ESAF Small Finance Bank Ltd Directors Report

The Members of

ESAF Small Finance Bank Limited

Your Directors are pleased to present the Sixth Annual Report of ESAF Small Finance Bank Limited together with the Audited Financial Statements for the Financial Year ended March 31, 2022.

1. Financial Highlights and State of the Banks Affairs

(Rs. in Crore)

Particulars	For the Year ended March 31, 2022	For the Year ended March 31, 2021
Deposits	12,815	8,999
Advances	11,637	8,168
Total Income	2,148	1,767
Total Expenditures excluding Tax	2,074	1,626
Profit Before Tax	74	141
Provision for fax	19	36
Net Profit	55	105
Profit brought forward	306	227
Total Profit available for appropriation	361	332
Appropriation
Transfer to Statutory Reserve	14	26
Transfer to Capital Reserve	4	-
Transfer to Investment Fluctuation Reserve	22	-
Balance carried to Balance Sheet	321	306
Earnings per Share - Basic and Diluted (Rs.)	1.22	2.46

On a Standalone basis, Profit After Tax of the Bank was Rs. 54.73 Crores in Financial Year 2021-22 compared to Rs. 105.39 Crores in Financial Year 2020-21. Interest Income of the Bank for Financial Year 2021-22 was Rs. 1,939.92 Crores as against Rs. 1,641.17 Crores in Financial Year 2020-21 marking a growth around 18.20%. Further, the Bank had Capital and Reserves of Rs. 1,406.79 Crores as on March 31,2022 (Rs. 1,352.05 Crores as on March 31, 2021). The book value per Equity Share was at Rs. 31.30 as on March 31, 2022 (Rs. 30,08 as on March 31,2021), Further, details on the financial performance of your Bank are available in the Management Discussion and Analysis Report.

2. Business Continuity Management

The Bank has established Business Continuity Management (BCM) plans and procedures to maintain critical operations, in the event of any kind of disruptions, to ensure that customers requirements are met to the maximum possible extent. It is also intended to safeguard the security and integrity of transaction/ account data and customer information.

The Bank has a Board approved Business Continuity Management Policy, which governs the business continuity plans and procedures. The Policy also covers Disaster Recovery measures to be adopted to ensure business continuity and defines critical business functions and processes.

The Bank has been able to address the challenges of COVID-19, by providing all essential services to customers even during the most difficult times of COVID crisis and contained the operational disruptions, cyber security threats and people risk. During all the waves of COVID - 19 Pandemic, the Bank ensured that, Operational disruptions were not occurred and ensured Business Continuity to maintain required levels of customer service.

3. Transfer to Reserves

As per the requirement of RBI Regulations, the Bank has transferred the following amount to various reserves during Financial Year 2021-22:

Amount Transferred to	Rs. In Crores.
Statutory Reserve	14
Capital Reserve	4
Investment Fluctuation Reserve	22

4. Dividend

Considering the need to preserve capital in these uncertain times, your directors have decided to retain the profits earned to serve the working capital requirements of the Bank. Hence, no dividend is proposed to be declared.

5. Change in the Nature of Business

During the year under review, there has been no change in the nature of business of the Bank.

6. Share Capital

During the year, Authorized Capital of the Bank was Rs. 600,00,00,000 {Rupees Six Hundred Crores) divided into 60,00,00,000 (Sixty Crores) Equity Shares of Rs.10 (Rupees Ten) each. There were no changes in the Authorized Capita! of the Bank during the Financial Year 2021-

22.

As on March 31, 2022, the issued, subscribed and paid-up share capita! of the Bank stands at Rs. 449,47,37,980 {Rupees Four Hundred and Forty-Nine Crores Forty-Seven Lakhs Thirty- Seven Thousand Nine Hundred and Eighty only) divided into 44,94,73,798 (Forty-Four Crores Ninety-Four Lakhs Seventy-Three Thousand Seven Hundred and Ninety-Eight) Equity Shares of Rs. 10 (Rupees Ten) each. There were no changes in the issued, subscribed and paid-up share capital of the Bank during the Financial Year 2021-22.

The total number of shareholders of the Bank as on March 31, 2022 were 86.

7. Capital Adequacy

Your Bank is subject to the Basel II Capital Adequacy guidelines stipulated by RBI. The Capital Adequacy Ratio of the Bank is calculated as per the standardized approach for credit risk. The Capital Adequacy ratio of the bank as on March 31, 2022 is 18.64%, as against the minimum requirement of 15.00% stipulated by the Reserve Bank of India.

8. Employee Stock Option Scheme

The Shareholders of the Bank, in the meeting held on January 03, 2020, had approved the ESAF Small Finance Bank Employee Stock Option Plan 2019, by way of a special resolution which also authorized the Nomination Remuneration and Compensation Committee to grant up to 2,25,15,552 (Two Crore Twenty-Five Lakhs Fifteen Thousand Five Hundred and Fifty- Two) Employee Stock Options to the Employees, in one or more tranches, from time to time. The objective of the said scheme is to recognize the contribution of the employees in the formation of the bank and to create the feeling of inclusiveness and enable the employees to get a share in the value that they help to create for the organization over a period of time. The Bank strongly believes that an equity component in the compensation goes a long way in aligning the objectives of an individual with those of the Bank. The objectives of ESOP 2019 are, among others, to attract and retain employees with Employee Stock Options as a compensation tool. Through ESOP 2019, the Bank intends to offer an opportunity of sharing the vaiue created with those employees who have contributed or are expected to contribute to the growth and development of the Bank.

Through the scheme, the Bank intends to grant equity-based compensation to the employees in two categories namely:

1) Loyalty Grant to reward eligible Employees for their contributions in the past, tenure in the and continued employment in the Bank, which is a one-time grant and;

2) Performance Grant on the basis of employees annual appraisals for their future performance and continuity of services.

During the Financial Year 2021-22, the Nomination Remuneration and Compensation Committee of the Board had granted 11,25,590 options as Erst installment of loyalty grant under the ESOP 2019 Scheme, to the employees identified under the implementation guidelines for ESAF ESOP 2019 as per the terms of granting.

9. Debt Capital

in the previous year, your Bank had issued 20 Rated, Taxable, Unlisted, Redeemable, Unsecured, Basel III compliant Subordinated Tier il Bonds in the form of Non-Convertible Debentures (NCDs) of face value of Rs. 1,00,00,000/- (Rupees One Crore only) each amounting to Rs. 20 Crore to M/s, ESAF Financial Holdings Private Limited, for meeting the capital requirements, on private placement basis. The total outstanding debt capital, both listed and unlisted, as on March 31,2022 was Rs. 193 Crore.

10, Credit Rating

Credit ratings assigned to various debt instruments of the Bank during the Financial Year ended March 31, 2022 are as follows:

Instru ment Name	ISIN	Name of the Credit Rating Agency	Amount	Rating	Date of Issue	Date of Reaffirmation
Non- Convert ible Debent ures	INE818W08016	CARE Ratings	20 Crores	CARE A; Negative (Single A ; Outlook: Negative)	30.12.2017	03.01.2022
Non- Convert ible Debent ures	INE818W08024	CARE Ratings	20 Crores	CARE A; Negative (Single A ; Outlook: Negative)	28.03.2018	03.01.2022
Non- Convert ible Debent ures	INE818W08032	CARE Ratings	40 Crores	CARE A; Negative (Single A ; Outlook: Negative)	01.06.2018	03.01.2022
Non- Convert ible Debent ures	INE818W08081	Brickwork Ratings	20 Crores	BWR A/ Negative Assignment	18.03.2022
		CARE Ratings		CARE A; Negative (Single A ; Outlook: Negative)

The Credit Rating assigned by Brickwork Ratings for debt instruments amounting to Rs. 50 Crores was withdrawn on December 22, 2021 and December 28, 2021 respectively upon redemption.

11. Selection, Appointment and Remuneration of Directors

In compliance with the provisions of the Banking Regulation Act, 1949 and the guidelines issued by the Reserve Bank of India and Section 178 of the Companies Act, 2013, the Bank has formulated and adopted a Nomination Policy for selection and appointment/ reappointment/ removal of Directors, which is disclosed in our website (www.esafbank.com). Through the said policy, the Bank has formulated criteria for appointment of directors and based on the said criteria, Nomination Remuneration and Compensation Committee of the Board (NRCCB) shall conduct a due diligence process to determine the suitability of every person who is being considered for being appointed or re-appointed as a Director of the Bank, based on the range of skills, experience, expertise, qualifications, specialised knowledge etc of the candidate, and recommend his/her appointment to the Board. The Nomination Remuneration and Compensation Committee identifies potential candidates from diverse backgrounds including but, not limited to Accountancy, Agriculture and Rural Economy, Banking, Co-operation, Finance, Law, Small Scale Industry, Economics, Human Resources, Payment and Settlement Systems, Business Management, Risk Management and Information Technology, thus providing the Board with members who have diverse knowledge, practical experience and skills to serve the business interests of the Bank. Every such person shall meet the fit and proper criteria, as Reserve Bank of India may stipulate from time to time and accordingly, any appointment or re-appointment of a Director shall be subject to prior approval by NRCCB of the Bank.

The key objectives of the Nomination Policy shall inter-aiia include the following:

• To guide the Board in relation to appointment/ reappointment/ removal of directors and lay down a selection criterion for appointment of directors.

• To ensure compliance with applicable laws, rules and regulations including compliance to the ‘Fit and Proper criteria of Directors at the time of their appointment and on a continuous basis.

• To devise a policy on the size and composition of the Board taking into account the available and needed diversity and balance in terms of experience, knowledge, skills and judgment of the Directors.

While appointment/ re-appointment/ removal of Directors of the Bank, your bank has always ensured that, the provisions of the Companies Act, 2013, Banking Regulation Act/ RBI Guidelines and directives and guidelines of SEBI to the extent applicable are adhered to. In all respects, your Bank has also kept high standards and met the diversity, structure and size compositions of the Board and its Committees as prescribed in various statutes.

The NRCCB is responsible to the Board for leading the succession planning process in respect of appointments/ re-appointments in respect of Directors, employees in the grade of Senior Management and Key Managerial Personnel of the Bank.

The Bank has accordingly obtained prescribed declarations/ undertakings from the Directors as per the guidelines of Reserve Bank of india and the same are placed before the Board of Directors for its review and noting. An assessment on whether the Directors fulfill the prescribed criteria is carried out by the Nomination Remuneration and Compensation Committee of the Board on an annual basis and also at the time of their appointment or reappointment,

Wherever necessary, the Nomination Remuneration and Compensation Committee is authorized to engage the services of an External Consultant(s)/ expert in the field of succession planning, to identify and assess the suitability of candidates for the post of a Director of the Bank.

RBI, vide its circular no. DOR.Appt.BC.No.23/29.67.001/2019-20 dated November 04, 2019, has issued the Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Materia! Risk Takers and Control Function Staff of Private Sector Banks on Compensation Policy. In accordance with the aforesaid RBI Circular, the Board of the Bank has adopted a revised Compensation Poficy for its Whole-time Directors, Chief Executive Officer of the Bank and other employees. The salient features of the Compensation Policy are as follows:

* To provide a fair and transparent structure that helps the Bank to retain an acquire the talent poo! critical to building competitive advantage and brand equity as a social bank focused in social transformation and community development.

12. Board of Directors

As on March 31, 2022, the Bank has Nine Directors out of which there are Six Independent Directors including a Woman Independent Director.

Change in Directors during the Financial Year 2021-22

• Re-Appointment of Shri. KadambeHl Paul Thomas as the Managing Director and CEO of the Bank

Shri. Kadambeiil Paul Thomas (DIN: 00199925), Managing Director and CEO of the Bank was appointed for a period of three years with effect from October 01, 2018 on the basis of the approval from the Reserve Bank of India vide their letter no: DBR.Appt.No.2655/29.44.005/2018-19 dated October 01, 2018 and his tenure shall be ending on September 30, 2021. In view of the same, the Nomination Remuneration and Compensation Committee of the Board, and the Board of Directors of the Bank in their meeting held on March 20, 2021 has recommended that his continued association as Managing Director & CEO is absolutely essentia! for its growth and decided to reappoint Shri. Kadambeiil Paul Thomas as the Managing Director and CEO of the Bank for a period of three consecutive years with effect from October 01, 2021, subject to the approval of the Shareholders and the Reserve Bank of India. The shareholders approved the reappointment of Shri, Kadambeiil Paul Thomas as the Managing

Director and CEO of the Bank for a period of three consecutive years with effect from October 01, 2021 in their Fifth Annual General Meeting held on September 29, 2021 and the approval from RBI was received on July 20, 2021.

• Resignation of Shri. Santhosh George as Non-Executive Independent Director of the Bank

Shri, Santhosh George (DIN; 07831505), who was the Non-Executive Independent Director of the Bank, resigned from the directorship of the Bank due to pre-occupation with effect from May 26, 2021, The Board of Directors of the Bank placed on record their appreciation for the valuable contributions by Shri. Santhosh George during his tenure as the Director of the Bank.

• Appointment of Shri. Vinod Viiavaiekshmi Vasudevan as Additional Director (independent Director) of the Bank

The Board of Directors in their meeting held on December 22, 2021 had appointed Shri. Vinod Vijayalekshmi Vasudevan (DIN: 02503201) as Additional Director (Independent Director) of the Bank with effect from December 22, 2021, considering his vast knowledge and experience in the field of Information Technology and Business Management.

Appropriate resolution recommending his appointment as Non-Executive Independent Director for a period of three years with effect from December 22, 2021 is placed for approval of shareholders as Item no. 03 in the Notice of the 06^th Annual General Meeting.

As on the date of this report, the Bank has Seven Directors out of which there are Six Independent Directors including a Woman Independent Director.

Change in Directors during the Financial Year 2022-23

• Re-Appointment of Shri. Ravimohan Perivakavil Ramakrishnan as Non- Executive Independent Director of the Bank

The Board of Directors in their meeting heid on May 10, 2022 had recommended to the Shareholders for re-appointment of Shri. Ravimohan Periyakavil Ramakrishnan (DIN: 08534931) as a Non-Executive Independent Director of the Bank w.e.f December 21, 2022, considering his vast knowledge and experience in the field of Banking, Payment and Settlement systems and Risk Management and his performance as Chairman of the Bank during last three years.

Appropriate resolution recommending his re-appointment as Non-Executive Independent Director for a period of three years with effect from December 21, 2022 is placed for approval of shareholders as Item no. 06 in the Notice of the 06^th Annual General Meeting.

• Withdrawal of Nomination of Shri. Saneesh Singh (DIN: 02254868) and Shri, Chandanathil Pappachan Mohan (DIN: 02661757) as Nominee Directors by M/s. ESAF Financial Holdings Private Limited, the Corporate Promoter of the Bank

> The Board of Directors vide Circular Resolution dated August 03, 2022, accepted the withdrawal of nomination of Shri, Saneesh Singh (DIN: 02254863) from the Board of Directors of the Bank by M/s, ESAF Financial Holdings Private Limited, the Corporate Promoter of the Bank, with effect from July 26, 2022.

> The Board of Directors vide Circular Resolution dated November 01, 2022, accepted the withdrawal of nomination of Shri. Chandanathil Pappachan Mohan (DIN: 02661757) from the Board of Directors of the Bank by M/s. ESAF Financial Holdings Private Limited, the Corporate Promoter of the Bank, with effect from October 31, 2022.

Familiarization Programme

The Bank has familiarized the independent Directors of the Bank of their roles and responsibilities in the Bank, nature of industry in which the Bank operates, business model of the Bank, etc. The details of the familiarization programme imparted to Independent Directors are available on the website of the Bank www.esafbank.com.

The terms and conditions of appointment of Independent Directors are also available on the website of the Bank (www.esafbank.com). The appointment of Independent Director during the year was made with satisfaction of the Board after ascertaining the integrity, expertise, experience and proficiency of the Directors.

13. Evaluation of Performance of the Board of Directors

The Board has formulated a Performance Evaluation Policy including the questionnaire for performance evaluation of the Individual Directors, Committees of the Board, Chairman, Managing Director and CEO and the Board as a whole. The questionnaire designed for the performance evaluation covers various aspects of performance including structure of the board, meetings of the board, functions of the board, role and responsibilities of the board, governance and compliance, evaluation of risks, grievance redressal for investors, conflict of interest, stakeholder value and responsibility, relationship among directors, director competency, board procedures, processes, functioning and effectiveness was circulated to all the directors of the Bank for the annual performance evaluation. The appraisal of each of the Directors of the Bank is done based on the evaluation conducted with a set of predetermined evaluation factors:

• The performance of the Board as a whole shall be evaluated by all the Directors.

• The performance of the Board Committee(s) shall be carried out by the members of each of the Committees;

• The performance of Managing Director and CEO/ Executive Director shall be done by all the directors except the Managing Director and CEO.

• The performance of Chairman of the Bank is done by all the Directors except the person being evaluated.

• The performance of Independent Directors is done by all the Directors except the person being evaluated,

• The performance of the Non-Executive Director is done by all the Directors except the person being evaluated.

The performance evaluation of the Board of Directors, Committees of the Board and individual Directors were conducted during the Financial Year, The Board and the Nomination Remuneration and Compensation Committee of the Board reviewed the performance of the Individual Directors and noted that results of performance evaluation indicated high degree of satisfaction among directors.

14. Declaration from Independent Directors

The Board has received declarations from the Independent Directors as required under Section 149(7) of the Companies Act, 2013 and the Board is satisfied that the Independent Directors meet the criteria of independence as mentioned in Section 149(6) of the Companies Act, 2013,

15. Corporate Governance

The Bank is committed to achieving and adhering to the highest standards of Corporate Governance and it consistently benchmarks itself with the best practices, in this regard. A report on Corporate Governance for the Financial Year 2021-22 has been annexed to the Annual Report,

16. Meetings of the Board

The Board of Directors have met 13 times during the Financial Year 2021-22 on May 26,2021, June 18, 2021, June 29, 2021, July 24, 2021, August 25, 2021, September 29, 2021, November 06, 2021, November 26, 2021, December 22, 2021, January 13, 2022, February 05, 2022, March 10, 2022 and March 29, 2022.

The gap between any two Board Meetings has not exceeded 120 days and the requisite quorum was present for all the Board Meetings during the year. None of the Directors of the Board has sought leave of absence during the Financial Year 2021-22 in any of the meetings of the Board.

17. Key Managerial Personnel

The following officials of the Bank are the "Key Managerial Personnel" pursuant to the provisions of Section 203 of the Companies Act, 2013:

SI. No Name of the Key Managerial Person	Designation
1. Shri. Kadambelil Paul Thomas	Managing Director and CEO
2. Shri, Gireesh C. P.	Chief Financial Officer
3. Shri. Ranjith Raj P	Company Secretary

In addition to the above the Bank has designated the following senior officials of the Bank as Key Managerial Personnel in terms of Section 2 (5f) of the Companies Act, 2013:

SI. No. Name of the Key Managerial Person	Designation
1. Shri. M.G. Ajayan	Executive Vice President
2. Shri. George K John	Executive Vice President
3. Shri. George Thomas	Executive Vice President
4. Shri. Hari Velloor*	Executive Vice President
5. Shri. Hemant Kumar Tamta**	Executive Vice President
6. Shri. Wilson Cyhac***	Chief Risk Officer
7. Shri. E A Jacob****	Chief of Internal Vigilance
8. Shri. Antoo.P.K	Head - Internal Audit
9, Shri. Sudev Kumar *****	Chief Compliance Officer

*Shri. Hari Velloor was appointed as the Executive Vice President of the Bank with effect from May 10, 2022 for a period of one year and was designated as the Key Managerial Personnel of the Bank pursuant to Section 2(51) and other applicable provisions of the Companies Act, 2013 with effect from September 20, 2022.

** Shri. Hemant Kumar Tamta was appointed as the Executive Vice President of the Bank with effect from May 10, 2022 for a period of one year and was designated as the Key Managerial Personnel of the Bank pursuant to Section 2(51) and other applicable provisions of the Companies Act, 2013 with effect from September 20, 2022.

Shri. Wilson Cyhac was appointed as the Chief Risk Officer of the Bank with effect from November 30, 2021 for a period of three years and designated him as a Key Managerial Personnel of the Bank pursuant to Section 2(51) and other applicable provisions oftbe Companies Act, 2013.

During the year, Shri. Mohanachandran K R, Chief Risk Officer (CRO) of the Bank, ceased to be the Key Managerial Personnel of the Bank with effect from the close of business hours on November 30, 2021 on expiry of his employment contract. The Board places on record its appreciation for the invaluable contribution rendered by him during his tenure as CRO.

**** Shri. E A Jacob was appointed as the Head of Vigilance Department and Chief of internal Vigilance (CIV) of the Bank with effect from September 30, 2021 fora period of three years and designated him as a Key Managerial Personnel of the Bank pursuant to Section 2(51) and other applicable provisions of the Companies Act, 2013.

During the year, Shh. Dominic Joseph, Head - Vigilance and Chief Vigilance Officer of the Bank, ceased to be the Key Managerial Personnel of the Bank with effect from the dose of business hours on September 30, 2021 on expiry of his employment contract. The Board places on record its appreciation for the invaluable contribution rendered by him during his tenure as Head - Vigilance and Chief Vigilance Officer.

***** Shri. Sudev Kumar was appointed as the Chief Compliance Officer of the Bank with effect from December 15, 2021 fora period of three years and designated him as a Key Managerial Personae/ of the Bank pursuant to Section 2(51) and other applicable provisions of the Companies Act, 2013.

During the year, Shri. Dinesh Kallarackai, Chief Compliance Officer (CCO) of the Bank, ceased to be the Key Managerial Personnel of the Bank with effect from the close of business hours on December 15, 2021 due to change in role. The Board places on record its appreciation for the invaluable contribution rendered by him during his tenure as CCO.

18. Internal Financial Controls

The Board of Directors confirms that your Bank has laid down set of standards, processes and structures which enable to implement Internal Financial controls across the organization with reference to Financial Statements and that such controls are adequate and are operating effectively. The Internal Financial Control framework of the Bank ensures that:

• Internal Financial Controls are established for critical and material processes handled by the Bank.

• Draw up recommendations based on good practices to develop or strengthen the internal control systems.

• Ensure that, the IFCs are adequate and operating effectively, by periodic review and testing.

• Periodic reporting of the status to the Audit Committee of the Board

• The existence and adequacy of IFCs is demonstrated to various internal and external stakeholders.

The internal Audit Department of the Bank has tested each of the controls and during the year under review, there are no material or serious observations for inefficiency or inadequacy of such controls.

19. Directors¹ Responsibility Statement

Pursuant to Section 134(3) of the Companies Act, 2013, the Board of Directors hereby declare and confirm to the best of their knowledge and belief that:

i) in the preparation of the annual accounts for the year ended March 31, 2022, the applicable accounting standards had been followed along with proper explanation relating to material departures;

ii) such accounting policies as specified in Schedule III to the Financial Statements have been selected and applied consistently and judgements and estimates have been made that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at March 31, 2022 and of the profit of the Bank for the year ended on that date;

iii) proper and sufficient care has been taken for maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting frauds and other irregularities;

iv) annual accounts have been prepared on a going concern basis;

v) internal financial controls to be followed by the Bank were in place and that the same were adequate and were operating effectively, and

vi) proper system to ensure compliance with the provisions of all applicable laws was in place and the same were adequate and operating effectively.

20. Corporate Social Responsibility Activities

The Bank has constituted the Corporate Social Responsibility and Sustainability ("CSRSCB") Committee of the Board, in accordance with the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended, from time to time.

Through the CSR Projects and Programmes, the Bank pursues inclusive and sustainable development of the community in and through its domain of operations. Beyond charity donations, aligned with its vision statement the Bank will pursue transformation of lives and communities and would choose projects accordingly.

The CSRSCB is responsible for reviewing and recommending to the Board, the various CSR initiatives for the Bank, including the progress of the Banks CSR Projects. Based on the recommendations made by the CSRSCB, the Board reviewed and approved the CSR Policy, Projects, Project Expenditure and related matters. Thereafter, with the approval of the Board, the CSR Projects were implemented by the Bank. Your Banks CSR Policy is available on the Banks website: www.esafbank.com.

The Banks CSR Projects and CSR Project Expenditure for Financial Year 2021-22 are compliant with the CSR mandate as specified under Sections 134 and 135 of the Act read with Schedule Vii to the Act and the Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended from time to time and in line with the Government of Indias notifications issued from time to time.

The Bank had decided to allocate 5% of the average net profits every financial year, as against the statutory obligation of 2% and in accordance with the same, the Bank had allocated Rs. 8,76,00,000 towards CSR expenditures for the Financial Year 2021-22. Out of the allocated amount, the Bank had spent Rs. 4,02,58,892 for ongoing projects during the current Financial Year and the unspent amount of Rs. 3,43,64,000 has been transferred to the Unspent CSR Account on March 31, 2022. Further, the Bank had spent Rs. 4,04,61,548 during the current Financial Year towards completion of the Board approved ongoing CSR projects which were initiated in Financial Year 2020-21.

The implementation of the CSR projects and programmes in Financial Year 2021-22 had been done either directly and / or through implementing partner organizations having a proven track record of implementing cost and process efficient CSR projects and/or programmes that were scalable, sustainable, outcome driven and committed to make a positive societal impact. Based on the CSRCBs review and recommendation, the Board had reviewed and approved all CSR Projects, CSR Project Expenditure Payments, CSR Administration Overhead Expenses including the Unspent CSR Project Expenditure Funds of Financial Year 2021-22,

which had been transferred to Unspent CSR Account Financial Year 2021-22, on March 31, 2021. A brief outline of the CSR Policy, including the over view of the programs undertaken, the composition of the CSR Committee, CSR expenditure during the year under review, has been provided in the Annual Report on CSR activities annexed to this report.

21. Human Resources Initiatives

The past financial year saw the HR department of your bank implement various initiatives to transform the HR Processes and various employee touchpoints. Your bank has always been a frontrunner in facilitating the employees of the Bank to enrich their knowledge and skills. I n this respect, the Bank has started an IMS platform ‘e-Shiksha fore-learning.

A new Artificial Intelligence (Al) based 100 percent automated software was introduced and used for recruitment during the year. The new strategy so developed for recruitment, retention, training and development will indeed take the Bank way ahead help ease the cumbersome recruitment process. Above all, during the financial year, the Bank was also certified as ‘GREAT PLACE TO WORK for the period March 2021-February 2022.

Your Bank has been keen to put in place safety guidelines, physical distancing norms and guidelines for rotation of the staff. It was ensured that, the functioning of the Bank is in adherence to State/Local Government instructions. The Periodic Advisories on the conduct of business and the precautions to be taken by the employees were also issued. Thus, overall, the Bank has shown great vigor and enthusiasm in boosting the employee morale and help them survive mentally and emotionally fit during the pandemic.

22. Disclosure under the Sexual Harassment of Women at Workplace (Prevention. Prohibition and Redressal) Act, 2013

The Bank has in place, a Policy in line with the requirements of the Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013. Internal Complaints Committee has been set up for redressal of complaints. During the year 2021-22, no complaints were received under the Policy. Presently, 30.7% of the total work force of the Bank are women.

23. Compliance Functions

Your Bank has institutionalized a strong compliance culture and mechanism across the organization, in pursuit of its strategic goals of transparency and trust, among all its stakeholders. The Bank has a dedicated independent Compliance Department headed by a Chief Compliance Officer which operates as per a well-documented compliance policy for ensuring regulatory compliance, across ail businesses and operations. The key functions of the Compliance Department shall include ensuring core compliance areas such as statutory, regulatory, and other related Mechanism for dissemination of regulatory prescriptions and guidelines amongst respective functions and monitoring compliance with regulatory guidelines, compliances, correspondence with RBI, vetting the guidelines/ circulars issued, for compliance with regulatory guidelines and vetting of Banks Policies, co-ordinating and monitoring submission of RBI returns, co-ordinating collection, of_;:jpputs from various

departments for RBI Inspection ancf for rectification of RB! inspection irregularities etc.The Bank has well defined and structured mechanism to assess the compliance risk and monitor its mitigation measures thereby ensuring the effectiveness of the compliance function in managing the compliance risk.

24. Risk Management

Risk Management in the Bank is overseen by the Board of Directors. The Board approves the Risk management policies which are reviewed, from time to time, with updated regulatory guidelines and internal instructions. The Risk Management Committee of the Board (RMCB) sets the processes and standards for risk management function and periodically reviews the same. The Risk Management Department co-ordinates the Bank-wide risk management and implements the policies and procedures approved by the Board and the RMCB. The Department has four divisions for managing the major risk streams, Credit risk, Operational risk, Market risk and information and Cyber security risk.

Executive level risk management committees, namely, Credit Risk Management Committee, Operational Risk and Business Continuity Management Committee, Asset Liability Management Committee and Information Security Committee regularly assesses the respective risks and initiate remedial actions wherever warranted. The executive level committees periodically report the various risk events, level and direction of major risks to the Risk Management Committee of the Board. Chief Risk Officer who reports directly to the Managing Director and CEO co-ordinates the risk management functions. The Bank has a robust Internal Capital Adequacy Assessment Process by which all material risks the Bank is facing in its course of business are identified, assessed and monitored. Capital requirement commensurate with the risk profile of the Bank is assessed and capital planning for ensuring growth in future, as per the business strategy of the bank, also is undertaken periodically,

25. Information Security and Cyber Security Risk Management

The Information Security Policy and the Cyber Security Policy approved by the Board of Directors provide the base for information technology risk management and security administration. The Information Security Governance of the Bank is spear-headed by the Board of Directors, information Technology Strategy Committee of the Board and the Executive Level Information Security Governance Committee.

The Bank has a dedicated information Security Division which functions under the Risk Management Department. The Information Security Division is headed by the Chief information Security Officer, who reports to the Chief Risk Officer.

The Bank adopts best practices to ensure the safety and security of customer transactions, data privacy and information security in ail three modes of Data at rest, Data in use and Data in transit. The Bank liaisons with various authorities like CSITE {Cyber Security Information Technology Examination) Cell, RBI, CERT-ln (Computer Emergency Response Team-lndia), IDRBT, etc. to keep abreast of the security incidents, measures and for regulatory compliance on an ongoing basis.

26. IT Initiatives

M/s. FIS Payments Solutions and Services Private Limited (FIS) provides the Bank with a fully integrated Bank in a Box banking and payments platform through a totally outsourced delivery model, which encompasses a Core Banking Solution, Risk Management, Domestic Treasury management, Analytics and the entire suite of payments services, which includes switching, debit card management and ATM management services, fn addition to these, a set of satellite solutions like HRMS, Audit management services complete the full IT needs of the Bank. The service agreement between the Bank and FIS is renewed for another five years in December 202 f. The Bank has opted to continue with our existing system integrator, in order to minimize its upfront capital expenditure costs and avoid redundancy risks.

The Bank has rolled out FIS core banking solution across all its branches and Banking Outlets. Ail of the accounts of the customers are on the core banking solution of the Bank, The primary data center is in Mumbai and disaster recovery center is in Flyderabad, both of which are operated by FIS & CtrlS collaboration. The IT Strategy of the Bank has always been in alignment with the Business strategy which envisages presence into specific geographies, launching customized products targeted at specific customer segments and leveraging digital technology & e-channels to extend the outreach to customers. Over the past few years IT have been bringing significant changes and new initiatives which have been the pivotal factors in achieving the over and above business growth & success of the Bank. With the stabilization achieved in the Core Banking operations, ITs next focus will be towards bringing in latest digital technologies and integrations which will be both customer-centric and trend setters.

To name a few important IT initiatives undertaken during the Financial Year 2021 - 2022 are, seamless integration on employee connectivity thru VPN technologies, additional eKYC provider integrations, additional multi bureau connectivity which provides the convenience of a single inquiry point that allows consolidation of data from credit bureaus. There has been initiative on WhatsApp Banking and Neo Banking (Online banking services through FinTechs).

Bank also had launched a new Gold loan application (with Doorstep feature), new revamped UPI Solution with additional UPI Switch and application, online FD directly from the Banks website. Telecom Regulatory Authority of India (TRAI)s new guidelines on Bulk SMS Service Industry by introducing Distributed Ledger Technology (DLT) - a block-chain based registration system to maintain the record of all transactions made by business entities is also implemented. Further Enterprise Fraud Risk Management and additional Loan Origination Systems (LOS) and Collection solutions with integrations of Biometric devices were also done during last Financial Year.

27. Customer Service Quality

Your Bank has always aligned its operations to cater to the needs of the customers of the Bank and has tried improving the quality of the service rendered on a continual basis. The following are the major actions initiated by the Bank in the customer service front during the year:

• ISO 9001: 2015 certification: Customer Service Quality Department of the Bank has been working on further enhancing the quality of its functioning and raising the standards to International Quality levels. For that, the department has revamped many of its processes to meet the ISO 9001 standards. As a result, Bank has received ISO 9001: 2015 certification for the following scope of operations

o The Customer Service Quality Initiatives of the Bank.

o The Regulatory and Statutory reporting of the Customer Service Quality Department of the Bank.

o The Customer Grievance Redressal Mechanism of the Bank.

o The Customer Service Call Center Monitoring of the Bank.

• Customer Service Excellence Awards: In order to create a competitive spirit among the Branches to give better customer experience, the Customer Service Quality department of the bank has successfully driven the Customer Service Excellence Award for the branches. This has motivated branches to take proactive steps to excel in customer service, deepen the relationship with customers, encourage digital transaction, complete the tasks on time and reduce complaints.

• Nil penalty Imposed by Banking Ombudsman: In the Financial Year 2021-2022 we have received only 32 complaints from Banking Ombudsman which is one of the iowest in country considering the bank has more than 575 branches and around 5.5 million customers. Also, all the complaints were resolved amicably within the stipulated timelines and the Bank has nil penalty from Banking Ombudsman since inception.

• Uninterrupted functioning of 24x7 Customer Contact Center: Ensured continuity of contact center services to our customers throughout the year amidst the constraints due to Lockdown and even some of the agents tested positive. We made this possible by quickly enabling work from home capability for our contact Centre and training the agents for that. Our Bank has gained the confidence of the customers since most banks including the big ones have completely or partially halted their Contact Centres during this period.

• Various telephonic surveys to improve business and customer experience:

Customer Service Quality Department had conducted various surveys which included Annual Customer Satisfaction Survey, Digital Products Satisfaction Survey, Micro Loans customer satisfaction survey etc. which has helped the Bank to identify the gap and take necessary action to improve the customer experience,

• Online Training and Learning series to Branches: Customer Service Quality Department has continuously made efforts to keep the branch staff always updated and guided in the area of customer service and the relevant procedures. Few series of emailers like "Excel and elevate", "SWAGAT", "CRM-best practices", were being sent to all Branches periodically,

• New way of Customer interaction during Pandemic: After the outbreak of the Covid -19 pandemic the branches were not having a uniform method of customer handling

and were struggling on how to interact with the customers as direct contacts, smiling through mask were not possible and customers were feeling a kind of not taken care well. With the intention to standardize and train the branches across the nation, the Customer Service quality department introduced a new way of customer interaction "SWAGAT" which has helped in educating the frontline staff on how to interact with the customer giving them good experience at the same time adhering to all Covid protocols.

• Process enhancements and Reduction in TAT for customer requests Using the CRM (Customer Relationship Management) application the Customer Service Quality department has generated numerous reports for analyzing processes of various customer requests. This helped the Bank to understand the areas and the scope for improvement to reduce the Turnaround time of customer Requests, The process changes resulted in simplifying and automating many of the requests to increase productivity of staff and improve the customer experience.

28. Overall Remuneration

Details of remuneration as required under Section 197(12) of the Companies Act, 2013 read with Rule 5 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 are given below:

i) Ratio of Remuneration of Each Director with Median Employees Remuneration.		The ratio of remuneration of each Director to median employee remuneration is as below:
		MD & CEO	62.5 times
		Other Directors	Other directors are not paid any remuneration other than sitting fee for attending meetings of the Board and Committees.
iii) the percentage increase in remuneration of each Director, Chief Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the Financial Year;		• Managing Director and CEO - 73.76%
		• Chief Financial Officer-4.21%
		• Company Secretary -7.53%
iv) the percentage increase in the median remuneration of employees in the financial year;		12.08%
v) the number of permanent employees on the rolls of the Bank as on March 31, 2022		4,141
vi) average percentile increase already made in the salaries of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration and justification thereof and point out if there are any exceptional circumstances for increase in the managerial Remuneration	Average increase of 11.6% was made to the j salaries of employees other than the managerial personnel and 73.76% increase was made in the managerial remuneration in the last financial year.
vii) affirmation that the remuneration is as per the remuneration policy of the Company	The remuneration is as per the Remuneration Policy of the Bank. j

 

Statement showing
I) the name of every employee, who if employed throughout the financial year, was in receipt of remuneration for that year which, in the aggregate, was not less than One crore and Two lakh rupees;	Shri. Kadambelil Paul Thomas, Managing Director and CEO of the Bank was paid an aggregate remuneration of Rs. 2,45,00,000/- (including perquisites) during the year.
ii) if employed for a part of the financial year, was in receipt of remuneration for any part of that year, at a rate which, in the aggregate, was not less than eight lakh and fifty thousand rupees per month;	NIL
iii) if employed throughout the financial year or part thereof, was in receipt of remuneration in that year which, in the aggregate, or as the case may be, at a rate which, in the aggregate, is in excess of that drawn by the Managing Director or Whole Time Director or Manager and holds by himself or along with his spouse and dependent children, not less than two percent of the equity shares of the Bank.	NIL

29. Whistle Blower Policy/ Vigil Mechanism

The Bank has implemented a Vigil mechanism through adoption of a Whistle Blower and Protected Disclosure Policy in compliance with the relevant provisions of Companies Act, 2013 and rules thereunder. The Bank provides an opportunity to raise concerns of employees, vendors and directors relating to fraud, malpractice or any other activity or event which is against the interest of the Bank or society as a whoie. The details of Whistle Blower complaints received and subsequent action taken and the functioning of the Whistle Blower mechanism are reviewed periodically by the Audit Committee of the Board. During the Financial Year 2021-22, seven complaints were received under the Whistle Blower Mechanism. The

functioning of the Mechanism is reviewed by the Audit Committee from time to time. No employee of the Bank has been denied access to the Audit Committee for raising a whistle blower complaint.

The policies are available on the official website of the Bank, (www.esafbank.com)

30. Statutory Auditors

The Shareholders of the Bank in the Annual General Meeting held on September 29, 2021 had appointed M/s. Deloitte Haskins and Sells, Chartered Accountants with Firm Registration number 117365W, based on the approval of Reserve Bank of India vide letter No. Ref DOS.ARG.No. AS-10/08.61.005/2019-20 dated May 08, 2020 as the Statutory Auditors of the Bank for a continuous period of two years, to hold office from the conclusion of the 05^th Annual General Meeting till the conclusion of the 07^th Annua! Genera! Meeting of the Bank, subject to the satisfaction of eligibility norms each year. They have been the Statutory Auditors of the Bank from the Conclusion of the 4^lh Annuai General Meeting of the Bank. The Board of Directors in the meeting held on May 29, 2020 appointed the Statutory Auditors of the Bank for an overali remuneration of Rs,62,5 Lakhs (excluding the GST). Any additional payments to the Statutory Auditors shall be made subject to the approval of the Audit Committee of the Board as and when found necessary. The Bank has obtained a declaration in Form B from M/s. Deloitte Haskins and Sells as required in the RBI guidelines and evaluated the eligibility criteria as required in RBI Circular and Board approved policy. Based on the evaluation conducted, it was confirmed that, the existing auditors are eligible for continuing for Financial Year 2022-23.

As per the RBI Circular Ref.No.DoS.CO.ARG/SEC.01/08.91.001/2021-22 dated April 27, 2021, entities with asset size of Rs. 15,000 Crore and above as at the end of previous year, shall conduct the statutory audit under the joint audit of a minimum of two audit firms [Partnership firms/Limited Liability Partnerships (LLPs)]. As the asset size of the Bank as on March 31, 2022 was Rs. 17,707 Crore, the Audit Committee of the Board and Board of Directors have recommended the appointment of M/s. Abarna and Ananthan, Chartered Accountants (Firm Registration Number: 000003S) as the Joint Auditor of Bank for a period of three financial years who wili hold office from the conclusion of 06th Annual General Meeting till the end of 09th Annual General Meeting. Appropriate resolution recommending their appointment as Joint Auditor for a period of three years with effect from the conclusion of 06^th Annual General Meeting is placed for approval of shareholders as Item no. 02 in the Notice of the 06^tl1 Annual General Meeting.

31. Secretarial Auditor

Pursuant to the provisions of Section 204 of the Companies Act, 2013, and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board of Directors of the Bank in the meeting held on November 06, 2021 has appointed Shri. M Vasudevan, FCS, Practicing Company Secretary (COP: 2437), Thrissur, holding Membership No: F 4177 for a second term to conduct Secretarial Audit of the Bank for the Financial Year 2021-22 and to hold the office till the conclusion of Sixth Annua! General meeting of the Bank.

The Secretarial Audit Report does not contain any qualification, reservation or adverse remark and the report for the Financial Year 2021-22 is enclosed herewith as Annexure - III. The Bank has complied with the Secretarial Standards specified by the Institute of Company Secretaries of India and notified by the Ministry of Corporate Affairs under Section 118(10} of the Companies Act, 2013.

32. Pillar Hi Disclosures

The Pillar III Disclosures of the Bank as on March 31, 2022, is enclosed herewith as Annexure- IV.

33. Particulars of contract or arrangements with Related Parties

All Related Party Transactions are entered into with the prior approval of the Audit Committee of the Board and an omnibus approval of the Audit Committee is obtained for the Related Party Transactions which are repetitive in nature. All the transactions with related parties are reviewed by the Audit Committee and the Board on a quarterly basis. The details of transactions to be reported under 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules, 2014, in Form AOC-2 are enclosed herewith as Annexure-I.

34. Annual Return

In accordance with Section 134(3) and Section 92(3) of the Companies Act, 2013 and pursuant to Companies (Amendment) Act, 2017, a copy of the annual return for the Financial Year 2021-22 will be hosted on the banks website at www.esafbank.com/investor-relations- info/.

35. Details in respect of frauds, if any, reported by Auditors:

There were no frauds reported by the Statutory Auditors for the Financial Year 2021-22.

36. Statutory Disclosures

None of the Directors of the Bank are disqualified as per provisions of Section 164(2) of the Companies Act, 2013. The Directors have made necessary disclosures, as required under various provisions of the Companies Act, 2013, Securities and Exchange Board of India Regulations and guidelines of Reserve Bank of India.

37. Information as per Section 134 (3) (q) of the Companies Act, 2013 read with Rule 8 of the Companies (Accounts) Rules. 2014

i) The Bank has no activity relating to conservation of energy or technology absorption.

ii) During the Financial Year 2021-22, the Bank had foreign currency expenditure of Rs,

1,06,97,384/- and there were no foreign currency earnings during the period.

38. Material changes after the Balance Sheet Date as on March 31, 2022

There have been no material changes and commitments between the end of the Financial Year 2021-22 and the date of this report, affecting the financial position of the Bank.

39. Explanations or comments by the Board on every qualification, reservation or adverse remark or disclaimer made in the Statutory Auditors Report or in the Secretarial Audit Report

There are no qualifications, reservations, adverse remarks or disclaimers in the Auditors Report and the Secretarial Audit Report.

40. information About Financial Performance/ Financial Position of the Subsidiaries. Associates and Joint Venture Companies

The Bank does not have any subsidiaries, associates or joint venture companies.

41. Deposits

Being a Banking Company, the disclosures required as per Rule 8(5)(v) and (vi) of the Companies Accounts Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013, are not applicable for your Bank.

42. Loans / Guarantees / Investments

Being a Banking Company, the provisions of Section 186 of the Companies Act, 2013 is not applicable.

43. Cost Records

The Bank is not required to maintain cost records as specified by the Central Government under sub-section (1) of Section 148 of the Companies Act, 2013.

44. Significant and material orders

In accordance with Rule 8(5)(vii) of the Companies (Accounts) Rules, 2014, there have been no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status and the future operations of the Bank.

45. Strictures and Penalties

Your Bank was not imposed any penalty or strictures imposed by the SEBI /or any other statutory authorities on matters relating to capital market.

Acknowledgement

The Directors are grateful to the Reserve Bank of India, other government and regulatory authorities, other banks and financial institutions for their support and guidance. The Directors gratefully acknowledge the excellent relationship with the Board of M/s. ESAF Financial Holdings Private Limited, Corporate Promoter of the Bank and their continued guidance and support for executing various activities of the Bank. The Directors also place on record their sincere thanks to the valued clients and customers for their patronage. The Board also expresses its deep sense

of appreciation to all employees of the Bank for their commitment and contribution to the growth of the Bank,

For and on behalf of the Board of Directors

Ravimohan Periyakavil Ramakrishnan	Kadambelil Paul Thomas
Chairman	Managing Director & CEO
Date: November 10, 2022
Place: Thrissur