 Mr. K. Srikanth Reddy 0.47 Mr. K. Shailesh V Haribhakti* 0.42 Mr. P. Sateesh Kumar Andra* 0.40 Mr. V.R Chalasani* 0.08 Mr. S. Santhanakrishnan* 0.59 Mr. Ghanshyam Dass* 0.39
* represents the non-executive directors who are not currently on the Board. Corporate Governance
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Our Bank is in compliance with the provisions in respect of corporate governance as stipulated in the Listing Agreements with the Stock Exchanges, including in respect of appointment of independent directors on the Board and the constitution of the audit committee, human resources development committee, remuneration committee and shareholders’ grievances redressal committee. A brief description of the audit committee, human resources development committee, remuneration committee and the shareholders’ grievances redressal committee is set forth below: Audit Committee The members of the audit committee of our Board are:
i) Mr. K. Vijayaraghavan (chairman)
ii) Mr. K. Srikanth Reddy
iii) Mr. P. Mohanan
The terms of reference of the audit committee include: a) oversight of our Bank's financial reporting process and the disclosure of its financial information to ensure
that the financial statement is correct, sufficient and credible; b) recommending to our Board, the appointment, reappointment or, if required, the replacement or removal of
the statutory auditor together with the fixation of audit fees and approval of payment for any other services rendered by the statutory auditors;
c) reviewing, with the management, the annual financial statements before submission to our Board with
special emphasis on accounting policies and practices, compliance with accounting standards and other legal requirements concerning financial statements;
d) reviewing the adequacy of the audit and internal control systems, including related policies, procedures,
techniques and other regulatory requirements; e) reviewing, as far as the situation necessitates, all other reports including risk based internal audit reports,
which are presently being put up before the committee; and f) any other terms of reference as may be included from time to time in terms of Clause 49 of the Listing
Agreements. Human Resources Development Committee The members of the human resources development committee of our Board are: i) Mr. T.Y Prabhu
ii) Mr. P.G. Jayakumar
iii) Mr. K. Srikanth Reddy
iv) Mr. P. Mohanan
The terms of reference of the human resources development committee include overseeing the overall manpower planning of our Bank and conducting interviews for lateral recruitments and internal promotions. Remuneration Committee The members of the remuneration committee of our Board are: i) Mr. T.Y Prabhu
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ii) Mr. K. Srikanth Reddy
iii) Mr. P. Mohanan
The terms of reference of the remuneration committee is to oversee the framing, review and implementation of compensation policy of our Bank on behalf of our Board, to determine our Bank’s policy on specific remuneration packages for executive directors and determining the modalities of providing appropriate incentives to employees, including through stock options.
Shareholders’ Grievances Redressal Committee The members of the shareholders’ grievances redressal committee of our Board are: i) Mr. P.G Jayakumar
ii) Mr. K. Srikanth Reddy
iii) Mr. K.Vijayaraghavan
The shareholders’ grievances redressal committee has been constituted to review the redressal of complaints of shareholders/investors. The committee looks into the redressal of complaints from shareholders and investors in relation to matters such as transfer of shares, non-receipt of annual reports, and non receipt of dividend warrants and other related matters. The committee reviews reports from the registrar and share transfer agents to monitor grievances redressal and also reviews the reconciliation of share capital audit report and half yearly secretarial audit reports. Other Committees In addition to the above mentioned committees, and to ensure better corporate practices, our Board has also constituted the following committees: a) Fraud monitoring committee;
b) Customer service committee;
c) Risk management committee;
d) Nomination committee;
e) Management committee;
f) Information technology committee;
g) Committee of Directors (proposals);
h) NPA monitoring committee
Organisation Structure of Our Bank
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1
BOARD
Secretary to the Board & Company
Secretary
Head –Finance & Accounts
Chief Credit Officer
Head – Business Devt. & Planning
Chief People Officer
Head –Vigilance
Head – Legal
Head –Treasury
Head – IT
ZH–Thrissur ZH‐Kochi ZH‐Mumbai ZH‐Delhi ZH‐South
MD & CEO
Head –Inspection & Audit
Chief Risk & Compliance
Officer
Key Managerial Personnel of Our Bank The following table sets forth the details of the key managerial personnel of our Bank:
Name of the Key Managerial Personnel Designation Mr. P.S. Ravikumar Chief Credit Officer Mr. Ravindran K.Warrier Secretary to the Board and Company Secretary Mr. H Rangarajan Chief People Officer Mr. P. Manikandan Head – Business Development and Planning Mr. Asok Hastagiri Chief Risk and Compliance Officer Mr. Srinivasaraghavan Head – Treasury Mr. C. S. Ramakrishnan Head - Inspection and Audit Mr. Raghu Mohan Head - Finance and Accounts
Biographies of our Key Managerial Personnel Mr. P.S. Ravikumar, aged 58 years, is the chief credit officer (senior executive vice president) of our Bank. He holds a master’s degree in commerce from the University of Kerala. Mr. Ravikumar joined our Bank in 1978 and has 34 years of experience in the banking sector. Mr. Ravindran K.Warrier, aged 58 years, is the company secretary of our Bank and secretary to the Board. He holds a bachelor’s degree in science from the University of Calicut and is a fellow member of the ICSI. Mr. Warrier joined our Bank in 1993. Prior to joining our Bank, he was company secretary and head of finance in subsidiaries of Kerala State Electronics Development Limited. Mr. Warrier has 19 years of experience in the banking sector.
Mr. H Rangarajan, aged 59 years, is the chief people officer at our Bank. He holds a master’s degree in science and a master’s degree in business administration from the University of Madras and is a certified associate of the Indian Institute of Banking and Finance. Mr. Rangarajan joined our Bank in 2004. Prior to joining our Bank, Mr. Rangarajan worked with Syndicate Bank for nearly 30 years. He has 37 years of experience in the banking sector. Mr. P. Manikandan, aged 53 years, is the head of business development and planning at our Bank. He holds a master’s degree in commerce from the University of Calicut, bachelor’s degree in law from the University of Kerala and is a certified associate of the Indian Institute of Banking and Finance. He has also completed a post graduate diploma in computer application from Aptech Computer Education. Mr. Manikandan joined our Bank
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in 2003. Prior to joining our Bank, he has worked with Canara Bank, CanBank Mutual Fund and CanFin Homes Limited. Mr. Manikandan has 33 years of experience in the banking sector. Mr. Asok Hastagiri, aged 52 years, is the chief risk and compliance officer of our Bank. He holds a bachelor’s degree in commerce from the University of Calicut and is a fellow member of ICAI. Mr. Hastagiri joined our Bank in 1997. Prior to joining our Bank, he has worked with Arthur Anderson & Company, Dubai. Mr. Hastagiri has 15 years of experience in the banking sector.
Mr. Srinivasaraghavan, aged 49 years, is the head of treasury and executive vice president at our Bank. He holds bachelor’s degree in commerce from the University of Kerala and is a certified associate of the Indian Institute of Banking and Finance. He is also an associate of the Institute of Cost and Works Accountant of India Mr. Srinivasaraghavan joined our Bank in 2012. Prior to joining our Bank, he has worked with Bharatiya Samruddhi Finance Limited as their chief financial officer, IDBI Gilts Limited, IDBI Capital Market Service Limited and the State Bank of Travancore. He has 26 years of experience in the banking sector.
Mr. C. S. Ramakrishnan, aged 41 years, is the head of inspection and audit at our Bank. He holds a bachelor’s degree in mathematics from the University of Calicut and is a certified associate of the Indian Institute of Banking and Finance. Mr. Ramakrishnan joined our Bank in 2010. Prior to joining our Bank, he was working with ICICI Bank Limited and has previously worked with the State Bank of Travancore. Mr. Ramakrishnan has 19 years of experience in the banking sector.
Mr. Raghu Mohan N, aged 53 years, is the head of finance and accounts at our Bank. He holds a bachelor’s degree in commerce from the University of Calicut and is an associate member of ICAI. Mr. Raghu Mohan joined our Bank in 2007. Prior to joining our Bank, he was working with Manappuram Finance Limited as joint general manager (treasury). He has also previously worked with Catholic Syrian Bank for 12 years. Mr. Raghu Mohan has 17 years of experience in the banking sector.
Shareholding of the Directors and Key Managerial Personnel As of January 31, 2013, except as stated below, none of the Directors and key managerial personnel of our Bank hold any Equity Shares in our Bank:
Sr. No.
Name Designation No. of Equity Shares
1. Mr. T.Y Prabhu Chairman 200 2. Mr. K. Srikanth Reddy Non executive, independent Director 20,000 3. Mr. K. Vijayaraghavan Non executive, independent Director 200 4. Mr. P. Mohanan Non executive, independent Director 200 5. Mr. P.S. Ravikumar Key managerial personnel 1,721 6. Mr. Ravindran K.Warrier Key managerial personnel 200 7. Mr. P. Manikandan Key managerial personnel 1,050 8. Mr. Asok Hastagiri Key managerial personnel 567 Total 24,138
Employees Stock Option Scheme Pursuant to the approval of our members by way of special resolution dated July 31, 2009 our Bank has constituted the ‘Employees Stock Option Scheme 2009’ (“ESOS Scheme”). The ESOS Scheme provides for grant of options convertible into Equity Shares to permanent employees of our Bank including Directors who are in the whole time employment of the Bank, who qualify as per the selection criteria adopted by the remuneration committee of our Board. In terms of the ESOS Scheme, the total number of Equity Shares that may result upon the grant of options, are not to exceed six percent of the total number of Equity Shares issued by the Bank, from time to time, on the date of grant of the options under the ESOS Scheme. The ESOS Scheme is administered by the remuneration committee of our Board, pursuant to resolution passed by our Board dated February 28, 2013. Prior to the resolution passed by our Board, the ESOS Scheme was administered by the erstwhile human resource development and remuneration committee. As of December 31, 2012, 9,91,670 options are outstanding and vested with the employees of our Bank, with each option convertible into one Equity Share. These 9,91,670 options are convertible into Equity Shares at an exercise price of ` 118.35 per Equity Share. The exercise price for the outstanding options has been calculated,
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based on the closing price on the Stock Exchange where there is highest trading volume on the immediately preceding date of the grant, i.e. the closing price of NSE as of August 5, 2009. Further, the erstwhile human resources development and remuneration committee has pursuant to its meeting dated December 24, 2012, proposed to reprice the existing employee stock options and issue of additional employee stock options. However, the proposal made by the erstwhile human resources development and remuneration committee of our Board is subject to approval from the Board. The revised ESOS scheme will be submitted to the Board for approval and thereafter for approval by the shareholders. The details of the outstanding options granted to our Directors and our key managerial personnel, as on December 31, 2012, are as below:
Name of the Directors / Key Managerial Personnel Number of Options Outstanding Mr. P.G Jayakumar 42,000 Mr. P.S Ravikumar 17,500 Mr. Ravindran K. Warrier 10,000 Mr. H. Rangarajan 1,200 Mr. P. Manikandan 2,400 Mr. Asok Hastagiri 3,600
Interests of Key Managerial Personnel The key managerial personnel of our Bank do not have any interest in our Bank other than (a) their shareholding in our Bank; (b) the options under the ESOS Scheme held by them; (c) their remuneration and benefits to which they are entitled to as per their terms of appointment; and (d) reimbursement of expenses incurred by them during the ordinary course of business.
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PRINCIPAL SHAREHOLDERS Our Bank was incorporated on November 14, 1927 under the Companies Act, 1913 and is a scheduled commercial bank within the meaning of RBI Act. The CIN of our Bank is L65191KL1927PLC000307. Our Bank does not have any identifiable promoters. As of December 31, 2012, our Bank had 8, 51, 36,319 fully paid up Equity Shares. The Equity Shares are listed on the Stock Exchanges and traded on the BSE and NSE. Equity Shareholding Pattern The shareholding pattern of our Bank as of December 31, 2012 is as follows:
Total shareholding as a percentage of total number of
shares
Shares pledged or otherwise encumbered
Sr. No.
Category of shareholder
Number of shareholders
Total number of shares
Number of shares held in de
materialized form
% of shares (A+B)
% of shares
(A+B+C)
Number of
shares
% No. of
shares(A) Shareholding of Promoter and Promoter Group (1) Indian (a) Individuals/ Hindu
undivided family NIL NIL NIL NIL NIL NIL NIL
(b) Central Government/ State Governments
NIL NIL NIL NIL NIL NIL NIL
(c) Bodies corporate NIL NIL NIL NIL NIL NIL NIL(d) Financial
institutions/ Banks NIL NIL NIL NIL NIL NIL NIL
Sub-Total (A)(1) NIL NIL NIL NIL NIL NIL NIL(2) Foreign (a) Individuals (non-
resident individuals/ Foreign individuals)
NIL NIL NIL NIL NIL NIL NIL
(b) Bodies corporate NIL NIL NIL NIL NIL NIL NIL(c) Institutions NIL NIL NIL NIL NIL NIL NIL Sub-Total (A)(2) NIL NIL NIL NIL NIL NIL NIL Total
Shareholding of Promoter and Promoter Group (A)= (A)(1)+(A)(2)
NIL NIL NIL NIL NIL NIL NIL
(B) Public shareholding (1) Institutions (a) Mutual funds/ UTI 3 19,470 18,770 0.02 0.02 - -(b) Financial
institutions/ Banks 7
6,02,706 6,02,706 0.71
0.71
- -
(c) Central Government/ State Governments
NIL NIL NIL NIL NIL - -
(d) Venture capital funds
NIL NIL NIL NIL NIL - -
(e) Insurance companies
2 4,42,277 4,42,277 0.52 0.52 - -
(f) Foreign 20 2,22,15,911 2,22,15,911 26.09 26.09 - -
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Total shareholding as a percentage of total number of
shares
Shares pledged or otherwise encumbered
Sr. No.
Category of shareholder
Number of shareholders
Total number of shares
Number of shares held in de
materialized form
% of shares (A+B)
% of shares
(A+B+C)
Number of
shares
% No. of
sharesinstitutional investors
(g) Foreign venture capital investors
NIL NIL NIL NIL NIL - -
(h) Qualified Foreign Investor
NIL NIL NIL NIL NIL - -
(i) Any Other NIL NIL NIL NIL NIL - - Sub-Total (B)(1) 32 2,32,80,364 2,32,79,664 27.34 27.34 - -(2) Non-institutions (a) Bodies corporate 1,202 1,41,06,858 1,40,29,985 16.57 16.57 - -(b) (i) Individual
shareholders holding nominal share capital up to ` 0.1 million
75,452 2,30,35,101 1,92,69,219 27.06
27.06
- -
(ii) Individual shareholders holding nominal share capital in excess of ` 0.1 million
239
1,93,73,987 1,92,36,124 22.76
22.76
- -
(c) Qualified Foreign Investor
NIL NIL NIL NIL NIL
(D) Any others 1,546 5340009 5261728 6.27 6.27 - - Trusts 6 8,980 8,950 0.01 0.01 - - Clearing members 196 5,00,218 5,00,218 0.59 0.59 - - NRIs 1,344 48,30,811 47,52,560 5.67 5.67 - - Sub-Total(B)(2) 78,439 6,18,55,955 5,77,97,056 72.66 72.66 - - Total Public
Shareholding (B)= (B)(1)+(B)(2)
78,471 8,51,36,319 8,10,76,720 100.00 100.00 - -
TOTAL(A)+(B) 78,471 8,51,36,319 8,10,76,720 100.00 100.00 - -(C) Shares held by
custodians and against which depository receipts have been issued
- - - - - - -
(1) Promoter and Promoter Group
- - - - - - -
(2) Public - - - - - - - GRAND TOTAL
(A)+(B)+(C) 78,471 8,51,36,319 8,10,76,720 100.00 100.00 - -
As our Bank does not have any identifiable promoters, the shareholding of the promoters and promoter group in our Bank as of December 31, 2012 is NIL. List of shareholders holding more than one per cent of the paid up capital of our Bank as of December 31, 2012:
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Name Number of Equity Shares
Percentage of total Equity Shares (%)
P. Raja Mohan Rao 62,08,066 7.29 India Max Investment Fund Limited 30,29,000 3.56 Lotus Global Investment Limited 29,73,044 3.49 Hypnos Fund Limited 27,91,262 3.28 Elara India Opportunities Fund Limited 26,48,220 3.11 Dilipkumar Lakhi 24,77,740 2.91 The Master Trust Bank Of Japan Limited A/C Hsbcindian Equity Mother Fund
21,51,452 2.53
College Retirement Equites Fund Stock Account 20,90,892 2.46 National Westminster Bank Plc As Trustee Of The Jupiter India Fund 20,00,000 2.35 Shital Raghu Kataria 19,45,504 2.29 Girdharilal V. Lakhi 17,54,744 2.06 College Retirement Equities Fund - Global Equitiesaccount 15,30,483 1.80 Jupiter South Asia Investment Company Limited A/c Jupiter South Asia Investment Companyy Limited - South Asia Access Fund
15,00,000 1.76
Informerics Valuation And Rating Private Limited 13,54,000 1.59 Sameer Malik 12,10,276 1.42 Vipin Malik 11,76,365 1.38 Total 3,68,41,048 43.27
List of shareholders holding more than five per cent of the paid up capital (along with ‘persons acting concert’) of our Bank as of December 31, 2012:
Name Number of Equity Shares Percentage of total Equity Shares (%)
P. Raja Mohan Rao 62,08,066 7.29 Total 62,08,066 7.29 As on the date of this Placement Document, none of the outstanding Equity Shares are locked in. As on the date of this Placement Document, except for the options granted under the ESOS Scheme, there are no outstanding convertible securities, including warrants, which would entitle any person any option to receive Equity Shares.
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ISSUE PROCEDURE
Below is a summary intended to present a general outline of the procedure relating to the bidding, application payment, Allocation and Allotment for the Issue. The procedure followed in the Issue may differ from the one mentioned below and the investors are assumed to have apprised themselves of the same from our Bank or the Book Running Lead Managers. The prospective investors are also advised to inform themselves of any restrictions or limitations that may be applicable to them; see the section titled “Transfer Restrictions” on page 158. The Issue is being made to QIBs in reliance upon Chapter VIII of the SEBI Regulations. The Issue has been approved by our members in the EGM dated February 15, 2013 and has been approved by our Board on October 31, 2012 and December 11, 2012. The RBI, pursuant to its letter dated November 16, 2012, has granted in principle approval in respect of the Issue. Our Bank shall apply for a post facto approval from the RBI in relation to the Issue, as has been specified by RBI in its letter dated November 16, 2012, upon completion of the Allotment process. The RBI has, through its letter dated February 7, 2013, extended the timeline for raising the capital, upto March 31, 2013. Further, the RBI has also granted approval to our Bank, through its letter dated February 8, 2013, to issue Equity Shares through preferential allotment route, in addition to the issuance of Equity Shares through the Issue. Our Bank has received the in principle approvals dated April 2, 2013 from the NSE, the BSE and the CSE, under Clause 24(a) of the Listing Agreements. Our Bank has also filed a copy of the Preliminary Placement Document and this Placement Document with the Stock Exchanges. After the Allotment of Equity Shares, our Bank shall make applications to the Stock Exchanges for the listing approvals. Subsequently, after the credit of Equity Shares to the beneficiary accounts with the Depository Participant, our Bank shall make applications to the Stock Exchanges for the final listing and trading approvals. Issue Procedure 1. Our Bank and the Book Running Lead Managers shall identify the QIBs and circulate serially
numbered copies of the Preliminary Placement Document and the Application Form, either in electronic form or physical form, to not more than 49 QIBs.
2. The list of QIBs to whom the Application Form is delivered shall be determined by the Book Running
Lead Managers in consultation with our Bank. Unless a serially numbered Preliminary Placement Document along with the Application Form is addressed to a particular QIB, no invitation shall be deemed to have been made to any other QIB to make an offer to subscribe to Equity Shares pursuant to the Issue. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such person.
3. QIBs may submit their Bids through the Application Form, including any revisions thereof, during the Bidding Period to the Book Running Lead Managers.
4. QIBs will be required to indicate the following in the Application Form:
a. Full official name of the QIB to whom Equity Shares are to be Allotted; b. Number of Equity Shares Bid for;
c. Price at which they are agreeable to subscribe for the Equity Shares; d. The details of the beneficiary account with the Depository Participant to which the Equity
Shares should be credited; and e. A representation that it is outside the United States acquiring the Equity Shares in an offshore
transaction under Regulation S and it has agreed to certain other representations set forth in the Application Form.
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Note: Each sub-account of an FII will be considered as an individual QIB and separate Application Forms would be required from each such sub-account for submitting Application Form(s). FIIs or sub accounts of FIIs, are required to indicate the SEBI registration number in the Application Form. It may be noted that a sub-account which is a foreign corporate or a foreign individual is not a “QIB” in terms of SEBI Regulations. Applications by various schemes or funds of a mutual fund will be treated as one application from the Mutual Fund.
5. Once a duly filled Application Form is submitted by a QIB, such Application Form constitutes an offer
which cannot be withdrawn after the Bid Closing Date. The Bid Closing Date shall be notified to the Stock Exchanges and upon such notification the QIBs shall be deemed to have been given notice of such date.
6. Upon the receipt of the duly completed Application Forms, our Bank shall in consultation with the Book Running Lead Managers determine (i) the Issue Price, (ii) the number of Equity Shares to be Allocated; and (iii) the QIBs to whom the same shall be Allocated. Upon such determination, the Book Running Lead Managers will send CANs to the QIBs who have been Allocated the Equity Shares, together with a serially numbered Placement Document either in electronic form or through physical delivery. The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the QIBs to subscribe to the Equity Shares Allocated to such QIB and to pay the application money (being the product of the Issue Price and Equity Shares Allocated to such QIB). The CAN shall contain details such as the number of Equity Shares Allocated to the QIB and payment instructions including the details of the amounts payable by the QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective QIB.
7. Pursuant to receiving a CAN, each QIB shall be required to pay the application money for the Equity Shares indicated in the CAN at the Issue Price, through electronic transfer to the Escrow Account by the Pay-In Date;
8. Upon receipt of the application monies from the QIBs, our Bank shall Allot the Equity Shares as per
the details provided in the CANs to such QIBs. Our Bank shall not Allot Equity Shares to more than 49 QIBs. Our Bank shall intimate the Stock Exchanges the details of the Allotment.
9. After our Board passes the resolution for Allotment and prior to crediting the Equity Shares into the beneficiary accounts of the QIBs, our Bank shall apply to the Stock Exchanges for listing approvals. After receipt of the listing approvals from the Stock Exchanges, our Bank shall credit the Equity Shares into the beneficiary accounts of the respective QIBs. Our Bank shall then apply for the final listing and trading approvals from the Stock Exchanges.
10. The Equity Shares that have been credited to the beneficiary accounts of the QIBs shall be eligible for trading on the Stock Exchanges only upon the receipt of final listing and trading approvals from the Stock Exchanges.
11. The final listing and trading approvals granted by the Stock Exchanges are also ordinarily available on the websites of the Stock Exchanges, and our Bank may communicate the receipt of the final listing and trading approvals to the QIBs who have been Allotted Equity Shares. Our Bank and the Book Running Lead Managers shall not be responsible for any delay or non receipt of the communication of the final listing and trading approvals from the Stock Exchanges or any loss arising from such delay or non-receipt. QIBs are advised to apprise themselves of the status of the receipt of such approvals from the Stock Exchanges or our Bank.
12. Further, as specified by RBI in its letter dated November 16, 2012, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, upon completion of the Allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI in this regard.
Qualified Institutional Buyers Only QIBs, as defined in Regulation 2(1)(zd) of the SEBI Regulations are eligible to invest in the Equity Shares pursuant to the Issue. Currently, QIB means:
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• a mutual fund, a VCF, an AIF and an FVCI;
• a FII and a sub-account (other than a sub-account which is a foreign corporate or foreign individual)
registered with SEBI;
• a public financial institution as defined in section 4A of the Companies Act;
• a scheduled commercial bank;
• a multilateral and bilateral development financial institution;
• a state industrial development corporation;
• an insurance company registered with Insurance Regulatory and Development Authority;
• a provident fund with minimum corpus of ` 250 million;
• a pension fund with minimum corpus of ` 250 million;
• National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government of India published in the Gazette of India;
• insurance funds set up and managed by army, navy or air force of the Union of India; and
• insurance funds set up and managed by the Department of Posts, India. The Issue is being made to non resident QIBs in terms of Schedule 1 of the Foreign Exchange Management (Transfer or Issue of Security by Person Resident Outside India) Regulations, 2000. FIIs are permitted to participate in the Issue subject to compliance with all applicable laws and such that the shareholding of the FIIs does not exceed specified limits as prescribed under applicable laws in this regard. The issue of Equity Shares to a single FII should not exceed 10.0% of the post Issue paid up capital of our Bank. In respect of an FII investing in the Equity Shares on behalf of its sub-accounts, the investment on behalf of each sub-account shall not exceed 10.0% of the total paid up capital of our Bank or 5.0% of the total paid up capital of our Bank in case such sub-account is a foreign corporate or an individual. Under the extant foreign direct investment policy, the total shareholding of all FIIs in a private sector bank, such as ours, is subject to a cap of 24.0%, of the total paid up capital, which can be increased up to 49.0% with the passing of a resolution by its board of directors and a special resolution by the shareholders in a general meeting which should be intimated to the RBI. Pursuant to the approval of the shareholders of our Bank in the AGM dated September 27, 2008 and the approval of the Board in its meeting dated September 27, 2008, and as permitted by the RBI pursuant to its letter dated November 26, 2009, FIIs and NRIs can hold upto 49.0% and 24.0%, respectively, of the paid up capital of our Bank. In this regard, please note that as of December 31, 2012, our aggregate FII and NRI shareholding was 31.76% of our paid up capital. The RBI, typically, monitors the level of FII/NRI shareholding in Indian companies on a daily basis and once the aggregate foreign investment of a company reaches a cut-off point, which is 2.0% below the overall limit, the RBI cautions non-resident investors and authorized dealers not to further transact in equity shares on the stock exchanges, without prior approval of the RBI. Further, upon aggregate foreign shareholding in Indian companies reaching the ceiling, the RBI prohibits further purchase of equity shares by non- resident investors on the stock exchanges. For details of shareholding of our Bank, including shareholding of FIIs and NRIs, see the section titled “Principal Shareholders” on page 142. Also, the acknowledgement of RBI is required for the acquisition or transfer of the shares of our Bank, which will take the aggregate holding (direct and indirect, beneficial or otherwise) of an individual or a group to equivalent of five per cent or more of our Bank’s total paid up capital.
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Allotments made to FVCIs, VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements. Our Bank, the Book Running Lead Managers and any of their respective shareholders, directors, partners, officers, employees, counsel, advisors, representatives, agents or affiliates are not liable for any amendments or modifications or changes to applicable laws or regulations, which may occur after the date of this Placement Document. QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. QIBs are advised to ensure that any single application from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable laws or regulations or as specified in this Placement Document. Further, QIBs are required to satisfy themselves that any requisite compliance pursuant to this Allotment such as public disclosures under applicable laws is complied with. QIBs are advised to consult their advisers in this regard. Further, QIBs are required to satisfy themselves that their Bids would not eventually result in triggering an open offer under the Takeover Code. The QIB shall be solely responsible for compliance with the provisions of the Takeover Code, the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992 and other applicable laws, rules, regulations, guidelines, notifications and circulars. A minimum of 10.0% of the Equity Shares offered in this Issue shall be available for Allocation to Mutual Funds. In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allotted to other QIBs. Note: Affiliates or associates of the Book Running Lead Managers who are QIBs may participate in the Issue in compliance with applicable laws. Application Process Application Form QIBs shall only use the serially numbered Application Forms supplied by the Book Running Lead Managers in either electronic form or by physical delivery for the purpose of making a Bid (including revision of Bid) in terms of the Preliminary Placement Document and this Placement Document. By making a Bid (including the revision thereof) for Equity Shares through the Application Form, the QIB will be deemed to have made the following representations and warranties and the representations, warranties, acknowledgements and undertakings made under the sections titled “Notice to Investors”, “Representations by Investors” and “Transfer Restrictions” on pages 1, 3 and 158, including: 1. the QIB confirms that it is a QIB in terms of Regulation 2(1)(zd)of the SEBI Regulations and is eligible
to participate in this Issue; 2. the QIB has no right to withdraw its Bid after the Bid Closing Date;
3. the QIB confirms that if Equity Shares are Allotted through this Issue, it shall not, for a period of one
year from Allotment, sell such Equity Shares otherwise than on the floor of the Stock Exchanges; 4. the QIB confirms that the QIB is eligible to Bid and hold Equity Shares so Allotted and together with
any Equity Shares held by the QIB prior to the Issue. The QIB further confirms that the holding of the QIB, does not and shall not, exceed the level permissible as per any applicable regulations applicable to the QIB;
5. the QIB confirms that their application would not eventually result in triggering a tender offer under the Takeover Code;
6. the QIB confirms that to the best of its knowledge and belief, together with other QIBs in the Issue that
belong to the same group or are under common control, the Allotment to the QIB shall not exceed 50.0% of the Issue Size. For the purposes of this statement: a. the expression “belongs to the same group” shall derive meaning from the concept of
“companies under the same group” as provided in sub-section (11) of Section 372 of the
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Companies Act; and
b. “Control” shall have the same meaning as is assigned to it by clause 1(e) of Regulation 2 of the Takeover Code.
7. the QIB represents that it is outside the United States and is acquiring the Equity Shares in an offshore
transaction under Regulation S and it has agreed to certain other representations set forth in the Application Form;
8. the QIBs shall not undertake any trade in the Equity Shares credited to its beneficiary accounts with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges;
9. the QIBs acknowledge, represent and agree that their total Holding in the paid-up share capital of our Bank, when aggregated together with any existing Holding and/or Holding of any of their “associated enterprises” (as defined under Section 92A of the IT Act), does not exceed 5.0% of the total paid-up share capital of our Bank, unless they are an existing shareholder already holding 5.0% or more of the underlying paid up share capital of our Bank pursuant to the acknowledgment of the RBI, provided that their Holding does not, without the further acknowledgment of the RBI, exceed the existing Holding after Allotment; and
10. the QIBs understand that as specified by RBI in its letter dated November 16, 2012 and as required in terms of the RBI circular dated April 20, 2010, our Bank shall apply for a post facto approval from the RBI in respect of this Issue, upon completion of the allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI, in this regard.
QIBs WOULD NEED TO PROVIDE THEIR BENEFICIARY ACCOUNT DETAILS, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. QIBS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE BENEFICIARY ACCOUNT IS HELD. Demographic details such as address and bank account will be obtained from the Depositories as per the Depository Participant account details given above. The submission of the Application Form by a QIB shall be deemed a valid, binding and irrevocable offer for the QIB to pay the entire Issue Price for its share of Allotment (as indicated by the CAN) and becomes a binding contract on the QIB, upon issuance of the CAN by our Bank in favour of the QIB. Submission of Application Form All Application Forms must be duly completed with information including the name of the QIB, the price and the number of Equity Shares applied for. The Application Form shall be submitted to the Book Running Lead Managers either through electronic form or through physical delivery at the following address: Name ICICI Securities Limited Motilal Oswal Investment Advisors Private
Limited Address H.T. Parekh Marg Churchgate,
Mumbai 400 020, India Motilal Oswal Tower, 12th Floor, Junction of Gokhale & Sayani Road, Prabha Devi, Mumbai 400 025
Contact Person
Amit Joshi/ Mangesh Ghogle Zaid Motorwala
Email [email protected] [email protected] Phone +91 22 2288 2460 +91 22 3980 4380 The Book Running Lead Managers shall not be required to provide any written acknowledgement of the same. Pricing and Allocation Build up of the book
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The QIBs shall submit their Bids (including any revision thereof) through the Application Forms, within the Bidding Period to the Book Running Lead Managers. Price discovery and allocation Our Bank, in consultation with the Book Running Lead Managers, shall determine the Issue Price, which shall be at or above the Discounted Floor Price. Method of Allocation Our Bank shall determine the Allocation in consultation with the Book Running Lead Managers on a discretionary basis and in compliance with Chapter VIII of the SEBI Regulations. All the Application Forms received from the QIBs at or above the Issue Price shall be grouped together to determine the total demand. The Allocation to all such QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10.0% of the Issue Size shall be undertaken subject to valid Bids being received at or above the Issue Price. THE DECISION OF OUR BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS IN RESPECT OF ALLOCATION SHALL BE BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF THE EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS AND QIBS MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER OUR BANK NOR THE BOOK RUNNING LEAD MANAGERS ARE OBLIGED TO ASSIGN ANY REASONS FOR SUCH NON-ALLOCATION. All Application Forms duly completed along with payment and a copy of the PAN card or PAN allotment letter shall be submitted to the Book Running Lead Managers as per the details provided in the respective CAN. Number of Allottees The minimum number of Allottees in the Issue shall not be less than:
(a) two, where the Issue Size is less than or equal to ` 2,500 million; or (b) five, where the Issue Size is greater than ` 2,500 million.
Provided that no single Allottee shall be Allotted more than 50.0% of the Issue Size. The QIBs belonging to the same group or those who are under same control shall be deemed to be a single Allottee for the purposes of the Issue. For details of what constitutes “same group” or “common control” please see the sub- section titled “Application Process – Application Form” on page 148. The maximum number of Allottees of Equity Shares shall not be greater than 49. Further the Equity Shares will be Allotted within 12 months from the date of the shareholders resolution approving the Issue. CAN Based on the Application Forms received, our Bank and the Book Running Lead Managers, in their sole and absolute discretion, shall decide the list of QIBs to whom the serially numbered CANs shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the application money payable for Allotment of such Equity Shares by the Pay-In Date in their respective names shall be notified to such QIBs. Additionally, a CAN will include details of the bank account(s) for the electronic transfer of funds, address where the application money needs to be sent, Pay-In Date as well as the probable designated date (“Designated Date”), being the date of credit of the Equity Shares to the QIB’s account, as applicable to the respective QIBs. The QIBs would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN.
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The dispatch of the serially numbered Placement Document and the CAN to the QIB shall be deemed a valid, binding and irrevocable contract for the QIB to furnish all details that may be required by the Book Running Lead Managers and to pay the entire Issue Price for all the Equity Shares Allocated to such QIB. QIBs ARE ADVISED TO INSTRUCT THEIR DEPOSITORY PARTICIPANT TO ACCEPT THE EQUITY SHARES THAT MAY BE ALLOCATED / ALLOTTED TO THEM PURSUANT TO THE ISSUE. By submitting the Application Form, the QIB would have deemed to have made the representations and warranties as specified in the section “Notice to Investors” and further that such QIB shall not undertake any trade on the Equity Shares credited to its Depository Participant account pursuant to the Issue until such time as the final listing and trading approval is issued by BSE and NSE. Bank Account for Payment of Application Money Our Bank has opened a special bank account in the name of Dhanlaxmi Bank Ltd (QIP Issue 2013) Current Escrow A/c. The QIB will be required to deposit the entire amount payable for the Equity Shares allocated to it by the Pay-In Date as mentioned in the respective CAN. If the payment is not made favouring the Escrow Account within the time stipulated in the CAN, the Application Form and the CAN of the QIB are liable to be cancelled. In case of cancellations or default by the QIBs, our Bank and the Book Running Lead Managers have the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at their sole and absolute discretion, subject to the compliance with the requirement of ensuring that the Application Forms are sent to not more than 49 QIBs. Payment Instructions The payment of application money shall be made by the QIBs in the name of Escrow Account as per the payment instructions provided in the CAN. QIBs can make payment of the application money only through electronic transfer of funds. Designated Date and Allotment of Equity Shares 1. The Equity Shares will not be Allotted unless the QIBs pay the application money for the Equity
Shares allocated to them calculated at the Issue Price, to the Escrow Account as stated above. 2. In accordance with the SEBI Regulations, Equity Shares will be issued and Allotment shall be made
only in the dematerialized form to the Allottees. Allottees will have the option to re-materialize the Equity Shares, if they so desire, as per the provisions of the Companies Act and the Depositories Act.
3. Our Bank, at its sole discretion, reserves the right to cancel the Issue at any time up to Allotment
without assigning any reasons whatsoever.
4. Following the Allotment of the Equity Shares pursuant to the Issue, our Bank shall apply to the Stock Exchanges for listing approvals and post receipt of the listing approvals from the Stock Exchanges, our Bank shall credit the Equity Shares into the beneficiary accounts of the QIBs.
5. Following the credit of Equity Shares into the QIBs’ beneficiary accounts, our Bank will apply for the
final listing and trading approvals from the Stock Exchanges. 6. In the unlikely event of any delay, in the Allotment or credit of Equity Shares, or receipt of the listing
approvals, the final listing and trading approvals of the Stock Exchanges, the post facto approval from the RBI in relation to the Issue or the cancellation of the Issue, no interest or penalty would be payable by our Bank.
7. The monies lying to the credit of the Escrow Account shall not be released until the final listing and
trading approvals of the Stock Exchanges for the listing and trading of the Equity Shares issued pursuant to this Issue are received by our Bank.
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8. After finalization of the Issue Price, our Bank shall update the Preliminary Placement Document with
the Issue details and file the same with the Stock Exchanges as the Placement Document. Pursuant to a circular dated March 5, 2010 issued by the SEBI, Stock Exchanges are required to make available on their websites the details of those Allottees in Issue who have been allotted more than 5.0% of the Equity Shares offered in the Issue, viz, the names of the Allottees, and number of Equity Shares Allotted to each of them, pre and post Issue shareholding pattern of our Bank in the format specified in clause 35 of the Listing Agreements along with the Placement Document.
9. Further, as specified by RBI in its letter dated November 16, 2012 and as required in terms of the RBI circular dated April 20, 2010, our Bank shall also apply for a post facto approval from the RBI in respect of this Issue, upon completion of the Allotment process. In the event that RBI does not grant the post facto approval in respect of Allotment to any Allottee(s), such Allottee shall be required to comply with the instructions received from the RBI in this regard.
Other Instructions Permanent Account Number or PAN Each QIB should mention its PAN allotted under the IT Act. The copy of the PAN card or PAN allotment letter is required to be submitted with the Application Form. Application Forms without this information will be considered incomplete and are liable to be rejected. It is to be specifically noted that applicants should not submit the GIR number instead of the PAN as the Application Form is liable to be rejected on this ground. Right to Reject Applications Our Bank, in consultation with the Book Running Lead Managers, may reject Bids, in part or in full, without assigning any reasons whatsoever. The decision of our Bank and the Book Running Lead Managers in relation to the rejection of Bids shall be final and binding. Equity Shares in dematerialized form with NSDL or CDSL The Allotment of the Equity Shares in this Issue shall be only in dematerialized form (i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through the electronic mode). 1. A QIB applying for Equity Shares must have at least one beneficiary account with a Depository
Participant of either NSDL or CDSL prior to making the Bid. 2. The Equity Shares Allotted to a successful QIB will be credited in electronic form directly to the
beneficiary account (with the Depository Participant) of the QIB. 3. Equity Shares in electronic form can be traded only on the stock exchanges having electronic
connectivity with NSDL and CDSL. The BSE and the NSE have electronic connectivity with CDSL and NSDL.
4. The trading of the Equity Shares would be in dematerialized form only for all QIBs in the demat
segment of the respective Stock Exchanges. 5. Our Bank will not be responsible or liable for the delay in the credit of Equity Shares due to errors in
the Application Form or otherwise on the part of the QIBs.
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PLACEMENT
The Book Running Lead Managers have entered into a placement agreement dated March 20, 2013 with our Bank (the “Placement Agreement”), pursuant to which the Book Running Lead Managers have agreed to place, on a reasonable effort basis, the Equity Shares to QIBs pursuant to the Issue under Chapter VIII of the SEBI Regulations. The Placement Agreement contains customary representations and warranties, as well as indemnities from our Bank and is subject to termination in accordance with the terms contained therein. The Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S under the Securities Act), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold only outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdiction where those offers and sales occur. Applications shall be made to list the Equity Shares issued pursuant to the Issue and admit them to trading on the Stock Exchanges. No assurance can be given as to the liquidity or sustainability of the trading market for such Equity Shares, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which holders of the Equity Shares will be able to sell their Equity Shares. This Placement Document has not been, and will not be, registered as a prospectus with the Registrar of Companies, and no Equity Shares will be offered in India or overseas to the public or any members of the public in India or any other class of investors, other than QIBs. In connection with the Issue, the Book Running Lead Managers (or their respective affiliates) may, for their own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares at the same time as the offer and sale of the Equity Shares, or in secondary market transactions. As a result of such transactions, the Book Running Lead Managers may hold long or short positions in such Equity Shares. These transactions may comprise a substantial portion of the Issue, and no specific disclosure will be made of such positions. Affiliates of the Book Running Lead Managers may purchase Equity Shares and be allocated Equity Shares for proprietary purposes and not with a view to distribution or in connection with the issuance of P-Notes. See the sections titled “Off-shore Derivative Instruments” and “Representations to Investors” on pages 8 and 3, respectively. Lock-up The Bank undertakes that it will not for a period commencing the date hereof and ending 180 days from the date of Allotment, without the prior written consent of the BRLMs, directly or indirectly:
a) purchase, offer, issue, lend, sell, grant any option or contract to purchase, purchase any option or contract to offer, issue, lend, sell, grant any option, right or warrant to purchase, any Equity Shares or any securities convertible into or exercisable for Equity Shares (including, without limitation, securities convertible into or exercisable or exchangeable for Equity Shares which may be deemed to be beneficially owned by the undersigned) or file any registration statement under the U.S. Securities Act, with respect to any of the foregoing, or
b) enter into any swap or other agreement or any transaction that transfers, in whole or in part,
directly or indirectly, any of the economic consequences associated with the ownership of any of the Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares (regardless of whether any of the transactions described in clause (a) or (b) is to be settled by the delivery of Equity Shares or such other securities, in cash or otherwise), or
c) deposit Equity Shares with any other depositary in connection with a depositary receipt facility, or d) enter into any transaction (including a transaction involving derivatives) having an economic effect
similar to that of a sale or deposit of the Equity Shares in any depository receipt facility; or e) publicly announce any intention to enter into any transaction falling within (a) to (d) above or enter
into any transaction falling within (a) to (d) above.
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Provided, however, that the foregoing restrictions do not apply to (i) the issuance of any Equity Shares issued pursuant to the Issue; and (ii) issuance of Equity Shares pursuant to the ESOS Scheme.
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SELLING RESTRICTIONS The distribution of this Placement Document and the offer, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions. Persons who come into possession of this Placement Document are advised to take legal advice with regard to any restrictions that may be applicable to them and to observe such restrictions. This Placement Document may not be used for the purpose of an offer or sale in any circumstances in which such offer or sale is not authorized or permitted. General No action has been or will be taken in any jurisdiction that would permit a public offering of the Equity Shares or the possession, circulation or distribution of this Placement Document or any other material relating to us or the Equity Shares in any jurisdiction where action for the purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly and neither this Placement Document nor any other offering material or advertisements in connection with the Equity Shares may be distributed or published, in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Issue will be made in compliance with the applicable SEBI Regulations. Each subscriber of the Equity Shares in the Issue will be required to make, or to be deemed to have made, as applicable, the acknowledgments and agreements as described under “Transfer Restrictions” on page 158. European Economic Area In relation to each Member State of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), an offer of the Equity Shares to the public may not be made in that Relevant Member State prior to the publication of a prospectus in relation to the Equity Shares which has been approved by the competent authority in that Relevant Member State or, where appropriate, approved in another Relevant Member State and notified to the competent authority in that Relevant Member State, all in accordance with the Prospectus Directive, except that an offer of Equity Shares to the public in that Relevant Member State at any time may be made: (a) to legal entities which are authorized or regulated to operate in the financial markets or, if not so
authorized or regulated, whose corporate purpose is solely to invest in securities; (b) to any legal entity which has two or more of (1) an average of at least 250 employees during the last
Financial Year; (2) a total balance sheet of more than Euro 43,000,000 and (3) an annual net turnover of more than Euro 50,000,000, as shown in its last annual or consolidated accounts; or
(c) in any other circumstances which do not require the publication by us of a prospectus pursuant to
Article 3 of the Prospectus Directive. Provided that no such offer of Equity Shares shall result in the requirement for the publication by the Company or the Placement Agent of a prospectus pursuant to Article 3 of the Prospectus Directive. For the purposes of this provision, the expression an “offer of Equity Shares to the public” in relation to any Equity Shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and the Equity Shares to be offered so as to enable an investor to decide to purchase or subscribe the Equity Shares, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.
Hong Kong
The Equity Shares may only be offered or sold in Hong Kong (i) to 'professional investors' as defined in the Securities and Future Ordinance (Cap 571) ("SFO") and any rules made under the SFO, or (ii) in other circumstances which do not result in the document being a 'prospectus' as defined in the Companies Ordinance (Cap. 32) or which do not constitute an offer to the public within the meaning of that Ordinance; and the Placement Agent has not issued, or had in its possession for the purposes of the Issue, and will not issue, or have in its possession for the purposes of the Issue, whether in Hong Kong or elsewhere, any advertisement, invitation or document relating to the Equity Shares, which is directed at, or the contents of which are likely to
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be accessed or read by, the public in Hong Kong (except if permitted to do so under the securities laws of Hong Kong) other than with respect to Equity Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to 'professional investors' as defined in the SFO and any rules made under the SFO.
Singapore
This Placement Document has not been registered as a prospectus with the Monetary Authority of Singapore under the Securities and Futures Act, Chapter 289 of Singapore (the "Securities and Futures Act"). The Equity Shares may not be offered or sold or made the subject of an invitation for subscription or purchase nor may this Placement Document or any other document or material in connection with the offer or sale or invitation for subscription or purchase of any Equity Shares be circulated or distributed, whether directly or indirectly, to the public or any member of the public in Singapore other than (a) to an institutional investor or other person falling within Section 274 of the Securities and Futures Act, (b) to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions specified in Section 275 of the Securities and Futures Act, or (c) otherwise than pursuant to, and in accordance with the conditions of, any other applicable provision of the Securities and Futures Act.
Each of the following relevant persons specified in Section 275 of the Securities and Futures Act which has subscribed or purchased Equity Shares, namely a person who is: (a) a corporate (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, should note that shares, debentures and units of shares and debentures of that corporation or the beneficiaries’ rights and interest in that trust shall not be transferable for six months after that corporation or that trust has acquired the Equity Shares under Section 275 of the Securities and Futures Act except: (1) to an institutional investor under Section 274 of the Securities and Futures Act or to a relevant person, or any person pursuant to Section 275(1A) of the Securities and Futures Act, and in accordance with the conditions, specified in Section 275 of the Securities and Futures Act; (2) where no consideration is given for the transfer; or (3) by operation of law.
United Arab Emirates This Placement Document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. By receiving this Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that this Placement Document has not been approved by the U.A.E. Central Bank, the U.A.E. Ministry of Economy and Planning or any other authorities in the U.A.E., nor has the placement agent, if any, received authorization or licensing from the U.A.E. Central Bank, the U.A.E. Ministry of Economy and Planning or any other authorities in the United Arab Emirates to market or sell securities within the United Arab Emirates. No marketing of any financial products or services has been or will be made from within the United Arab Emirates and no subscription to any securities, products or financial services may or will be consummated within the United Arab Emirates. It should not be assumed that the placement agent, if any, is a licensed broker, dealer or investment advisor under the laws applicable in the United Arab Emirates, or that it advises individuals resident in the United Arab Emirates as to the appropriateness of investing in or purchasing or selling securities or other financial products. The interests in the Equity Shares may not be offered or sold directly or indirectly to the public in the United Arab Emirates. This does not constitute a public offer of securities in the United Arab Emirates in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise. By receiving this Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that the Equity Shares have not been and will not be offered, sold or publicly promoted or advertised in the Dubai International Financial Centre other than in compliance with laws applicable in the Dubai International Financial Centre, governing the issue, offering or sale of securities. The Dubai Financial Services Authority has not approved this Placement Document nor taken steps to verify the information set out in it, and has no responsibility for it. United Kingdom
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The Placement Agent: (a) has not offered or sold, and prior to the expiry of a period of six months from the issue date of any
Equity Shares, will not offer or sell any securities of the Company to persons in the United Kingdom except to 'qualified investors' as defined in section 86(7) of the Financial Services and Markets Act, 2000 ("FSMA") or otherwise in circumstances which have not resulted in an offer to the public in the United Kingdom;
(b) has complied and will comply with all applicable provisions of FSMA with respect to anything done by
it in relation to the Equity Shares in, from or otherwise involving the United Kingdom; and (c) in the United Kingdom, will only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning of section 21 of the FSMA) to persons that are 'qualified investors' and who are (i) 'investment professionals' falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 (the "Order") or (ii) high net worth entities and/or other persons to whom it may lawfully be communicated falling within Article 49(2)(a) to (d) of the Order in circumstances in which section 21(1) of the FSMA does not apply to the Company.
United States The Equity Shares have not been and will not be registered under the Securities Act or any state securities laws in the United States and may not be offered, sold, pledged or otherwise transferred within the United States or to, or for the account or benefit of, “U.S. persons” (as defined in Regulation S), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable U.S. state securities laws. The Equity Shares are being offered and sold only outside of the United States in offshore transactions in reliance on Regulation S under the Securities Act. Each purchaser of the Equity Shares offered by this Placement Document will be deemed to have made the representations, agreements and acknowledgements as described under “Transfer Restrictions”. Nothing contained in this Placement Document is intended to constitute investment, legal, tax, accounting or other professional advice. This Placement Document is for your information only and nothing in this Placement Document is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice rendered on the basis of your situation.
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TRANSFER RESTRICTIONS In terms of Chapter VIII of the SEBI Regulations, resale of Equity Shares, except on the Stock Exchanges, is not permitted for a period of one year from the date of Allotment. The Equity Shares have not been and will not be registered under the Securities Act and may not be offered or sold within the United States or to, or for the account or benefit of, U.S. persons (as defined in Regulation S), except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold only outside the United States in offshore transactions in reliance on Regulation S under the Securities Act and the applicable laws of the jurisdiction where those offers and sales occur. Investors are advised to consult legal counsel prior to making any resale, pledge or transfer of our Bank‘s Equity Shares, and also to refer to “Selling Restrictions” on page 155. Subject to the foregoing, by accepting this Placement Document and purchasing any Equity Shares under this Issue, you are deemed to have represented, warranted, acknowledged and agreed with our Bank and the Book Running Lead Managers as follows: • you have received a copy of the Preliminary Placement Document and the Placement Document and
such other information as you deem necessary to make an informed decision and that you are not relying on any other information or the representation concerning our Bank or the Equity Shares and neither our Bank nor any other person responsible for this document or any part of it or the Book Running Lead Managers will have any liability for any such other information or representation;
• you are purchasing the Equity Shares in an offshore transaction meeting the requirements of Rule 903
or 904 of Regulation S and you agree that you will not offer, sell, pledge or otherwise transfer such Equity Shares except in an offshore transaction complying with Regulation S or pursuant to any other available exemption from registration under the Securities Act and in accordance with all applicable securities laws of the states of the United States and any other jurisdiction, including India;
• you are authorised to consummate the purchase of the Equity Shares in compliance with all applicable
laws and regulations; • you acknowledge (or if you are a broker-dealer acting on behalf of a customer, your customer has
confirmed to you that such customer acknowledges) that such Equity Shares have not been and will not be registered under the Securities Act;
• you certify that either (A) you are, or at the time the Equity Shares are purchased will be, the beneficial
owner of the Equity Shares and are located outside the United States (within the meaning of Regulation S) or (B) you are a broker-dealer acting on behalf of your customer and your customer has confirmed to you that (i) such customer is, or at the time the Equity Shares are purchased will be, the beneficial owner of the Equity Shares, and (ii) such customer is located outside the United States (within the meaning of Regulation S); and
• our Bank, the Book Running Lead Managers, their respective affiliates and others will rely upon the
truth and accuracy of your representations, warranties, acknowledgements and undertakings set out in this document, each of which is given to (a) the Book Running Lead Managers on its own behalf and on behalf of our Bank, and (b) to our Bank, and each of which is irrevocable and, if any of such representations, warranties, acknowledgements or undertakings deemed to have been made by virtue of your purchase of the Equity Shares are no longer accurate, you will promptly notify our Bank.
In addition to the above, allotments made to QIBs, including FVCIs, VCFs and AIFs in the Issue, may be subject to lock-in requirements, if any, under the rules and regulations that are applicable to them. Any resale or other transfer or attempted resale or other transfer, made other than in compliance with the above stated restrictions will not be recognised by our Bank.
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THE SECURITIES MARKET OF INDIA
The information in this section has been extracted from publicly available documents from various sources, including officially prepared materials from the SEBI, the BSE and the NSE, and has not been prepared or independently verified by our Bank or the Book Running Lead Managers or any of their respective affiliates or advisors. The Indian securities market India has a long history of organised securities trading. In 1875, the first stock exchange was established in Mumbai. Stock exchange regulations Indian stock exchanges are regulated primarily by SEBI, as well as by the Government of India acting through the Ministry of Finance, Stock Exchange Division, under the SCRA and the SCRR. The SCRA and the SCRR along with the rules, by-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner in which contracts are entered into, settled and enforced between members. SEBI is empowered to regulate the business of Indian securities markets, including stock exchanges and intermediaries in the capital market, to promote and monitor self-regulatory organisations, to prohibit fraudulent and unfair trade practices and insider trading and to regulate substantial acquisitions of shares and takeover of companies, buy-backs of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, foreign institutional investors, credit rating agencies and other capital market participants. Listing of securities The listing of securities on a recognised Indian stock exchange is regulated by applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act and various regulations and guidelines issued by the SEBI and the listing agreements of the respective stock exchanges. The governing body of each stock exchange is empowered to suspend trading of or dealing in a listed security for non-compliance or breach of a company’s obligations under such listing agreement or for any other reason, subject to the company receiving prior notice of the intent of the exchange. SEBI also has the power to amend such equity listing agreements and the bye-laws of the stock exchanges in India, to overrule a stock exchange’s governing body and withdraw recognition of a recognised stock exchange. In order to restrict abnormal price volatility in any particular stock, the SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain level of price volatility. The index-based market-wide circuit breaker, when triggered, brings about a co-ordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the SENSEX of the BSE or NIFTY of the NSE, whichever is breached earlier. In addition to the market-wide index-based circuit breakers, there are currently in place varying individual scrip-wide price bands. Additionally, SEBI has notified the Securities and Exchange Board of India (Delisting of Shares) Regulations, 2009 altering the regime regarding the voluntary and compulsory delisting of shares of Indian companies from the Indian stock exchanges. Minimum public shareholding Pursuant to an amendment of the SCRR in June 2010, all listed companies (except public sector undertakings) are required to maintain a minimum public shareholding of 25% and have been given a period of three years to comply with such requirement. Stock exchanges in India There are currently 20 recognised stock exchanges in India. Most of the stock exchanges have their own governing board for self-regulation. The BSE and the NSE together hold a dominant position among the stock
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exchanges in terms of the number of listed companies, market capitalization, and trading activity. (Source: SEBI website) BSE Established in 1875, the BSE is the oldest stock exchange in India. In 1956 it became the first stock exchange in India to obtain permanent recognition from the Government under SCRA. It has evolved over the years into its present status as the premier stock exchange of India. As of February 28, 2013 there were 5,197 listed companies trading on the BSE. In February, the average daily equity turnover on the BSE was ` 21, 069 million. The estimated market capitalization of stocks trading on the BSE was ` 65,380.39 billion as on February 28, 2013. (Source: www.bseindia.com) NSE The NSE was established by financial institutions and banks to serve as a national exchange and to provide nationwide on-line satellite-linked screen-based trading facilities with electronic clearing and settlement for securities including government securities, debentures, public sector bonds and units. It has evolved over the years into its present status as one of the premier stock exchange of India. The NSE was recognised as a stock exchange under the SCRA in April 1993 and commenced operations in the wholesale debt market segment in June 1994 and operations in the derivatives segment in June 2000. The NSE launched the NSE 50 index, now known as S&P CNX NIFTY, on April 22, 1996 and the Mid-cap Index on January 1, 1996. The average daily turnover for February, 2013 was ` 113,321 million. As of February 28, 2013 the NSE had 1,665 companies listed and the estimated market capitalisation for the capital market segment stood at approximately ` 63,852.91 billion. The NSE has a wide network in major metropolitan cities and has a screen based trading and a central monitoring system. (Source: www.nseindia.com) Internet-based securities trading and services SEBI approved internet trading in January 2000. Internet trading takes place through order-routing systems, which route client orders to exchange trading systems for execution. Stockbrokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated by SEBI. The NSE became the first exchange to grant approval to its members for providing internet-based trading services. Internet trading is possible on both the “equities” and the “derivatives” segments of the NSE. Trading hours Trading on both the NSE and the BSE occurs from Monday to Friday, between 9:15 a.m. and 3:30 p.m. The BSE and the NSE are closed on public holidays. The recognised stock exchanges have been permitted to set their own trading hours (in the cash and derivatives segments) subject to the condition that (i) the trading hours are between 9:00 a.m. and 5:00 p.m.; and (ii) the stock exchange has in place a risk management system and infrastructure commensurate with the trading hours. Trading procedure In order to facilitate smooth transactions, in 1995, the BSE replaced its open outcry system with the BSE Online Trading facility. This totally automated screen-based trading in securities was put into practice nation-wide. This has enhanced transparency in dealings and has assisted considerably in smoothing settlement cycles and improving efficiency in back-office work. The NSE has introduced a fully automated trading system called the “National Exchange for Automated Trading”, or NEAT, which operates on a strict price/time priority besides enabling efficient trade. NEAT has provided depth in the market by enabling a large number of members all over India to trade simultaneously, narrowing the spreads. Takeover Code
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Disclosure and mandatory bid obligations for listed Indian companies under Indian law are governed by the specific regulations in relation to substantial acquisition of shares and takeovers, being the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (the “Takeover Code”). Since the Company is an Indian listed company, the provisions of the Takeover Code apply to the Company. The Takeover Code came into effect on 22 October 2011 and replaced the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (the “Takeover Code 1997”). The key changes from the Takeover Code 1997 under the Takeover Code include: • the trigger for making a public offer upon acquisition of shares or voting rights has been increased from
15% to 25%;
• every public offer has to be made for at least 26% of all the shares held by other shareholders;
• creeping acquisition of up to 5% is permitted up to a limit of 75% of the shares or voting rights of a company;
• acquisition of control in a target company triggers the requirement to make a public offer regardless of the level of shareholding and the acquisition of shares; and
• if the indirect acquisition of a target company is a predominant part of the business or entity being acquired, it would be treated as a direct acquisition.
Insider Trading Regulations The Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 1992, as amended (the “Insider Trading Regulations”) prohibit and penalise insider trading in India. An insider is, inter alia, prohibited from dealing in the securities of a listed company when in possession of unpublished price sensitive information. The Insider Trading Regulations also provide disclosure obligations for shareholders holding more than a pre-defined percentage, and directors and officers, with respect to their shareholding in the company, and the changes therein. The definition of “insider” includes any person who has received or has had access to unpublished price sensitive information in relation to securities of the company or any person reasonably expected to have access to unpublished price sensitive information and who is or was or is deemed to have been connected with the company. Depositories The Depositories Act provides a legal framework for the establishment of depositories to record ownership details and effect transfers in book-entry form. Further, the SEBI framed the Securities and Exchange Board of India (Depositories and Participant) Regulations, 1996, as amended, which among other things provide regulations in relation to the formation and registration of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, companies and beneficial owners. The depositary system has significantly improved the operation of the Indian securities markets. Derivatives (Futures and Options) Trading in derivatives is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended in February 2000 and derivatives contracts were included within the term “securities”, as defined by the SCRA. Trading in derivatives in India takes place either on separate and independent derivatives exchanges or on a separate segment of an existing stock exchange. The derivatives exchange or derivatives segment of a stock exchange functions as a self-regulatory organisation under the supervision of the SEBI. Derivatives products were introduced in phases in India, starting with futures contracts in June 2000 and index options, stock options and stock futures in June 2000, July 2001 and November 2001, respectively.
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DESCRIPTION OF THE SHARES Set forth below is certain information relating to the share capital of our Bank, including a brief summary of some of the provisions of the Memorandum and Articles of Association, the Companies Act, the Banking Regulation Act and certain related legislation of India, all as currently in effect. General Our Bank’s authorized share capital is ` 2,000 million divided into 20, 00, 00,000 Equity Shares. Our Bank’s issued, subscribed and paid up capital totals ` 851.36 million divided into 8, 51, 36,319 fully paid up Equity Shares. Dividend Under the Companies Act, unless the board recommends the payment of a dividend, the shareholders at a general meeting have no power to declare any dividend. Subject to certain conditions specified in the Companies Act, no dividend can be declared or paid by a company for any financial year except out of the profits of the company determined in accordance with the provisions of the Companies Act or out of the undistributed profits or reserves of prior fiscal years or out of both, calculated in accordance with the provisions of the Companies Act. Under our Articles of Association, our shareholders at a general meeting may declare a lower, but not higher, dividend than that recommended by our Board. Under the listing agreements with the Stock Exchanges, listed companies are required to declare and disclose their dividends only on a per share basis. The dividend recommended by the Board and approved by the shareholders at a general meeting is distributed and paid to shareholders in proportion to the paid up value of their shares as of the record date for which such dividend is payable. In addition, the Board may declare and pay interim dividends. Under the Companies Act, dividends can only be paid in cash to shareholders listed on the register of shareholders. No shareholder is entitled to a dividend while unpaid calls on any of such shareholder’s shares are outstanding. Dividends must be paid within 30 days from the date of the declaration and any dividend that remains unpaid or unclaimed after that period must be transferred within seven days to a special unpaid dividend account held at a scheduled bank. Any money that remains unpaid or unclaimed for seven years from the date of such transfer must be transferred by us to the Investor Education and Protection Fund established by the Government and any claim with respect thereto will lapse thereafter. In addition, RBI has also prescribed certain norms in relation to dividends to be paid by Banks. For details of the norms prescribed by RBI for payment of dividend by banks, see the section titled “Dividend Policy” on page 57. Capitalization of Reserves The Articles of Association permit a resolution of the shareholders in a general meeting, upon the recommendation of the Board, to resolve in certain circumstances, that certain amounts standing to the credit of certain reserves or otherwise available for distribution, may be applied, inter alia, towards paying up any amounts unpaid on any shares held by such members. A share premium account and a capital redemption reserve fund, may only be applied in the paying up of unissued shares to be issued to members of the Bank as fully paid bonus shares. Bonus shares must be issued pro rata to the amount of capital paid up with respect to existing shares. Any issue of bonus shares by a listed company would be subject to the SEBI Regulations. Pre-emptive Rights and Alteration of Share Capital Subject to the provisions of the Companies Act, we can increase our share capital by issuing new shares. In terms of the Companies Act, such new shares must be offered to existing shareholders registered on the record date in proportion to the amount paid up on those shares on that date. The offer should be made by notice specifying the number of shares offered and the date (being not less than fifteen days from the date of the offer) after which the offer, if not accepted, will be deemed to have been declined. After such date, the Board may dispose of the shares offered in respect of which no acceptance has been received in such manner as they think most beneficial to us. The offer is deemed to include a right exercisable by the person concerned to renounce the shares in favour of any other person, provided that the person in whose favour such shares have been renounced is approved by the Board in their absolute discretion. However, under the provisions of the Companies Act, new shares may be offered to any persons, whether or not
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those persons include existing shareholders, if a special resolution to that effect is passed by the shareholders of the company in a general meeting. The issue of the Equity Shares pursuant to this Issue has been approved by a special resolution of our shareholders and such shareholders have waived their pre-emptive rights with respect to such Equity Shares. The Articles of Association provide that we may consolidate or sub-divide our share capital, or cancel shares which have not been taken up by any person. We can also alter our share capital by way of a reduction of capital, in accordance with the Companies Act. General Meetings of Shareholders We must hold our annual general meeting each year within fifteen months of the previous annual general meeting and within six months after the end of each accounting year. The Registrar of Companies may extend this period in special circumstances at our request. The Board may convene an extraordinary general meeting of shareholders when necessary and shall convene such a meeting at the request of a shareholder or shareholders holding in the aggregate not less than 10.0% of our issued paid up capital. Written notices convening a meeting setting out the date and place of the meeting and its agenda must be given to members at least 21 days prior to the date of the proposed meeting and where any special business is to be transacted at the meeting, an explanatory statement must be annexed to the notice as required under the Companies Act. A general meeting may be called after giving shorter notice if consent is received from all shareholders in the case of an annual general meeting and from shareholders holding not less than 95.0% of our paid up capital in the case of any other general meeting. Any listed public company intending to pass a resolution relating to matters such as, but not limited to, an amendment in the objects clause of its memorandum of association, a buy-back of shares under the Companies Act and the giving of loans or extending a guarantee in excess of limits prescribed under the Companies Act (and guidelines issued thereunder) is required to pass the resolution by means of a postal ballot instead of transacting the business in the general meeting of the company. Voting Rights At a general meeting upon a show of hands, every member holding shares, entitled to vote and present in person has one vote. Upon a poll, the voting rights of each shareholder entitled to vote and present in person or by proxy are in the same proportion to such shareholder’s share of our paid up equity capital. Ordinary resolutions may be passed by simple majority of those present and voting. Special resolutions require that the votes cast in favour of the resolution must be at least three times the votes cast against the resolution. The Companies Act provides that to amend the articles of association of a company, a special resolution is required to be passed in a general meeting. A shareholder may exercise his voting rights by proxy to be given in the form required by the Articles of Association. The instrument appointing a proxy is required to be lodged with us at least 48 hours before the time of the meeting. A vote given in accordance with the terms of an instrument appointing a proxy shall be valid notwithstanding the prior death or insanity of the principal, or revocation of the instrument, or transfer of the share in respect of which the vote is given, provided no intimation in writing of such death, insanity, revocation or transfer of the share shall have been received by our Bank at its office before the commencement of the meeting. Section 12 of the Banking Regulation Act prohibits any person holding shares in a bank from exercising voting rights in excess of 10.0% of the total voting rights of all shareholders of any bank, irrespective of the number of shares held by such person. Register of Shareholders and Record Dates We are obliged to maintain a register of shareholders at our Registered Office or at some other place in the same city. We recognize as shareholders only those persons whose names appear on the register of shareholders and cannot recognize any person holding any share or part of it upon any express, implied or constructive trust, except as permitted by law. In the case of shares held in physical form, transfers of shares are registered on the register of shareholders upon lodgment of the share transfer form duly complete in all respects accompanied by a share certificate or, if there is no certificate, the letter of allotment in respect of shares transferred together with duly stamped transfer forms. In respect of electronic transfers, the depository transfers shares by entering the name of the purchaser in its books as the beneficial owner of the shares. In turn, the name of the depository is
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entered into our records as the registered owner of the shares. The beneficial owner is entitled to all the rights and benefits as well as the liabilities with respect to the shares held by a depository. For the purpose of determining the shareholders for the payment of dividends, the register may be closed for periods not exceeding 45 days in any one year or 30 days at any one time at such times as the Board may deem expedient in accordance with the provisions of the Companies Act. Under the Companies Act, we are also required to maintain a register of debenture holders. Annual Report and Financial Results The annual report must be presented at the annual general meeting. The report includes financial information, a corporate governance section and management’s discussion and analysis and is sent to the company’s shareholders. Under the Companies Act, we must file our balance sheet and profit and loss account with the Registrar of Companies within six months from the close of the accounting year or within thirty days from the date of the annual general meeting, whichever is earlier. As required under the Listing Agreements, copies are required to be simultaneously sent to the Stock Exchanges. We must also publish our financial results in at least one English language daily newspaper circulating in the whole or substantially the whole of India and also in a daily newspaper published in the language of the region of the Registered Office (i.e., Malayalam). Transfer of Shares Shares held through depositories are transferred in the form of book entries or in electronic form in accordance with applicable SEBI regulations. These regulations provide the regime for the functioning of the depositories and their participants and set out the manner in which the records are to be kept and maintained and the safeguards to be followed in this system. Transfers of beneficial ownership of shares held through a depository are exempt from stamp duty. The shares are freely transferable, subject only to the provisions of the Companies Act under which, if a transfer of shares contravenes any provisions of the SEBI Act or the regulations made thereunder or the SICA, or any other law, the Company Law Board may, on an application made by the company, a depository incorporated in India, an investor, SEBI or a participant, direct any depository or company to rectify the register or records. If a company without sufficient cause refuses to register a transfer of shares within two months from the date of which the instrument of transfer or intimation of transfer, as the case may be, is delivered to the company, the transferee may appeal to the Company Law Board seeking to register the transfer. The Company Law Board may, in its discretion, issue an interim order suspending the voting rights attached to the relevant shares before completing its investigation of the alleged contravention. Under the Companies (Second Amendment) Act, 2002, the Company Law Board is proposed to be replaced with the National Company Law Tribunal with effect from a date yet to be notified. Further, SICA may be repealed and the Board of Industrial and Financial Reconstruction, as constituted under the SICA may be replaced with the National Company Law Tribunal, set up under the Companies Act. Pursuant to the Listing Agreements, in the event that a transfer of shares is not effected within one month or where we have failed to communicate to the transferee any valid objection to the transfer within the stipulated time period of one month, we are required to compensate the aggrieved party for the opportunity loss caused by the delay. A transfer may also be by transmission. Subject to the provisions of our Articles, any person becoming entitled to shares in consequence of the death, lunacy, bankruptcy or insolvency of any member or by any lawful means other than by a transfer in accordance with these presents, may, with the consent of the board, upon producing such evidence that such person sustains the character in respect of which he proposes to act under the Articles, or his title, as the Board thinks sufficient, be registered as a member in respect of such shares, or may, subject to the regulations as to transfer contained in the Articles, transfer such shares. Any transfer of Equity Shares, which would take the holding of a person or a group to more than 5.0% of our issued capital shall be not permitted without the prior approval of the RBI. Liquidation Rights
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Subject to the rights of creditors and employees in the event of our winding up, the holders of the Equity Shares are entitled to be repaid the amounts of capital paid up or credited as paid up on such shares. All surplus assets after payments due to employees and other creditors belong to the holders of the Equity Shares in proportion to the amount paid up or credited as paid up on such shares respectively, at the commencement of the winding up.
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STATEMENT OF TAX BENEFITS
February 20, 2013 To, The Board of Directors, The Dhanlaxmi Bank Limited, PB No.9, Dhanlaxmi Buildings Naickanal Thrissur-680001 India
Statement of Tax Benefits Dear Sirs, We enclose the statement of Tax Benefits for the proposed QIP issue by Dhanlaxmi Bank Limited. We hereby confirm that the information provided therein states the general direct tax benefits available to Dhanlaxmi Bank Limited ("The Bank") and its shareholders under the current direct tax laws in force in India. Several of these benefits are dependent on the Bank or its shareholders fulfilling the conditions prescribed under the relevant provisions of the tax law. Hence, the ability of the Bank or its shareholders to derive tax benefits is dependent upon fulfilling such conditions, which based on business imperatives, the Bank or its shareholders may or may not choose to fulfill. The benefits discussed in the enclosed Statement are not exhaustive. We are informed that this statement is only intended to provide general information to the investors and hence is neither designed nor intended to be a substitute for professional tax advice. In view of the individual nature of tax consequences and the changing tax provisions, each investor is advised to consult his or her own tax consultant with respect to the specific tax implications arising out of their participation in the issue.
Unless otherwise specified, sections referred to below are sections of the Income-tax Act. 1961 ("The Act").The Income-tax rates referred here are the existing tax rates based on the rates prescribed in the Finance Act, 2012 for the Financial Year 2012-13. All the provisions set out below are subject to conditions specified in the respective sections. The contents of the enclosed Statement are based on information, explanations and representations obtained from the Bank and on the basis of our understanding of the business activities and operations of the Bank and the interpretation of tax laws presently in force in India. The above statement of possible direct tax benefits set out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares. Sagar & Associates Chartered Accountants (B.Srinivasa Rao) Partner Firm Registration No.:003510S Membership No: 202352 Place: Thirssur Dated: 20 February 2013
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STATEMENT OF TAX BENEFITS Statement of Income-tax Benefits available to Dhanlaxmi Bank Ltd. (“the Bank”) and its Shareholders TO THE BANK Specific Tax Benefits to a Bank 1. Under Section 36(1)(viia) of the Act in respect of any provision made for bad and doubtful debts, a
Scheduled Bank is entitled to a deduction not exceeding:
a. 7.5% of the total income (computed before making any deductions under this clause and Chapter VIA) and
b. 10% of the aggregate average advances made by the rural branches of the Bank computed in
the prescribed manner.
Also the Bank shall, at its option, be allowed a further deduction in excess of the limit specified above, for an amount not exceeding the income derived from redemption of securities in accordance with a scheme framed by the Central Government provided such income has been disclosed in its return of income under the head “Profits and gains of business or profession”.
2. In addition to the deduction available under Section 36(1)(viia) of the Act, the Bank is entitled to claim
a deduction under Section 36(1)(vii) of the Act for the amount of bad debts written off as irrecoverable in the accounts. The deduction shall be limited to the amount by which such debt or part thereof, which exceeds the credit balance in the provision for bad and doubtful debts account made under Section 36(1)(viia) of the Act and subject to the compliance of provisions of Section 36(2)(v) of the Act. The amount subsequently recovered would be chargeable to income-tax in the year of recovery in accordance with the provisions of section 41(4) of the Income-tax Act.
3. Under section 36(1)(viii) of the Act, the Bank is entitled to claim deduction for amount transferred to
special reserve account subject to maximum of 20% of profit derived from providing long term finance in India for industrial or agriculture development or development of infrastructure facility in India or development of housing in India.
However, where the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and of general reserves of the bank, no allowance under this section shall be made in respect of such excess.
4. Under the provisions of Section 43D of the Act, interest income on certain categories of bad or
doubtful debts as specified in Rule 6EA of the Income Tax Rule, 1962 having regard to the guidelines issued by Reserve Bank of India in relation to such debts shall be chargeable to tax, only in the year in which it is actually received or the year in which it is credited to the Profit and Loss Account by the Scheduled Bank, whichever is earlier.
General Tax Benefits 1. Under Section 10(15)(i) of the Act, income by way of interest, premium on redemption or other
payment on securities, bonds, etc. issued by the Government and deposits notified by the Government is exempt from tax, subject to such conditions and limits as may be specified by Government in this behalf.
2. Under Section 10 (33) of the Act, any income arising from the transfer of a capital asset, being a unit of
the Unit Scheme, 1964 referred to in Schedule I to the Unit Trust of India (Transfer of Undertaking and Repeal) Act, 2002 (58 of 2002) is exempt.
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3. In accordance with section 10(34) of the Act, any dividend income as referred to in section 115-O of the Act which is declared, distributed or paid by any domestic company is exempt from tax in the hands of the Bank.
4. In accordance with section 10(35) of the Act, the following income shall be exempt in the hands of the
Bank:
a) Income received in respect of the units of a Mutual Fund specified under section 10(23D) the Act; or
b) Income received in respect of units from the Administrator of the specified undertaking; or c) Income received in respect of units from the specified company;
Provided that this exemption does not apply to any income arising from transfer of units of the Administrator of the specified undertaking or of the specified company or of a mutual fund, as the case maybe.
5. By virtue of section 10(36) of the Act, any long term capital gain arising to the Bank from the transfer
of a long term capital asset being an eligible equity share (as defined) in a company purchased on or after 1st day of March 2003 and before 1st day of March 2004 and held for a period of 12 months or more would not be liable to tax in the hands of the Banks.
6. In accordance with section 10(38) of the Act, long-term capital gains arising from the transfer of a
long-term capital asset, being an equity share in a company or a unit of an equity oriented fund is exempt in the hands of the Bank provided such transaction is chargeable to securities transaction tax under that chapter. Provided that the income by way of long term capital gain of a company shall be taken into account in computing the book profit and the income tax payable under section 115JB.
7. Under section 32 of the Act, the Bank is entitled to claim depreciation on tangible and intangible assets
owned by it and used for the purpose of its business. 8. In accordance with and subject to the provisions of section 35 of the Act, the Bank would be entitled to
deduction in respect of expenditure laid out or expended on scientific research related to the business not being in the nature of capital expenditure. Further the Bank also would be entitled to a weighted deduction in respect of any sum paid to a scientific research association which has as its object the undertaking of scientific research or to a university or college or company or other institution to be used for scientific research subject to the conditions specified therein or in certain cases to be used for research in social science or statistical research.
9. Any payment of securities transaction tax in respect of taxable securities transactions which are taxable
under the head “profits and gains of business or profession” shall be allowed as deduction under section 36 (1) (xv) of the Act against such income.
10. In accordance with section 47(viaa) of the Act, any transfer of a capital asset by a banking company to
the banking institution, in a scheme of amalgamation of a banking company with a banking institution sanctioned and brought into force by the Central Government would not be liable to capital gains under section 45 of the Act.
11. Under the provisions of Section 54EC of the Act and subject to conditions specified therein, the Bank
is eligible to claim exemption from the tax arising on long-term capital gains, on investment of capital gains on or after 01.04.2007 in certain specified assets not exceeding Rupees fifty lakhs per year, within six months from the date of transfer of capital asset. If only a portion of the capital gains is invested, then the exemption is proportionately available. If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the specified asset is transferred or converted into money.
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For this purpose, long term specified asset means, any Bond redeemable after three years but issued on or after 01.4.2007, by the National Highways Authority of India or by the Rural Electrification Corporation Limited.
12. In terms of the provisions of section 111A of the Act, short-term capital gains arising from the transfer
of a short-term capital asset, being an equity share in a company or a unit of an equity oriented mutual fund is chargeable to tax at the rate of 15% in the hands of the Bank, provided the transaction is chargeable to securities transaction tax under that chapter.
13. The benefit of exemption from tax under Section 10(38) of the Act on long term capital gains, or,
concessional rate of tax under Section 111-A on short-term capital gains will not be available, where no securities transactions tax is applicable. In such cases, under the provisions of Section 112 of the Act, taxable long-term capital gains, if any, on sale of listed securities or units would be charged to tax at the concessional rate of 20% (plus applicable surcharge and education cess), after considering indexation benefits, or at 10% (plus applicable surcharge and education cess) without indexation benefits in accordance with and subject to the provision of Section 48 of the Act. Under Section 48 of the Act, the long-term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/improvement. This is for securities held as investments and not as trading assets.
The short term capital gains not eligible for the concessional rate under Section 111-A of the Act, are chargeable to tax as per the relevant tax rate applicable to the bank of 30% plus applicable surcharge and education cess.
TO THE RESIDENT SHAREHOLDERS OF THE BANK The following are the benefits as per the current tax laws to shareholders in the Bank. However, in view of the individual nature of the tax consequences, prospective investors are advised to consult his/her/their own tax advisor with respect to the specific tax consequences of his/her/their purchasing shares in the Issue: 1 Under section 10 (32) of the Act, any income of minor children clubbed with the total income of the
parent under section 64 (1A) of the Act, will be exempt from tax to the extent of Rs. 1500 per minor child.
2 In accordance with section 10(34) of the Act, any dividend income as referred to in section 115-O of
the Act which is declared, distributed or paid by any domestic company on or after April 1, 2003 is exempt from tax in the hands of the shareholders.
3 In accordance with section 10(38) of the Act, long-term capital gains arising from the transfer of a
long-term capital asset, being the equity share of the BANK is exempt from tax provided the transaction is chargeable to securities transaction tax under that chapter. However, minimum alternate tax (MAT) of 18.5% (plus applicable surcharge and education cess) on book profits (which would include such long term capital gains) is payable by the shareholder company under Section 115JB of the Act, if 18.5% of book profit computed as per provision of Section 115JB of the Act is higher than the total income tax payable as per normal provision of the Act.
4 In terms of the provisions of section 111A of the Act, short-term capital gains arising from the transfer
of a short-term capital asset, being the equity share of the BANK is chargeable to tax at the rate of 15% in the hands of the shareholder, provided such transaction is chargeable to securities transaction tax under that chapter. Provided that in the case of an individual or Hindu Undivided Family, being a resident, where the total income as reduced by such short term capital gain is below the maximum amount which is not chargeable to income tax, then, such short term capital gains shall be reduced by the amount by which the total income as so reduced falls short of the maximum amount which is not chargeable to income-tax and the tax on the balance of short term capital gains shall be computed at the rate of 15%.
5 The benefit of exemption from tax under Section 10(38) of the Act on long term capital gains, or,
concessional rate of tax under Section 111-A on short-term capital gains will not be available, where no securities transactions tax is applicable. In such cases, under the provisions of Section 112 of the Act, taxable long-term capital gains, if any, on sale of listed shares of the BANK should be charged to tax at
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the concessional rate of 20% (plus applicable surcharge and education cess), after considering indexation benefits, or at 10% (plus applicable surcharge and education cess) without indexation benefits in accordance with and subject to the provision of Section 48 of the Act. Under Section 48 of the Act, the long-term capital gains arising out of sale of capital assets excluding bonds and debentures (except Capital Indexed Bonds issued by the Government) will be computed after indexing the cost of acquisition/improvement.
The short term capital gains not eligible for the concessional rate under Section 111-A of the Act, are chargeable to tax as per the relevant rate applicable to the shareholder plus applicable surcharge and education cess.
6 Renunciation of rights should be considered as taxable transfer with Nil cost of acquisition. The short-
term capital gains arising on such renunciation should be taxable at normal rate of tax applicable to the shareholder plus applicable surcharge and education cess.
7 Any payment of securities transaction tax in respect of taxable securities transactions which are taxable
under the head “profits and gains of business or profession” shall be allowed as deduction under section 36 (1) (xv) of the Act against such income.
8 Under Section 54EC of the Act, exemption from capital gain tax is available in respect of long term
capital gains arising on transfer of the Bonds/securities of the Bank if the assessee at any time within a period of six months from the date of such transfer, invests the whole of the capital gains in specified assets subject to maximum of Rupees fifty lakhs per year made on or after 01.04.2007. If only a portion of capital gains is so invested, then the exemption is proportionately available.
If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the specified asset is transferred or converted into money. For this purpose the term assessee would include various types of persons like Individual, Hindu undivided Family, Association of Persons, Body of Individuals, Firm, Company etc. For the meaning of the term “specified asset” kindly refer Para no. 11 above.
9 As per the provisions of Section 54F of the Act, long term capital gains arising in the hands of an
individual or HUF on transfer of shares of the Bank shall be exempt if the net consideration is invested in purchase of residential house within a period of one year before or two years from the date of transfer or constructs a residential house within a period of three years from the date of transfer. The exemption is available proportionately if only a portion of the net consideration is invested as above. The exemption is subject to other conditions specified in that Section.
If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the residential house is transferred.
Benefits to Non-Resident Shareholders including NRI’s, OCB’s & FII 1. In accordance with section 10(34) of the Act, any dividend income as referred to in section 115-O of
the Act which is declared, distributed or paid by any domestic company on or after April 1, 2003 is exempt from tax in the hands of the shareholders.
2. In accordance with section 10(38) of the Act, long-term capital gains arising from the transfer of a
long-term capital asset, being an equity share in a company is exempt from tax provided the transaction is chargeable to securities transaction tax.
3. In terms of the provisions of section 111A of the Act, short-term capital gains arising from the transfer
of a short-term capital asset, being an equity share in a company or a unit of an equity oriented fund is
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chargeable to tax at the rate of 15% in the hands of the shareholder, provided such transaction is chargeable to securities transaction tax.
4. In accordance with and subject to the provisions of Section 48 of the Act, in order to compute capital
gains, the following amounts would be deductible from the full value of consideration:
(i) Cost of acquisition/improvement of the shares as adjusted by the Cost Inflation Index notified by the Central Government; and
(ii) Expenditure incurred wholly and exclusively in connection with the transfer of the shares. As
per the provisions of the first proviso to Section 48 of the Act, capital gains arising from the transfer of equity shares acquired by non-residents in foreign currency are to be computed by converting the cost of acquisition/improvement, expenditure incurred wholly and exclusively in connection with such transfer and the full value of the consideration received or accruing into the same foreign currency as was initially utilized in the purchase of equity shares and the capital gains so computed in such foreign currency shall then be reconverted into Indian currency. Cost indexation benefits will not be available in such case.
Further, the aforesaid manner of computation of capital gains shall be applicable in respect of every reinvestment thereafter in and sale of, shares in, or debentures of an Indian company.
5. The benefit of exemption from tax under Section 10(38) of the Act on long term capital gains, or,
concessional rate of tax under Section 111- A on short-term capital gains will not be available, where no securities transactions tax is applicable. In such cases, under the provisions of Section 112 of the Act, taxable long-term capital gains, if any, on sale of listed securities would be charged to tax at the concessional rate of 20% (plus applicable surcharge and education cess) and the taxable long-term capital gains, if any, on sale of unlisted securities would be charged to tax at the rate of 10% on the capital gains in respect of such assets without indexation benefits in accordance with and subject to the provision of Section 48 of the Act.
The short term capital gains not eligible for the concessional rate under Section 111-A of the Act, are chargeable to tax as per the relevant rate applicable to the shareholder plus applicable surcharge and education cess.
6. Renunciation of rights should be considered as taxable transfer with Nil cost of acquisition. The short-
term capital gains arising on such renunciation should be taxable at normal rate of tax applicable to the shareholder plus applicable surcharge and education cess.
7. Any payment of securities transaction tax in respect of taxable securities transactions which are taxable
under the head “profits and gains of business or profession” shall be allowed as deduction under section 36 (1) (xv) of the Act against such income.
8. Under Section 54EC of the Act, exemption from capital gain tax is available in respect of long term
capital gains arising on transfer of shares of the Bank if the assessee at any time within a period of six months from the date of such transfer, invests the whole of the capital gains in specified assets subject to maximum of Rupees fifty lakhs per year made on or after 01.04.2007. If only a portion of capital gains is so invested, then the exemption is proportionately available.
If the specified asset is transferred or converted into money at any time within a period of three years from the date of acquisition, the amount of capital gains on which tax was not charged earlier shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the specified asset is transferred or converted into money. For the meaning of the term “specified asset” kindly refer Para no. 11 under the Section “General Tax Benefits.”
9. As per the provisions of Section 54F of the Act, long term capital gains arising in the hands of an
individual or HUF on transfer of shares of the Bank shall be exempt if the net consideration is invested in purchase of residential house within a period of one year before or two years from the date of transfer or constructs a residential house within a period of three years from the date of transfer. The
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exemption is available proportionately if only a portion of the net consideration is invested as above. The exemption is subject to other conditions specified in that Section.
If the new residential house is transferred within a period of three years from the date of purchase or construction, the amount of capital gains on which tax was not charged earlier, shall be deemed to be income chargeable under the head “Capital Gains” of the year in which the residential house is transferred.
10. Capital gains arising to Non Resident Indians (NRIs) on sale of shares on which securities transaction
tax is not paid, is governed by Chapter XII-A of the Act, subject to fulfilling the conditions stipulated therein.
(i) In accordance with and subject to the provisions of Section 115D read with Section 115E of
the Income-tax Act, long-term capital gains arising on transfer of specified capital assets (including bank’s Equity Shares) acquired out of convertible foreign exchange, are taxable at the rate of 10% (plus applicable surcharge and cess). Cost indexation benefits will not be available in such case.
(ii) In accordance with and subject to the provisions of Section 115F of the Act, long-term capital
gains arising on sale of shares acquired by a NRI shareholder out of convertible foreign exchange shall be exempt from income tax entirely/proportionately, if the entire/part of the net consideration is invested for a period of three years in any savings certificates specified under Section 10(4B) or specified assets as defined in Section 115C(f) of the Act, within six months from the date of transferring the shares. The amount so exempted will be chargeable to tax under the head „Capital Gains� if these new assets are transferred or converted (otherwise than by way of transfer) into money within three years from the date of its acquisition in accordance with the provisions of Section 115F(2) of the Income-tax Act.
(iii) As per Section 115G of the Act, a NRI would not be required to file a return of income under
Section 139(1) of the Act, where the total income consists only of investment income and/or long-term capital gains and tax deductible at source has been deducted from such income as per provisions of Chapter XVIIB of the Act.
(iv) As per the provision of Section 115I of Act, a NRI may elect not to be governed by the
provisions of Chapter XII-A for any assessment year by furnishing his return of income for that assessment year under Section 139 of the Income-tax Act, declaring therein that the provisions of Chapter XII-A shall not apply to him for that assessment year and accordingly his total income for that assessment year will be computed in accordance with the provisions of the Act.
11. A capital gain arising to FIIs on sale of shares on which securities transaction tax is not paid is
governed by Section 115AD of the Act. As per Section 115AD of the Income-tax Act, such long-term capital gains arising on transfer of shares purchased by FIIs are taxable at the rate of 10% (plus applicable surcharge, education cess and secondary and higher education cess). Short-term capital gains are however, taxable at the rate of 30% (plus applicable surcharge, education cess and secondary and higher education cess). Provided that the amount of income tax calculated on the income by way of short term capital gains referred to in section 111A shall be at the rate of 15%. Cost indexation benefits will not be available. Further, the provisions of the first proviso of Section 48 of the Act as stated above will not apply.
12. In accordance with and subject to the provisions of Section 115AD read with Section 196D(2) of the
Act, no deduction of tax at source is applicable in respect of capital gains arising from the transfer of the equity shares payable to FIIs.
13. In the case of all non-resident shareholders, the above tax rates are subject to the benefits, if any,
available under the double taxation avoidance agreements signed by India with the country of which the non-resident shareholder may be a tax resident, subject to fulfillment of conditions prescribed there under.
BENEFITS AVAILABLE TO MUTUAL FUNDS which are shareholders of the Bank
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As per the provisions of Section 10(23D) of the Act, any income of a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or Regulations made there under, mutual funds set up by the Public Sector Banks or Public Financial Institutions and Mutual Funds authorized by the Reserve Bank of India and subject to the conditions as the Central Government may by notification in the Official Gazette specify in this behalf, would be exempt from income-tax. WEALTH TAX Shares are not treated as assets within the meaning of Section 2(ea) of the Wealth Tax Act, 1957 and accordingly, the bank’s equity are not liable to Wealth-tax in the hands of the shareholders. Notes: All the above benefits are as per the current tax law and will be available only to the sole/first names holder in case the shares are held by joint holders. The above benefits have not been analyzed from the perspective of Direct Tax Code Bill 2010 which is proposed to be implemented from 1 April 2013. In view of the individual nature of tax consequences, each investor is advised to consult their own tax advisor with respect to specific tax consequences of his/her participation in the scheme. The above statement of possible direct tax benefits set out the provisions of law in a summary manner only and is not a complete analysis or listing of all potential tax consequences of the purchase, ownership and disposal of equity shares.
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LEGAL PROCEEDINGS
Except as described below, our Bank is not involved in any material legal proceedings, no proceedings are threatened, and no notices have being issued by any regulatory or governmental authority, which may have, a material adverse effect on the business, properties, financial condition or operations of our Bank. We believe that the number of proceedings in which we are involved in is not unusual for a company of its size in the context of doing business in India. Debt Recovery Cases 1. The Bank has filed a recovery suit bearing no. OA No 135 of 2012 dated March 15, 2012 against M/s
Sevashram and others before the Debt Recovery Tribunal, Ernakulam in relation to recovery of certain loan facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 17,128,520 with future interest at the rate of 16% per annum, penal interest and other costs.
2. The Bank has filed a recovery suit bearing no. OA No 1226 of 2011 dated December 13, 2011 against
M/s ITN Telemedia Pvt Ltd and others before the Debt Recovery Tribunal-III, Mumbai in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 11,163,970 with further interest at the rate of 24% per annum from the filing of the O.A.
3. The Bank has filed a recovery suit bearing no. OA No 66 of 2011 dated November 22, 2010 against
M/s Chetana (a registered non-governmental organisation) and Vijayalakshmi Ramanna before the Debt Recovery Tribunal, Bangalore in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 11,663,468 with future interest at 13.5% interest per annum, penal interest and other cost and expenses.
4. The Bank has filed a recovery suit bearing no. OA No 232 of 2011 dated November 2, 2011 against
M/s Box N Box Making Corp, Vijaywada and others before the Debt Recovery Tribunal, Vishakapatnam in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 11,198,595 with future interest of 18.75% per annum and penal interest.
5. The Bank has filed a recovery suit bearing no. OA No 418 of 2012 dated July 8, 2012 against M/s
Telecanor Global Ltd and others before the Debt Recovery Tribunal, Hyderabad in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amounts to be recovered are ` 27,485,710 and ` 34,165,507 along with further interest at the rate of 15.25% and 13.25% per annum, respectively.
6. The Bank has filed a recovery suit bearing no. OA No 115 of 2012 dated March 6, 2012 against K.T
Jaffar and others before the Debt Recovery Tribunal, Ernakulam in relation to recovery of certain credit facilities provided by the Bank, on account of default in repayment of loan facilities. The amount to be recovered is ` 27,702,680 with interest at 23% per annum and penal interest.
Criminal Cases A criminal complaint bearing S.R.No 5393/12 dated November 17, 2012 was filed by the complainant, Jayam Nagesh, Proprietor of M/s SRS Associates, before the Chief Additional Metropolitan Magistrate at Hyderabad alleging that the complainant was abused and threatened by the accused, upon being approached for the payment of the outstanding amount. As per the criminal complaint the Bank had entered into service provider agreement with the complainant and in terms of the agreement, the accused were liable to pay an amount of ` 429,245 to the complainant. The complaint was referred by the Chief Additional Metropolitan Magistrate for lodging a first information report at Malakpet Police Station. As a result, FIR No.382/2012 under sections 406, 420, 506 read with 34 of the Indian Penal Code, 1860 and Section 156(3) of the Code of Criminal Procedure, 1973 has been filed against the Bank represented by our Managing Director and CEO, and two senior executives.
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Consequently, the Bank has filed a criminal petition bearing number 8388 of 2012 under Section 482 of the Cr.P.C before the High Court of Andhra Pradesh. The High Court has pursuant to an order dated January 30, 2013, stayed the proceedings before the Chief Additional Metropolitan Magistrate. Fraud Cases As on February 18, 2013, the Bank has filed 54 outstanding fraud cases against its employees, customers and other entities. These fraud cases are in the nature of misappropriation, criminal breach of trust, forgery and cheating against the Bank. The amount involved in these cases is ` 108.86 million. Tax Cases We are involved in a number of disputes pending with the Income Tax Department with respect to income tax assessments for the assessment years 1995-1996, 1996-1997, 1997-1998, 1998-1999, 1999-2000, 2000-2001, 2001-2002, 2002-2003, 2003-2004, 2004-2005, 2005-2006, 2006-2007, 2007-2008, 2008-2009 and 2009-2010. The aggregate income tax liability in dispute is ` 351.83 million.
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OUR AUDITORS
M/s Walker, Chandiok & Co. Chartered Accountants and M/s Shah Gupta & Co., Chartered Accountants, the previous joint statutory auditors of our Bank, have audited the financial statements of our Bank as of and for the fiscal 2010. Further, M/s Walker, Chandiok & Co. and M/s Sharp & Tannan, Chartered Accountants, the previous joint statutory auditors of our Bank, have audited the financial statements of our Bank as of and for fiscal 2011 and 2012. Our current statutory auditor, M/s Sagar & Associates, Chartered Accountants has issued an examination report on these financial statements, which have been included in this Placement Document, for which they have entirely relied upon the audit conducted by the previous auditors. M/s Sagar & Associates, Chartered Accountants were appointed as our Bank’s statutory auditors for the financial year 2013 by virtue of a resolution passed by the shareholders of our Bank in the AGM dated September 27, 2012 and the approval of the RBI dated September 17, 2012. Sagar & Associates have also conducted a limited review of our unaudited financial statements of our Bank as of and for the nine months ended December 31, 2012 and for the purposes of such review report they have relied upon the limited review report jointly issued by Walker, Chandiok & Co. and Sharp & Tannan relating to the unaudited financial statements as of and for the nine months ended December 31, 2011. The limited review report issued by Sagar & Associates in respect of such financial statements has been included in the Placement Document.
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GENERAL INFORMATION 1. Our Bank was incorporated on November 14, 1927 under the Companies Act, 1913 and is a scheduled
commercial bank within the meaning of RBI Act. The CIN of our Bank is L65191KL1927PLC000307.
2. The Registered Office of our Bank is located at Dhanalakshmi Buildings, Naickanal, Thrissur – 680 001, Kerala, India.
3. The Issue has been approved by the members of our Bank pursuant to a resolution passed on February 15, 2013 and approved by our Board pursuant to its resolutions passed on October 31, 2012 and December 11, 2012.
4. We have received in principle approvals dated April 2, 2013, from the NSE, the BSE and the CSE to
list the Equity Shares to be issued pursuant to the Issue under Clause 24(a) of the Listing Agreements. 5. Our Bank has obtained necessary consents, approvals and authorization required for the Issue,
including in principle approval from the RBI dated November 16, 2012. Our Bank shall apply for a post facto approval from the RBI in respect of the Issue, as has been specified by RBI in its letter dated November 16, 2012, upon completion of the allotment process. The RBI has, through its letter dated February 7, 2013, extended the timeline for raising the capital, upto March 31, 2013.
6. Copies of the Memorandum and Articles of Association will be available for inspection between 10.00
A.M. and 1.00 P.M. on any weekday (except Saturdays and public holidays) at the Registered Office. 7. Except as disclosed in this Placement Document, there has been no material change in our Bank’s
financial position since December 31, 2012, the date of last published audited financial statements of our Bank.
8. The Bank is in compliance with the minimum public shareholding requirements as required under the terms of the Listing Agreements and as per Rule 19A of the SCRR.
9. The Floor Price is ` 46.94 per Equity Share and the Discounted Floor Price is ` 46.50 per Equity
Share, as calculated in accordance with Chapter VIII of SEBI Regulations.
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FINANCIAL STATEMENTS
Serial No.
Particulars Page
1 Examination Report on the reformatted financial statements as at and for each of the years ended March 31, 2012, March 31, 2011 and March 31, 2010
F - 1
2 Limited Review Report on Interim Financial Information F – 64
F -1
Examination Report on the Reformatted Financial Statements of
The Dhanlaxmi Bank Limited as at and for each of the years ended
March 31, 2012, March 31, 2011 and March 31, 2010 To The Board of Directors The Dhanlaxmi Bank Limited Dhanlaxmi Buildings Naickanal, Thrissur - 680 001 Kerala Dear Sirs, 1. We have examined the Reformatted Financial Statements (the “Reformatted Statements”) of The
Dhanlaxmi Bank Limited (the “Bank”) annexed to this report for the purposes of inclusion in the Preliminary Placement Document and the Placement Document prepared by the Bank in connection with the Qualified Institutions Placement (“QIP”) of its Equity Shares in accordance with the provisions of Chapter VIII of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (the “ICDR Regulations”), as amended from time to time. The preparation of such Reformatted Statements is the responsibility of the Bank’s management. Our responsibility is to report on such statements based on our procedures.
2. We have examined the Reformatted Statements, prepared by the Bank, based on the Audited Financial Statements (as defined under paragraph 3 below) and approved by the Board of Directors, in accordance with the requirements of: a. The ICDR Regulations; and b. The (Revised) Guidance Note on Reports in Company Prospectuses issued by the Institute of
Chartered Accountants of India. 3. We report that the figures disclosed in the Reformatted Statements have been extracted by the Bank’s
management from the audited financial statements of the Bank for each of the years ended March 31, 2012, March 31, 2011 and March 31, 2010 (the “Audited Financial Statements”) approved by the Board of Directors and Shareholders and converted from thousands and lakhs, as the case may be, and shown in millions and rounded to the nearest one decimal point. The financial statements for the year ended March 31, 2010, 2011 & 2012 have been jointly audited and audit opinions to the Share holders of the Bank issued by the following Audit firms.
S. No
Period Name of the Auditors Audit opinion dated
1 March 31,2010 M/S. Walker,Chandiok & Co and M/S. Shah Gupta & Co May 11, 2010 2 March 31,2011 M/S. Walker,Chandiok & Co and M/S. Sharp & Tannan April 23, 2011 3 March 31,2012 M/S. Walker,Chandiok & Co and M/S. Sharp & Tannan May 30, 2012
These Audited Financial Statements were prepared in accordance with Indian GAAP and as per Banking Regulation Act, 1949
4. In the presentation of the Reformatted Statements based on Audited Financial Statements, no
adjustments have been made for any events occurring subsequent to the dates of the audit reports specified therein.
5. No qualification were noted in the audit reports issued by the previous auditors on the audit of financial statements of the Bank for the years ended March 31, 2012, March 31, 2011 and March 31, 2010.
6. We have no responsibility to update our report for events and circumstances occurring after the date of the report.
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7. This report should not in any way be construed as a re-issuance or redating the previous audit report, issued by us or by the Previous Auditors nor should this be construed as a new opinion on any of the financial statements referred to under paragraphs above.
8. This report is intended solely for your information and for inclusion in the Preliminary Placement Document and the Placement Document prepared in connection with the proposed QIP by the Bank and is not to be used, referred to or distributed for any other purpose, without our prior written consent.
For Sagar & Associates Chartered Accountants Firm Registration No. 003510S (B. Srinivas Rao) Partner Place: Thrissur Date: 20.2.2013
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DHANLAXMI BANK LIMITED REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE
REPORTING YEARS
(Rs in Millions) Schedule As at
March 31,2012 As at
March 31,2011 As at
March 31, 2010 CAPITAL AND LIABILITIES Capital 1 851.4 851.4 641.2 Reserves and Surplus 2 6,431.1 7,595.0 3,759.6 Deposits 3 118,044.1 125,296.3 70,984.8 Borrowings 4 17,215.1 6,261.1 3,175.5 Other Liabilities and Provisions 5 4,223.2 2,677.7 2,307.8 TOTAL 146,764.9 142,681.5 80,868.9 ASSETS Cash and Balances with Reserve Bank of India 6 8,679.5 8,028.0 6,129.0 Balances with Banks and Money at call and short notice 7 581.2 1,323.6 1,374.3 Investments 8 43,601.6 36,396.8 20,277.9 Advances 9 87,580.5 90,651.5 50,062.6 Fixed Assets 10 1,486.9 1,343.6 794.7 Other Assets 11 4,835.2 4,938.0 2,230.4 TOTAL 146,764.9 142,681.5 80,868.9 Contingent Liabilities 12 33,615.6 32,508.5 5,575.3 Bills for collection 3,633.8 1,806.5 552.4 Significant Accounting Policies 18 Notes to the Financial Statements 19
The schedules referred to above form an integral part of the Financial Statements
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DHANLAXMI BANK LIMITED REFORMATTED STATEMENT OF PROFITS AND LOSSES FOR THE LAST THREE REPORTING
YEARS (Rs in Millions)
Schedule Year ended March 31, 2012
Year ended March 31,2011
Year ended March 31, 2010
INCOME Interest Earned 13 13,936.5 9,064.2 5,345.7 Other Income 14 1,436.4 1,467.7 909.9 Total 15,372.9 10,531.9 6,255.6 EXPENSE Interest expended 15 11,461.3 6,412.9 3,940.2 Operating Expenses 16 4,890.7 3,444.7 1,928.6 Provisions and Contingencies 17 177.2 413.7 153.8 Total 16,529.2 10,271.3 6,022.6 Net Profit/Loss for the year (1,156.3) 260.6 233.0 Profit brought forward 0.1 0.1 0.1 Transfer from Dividend Payable Account including Dividend Tax - 37.5 - (1,156.2) 298.2 233.1 Appropriations Transfer to Statutory Reserve - 78.2 69.9 Transfer to Capital Reserve 45.7 2.3 64.9 Transfer to Special Reserve U/s.36(1)(viii) of Income Tax Act - 18.6 15.9 Transfer to Other Reserve - 149.2 7.3 Proposed Dividend - 42.6 64.1 Dividend Tax - 7.2 10.9 Balance Carried forward to Balance Sheet (1,201.9) 0.1 0.1 Total (1,156.2) 298.2 233.1 Earnings Per Share (in Rupees) Basic EPS (13.6) 3.3 3.6 Diluted EPS (13.6) 3.3 3.6 Significant Accounting Policies 18 Notes to the Financial Statements 19
The schedules referred to above form an integral part of the Financial Statements
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REFORMATTED CASH FLOW STATEMENT FOR THE LAST THREE REPORTING YEARS
(Rs in Millions) Particulars Year ended
March 31, 2012 Year ended
March 31,2011 Year ended
March 31, 2010 Cash Flow from Operating Activities Net Profit before Income Tax (1,167.3) 396.8 277.0 Adjustments for: Depreciation on fixed assets 294.7 155.9 103.1 (Profit)/Loss on Revaluation of Investments 71.2 64.4 6.7 Amortisation of premia on investments 75.7 62.8 43.7 Loan Loss provisions including write offs 86.2 63.3 22.2 Provision against standard assets 4.2 146.1 74.2 Provision for wealth tax 0.5 0.4 0.4 Provision for NPA(Investments) (4.1) - (5.8) Provisions for restructured assets 3.7 3.4 4.1 Profit on sale of fixed assets (10.5) (5.2) (7.1) 521.6 491.1 241.5 Adjustments for: Increase in Investments (7,347.6) (16,246.0) (4,649.0) (Increase)/Decrease in Advances 2,976.9 (40,652.2) (18,124.2) Decrease in Borrowings 10,854.0 3,010.5 1,205.5 Increase/(Decrease in Deposits (7,252.2) 54,311.5 21,296.7 (Increase)/Decrease in Other Assets 188.9 (2,672.9) (677.5) Increase in Other Liabilities and Provisions 1,595.1 245.3 553.7 1,015.1 (2,003.8) (394.8) Direct Taxes paid( net of refunds) (75.0) (171.0) (125.5) Net cash flows from operating activities 294.4 (1,286.9) (1.8) Cash flows from investing activities Purchase of fixed assets (457.5) (718.9) (543.9) Proceeds from sale of fixed assets 27.2 17.1 113.3 Net cash flows from investing activities (430.3) (701.8) (430.6) Cash flows from financing activities Proceeds from sale of equity shares 0.0 210.2 - Proceeds from issue of Upper and Lower Tier II capital instruments net of repayment 100.0 75.0 1,150.0 Adjustments towards share issue expenses/Proceeds from Share premium(net of share issue expenses) (4.9) 3,589.3 - Dividend provided last year paid during the year including dividend tax (50.1) (37.5) (75.0) Net cash generated from financing activities 45.0 3,837.0 1,075.0 Net increase in cash and cash equivalents (91.0) 1,848.3 642.6 Cash and cash equivalents as at April 1st 9,351.6 7,503.3 6,860.7 Cash and cash equivalents as at March 31st 9,260.6 9,351.6 7,503.3
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SCHEDULES FORMING PART OF THE REFORMATTED STATEMENT OF ASSETS AND LIABILITIES FOR THE LAST THREE REPORTING YEARS
(Rupees in Millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 1 - CAPITAL Authorised Capital 20,00,00,000 Equity Shares of Rs.10 each 2,000.0 - - 10,00,00,000 Equity Shares of Rs 10 each - 1,000.0 1,000.0 Issued Capital 851,36,319 Equity shares of Rs 10 each 851.4 - - 851,35,749 Equity shares of Rs 10 each - 851.4 - 67,374,500 Equity shares of Rs 10 each - - 673.7 Subscribed and Paid up Capital 851,36,319 Equity shares of Rs 10 each 851.4 - - 851,35,749 Equity shares of Rs 10 each - 851.4 - 64,115,600 Equity shares of Rs 10 each - - 641.2 Total 851.4 851.4 641.2
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(Rupees in millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 2 - RESERVES AND SURPLUS I. STATUTORY RESERVE Opening Balance 772.6 694.4 624.5 Add: Transfer from Profit and Loss Account - 78.2 69.9 772.6 772.6 694.4 II. REVENUE AND OTHER RESERVES Opening Balance 826.2 677.3 670.0 Add : Transfer from Profit and Loss account - 149.2 7.3 Adjustments during the year - (0.3) - 826.2 826.2 677.3 III. BALANCE IN PROFIT AND LOSS ACCOUNT (1,201.9) 0.1 0.1 IV. SECURITIES PREMIUM ACCOUNT Opening Balance 5,639.6 2,050.3 2,050.3 Add: (Adjustments)/Additions during the year (net of
share issue expenses) (4.9) 3,589.3 - 5,634.7 5,639.6 2,050.3 V. CAPITAL RESERVES Opening Balance 296.7 296.3 233.4 Add : Transfer from Profit and Loss Account 45.7 2.3 64.9 Less: Due to Depreciation of Revalued Premises (2.8) (1.9) (2.0) 339.6 296.7 296.3 VI. SPECIAL RESERVE U/s.36(1)(viii) OF INCOME TAX ACT, 1961 Opening Balance 59.9 41.3 25.4 Add: Transfer from Profit and Loss account - 18.6 15.8 59.9 59.9 41.2 Total 6,431.1 7,595.0 3,759.6
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(Rupees in millions)
As at
March 31,2012 As at
March 31,2011 As at
March 31,2010 SCHEDULE-3-DEPOSITS
A. I. Demand Deposits (i) From Banks 342.4 1.1 0.2 (ii) From Others 8,300.2 15,310.8 5,634.5
8,642.6 15,311.9 5,634.7 II. Savings Bank Deposits 14,197.5 13,380.2 9,880.7 III. Term Deposits (i) From Banks 15,464.1 9,602.7 1,155.0 (ii) From Others 79,739.9 87,001.5 54,314.4 95,204.0 96,604.2 55,469.4 Total 118,044.1 125,296.3 70,984.8
B I. Deposits of Branches in India 118,044.1 125,296.3 70,984.8 II. Deposits of Branches outside India - - - Total 118,044.1 125,296.3 70,984.8
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(Rupees in millions)
As at
March 31,2012 As at
March 31,2011 As at
March 31,2010 SCHEDULE 4 - BORROWINGS I. Borrowings in India (i) Reserve Bank of India 7,979.8 3,790.0 20.0 (ii) Other Banks - - - (iii) Other Institutions and Agencies 4,551.1 426.1 3,155.5 12,530.9 4,216.1 3,175.5 II. Tier II bonds in India Upper Tier II bonds 275.0 275.0 - Lower Tier II bonds 1,870.0 1,770.0 - 2,145.0 2,045.0 - III. Borrowings Outside India # 2,539.2 - - 2,539.2 - - # Book credit balances in foreign currency mirror accounts Total 17,215.1 6,261.1 3,175.5
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(Rupees in millions) As at
March 31,2012 As at
March 31,2011 As at
March 31,2010 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. Bills Payable 480.1 562.7 690.3 II. Interest accrued 2,172.9 1,478.1 901.6 III. Unsecured Redeemable Bonds# - - - IV. Others (including Provisions) 1,570.2 636.9 715.9 Total 4,223.2 2,677.7 2,307.8
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(Rupees in millions)
As at
March 31,2012 As at
March 31,2011 As at
March 31,2010 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. Cash on Hand (including foreign currency notes) 1,575.0 1,486.8 1,181.1 II. Balances with Reserve Bank of India
(a) In current accounts 7,104.5 6,541.2 4,947.9 (b) In other accounts - - -
7104.5 6541.2 4947.9 Total 8,679.5 8,028.0 6,129.0
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(Rupees in Millions)
As at
March 31,2012 As at
March 31,2011 As at
March 31,2010 SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India (i) Balances with Banks : (a). In current accounts 544.1 307.8 486.7 (b). In other deposit accounts 37.1 822.5 768.5 581.2 1130.3 1255.2 (ii) Money at Call & Short Notice (a). With banks - - - (b). With other institutions - - - - - - 581.2 1,130.3 1,255.2 II. Outside India (a). In current account - 193.3 119.1 (b). In other deposit accounts - - - - 193.3 119.1 Total 581.2 1,323.6 1,374.3
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(Rupees in Millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 8 - INVESTMENTS A. Investments in India in (i) Government Securities 41,636.7 33,081.1 16,794.0 (ii) Approved securities 0.2 1.2 1,749.9 (iii) Shares 58.0 19.6 6.2 (iv) Debentures and Bonds 802.7 608.7 330.0 (v) Subsidiaries/Joint Ventures - - - (vi) Others 1,104.0 2,686.2 1,397.8 Total 43,601.6 36,396.8 20,277.9 B. Investments outside India - - - 43,601.6 36,396.8 20,277.9 (i) Gross Value of Investments
(a) In India 43,765.5 36,489.1 20,359.1 (b) Outside India - - -
43,765.5 36,489.1 20,359.1 (ii) Provision for Depreciation
(a) In India 163.9 92.3 81.2 (b) Outside India - - -
163.9 92.3 81.2 (iii) Net Value of Investments
(a) In India 43,601.6 36,396.8 20,277.9 (b) Outside India
Total 43,601.6 36,396.8 20,277.9
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(Rupees in Millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 9 - ADVANCES A (i) Bills Purchased and discounted 2,351.9 11,526.8 1,097.0 (ii) Cash Credits, Overdrafts and Loans repayable on
Demand 15,088.8 11,203.7 17,771.0 (iii) Term Loans 70,139.8 67,921.0 31,194.6 Total 87,580.5 90,651.5 50,062.6
B (i) Secured by Tangible assets 76,124.1 79,519.1 38,580.6 (ii) Covered by Bank/Govt Guarantee 2,335.3 365.6 97.3 (iii) Unsecured 9,121.1 10,766.8 11,384.7 Total 87,580.5 90,651.5 50,062.6 C . I. ADVANCES IN INDIA (i) Priority sectors 28,103.4 25,652.4 12,553.6 (ii) Public Sector 174.5 2,108.7 3,107.6 (iii) Banks 0.4 - 4.1 (iv) Others 59,302.2 62,890.4 34,397.3 Total 87,580.5 90,651.5 50,062.6 II ADVANCES OUTSIDE INDIA - - - Total 87,580.5 90,651.5 50,062.6
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(Rupees in Millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 10 - FIXED ASSETS A. Premises At cost as per last Balance sheet 352.4 349.2 342.8 Additions during the year due to revaluation of Premises - - - Additions/Adjustments during the year 2.7 3.6 6.4 Deductions during the year (5.8) (0.4) - Depreciation to date (94.8) (86.5) (78.0) Net Block 254.5 265.9 271.2 B. Other Fixed Assets (includes Furniture and Fixture and Computers) At cost as per last Balance sheet 1,739.9 999.5 756.5 Additions/Adjustments during the year 455.5 810.1 349.2 Deductions during the year (38.0) (69.7) (106.2) Depreciation to date (1,017.9) (755.8) (664.2) 1,139.5 984.1 335.3 Capital Work In progress 92.9 93.6 188.2 Net Block 1,486.9 1,343.6 794.7
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(Rupees in Millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 11 - OTHER ASSETS I. Interest Accrued 1,548.5 945.6 664.9 II. Inter Office Adjustments (Net) 10.2 101.6 337.3 III. Tax paid in advance and Tax Deducted at Source (net of provisions) 755.6 477.7 427.8 IV. Deferred Tax Asset 132.2 143.3 48.7 V. Stationery and stamps 5.8 1.2 0.6 VI. Non Banking Assets acquired in satisfaction of claims 0.5 0.5 1.7 VII. Others 2,382.4 3,268.2 749.4 Total 4,835.2 4,938.1 2,230.4
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(Rupees in Millions)
As at March 31,2012
As at March 31,2011
As at March 31,2010
SCHEDULE 12 - CONTINGENT LIABILITIES I. Claims against the bank not acknowledged as debts 39.4 24.6 26.8 II. Liabilities on account of outstanding forward exchange contracts 20,149.8 27,832.8 3,151.0 III. Guarantees given on behalf of constituents in India 5,384.2 3,356.9 1,282.6 IV. Acceptance endorsements and other obligations 1,182.3 585.9 382.1 V. Liability on account of interest rate swaps 6,500.0 - - VI. Other items for which Bank is contingently liable # 359.9 708.3 732.8 #(Disputed Income Tax Liability) Total 33,615.6 32,508.5 5,575.3
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(Rupees in Millions)
Year ended March 31, 2012
Year ended March 31, 2011
Year ended March 31, 2010
SCHEDULE 13 - I N T E R E S T E A R N E D I. Interest/Discount on Advances/bills 10,753.9 6991.0 4,194.0 II. Income on Investments 3,135.8 2,017.3 1,078.5 III. Interest on balance with RBI/other inter Bank funds 43.6 55.9 53.1 IV. Others 3.2 - 20.1 Total 13,936.5 9,064.2 5,345.7
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(Rupees in Millions)
Year ended March 31, 2012
Year ended March 31, 2011
Year ended March 31, 2010
SCHEDULE 14 - O T H E R I N C O M E I. Commission, Exchange and Brokerage 85.0 87.2 70.3 II. Profit/(Loss) on sale of Investments (Net) 88.7 96.8 177.9 III. Profit on sale of land, building and other Assets (Net) 10.5 5.2 7.1 IV. Profit on exchange transactions (Net) 118.8 56.6 23.3 V. Income from Insurance 82.9 66.1 57.0 VI. Miscellaneous Income 1,050.5 1,155.8 574.3 Total 1,436.4 1,467.7 909.9
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(Rupees in Millions)
Year ended March 31, 2012
Year ended March 31, 2011
Year ended March 31, 2010
SCHEDULE 15 - INTEREST EXPENDED I. Interest on Deposits 10,155.9 5,842.4 3,702.3 II. Interest on RBI/Inter Bank Borrowing 851.2 327.4 108.1 III. Others 454.2 243.1 129.8 Total 11,461.3 6,412.9 3,940.2
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(Rupees in Millions)
Year ended March 31, 2012
Year ended March 31, 2011
Year ended March 31, 2010
SCHEDULE 16 - OPERATING EXPENSES I. Payments to and Provisions for Employees 2,739.6 2,014.6 1,090.8 II. Rent, Taxes and Lighting 402.1 459.2 216.0 III. Printing and Stationery 63.0 51.4 30.7 IV. Advertisement and Publicity 108.3 60.6 5.9 V. Depreciation to Banks property 294.7 155.9 103.0 VI. Directors Fee, Allowance and Expense 2.3 2.9 3.1 VII. Auditors Fee and Expense (including Branch Auditors) 4.9 5.8 5.9 VIII. Law charges 6.4 3.0 1.5 IX. Postages, Telegrams, Telephones etc 156.9 122.3 50.7 X. Repairs and Maintenance 33.3 20.9 20.0 XI. Insurance 146.3 79.1 51.8 XII. Other Expenditure 932.9 469.0 349.2 Total 4,890.7 3,444.7 1,928.6
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(Rupees in Millions)
Year ended March 31, 2012
Year ended March 31, 2011
Year ended March 31, 2010
SCHEDULE 17 - PROVISIONS AND CONTINGENCIES I. Provision for NPA (Advances) 69.3 44.1 22.2 II. Floating Provision for NPA (Advances) - - - III. Provision for Standard Assets 4.2 146.1 74.2 IV. Provision for Restructured Advances 3.7 3.4 4.1 V. Provision for Securitisation - - - VI. Bad Debts Written Off 16.9 19.2 7.9 VII. Provision for Depreciation on Investments (Net) 75.6 64.3 6.7 VIII. Provision for NPA (Investments) (4.1) - (5.8) IX. Provision for Income Tax/Wealth Tax/FBT 0.5 166.2 51.2 X. Deferred Tax 11.1 (29.6) (6.7) Total 177.2 413.7 153.8
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SCHEDULE 18 - SIGNIFICANT ACCOUNTING POLICIES AND NOTE FORMING PART OF THE REFORMATTED FINANCIAL STATEMENTS FOR THE LAST THREE REPORTING YEARS BACK GROUND Dhanlaxmi Bank Limited was incorporated in November 1927 at Thrissur, in Kerala by a group of ambitious entrepreneurs. Dhanlaxmi bank is a publicly held banking company engaged in providing a wide range of banking and financial services including commercial banking and treasury operations. Dhanlaxmi bank is a banking company governed by The Banking Regulation Act, 1949. It became a scheduled commercial bank since 1977. BASIS OF PREPARATION OF FINANCIAL STATEMENTS
The financial statements have been prepared and presented under the historical cost convention and accrual basis of accounting, unless otherwise stated and in compliance with generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, circulars and guidelines issued by the Reserve Bank of India (‘RBI’) from time to time, Accounting Standards (‘AS’) issued by the Institute of Chartered Accountants of India (‘ICAI’) and notified by the Companies Accounting Standard Rules, 2006 to the extent applicable and incompliance of the current practices prevailing within the banking industry in India. The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expense for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Future results may differ from these estimates. Any revision in the accounting estimates is recognized prospectively in the current and future period. PRINCIPAL ACCOUNTING POLICIES 1. REVENUE RECOGNITION
• Items of income and expenditure are accounted for on accrual basis, except as stated hereunder:
o Interest / Discount on loans & advances / Bills is recognized on accrual basis other than on those stipulated in RBI’s prudential norms on income recognition, asset classification and provisioning relating to NPAs where the income is recognized on realization.
o Rent on safe deposit lockers, dividends, depository participant business etc. are accounted for
on cash basis. • Loan processing fee on retail assets is accounted for upfront when it becomes due. Loan
processing fees for buyout/other loans would be recognized over the period of tenor of the loan on constant yield basis. Service charges to be paid on buyout loans would be recognized as and when due.
• Commission received on guarantees issued is amortised on a straight-line basis over the period of the guarantee.
• Interest on income tax refunds is accounted in the year in which the same is received / adjusted by
the income tax department. • In respect of accounts covered under one time settlement, the recoveries are adjusted against book
balance and the net balance is written off.
• Income accounted for in the preceding year and remaining unrealized is de-recognized in respect of advances classified as NPA during the year. Interest on NPA is transferred to interest suspense account and recognised in Profit and Loss Account when realized.
• In respect of sale of Assets under securitization the Bank has followed RBI guidelines as under:
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o Sale price received shall be duly accounted for and shall be apportioned to each asset on the
basis of respective valuations given to the asset.
o If the sale price is below Net Book Value (i.e. Outstanding book balance less interest suspense and provisions held) {Net NPA}, then short fall should be debited to profit and loss account.
o If sale value is higher than the Net NPA balance, then excess provisions shall not be reversed
but should be utilized to meet the short fall / loss on account of sale of other non-performing Assets.
o At the end of each reporting year, security receipts issued by the asset reconstruction company
are valued in accordance with the guidelines applicable to such instruments, prescribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts are limited to the actuarial realization of the financial assets assigned to the instruments in the concerned scheme, the bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting year end. The cash consideration received in respect of accounts written off shall be credited to Profit and Loss Account and the value of Security Receipts shall be classified under investments and the corresponding provision shall be retained.
• All income other than the transactions specified above are accounted on proportionate basis over
the period of the contract.
2. Investments
Investments are accounted for in accordance with the extant RBI guidelines on investment classification and valuation as mentioned below:
a) Classification
Investments in Government, other approved securities, shares, debentures, bonds and other securities are categorized into (a) Held to Maturity (b) Held for Trading and (c) Available for Sale in terms of RBI guidelines.
b) Basis of Classification
Investments that are held principally for resale within 90 days from the date of purchase are classified under “Held for Trading” category. Investments which the Bank intends to hold till maturity are classified as HTM securities. Investments which are not classified in the above categories are classified under “Available for Sale” category.
c) Acquisition Cost
In determining acquisition cost of an investment:
• Brokerage, Commission, etc. paid at the time of acquisition, are charged to revenue at the
time of settlement.
• Broken period interest (the amount of interest from the previous interest payment date till the date of purchase/sale of instruments) on debt instruments is treated as a revenue item.
• Cost of investments is based on the following basis:
o Held to Maturity – Weighted Average
o Held for Trading – Weighted Average
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o Available for sale – Weighted Average
d) Valuation of Investments is done as under
• Held to Maturity: ‘Held to Maturity’ securities are carried at their acquisition cost or at
amortised cost, if acquired at a premium over the face value. Any premium over the face value of fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on a constant yield basis.
• ‘Available for Sale’ and ‘Held for Trading’ securities are valued periodically as per RBI guidelines.
Quoted investments are valued based on the trades/quotes on the recognized stock exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by Primary Dealers Association of India jointly with Fixed Income Money Market and Derivatives Association (FIMMDA), periodically. The market/fair value of unquoted government securities which are in the nature of Statutory Liquidity Ratio (SLR) securities included in the ‘Available for Sale’ and ‘Held for Trading’ categories is as per the rates published by FIMMDA. The valuation of other unquoted fixed income securities wherever linked to the Yield-to-Maturity (YTM) rates, is computed with a mark-up (reflecting associated credit risk) over the YTM rates for government securities published by FIMMDA. Unquoted equity shares are valued as per the RBI guidelines which is presently at the break-up value, if the latest balance sheet is available, or at `1, per company. Securities are valued scrip-wise and depreciation/appreciation is aggregated for each category. Net appreciation in each category, if any, being unrealised, is ignored, while net depreciation is provided for. Investment valuation norms for various categories is as given in table below:
Particulars Valuation Norms
Particulars Valuation Norms Central Government Securities Prices published by PDAI/FIMMDA State Government Securities At YTM published by PDAI/FIMMDA Other Approved Securities
YTM published by PDAI/FIMMDA duly adjusted as per RBI guidelines
Bonds, Debentures and Preference Shares As per rates / methodologies prescribed by FIMMDA
Equity Shares
Quoted : Valued as per currently traded quotes on the stock exchange. Unquoted : Valued at book value as per the latest Balance Sheet. Where Balance Sheets are not available, at ` 1/- per Company
Units of Mutual Fund
Re-purchase price / NAV declared by the Mutual Fund as at the close of the year
Other Securities As per guidelines prescribed by RBI
Non-performing investments are identified and depreciation/provision is made thereon based on the RBI guidelines. The depreciation / provision is not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognised in the Profit or Loss Account until received.
e) Sale of Investments
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Profit on sale of investments in the ‘Held to Maturity’ category is credited to the profit and loss account and is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit on sale of investments in ‘Available for Sale’ and ‘Held for Trading’ categories is credited to profit and loss account. The shifting of securities from one category to another is done with the approval of the Board as per RBI guidelines. The shifting is effected at acquisition cost/book /market value on the date of transfer, whichever is the least and the depreciation if any at the time of shifting is fully provided for. Repo and Reverse Repo Transactions: In a repo transaction, the bank borrows monies against pledge of securities. The book value of the securities pledged is credited to the investment account. Borrowing costs on repo transactions are accounted for as interest expense. In respect of repo transactions outstanding at the balance sheet date, the difference between the sale price and book value, if the former is lower than the latter, is provided as a loss in the income statement. In a reverse repo transaction, the bank lends monies against incoming pledge of securities. The securities purchased are debited to the investment account at the market price on the date of the transaction. Revenues thereon are accounted as interest income. In respect of repo transactions under Liquidity Adjustment Facility (LAF) with RBI, monies borrowed from RBI are credited to investment account and reversed on maturity of the transaction. Costs thereon are accounted for as interest expense. In respect of reverse repo transactions under LAF, monies paid to RBI are debited to investment account and reversed on maturity of the transaction. Revenues thereon are accounted as interest income.
3. ADVANCES
Advances are classified as performing and non-performing based on the Reserve Bank of India guidelines and further into Standard, Sub-Standard, Doubtful and Loss Assets and are stated net of bills rediscounted, specific provisions, floating provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation. Specific loan loss provisions in respect of Non-Performing Advances (NPAs) are made based on management’s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed in the RBI guidelines. The Bank maintains general provision for standard assets at levels stipulated by RBI from time to time. Provision for standard assets is included under Other Liabilities. Provisions made in excess of these regulatory levels or provisions which are not made with respect to specific non-performing assets or assets which are restructured / securitized are categorized as floating provisions. The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower’s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance/securities, which would generally include, among others, alteration of repayment period/repayable amount/the amount of installments/rate of interest (due to reasons other than competitive reasons). Restructured accounts are reported as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made. The Bank buys loans through the direct assignment route. In respect of direct assignment, where the purchase consideration is higher than the principal amount of the portfolio, the resultant additional upfront amount is classified as ‘Other assets’ which will amortise during the life of the advances on constant yield basis. In other cases, these are accounted at the deal value.
4. FIXED ASSETS AND DEPRECIATION
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Fixed assets, except those revalued, are stated at cost less accumulated depreciation. Cost includes cost of purchase and all expenditure like site preparation, installation costs, professional fees and other expenses incurred on the asset before it is ready to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the futures benefit/functioning capability from/of such assets. Depreciation is charged over the estimated useful life of the fixed asset on a written down value basis except on computers. The rates of depreciation are given below: • Owned Premises at 5.00% per annum.
• Office equipment at 18.10% per annum
• Motor cars at 25.89% per annum
• Electrical items at 13.91%
• Items (excluding staff assets) costing less than Rs. 5,000 are fully depreciated in the year of
purchase.
• Computer Hardware expenditure at 33.33% per annum on Straight Line Basis.
• Computer software and system development expenditure at 20.00% per annum on Straight Line Basis.
• All other assets are depreciated as per the rates specified in Schedule XIV of the Companies Act, 1956.
Software is capitalized where it is reasonably estimated that the software has an enduring useful life. Software is amortized over an estimated useful life of 5 year. For assets purchased and sold during the year, depreciation is provided on pro rata basis by the Bank.
5. IMPAIRMENT OF ASSETS
The Bank assesses at each balance sheet date whether there is any indication that an asset may be impaired. Impairment of loss, if any, is provided in the Profit and Loss Account to the extent the carrying amount of assets exceeds their estimated recoverable amount.
6. TRANSACTIONS INVOLVING FOREIGN EXCHANGE
• Monetary assets and liabilities are translated at the exchange rates prevailing at the close of the year as advised by FEDAI and the resulting net gain/loss is recognized in the revenue account.
• Profit or loss on outstanding forward foreign currency contracts are accounted for at the exchange rates prevailing at the close of the year as per FEDAI/ RBI guidelines.
• Income and expenditure items are accounted at the exchange rates ruling on the date of transaction.
• Contingent liabilities in respect of outstanding forward foreign currency exchange contracts, guarantees and letters of credit are stated at the exchange rates prevailing at the close of the year.
• Premium /discount on hedge swaps are recognized as interest income/expenses and are recognized/ amortized over the period of the transactions.
7. EMPLOYEE STOCK OPTION SCHEME (“ESOS”)
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Dhanlaxmi Bank Limited Employees Stock Option Scheme, 2009 (“ESOP Scheme“) provides for the grant of equity shares of the Bank to its eligible employees and Directors in the whole time employment of the Bank / Managing Director. The Scheme provides that employees are granted an option to acquire equity shares of the Bank that vests in a graded manner. The options may be exercised within a specified period. The Bank follows the intrinsic value method to account for its stock-based employee’s compensation plans. Compensation cost is measured as the excess, if any, of the fair market price of the underlying stock over the exercise price on the grant date. The fair market price is the latest closing price, immediately prior to the date of the Board of Directors meeting in which the options are granted, on the stock exchange on which the shares of the Bank are listed. In this regard the Bank has complied with the SEBI (Employee Stock Option Scheme and Employee Stock Purchase Scheme) guidelines, 1999.
8. EMPLOYEE BENEFIT
The defined employee benefit schemes are as under:- • Provident Fund
The contribution as required by the statute is made to the Staff PF Trust of the Bank is debited to the Profit and Loss Account. The obligation of the Bank is limited to such contribution.
• Gratuity
The Bank has a defined benefit gratuity plan for Officers and Workmen. Every Officer / workman who has rendered continuous services of five years or more is eligible for Gratuity on superannuation, resignation, termination, disablement or on death. The scheme is funded by the bank and is managed by a separate staff trust. The liability for the same is recognized on the basis of actuarial valuation and certificate issued by independent actuary.
• Pension
The bank has a defined benefit pension Plan. The plan applies to those employees of the bank who were on the Bank payroll as on September 29, 1995, having opted for the pension scheme and to all workmen joining, thereafter. The scheme is managed by a simple separate trust and the liability for the same is recognized on the basis of actuarial valuation and certificate issued by independent actuary.
9. LEASE ACCOUNTING
Lease payments for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term in accordance with the AS - 19, Leases.
10. INCOME TAX
Income tax expense comprises current tax provision, the net change in the deferred tax asset or liability in the year. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantially enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed depreciation or carried forward loss under taxation laws, deferred tax assets are recognized only if there is virtual certainty of realization of such assets. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized.
11. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT
ASSETS
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In accordance with AS - 29, Provisions, Contingent Liabilities and Contingent Assets, issued by the Institute of Chartered Accountants of India, the Bank recognizes provisions when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made. Provisions are determined based on management estimate required to settle the obligation at the balance sheet date, supplemented by experience of similar transactions. These are reviewed at each balance sheet date and adjusted to reflect the current management estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure is made in the financial statements. Contingent Assets, if any, are not recognized in the financial statements since this may result in the recognition of income that may never be realized.
12. EARNINGS PER SHARE
The Bank reports basic and diluted earnings per equity share in accordance with AS - 20, Earnings per Share, issued by the Institute of Chartered Accountants of India. Basic earnings per equity share have been computed by dividing net profit for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive.
13. SEGMENT REPORTING
The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17, Segment Reporting issued by ICAI.
Primary Segments: Business segments. a. Treasury Operations: Includes the entire investment portfolio of the bank.
b. Corporate / Wholesale Banking : Includes all advances to trusts, partnership firms, companies and
statutory bodies which are not included under “Retail Banking”
c. Retail Banking: The exposure upto Rs. 50.0 million to individual, HUF, Partnership firm, Trust, Private Ltd. Companies, public ltd. Companies, Co-operative societies etc. or to a small business is covered under retail banking. Small business is one where average of last three years annual turnover (actual for existing & projected for new entities) is less than Rs.500 million.
d. Unallocated segment includes all other operations not covered under Treasury, Wholesale Banking and Retail banking segments.
Secondary Segments: Geographical segments
Since the Bank is having domestic operations only, no reporting does arise under this segment.
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SCHEDULE 19 - NOTES APPENDED TO AND FORMING PART OF THE REFORMATTED FINANCIAL STATEMENTS FOR LAST THREE REPORTING YEARS 1. Capital commitments Rs. 71.9 million (Previous Year 2011: Rs 24..9 million; 2010 Rs. 77.4millions). 2.
a) Provisions & Contingencies (Rupees in Millions)
Particulars 31.03.2012 31.03.2011 31.03.2010 Provision for depreciation on Investments 75.6 64.3 6.7 Provision towards Standard Assets 4.2 146.1 74.2 Provision towards NPA (including Bad Debts written off & write back) 86.2 63.3 30.1
Provision towards Non Performing Investments (4.1) - (5.8) Provision towards Security Receipts - - - Provision towards Income Tax, Wealth Tax, FBT etc. 0.5 166.2 51.2
Deferred Tax Asset/Liability 11.1 (29.6) (6.8) Provision for diminution in value of Restructured Accounts 3.7 3.4 4.2
Total 177.2 413.7 153.8
b) Floating Provisions (Rupees in Millions)
Particulars 31.03.2012 31.03.2011 31.03.2010 (a) Opening balance in the floating provisions account 20.0 20.0 20.0 (b) The quantum of floating provisions made During the accounting year - - -
(c) Amount of draw down made during the accounting year - - -
(d) Closing balance 20.0 20.0 20.0
3. CAPITAL ADEQUACY
(Rupees in Millions) 31.03.2012 31.03.2011 31.03.2010 Sl No Items
Basel I Basel II Basel I Basel II Basel I Basel II (i) CRAR (%) 8.8 9.5 10.8 11.8 12.5 13.0 (ii) CRAR-Tier I Capital (%) 6.9 7.4 8.6 9.4 8.5 8.8 (iii) CRAR-Tier II Capital (%) 1.9 2.0 2.2 2.4 4.0 4.2
(iv)
Amount of Subordinated debt raised as Tier-II capital (Rs in millions)
100 100 275 275 1,970 1,970
(v) Amount raised by issue of IPDI
-- -- -- -- -- --
(vi) Amount raised by issue of Upper Tier II instruments
-- -- -- -- -- --
4. INVESTMENTS
(Rupees in Millions) ITEMS 31.03.2012 31.03.2011 31.03.2010
(1) Value of Investments (i) Gross Value of Investments
(a) In India 43,765.5 36,489.1 20,359.1 (b) Outside India, Nil Nil Nil
(ii) Provisions for Depreciation (a) In India 163.90 92.30 81.1 (b) Outside India, Nil Nil Nil
(iii) Net Value of Investments (a) In India 43,601.6 36,396.8 20,278.0 (b) Outside India, Nil Nil Nil
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(2) Movement of provisions held towards depreciation on investments.
(i) Opening balance 92.3 81.1 80.3 (ii) Add: Provisions made during the year 71.6 11.2 6.7 (iii) Less: (Write-off/write-back of excess
provisions during the year) 5.9
(iv) Closing Balance 163.9 92.3 81.1 5. REPO TRANSACTIONS
(Rupees in Millions) Particulars Minimum outstanding
during the year ended March 31
Maximum outstanding during the year ended
March 31
Daily Average Outstanding during the
year ended March 31
As on March
31, 2012
As on March
31, 2011
As on March
31, 2010
2012 2011 2010 2012 2011 2010 2012 2011 2010
Securities sold under repos
200 150 262.5 17,200 7,150 262.5 9,031.2 3,080 487.5 7,250 3,750 262.5
Securities purchased under reverse repos
500 - 262.5 4,250 - 1,050 1,936.4 - 250.0 - - -
6. NON-SLR INVESTMENT PORTFOLIO
a) Issuer composition of Non SLR investments 31.03.2012
(Rupees in Millions) S. No
Issuer Amount Extent of Private
Placement
Extent of ‘Below
Investment Grade’
Securities
Extent of ‘Unrated’ Securities
Extent of ‘Unlisted’ Securities
(i) Public Sector Units
91.4 91.4 - - -
(ii) Financial Institutions
- - - - -
(iii Banks 20.0 20.0 20.0 (iv) Private Corporate 842.6 835.6 200.0 13.4 13.1 (v) Subsidiaries/
Joint Ventures - - - - -
(vi) Others 2,34.6 2,34.6 - - - (vii) Provision held
towards depreciation
- - - - -
Total 1,188.6 1,181.6 220.0 13.4 13.1
31.03.2011
(Rupees in Millions) S. No
Issuer Amount Extent of Private
Placement
Extent of ‘Below
Investment Grade’
Securities
Extent of ‘Unrated’ Securities
Extent of ‘Unlisted’ Securities
(i) Public Sector Units
91.4 91.4 - - -
(ii) Financial Institutions
- - - - -
(iii Banks 1,505.5 1,505.5 0.2 - -
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(iv) Private Corporate 571.4 538.5 135.9 135.9 13.1 (v) Subsidiaries/
Joint Ventures - - - - -
(vi) Others - - - - - (vii) Provision held
towards depreciation
- - - - -
Total 2,168.3 2,135.4 136.1 135.9 13.1 31.03.2010
(Rupees in Millions) S. No
Issuer Amount Extent of Private
Placement
Extent of ‘Below
Investment Grade’
Securities
Extent of ‘Unrated’ Securities
Extent of ‘Unlisted’ Securities
(i) Public Sector Units - - - - - (ii) Financial Institutions 100.0 100.0 - - - (iii Banks 100.0 80.0 60.0 - - (iv) Private Corporate 351.9 171.9 - 13.4 13.1 (v) Subsidiaries/ Joint
Ventures - - - - -
(vi) Others 131.3 - - - (vii) Provision held towards
depreciation - - - - -
Total 683.2 351.9 60.0 13.4 13.1 b) Non Performing Non-SLR Investments
(Rupees in Millions) Particulars 31.03.2012 31.03.2011 31.03.2010
Opening balance 74.4 74.4 80.3 Additions during the year - - - Reductions during the year 4 - 5.9 Closing balance 70.4 74.4 74.4 Total provisions held 70.4 74.4 74.4
7. DERIVATIVES
Forward Rate Agreement/ Interest Rate Swap
(Rupees in Millions) Particulars March 31, 2012 March 31, 2011 March 31, 2010 i) The notional principal of swap agreements 6500
-- --
ii) Losses which would be incurred if counterparties failed to fulfill their obligations under the agreements
25.7
-- --
iii) Collateral required by the bank upon entering into swaps
--
-- --
iv) Concentration of credit risk arising from the swaps
18.9 -- --
v) Fair Value of swap book 6,497.7 -- --
Exchange Traded Interest Rate Derivatives (Rupees in Millions)
Sr.No. Particulars March 31, 2012
March 31, 2011
March 31, 2010
(i) Notional principal amount of exchange traded interest rate derivatives undertaken during the year (instrument-wise)
-- -- --
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(ii) Notional principal amount of exchange traded interest rate derivatives outstanding as on 31st March 2012 (instrument-wise)
--
-- --
(iii) Notional principal amount of exchange traded interest rate derivatives outstanding and not "highly effective" (instrument- wise)
-- -- --
(iv) Mark-to-market value of exchange traded interest rate derivatives outstanding and not "highly effective" (instrument- wise)
-- -- --
Disclosures on risk exposure in derivatives
Qualitative Disclosure
Bank discusses its risk management policies pertaining to derivatives with particular reference to the extent to which derivatives are used, the associated risks and business purposes served. The discussion includes:
(a) the structure and organization for management of risk in derivatives trading ; (b) the scope and nature of risk measurement, risk reporting and risk monitoring systems; (c) policies for hedging and/ or mitigating risk and strategies and processes for monitoring the
continuing effectiveness of hedges / mitigants; and (d) accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation.
Quantitative Disclosures
(Rupees in Millions) Sr. No
Particular Currency Derivatives
Interest rate derivatives
(i) Derivatives (Notional Principal Amount) - - a) For hedging - - b) For trading - 6,500
(ii) Marked to Market Positions [1] - 6,497.7 a) Asset (+) - - b) Liability (-) - -
(iii) Credit Exposure [2] - 25.7 (iv) Likely impact of one percentage change in interest rate (100*PV01) - -
a) on hedging derivatives b) on trading derivatives
- -
- 0.09
(v) Maximum and Minimum of 100*PV01 observed during the year - - a) on hedging
- -
b) on trading
Maximum Minimum
- - -
0.13 0.07
8. ASSET QUALITY
i) In terms of Agricultural Debt Waiver and Debt Relief Scheme 2008, framed by the Government of
India, the bank has received Rs.31.3 Million from RBI on account of loans to small and marginal farmers out of the amount eligible for debt waiver of Rs.43.5 Million during the FY 2010. The balance amount of Rs.12.2 Million has been shown as receivables and clubbed under the head “Advances” during 2010.The amount of Rs.12.2Million was received from RBI during 2010-11 and hence receivable from RBI in this regard as at March 31,2011 is Nil. The Debt Relief Scheme is due from Govt. of India under Agricultural Debt Relief Scheme 2008 (clubbed under head ‘Advance’).
The position with reference to Agricultural Debt Relief Scheme is as under:
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Claim pertaining to Debt Relief arising till December 31,2009 was Rs.1.5 Million which has shown as Receivable from Government of India under Agricultural Debt Relief Scheme 2008 received from RBI during 2010-11. Additional claim amount of Rs.0.22Million pertaining to the extended period of the Debt Relief Scheme from January 1, 2010 to June 30, 2010 is due from Government of India under Agricultural Debt Relief Scheme 2008(clubbed under head advances)
ii) Non-Performing Asset
(Rupees in Millions) Items 31.03.2012 31.03.2011 31.03.2010
(i) Net NPAs to Net Advances (%) 0.66 0.30 0.84 (ii) Movement of NPAs (Gross) (a) Opening balance 670.9 775 644.3 (b) Additions during the year 918.2 411.3 521.6 (c) Reductions during the year 546.4 515.4 390.9 (d) Closing balance 1,042.7 670.9 775.0 (iii) Movement of Net NPAs (a) Opening balance 274.7 419.4 282.4 (b) Additions during the year 702.8 370.8 460.6 (c) Reductions during the year 382.6 519.0 321.3 (d) ECGC Collection 2.8 3.5 2.3 (e) Floating Provision 17.7 - - (f) Closing balance 580.0 274.7 419.4 (iv) Movement of provisions for NPAs
(excluding provisions on standard assets)
(a) Opening balance 391.0 346.9 355.5 (b) Provisions made during the year
233.1 159.1 128.5
(c) Write-off/ write-back of excess provisions
163.8 115 137.1
(d) Closing balance 460.3 391.0 346.9
Details of Loan Assets subjected to Restructuring for the year ended 31.3.2012
(Rupees in Millions (except for no. of borrowers)) Particulars CDR
Mechanism SME Debt
Restructuring Others
Number of Borrowers 3 1 Nil Amount outstanding 129.8 0.5 Nil
Standard advances Sacrifice
(Diminution in the fair value)
0.3 0.03 Nil
Number of Borrowers Nil Nil Nil Amount outstanding Nil Nil Nil
Sub standard advances restructured
Sacrifice (Diminution in the fair value) Nil Nil
Nil
Number of Borrowers Nil Nil Nil Amount outstanding Nil Nil Nil
Doubtful advances restructured
Sacrifice (Diminution in the fair value) Nil Nil
Nil
Number of Borrowers 3 1 Nil Amount outstanding 129.8 0.5 Nil
Total
Sacrifice (Diminution in the fair value)
0.3 0.03 Nil
Sacrifice for 1.04.2011 to 31.03.2012 to be provided : Rs. 0.3 Millions
a) Details of Loan Assets subjected to Restructuring for the year ended 31.3.2011
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(Rupees in Millions (except for no. of borrowers)) Particulars CDR
Mechanism SME Debt
Restructuring Others
Number of Borrowers 1 Nil 1.0 Amount outstanding 48.6 Nil 1.1
Standard advances Sacrifice
(Diminution in the fair value)
3.4 Nil 0.6
Number of Borrowers Nil Nil Nil Amount outstanding Nil Nil Nil
Sub standard advances restructured
Sacrifice (Diminution in the fair value)
Nil Nil
Nil
Number of Borrowers Nil Nil Nil Amount outstanding Nil Nil Nil
Doubtful advances restructured
Sacrifice (Diminution in the fair value)
Nil Nil Nil
Number of Borrowers 1 Nil 1.0 Amount outstanding 48.6 Nil 1.1
Total
Sacrifice (Diminution in the fair value)
3.4 Nil
0.6
Sacrifice for 1.04.2010 to 31.03.2011 to be provided : Rs. 3.5 Millions
b) Details of Loan Assets subjected to Restructuring for the year ended 31.3.2010
Rupees in Millions (except for no. of borrowers) Particulars CDR
Mechanism SME Debt
Restructuring Others
Number of Borrowers Nil Nil 4.3 Amount outstanding Nil Nil 356.2
Standard advances Sacrifice
(Diminution in the fair value)
Nil Nil 10.6*
Number of Borrowers Nil Nil Nil Amount outstanding Nil Nil Nil
Sub standard advances restructured
Sacrifice (Diminution in the fair value)
Number of Borrowers Nil Nil Nil Amount outstanding Nil Nil Nil
Doubtful advances restructured
Sacrifice (Diminution in the fair value)
Nil Nil Nil
Number of Borrowers Nil Nil 4.3 Amount outstanding Nil Nil 356.2
Total
Sacrifice (Diminution in the fair value)
Nil Nil 10.6
*Sacrifice for 1.04.2009 to 31.03.2010 to be provided : Rs. 4.1 Millions
Details of financial assets sold to Securitisation / Reconstruction Company:
Rupees in Millions (except no. of accounts) Sl. No. Item 31.03.2012 31.03.2011 31.03.2010
(i) Number of accounts - - - (ii) Aggregate value (net of provisions) of
accounts sold to SC/RC - - -
(iii) Aggregate consideration - - - (iv) Additional consideration realized in
respect of accounts transferred in earlier years
- - -
(v) Aggregate gain/loss over net book - - -
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Sl. No. Item 31.03.2012 31.03.2011 31.03.2010 value.
(iv) Details of non-performing financial assets purchased/sold:
A. Details of non-performing financial assets purchased:
(Rupees in Millions) Particulars March 31, 2012 March 31, 2011 March 31, 2010
1. (a) No. of accounts purchased during the year - - - (b) Aggregate outstanding - - - 2. (a) Of these, number of accounts restructured during the year
- - -
(b) Aggregate outstanding - - - B. Details of non-performing financial assets sold:
(Rupeess in Millions) Particulars March 31, 2012 March 31, 2011 March 31, 2010
1. No. of accounts sold - - - 2. Aggregate outstanding - - - 3. Aggregate consideration received - - -
vi) Provisions on Standard Assets
(Rupeess in Millions) Item 31.03.2012 31.03.2011 31.03.2010
Provisions towards Standard Assets 341.5 337.3 191.2
vii) Unsecured advances against intangible assets:
As at March 31, 2012, the amount of unsecured advances against intangible assets was Rs. Nil and the estimated value of the intangible collaterals was Rs. Nil.
9. BUSINESS RATIO
Sr. No.
Items March 31,2012
March 31, 2011
March 31, 2010
(i) Interest Income as a percentage to Working Funds (%)
8.78 8.09 7.97
(ii) Non-interest income as a percentage to Working Funds (%)
0.90 1.31 1.36
(iii) Operating Profit as a percentage to Working Funds (%)
(0.62) 0.60 0.58
(iv) Return on Assets (%) (0.73) 0.23 0.35 (v) Business (Deposits plus advances) per employee –
Rs in millions 59.3 58.9 37.0
(vi) Profit/(Loss) per employee - Rupees in Million (0.3) 0.07 0.0 Provision Coverage Ratio (PCR) The PCR (ratio of provisioning of Gross non-performing assets)
Particulars March 31,2012 March 31, 2011 March 31, 2010 Provision Coverage Ratio 45.59% 60.51% Nil
10. ASSET LIABILITY MANAGEMENT
Maturity Pattern of certain items of assets and liabilities As at March 31st, 2010 are as follows (Rupees in Millions)
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Foreign currency Due within Advances Investments Gross Assets Liabilities
Deposits Borrowings
Day 1 953.7 - 2.4 64.5 651.6 - 2 to 7 Days 605.7 - 990.9 1.8 2,314.8 499.8 8 to 14 days 630.2 249.7 - 1.3 1,922.0 20.0 15 to 28 days 953.8 713.9 - 6.2 2,593.0 99.8 29 days upto 3 months 3,562.5 411.8 220.2 95.2 8,541.9 - Over 3 months and upto 6 months
3,590.9 732.9 46.7 86.0 16,960.6 -
Over 6 months and upto 1 year
5,804.2 182.0 12.0 224.7 14,578.0 -
Over 1 year and upto 3 years
15,787.7 41.2 - 43.2 22,187.8 320.3
Over 3 years and upto 5 years
11,181.6 2,113.2 - 66.5 999.4 265.6
Over 5 years 6,992.4 15,914.4 - - 235.7 - Total 50,062.7 20,359.1 1,272.2 589.4 70,984.8 1,205.5 Position as at 31st March, 2011
(Rupees in Millions) Foreign currency Due within Advances Investments
Assets Liabilities Deposits Borrowings
Day 1 771.0 - 642.3 970.7 434.6 - 2 to 7 Days 1031.4 - 470.6 14.4 4411.9 3750.0 8 to 14 days 1179.6 - 27.0 15.6 3779.3 - 15 to 28 days 2036.6 2322.6 131.0 82.8 8094.4 - 29 days upto 3 months 7410.8 1963.1 3002.1 2797.6 27785.6 29.0 Over 3 months and upto 6 months 8550.9 2515.3 2676.5 2750.1 14437.0 80.0 Over 6 months and upto 1 year 19013.2 1176.2 7300.3 7435.8 23880.5 91.0 Over 1 year and upto 3 years 27081.4 786.5 - 110.3 40965.5 483.0 Over 3 years and upto 5 years 13936.4 1940.4 - 58.6 1260.1 1553.1 Over 5 years 9640.2 25785.0 - 9.7 247.4 275.0 Total 90651.5 36489.1 14249.8 14245.6 125296.3 6261.1
Position as at March 31, 2012
(Rupees in Millions) Foreign currency Due within Advances Investments
Assets Liabilities Deposits Borrowings
Day 1 2425.3 - 895.3 310.6 917.4 181.9 2 to 7 Days 2701.8 3322.5 589.6 972.0 5219.3 7849.7 8 to 14 days 1133.7 1363.7 83.8 54.0 41,63.4 - 15 to 28 days 1570.2 2937.1 38.3 23.6 49,81.8 - 29 days upto 3 months 7595.3 5683.8 6614.0 6418.2 17673.6 1483.5 Over 3 months and upto 6 months 6892.5 - 3125.4 3185.1 23155.7 1363.0 Over 6 months and upto 1 year 10472.2 187.0 1705.0 1885.2 26762.3 1092.5 Over 1 year and upto 3 years 32671.4 1535.4 - 54.5 32016.6 2578.0 Over 3 years and upto 5 years 8387.5 5985.1 - 39.7 2887.3 2291.5 Over 5 years 13730.6 22750.9 6.4 - 266.7 375.0 Total 87580.5 43765.5 13057.8 12942.9 118044.1 17215.1
11. LENDING TO SENSITIVE SECTOR
i) Exposure to Real Estate Sector
(Rupees in Millions) Category March 31,
2012 March 31,
2011 March 31,
2010 a) Direct exposure
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Category March 31, 2012
March 31, 2011
March 31, 2010
(i) Residential Mortgages – Lending fully secured by mortgages on residential property that is or will be occupied by the borrower or that is rented; (A)
3,732.9 5,161.7 1,666.8
Of which individual housing loans up to Rs. 1.5 Million 6,51.6 1,153.7 1,588.2 (ii) Commercial Real Estate – Lendings secured by mortgages on commercial real estates (office buildings, retail space, multi-purpose commercial premises, multi-family residential buildings, multi-tenanted commercial premises, industrial or warehouse space, hotels, land acquisition, development and construction, etc.). Exposure would also include non-fund based (NFB) limits; (B)
4,512.5 3,967.4 1,101.4
(iii) Investments in Mortgage Backed Securities (MBS) and other securitized exposures –
a. Residential, - - - b. Commercial Real Estate. - - - (iv) Other Direct Exposure (C) 10369.8 - -
b) Indirect Exposure Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs). (D)
- 1,729.9
1840.3
Total Exposure to Real Estate Sector (A+B+C+D) 18615.2 10859.0 6196.7
ii) Exposure to Capital Market
(Rupees in Millions) Particulars March 31,
2012 March 31,
2011 March 31,
2010 (i) direct investment in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt;
137.9 142.0 33.0
(ii) advances against shares/bonds/debentures or other securities or on clean basis to individuals for investment in shares (including IPOs/ESOPs), convertible bonds, convertible debentures, and units of equity-oriented mutual funds;
14.0 9.2 3.7
(iii) advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity oriented mutual funds are taken as primary security;
- - -
(iv) advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds i.e. where the primary security other than shares/convertible bonds/convertible debentures/units of equity oriented mutual funds `does not fully cover the advances;
- - -
(v) secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers;
476.4 515.0 6.0
(vi) loans sanctioned to corporates against the security of shares/ bonds/debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources;
- - -
(vii) bridge loans to companies against expected equity flows/issues;
- - -
(viii) underwriting commitments taken up by the banks in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity oriented mutual funds;
- - -
(ix) financing to stockbrokers for margin trading; - - -
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Particulars March 31, 2012
March 31, 2011
March 31, 2010
(x) all exposures to Venture Capital Funds (both registered and unregistered) will be deemed to be on par with equity and hence will be reckoned for compliance with the capital market exposure ceilings (both direct and indirect)
- - -
Total Exposure to Capital Market 628.3 666.2 42.7 12. RISK CATEGORY WISE COUNTRY EXPOSURE
(Rupees in Millions) Risk
Category Exposure (net) as at
Provision held as at
Exposure (net) as at
Provision held as at
Exposure (net) as at
Provision held as at
Risk Category
31.03.2012 31.03.2012 31.03.2011 31.03.2011 31.03.2010 31.03.2010
Insignificant 168.6 - 375.8 - 191.2 - Low 0.8 - 1.3 - - - Moderate - - - - - - High - - - - - - Very High - - - - - - Restricted - - - - - - Off-credit - - - - - - Total 169.4 - 377.1 - 191.2 -
13. DETAILS OF SINGLE BORROWER LIMIT, GROUP BORROWER LIMIT EXCEEDED BY
THE BANK The details of Single Borrower Limit exceeded by bank
(Rupees in Millions) Sr.No Name of the borrower Year 2012 Year 2011 Year 2010
Exposure Permissible
Actual Exposure
1 Parekh Aluminex 1370.0 1420.0 2 Core Education & Technologies Ltd. 1370.0 1450.0
Nil Nil
14. PROVISIONS
(Rupees in Millions) Particulars March 2012 March 2011 March 2010 Income Tax - 165.8 50.8 Wealth Tax 0.5 0.4 0.4 Fringe Benefit Tax - - - Deferred Tax 11.1 (29.6) (6.8)
15. No penalty has been imposed by RBI during FY2009-10, FY2010-11 and FY 2011-12 16. Disclosure for Customer Complaints/Unimplemented Awards of Banking Ombudsman
Customer complaints
Particulars 2011-2012 2010-2011 2009-2010 a. No of Complaints pending at the beginning
of the year 21 12 5
b. No of complaints received during the year 696 286 169
c. No of complaints redressed during the year 707 277 162
d. No of Complaints pending at the end of the year
10 21 12
Unimplemented awards of Banking Ombudsman
Particulars 2011-2012 2010-2011 2009-2010
a. No of unimplemented awards pending at - - -
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the beginning of the year b. No of Awards passed by the Banking
Ombudsman during the year 1 - -
c. No of awards implemented during the year 1 - - d. No of unimplemented awards during the
year - - -
17. DISCLOSURE OF LETTER OF COMFORTS (LOCs) ISSUED BY THE BANK
The Bank has not issued any Letter of Comfort during the years 2009-10,2010-2011,2011-2012
18.
I. CONCENTRATION OF DEPOSITS, ADVANCES, EXPOSURES AND NPAs
a) Concentration of Deposits (Rupeess in Millions)
Particulars 31.03.2012 31.03.2011 31.03.2010 Total Deposits of twenty largest depositors 26416.5 24185.2 20290.0 Percentage of Deposits of twenty largest depositors to Total Deposits of the Bank
25.70% 19.30% 28.57%
b) Concentration of Advances
(Rupees in Millions) Particulars 31.03.2012 31.03.2011 31.03.2010
Total Advances to twenty largest borrowers 14602.4 13942.6 14635.6 Percentage of Advances to twenty largest borrowers to Total Advances of the bank
16.53% 15.29% 28.93%
c) Concentration of Exposures
(Rupees in Millions) Particulars 31.03.2012 31.03.2011 31.03.2010
Total Exposure to twenty largest borrowers/customers
18537.8 16770.0 15532.9
Percentage of Exposures to twenty largest Borrowers / customers to Total Exposure of the bank on borrowers /customers
14.13% 13.25% 30.72%
d) Concentration of NPAs
(Rupees in Millions) Particulars 31.03.2012 31.03.2011 31.03.2010
Total Exposure to Top four NPA Accounts 208.2 115.0 113.9
II. SECTOR-WISE NPAs
Sector Percentage of NPAs to Total Advances in that Sector as on
31.03.2012 31.03.2011 31.03.2010
Agriculture & Allied activities 1.15% 0.98% 0.56% Industry (Micro and small, Medium and Large)
1.23% 0.76% 0.85%
Services 0.60 0.59% 15.52% Personal Loans 2.41% 2.23% 14.95%
III. MOVEMENT OF NPAs
(Rupees in Millions) Particulars 2011-2012 2010-2011 2009-2010
Opening Balance 670.9 775.0 644.3 Additions (Fresh NPAs) during the year 918.2 411.3 521.6 Sub-total (A) 1589.1 1186.3 1,165.9 Less:-
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(i) Up gradations 174.2 154.3 77.2 (ii) Recoveries (excluding recoveries made from upgraded accounts)
355.5 342.0 274.9
(iii) Write-offs 16.7 19.1 38.8 Sub-total (B) 546.4 515.4 390.9 Closing Balance(A-B) 1042.7 670.9 775.0
IV. OVERSEAS ASSETS, NPA AND REVENUE
(Rupees in Millions) Particulars 31.03.2012 31.03.2011 31.03.2010
Total Assets -- -- -- Total NPAs -- -- -- Total Revenue -- -- --
V. Off-balance Sheet SPVS Sponsored (which are required to be consolidated as per
accounting norms) (Rupees in Millions)
Name of the SPV sponsored Overseas Overseas
31.03.2012 31.03.2011 31.03.2010 31.03.2012 31.03.2011 31.03.2010 -- --
19. ESOP SCHEME
On May 11, 2010, 20000 options were issued at an exercise price of Rs.144.70 to new joinees in addition to 3979225 options granted on August 6, 2009 to employees under two different plans at a uniform option price of Rs. 118.35. Out of the above, 20149 shares were exercised during the previous year and 570shares were exercised during the current year. Options granted to the employees under the first plan (‘Existing Employees’) shall vest at the rate of 30%, 30% and 40% on each successive anniversary of the grant date. Options granted to the employees under the second plan (‘Joining Employees’) shall vest after completion of 12 months from the date of grant. Further, all the options granted to “Joining employees” under the scheme shall be subject to a lock in period of 24 months from the date of vesting of options under this scheme. Based on the information provided by the client, the details of the Employees Stock Option Plan -2009 as at March 31, 2012 are as follows
Sr. No Particulars Employee Stock Option Plan - 2009
1 Details of Approval Remuneration Committee resolution dated August 6,2009
2 Implemented through Directly by the Bank 3 Total number of shares 40,42,470 4 Price per option Rs.118.35 5 Granted 39,99,225 6 Vested 3667742 7 Exercised 20,719 8 Lapsed Options 15,59,891 9 Vested and unexercised 21,18,013
10 Total number of options in force 24,18,615 11 Money realized Rs 24,52,094 12 Senior
Managerial Personnel
Options Granted
Options Vested
Options Lapsed
Options Exercised
Balance
11,00,000 -- -- -- 11,00,000
13 Exercise Period will commence from the date of vesting of option and will end on 10 years from the date of grant of options or 10 years from the date of vesting of option, whichever is later.
Note:
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a) The compensation Committee has granted a total of 39,99,225 options convertible into 39,99,225 Equity shares which represent 6.24% of the paid up share capital of the Bank. The fair market value one day before the date of grant is Rs. 118.35 which is also the exercise price of the option.
b) The bank accounts for ‘Employee Share Based Payments’ using the fair value method. The movement of stock options during the year ended March 31, 2012 is summarized below;
Particulars No of options
Outstanding at the beginning of the year 3968376 Granted during the year - Forfeited during the year 1549191 Exercised during the year 570 Expired during the year - Outstanding at the end of the year 2418615 Exercisable at the end of the year 2118013
20. EMPLOYEE BENEFITS (AS -15)
The summarized position of various defined benefits recognized in the Profit and Loss Account and balance sheet along with the funded status are as under:
I. PENSION
A. Expenses recognized in Profit and Loss Account
PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Current Service Cost 55.3 47.0 22.6 Interest cost on benefit obligation 73.8 36.0 38.7 Expected return on plan assets (97.7) (47.0) (42.3) Net actuarial gain/(loss) recognized in the year
82.6 100.9 (42.5)
Past service cost PSL - Amortisation 126.2 31.6 - Expenses recognized in the Profit and Loss Account
240.2 168.4 (23.6)
B. The amount recognized in the Balance Sheet
(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Present Value of obligation at the end of the year (i)
1060.5 967.7 534.7
Fair value of plan assets at the end of the year (ii)
1000.1 804.7 514.5
Difference (ii)-(i) (60.4) (163.0) (20.2) Unrecognized Past service liability - 126.2 - Net asset/ (liability) recognized in the Balance Sheet
(60.4) (36.8) (20.2)
C. Changes in the present value of the defined benefit obligations:
(Rupees in Millions)
PARTICULARS 31.03.2012 31.03.2011 31.03.2010 Present value of obligation at the beginning of the year
967.7 534.7 544.7
Interest cost 73.7 36.0 38.7 Current Service Cost 55.3 47.0 22.6 Benefits paid (26.9) (51.1) (7.0) Net actuarial gain/(loss) on obligation 56.4 65.6 (41.4) Past Service cost - 353.2 - Settlements (65.7) (17.7) (22.7) Present value of the defined benefit obligation at the end of the year
1060.5 967.7 534.7
D. Change in the fair value of plan assets:
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(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Fair value of plan assets at the beginning of the year
804.7 514.5 488.2
Expected return on plan assets 97.7 47 42.3 Contributions by employer 163.1 116.5 12.6 Benefit paid (27) (51.1) (7.0) Settlements (65.7) 17.7 (22.7) Actuarial gain/(loss) (26.1) (35.2) 1.1 PF Transfer
- 195.4 -
Fair Value of plan assets at the end of the year
1000.1 804.7 514.5
Total actuarial gain/ (loss) to be recognized immediately
(82.6) (100.8) -
E. Details of the Plan Asset
The details of the plan assets (at cost) are as follows:
(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Central Government securities 241.8 235.7 114.4 State Government securities 219.2 134.8 97.5 Investment in Public Sector Undertakings
178.9 191.4 196.4
Investment in Private Sector Undertakings
192.5 122.5 62.5
Others 142.2 96.2 25.1 Total 974.6 780.6 496.0
F. Actuarial Assumptions
Principal assumptions used for actuarial valuation are:
(Rupees in Millions) 31.03.2012 31.03.2011 31.03.2010 Method used
Project Unit Credit Method
Project Unit Credit Method
Project Unit Credit Method
Discount rate 8.50% 8.50% 7.50% Expected rate of return on assets
9.00% 9.00% 8.90%
Future salary increase 4.50% 4.50% 4.50% II. GRATUITY
A. Expenses recognized in Profit and Loss Account (Rupees in Millions)
PARTICULARS 31.03.2012 31.03.2011 31.03.2010 Current Service Cost 24.0 21.9 14.5 Interest cost on benefit obligation 28.0 24.2 17.7 Expected return on plan assets (22.8) (19.3) - Net actuarial gain/(loss) recognized in the year
14.5 (7.8) (55.5)
Past Service cost PSL - Amortisation 78.1 19.5 - Expenses recognized in the Profit and Loss Account
121.8 38.5 23.4
B. The amount recognized in the Balance Sheet
(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Present Value of obligation at end of the year (i)
328.1 305.6 202.5
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Fair value of plan assets at end of the year (ii)
294.4 220.0 233.6
Difference (ii)-(i) (33.7) (85.5) 31.1 Unrecognized Past service liability - 78.1 - Net asset/(liability)recognized in the Balance Sheet
(33.7) (7.5) 31.1
C. Changes in the present value of the defined benefit obligations:
(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Present value of obligation at beginning of the year
305.6 202.5 238.0
Interest cost 28.0 24.2 17.6 Current Service Cost 24.0 21.9 14.4 Benefits paid (44.0) (32.0) (11.5) Net actuarial gain/(loss) on obligation (14.5) (8.6) (56.1) Post service cost - 97.6 - Settlements - - - Present value of the defined benefit obligation at the end of the year 328.1 305.6 202.4
D. Change in the fair value of plan assets:
(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010
Fair value of plan assets at the beginning of the year
220.0 233.5 200.1
Expected return on plan assets 22.8 19.3 19.1 Contributions by employer 95.5 - 26.6 Benefit paid (44.0) (32.0) (11.5) Settlements - - - Actuarial gain/(loss) - (.7) (.6) PF Transfer - - - Fair value of plan assets at end of the year
294.4 220.0 233.5
Total Actuarial Gain /(loss) to be recognized immediately
(14.5) - -
E. Details of the Plan Asset
The details of the plan assets (at cost) are as follows:
(Rupees in Millions) PARTICULARS 31.03.2012 31.03.2011 31.03.2010 Central Government securities - 47.2 48.0 State Government securities 28.0 84.2 69.0 Investment in Public Sector Undertakings 6.0 47.2 87.2 Investment in Private Sector Undertakings
75.2 25.0 15.0
Others 180.4 7.6 6.0 Total 289.6 211.2 225.2
F. Actuarial Assumptions
Principal assumptions used for actuarial valuation are:
(Rupees in Millions) 31.03.12 31.03.11 31.03.10 Method used
Project Unit Credit Method
Project Unit Credit Method
Project Unit Credit
Method Discount rate 8.50% 8.50% 7.50% Expected rate of return on assets
9.00% 9.00% 8.90%
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Future salary increase 4.50% 4.50% 4.50% III. LEAVE
A. Expenses recognized in Profit and Loss Account
(Rupees in Millions) PARTICULARS 31.03.12 31.03.11 31.03.10
Current Service Cost 16.5 12.2 24.1 Interest cost on benefit obligation 17.3 14.7 13.5 Expected return on plan assets - - - Net actuarial (gain)/loss recognized in the year
32.6 .3 (7.2)
Post service cost PSL - Amortization - - - Expenses recognized in the Profit and Loss Account
66.4 27.2 30.4
B. The amount recognized in the Balance Sheet
(Rupees in Millions) PARTICULARS 31.03.12 31.03.11 31.03.10
Present Value of obligation at end of the year (i)
195.5 166.5 167.9
Fair value of plan assets at end of the year (ii)
- - -
Difference (ii)-(i) (195.5) (166.5) (167.9) Unrecognized past service liability -- -- -- Net asset / (liability) recognized in the Balance Sheet
(195.5) (166.5) (167.9)
C. Changes in the present value of the defined benefit obligations:
(Rupees in Millions)
PARTICULARS 31.03.12 31.03.11 31.03.10 Present value of obligation at beginning of the year
166.5 167.9 150.4
Interest cost 17.3 14.7 13.4 Current Service Cost 16.5 12.2 24.1 Benefits paid (37.4) (28.6) (12.9) Net actuarial (gain)/loss on obligation 32.6 .3 (7.2) Past Service Cost -- -- -- Settlements - - Present value of the defined benefit obligation at end of the year
195.5 166.5 167.9
D. Change in the fair value of plan assets:
(Rupees in Millions) PARTICULARS 31.03.12 31.03.11 31.03.10
Fair value of plan assets at beginning of the year
- - -
Expected return on plan assets - - - Contributions by employer 37.4 28.6 - Benefit paid (37.4) (28.6) - Settlements - - - Actuarial gain/(loss) - - - PF transfer - - - Fair value of plan assets at end of the year
- - -
Total Actuarial Gain/(Loss) to be recognized immediately
(32.6) (0.3) -
E. Details of the Plan Asset
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The details of the plan assets (at cost) as are as follows:
(Rupees in Millions) PARTICULARS 31.03.12 31.03.11 31.03.10
Central Government securities - - - State Government securities - - - Investment in Public Sector Undertakings - - - Investment in Private Sector Undertakings
- - -
Others - - - Total - - -
F. Actuarial Assumptions
Principal assumptions used for actuarial valuation are:
31.03.2012 31.03.2011 31.03.2010 Method used
Project Unit Credit Method
Project Unit Credit Method
Project Unit Credit Method
Discount rate 8.50% 8.50% 7.50% Expected rate of return on assets
- - -
Future salary increase 4.50% 4.50% 4.50%
ADDITIONAL NOTES FOR THE YEAR ENDED MARCH 31, 2012 Consequent on the reopening of the pension option and enhancement of the gratuity limit following the amendments to payment of Gratuity Act 1972, RBI has allowed amortization of the additional expenses over a period of five years beginning with the financial year ending March 2011 subject to a minimum of 1/5th of the total amount involved every year. Out of the total liability Of Rs 255.4 million arising on account of above mentioned amendments, Rs 51.1 million has been charged to the Profit and Loss Account in the current year and the balance unrecognized portion shall be amortized with in next three years.
21. SEGMENT REPORTING (AS-17) The Bank has recognized Business segments as primary reporting segment and Geographical segments as secondary segment in line with RBI guidelines on compliance with Accounting Standard 17.
I. Primary Segments: Business segments.
a) Treasury Operations b) Corporate / Wholesale Banking c) Retail banking d) Other banking business operations
II. Secondary Segments: Geographical segments.
Since the Bank is having domestic operations only, no reporting does arise under this segment.
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SEGMENT RESULTS – March 31, 2012 (Rupees in Millions)
Treasury Retail Banking Corporate / Other Banking Unallocated Total Wholesale Banking Operations
Mar-12
Mar-11
Mar-10
Mar-12
Mar-11
Mar-10
Mar-12
Mar-11
Mar-10
Mar-12
Mar-11
Mar-10
Mar-12
Mar-11
Mar-10
Mar-12
Mar-11
Mar-10
Revenue 3387 2226.5 1348.1 7246.3 4430.1 1406.6 4726 3870 3473.7
- - - 13.7 5.3 27.2 15373 10531.9
6255.6
Results (144.8)
153.4 168.2 (409.4)
357.3 162.5 (324.8)
258.2 271.4 - - - - - - (879) 768.9 602.1
Unallocated Expenses
- - - - - - - - - - - - - - - 100.1 94.6 215.4
Operating Profit
- - - - - - - - - - - - - - - (979.1) 674.3 386.7
Total provisions
- - - - - - - - - - - - - - - 165.7 277.1 109.4
Tax Expenses
- - - - - - - - - - - - - - - 11.5 136.6 44.4
Extra ordinary items
- - - - - - - - - - - - - - - - - -
Profit After Tax
- - - - - - - - - - - - - - - (1156.3)
260.6 233
Other Information
- - - - - - - - - - - - - - - - - -
Segment Assets
51617.8
43775.5
22608.6
56787.4
52090.8
16091.4
37465.6
46193.8
41419
- - - - - - 145870.8
142060.1
80118.9
Unallocated Assets
- - - - - - - - - - - - - - - 894.1 621.4 750
Total Assets
- - - - - - - - - - - - - - - 146764.9
142681.5
80868.9
Segment Liabilities
51069.2
41481.1
21166.8
53269 49159.6
15473.3
35144.3
43594.4
39828
- - - - - - 139482.5
134235.1
76468.1
Unallocated Liabilities
- - - - - - - - - - - - - - - 7282.4 8446.4 4400.7
Total Liabilities
- - - - - - - - - - - - - - - 146764.9
142681.5
80868.9
48
22. PARTICULARS OF RELATED PARTY TRANSACTIONS (AS-18)
31.03.2012 31.03.2011 31.03.2010 a) Key Management personnel b) Nature of transaction: Remuneration (including perquisites)
1 Sri. Amitabh Chaturvedi Managing Director and Chief Executive Officer (MD and CEO) Rs 38,42,254 (Resigned w.e.f Feb 06, 2012)
1 Sri. Amitabh Chaturvedi Managing Director and Chief Executive Officer (MD and CEO) Rs 53,71,000
1 Sri. Amitabh Chaturvedi Managing Director and Chief Executive Officer (MD and CEO) Rs 36,00,000
23. LEASE ACCOUNTING (Accounting Standard -19)
The details of maturity profile of future operating lease payments are given below
(Rupees in Millions)
Period 31.03.2012 31.03.2011 31.03.2010 Not later than one year • Rented Premises 328.0 300.0 178.4 • IT equipments 40.9 40.9 40.7 Later than one year and not later than five years
• Rented Premises
1401.6 1296.0 534.2
• IT equipments -- 40.9 81.4 Later than five years
• Rented Premises
400.0 500.0 529.6
• IT equipments -- -- -- Total 2170.5 2177.8 1365.7 Total minimum lease payments recognized in the Profit and Loss Account for the year
• Rented Premises
273.8 339.7 143.0
• IT equipments 40.9 40.9 -- 24. EARNINGS PER SHARE (Accounting Standard- 20)
(Rupees in Millions) 31.03.2012 31.03.2011 31.03.2010
Net Profit/( Loss) after tax (Rs in millions) (1156.3) 260.6 233.1 Weight average no. of equity shares for Basic EPS 85,136,268 78,737,719 64,115,600 Weight average no. of equity shares for Diluted EPS 83,309,976 79,222,004 64,279,373 Earnings per share (Basic) Rs (13.58) Rs 3.31 Rs 3.64 Earnings per share(Diluted) Rs (13.58) Rs 3.29 Rs 3.64
25. ACCOUNTING FOR TAXES ON INCOME (Accounting Standard- 22) The major components of Deferred Tax are as follows:
(Rupees in Millions) Deferred tax asset Deferred tax liability Particulars
31.03.2012 31.03.2011 31.03.2010 31.03.2012 31.03.2011 31.03.2010 Depreciation on Assets -- -- -- 42.0 28.0 1.1 Leave Encashment 63.4 56.6 49.8 -- -- -- Provision for Standard Assets 110.7 114.6 -- -- -- --
Total 174.2 171.2 49.8 42.0 28.0 1.1 Net balance 132.2 143.2 48.7
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26. BANCASSURANCE BUSINESS
(Rupees in Millions) Sr. No. Nature of Income 2011-12 2010-11
1 For selling life insurance policies 76.0 58.5 2 For selling non life insurance policies 6.9 7.7 3 For selling mutual fund products 33.5 18.1 4 Others - - Total 116.4 84.3
27. Draw Down of Reserves
The bank has not undertaken any draw down of reserves during the year except expenses incurred towards increasing of Authorized share capital, which have been adjusted against the share premium account.
28. Impact of change in Accounting Policy
Till the previous year, income from bills discounting was recognized upfront except where the tenure exceeds one year. However, during the year, the Bank has changed its method of recognizing income, wherein the income is apportioned to the profit and loss account on a daily basis to the extent it relates to the year and the balance amount in subsequent periods. Had the Bank had followed the earlier accounting policy, income for the year would have been higher by Rs 20.5 millions and the Loss for the year would have been lower by the like amount.
29. Previous year figures are regrouped wherever necessary. BASEL II (PILLAR III) DISCLOSURES
TABLE DF 1 –SCOPE OF APPLICATION
Qualitative Disclosures
a. Dhanalaxmi Bank has no subsidiaries.
b. Not applicable since the Bank does not have any subsidiaries
Quantitative Disclosures
c & d Since the Bank does not have any subsidiaries, there are no quantitative disclosures
TABLE DF2 – CAPITAL STRUCTURE Qualitative Disclosures: a. Summary
Tier I capital of the bank includes
Equity Share Capital
Reserves & Surpluses comprising of
Statutory Reserves,
Capital reserves,
Share Premium and
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Balance in P &L Account.
Tier II Capital includes
Revaluation Reserve,
Special Reserves,
Standard Asset Provisions and
Tier II Bonds.
Quantitative Disclosures: (Rupees in Millions)
Items 31.03.2012 31.03.2011 31.03.2010 (a) The amount of Tier I capital, with separate disclosure of :
Paid-up share capital 851.4 851.4 641.2 Reserves 6,206.7 7,367.9 3,549.1 Innovative Instruments -- -- -- Other capital instruments -- -- -- Sub-total 7,058.1 8,219.3 4,190.3
Less amounts deducted from Tier I capital, including goodwill and investments.
585.8 143.3 48.7
Total Tier I capital 6,472.2 8,076.0 4,141.6 (b) The total amount of Tier II capital (net of deductions
from Tier II capital) 1,804.4 2,055.4 1,970.6
(c) Debt capital instruments eligible for inclusion in Upper Tier II capital
• Total amount outstanding 275.0 275.0 -- • Of which amount raised during the current year -- 275.0 -- • Amount eligible to be reckoned as capital funds 275.0 275.0 --
(d) Subordinated debt eligible for inclusion in Lower Tier II capital.
Total amount outstanding 1,870.0 1,770.0 1,970.0 Of which amount raised during the current year. 100.0 -- 1,500.0 Amount eligible to be reckoned as capital funds. 1,054.0 1,308.0 1,662.0
(e) Other deductions from capital, if any -- -- -- (f) Total eligible capital- Tier I + Tier II (a+b-e) 8,276.7 10,131.4 6,112.2
TABLE DF 3 –CAPITAL ADEQUACY Qualitative disclosures: The Bank has put in place a robust Risk Management Architecture with due focus not only on Capital optimization, but also on Profit Maximisation. The Bank has put in place the “Internal Capital Adequacy Assessment Process” Policy. Capital requirement for current business levels and frameworkfor assessing capital requirement for future business levels has been made. Capital need and capital optimization are monitored periodically by the Committee of Top Executives. The Top Executives deliberate on various options available for capital augmentation in tune with business growth. The Bank has worked out CRAR based on both Basel I and Basel II guidelines. The Bank maintains Basel II CRAR of more than 9% and Tier I CRAR of more than 6%. Besides, the Bank complies with the prudential floor for maintenance of capital as per the Revised Framework.
Quantitative Disclosures:
(Rupees in Millions) Items 31.03.2012 31.03.2011 31.03.2010
(a) Capital requirements for credit risk • Portfolios subject to standardized approach 7226.0 7,209.9 3,943.9 • Securitisation exposures -- --
(b) Capital requirements for market risk Standardized duration approach
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• Interest rate risk 163.0 227.5 50.6 • Foreign exchange risk(including gold) 32.6 6.8 6.8 • Equity position risk 8.3 1.6 1.1
(c) Capital requirements for operational risk • Basic Indicator Approach 417.0 281.6 232.2
(d) Total and Tier I CRAR for the Bank • Total CRAR (%) 9.49 11.8 13.0 • Tier I CRAR(%) 7.42 9.4 8.8
(e) Total and Tier I CRAR for the consolidated Group • Total CRAR(%) NA NA NA • Tier I CRAR (%) NA NA NA
(f) Total and Tier I CRAR for the Significant subsidiary which are not under consolidated group
• Total CRAR(%) NA NA NA • Tier I CRAR (%) NA NA NA
TABLE DF 4 –CREDIT RISK: GENERAL DISCLOSURES Qualitative disclosures: a. General : - Definitions of past due and impaired (for accounting purposes) The Bank has adopted the definition of the past due and impaired (for accounting purposes) as defined by the Regulator for income recognition and asset classification norms which is furnished below: 1. Non-performing Assets
An asset, including a leased asset, becomes non –performing when it ceases to generate income for the bank. A non-performing asset (NPA) is aloan or an advance where; a. interests and/or instalment of principal remain overdue for a period of more than 90 days in
respect of a Term loan,
b. the account remains ‘out of order’ in respect of an overdraft/ cash credit (OD/CC), the bill remains overdue for a period of more than 90 days in the case of bills purchased and discounted,
c. the instalment of principal or interest thereon remains overdue for two crop seasons for short
duration crops,
d. the instalment of principal or interest thereon remains overdue for two crop seasons for long duration crops,
An account is classified as NPA only if the interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.
2. ‘Out of Order’ status An account is treated as ‘Out of Order’ if the outstanding balance remains continuously in excess of the sanctioned limit/ drawing power, but there are no credits continuously for 90daysas on the date of Balance Sheet or credits are not enough to cover the interest debited during the same period, these accounts are treated as ‘Out of Order’
3. ‘Overdue’ Any amount due to the bank under any credit facility is ‘overdue’ if it is not paid on the due date fixed by the bank.
Strategies and Processes for Credit Risk Management
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Credit Risk Management Committee (CRMC) headed by MD & CEO is the top level functional committee for Credit risk.The committee considers and takes decisions necessary to manage and control credit risk within overall quantitative prudential limit set up by Board. The committee is entrusted with the job of approval of policies on standards for presentation of credit proposal, fine-tuning required in various rating models based on feedbacks or change in market scenario, approval of any other action necessary to comply with requirements set forth in Credit Risk Management Policy/ RBI guidelines or otherwise required for managing credit risk. The Bank’s strategies to manage the credit risks in its lending operations are as under: a) The Bank has a Comprehensive Board Approved Credit Risk Management Policy which is
reviewed and revised annually. In addition to the above, various strategies with regard to Credit risk management is covered under Banks Credit Policy, Credit Monitoring Policy and Recovery Policy which are periodically reviewed by the Board.
b) Defined segment exposures delineated into Retail, SME and Corporates; c) Industry wise exposure caps on aggregate lending by Bank d) Individual borrower wise caps on lending as well as borrower group wise lending caps linked as a
percentage to the Bank’s capital funds in line with RBI guidelines. e) Credit rating of borrowers and allowing credit exposures only to defined thresholds of risk levels f) A well defined approach to sourcing and preliminary due diligence while sourcing fresh credit
accounts g) A clear and well defined delegation of authority within the Bank in regard to decision making
linking exposure, rating and transaction risks. h) Regular review of all credit structures and caps, continuously strengthening credit processes, and
monitoring oversight which are regularly reviewed and duly approved by the Board of the Bank. i) Credit Risk management Cell is validating the rating assigned to all individual credit exposures of
` 2.5million and above. j) Bank has an ever improving procedures and structures with respect to Credit Approval Process,
Credit Rating, Prudential Limits, Documentation, Credit Monitoring and Review Mechanism. k) A Loan Review Mechanism for constantly evaluating the quality of loan book, by way of review
of sanctions made, renewal process, submission of monitoring reports, credit related MIS, is in place.
l) The Bank has a Credit Administration team which takes care of the security creation and account
management. m) Credit Monitoring & Recovery Group takes care of the monitoring of the loan assets. n) Bank has started quarterly industry study which would provide necessary information to
increase/hold/decrease exposure under various industries.
Structure and Organization of the Risk Management function in the Bank
The Bank has a Credit Risk Management Committee(CRMC) in place with representation from IRMG, Credit, Credit Mid-Office Group and Treasury.The Committee is headed by the Managing Director& CEO of the Bank. CRMC monitors credit risk on a bank wide basis and discuss on adherence to prudential limits set, recommends to Board, policies on rating standards and benchmarks etc.
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GOVERNANCE STRUCTURE OF RISK MANAGEMENT IN THE BANK
Scope and Nature of Risk Reporting and/or Measurement Systems The Bank has developed a comprehensive risk rating system that serves as a single point indicator of diverse risk factors of counterparty and for taking credit decisions in a consistent manner.Major initiatives of IRMG are-
Risk rating system is drawn up in a structured manner incorporating the parameters from the five main risk areas 1)Financial risk, 2) Industry/Market risk, 3) Business Risk, 4) Management Risk, and 5) Facility risk
Risk rating system is made applicable for loan accounts with total limits of Rs.0.2 millions and above.
Different rating models are used for different types of exposures, for eg; Traders, SME, NBFC, Corporate, small loans etc.
IRMG validates the ratings of all exposures of Rs.2.5 millions and above. An independent analysis is carried out of the various risks attached to the credit proposals
including industry analysis. Carries out rating migration analysis of the credit exposures of Rs.100 million & above on a
quarterly basis. Rating Migration analysis covering all exposures of Rs.2.5 million and above is being conducted on an annual basis.
Evaluates the asset quality by tracking the delinquencies and migration of borrower from one rating scale to another in various industry, business segment etc.
Credit facilities are sanctioned at various levels in accordance with the delegation approved by the Board. The Bank has in place the following hierarchical functionaries with powers delegated for credit sanction and administration:
Branch Heads / Branch operational Managers (Jointly) Regional Credit Head Zonal Credit Committee (ZCC) Corporate Credit Committee (CCC) Management Committee of Directors (MC/ Board)
Board of Directors
Risk Management Committee (Supervisory Committee of directors)
Credit risk management committee (CRMC) (CRMC)
Operational Risk Management Committee (ORMC)
Asset Liability management Committee(ALCO) (ALCO)
Integrated Risk Management Group (The organization arm at corporate office)
Risk Management Committee (of executives)
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Head Integrated Risk Management Group is a member of the CCC. The bank has implemented a software solution to get system support for calculation of Risk Weighted Assets for CRAR computation. Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants The Bank has put in place a Board approved policy on Credit Risk Mitigation techniques and collateral management, covering the credit risk mitigation techniques used by the Bank for both risk management and capital computation purposes. Apart from the Basel defined collateral, the Bank ensures securities by way of inventories, Book Debts, plant & machineries, Land& Buildings and other moveable/immovable assets/properties. The Bank also accepts personal/corporate guarantee as an additional comfort for credit risk mitigation. The securities are subjected to proper valuation as prescribed in the Credit Policy of the Bank. Bank has laid down detailed guidelines on documentation to ensure legal certainty of Bank’s charge on collaterals. In order to ensure that documents are properly executed, the function has been brought under the purview of Credit Administrative Officers (CAOs). The CAOs at branches ensure documentation, ground level follow up, collection of feedback, closer monitoring of accounts, quality of asset portfolios, statistical analyses, reporting of irregularities, providing guidelines, compliance with policy prescriptions and adherence to terms of sanction. The Bank has an exclusive set up for Credit monitoring functions in order to have greater thrust on post sanction monitoring of loans and strengthen administering the various tools available under the Bank’s policies on loan review mechanism. For effective loan review, the Bank has the following in place: -
On site monitoring tools like Inspection of assets/ books/stock of the borrower, stock audit, operations in the account, payment of statutory dues etc.
Recording of loan sanctioned by each sanctioning authority by the next higher authority. Off site monitoring tools like Financial Follow Up Reports, verification of various statutory
returns, Audit Reports etc. Quantitative disclosures:
(a) Total Gross credit exposures: (After accounting offsets in accordance with applicable accounting
regime and without taking into account the effects of credit risk mitigation techniques e.g. Collateral and netting)
(Rupees in Millions) Overall credit
exposure
31.03.2012 31.03.2011 31.03.2010 TOTAL 31.03.2012
TOTAL 31.03.2011
TOTAL 31.03.2010
Loans and advances
88,683.8 91,545.0 50838.4 1,03,891.2 106,849.7 53,590.0
Cash, RBI and banks
9,260.6 9,351.6 - - - -
Fund Based
Others(Fixed Assets and other Assets)
5,946.8 5,953.1 2751.6 - - -
LC, BG etc 5,865.7 3,942.8 1664.7 8,277.3 5,754.9 1,829.5 Forward Contracts
985.2 556.7 63.0 - - - Non Fund Based
Others 1,426.4 99.6 101.8 - - - Investments (Banking Book only)
- 29,070.6 24,482.8 17044.4 29,070.6 24,482.8 17,044.4
Total of Credit Risk exposure
- 141,239.1 135,931.6 72,463.9 1,41,239.1 137,087.4 72,463.9
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(b) Geographic distribution of exposures: (Rupees in Millions)
31.03.2012 31.03.2011 31.03.2010 Exposures Fund based
Non Fund Based
TOTAL Fund based
Non Fund Based
TOTAL Fund based
Non Fund Based
TOTAL
Domestic operations
132,961.8 8,277.3 141,239.1 131,332.5 5,754.9 137,087.4 70634.3 1829.5 72463.9
Overseas operations
Bank has no overseas operations
(c) Industry type distribution of exposures:
(Rupees in Millions)
Fund Based Outstanding NFB Outstanding Sl No Industry 31.03.12 31.03.11 31.03.10 31.03.12 31.03.11 31.03.2010
1 Mining and Quarrying -- 21.8 27.0 -- -- -- 2 Food Processing 508.3 125.2 265.9 36.6 -- -- 3 Sugar 21.6 22.9 21.6 -- -- -- 4 Edible oils and vanaspati 56.2 30.7 10.7 -- -- -- 5 Textiles 1,975.7 1,797.1 1,387.6 650.8 16.6 6.1 6 Paper & paper products 126.5 1,380.2 1,322.8 .2 -- -- 7 Chemicals and chemical
products 1,443.0 1,543.6 1,364.4 469.5 124.9 104.4
7.1 Of which,,Fertilizer -- 960.0 440.0 -- -- -- 7.2 Of which, Drugs &
pharmaceuticals 875.9 139.7 760.8 451.5 --
7.3 Of which, Others 567.1 443.9 163.6 18.0 -- -- 8 Rubber, plastic & their
products 434.3 1,010.4 559.1 2.7 -- --
9 Cement and cement products
440.3 1,022.7 1,400.0 2 -- --
10 Metal & metal products
2,951.7 226.7 250.0 11.9 -- --
11 All engineering 698.0 1,823.0 1,663.5 214.9 9.2 7.7 12 Automobiles 469.9 8,63.1 200.0 44.0 -- 13 Gems & Jewellery 2,306.7 2,244.5 1,081.3 1243.5 139.0 65.0 14 Construction 208.2 - 207.8 12.0 -- -- 15 Infrastructure 7,296.3 12,403.6 11386.3 869.4 152.7 142.6
15.1 Of which, Power 2,958.6 5,409.2 3621.7 46.4 -- -- 15.2 Of which
,Telecommunications 749.9 1,550.0 1,550.0 -- -- --
15.3 Of which, Roads & ports -- 620.6 712.5 -- -- -- 15.4 Of which, Other
infrastructure 3,587.8 4,823.8 5502.1 -- -- --
16 NBFC 4107.3 5186.7 8307.2 300.6 -- -- 17 Trading 1171.9 12808.9 8559.0 59.5 -- -- 18 Other industries 8,119.0 2,493.5 2653.1 425.8 -- -- Total 32334.9 45004.6 40667.3 4389.8 433.292 325.8
19 Residuary other advances (to balance with Total advances) 55,973.6 46211.6 9897.6 1870.3 3493.3 1338.9
Grand Total 88,308.5 91,216.2 50564.9 6,260.1 3,935.7 1,664.7
(d) Residual maturity breakdown of assets: (Rupees in Millions)
Maturity Pattern Assets
Advances 31.03.2012
Advances
31.03.2011
Advances 31.03.201
0
Investments
31.03.2012
Investments
31.03.2011
Investments
31.03.2010
Foreign Currency 31.03.201
2
Foreign Currency 31.03.201
1
Foreign Currency 31.03.201
0 Day 1 2,425.3 771.0 953.7 - - - 895.3 642.3 2.4 2 to 7 Days
2,701.8 1,031.4 605.7 3,322.5 - - 589.6 470.6 990.9
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Maturity Pattern Assets
Advances 31.03.2012
Advances
31.03.2011
Advances 31.03.201
0
Investments
31.03.2012
Investments
31.03.2011
Investments
31.03.2010
Foreign Currency 31.03.201
2
Foreign Currency 31.03.201
1
Foreign Currency 31.03.201
0 8 to 14 days
1,133.7 1,179.6 630.2 1,363.7 - 249.7 83.8 27.0 -
15 to 28 days
1,570.2 2,036.6 953.8 2,937.1 2,322.6 713.9 38.3 131.0 -
29 days up to 3 months
7,595.3 7,410.8 3562.5 5,683.8 1,963.1 411.8 6,614.0 3,002.1 220.2
Over 3 months and up to 6 months
6,892.5 8,550.9 3590.9 - 2,515.3 732.9 3,125.4 2,676.5 46.7
Over 6 months and up to 1 year
10,472.2 19,013.2 5804.2 187.0 1,176.2 182.0 1,705.0 7,300.3 12.0
Over 1 year and up to 3 years
32,671.4 27,081.4 15787 .7
1,535.4 786.5 41.2 - - -
Over 3 years and up to 5 years
8,387.5 13,936.4 11181.6 5,985.1 1,940.4 2113.2 - - -
Over 5 years
13,730.6 9,640.2 6992.4 22,750.9 25,785.0 15914.4 6.5 - -
Total
87,580.5 90,651.5 50062.7 43,765.5 36,489.1 20359.1 13,057.8 14,249.8 1272.2
(e) Non-performing assets:
(Rupees in Millions) Amount No Items
31.03.2012 31.03.2011 31.03.2010 1 Gross NPAs 1042.7 670.9 775.0 1.1 Substandard 535.9 187.8 355.7 1.2 Doubtful 1 179.0 137.8 101.4 1.3 Doubtful 2 100.4 73.5 81.0 1.4 Doubtful 3 79.1 113.6 103.3 1.5 Loss 148.3 158.2 133.6 2 Net NPAs 580.0 274.7 419.4 3 NPA Ratios 3.1 Gross NPAs to Gross Advances (%) 1.18 0.74 1.54 3.2 Net NPA s to Net Advances (%) 0.66 0.30 0.84 4 Movement of NPAs (gross) 4.1 Opening balance 670.9 775.0 644.3 4.2 Additions 918.2 411.3 521.6 4.3 Reductions 546.4 515.4 390.9 4.4 Closing balance 1042.7 670.9 775.0 5 Movement of provisions for NPAs 5.1 Opening balance 391.0 346.9 355.5 5.2 Provisions made during the year 233.1 159.1 128.5 5.3 Write-off 163.8 -- 30.8 5.4 Write back of excess provisions -- 115.0 106.3 5.5 Closing balance 460.3 391.0 346.9 6 Amount of non-performing investments 70.4 74.4 74.4 7 Amount of provisions held for non –
performing investments 70.4 74.4 74.4
8 Movement of provision held for NPI’s 8.1 Opening balance 74.4 74.4 80.3 8.2 Provisions made during the period -- -- -- 8.3 Write-off/ Write back of excess provisions (4.0) -- 5.9 8.4 Closing balance 70.4 74.4 74.4
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Table DF 5- Disclosures for portfolios subject to the standardized approach Qualitative disclosures: (a) For Portfolios under the standardized approach
1 Names of credit
rating agencies used Bank has approved all the four external credit rating agencies accredited by RBI for the purpose of credit risk rating of domestic borrowal accounts, i.e., CRISIL, CARE, FITCH, ICRA and International Credit rating agencies, i.e, Standard and poor, Moody’s , FITCH
2 Changes if any, since prior period disclosure in the identified rating agencies and reasons for the same.
No change
All the above identified Rating Agency rating are used for various types of exposures as follows : (i) For Exposure with a contractual maturity of less than or equal to one year (except Cash Credit, Overdraft and other Revolving Credits), Short-Term Rating given by ECAIs will be applicable. (ii) For Domestic Cash Credit, Overdrafts and other Revolving Credits (irrespective of the period ) and / or Term Loan exposures of over one year, Long Term Rating will be applicable. (iii) For Overseas exposures, irrespective of the contractual maturity, Long Term Rating given by IRAs will be applicable. (iv)Rating by the agencies is used for both fund based and non-fund based exposures
3 Types of exposure for which each agency is used
(v) Rating assigned to one particular entity within a corporate group cannot be used to risk weight other entities within the same group. Long –term Issue Specific (our own exposures or other issuance of debt by the same borrower-constituent/counter-party) Ratings or Issuer(borrower-constituent/counter-party) Ratings can be applied to other unrated exposures of the same borrower-constituent/counterparty in the following cases : (i) If the Issue Specific Rating or Issuer Rating maps to Risk Weight equal to or higher than the unrated exposures, any other unrated exposure on the same counter-party will be assigned the same Risk Weight, if the exposure ranks pari passu or junior to the rated exposure in all aspects
4 Description of the process used to Transfer public issue rating on to comparable assets in the banking book.
(ii) In cases where the borrower-constituent/counter-party has issued adebt (which is not a borrowing from our Bank), the rating given to that debt may be applied to Bank’s unrated exposures if the Bank’s exposure ranks pari-passu or senior to the specific rated debt in all respects and the maturity of unrated Bank’s exposure is not later than Maturity of rated debt.
Quantitative disclosures Amount of bank’s outstandings (rated & unrated) in major risk buckets- under standardized approach after factoring risk mitigants (i.e., collaterals):
(Rupees in Millions) 31.03.2012 31.03.2011 31.03.2010 Particulars
Fund based
Non Fund based
Total Fund based
Non Fund based
Total Fund based
Non Fund based
Total
Below 100% risk weight
75844.7 1907.3 77751.9 67153.6 1740.8 68894.4 40724.5 408.9 41133.4
100% risk weight 43735.1 5884.5 49619.6 51922.0 3658.2 55580.2 27593.7 1420.7 29014.3 More than 100% risk weight
13382.1 485.5 13867.6 12256.8 355.9 12612.7 2316.1 - 2316.1
Total Exposure 132961.9 8277.3 141239.1 131332.4 5754.9 137087.3 70634.3 1829.5 72463.9 Below 100% RW
8239.2 161.0 8400.2 7073.7 -- 7073.7 2523.1 - 2523.1 Deducted (Risk mitigants)
100% 1146.8 413.6 1560.5 1797.3 -- 1797.3 42.6 - 42.6
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31.03.2012 31.03.2011 31.03.2010 Particulars Fund based
Non Fund based
Total Fund based
Non Fund based
Total Fund based
Non Fund based
Total
RW More than 100% RW
4856.7 199.8 5056.5 8003.9 -- 8003.9 932.5 - 932.5
Net Exposure 118719.2 7502.8 126221.9 114457.5 5754.9 120212.4 67136.1 1829.5 68965.7
TABLE DF 6 –CREDIT RISK MITIGATION- STANDARDIZED APPROACH
QUALITATIVE DISCLOSURE: (a) General Policies and processes for collateral valuation and management: The Bank has put in place a Board approved policy on Credit Risk Mitigation techniques and collateral management, covering the credit risk mitigation techniques used by the Bank for both risk management and capital computation purposes. A description of the main types of collateral taken by the Bank Collateral used by the Bank as risk mitigants for capital computation under Standardized Approach comprise eligible financial collaterals namely: -
Cash and fixed deposits of the counterparty with the Bank.
Gold: value arrived at after notionally converting these to 99.99% purity.
Securities issued by Central and State Governments.
Kisan Vikas Patra and National Savings Certificates.
Life Insurance Policies restricted to their surrender value.
Debt securities rated by an approved Rating Agency.
Unrated debt securities issued by banks, listed in Stock Exchange.
Units of Mutual Funds.
Bank has no practice of on balance sheet netting for credit risk mitigation. The main types of guarantor counterparty and their creditworthiness Bank accepts guarantees of individuals or corporates of adequate networth, as an additional comfort for mitigation of credit risk which can be translated into a direct claim on the guarantor and are unconditional and irrevocable. Main types of guarantor counterparty as per RBI guidelines are: -
Sovereigns (Central/ State Governments) Sovereign entities like ECGC, CGTSI Bank and primary dealers with a low risk weight than the counter-party Other entities rated AA (-) and above. The Guarantees has to be issued by entities with a lower risk
weight than the counterparty. Information about risk concentrations of collaterals concentration within the mitigation taken:
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Outstanding Covered by Risk Mitigants (Rupees in Millions) Risk Concentration % Financial Risk
Mitigants 31.03.2012 31.03.2011 31.03.2010 31.03.2012 31.03.2011 30.03.2010 Gold 10848.8 13748.9 5262.8 72.24 81.48 54.35 Cash & Bank Deposits 4143.2 3085.2 4376.2 27.59 18.28 45.2 KVP/IVP/NSC 21.3 34.5 37.8 0.14 0.20 .39 LIC Policy 3.7 6.4 5.7 0.02 0.04 .06 Total 15017.0 16875.0 9682.5 100 100 100
Majority of the financial collaterals held by the Bank are by way of Gold, own deposits, Life Insurance Policies and other approved securities. Bank does not envisage market liquidity risk in respect of financial collaterals. Concentration on account of collateral is also relevant in the case of land& building. However, as land & building is not recognized as eligible collateral under Basel II standardized approach, its value is not reduced from the amount of exposure in the process of computation of capital charge. It is used only in the case of housing loan to individuals and non performing assets to determine the appropriate risk weight. As such, there is no concentration risk on account of nature of collaterals. Quantitative Disclosures: For the disclosed Credit Risk portfolio under the Standardised Approach, the total Exposure that is covered by:
(Rupees in Millions) 2012 2011 2010 Eligible Financial Collateral 15,017.0 16,875.0 9,682.5 Other eligible Collateral (after Hair Cuts)
- - -
DF TABLE 7- SECURITISATION – STANDARDIZED APPROACH: Qualitative Disclosures:
Bank has not securitized any of its standard assets till date DF TABLE 8 - MARKET RISK IN TRADING BOOK- STANDARDIZED MODIFIED DURATION APPROACH: Qualitative Disclosures: a) General : -
Strategies and processes The overall objective of market risk management is to maximize shareholder value by improving the bank’s competitive advantage and reducing loss from all types of market risk loss events. For effective management of market risk, bank has put in place a well established framework with the Integrated Treasury Policy and Asset Liability Management Policy. The Asset Liability Management Committee is responsible for establishing market risk management and Asset liability management in the Bank. ALCO is a decision making unit responsible for balance sheet planning from risk-return perspective including the strategic management of interest rate and liquidity risks. ALCO ensures adherence to the limits set by RBI as well as the Board. Scope and nature of risk reporting/ measurement systems The Bank has put in place regulatory/ internal limits for various products and business activities relating to trading book. Various exposure limits for market risk management such as overnight limit, VaR limit, Daylight limit, Aggregate Gap limit, Investment limits etc. are in place. The reporting system ensures timelines, reasonable accuracy with automation, highlight portfolio risk concentrations and include written analysis. The reporting formats and frequency are periodically reviewed to ensure
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that they suffice for risk monitoring, measuring and mitigation requirements of the Bank. Bank also subjects non-slr investments to credit rating. Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Board approved policies viz., Integrated Treasury Policy and Asset Liability Management Policy provides the framework for risk assessment, identification, measurement and mitigation, risk limits & triggers, risk monitoring and reporting. Liquidity risk of the Bank is assessed through Statement of Structural Liquidity Statement which is prepared on a daily basis. The Bank also reviews various liquidity ratios on a fortnight basis in order to control the liquidity position. Interest Rate risk is analyzed from earnings perspective using Traditional Gap Analysis on a fortnightly basis and economic value perspective using Duration Gap Analysis on a monthly basis. Stress tests are conducted at quarterly intervals to assess the impact of various contingencies on the bank’s earnings and the capital position. The Bank uses Standardized Duration approach for computation of market risk capital charge on the investment portfolio held under HFT and AFS, Gold and Forex Open positions. The market risk capital charge is calculated on a daily basis and reported to ALCO. The portfolio covered by Standardized Duration approach for computation of market risk capital charge are investment portfolio held under HFT and AFS, Gold and Forex Open positions. Quantitative Disclosures:
(Rupees in Millions) Particulars Amount of capital
requirement 31.03.2012
Amount of capital requirement 31.03.2011
Amount of capital requirement 31.03.2010
Interest rate risk 163.0 227.5 50.6 Equity position risk 8.3 1.6 1.1 Foreign exchange risk 32.6 6.8 6.8
TABLE DF 09-OPERATIONAL RISK: Qualitative disclosures:
(a) General
Strategies and processes:- The Bank’s strategy is to ensure that the Operational risks which are inherent in Process, People and System and the residual risks are well managed by the implementation of effective Risk management techniques. Keeping this in view, the Bank has been following risk management measures which address the risks before and after implementation of a process, product and system. All new products, processes and systems which are cleared by the Product & Process Approval Committee (PPAC) are risk vetted by the Operational Risk Management (ORM) cell, before implementation. The ORM cell has completed Risk & Control Self Assessment (RCSA) at Thrust Branches and other core functions highlighting the potential risks that can happen during the course of operations and to assess whether the controls are adequate to manage/ mitigate these risks. Risk Based Internal Audit is in place in all the Branches. The bank has a RCSA document approved by the Risk Management Committee of the Board (RMCB), in place. The framework for Operational Risk Management is well-defined in the Operational Risk Management (ORM) Policy which is reviewed and revised annually. The ORM Committee at the executive level, which meets at regular intervals oversees bank-wide implementation of Board approved policies and process in this regard. The Bank has put in place important policies like Information System Security, Know Your Customer & Anti Money Laundering, Fraud Risk Management, Business Continuity and Disaster Recovery Management. Scope and nature of risk reporting/ measurement systems: -
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The Bank has adopted Operational Loss Data Reporting Format from the Loss Data Methodology Document for collection of Loss Data, which will enable the Bank to eventually ease the transition to Advanced Measurement Approach for Capital Calculation. The ORM cell has a well-built internal Loss data collection system in place integrating the Inspection, Legal and IT departments. The risk reporting consists of operational risk loss incidents/ events occurred in branches/ offices relating to people, process, technology and external events. The bank has implemented a software solution which is a modular Operational risk management solution which satisfies end-to-end operational risk management requirements (quantitative and qualitative). Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/ mitigants: Internal control mechanism is in place to control and minimize the operational risks. If any controls are found to be ineffective during the course of Risk & Control Self Assessment, corrective measures are adopted in due course. A monitoring system is also in place for tracking the corrective actions plan periodically. Bank is using insurance for mitigating operational risk. The various Board approved policies viz., Operational Risk Management Policy, Outsourcing Policy, Compliance Policy, Internal Inspection & Audit Policy, Internet Banking Security Policy; Information Systems Security Policy and Business continuity Plans addresses issues pertaining to Operational Risk Management. Operational Risk capital assessment: The Bank has adopted Basic Indicator Approach for calculating capital charge for Operational Risk, as stipulated by the Reserve Bank of India. The ORM Cell is now in the process of Business Line mapping in line with the RBI guidelines, targeting of migrating to The Standardised Approach (TSA) for operational risk capital assessment. The ORM Cell is now focusing on the qualitative and quantitative requirements (RCSA, KRI identification, Business line mapping etc.) prescribed by the regulator are being adopted by the Bank to move on to the Advanced Approaches in due course. TABLE DF 10- Interest rate risk in the Banking Book (IRRBB): Qualitative Disclosures: Strategies and processes The Bank has put in place a comprehensive market risk management framework to address market risks. The Asset Liability Management Policy prescribes the measurement of the interest rate risk under two perspectives – Earnings perspective and Economic Value Perspective. Under Earnings perspective, bank uses the Traditional gap analysis method to calculate the Earnings at Risk (EAR), which is the quantity by which net income might change in the event of an adverse change in interest rate. EAR is calculated on a fortnightly basis. Under Economic value perspective, bank uses Duration Gap Analysis to assess the impact of interest rate risk. The Duration gap analysis monitors the impact of changes in the interest rates on the Market Value of Equity (MVE). It is calculated on a monthly basis. The framework for managing interest rate risk (EVE) under Pillar II of Basel II is put in place through ICAAP Policy document. Scope and nature of risk reporting/ measurement systems Interest rate risk under duration gap analysis is evaluated on a monthly basis. The likely drop in Market Value of Equity for a 200 bps change in interest rates is computed. Earnings at Risk based on Traditional Gap Analysis are calculated on a fortnightly basis and adherence to tolerance limits set in this regard is monitored and reported to ALCO. Stress tests are conducted to assess the impact of interest rate risk under different stress scenarios on earnings of the Bank. Policies for hedging/ mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants
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Bank has operationalised mitigating/hedging measures prescribed by Integrated Treasury Policy, ALM Policy and Stress Testing Policy. The strategy adopted by ALCO for mitigating the risk is by clearly articulating the acceptable levels of exposure to specific risk types (interest rate, liquidity etc.). The process for mitigating the risk is initiated by altering the mix of asset and liability composition and with the proper pricing of advances and deposits. Brief description of the approach used for computation of interest rate risk and nature of IRRBB The interest rate risk (EVE) is computed through Duration Gap Analysis. The step-by-step approach for computing modified duration gap is as follows: i) Identify variables such as principal amount, maturity date/re-pricing date, coupon rate, yield,
frequency and basis of interest calculation for each item/category of Rate Sensitive Asset/Rate Sensitive Liability (RSA/RSL).
ii) Plot each item/category of RSA/RSL under the various time buckets. For this purpose, the absolute notional amount of rate sensitive off-balance sheet items in each time bucket are included in RSA if positive or included in RSL if negative.
iii) The mid-point of each time bucket is taken as a proxy for the maturity of all assets and liabilities in that time bucket.
iv) Determine the coupon and the yield curve for arriving at the yields based on current market yields or current replacement cost for computation of Modified Duration (MD) of RSAs and RSLs.
v) Calculate the MD in each time band of each item/category of RSA/RSL using the maturity date, yield, coupon rate, frequency, yield and basis for interest calculation.
vi) Calculate the MD of each item/category of RSA/RSL as weighted average MD of each time band for that item.
vii) Calculate the weighted average MD of all RSA (MDA) and RSL (MDL) to arrive at Modified Duration Gap (MDG).
Quantitative Disclosures The impact on earnings and economic value of equity for notional interest rate shocks as on 31.03.2012. Earnings at Risk
(Rupees in Millions) Change in interest rate Change in EaR
2012 2011 2010 + 25 bps 25.0 19.9 20.2 + 50 bps 50.0 39.8 40.4 + 75 bps
75.1 59.7 60.5
+ 100 bps 100.1 79.6 80.7
The Bank is computing market value of equity based on Duration Gap Analysis.
For a 200 bps rate shock, the drop in equity value as on 31.03.2012 7.66% For a 200 bps rate shock, the drop in equity value as on 31.03.2011 18.27% For a 200 bps rate shock, the drop in equity value as on 31.03.2010 19.27%
Prudential floor limit for minimum capital requirements: The guidelines for implementation of the New capital adequacy framework issued by RBI, stipulates higher of the following amounts as minimum capital required to be maintained by the bank.
(a) Minimum capital as per Basel II norms for Credit, Market and Operational risks. (b) Minimum capital as per Basel I norms for Credit and market risks
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The minimum capital required to be maintained by the Bank:
(Rupees in Millions) 31.03.2012 31.03.2011 31.03.2010 Basel I norms 8,471.1 8,435.7 4,410.6 Basel II norms 7,846.9 7,727.4 4,234.6
Capital (Tier I and Tier II) maintained by the Bank
(Rs in Millions) 31.03.2012 8,276.6 31.03.2011 10,131.5 31.03.2010 6,112.2
which is above the prudential floor limit.
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Limited Review Report on Interim Financial Information The Board of Directors, Dhanlaxmi Bank Limited Introduction We have reviewed the attached statement of unaudited assets and liabilities of Dhanlaxmi Bank Limited (‘the Bank’) as at December 31, 2012 and 2011 and the related unaudited statement of profit and loss and cash flow statement for the nine months period ended December 31, 2012 and December 31, 2011 (together referred to as “the Statements”), prepared by the Bank’s management and signed by us for identification and annexed to this report for the purpose of inclusion in the Preliminary Placement Document and the Placement Document, respectively, by the Bank in connection with its proposed Qualified Institutional Placement of equity shares (“QIP”). The Statements have been prepared in accordance with applicable accounting standards and other recognized accounting practices and policies. Scope of Review We conducted a limited review in accordance with the Standard on Review Engagement (SRE) 2410, “Review of Interim Financial Information Performed by the Independent Auditor of the Entity” issued by the Institute of Chartered Accountants of India. This standard requires that we plan and perform the review to obtain moderate assurance as to whether the Statements are free of material misstatement or omission of any material information. A review is limited primarily to inquiries of company personnel and analytical procedures applied to financial data and thus provide less assurance than an audit. We have not performed an audit and accordingly, we do not express an audit opinion. For the purposes of the financial statements relating to the nine months ended December 31, 2011 included in the attached Statements, we have relied upon the limited review report dated February 14, 2012 jointly issued by the previous auditors, Walker Chandiok & Co, Chartered Accountants and Sharp & Tannan, Chartered Accountants, respectively. Conclusion Based on our review conducted as above, nothing has come to our attention that causes us to believe that the accompanying Statements of unaudited financial information have not been prepared in accordance with applicable accounting standards and other recognized accounting practices and policies. Restriction of use This report is intended solely for the use of the Bank for filing with Securities and Exchange Board of India, BSE Limited, National Stock Exchange of India Limited and Cochin Stock Exchange Limited and for inclusion in the Preliminary Placement Document and the Placement Document, respectively, in connection with the proposed QIP by the Bank under Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009 (as amended) and should not be used, referred to or distributed for any other purpose without our prior written consent. For Sagar & Associates Chartered Accountants (B. Srinivas Rao) Partner Firm registration number: 003510S Membership No: 202352 Place: Thrissur Date: March 1, 2013
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Dhanlaxmi Bank Limited
Balance sheet as on December 31, 2012 & 2011 ( For Nine Months )
(Rupees in millions)
As at As at Schedule 31.12.2012 31.12.2011 CAPITAL AND LIABILITIES Capital 1 851.4 851.4 Reserves and Surplus 2 6,170.7 7,296.1 Deposits 3 112,266.5 134,056.9 Borrowings 4 8,731.1 12,087.4 Other Liabilities and Provisions 5 3,939.2 5,172.5 TOTAL 131,958.9 159,464.3 ASSETS Cash and Balances with Reserve Bank of India 6 8,140.3 12,322.5 Balances with Banks and Money at call and short notice 7 3,426.3 2,068.9 Investments 8 41,140.2 43,263.8 Advances 9 73,747.6 95,532.8 Fixed Assets 10 1,380.1 1,438.6 Other Assets 11 4,124.4 4,837.7 TOTAL 131,958.9 159,464.3 Contingent Liabilities 12 15,096.1 39,773.2 Bills for collection 2,386.9 3,322.6
Dhanlaxmi Bank Limited Profit & Loss Account for the period ended December 31, 2012 & 2011
(Rupees in Millions) As at As at
Schedule Dec-12 Dec-11 INCOME Interest Earned 13 9,823.8 10,459.6 Other Income 14 706.8 1,259.2 Total 10,530.6 11,718.8 EXPENSE Interest expended 15 7,752.3 8,507.8 Operating Expenses 16 2,620.5 3,422.9 Provisions and Contingencies 418.2 79.3 Total 10,791.0 12,010.0 Net Profit for the year (260.4) (291.2) Profit brought forward (1,201.9) 0.1 Total (1,462.3) (291.1)
Dhanlaxmi Bank Limited Cash Flow Statement for the period ended December 31, 2012 & 2011
(Rupees in Millions)
As at As at Particulars Dec-12 Dec-11
Cash flow from operating activities Net profit before income tax (260.4) (258.6) Adjustments for : Depreciation on fixed assets 234.0 201.4 (Profit)/Loss on Revaluation of Investments (13.2) (5.5)
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As at As at Particulars Dec-12 Dec-11
Amortisation of premia on investments 0.0 0.0 Loan Loss provisions including write off 505.5 2.0 Provision against standard assets (69.1) 38.6 Provision for wealth tax 0.0 0.0 Provision for NPA (Investments) 0.0 (4.1) Provision for restructured assets (13.9) 4.0 (Profit) on sale of fixed assets (2.1) (10.4) Adjustments for : (Increase)/Decrease in Investments 2474.6 (6857.4) (Increase)/Decrease in Advances 13327.5 (4883.3) Increase / (Decrease) in Borrowings (9551.0) 5826.3 (Decrease) /Increase in Deposits (5777.5) 8760.6 (Increase) / Decrease in Other assets 710.7 143.2 Increase/(Decrease) in Other liabilities and provisions (201.0) 2452.5 Direct taxes paid (net of refunds) (0.5) (75.4) Net cash flow from operating activities 1363.6 5333.9 Cash flows from investing activities Purchase of fixed assets (170.0) (315.4) Proceeds from sale of fixed assets 45.4 26.2 Net cash used in investing activities (124.6) (289.2) Cash flows from financing activities Proceeds from issue of equity shares 0.0 0.0 Proceeds from issue of Upper and Lower Tier II capital instruments net of repayment 1067.0 0.0 Proceeds from Share Premium (net of share issue expenses) 0.0 (4.9) Dividend provided last year paid during the year including dividend tax 0.0 0.0 Net cash generated from financing activities 1067.0 (4.9) Net increase in cash and cash equivalents 2306.0 5039.8 Cash and cash equivalents as at April 1st 9260.6 9351.6 Cash and cash equivalents as at March 31st 11566.6 14391.4
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SCHEDULES TO THE FINANCIAL STATEMENTS
(Rs in Millions) As at As at
31.12.2012 31.12.2011 SCHEDULE 1 - CAPITAL Authorised Capital 20,00,00,000 Equity Shares of Rs.10 each 2,000.0 - 10,00,00,000 Equity Shares of Rs 10 each - 1,000.0 Subscribed, Called up and Paid up Capital - - 8,51,36,319 Equity Shares of Rs.10 each 851.4 851.4 Total 851.4 851.4
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 2 - RESERVES AND SURPLUS I.STATUTORY RESERVES Opening Balance 772.6 772.6 Additions: Transfer from Profit and Loss Account Total 772.6 772.6 II.REVENUE AND OTHER RESERVES Opening Balance 826.2 826.2 Additions : Transfer from Profit and Loss Account - - Adjustments during the year Total 826.2 826.2 III. BALANCE IN PROFIT AND LOSS ACCOUNT (1,462.3) (291.1) IV.SHARE PREMIUM Opening Balance 5,634.7 5,639.6 Additions during the year (net of share issue expenses) - (4.9) Total 5,634.7 5,634.7 V.CAPITAL RESERVES Opening Balance 339.6 296.7 Additions: Transfer from Profit and Loss Account - - Deductions due to Depreciation of Revalued Premises - (2.9) Total 339.6 293.8. VI.SPECIAL RESERVE U/s.36(1)(viii) OF INCOME TAX ACT Opening Balance 59.9 59.9 Additions: Transfer from Profit and Loss account Total 59.9 59.9 Total 6,170.7 7,296.1
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 3 - DEPOSITS A I. Demand Deposits (i). From Banks 147.1 796.2 (ii). From Others 8,685.5 12,137.1 Total 8,832.6 12,933.3 II . Savings Bank Deposits 14,897.2 14,245.9 III. Term Deposits (i). From Banks 5,872.7 14,420.6 (ii). From Others 82,664.0 92,457.1 Total 88,536.7 106,877.7 Total 112,266.5 134,056.9 B I. Deposits of Branches in India 112,266.5 134,056.9 II. Deposits of Branches outside India - - Total 112,266.5 134,056.9
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 4 - BORROWINGS I. Borrowings in India (i). Reserve Bank of India 234.8 1,750.0 (ii). Other Banks - - (iii). Other Institutions and Agencies 6,883.8 6,854.3 Total 7,118.6 8,604.3 II. Borrowings Outside India # 1,612.5 3,483.1 Total 1,612.5 3,483.1 Total 8,731.1 12,087.4
# Book credit balances in foreign currency mirror accounts
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. Bills Payable 401.6 462.8 II. Interest accrued 2,267.4 2,373.1 III. Unsecured Redeemable Bonds # - - IV. Others (including Provisions) 1,270.2 2,336.6 Total 3,939.2 5,172.5
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. Cash on Hand (including foreign currency notes) 2,553.5 2,381.2 II. Balances with Reserve Bank of India - - (a). In current accounts 5,586.8 9,941.3 (b). In other accounts - - Sub Total 5,586.8 9,941.3 Total 8,140.3 12,322.5
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India (i) Balances with Banks : (a). In current accounts 349.5 1,814.6 (b). In other deposit accounts 3,164.3 4.3 Total 3,513.8 1,818.9 (ii) Money at Call and Short Notice (a). With banks - 250.0 (b). With other institutions - - - 250.0 Total 3,513.8 2,068.9 II. Outside India (a). In current account (b). In other deposit accounts (87.5) - Total (87.5) - Total 3,426.3 2,068.9
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 8 - INVESTMENTS A. Investments in India in (i). Government Securities 38,386.8 41,335.0 (ii). Approved securities - 1.1 (iii). Shares 42.7 123.9 (iv). Debentures and Bonds 1,032.7 802.7 (v). Subsidiaries/Joint Ventures - - (vi). Others 1,678.0 1,001.1 Total 41,140.2 43,263.8 B. Investments outside India - - Total 41,140.2 43,263.8 (i) Gross Value of Investments (a) In India 41,295.8 43,343.8 (b) Outside India - - 41,295.8 43,343.8 (ii) Provision for Depreciation (a) In India 155.6 80.0 (b) Outside India - - 155.6 80.0 (iii) Net Value of Investments (a) In India 41,140.2 43,263.8 (b) Outside India - - Total 41,140.2 43,263.8
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 9 - ADVANCES A (i) Bills Purchased and discounted 1,467.2 7,316.8 (ii) Cash Credits, Overdrafts and Loans repayable on Demand 15,822.3 13,560.4 (iii) Term Loans 56,458.1 74,655.6 Total 73,747.6 95,532.8 B (i) Secured by Tangible assets 64,101.4 83,801.4 (ii) Covered by Bank/Govt Guarantee 1,969.1 382.1 (iii) Unsecured 7,677.1 11,349.3 Total 73,747.6 95,532.8 C. I..ADVANCES IN INDIA (i) Priority sectors 23,665.6 27,035.8 (ii) Public Sector 147.5 2,225.9 (iii) Banks 0.3 - (iv) Others 49,934.2 66,271.1 Total 73,747.6 95,532.8 II ADVANCES OUTSIDE INDIA - - Total 73,747.6 95,532.8
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 10 - FIXED ASSETS A. Premises At cost as per last Balance sheet 349.2 352.4 Additions during the year due to revaluation of Premises - - Additions/Adjustments during the year 11.4 2.7 Deductions during the year 23.8 5.8 Depreciation to date 92.6 92.8 Net Block 244.2 256.5 B. Other Fixed Assets (includes Furniture and Fixture and Computers) At cost as per last Balance sheet 2,157.5 1,739.9 Additions/Adjustments during the year 149.1 320.8 Deductions during the year 34.1 36.6 Depreciation to date 1,239.4 927.4 1,033.1 1,096.7 Capital Work In progress 102.8 85.4 Net Block 1,380.1 1,438.6
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 11 - OTHER ASSETS I. Interest Accrued 1,514.9 1,468.9 II. Inter Office Adjustments (Net) (67.6) 9.0 III. Tax paid in advance and Tax Deducted at Source (net of provisions) 760.9 509.3 IV. Deferred Tax Asset 132.2 143.3 V. Stationery and stamps 7.8 5.9 VI. Non Banking Assets acquired in satisfaction of claims 0.5 0.5 VII. Others 1,775.7 2,700.8 Total 4,124.4 4,837.7
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(Rs in Millions) As at As at 31.12.2012 31.12.2011 SCHEDULE 12 - CONTINGENT LIABILITIES I. Claims against the bank not acknowledged as debts 39.4 32.8 II. Liabilities on account of outstanding forward exchange contracts 8,177.6 25,777.6 III. Guarantees given on behalf of constituents in India 3,992.8 5,734.8 IV. Acceptance endorsements and other obligations 1,026.4 1,019.7 V. Liability on account of interest rate swaps 1,500.0 6,500.0 VI. Other items for which Bank is contingently liable # 359.9 708.3 #(Disputed Income Tax Liability) Total 15,096.1 39,773.2
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(Rs in Millions) Year ended Year ended 31.12.2012 31.12.2011 SCHEDULE 13 - I N T E R E S T E A R N E D
I. I. Interest/Discount on Advances/bills 7,401.4 8,161.5 II. II. Income on Investments 2,381.8 2,278.8 III. III. Interest on balance with RBI/other inter Bank funds 40.3 16.5 IV. IV. Others 0.3 2.8
Total 9,823.8 10,459.6
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(Rs in Millions) Year ended Year ended 31.12.2012 31.12.2011 SCHEDULE 14 - O T H E R I N C O M E
I. Commission, Exchange and Brokerage 61.9 61.8 II. Profit/(Loss) on sale of Investments (Net) 94.9 38.1 III. Profit on sale of land, building and other Assets (Net) 2.1 10.4 IV. Profit on exchange transactions (Net) 53.6 84.3 V. Income from Insurance 100.8 66.5 VI. Miscellaneous Income 393.5 998.1
706.8 1,259.2
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(Rs in Millions) Year ended Year ended 31.12.2012 31.12.2011 SCHEDULE 15 - I N T E R E S T E X P E N D E D I. Interest on Deposits 6,917.6 7,521.8 II. Interest on RBI/Inter Bank Borrowing 269.1 710.4 III. Others 565.6 275.6 7,752.3 8,507.8
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(Rs in Millions) Year ended Year ended 31.12.2012 31.12.2011 SCHEDULE 16 - O P E R A T I N G E X P E N S E S I. Payments to and Provisions for Employees 1,463.5 2,010.1 II. Rent, Taxes and Lighting 331.2 305.4 III. Printing and Stationery 13.3 44.2 IV. Advertisement and Publicity 3.4 72.7 V. Depreciation to Banks property 234.0 201.4 VI. Directors Fee, Allowance and Expense 1.6 1.7 VII. Auditors Fee and Expense (including Branch Auditors) 3.1 3.6 VIII. Law charges 6.4 4.3 IX. Postage,Telegram,Telephone etc 96.4 95.5 X. Repairs and Maintenance 20.4 22.5 XI. Insurance 88.6 108.0 XII. Other Expenditure 358.6 553.5 2,620.5 3,422.9
(Rs in Millions) Year ended Year ended 31.12.2012 31.12.2011 PROVISIONS AND CONTINGENCIES I. Provision for NPA (Advances) 505.5 2.0 II. Floating Provision for NPA (Advances) - -
III. Provision for Standard Assets
(69.1) 38.6
IV. Provision for Restructured Advances
(13.9) 3.7 V. Provision for Securitisation - - VI. Bad Debts Written Off 8.9 12.0
VII. Provision for Deprn on Investments (Net)
(13.2) (5.5) VIII. Provision for NPA (Investments) - (4.1) IX. Provision for Income Tax/Wealth Tax/FBT - 32.6 X. Deferred Tax credit - - 418.2 79.3
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Notes to December 2011 1. The above financial results have been approved by the Board of Directors at its meeting held on
February 14, 2012. The same have been subjected to limited review by the Central Statutory Auditors of the Bank in line with the guidelines issued by the Reserve Bank of India (RBI) and as per the requirements of the Listing Agreement with the Stock Exchanges.
2. The working results for the quarter ended December 31, 2011 have been arrived at after making
provision for income tax and other usual and necessary provisions. Provisions for Non-Performing Assets, Standard Assets, Non-Performing Investments and Depreciation on Investments are made as per the guidelines issued by the RBI.
3. An amount of Rs. 12.87 Millions, being the proportionate amount of unamortized transitional liability
consequent on the reopening of the pension option and enhancement of the gratuity limit following the amendments to the Payment of Gratuity Act, 1972 has been written-off during the quarter. The balance unamortized amount carried forward is Rs.165.84 Millions. In addition, a sum of Rs. 3.85 Millions has been charged to the Profit and Loss Account towards transitional liability as per the Accounting Standard (AS) 15 “Employee Benefits”, notified by the Companies (Accounting Standards) Rules, 2006 and the balance unrecognized is Rs. 3.77 Millions for the period up to March 31, 2012.
4. The consolidated preliminary claim of Agriculture Debt Relief Scheme, 2008 of Rs.1.51 Millions was
submitted to RBI on January 27, 2010 and claim amount of Rs.1.51 Millions was received from RBI during 2010-11. Government had extended the period of payment of 75% overdue amount portion by "other farmer" under Debt Relief Scheme, 2008 up to June 30, 2010. Accordingly, additional claim amount of Rs.0.22 Millions pertaining to the extended period is due from Government of India under Agricultural Debt Relief Scheme, 2008 and the claim in this regard has been submitted to RBI on August 10, 2011.
5. Pursuant to the approval of the Board of Directors in October 2010, the Bank made a strategic
investment into a securities trading company in February 2011, subject to regulatory approvals. The Bank has been recently designated as a ‘Dominant Promoter’ by National Stock Exchange in relation to the said strategic investment made by it. The Bank has therefore once again filed an application on July 20, 2011, to the RBI, requesting the latter to allow categorization of such investment as ‘Held Till Maturity’ (HTM). Pending such approval from RBI, diminution in the value of the investment, which is not permanent in nature, is not required to be provided for in the books of account. In the limited review report issued by the joint statutory auditors of the bank, this matter has been emphasized.
6. Details of investor complaints for the quarter ended December 31, 2011: Beginning - Nil; Received -
Nil; Disposed off - Nil; Closing - Nil. 7. The figures for the previous periods/year have been regrouped wherever necessary to conform to the
current period’s classification. Notes to December 2012
1. The above financial results have been approved by the Board of Directors at its meeting held on
January 24, 2013. The same have been subjected to limited review by the Central Statutory Auditors of the bank in line with the guidelines issued by the Reserve Bank of India (RBI) and as per the requirements of the Listing Agreement with the Stock Exchanges.
2. The working results for the nine months ended December 31st, 2012 have been arrived at after making
provision for income tax, if any, and other usual and necessary provisions. Provisions for Non-Performing Assets, Standard Assets, Non-Performing Investments and Depreciation on Investments are made as per the guidelines issued by the Reserve Bank of India.
3. The unamortized transitional liability consequent to the reopening of the pension option and
enhancement of the gratuity limit, following the amendments to the Payment of Gratuity Act, 1972 was Rs 153.11 Millions as on March 31, 2012. Out of the above, the amount charged to the Profit and Loss Account for the nine months ended 31st December 2012 is Rs 48.18 Millions (Rs 16.59 Millions for the quarter ended 31.12.2012) and the balance in the unamortised amount carried forward is Rs 104.93
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Millions which will be written off within a period of 3 years on a proportionate basis as per RBI guidelines.
4. The strategic investment made in Destimoney Securities Private Limited, a securities trading
company, in February 2011, for Rs. 122.45 Millions has been written down to its fair value of Rs. 32.36Millions based on the last audited financials of the company as on March 31, 2012.
5. To the extent applicable to the interim financials reporting, the Bank has consistently followed the
same accounting policies and generally accepted practices adopted for the preparation of audited financial statements for the year ended 31st March 2012.
6. Details of investor complaints for the nine months ended December 31, 2012:
Beginning - Nil; Received - 1; Disposed off - 1; Closing - Nil. 7. The figures for the previous periods/year have been regrouped wherever necessary. Part A: Business Segments
(Rs. in Millions) For the quarter ended For the nine months
ended Year ended
Dec 31, 2012
Sept 30, 2012
Dec 31, 2011
Dec 31, 2012
Dec 31, 2011
March 31, 2012
Particulars
(Reviewed) (Reviewed) (Reviewed) (Reviewed) (Reviewed) (Audited) 1. Segment Revenue (a) Treasury 1010 791 862 2665 2418 3387 (b) Retail Banking 1752 1638 2059 5108 5323 7246 (c) Corporate/Wholesale Banking 757 929 995 2755 3965 4726
(d) Other Banking Operations - - - - - - (e) Unallocated 2 - (7) 2 13 14 Total 3521 3358 3909 10530 11719 15373 Less: Inter-Segment Revenue - - - - - - Income from Operations 3521 3358 3909 10530 11719 15373 2. Segment Results (Profit (+)/Loss (-) before tax and after interest from each segment)
(a) Treasury 217 (195) (6) (22) (19) (145) (b) Retail Banking (42) 200 (168) 166 (42) (409) (c) Corporate/Wholesale Banking (36) 102 (155) 36 (82) (325)
(d) Other Banking Operations - - - - - - (e) Unallocated 2 (1) - (22) - - Total 141 106 (329) 158 (143) (879) Less : (i) Interest - - - - - - (ii)Other Unallocable Expenditure net-off 97 292 39 418 116 266
(iii) Unallocable income - - - - - - Profit (+)/Loss(-) before tax 44 (186) (368) (260) (259) (1145) 3. Capital Employed (a) Treasury 4960 3739 3890 4960 3890 549 (b) Retail Banking 749 1452 2051 749 2051 3519 (c) Corporate/Wholesale Banking 412 888 1547 412 1547 2321
(d) Other Banking Operations - - - - - - (e) Unallocated 901 899 659 901 659 894 Total 7022 6978 8147 7022 8147 7283
Business Segments have been identified and reported taking into account, the target customer profile, the nature of products and services, the differing risks and returns, the organization structure, the internal business reporting system and the guidelines prescribed by Reserve Bank of India.
F -85
Part B: Geographical segments The Bank has only the domestic geographic segment.
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DECLARATION Our Bank certifies that all relevant provisions of Chapter VIII read with Schedule XVIII of the SEBI Regulations have been complied with. Our Bank further certifies that all the statements in this Placement Document are true and correct. Signed by: Mr. P. G. Jayakumar Managing Director and CEO Date: April 3, 2013 Place: Thrissur, Kerala
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REGISTERED OFFICE OF THE BANK
Dhanlaxmi Bank Limited Dhanalakshmi Buildings
Naickanal, Thrissur – 680 001 Kerala, India.
Tel: +91 0487 6617000 Fax: +91 0487 6617222
BOOK RUNNING LEAD MANAGERS
ICICI Securities Limited
H.T. Parekh Marg Churchgate
Mumbai 400 020, India
Motilal Oswal Investment Advisors Private Limited
Motilal Oswal Tower, 12th Floor,
Junction of Gokhale & Sayani Road,
Prabha Devi, Mumbai 400 025, India
LEGAL COUNSEL TO THE BANK AND BOOK RUNNING LEAD MANAGERS AS TO INDIAN
LAW
Luthra & Luthra Law Offices 20th Floor, Tower 2
Indiabulls Finance Centre Elphinstone Mills compound, Senapati Bapat Marg
Lower Parel, Mumbai 400 013 India
INTERNATIONAL LEGAL COUNSEL TO THE BOOK RUNNING LEAD MANAGERS
DLA Piper Singapore Pte. Ltd 80 Raffles Place
#48-01, UOB Plaza 1 Singapore 048624
STATUTORY AUDITORS
M/s Sagar & Associates, Chartered Accountants
H. No 6-3-244/5, Sarada Devi Street, Prem Nagar
Hyderabad, Andhra Pradesh-500 004 Firm Registration Number: 003510S