Capital Small Finance Bank Ltd Management Discussions

Indian Economy

Over the past decade, India has experienced significant economic growth and emerged as one of the worlds leading economies. According to the Economic Survey of FY 2023, the Indian economy was expected to grow by 7% during the year. Inflation remained a major challenge for the country during the year, due to various factors such as the Russia- Ukraine war and the subsequent rise in commodity prices worldwide.

The Government of India implemented various developmental and fiscal policies aimed at improving the economy. The Reserve Bank of Indias Monetary Policy Committee increased the policy repo rate under the Liquidity Adjustment Facility (LAF) from 4.0% to 6.50% between May 2022 and April 2023 in line with global peers to tame inflation.

Global impediments such as the Russia-Ukraine war, US-China Trade war and China Plus One policy adopted by the world also had a significant impact on the business climate. As per a report published in the Hindu Business line, the proportion of crude oil imports from Russia has risen significantly for India, from a mere 2.2% in 2021 to 40% of the countrys total crude oil imports in February 2022.

The Governments approach to strengthening the countrys infrastructure involves a significant increase in spending on essential sectors like road transport and highways, railways and defence. A key component of this strategy is the allocation of Rs.0 lakhs crores towards capital expenditure for FY 2024, up from Rs..28 lakhs crores in the previous fiscal year, as announced in the Union Budget.

These initiatives are making headway despite encountering technical hurdles during state-level implementation.

The implementation of game-changing policies like PM GatiShakti, the National Logistics Policy and the Production-Linked Incentive schemes to stimulate manufacturing production, alongside the expansion of public digital platforms, will further drive economic growth. In rural areas, the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) has been instrumental in generating employment opportunities.

The implementation of initiatives such as PM-Kisan and PM Garib Kalyan Yojana has been instrumental in ensuring food security across the country.

Outlook

Going forward, the implementation of these initiatives and targeted policies is expected to propel Indias economic growth rate. In 2018 and 2019, Indias GDP growth rates exceeded those of G7 nations, including Canada, France, Germany, Italy, Japan, the United Kingdom and the United States. However, in 2020, Indias economy contracted by 5.8%, slightly worse than the G7 countries contraction of 4.5%. Nevertheless, in 2021, Indias economy rebounded, with a growth rate of 9.1%, surpassing the G7 countries growth rate of 5.3% and becoming the worlds fastest- growing major economy. Despite the possibility of encountering challenges in the years ahead, Indias GDP growth rate is expected to remain strong due to the economys demonstrated resilience to global events, keeping it on a growth trajectory.

Utilising its strengths and tackling challenges effectively, Indias economy is on track for sustained progress and advancement. With a rapidly expanding population, a vast and diverse workforce, sound and stable agriculture, flourishing medium and small scale industry and startup cult, thriving technology industry and a deep-rooted cultural legacy, India possesses the capability to emerge as a dominant force in the global economic arena.

As we look ahead, the China Plus One strategy, which seeks to diversify supply chains away from the country, is expected to gain momentum. As a result, Indian businesses, especially those in the IT, pharmaceuticals and metal sectors, are expected to continue benefiting from this trend.

Despite the reopening of China after the recent pandemic lockdowns, Indias strong footing in attracting investments and businesses is unlikely to be affected. In contrast, the country is poised to continue gaining traction in these areas due to its favourable business environment and initiatives. Furthermore, unlike other economies experiencing recessionary trends, India is expected to remain relatively unaffected due to its robust economic policies and reforms. As a result, the country is well- positioned to continue attracting foreign investments and furthering its economic growth.

To boost manufacturing and attract foreign investment, the Indian government has initiated several programmes, including the Make in India campaign, Aatmanirbhar Bharat packages, Production Linked Incentive (PLI) scheme, investment opportunities under the National Infrastructure Pipeline (NIP) and the National Single Window System. These would help in realising the objective of ease of doing business, amongst other schemes as outlined by the Indian government.

The Union Budget for FY 2024 has proposed an increase of 33% in the capital investment outlay for infrastructure, which amounts to Rs.0 lakhs crores and constitutes 3.3% of the countrys GDP This push by the government is in a bid to attract foreign investors and companies to India in order to increase the employment levels, stimulate the GDP and enable the country to develop at a faster pace.

Indias demographic dividend where its 68% of population lies in the age group of 15-64 years, combined with its commitment to education and skill development and conducive government policies, are expected to make the country an attractive destination for global investors. As the economy continues to grow, India will emerge as a major player in the global economy, driving innovation and contributing to the worlds economic progress.

Banking Sector

The banking system plays a crucial role in facilitating economic growth and ensuring adequate liquidity in the economy. Over time, the Indian banking system has made significant progress in improving its health and quality, making it comparable to international standards.

A strong and healthy banking system not only supports economic growth but also acts as a repository of liquidity. The Indian banking system has come a long way in achieving this status. It has contributed significantly to the economic development of the country and has been rapidly digitising, with a focus on providing digital services to customers.

The Unified Payments Interface (UPI) and other tools are easing the transition to a cashless economy by leveraging the countrys competitiveness in Information and Communication Technology (ICT). The Monetary Policy Committee (MPC) has proposed to expand the scope of UPI by permitting operation of pre-sanctioned credit lines at banks through UPI.

According to available data as on April 7, 2023, the credit growth in the banking system was recorded at 15.7% YoY. As per India Ratings (Ind-Ra) this is likely to moderate to 13.5% for FY 2024. The retail segment contributed the most to incremental YoY credit growth, accounting for 39.7% based on February 2023 data. The services segment followed at 35.2%, while agriculture and industry accounted for 12.6% and 12.5%, respectively. However, deposit growth has been behind advance growth, with banks increasing their deposit rates but still trailing the increase in the repo rate. Credit growth is expected to remain robust and continue to surpass deposit growth, leading to an increase in deposit rates and competition among banks to grow their deposits franchise in the near term.

Banking Sector Outlook

The banking sector is expected to benefit from the infrastructure spending in India and recovery of sectors such as services and manufacturing. Digital payments standing at US $3 trillion in June 2022 are expected to rise to US $10 trillion by 2026. Estimated to be at 65% of total payments by 2026 as per BCG, they are likely to be the main driver of banking services in the country.

With a growing economy, rising disposable incomes and increasing demand for credit, banks are focusing on expanding their reach, enhancing customer experience and offering innovative products and services.

The Government of India has launched several schemes to support the National Mission on Financial Inclusion. The journey began with the Pradhan Mantri Jan Dhan Yojana (PMJDY), which provided unbanked individuals with easy access to banking services and raised awareness about

financial products through financial literacy programmes. To further advance this goal, various schemes were introduced in the insurance and pension sectors, such as Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY), Pradhan Mantri Suraksha Bima Yojana (PMSBY), Atal Pension Yojana (APY) and Pradhan Mantri Vaya Vandana Yojana, (PMVVY) as well as financial aid schemes like Pradhan Mantri Mudra Yojana (PMMY) and Stand Up India Scheme. The introduction of Jan Dhan Account-Aadhaar- Mobile (JAM) Trinity facilitated Direct Benefit Transfers (DBTs) of welfare subsidies into bank accounts of the poor. These schemes have expanded access to financial services and products, contributing to a more inclusive and sustainable growth trajectory for Indias economy. As these schemes continue to evolve and reach more people, they are expected to boost financial literacy and awareness about insurance, pensions and other financial products, especially among those excluded from the formal banking sector. This is where small banks are expected to play a significant role in promoting financial inclusion and extending banking services to remote and underserved areas.

Another key trend shaping the future of the Indian banking sector is the increasing adoption of digital technologies. Banks are leveraging technologies like AI, ML and Big Data analytics to enhance customer experience, reduce costs and improve operational efficiencies. They are also investing heavily in digital technologies and building robust cybersecurity frameworks to ensure the security of customer data and transactions.

Banks are collaborating with Fintech companies to offer innovative products and services, leading to further evolution of the traditional banking system. Fintech- enabled payment options such as UPI, Buy Now Pay Later (BNPL) and the Central Bank Digital Currency (CBDC) will drive growth of digital payments in India in the short and medium term.

Given the growth trajectory of Indian economy, banking being the engine of growth is poised for strong growth. In the new era, banks can realign to compete in new arenas, organised around distinct customer needs. These arenas will expand far beyond the current definition of financial services.

Small Finance Banks

Small finance banks (SFBs) are a new category of banks in India that were introduced by the Reserve Bank of India (RBI) in 2015 to provide basic banking services to underserved and unserved sections of the population. These include small business units, low-income households, farmers and migrant labourers. SFBs are required to primarily focus on providing financial inclusion and microfinance services to these segments of the population.

Currently, there are 12 SFBs in India that offer financial services to individuals and businesses with main focus towards underserved, unserved and unbanked. These institutions specialise in providing lending solutions to small and medium-sized enterprises, as well as those in the informal sector, including small businesses, shop owners and other similar entities.

They offer a range of services, including deposits, loans, insurance and investments, with a minimum of 75% of their loan portfolio being directed towards priority sectors. SFBs are also required to maintain a minimum Capital Adequacy Ratio (CAR) of 15% and their operations are regulated by the RBI.

The figures provided refer to the infographics portrayed beside the content significant potential for growth in the MSME sector. With a total demand for credit reaching a staggering US$ 1,544 bn and an addressable demand of US$ 819 bn, there is a massive untapped market waiting to be serviced. The current supply of credit, standing at US$ 289 bn, is not nearly enough to meet the needs of the sector and presents a substantial gap of US$ 530 bn that needs to be filled as per a report published by Avendus Capital - MSME Lending, April 2023. Addressing this gap could provide a massive boost to the MSME sector, allowing it to expand and create more jobs and wealth. It also presents an excellent opportunity for SFBs to focus on providing the necessary support to fill this credit gap and unlock the potential for growth.

Small Finance Bank Outlook

As the demand for financial inclusion continues to grow, the future of SFBs in India looks promising. The Governments push towards digitisation, financial literacy and affordable credit is likely to boost the growth of SFBs.

In addition, SFBs have a significant untapped market to tap into. Moreover, with the Governments thrust on financial inclusion and the implementation of various schemes like the Pradhan Mantri Jan Dhan Yojana, SFBs have a ready market to cater to. These schemes have helped in

increasing the number of bank accounts, especially among the rural population. SFBs have the opportunity to capture a significant portion of this market by providing affordable and accessible financial products and services tailored to their specific needs.

The outlook for SFBs is very positive. As more and more Indians enter the formal economy, the demand for credit is likely to continue to grow. SFBs are well-positioned to meet this demand by leveraging their niche market reach and their focus on financial inclusion. As the market for micro finance continues to grow, SFBs are likely to emerge as dominant players in this space.

Total Demand for MSME credit

US$ 1,544 bn

Addressable Demand

US$819 bn

Current Supply

US$ 289 bn

Credit Gap in MSME Sector

US$ 530 bn

(Source: Avendus Capital- MSME Lending, AprilRs.3)

Capital Small Finance Bank

Capital Small Finance Bank is reaping the benefits of strong brand loyalty and putting experience of over two decades of banking into use to optimise on the huge growth opportunities and is delivering stellar performance year after year. Capital Small Finance Bank benefits from a large underserved rural base and a rural economy that has fared relatively better compared to urban areas in the past two years. Our portfolio of banking products encompasses both asset and liability offerings. On the asset side, we provide various products such as agriculture, MSME and trading loans for working capital and machinery financing, as well as mortgages for housing loans, etc., On the liability side, we provide various CASA products, Term Deposit and Recurring Deposit products, and RERA Accounts, etc. along with the same, we offer various other products such as Lockers, Insurance products, 3 in 1 Demat cum Trading Account, etc.

We also offer customised products driven by technology, simplifying operations from onboarding to servicing. This has led to a loyal and satisfied customer base. The Bank maintained and improved on these parameters through the COVID-19 pandemic.

The Banks robust fundamentals enable it to sow and reap the benefits of this fertile ground. Its strong and stable business model has led to superior performance, driven by continued strong CASA, granular advances to a diversified customer base, healthy credit assessment and recovery mechanism, contributing to its exemplary asset quality.

We have also maintained a moderate-to-low NPA ratio, reflecting appropriate credit risk management. The Bank has the lowest write-offs among SFBs and private sector banks.

The northern region of India, which the Bank serves, has a substantial opportunity for business and retail customers. Punjab, where the Capital Small Finance Bank predominantly operates, has a 48% credit penetration, leaving a greater untapped client base to explore. Our unique position as a new-age SFB with over 20 years of experience in the sector has earned goodwill through relationship-based banking, high-quality leadership, committed and trustworthy human capital and a full range of product offerings through both physical and digital means.

Business Review

Advances

Capital Small Finance Bank performed exceptionally well despite challenging economic conditions. It was able to maintain its disbursements and experienced significant growth in its overall advance book. The Bank has an almost 100% secured loan book and focuses on a granular retail asset portfolio, with its advances section comprising agricultural, MSME, trading and mortgage lending as its main pillars.

The Bank has made a conscious effort to balance granular loans with security, which continued through FY 2023. Its disbursements increased from Rs.,843 crores in FY 2022 to Rs.,991crores in FY 2023. As of March 31,2023, 99.82% of its loan book was secured, with 85.16% of the loans secured with immovable properties.

Our diversified loan portfolio mitigates exposure as it comprises Agricultural, MSME & Trading, Mortgage Loans and others. Capital Small Finance Banks exceptional performance, steady disbursements and significant growth in Assets Under Management, combined with its focus on

a secured loan book and a granular retail asset portfolio, position the Bank strongly for sustained growth in the future.

Agriculture

The Capital Small Finance Bank has a longstanding practice of giving priority to financing advancements in agriculture by allocating a considerable portion of its loans to this segment. These loans can be classified into three categories: Kisan Credit Card (KCC), Agri-Term Loans and Commission Agent Financing. The Bank targets midsized agriculturalists who typically own five acres of land or more. The crop loans offered by the Bank have limited price risk because of the minimum guaranteed price, which ensures better cash flows for farmers, particularly in cases of higher production.

Financial Highlights FY 2023

Share in Loan Book

38.81%

AUM

Rs.,137.45 Crores

ATS at Portfolio

Rs..12 Crores

Disbursements

Rs.48.19 Crores

ATS at Disbursements

Rs..11 Crores

Secured Portfolio

99.92%

MSME & Trading

Capital Small Finance Bank caters to the financing needs of its clients, both for short and long-term requirements. Its loan products are designed specifically for small and medium-sized enterprises, small traders and the service industry. The Banks focus is primarily on providing working capital financing, but it also offers other financial products such as machinery loans and project financing.

Financial Highlights FY 2023

Share in Loan Book

18.24%

AUM

Rs.,004.56 Crores

ATS at Portfolio

Rs..19 Crores

Disbursements

Rs.32.13 Crores

ATS at Disbursements

Rs..11 Crores

Secured Portfolio

99.98%

Mortgages

The Bank is primarily focused on meeting the loan requirements of middle-income individuals, particularly for small ticket assets, in order to maintain a granular loan book.

It also offers loans for purchasing, constructing, expanding and renovating residential properties, which helps drive the overall demand side of the economy. Additionally, we provide loans against properties to finance viable economic activities or meet the personal needs of the property holder.

Financial Highlights FY 2023

Share in Loan Book

26.05%

AUM

Rs.,434.48 Crores

ATS at Portfolio Rs..12 Crores

Disbursements

Rs.65.95 Crores

ATS at Disbursements

Rs..11 Crores

Secured Portfolio

100%

Others

Capital Small Finance Bank not only caters to the middle- income population in rural and semi-urban regions, but also strive for serving the underserved. Exceeding the regulatory Priority Sector Lending (PSL) targets, demonstrating an unwavering commitment to serving this sector by going above and beyond the minimum requirements. The Bank has exceeded the RBI targets once again, with PSL advances totaling Rs.,540.33 crores, representing a 9.61% increase in March 2023 as compared to 26.28% increase as of March 2022.

The Banks average achievement of advances to weaker sections, including small and marginal farmers and scheduled castes, was Rs.34.19 crores as of March 2023, which was 2.00 basis points higher than the regulatory benchmark of 11.50% (including PSLC). We continue to prioritise our granular retail asset portfolio, with a diversified loan portfolio comprising agricultural, MSME, trading, retail and mortgage loans.

Financial Highlights FY 2023

Share in Loan Book

16.90%

AUM

Rs.30.78 Crores

ATS at Portfolio

Rs..13 Crores

Disbursements

Rs.44.40 Crores

ATS at Disbursements

Rs..12 Crores

Secured Portfolio

99.17%

Liabilities

Capital Small Finance Banks funding requirements are significantly met by retail deposits. The refinance from Financial Institutions, wholesale market borrowing options and bulk deposits along with borrowings including tier II bonds make up for another source. For FY 2023, the savings bank deposits, current deposits and term deposits, stood at Rs.,506.73 crores, Rs.41.16 crores and Rs.,812.73 crores respectively. Our Bank also serves NRI customers and offers NRE and NRO accounts. We priortise stable and core deposits, valuing long-term partnerships over shortterm rate sensitivity.

As of March 31,2023, the Bank witnessed a 8.51% YoY growth in its deposits, which increased from Rs.,046.36 crores in the previous year to Rs.,560.62 crores. Retail deposits accounted for 97.90% of the total deposits.

Our deposit base spread across 730k deposit accounts, marking an increase of 48k accounts since March 31,

2022. Moreover, we maintained at 91% roll-over ratio for term deposits, indicating depositor bases loyalty.

At our Bank, we believe in fostering lasting relationships with our customers. We strive to provide personalised service and cater to the specific needs of each individual. By focusing on retail, stable and core deposits, we ensure a solid foundation for sustainable growth and continued financial stability.

Third-Party and Other Products

The Bank aims to be the primary provider of financial services for its customers and offers third-party products to meet their financial needs outside of the core business. These services include insurance, locker and foreign exchange such as remittances. The Bank cross-sells its insurance products to borrowers to provide protection for their families in case of an unforeseen event through its strong collaborations with leading insurance companies. The Bank provides foreign exchange services and MTSS inward facility through its tie up with various AD-1 Banks and other entities. Further, the Bank has tied up with prominent brokers to provide demat-cum-trading account, thus, allowing it to offer a comprehensive service portfolio to its clients.

The Bank has partnered with ICICI Prudential Life Insurance Company Limited, HDFC Life Insurance Company Limited and Max Life Insurance Company Limited to offer life insurance products, as well as with Bajaj Allianz General Insurance Company Limited for general insurance and health insurance products. These products include traditional life insurance, term insurance, motor insurance, property insurance, personal accident insurance, health insurance and travel insurance.

Capital Small Finance Bank is authorised by the RBI as a category II dealer and provides inward and outward non-trade remittance facilities. It offers money remittance services in partnership with Western Union Financial Services Inc., Money Gram Inc. and Ria Money Transfer.

We also provide safe deposit lockers for customers to store their valuables for a fee.

SCOT Analysis

Strengths:

? Our loan portfolio is well-diversified, placing emphasis on secured lending. This prudent approach mitigates the risk of default and ensures a consistent revenue stream for the Bank.

We have implemented a robust credit assessment process and a comprehensive risk management framework. This rigorous methodology ensures that we extend loans only to creditworthy borrowers with a high likelihood of repayment.

Our strong focus on retail customers has resulted in a robust liability franchise. The Bank boasts a substantial number of retail customers holding savings and current accounts, including low-cost CASA deposits, which significantly enhances profitability.

With a customer-centric approach and an in-depth understanding of our target customers, we design and deliver products and services that precisely cater to their needs.

Our leadership team comprises seasoned professionals with extensive experience. Additionally, our association with reputable shareholders provides the Bank with a solid financial foundation and stability.

We adhere to a sound corporate governance framework, ensuring transparency and ethical practices in all our operations.

Our consistent track record of growth, accompanied by the continual improvement of operational and profitability metrics, demonstrates effective management and positions the Bank on a strong and stable trajectory.

Challenges

Our business is heavily reliant on the North Indian economy and any changes in that economy can have a negative impact on our business, operations and financial performance.

Our business is dependent on the health of the banking and finance sector in rural and semi-urban areas. Any changes in this sector can have a negative impact on our sales, profits and cash flow.

Our business could be weakened if we are unable to effectively manage non-performing assets (NPAs) or if we are unable to improve or maintain our provisioning coverage as a percentage of gross NPAs.

We may incur losses if the value of the collateral that we hold against loan declines.

Opportunities

There are many opportunities to expand our business geographically and grow our loan book organically by focusing on secured lending.

There is a great opportunity to increase profits by focusing on improving our operational and profitability metrics.

We can use technology and data analytics to improve our efficiency, expand our reach and create new products and services. This will help us grow our business and increase our profits.

We have a great opportunity to attract new customers and grow our business by strengthening our liability franchise.

Threats

The Indian finance industry is highly competitive. If we are unable to compete effectively, it could pose a threat to our business, operations and financial conditions.

We may be targeted by cyber threats that could disrupt our services to customers and/or steal sensitive internal data or customer information. This could

damage our reputation and adversely affect our business, operations and financial conditions.

? We are exposed to operational risks, such as employee negligence, petty theft, burglary, embezzlement and fraud by employees, agents, customers, or third parties. These risks could harm our reputation and adversely affect our business, operations and financial conditions.

? Any non-compliance with mandatory anti-money laundering (AML), know-your-customer (KYC) and combating the financing of terrorism (CFT) laws and regulations could adversely affect our business, operations and financial conditions.

? We rely heavily on our information technology systems. Any disruptions to these systems or breaches of data could pose a threat to our business, operations and financial conditions.

Information Technology

The financial sector is benefiting from the penetration and ease of use of technology. The use of technology in assessing credit and onboarding customers has proven to be effective on the asset side, while digitisation has reduced operational costs by automating repetitive and time-consuming processes on the liability side. Capital Small Finance Bank encourages the use of digital banking channels, with a particular focus on advancing its goal of financial inclusion by educating individuals in unbanked and underbanked segments. The Bank has multiple digital

facilities, including mobile banking, corporate banking, bill payments and debit cards, all supported by a Chennai- based core banking system.

By leveraging technology, we have successfully increased the number of digital transactions and reduced transaction times. The Bank is committed to maintain customer data security and integration across all banking channels, ensuring consistency and anytime-anywhere banking for our clients. Our approach is to balance a strong presence of branches with customised, easy, digital banking solutions, allowing for targeted customer outreach and customised product offerings to suit diverse client requirements. Our continuous investment in technology platforms is a clear win-win for both the Bank and customers.

Treasury Operations

The treasury department plays a crucial role in managing liquidity, funding and investments and acts as a link between the head office and branches. The department strives to achieve safety, liquidity and superior risk- adjusted returns for the Bank through competent fund management, planning and portfolio management. Compliance with regulatory and internal policy frameworks is also a key responsibility of the department.

To comply with RBI guidelines, the department is accountable for Asset Liability Management (ALM) and minimising the cost of borrowing while managing interest rate risks. The department invests in a diversified portfolio of short-term government instruments, long-maturity

government securities and other government-backed avenues, taking advantage of interest rate changes.

Overall, the treasury investment portfolio contributes positively to the Banks bottom line by earning lucrative risk-adjusted returns and maintaining a rational spread over the cost of deposits. All this is done while ensuring high liquidity and a healthy portfolio.

Risk Management

As an SFB, risk management is a crucial aspect of our operations. We understand that our customers trust us with their hard-earned money and it is our responsibility to ensure that their investments are safe and secure. To manage risks effectively, we have implemented various policies and procedures that are in line with regulatory guidelines.

We have a robust credit risk management system in place that evaluates the creditworthiness of our customers before approving any loans or advances. We maintain a strict credit policy that ensures only deserving borrowers receive loans and their repayment capacity is thoroughly assessed before sanctioning any loans.

We have implemented various controls to manage operational risks. We ensure that all our processes and procedures are documented and our employees are trained to follow them to minimise errors and omissions. We also have a robust IT infrastructure that safeguards against cyber threats and data breaches.

We have a dedicated team that monitors market risks regularly. The Bank uses various tools and techniques to identify and analyse market risks, such as interest rate risk, currency risk and liquidity risk. We have a contingency plan in place to manage such risks effectively.

The Bank adheres to all regulatory guidelines and maintains compliance with all applicable laws and regulations. We have a dedicated compliance team that regularly reviews and updates our policies and procedures to ensure they are in line with regulatory guidelines.

We understand the importance of maintaining our reputation and have implemented various measures to manage reputation risks. We prioritise customer satisfaction and ensure that we provide excellent customer service. We also have a grievance redressal mechanism in place to resolve any customer complaints promptly.

To ensure proper governance and risk management, the Board has delegated authority to the Risk Management Committee, which oversees and reviews our risk

management practices, including the implementation of procedures and tools for risk monitoring. This committee makes recommendations on policy, strategy and risk management framework to the Board, which then reviews and approves these recommendations. Moreover, the Credit Risk Management Committee is responsible for executing and ensuring the implementation of credit risk management. It ensures that our policies are in line with any changes in regulatory instructions, business, or economic conditions and recommends changes as needed.

We recognise that risk management is an ongoing process and continually review and update our policies and procedures to ensure that we are prepared to manage any potential risks. We also encourage feedback from our employees, customers and stakeholders. This enables us to identify areas for improvement and enhance our risk management framework further.

Overall, risk management is an integral part of our operations and we remain committed to the process to protect our customers interests and maintain their trust in us.

Compliance

Capital Small Finance Bank operates within a framework of rules and principles, both internal and external, that dictate its actions across various areas of its operations. These compliance requirements carry different implications depending on the context in which they are applied, such as RBI, corporate, KYC and AML and IT compliance.

To maintain high standards of corporate governance and promote accountability, transparency and ethical business practices, the Bank upholds best practices and market standards. Our compliance function is objective, robust and alert, covering all aspects of the business from statutory guidelines to best business practices.

The compliance function ensures strict adherence to all statutory provisions outlined in various legislations, such as the Banking Regulation Act, Companies Act, Reserve Bank of India Act, Foreign Exchange Management Act, Prevention of Money Laundering Act and Regulatory Guidelines from IBA, FEDAI and FIMMDA. Additionally, we uphold our own internal policies and fair practices code.

The compliance function operates under fundamental principles of integrity, impartiality, accountability, discretion and respect. It recognises the importance of compliance at all levels of the organisation.

Human Resource Department

Capital Small Finance Bank acknowledges the importance of contented employees in ensuring satisfied customers. The employees are incredibly knowledgeable and experienced in their field and always up-to-date with the latest industry trends and best practices. As a result, the Bank persists in investing in its workforce and endeavours to provide a favourable work atmosphere.

At our Bank, we prioritise providing our employees with a healthy work-life balance, which includes reasonable working hours and ample annual leave. Furthermore, we encourage their career development by beginning the

process with an emphasis on local hiring. We ensure that our assessment procedures are both objective and transparent.

Corporate Social Responsibility (CSR)

Capital Small Finance Bank has witnessed consistent growth over the past 20 years, which has enabled it to actively contribute to the economic and social development of the regions in which it operates. The Bank believes in advancing alongside the communities it serves and prioritises comprehensive community development. It views corporate social responsibility (CSR) as more than just a regulatory obligation and is deeply committed to improving the lives of underprivileged, marginalised and low-income individuals.

Rather than treating CSR as a separate function, the Bank strives to integrate social and environmental responsibilities into all its operations. This is achieved by encouraging each business unit and function to incorporate these considerations into their activities. The Banks CSR Committee is responsible for overseeing and executing its CSR policy. It identifies focus areas and recommends them for implementation, regularly reviewing these initiatives.

Capital Small Finance Bank has established the Capital Foundation to carry out its CSR activities. The foundation aims to address socio-economic disparities and implement social initiatives that make a significant impact on the community.

In compliance with the Companies Act of 2013 and the Companies (Corporate Social Responsibility) Rules of 2014, as notified by the central government, the Bank adopted a CSR policy and allocated ?1.15 crores towards its CSR initiatives in FY 2023.

CSR Key Areas Education

The Bank offers educational sponsorships to students from disadvantaged backgrounds, including those who are facing economic, social, or physical challenges. Additionally, it strives to enhance the guality of education by providing support for essential infrastructure such as libraries, computer labs, science laboratories and supportive classes. The primary goal is to create a positive learning environment and foster a passion for learning.

Furthermore, the Bank conducts programmes to address skill gaps, particularly in the banking industry. These aim to prepare candidates for employment by providing them with the necessary skills and knowledge.

Helping Hands for WFH (Water, Food and Health)

With an endeavour to serve the society, the Bank works for fulfillment of water, food and health necessities of society by installing water coolers, hand pumps, etc., by spending on treatment of poor and needy people in society. The Bank also organises preventive health care camps and food distribution camps/events.

Committed to Environment Stewardship

The Bank takes first priority towards ensuring environmental sustainability and ecological balance. The Bank maintains green belts and does tree plantations.

Sports Development

Capital Small Finance Bank aims to help revive sports at the local level by providing resources to rural communities,

allowing them to cultivate and enhance local sporting talents. Additionally, the Bank sponsors and organises tournaments for underprivileged social groups.

Rural Sports Development

Capital Small Finance Bank aims to help revive sports at the local level by providing resources to rural communities, allowing them to cultivate and enhance local sporting talents. Additionally, the Bank sponsors and organises tournaments for underprivileged social groups.

The Journey Ahead

Capital Small Finance Bank has successfully overcome numerous challenges in the past year, showcasing its strong resilience and determination. Whether rocky terrain or smooth sailing, Capital Small Finance Bank has depicted resilience and capacity to excel against all odds as well as to make the most of opportunities. It has remained steadfast in its commitment to achieving the best outcomes for all its stakeholders while exercising financial prudence and careful judgment. This tireless and watchful attitude has been instrumental in driving our continued growth and success.

The Banks robust financial performance, evidenced by its impressive top and bottom lines, is a testament to its inherent strength. It has demonstrated its ability to weather external market pressures while successfully attaining its financial, social and environmental objectives.

The Bank remains vigilant in the face of constantly shifting economic conditions and is dedicated to adapting to change without compromising its core values. The unwavering resilience and dedication demonstrated by the Bank and its teams are proof of its ability to triumph over any obstacles encountered on its path to growth.

Going forward, the Bank aims to enhance its brand recognition by expanding operations into nearby regions. The Bank is confident in its ability to sustain its fervor and commitment, while simultaneously preserving its superior asset quality and furthering its mission of promoting financial inclusion across the nation. We firmly believe that by prioritising trust and growth, we will continue to deliver exceptional performance, ultimately benefiting the society.