Global Economy Overview
The global economy proved more resilient than expected during the year 2023, despite significant interest rate hikes by central banks to curb inflation. This resilience was supported by strong economic activity and adaptability to changing financial conditions. Stability was evident through steady job growth and rising incomes, driven by robust consumer demand, increased government spending, and higher labour force participation.
The global economic growth grew by 3.3% in 2023 and this growth rate is expected to remain steady through 2024 and 2025. However, several factors, including high borrowing costs, reduced fiscal support, long-term effects of the COVID-19 pandemic, geopolitical tensions, and slow productivity growth, contribute to a less optimistic forecast. Global inflation is projected to decrease gradually from 6.8% in 2023 to 5.9% in 2024, and further decline to 4.5% in 2025.
Indian Economy Overview
The Indian economy has shown remarkable resilience in recent years, despite facing global uncertainty. Structural factors such as improved physical infrastructure, advancements in digital and payment technologies, better ease of doing business, increased labour force participation, and improved quality of fiscal spending have driven Indias growth potential during FY 2023-24. The economic growth has also gained momentum from improved business sentiments and the robust financial positions of banks and corporations.
The RBIs proactive and calibrated policies on monetary, regulatory, and supervisory fronts have effectively maintained and strengthened macroeconomic and financial stability. The National Statistics Organisation (NSO) of India has forecasted a growth rate of 8.2% for the Indian economy in FY 2023-24, surpassing the 7.0% growth recorded in FY 2022-23.
Outlook
Though the global economic outlook is expected to stay stable, geopolitical tensions and high government debt could lead to disruptive fiscal policies. These challenges suggest a cautious approach to global economic growth, highlighting the need for strategies to overcome these barriers and promote broader economic development.
The growth momentum in FY 2023-24 has been driven by positive macroeconomic indicators such as improved labour market conditions, increased urban demand, and greater government focus on capital expenditure. Additionally, innovative technology solutions, including digital payments like UPI, formal credit through account aggregator networks, and online platforms have significantly enhanced financial inclusion in India. Economic growth has been accelerating, surpassing most forecasts, while inflation has been on a downward trend during FY 2023-24. Core inflation, excluding food and fuel, has softened across goods and services, reflecting the impact of monetary policy actions and declining commodity prices. The headline inflation softened to 5.4% during FY 2023-24 and is projected to further move down to 4.5% during FY 2024-25.
Going forward, the RBI is anticipated to uphold tight liquidity conditions while ensuring sufficient liquidity to sustain credit demand. The RBI has anticipated a GDP growth rate of 7.2% for the country during FY 2024-25. The key high-frequency indicators, such as automobile sales and Goods & Services Tax (GST) revenues, have also consistently demonstrated strong progress, thus contributing to a positive overall economic outlook.
Industry Overview
Indian Banking Industry
Bank Credit grew by 16.1% year-on-year (YoY) for FY 2023-24 as compared to the previous year growth of 15.7%. The increase is mainly attributable to growth in personal loans along with NonBanking Financial Companies (NBFCs), while the industrial sector witnessed muted growth during the year. The Bank credit growth maintained a higher growth rate and significantly outpaced deposit growth in FY 2023-24.
The banking sector has implemented comprehensive governance and risk management practices to meet the evolving demands of the Indian economy. The banking sector registered strong growth, primarily driven by increased credit to the retail and services sectors. Improved net interest income and reduced provisioning have led to a rise in overall profitability.
The GNPA ratio of overall banking system decreased to 2.8% as of March 2024 while the Net Non-Performing Assets (NNPAs) decreased to 0.6%, marking an all-time low. This decline was attributed to reduced slippages, effective recoveries throughout the year and consistent write offs.
Government initiatives
The Interim Union Budget for FY 2024-25 has placed a strong emphasis on inclusive growth, welfare, and fiscal responsibility, with a focus on maintaining consistent policies. The efforts have been concentrated on increasing investments in physical and social infrastructure to stimulate overall growth. Following are the key announcements made in the Interim Budget for FY 2024-25:
• Continuing the 50-year interest-free loan scheme to states, with an outlay of Rs. 1.3 trillion for capital expenditures for FY 2024-25 and allocating Rs. 75,000 Crore as a 50-year interest-free loan to facilitate milestone-linked reforms by state governments are expected to further boost growth in the banking industry.
• The capex target for FY 2024-25 has been set at Rs. 11.11 Lakh Crore, up by 11% comprising 3.4% of GDP. Capital expenditure has witnessed a strong compound annual growth rate (CAGR) of 27% over the past five years, with a notable focus on sectors like housing, roads, railways, defence and solar. An increase in capital outlay would support credit growth in the banking sector.
• The budget has aligned seamlessly with Indias vision of technological advancement and innovation, earmarking a significant Rs. 1 Lakh Crore for technology financing.
• The initiative to provide free electricity to One Crore Indian households by installing rooftop solar units, offering up to 300 free units of electricity per month will open up new business opportunities in renewable energy segment.
Regulatory Landscape
• The RBIs MPC has maintained the policy REPO rate at 6.5% throughout FY 2023-24, reinforcing its stance of withdrawal of accommodation. The stability in REPO rates is expected to boost investor confidence, encourage borrowing, and stimulate economic activity.
• RBI launched a pilot program to assess the viability of a ‘Public Tech Platform for Frictionless Credit. This initiative aims to streamline and enhance credit delivery by lenders through digital credit appraisal, ultimately promoting financial inclusion in India.
• Central bank started allowing e-Rupee transactions through UPI, on test basis in few cities and collaborating with banks to create e-Rupee wallets and payment systems, which would enable the customers and merchants to use their existing digital wallets without requiring new setups.
• In response to rising trends in unsecured lending, RBI implemented corrective measures including a 25% increase in the risk weight assigned to credit card receivables and personal loans, requiring the Banks to allocate additional capital while extending such loans.
• Banks have been permitted to offer the borrowers flexibility to adjust or modify their credit limits within the approved range based on individual customer profiles and banking behaviour. Customising credit limits not only reduces maintenance fees for borrowers but also mitigates the risk of fraud. •
• RBI has implemented a revised regulatory framework for commercial banks investment portfolios, aimed at aligning regulatory guidelines with global standards and best practices. The updates include introducing a symmetric treatment of fair value gains and losses, defining a clearly identifiable trading book under Held For Trading (HFT), removing the previous 90- day ceiling on holding periods under HFT, abolishing ceilings on Held-To-Maturity assets, and enhancing disclosures related to the investment portfolio. Effective from April 1, 2024, these revisions outlined by RBI will be applicable to all commercial banks, excluding Regional Rural Banks (RRBs).
Growth Propellers
• With the expanding income of the Indian middle class, there is a growing potential for increased savings among the people and this is expected to create a sizeable market for banks and financial institutions. Robust demand for financial services, coupled with ongoing innovation in banking services, will drive adoption and usage.
• By prioritising mobile-centric customer experiences, banks can streamline banking processes. Services such as Anywhere Banking, WhatsApp Banking, AI chatbots, and user-friendly mobile applications enable banks to extend their financial services while improving customer satisfaction. The surge in online shopping and the growth of e-commerce platforms present banks with an opportunity to capitalise on the increasing trend of digital transactions.
Industry Outlook
The bank credit growth is expected to be in the range of 14.0%- 14.5% by the end of FY 2024-25 according to M/s CareEdge. Deposit growth is expected to play a critical role to avoid any lag in credit growth. Indias robust economic and demographic position, along with the expansion of rural penetration and the establishment of an open banking ecosystem, favourably position the banking sector for future expansion and substantial growth. However, elevated interest rates and global uncertainties could negatively impact credit growth during this period.
Company Overview
Company Background
Karur Vysya Bank (hereafter referred to as ‘KVB or ‘our Bank) has built a strong reputation as a trusted banking institution over more than a century. Established in 1916 by Shri M. A. Venkatarama Chettiar and Shri Athi Krishna Chettiar, KVB has successfully met the financial needs of merchants and agriculturists. Over the years, our Bank has transformed into a leading financial conglomerate, excelling in Treasury, Corporate/ Wholesale Banking, Commercial Banking, Agriculture, and Retail Banking. We have consistently pioneered use of technology to enhance customer service while retaining personal touch with customers.
As of March 31, 2024, KVBs network includes 838 branches and 2,262 ATMs/BNRMs across India, serving over eight million customers. Our wide range of customised products and services continues to meet diverse customer needs.
Mitigations for Weaknesses and Threats Regional Concentration & Low Visibility Beyond South and West Markets: The bank will enhance its digital presence, expand non-branch distribution channels, and focus on partnerships for lending to acquire customers in unpenetrated markets. Additionally, the bank is considering increasing its presence in other potential markets and leveraging its niche market presence for maximum advantage.
Initiatives to improve digital penetration and co-lending through NBFCs/Fintechs are helping the bank to expand its footprint in regions where its network is not well-established.
Lower Presence in the Retail Segment: The bank has already opened an exclusive retail asset branch to grow its retail assets, especially housing loans. Furthermore, the bank is strengthening non-branch distribution models (DSA, DST, FOS) to increase the sourcing of retail loan products. The bank is also setting up Retail Assets Centres for faster processing of retail loans and to enhance customer experience. These measures are expected to improve the banks presence in the retail segment.
An exclusive sales vertical has been established for accelerated acquisition of New-to-Bank customers in the liabilities segment through an increase in the Feet on Street (FOS). The bank has adopted a segmented approach with exclusive sales teams focussing on mass segments, HNIs, NRIs, salary segments, trade, and forex customers. The bank is also forging alliances through the Corporate BC model to tap potential centres in Tamil Nadu, Andhra Pradesh, Telangana, and Karnataka.
Rising Competition from Bigger Banks in the Hinterland:
The bank has a strong understanding of small and medium customers and has built years of relationships and experience in offering optimal banking solutions to these entities. To face the competition, the bank is benchmarking its products and pricing in line with competitors. Additionally, there will be a greater focus on retaining existing clients through strategies that improve products per customer and loyalty programs.
The bank is adopting an omni-channel approach to enhance client experiences and attract new customers. It is enhancing its digital capabilities and continuously improving customer experience across all channels, focussing on ease of banking.
Challenges in Improving Operational Efficiency Due to Contraction in NIMs: The bank is focussing on improving CASA deposits through a dedicated acquisition team targeting corporate salary segments, TASC segments, and government business segments. Credit verticals will also focus on high-yielding assets without compromising asset quality.
Exposure to Negative Economic, Political, and Social Developments in the Southern Region: The bank continuously monitors and assesses potential risks arising from socioeconomic-political developments in the Southern Region and proactively works out appropriate mitigation measures.
Data Breaches: The bank has implemented several controls to prevent or detect data breaches, including:
• Perimeter security controls such as network firewalls, web application firewalls, network intrusion prevention, network segregation, and network behaviour analysis and anomaly detection systems.
• Privileged access management control with multifactor authentication.
• Host-based intrusion prevention systems to automatically detect and prevent known vulnerabilities.
• A data protection strategy comprising automated data classification and prevention of sensitive information leakage.
• 24x7 security monitoring to identify unusual security events in the banks IT environment and timely incident response actions.
• Periodic management and Board oversight to review control effectiveness and strengthen controls.
Financial Overview
During FY 2023-24, our Bank exhibited robust performance, surpassing the milestone of ? 1,500 Crore in Net Profit. We recorded a Net Profit of ? 1,605 Crore, marking the highest post-tax income ever achieved in our history. The total business reached ? 1,63,536 Crore, marking a significant 16% increase from the previous financial year.
(In Rs Crore)
| Particulars | FY 2022-23 | FY 2023-24 | % Change |
| Total Business | 1,40,806 | 1,63,536 | 16 |
| Net Interest Income (1) | 3,349 | 3,809 | 14 |
| Other Income (2)@ | 1,159 | 1,659 | 43 |
| Other Income (excluding one off item) | 1,159 | 1,502 | 30 |
| Total Income (1+2)# | 4,508 | 5,468 | 21 |
| Net Income from Advances and Others | 3,313 | 3,854 | 16 |
| Net Income from Treasury Operations | 1,195 | 1,614 | 35 |
| Operating Expenses | 2,032 | 2,639 | 30 |
| Operating Profit | 2,476 | 2,829 | 14 |
| Provisions | 1,039 | 729 | (30) |
| Profit Before Tax | 1,437 | 2,100 | 46 |
| Tax | 331 | 495 | 50 |
| Net Profit | 1,106 | 1,605 | 45 |
#Total Income is the sum of Net Interest Income and Other Income @ As per RBI Master Direction-(Transfer of Loan Exposures) Directions, 2021 SR investments more than 8 years have to be classified as Loss assets - Non Performing Investments (NPI). As per RBI Direction on Financial Statements - presentation and disclosure (30.08.2021) depreciation on investments have to be classified under other income. During the year, we have reversed ? 157 Crore of such SR investments provision resulting in increase in other income and treated the same amount as provision for NPI under provisions. However, there is no effect on net profit.
Banks Total Deposits grew by 16% during FY 2023-24 over the previous year to reach ? 89,113 Crore, driven largely by increase in Term Deposits by 21% to ? 62,028 Crore. The Demand and Savings Deposits grew by 11% and 4% respectively and the total CASA moved to ? 27,085 Crore from the previous year level of ? 25,449 Crore.
Our Banks total advances witnessed 16% year-on-year growth, with most of the credit verticals equally contributing to this expansion. We will continue to concentrate specifically on expanding our retail segment and small-ticket commercial advances. This initiative involves establishing specialised units dedicated to these segments.
Total Advances during FY 2023-24
(in Rs. Crore)
| Vertical | FY 2022-23 | FY 2023-24 | % Change |
| Commercial | 20,980 | 25,449 | 21 |
| Retail (Personal Banking) | 15,012 | 17,662 | 18 |
| Corporate | 13,343 | 13,949 | 5 |
| Agriculture | 14,833 | 17,363 | 17 |
| Advances | 64,168 | 74,423 | 16 |
Capital Management
Our Bank maintains a robust capital position, with an overall capital adequacy standing at 16.67%, significantly exceeding the minimum requirement of 11.5% mandated by the RBI. As of the end of FY 2023-24, the ratio of Risk Weighted Assets (RWA) to Total Assets reached 58%.
Financial and operating ratios
Our Bank registered decent growth in Net Interest Income and Other Income, contributing to the growth in Total Income. We witnessed significant improvements in our key metrics, including Return on Assets, increasing to 1.63% from 1.27% in FY 2022-23, Return on Equity rising to 15.98% from 13.13% in FY 2022-23 and EPS to 19.99 from 13.81.
| FY 2022-23 | FY 2023-24 | % Change | |
| Book Value (?) | 105.03 | 122.42 | 16 |
| Cost of Deposits (%) | 4.27 | 5.19 | 21 |
| Yield on Advances (%) | 8.93 | 9.93 | 11 |
| Yield on Funds (%) | 7.81 | 8.67 | 11 |
| Cost of Funds (%) | 4.30 | 5.23 | 21 |
| Net Interest Margin (%) | 4.18 | 4.19 | 0.24 |
| Cost to Income (%) | 45.08 | 48.26 | 7 |
Details of change in Return on Networth as compared to the immediately previous financial year and reasons thereof
The Return on Networth / Return on Equity grew from 13.13% as on March 31, 2023, to 15.98% as on March 31, 2024, owing to growth in Net Profit.
Reasons for significant changes (i.e. change of 25% or more as compared to the immediate previous financial year) in key financial ratios
Our Banks Net Profit for FY 2023-24 increased by 45% to Rs. 1,605 Crore from Rs. 1,106 Crore recorded in the previous FY 2022-23. Increased business growth resulted in increased total income and this coupled with lower provisions increased the Net Profit during the year. The same is reflected in the Return on Assets (ROA), Return on Equity (ROE), and Earnings Per Share (EPS).
Medium and Long-term Strategy of the Bank
While discussing our banks strategy not only for the current financial year but also the next five years, our Bank is clear that it needs:
The Bank will pursue its strategy through the following methods:
People
• Nurturing in-house talent.
• Induct fresh talent, where required, to complement in house capacity.
• Continuous capacity building of human resources in specialised areas such as Credit, Treasury, Forex, Risk Management, Collections and Recovery.
• Digital enablers to sales force at the field level.
• Talent acquisition through lateral hires wherever required.
• Talent management through appropriate retention measures.
Processes
• Digital adoption of processes to ensure that entire customer journey is through technology for delivering seamless personalised customer-centric experience with minimum lead time.
• Improved decision-making and operational excellence by leveraging data, business intelligence and advanced analytics.
• Study the changes in consumption patterns of customers, with customisation of financial products to suit the requirement of every profession/segment dominant in our command area.
• Adoption of technologies including Robotic Process Automation and Artificial Intelligence.
Practices
• Strong governance and oversight.
• Developing a good compliance culture.
• Zero tolerance for non-adherence to process and compliance.
• Comprehensive risk management practices.
• Concentrating on niche areas for growth.
• Focussing more on the southern states of Tamilnadu, Telangana and Andhra Pradesh for improvement in market share.
Planning
• Optimise use of financial resources.
• Improved efficiency of capital deployment.
• Ensuring adequate funding at competitive rates.
Partnerships
• Co-lending partnerships with NBFCs.
• Fintech partnerships for sourcing to provide customers with delightful experience across multiple channels.
• Meeting entire financial requirements of customers by having all the required tie-ups and ensure one-stop solution for all our customers.
The Banks strategy is to deliver consistent financial performance, by providing superior services to the targeted group. The Bank will:
Offer our clients financial solutions/products/services, with continuous focus on southern and western markets and target retail and commercial business customers.
Provide efficient and competitive services leveraging digital channels with a focus to improve the market share of the Bank and follow policies to attract young customers and to sustain the granular growth by optimising the balance sheet, improving CASA to 33% levels, and improve ROA above 1.50% levels.
Business Verticals Overview
Commercial Banking Group (CBG)
Overview
As an MSME-friendly Bank, we have successfully embarked on a digital lending journey to support our MSME customers within the evolving digital ecosystem. Our Bank has developed a wide range of commercial loan products in digital form, complemented by a best-in-class underwriting process. This digital transformation aims to enhance accessibility, streamline the lending process, and provide efficient, tailored financial solutions to MSMEs. The commercial business segment grew by 21% over the previous year, reaching a portfolio size of Rs. 25,449 Crore as of March 31, 2024, and accounted for about 34% of our Banks advances.
CBG introduced KVB Unsecured Business Term Loan in August 2023. This product has been launched to cater to the needs of our existing current account customers who have been with us for over two years and have not yet availed working capital or standalone term loans from our Bank. This initiative aims to provide these customers with tailored financial solutions, leveraging their established relationship with our Bank.
Outlook
Our Bank is aiming for significant growth in the coming fiscal, especially in MSME Business. Additionally, we will benchmark our products to ensure competitiveness. Moreover, we are in the process of revamping our Warehouse Receipt Loan for traders, utilising electronic Negotiable Warehouse Receipts (e-NWRs).
Key Highlights
The working capital limit based on GST without audited financial statements have been increased from Rs. 50 Lakh to Rs. 100 Lakh.
Bank Guarantees through electronic mode (e-BG) has been an initiative where Bank guarantees are issued electronically for minimising frauds and eliminating the need for paper. To facilitate e-BG issuance, our Bank has partnered with National E-Governance Services Limited (NeSL), which will also serve as the central repository for e-BGs.
We are also closely working with GePNIC portal, an e-Procurement software system developed by the National Informatics Centre to meet the procurement and tendering needs of government departments and organisations. Our Banks portal will manage the e-BG requirements for the MSME customers.
Under Co-lending Partnership Program, our Bank has partnered with a leading NBFC for extending Loan Against Property (LAP) and the digital underwriting integration has been completed in March 2024. The business from this arrangement would grow in FY 2024-25.
We have engaged with several business chambers by participating in their events, including the Confederation of Indian Industry (CII), FICCI, and ASSOCHAM. Additionally, our Bank participated in the Economic Times MSME Day event during the year.
Consumer Banking Department (CBD)
Our Bank has brought both Personal Banking Liabilities Group and Personal Banking Assets Group under one umbrella as "Consumer Banking Department" to have better synergies between the two verticals with an aim to accelerate growth in its Retail Business.
To have better synergy and leverage the best practices, NEO has been brought under CBD - Retail Assets from April 01, 2024. Both Branch Channel and Open Market Channel would function under Retail Assets.
Retail Assets
Our Banks Retail Loan portfolio grew by approximately 18% over the year, with a net increase of about Rs. 2,650 Crore. This brought the Retail Advances portfolio to Rs. 17,662 Crore, making up about 24% of our Banks total advances. This growth was driven by dedicated tracking of efficiency ratios and productivity metrics across various products. Our Banks consumer lending policies have been benchmarked against industry standards, with adjustments made to align with our Banks risk appetite and enhance business performance.
The Retail Assets team has established partnership with an NBFC to co-lend in checkout finance (BNPL Loans) on the Amazon platform. Additionally, the team is actively engaging with various fintech companies and NBFCs across different consumer lending products to stimulate growth.
The following table illustrates the performance of key products in Retail Assets during FY 2023-24:
| Product | Portfolio Size | Growth over |
| (in Rs. Crore) | FY 2022-23 (%) | |
| Home Loans | 7,563 | 13 |
| Mortgage Loan (LAP) | 4,116 | 27 |
| Other Loans | 1,148 | 13 |
The CBD (Assets) maintains a cautious growth target in retail credit card business due to the unsecured nature of the segment and our Banks limited experience. The issuance of retail credit cards was limited to Existing to Bank (ETB) customers based on our relationship and internal policies of our bank. However, recognising the potential in this segment due to low credit card penetration in the country, the vertical plans to grow the credit card business through partnerships (co-brands) and secured cards.
CBD (Assets) also offers Pre-approved Personal Loans to ETB customers, enabling selected customers to receive disbursements within minutes through an end-to-end digital process with minimal documentation.
Key Highlights
CBD (Assets) expanded its distribution footprint by increasing the number of Direct Selling Agents (DSAs) and Direct Sales Teams (DSTs).
The product offerings have been benchmarked against industry standards and peers to ensure they are competitive and relevant.
Outlook
The CBD (Assets) would explore various new segments for better yields and target different customer categories with new products. The vertical will also focus on driving specific products like business loans and retail gold loans with a dedicated team. Additionally, we plan to increase partnerships with key players in other markets to enhance their pan-India footprint.
Retail Liabilities Overview
The CBD (Liabilities) has established exclusive sales teams to focus on New to Bank (NTB) client acquisitions. Concurrently, efforts have been made to strengthen the branch network to deepen relationships with Existing to Bank (ETB) customers by addressing their needs. In addition, the department has created a dedicated Government and Institutional Business team to focus on high-value Current Account and Savings Account (CASA) and term deposit segments. The vertical is also enhancing product support functions to launch new products and refine existing ones to remain competitive and meet customer expectations.
Total Deposits during FY 2023-24
(In Rs. Crore)
| FY 2022-23 | FY 2023-24 | % Change | |
| Demand Deposit | 7,454 | 8,283 | 11 |
| Savings Deposit | 17,995 | 18,802 | 4 |
| CASA | 25,449 | 27,085 | 6 |
| Term Deposit | 51,189 | 62,028 | 21 |
| Total Deposit | 76,638 | 89,113 | 16 |
Key Highlights
During FY 2023-24, our Banks liability franchise witnessed 16% growth by reaching Rs. 89,113 Crore, primarily driven by a 21% year-on-year increase in term deposits. Despite some conversion to term deposits, demand deposits and savings bank deposits grew by 11% and 4%, respectively.
Our Bank has launched 24 new CASA products tailored to different customer segments, each offering top-tier features to aid in expanding and enhancing our existing product lineup significantly. Our Banks CASA deposits reached Rs. 27,085 Crore during the year. In FY 2023-24, our Bank opened 5,73,275 new CASA accounts.
Implementation of Mutual Fund solutions, integration with Icegate portal for customs duty payment, offering Green Deposits in Internet & Mobile banking portal and instant v-KYC in Mobile Banking App has enhanced customer convenience to a great extent.
Our Banks digitisation efforts included simplifying customer onboarding, streamlining re-KYC processes, offering various debit card options for different CASA customer segments, enabling CASA product portability with the option to retain account numbers, and facilitating seamless onboarding of current account customers through the Spice portal.
Unified Payments Interface (UPI)
In terms of UPI transactions, our Bank surpassed a new benchmark with a transaction value of Rs. 2.60 Lakh Crore during FY 2023-24.
Point of Sale (PoS)
During FY 2023-24, the income earned from the PoS business was about Rs. 26 Crore, and the float income from the accounts mapped to PoS is estimated at about Rs. 39 Crore.
Debit Cards
On the card front, our Bank issued about 9.90 Lakh debit cards during FY 2023-24. Throughout the year, these cards facilitated about 743 Lakh transactions, totalling to about Rs. 31,658 Crore.
FASTag
Since the inception of the technology, our Bank has issued about 5.40 Lakh FASTags. For FY 2023-24, the income earned from FASTags stood at Rs. 8.40 Crore, and the float funds available with our Bank through FASTag float balances and security deposits exceed Rs. 30 Crore.
Demat Services
Our Bank has been registered with the National Securities Depository Limited (NSDL) as a Depository Participant (DP), enabling it to offer demat services to participants in the security market. Additionally, our Bank has partnered with M/s IDBI Capital Markets and Securities Ltd., M/s Religare Securities Ltd., M/s SMC Global Securities Ltd., and M/s Geojit Financial Services Limited to provide trading account facilities.
Government-Sponsored Schemes and Pension Schemes
We offer a range of government-sponsored schemes, from pension schemes to insurance schemes, to meet the diverse social security needs of people. The details of various schemes offered by our Bank are as follows:
Pradhan Mantri Jan Dhan Yojana (PMJDY): During FY 202324, a total of 1,624 RUPAY cards were issued under the PMJDY scheme. Our Bank has opened 1,16,048 PMJDY accounts with outstanding balance of Rs. 19.98 Crore as on March 31, 2024.
Pradhan Mantri Jeevan Jyoti Bima Yojana (PMJJBY): PMJJBY is a life insurance scheme renewable annually, providing coverage for death due to any cause. It is available to individuals aged 18 to 50 years (with coverage up to age 55) holding a savings Bank account and consenting to auto-debit. A total of 74,976 customers have been enrolled under this scheme.
Pradhan Mantri Suraksha Bima Yojana (PMSBY): PMSBY is aimed at covering those not covered by other insurance plans. Available at a highly affordable premium of Rs. 20 per year, its open to individuals aged 18 to 70 years with a savings bank account, consenting to auto-debit before May 31 for the coverage period of June 01 to May 31, annually. We have enrolled 1,49,575 customers under this scheme.
Atal Pension Yojana (APY): APY is a pension scheme for Indian citizens, primarily benefiting unorganised sector workers. Our subscribers receive a guaranteed pension of Rs. 1,000 to Rs. 5,000 upon reaching 60 years, depending on their contributions. We enrolled 3,504 customers under this scheme during FY 2023-24.
Sovereign Gold Bond (SGB): SGB is a government security denominated in grams of gold, offering an alternative to physical gold ownership. Investors pay the issue price in cash, and bonds are redeemed in cash upon maturity. We sourced about 135 KGs of gold worth Rs. 82.40 Crore in 4 tranches with 4,160 applications.
National Pension System (NPS): NPS is a pension cum investment scheme providing old age security, regulated by the Pension Fund Regulatory and Development Authority (PFRDA). Bank offers online NPS account openings through K-fintech (CRA) and has covered 778 customers as of March 31, 2024.
Outlook
Our Bank is poised to strengthen its distribution model to rapidly drive NTB acquisition through various channels. The various channels include an exclusive sales vertical, a dedicated Government & Institutional Business Vertical, partnerships with FinTechs, and collaboration with Corporate Business Correspondents to reach areas with limited Bank presence. Additionally, our Bank aims to achieve accelerated growth in CASA deposits and enhance fee income by distributing third- party products.
Our Bank is focussing on cross-selling and up-selling its range of products across deposits, credit, and investments, to ensure the retention of valued customers. Our Bank expects to improve products per customer through deeper relationships within Existing to Bank (ETB) Books, utilising analytics-driven data, and enhancing cross-vertical coordination.
Corporate and Institutional Group (CIG)
Overview
The CIG vertical operates with 9 Corporate Business Units (CBUs) in Ahmedabad, Bengaluru, Chennai, Coimbatore, Delhi, Hyderabad, Madurai, Mumbai, and Vijayawada. Each CBU is headed by an AGM/DGM, who is supported by Relationship Managers and Credit Analysts.
The CIG portfolio constitutes 19% of our Banks total advances and had a growth of 5% during the year. Striking a balance between maintaining healthy margins and pursuing strategic growth opportunities is a challenge that the Bank had to navigate last year. Considering the above, the bank had consciously shed corporate advances to the extent of Rs. 1,574 Crore during the year due to low yields and exit marked accounts to maintain healthy margins as well as quality of portfolio, and hence growth appears muted. CIG placed greater emphasis on emerging midcorporate segments for fresh exposures, resulting in significant improvements in asset quality by maintaining Special Mention Accounts (SMAs) and minimising account slippages.
Key Highlights
Corporate portfolio grew to Rs. 13,949 Crore.
Average ticket size remained granular, around Rs. 39 Crore.
Implementation of Loan Origination System (LOS) to streamline processes and enhance efficiency.
Enhanced yield by exiting low-yield advances.
Minimal levels of SMA
Outlook
Looking forward, our Banks strategy for the CIG segment focusses on expanding our portfolio with loans and advances ranging from Rs. 25 Crore to Rs. 75 Crore. We are actively identifying opportunities across the value chain to support both forward and backward integration initiatives. We are also targeting new customers with a minimum investment grade rating, aiming to strengthen our market presence.
The Indian governments initiatives such as "Atmanirbhar Bharat", "Gati Shakti", "Bharatmala", and "Sagarmala Pariyojna" are expected to boost manufacturing and infrastructure development, thereby increasing demand for bank credit. We are well-positioned to leverage our institutional expertise and these government initiatives, offering industry-specific financial solutions tailored to meet customer needs. In addition, the ongoing global integration will significantly impact future foreign trade and forex business for banks. We remain committed to maintaining high asset quality in our corporate portfolio through vigilant monitoring and proactive management of stressed assets. Such approach ensures sustainable growth and resilience in our CIG segment as we navigate the evolving economic landscape.
Agricultural Banking Group (ABG)
Overview
Agriculture credit plays a vital role in the Indian economy, serving as the main source of income for most people in rural areas. To ensure a sustainable increase in farmers income, it is crucial to adopt a farmer-centric approach with a strong focus on agriculture and farmers welfare.
During FY 2023-24, the ABG loan books grew to Rs. 17,363 Crore, marking a 17% increase from the previous year. This growth was fuelled by substantial disbursements, including Short-term loans to Agriculture and Allied activities, as well as through customised and innovative disbursement solutions tailored to the farming community.
ABG accounts for approximately 23% of our Banks total advances. Our Bank successfully achieved all targets and sub-targets under Priority Sector Lending throughout FY 2023-24. Additionally, the ABG Vertical actively contributes to financial inclusion through strategic interventions, leveraging technology, and promoting financial literacy. ABG has effectively reached out to underprivileged segments of society, bridging the gap and empowering communities with financial access.
Key Highlights
Verticals loan books grew by Rs. 2,530 Crore during FY 2023-24.
Sourcing of KVB-Jan Dhan Accounts through BCs was successfully pilot tested and commenced implementation in the state of Tamil Nadu.
100% digitalisation of the Agri gold loan process made effective from March 21, 2024 and completed automation of margin call triggers.
A separate sales channel has been introduced under the Agri Vertical, by engaging Agri Relationship Managers to service clients and maintain customer relationship and centricity.
Our Bank has been at the forefront of raising awareness about financial services and products among the rural population through Financial Literacy Campaigns. During FY 2023-24, our Bank conducted 108 financial literacy campaigns in rural, semi-urban, and urban areas, including the RBI Financial Literacy Week campaign in 2024.
Outlook
Going forward, there are significant opportunities for credit lending, including lending to food and agro industries, agroproduce exporters, and corporates. Additionally, there are prospects in fin-tech lending, on-lending to agriculture, and lending to groups and clusters such as Farmer Producer Organizations (FPOs), Farmer Producer Companies (FPCs), and Joint Liability Groups (JLGs). These opportunities will enable us to further support and grow the agricultural sector while enhancing our Banks portfolio and customer base.
As we move forward, our Bank is implementing several strategic initiatives to enhance our agricultural banking services. We are transitioning the processing of Agri Term loans to a LOS platform to streamline operations and reduce errors. Additionally, Agri Officers and Agri Relationship Managers will be equipped with extended tabs to facilitate E-KYC savings account openings, making the process more efficient and convenient. We will also introduce e-stamping for Agri Gold loans and Agri Kisan Credit Card (KCC) loans, expediting loan approvals and enhancing security. In addition, we will implement enhanced controls for the recovery of other Agri advances, aiming to improve recovery rates and reduce non-performing assets. These initiatives reflect our commitment to leveraging technology to improve service delivery and support the agricultural sector effectively.
NEO
Overview
NEO was established in June 2019 to create a unit with standalone distribution, credit and collection channel targeting NTB customers and distributing products with competitive features. The NEO portfolio primarily includes mortgage loans. Additionally, it includes home loans, rent finance, loans against POS receivables, unsecured business loans, and co-lending loans.
NEO manages both secured and unsecured segments with distinct sub-verticals for home loans, mortgage loans, assignment of receivables, and unsecured business loans. The business is sourced through various channels, including standalone channels, channel partners, and connector channels.
NEO operates by aligning all products, processes, and procedures with market practices and incorporating innovations. This approach caters to multiple segments and helps maintain a strong market presence across various geographies.
Key Highlights
Witnessed 48% growth through the open market channel.
Added two new branches - one in Chennai Annasalai and another in Vijayawada Visalandhra Road.
To have better synergy and leverage the best practices, NEO has been brought under Retail Assets from April 01, 2024. Both Branch Channel and Open Market Channel would function under Retail Assets.
Transaction Banking Group (TBG)
Overview
The TBG specialises in Cash Management Services (CMS), offering collections, receivables and payment products for corporates of all sizes. Our electronic, receivables platform supports virtual accounts and bulk payments, streamlining financial operations. TBGs comprehensive Supply Chain Finance (SCF) programs address working capital needs within the supply chain, benefiting businesses across various industries. We have formed strategic partnerships with leading FinTech companies, expanding our reach and providing innovative financial services. Additionally, TBG is active on all three RBI-licensed Trade Receivables Discounting System (TReDS) platforms, reinforcing our commitment to excellence.
Key Highlights
SCF has emerged as a sought-after financial solution, playing a pivotal role in optimising cash flows, and strengthening supply chains for companies. As of March 31, 2024, the TBG SCF portfolio has grown to about Rs. 971 Crore (forms part of CIG and CBG Vertical figures), marking a 34% increase compared to March 2023. The Factoring and TReDS portfolio contributed Rs. 295.84 Crore (forms part of CIG and CBG Vertical figures) to the overall portfolio.
We had expanded our FinTech referral partnerships to five, with additional arrangements anticipated in future. These new collaborations are expected to significantly boost the growth of our SCF portfolio.
Automation is being implemented to provide seamless MIS reports to CMS and SCF customers and corporates.
We are currently implementing API integration with OEMs and referral partners to facilitate seamless data exchange, enhancing operational efficiency. Concurrently, the CMS version upgrade initiative has also been initiated to improve functionality and performance.
Outlook
The SCF portfolio in India is expected to grow well. We are coordinating with our Digital Transformation and Processing Cell to enable LOS services for SCF products. New products under SCF, such as Receivable Finance for Hospital Insurance Receivables and MSME-to-MSME Purchase Order Funding, are currently being studied and will be implemented soon. In the next few years, working capital financing for SMEs are expected to predominantly shift to supply chain finance and trade finance structures. Deep Tier Vendor Finance has been gaining significant traction and momentum. Due to growing demand from both the industry and the market, our Banks SCF portfolio is poised for continued expansion.
Precious Metal Division (PMD)
Overview
During FY 2023-24, the Precious Metal Division (PMD) witnessed moderate growth in bullion business turnover, showcasing decent performance across all products in gold and silver offered to clients in the gem and jewellery sector. With required skill set and experience in handling clients across India, our division is well- equipped with established systems and processes to efficiently manage this business segment. Additionally, we have obtained renewal of authorisation from the RBI for the import of gold and silver for FY 2024-25.
Key Highlights
Our Bank is among the select few bullion Banks serving customers with Tariff Rate Quota (TRQ) for the import of Gold under the Comprehensive Economic Partnership Agreement (CEPA) between India and the UAE government.
Our Bank caters to exporters of all sizes, ranging from large enterprises to small businesses, ensuring accessibility and support for the entire spectrum of exporters.
Outlook
Our Bank has expanded its client base and geographic reach to target improved business turnovers and revenues in the upcoming years. Our experienced team is known for being highly supportive and responsive, with minimal turnaround time. The divisions unique selling point lies in the strong business relationships established with clients, and we anticipate decent growth in the future. PMD is dedicated to increasing consignment supplies, penetrating new markets, strengthening customer relationships, and boosting turnover while offering products tailored to client needs within the regulatory framework.
Treasury
Overview
The scope of treasury management function of our Bank is quite vast and it has been evolving over the years. The Treasury Departments scope includes various activities, including investments in Central and State Government securities, Debt instruments of Banks, Financial Institutions, other companies, Commercial Papers, Certificate of Deposits, Equity Shares, Mutual Funds, Derivatives, Forex, etc. The department recognises the close connection between business strategy and organisational goals, ensuring optimal performance while managing associated risks effectively. In response to rising yields, during the previous financial year, our Bank effectively managed interest rate volatility by maintaining a lower duration in the Available for Sale (AFS) portfolio. Additionally, there was no incremental growth in the provision for the depreciation of investments. Our Banks investment portfolio adheres to our investment policy, emphasising liquidity, regulatory compliance, and profitability.
Key Highlights
Our Banks investment portfolio grew to Rs. 22,840 Crore, marking a year-on-year growth of 17% in FY 2023-24. The yield on investments increased by about 43 basis points compared to the previous FY 2022-23, with the average duration of the portfolio being less than 3 years.
The Treasury Vertical has actively pursued trading and investment activities in debt, equity, and foreign exchange within the established framework, aiming to maximise interest income and profit.
Outlook
Our Banks low-duration strategy during the period of rising interest rates has created an opportunity to re-price maturing investments at higher rates. This is expected to boost interest income and portfolio yield in the coming year. The RBIs new master directions on the classification, valuation, and operation of investment portfolios allow banks to invest in Non-SLR securities under the HTM category. This change enables our Bank to invest in high-quality Non-SLR securities and earn higher interest income without the risk of mark-to-market fluctuations.
The vertical maintains strong relationships with existing clients while actively exploring the opportunities to offer tailored services and products to all valuable clients. Additionally, there is a unified effort to onboard new customers to enhance brand visibility and presence in the market.
Collections & Asset Quality
Overview
Our Bank prioritises financial stability and maximising profitability by implementing rigorous measures aimed at protecting asset quality, minimising slippages, and enhancing recovery efforts. These measures include proactive monitoring systems, prompt restructuring options for stressed borrowers, empanelling and streamlining of recovery agencies, and the simplification of legal and recovery frameworks.
Additionally, our Bank has initiated the systemisation of the recovery process through third-party solutions to effectively track recovery positions and accelerate the recovery process. This systemisation ensures data processing from the onset of stress in an account until its upgrade or closure, facilitating proactive identification of potential defaults, prompt resolution actions, and efficient recovery processes. Ultimately, such efforts contribute to the reduction of slippages and improvement in recovery rates.
We have effectively maintained robust asset quality, supported by several key factors such as portfolio diversification, systemic credit approval processes, regular post-disbursement monitoring, implementation of remedial actions, and enhanced recovery measures. These strategic initiatives have empowered us to proficiently manage risks and maintain a resilient asset portfolio.
Our steady efforts to minimise slippages, including the establishment of specialised collection teams, effective monitoring, and data-driven analysis, have significantly enhanced our capability to maintain a healthy asset portfolio. There has been a significant decline in both Gross Non-Performing Assets (GNPAs) and Net Non-Performing Assets (NNPAs) at our Bank. As of March 31, 2024, the SMA 30+ accounted for 0.38% of the Advances portfolio.
We regularly monitor Early Warning Signals and verify RBIs Central Fraud Registry (CFR) Portal and Central Repository of Information on Large Credits (CRILC) portal to ascertain listing of any of our customers, particularly those under Multiple Banking Arrangements (MBA)/Consortium arrangements, by other Banks. We conduct monthly reviews of account statements, stock statements, and other related documents to identify any anomalies or irregular operations. We also keep a daily watch on instances of frauds reported in the news media. We utilise specialised Asset Recovery Branches (ARBs) to speed up recovering assets, while also utilising branch channels and Divisional Offices to achieve our goal.
The department rigorously identifies and classifies NPAs in accordance with regulatory guidelines and a thorough risk assessment is conducted to understand the root causes of NPAs, evaluating factors such as borrower financial health, market conditions, and collateral valuation. Tailored recovery strategies are formulated to maximise the retrieval of defaulted loans, including restructuring, recovery through legal channels, asset reconstruction, or strategic debt restructuring.
The High value NPA accounts are managed by eight Asset Recovery Branches spread across India for effective recovery. We have also engaged recovery agencies to assist the Asset Recovery Branches to reach the end customers and for continuous followup. Our tailored recovery strategies are formulated to maximise the retrieval of defaulted loans, including restructuring, recovery through legal channels, asset reconstruction, or strategic debt restructuring. The adoption of innovative technologies and streamlined processes improved the operational efficiency, facilitating prompt NPA resolution and decision-making.
Outlook
Going forward, our Bank will focus on the following aspects to improve collections:
• Enhancing communication with customers through personalised reminders, clear payment instructions, and proactive follow-ups to address concerns.
• Implementing streamlined collection processes, leveraging automation and digital channels for efficient payment tracking and reminders.
• Collaborating with the Credit verticals and collections team to align efforts, share customer insights, and prevent future delinquencies through proactive account management.
• Regularly reviewing the collection performance, analysing trends, and making necessary adjustments to optimise collection strategies and outcomes.
• Providing ongoing training to the recovery team on negotiation skills, customer empathy, and effective dispute resolution to enhance their performance.
We will prioritise accelerating NPA recovery, enhancing legal and recovery frameworks to address challenges in the recovery process. We plan to implement new IT initiatives aimed at enhancing monitoring to improve transparency and efficiency in recovery operations. We will leverage data analytics and predictive modelling for more accurate recovery prediction and strengthen our partnerships with external agencies to expedite NPA resolution and maximise recovery outcomes.
| FY 2019-20 | FY 2020-21 | FY 2021-22 | FY 2022-23 | FY 2023-24 | |
| GNPA(%) | 8.78 | 7.94 | 6.03 | 2.27 | 1.40 |
| NNPA(%) | 3.96 | 3.46 | 2.31 | 0.74 | 0.40 |
| Provisioning Coverage Ratio (PCR) (%) | 68.90 | 72.70 | 80.27 | 92.14 | 94.85 |
| Credit Cost (%) | 2.93 | 1.47 | 1.26 | 1.45 | 0.65 |
Marketing and Branding
Ensuring that our brand stays top-of-mind is essential for continual business growth. To achieve this, we maintain a consistent presence and promotion across various media channels. While our Bank is already widely recognised, we have also implemented a strong branding strategy to remain competitive. Our Bank emphasises on being tech-savvy, offering excellent digital products and services, while also prioritising traditional customer values. Our DLite app and digital loan processes are highly regarded and promoted through print, TV, and digital media. Social media platforms are utilised to engage with younger customers, with regular posts showcasing our products. Additionally, we have focussed on promoting our MSME services to demonstrate our commitment to meeting diverse customer needs.
Business Outlook
Moving forward, our main priorities entail sustaining the consistent performance achieved over the past three years and promoting the long-term growth and development of our business. Our focus remains on maintaining a balanced loan portfolio and sustained profitable growth. We plan to expand our branch network, enhance our non-branch channels, and continue our efforts in digital innovation. Additionally, we seek to forge robust partnerships with NBFCs and Fintechs for co-lending and sourcing. With a strong emphasis on sustainable profitability and efficient operations, we are confident in our ability to deliver value to our stakeholders. We blend tradition, technology, and teamwork to navigate and adapt to evolving regulatory and business landscapes. Our focus remains on prioritising the critical needs and aspirations of our customers and stakeholders.
Review of Operations Verticals
Customer Service
Our Bank has a long-standing reputation for providing personalised customer service. To further enhance the customer experience and improve service delivery, the following measures have been implemented:
• Enhanced the maximum limit for Net Banking transactions under RTGS, NEFT and IMPS for improving the digital transactions growth.
• We launched TAB-based full KYC conversion for the Dlite OTP based non-face to face accounts with e-sign option to improve the conversion percentage and to facilitate completion of full KYC at their preferred date and time.
• To facilitate transactions through contact-less mode, Bank has commenced issuance of contactless RUPAY variant debit cards.
Data Centre - DRS functions
Our Bank has a Board-approved Business Continuity and Disaster Recovery (BC & DR) Policy aimed at ensuring uninterrupted banking services for customers. Both the Data Centre (DC) and Disaster Recovery Site (DRS) are equipped with state-of-the-art infrastructure and located in different seismic zones. Our Bank maintains standby setups for critical applications in the DRS, enabling seamless business operations even in the event of a disaster at either site.
The transformation of the Data Centre is a pivotal ongoing process for our Bank, incorporating new technologies such as virtualisation, cloud computing, image processing, artificial intelligence, open-API, eKYC, open-source platforms, VPN, and storage-based backup solutions. These initiatives are rolled out following rigorous compliance with cybersecurity frameworks mandated by regulators.
Our Bank has structured its IT team into three main pillars: IT Management, IT Application, and Technology, aimed at enhancing project governance and professionalism. The Technology pillar oversees the management of the Data Centre and Disaster Recovery Site, ensuring robust technology infrastructure for our Bank.
The Data Centre focusses on maintaining application uptime and end-user availability, while the Disaster Recovery Site is dedicated to ensuring business continuity during unforeseen circumstances. Regular Disaster Recovery drills are conducted to ensure preparedness for maintaining uninterrupted business operations.
Key Highlights Enhancements in CBS
Revamped the Service Charge Module to improve transparency and efficiency in fee management.
Updated Customer KYC Screen Validations to enhance compliance and customer data security. information Security Operations
Integrated all network devices with Tacacs to enhance access control and security monitoring across the network.
Managed endpoint patching and upgraded iOS patches/firmware to mitigate security vulnerabilities and ensure system integrity.
Addressed Vulnerability Assessment and Penetration Testing (VAPT) remarks to strengthen overall security posture and resilience against cyber threats.
Application Modernisation
Successfully migrated the Enterprise Service Bus API platform to improve scalability and integration capabilities.
Upgraded versions of the SMS Application to enhance communication efficiency and reliability.
Lemented CBS - CTS straight-through API integration.
Enabled Straight Through Processing (STP) for NACH and Bullion transactions to automate and expedite transaction processing.
Updated CCIL - FX SWAP to version 4.2.5 to ensure compliance with the latest regulatory requirements and market standards.
Implemented Two Factor Authentication for FRS Web Users to strengthen access security and protect sensitive financial data.
Upgraded Manage Engine Version to improve IT infrastructure management and operational efficiency.
Risk Management
An overview
A robust risk management system and continuous adoption of latest initiatives ensures long-term financial security and stability. The overall responsibility of setting our Banks risk appetite and effective risk management rests with the Board / RM & ALM Committee.
Governance
Board of Directors
The Board focusses on:
• Approving and reviewing our Risk Management Framework and policies annually.
• Assessing the effectiveness of risk mitigation plan implemented by Risk Management Department.
• Providing strategic guidance on various initiatives undertaken / to be undertaken by Bank towards management and mitigation of various risks.
• Providing appropriate delegation to Top Management for planning and implementation of the Risk Management measures.
Risk Management & Asset Liability Management Committee, sub-committee of the Board, plays a supportive role to the Board, by carrying out inter alia the following functions:
• Review & oversee the development and implementation of risk management framework, risk assessment methodologies/ processes and tools, including monitoring and reporting etc.
• Assessing the future changes & threats and prioritise appropriate action.
• Setting and defining the Risk appetite of the Bank.
• Recommend suitable controls / mitigations for managing different risks.
Well-experienced risk management team of relevant industry experience in varied segments of relevance to the bank and knowledge in various areas, handle the risk management functions.
The risk framework lays down the following components for effective risk management:
• An independent risk organisation and governance structure with a clear common framework of risk ownership and accountability.
• Governance standards and controls to identify, measure, monitor and manage risks.
• Policies to support and guide risk-taking activities across Bank.
• Risk Appetite Statements.
• Periodic stress testing to assess the impact of adverse business conditions on earnings, capital, and liquidity.
Risk culture for our Bank:
• A strong and consistent tone from the Board and Senior Management in respect of risk taking and risk avoidance in the Bank.
• A commitment to ethical principles - as reflected by ethical behaviour of the employees and application of ethics in business decisions.
• A clear enterprise-wide acceptance of the importance of Risk Management, including ownership and accountability of various risk areas.
• Timely flow of risk information in the organisation; Percolation of guidelines, regulations across the organisation alongside assessing its compliance.
• Encouragement for the reporting of risk events, including near misses, so that appropriate lessons could be drawn from them.
• Simplicity in processes which can be clearly understood by all the stakeholders and not to engage in any complex structural products/ business / activities; Excessive risk taking is not acceptable to the Bank, even if it results in any benefit for the bank.
• Development of adequately resourced Risk Management function and recognising the values of Risk Management skills and knowledge.
• Allowing sufficient diversity of perspectives, values, and beliefs to ensure that the status quo could be challenged without inhibition.
• The Whistle Blower policy encourages employees, customers and vendors to communicate any information to the Top Management without fear of reprisal.
Risk and Control Self-Assessment (RCSA): RCSA is a proactive tool in identifying lacuna, if any, in different products, processes, business activities, support functions, operational units of our Bank. Bank is conducting RCSAs (Risk and Control Self-Assessments) regularly to assess the level of inherent and residual risks and appropriate controls are introduced, wherever necessary, to reduce the risk levels. Different processes of our Bank are being studied for gaps (if any), controls available, adequacy of corresponding controls, leading and lag indicators etc. Corrective steps required are being initiated by the concerned stakeholder departments based on the RCSA.
Key Risk indicators - Key Risk Indicators helps in assessing the changes in operational risk profile and helps in triggering reviews and corrective actions, if required. KRIs under key business and support functions are being identified and compared with the threshold levels on a quarterly basis. The threshold levels are reviewed/new KRIs are identified periodically besides reviewing breaches, if any, facilitating for taking corrective actions.
Early Warning Signal (EWS): A number of Early Warning Signals (EWS) are studied regularly, and the results are shared with concerned business verticals by the Credit Monitoring Vertical. Our Bank has installed specialised applications to fetch different EWS in an orderly manner. Based on the internal operational data, the Analytics department has devised a separate EWS tool which generates Early Warning Signals helping Bank to monitor the loan portfolio effectively and maintain better asset quality.
Red Flagged Accounts (RFA): Borrowal accounts that exhibit a number of EWS are being Red flagged and studied in detail for a period of six months, and appropriate decisions shall be taken, either to lift the account from RFA or to declare the account as fraud, basis the performance. Bank follows the regulatory guidelines scrupulously in these matters.
Root Cause Analysis: Root cause analysis is comprehensively carried out to study the transactions to understand the weaknesses in the system and suggest additional controls to prevent recurrence.
Whistle Blower Policy: Bank encourages employees, customers, and vendors to communicate any information they may come across about serious malpractices or impropriety/abuse of powers etc. to the Top Management without fear of reprisal. The policy is popularised through various measures such as internal circulars, e-mail advisories, training sessions etc. to spot aberrations and deal with it at the earliest.
Bank weighs all new products, processes & outsourcing activities both financial and non-financial, the embedded options or enhancements of the existing products critically, by the designated committees of Executives drawn from business, technology, operations, risk, legal, audit and compliance functions, before it is offered to the public to avoid systemic lacuna, if any.
The bank has a dedicated Fraud Prevention and Management Cell (FPMC) for managing fraud risks reporting to Chief Risk Officer (CRO) of the Bank. FPMC submits reports to the Board and Senior Management Committees, periodically. Fraud detection, analysis, mitigation, and prevention are a continuous process, and our Bank follows a structured approach as mentioned in Fraud Risk Management Policy and Standard Operating Procedures (SOP).
Branches / Operating units are subject to several audits, periodic visits of branches/operating units by Divisional Heads, Divisional Operating Officers, and Central Office personnel for effective monitoring and continuous surveillance of all operations.
During FY 2023-24, Bank has reported 29 frauds amounting to Rs. 28.04 Crore, of which, 22 are Credit-related frauds amounting to Rs. 27.85 Crore (55.69% of the amount falls under Consortium/ Multiple Banking Arrangement), 7 Operations-related frauds amounting to Rs. 0.19 Crore.
The Bank also has a Fraud Risk Management Policy and standard operating procedures (a) to detect, control, monitor and report frauds to top management, regulator, and other law enforcement agencies, (b) to ensure continuous surveillance to prevent frauds, besides managing the risk of loss arising from both internal and external fraudulent events. The macro-level guidance and directions on the above aspects is provided by the Board and committees of the Board.
RBI has created a Central Repository namely Central Payment Fraud Information Registry (CPFIR), for recording payment frauds. As per the guidelines, all payment-related frauds, irrespective of value of the fraud, either reported by the customer to the Bank or detected by the bank shall be reported within 7 days from the date of reporting/detection including attempted frauds.
During FY 2023-24, Bank has reported 12,071 cases of payment frauds involving an amount of Rs. 925.26 Lakh to RBI through
Electronic Data Submission Portal (EDSP)/DAKSH. Mostly Phishing/Vishing types of payment frauds were reported. In none of the cases, Bank incurred any liability. Customers shared their credentials with fraudsters in all the reported cases.
Bank is engaged continuously in enhancing the Risk Management Standards on par with the best practices in the banking sector. The Risk Management Process in our Bank is subjected to review by an external consulting agency to evaluate the level of effectiveness and to bring fresh perspectives to the Risk Management approach adopted by our Bank.
Role of Technology In Managing Risk: CLS/LOS (Loan Origination System)
Technology plays a significant role in risk management by enhancing the efficiency, accuracy, and effectiveness of risk related processes. The benefits of leveraging technology in risk management includes enhanced / timely risk identification and assessment accuracy, improved risk reporting and communication, continuous monitoring, and evaluation of risk exposures.
Credit processing system has been digitised end-to-end with automated bureau report checks, verification of account statements, GST data, income statements duly supported by well- designed score cards and a process flow document. Field visits, verification of veracity of the documents are handled effectively and supported by a Fraud Control Unit (FCU). Improvements / enhancements are in place continuously to get complete benefit of the technology. This helps in minimising the manual intervention for its authenticity or genuineness. Further Internal Rating for proposals processed through LOS is arrived using a predefined Business Rule Engine (BRE) concept and is made as a pre-sanction exercise. In addition to the LOS rating, rating is undertaken in CRISIL ICON models and portfolio monitoring by appropriate applications.
Credit Risk
Macro factors including slowdown in economies, geopolitical tensions, stress in certain industries and micro-level factors, underwriting process, recovery measures.
Mitigation Steps
• Bank has a centralised credit risk management division, independent of our business functions, to manage credit risk supported by well-defined policies, caps on exposures to various industries, single & group borrowers, sensitive sectors, etc.
• Appropriate credit underwriting standards, risk mitigation processes, post-disbursement monitoring, strong collection and recovery mechanism via call centres and timely remedial actions ensure that credit risk is contained within acceptable levels.
• The Retail Credit Risk Team is responsible for retail credit portfolio and parameterised lending, basis product specific gating parameters and score cards. The parameters and gating conditions are being reviewed periodically.
• The Analytics team provides comprehensive reports with analysis and inferences to the top management, for taking appropriate policy and business decisions.
• Divisional credit risk officers are placed in each divisional office to get a ground zero perspective of credit proposals.
• Internal credit risk rating of proposals is mandatory for sanction of credit facilities with hurdle rating grades for new & take over exposures. The bank has deployed CRISIL ICON models and other models for rating borrowers.
• Bank has a system of monitoring the exposure periodically to ensure that those are within the Policy ceilings approved by the Board.
• Portfolio studies and industry/sector analysis are carried out to capture up- to-date information. Periodic product and portfolio reviews facilitate course corrections and product / process flow changes.
Digitisation of credit underwriting:
LOS (Loan Origination System) has been designed and structured:
• To bring in better controls from a system perspective on TATs.
• Building better underwriting capability based on analytical feed and creating a digital workflow for risk mitigation.
• Better due diligence through system designs, sanity and automated bureau checks to minimise onboarding risks.
• Stipulation of gating conditions tested based on historical data of the Bank, eliminating subjectivity in the credit approval process.
• Well-designed score cards, as a part of decision-making tools apart from gating conditions.
• Periodical review of performance of digital portfolio, both retail and commercial, for initiating course corrective measures.
Other measures
• Credit risk related policies are formulated and reviewed periodically as per the Banks requirements within the ambit of regulations.
• Comprehensive delegation of powers for various authorities with inbuilt matrix both for risk and non-risk deviations; spread policy takes care of the pricing mapped to scores / rating grades based on components such as credit risk premium, business strategy premium, tenor premium.
• The committee-level approach to credit approval process promotes qualitative discussions and collective wisdom allowing 360-degree analysis of the credit proposals.
• Clusters headed by Senior Executives are formed in select centres with business potential, for guiding the BBUs in the matters of credit dispensation, administration and monitoring.
• PQI (Portfolio Quality Index) concept for monitoring the performance of the business units and relationship officers in an effective manner has been implemented.
• Bank has started implementing in stages RAROC (Risk Adjusted Return on Capital), as one of the performance measures towards business and profit optimisation.
• Banks Model Risk Management Framework enables Bank to assess, measure, monitor and mitigate Model Risk.
• Bank has a policy on Country risk management. Bank is monitoring developments in countries where it has exposure and taking required mitigants/ changes in the strategies / business activities proactively.
• Bank has formulated ESG Policy for managing Climate Risk and caring for the Environment, Low-Carbon Transition, and Sustainable Operations.
Market Risk
Market Risk arises largely from the Banks trading activity in interest rate instruments, equity, and forex market. Bank has a well- developed framework, comprising Board-approved policies and established practices, for management of the market risk.
Mitigation Steps
• Market Risk is managed through well- defined Board-approved policies that caps risk in different trading desks and various securities through trading risk limits / triggers for effective and judicious management of investment funds.
• Bank has established an independent Mid office as a risk control unit reporting to Chief Risk Officer, for Treasury & PMD activities.
• Mid-Office monitors treasury operations from market and operational risk perspective and reports directly to RMD Central Office.
• Policies are in place for conduct of business exposed to market risk and liquidity risk with appropriate risk limits, stop loss limits etc. for effective management of all market related risks.
• The policies and practices also take care of monitoring and controlling liquidity risk
arising out of its banking book, trading book and off-balance sheet exposures.
• To measure and control market risk, interest rate risk, equity price risk and forex risk, Bank has set various risk appetite limits. Bank is using various tools like stress testing, modified duration, PVBP, VaR, position limits, stop loss limits, NOOP limit, AGL etc. to monitor market risk. Currently, capital charge for market risk is computed under the Standardised Duration Approach.
Liquidity & Interest Rate Risk
Liquidity risk is the potential inability to fund an increase in assets, decrease in liabilities or risk in meeting obligations as they fall due, without incurring unacceptable losses.
Interest rate risk is the risk where changes in market interest rates affect the Banks earnings through changes in its Net Interest Income (NII) and the market value of equity through changes in the economic value of its interest rate sensitive assets, liabilities, and off-balance sheet positions.
Mitigation Steps
• The banks Asset Liability Management policy provides a framework for management of liquidity risk and interest rate risk. Bank has established risk appetite limits and tolerance limits for both liquidity risk and interest rate risk. Further, Bank also has the necessary framework in place to manage and monitor intraday liquidity risk.
• ALM of the Bank aims to strengthen the Balance sheet by pro-actively reviewing the market dynamics, capturing the signals emanating therefrom and ensuring value creation while conforming to the regulatory requirements.
• Bank conducts various studies to assess the behavioural pattern of non-contractual assets and liabilities and embedded options available to customers. These results are being used in mapping and managing maturity gaps.
• Our Banks Asset Liability Management Committee (ALCO) is reviewing pricing of assets and liabilities on a monthly and even at early frequencies depending on the requirements, monitoring adherence to liquidity risk and interest rate risk limits.
• While the maturity gap and stock ratio limits help to identify liquidity risk, assessment of impact on the Net Interest Income and economic value of equity helps to assess interest rate risk. This is complemented by a stress testing framework covering both liquidity and interest rate risk.
• Liquidity Coverage Ratio (LCR), a global standard to assess organisations ability to meet its payment obligations, is used to measure a Banks liquidity position. LCR level ensures that the Bank has an adequate stock of unencumbered High-Quality Liquid Assets (HQLA) that can be converted into cash easily and immediately to meet its liquidity needs under a 30-day calendar liquidity stress scenario.
• NSFR promotes resilience over a longer- term time horizon by requiring banks to fund their activities with more stable sources of funding on an ongoing basis.
• Contingency Funding Plan (CFP) ensures that Bank has adequate liquid financial resources to meet liabilities as they fall due. The CFP is reviewed quarterly by the ALCO & Board as a forwardlooking measure.
• Country risk and Counterparty (Bank) exposure limits are reviewed periodically.
Operational Risk
Risk arises from inadequate or failed internal processes, controls and systems, and procedures due to employee error or breach, fraud or external events or a combination of these factors.
Mitigation Steps
• Bank has developed and implemented an operational risk management framework that is fully integrated into the Banks overall risk management system. Bank has put in place processes, systems and procedures to actively manage & mitigate operational risks and to optimise resources not only to protect the interests of the Bank but also to ensure return commensurate with the risk profile adopted. •
• Bank has a well-established internal control system, Books of instructions, internal circulars on policy matters and procedures, guidelines which include segregation of duties & responsibilities, systems & procedures, standardised operating procedures, clear lines of authority and reporting, among others.
• Bank has adopted a structured internal audit mechanism carried out at predefined intervals based on well-designed parameters & existing ratings; apart from regular inspection, Bank also has Concurrent Audit, Information Security Audit, Credit Audit, Revenue Audit, and Statutory Audit. All the audits and inspections also help in understanding the working of the controls, breaches, and the need for improving the controls and its effectiveness.
• Bank is collecting operational risk loss data directly from the business units for effective monitoring of loss events. The operational risk loss data is consolidated, analysed and reported to the Operational Risk Management Committee on a quarterly basis.
• Risk and Control Self-Assessment exercise and Key Risk Indicators support in putting in place additional measures to improve the existing systems and controls.
• Bank has a Business Continuity and Disaster Recovery (BCP & DR) policy to manage disruptions to our operations.
• Product, process, and outsourcing committees have representation from the risk department for their views besides suggesting mitigations for the identified risks in those products and process.
• To ensure adequate and timely identification, measurement, monitoring, control and mitigation of reputation risk posed, a Board-approved reputation risk management policy is put in place.
Fraud Risk
Financial institutions in general and Banks in particular are vulnerable and prone to several frauds perpetrated through internal and external forces. All the Banks are taking initiatives continuously to strengthen their internal control systems and procedures to guard against the frauds.
Mitigation Steps
• Bank has put in place a fraud risk management policy and standard operating procedure clearly defining the roles and responsibilities of all the related stakeholders in the matters relating to detection / identification, classification and reporting of frauds to RBI, other regulatory bodies, Board of the Bank and Sub committees of the Board, process of investigation, apart from recovery including insurance claims, provisioning, disciplinary action against the fraudsters, closure of fraud etc.
• Reasons are analysed to study the transactions, understand the weaknesses in the system and suggest additional controls to prevent recurrence. A number of Early Warning Signals (EWS) are studied, and the results are shared with concerned verticals.
• Besides internal data, public domain data is also analysed as a preventive and monitoring mechanism.
• On-line transactions are monitored by Enterprise Fraud Risk Management application(EFRM) to identify any attempt of frauds and to initiate necessary preventive measures like calling the customer / sending alerts/ blocking the transaction for customer approval etc.
• Some of the large loan accounts that exhibit several EWS are studied in detail for a period of six months, and appropriate decisions are taken based on the results of the study.
• Special attention has been paid to the Whistle Blower Mechanism in the Bank and the staff are encouraged to use the same to flag any issues/irregularities, including Operational Risk Events or Frauds when comes to their knowledge.
• Gap analysis, root cause analysis is done to identify the critical factors contributing to the frauds and implement additional safeguards wherever required, to avoid recurrences of similar type of frauds. Many controls, changes in processes, systems and products have been recommended and implemented to ensure systems and procedures are meeting the requirements.
Integrated Risk Management Framework
Mitigation Steps
• The objective of integrated risk management is to measure and manage risk and capital across a range of diverse business activities on a holistic basis in a centralised environment with the responsibility of identifying, measuring, monitoring, and mitigating the risks in various functions.
• Integration of risk is also due to the interwoven nature of risks. There is a component of credit risk in Market risk and Operational risk is existing on both credit and market risks. The impact of Pillar II risks on the Pillar I risks cannot also be discounted. Operational risk is an all- pervading factor in the banking business and is present in every activity undertaken by the Bank. Hence management of risk requires a well conceptualised integrated risk management.
Commodity Price Risks and Foreign Exchange Risks and Hedging Activities:
Bank has Market Risk Management Policy, Integrated Treasury Policy and Precious Metals Division Policy approved by the Board specifying risk control framework for undertaking any Commodity Price Risk and Foreign Exchange Risk. The Board of the Bank has defined overall Net Overnight Open Position (NOOP) Limit, Stop Loss Limits for trading activities, Aggregate Gap Limit (AGL), Value at Risk (VaR) limit to manage Foreign Exchange Risk within its risk control framework. The Banks policy stipulated margins for lending against commodities and has put in place a system of monitoring margins available / required with respect to ongoing commodity prices.
Bank is authorised by Reserve Bank of India to import gold and silver. Bank imports gold and silver on consignment basis and sales are being covered on back-to-back basis.
Bank uses Forwards & Forex Swaps for hedging its currency and interest rate risk for its Foreign currency balance sheet items, customer cover, and for proprietary trading, within overall risk limits and control framework. The management of these products and businesses is governed by Board-approved Policies of the Bank.
RISK EXPOSURE AND ASSESSMENT
The Bank is exposed to various types of risks such as Credit, Market, Operational, Liquidity, Interest Rate, Reputational, Legal and Strategic risk. The Bank has a separate and independent Risk Management Department in place which oversees the management of all types of risks in an integrated fashion.
The objective of risk management is to have an optimum balance between risk and return. It entails the identification, measurement, and management of risks across the various businesses of the Bank. Risk is managed through a framework defined in policies approved by the Board and supported by an independent risk management function which monitors and takes corrective action so that the Bank operates within its risk appetite. The risk management function attempts to anticipate vulnerabilities through quantitative or qualitative examination of the embedded risks in various activities. The Bank continues to focus on refining and improving its risk management systems. In addition to ensuring compliance with regulatory requirements, the Bank has developed robust internal systems for assessing capital requirements and keeping in view the business objectives.
The Board of Directors approves the strategies and policies for Risk Management, based on recommendations of the RM & ALM Committee of the Board set up to focus upon risk management issues. The RM & ALM Committee of the Board reviews various aspects of risk arising from the businesses undertaken by the Bank. Operating-level risk committees comprises of senior management viz. Asset Liability Management Committee (ALCO), Operational Risk Management Committee (ORMC), Market Risk Management Committee (MRMC), Credit Risk Management Committee (CRMC) and Fraud Review Council - Cyber Risk (FRC) to oversee specific risk areas. These Committees in turn provide input for review by the RM & ALM Committee of the Board.
BOARD COMMITTEES
Risk Management and Asset Liability Management Committee (RM & ALM)
This Committee shall put in place explicit procedures for managing enterprise-wide risk that the Bank is exposed to based on the regulatory guidelines. The Committee reviews and approves the development and implementation of risk assessment methodologies and tools, including assessments, reporting etc., foresee future changes and threats and prioritise action steps, monitor, and oversee the implementation of the Risk Management Framework in the Bank.
The Risk Management & Asset Liability Management Committee shall recommend the policies to Board, strategy, and methods for risk management, by evaluating the overall risks faced by the Bank in determining the acceptable level of risks. The committee inter-alia looks into the following aspects:
• Effectiveness of overall risk management framework in meeting sound corporate governance principles and identifying, managing, and monitoring the key risks of the Bank.
• Oversee and monitor the Banks compliance with regulatory requirements.
• Oversee functions of Credit Risk Management Committee (CRMC), Market Risk Management Committee (MRMC), Asset Liability Management Committee (ALCO), Operational Risk Management Committee (ORMC) and Fraud Review Council - Cyber Risk.
• Reviewing and recommending the Internal Capital Adequacy Assessment Process (ICAAP) to Board.
• Discussion with CRO for ensuring independence of risk functions.
The Committee ensures effective implementation of the risk management strategies and decides the policies and strategies for risk management in the Bank. In compliance with RBI circular guidelines, RM & ALM Committee is headed by Non-Executive Independent Director from the Board of the Bank.
Executive-Level Committees:
Organisational setup and responsibilities of Executive-level Management Committees in implementing Board-approved strategies and policies are as below:
| si. No. | Executive Level | Committee Focus Area | Chairman | Key Functions/ Responsibilities |
| 1 | Asset Liability Management Committee (ALCO) | All aspects of Asset Liability Management, Monitoring, Control, Interest rate review etc. | Executive Director | • Study all ALM-related Returns and statements prescribed by RBI |
| • Provides framework for management of liquidity risk and interest rate risk. | ||||
| • Pricing for both deposits and advances. | ||||
| • Decide on the desired mix of incremental assets and liabilities. | ||||
| • Decide on the desired maturity profile of the incremental assets and liabilities and Contingency Funding Plan. | ||||
| • Determine the structure, responsibilities, and controls for managing liquidity risk and for overseeing the liquidity positions. | ||||
| • Discuss on future direction of interest rate movements and decide on funding mix between fixed vs floating rate funds, wholesale vs retail deposits, money market vs capital market funding, domestic vs foreign currency funding, etc. | ||||
| • Review the impact of NII and MvE due to Interest Rate Risk in Banking Book. | ||||
| • Review and recommend the Transfer Pricing Mechanism (TPM). | ||||
| • Any other matters related to market risk and liquidity risk. | ||||
| 2 | Credit Risk Management Committee (CRMC) | All aspects of Credit Risk Management, Monitoring & Control | MD & CEO | • Recommend & review of Credit Policy, internal rating policy and other credit risk related policies. • Recommend for introduction of new internal rating models / score cards and review. |
| • Review of exposures to various industries - exposure ceiling vis-a-vis actual. | ||||
| • Review of Stress Tests conducted on CRAR under different scenarios. | ||||
| • Discuss regulatory guidelines and the actions taken by the verticals. | ||||
| • Peruse Credit-related frauds and suggest mitigation measures. | ||||
| • Study concentration in advances portfolio. | ||||
| • Review the Rating migration in the internal and external ratings of borrowers. | ||||
| • Any other matters related to Credit risk. | ||||
| 3 | Market Risk Management Committee (MRMC) | Aspects of Market Risk Management, Monitoring & Control | Chief Financial Officer | • Setting guidelines for market risk measurement, management, and reporting. |
| • Ensuring that market risk management processes (including people, systems, operations, limits, and controls) satisfy banks policy. | ||||
| • Reviewing and recommending market risk limits, including triggers / stoplosses for traded and accrual portfolios. | ||||
| • Monitoring interest rate risk, equity price risk and forex risk and to take control measures. | ||||
| • Take note of market risk related regulatory guidelines and to take necessary action. | ||||
| • To discuss on the market-related events/occurrences, movement of various benchmarks, etc. | ||||
| 4 | Operational Risk Management Committee (ORMC) | All aspects of Operational Risk Management, Monitoring & Control | Executive Director | • Implement and monitor the Operational Risk Management Framework approved by the Board. |
| • Develop policies, processes & procedures for managing various Operational Risk in Banks material products, activities, processes, and systems. | ||||
| • Review and recommend the development and implementation of Operational Risk methodologies. | ||||
| • Review of Key Risk Indicators (KRI) and Risk and Control Self-Assessment (RCSA). | ||||
| • Perusal of frauds including cyber frauds, near miss events and related matters. | ||||
| • Discuss and study the impact of Loss data collected. | ||||
| • Peruse the minutes of various operational risk related executive committees and providing guidance. | ||||
| • Any other matters related to Operational risk. | ||||
| 5 | Fraud Review Council - Cyber Risk | • Cyber Risk - Retail Payments | Executive Director | • To ensure Cyber Risk Mitigation measures, two fraud review councils have been formulated viz. (a) Cyber-Risk Retail Payments and (b) Cyber-Risk Retail Credit. |
| • Cyber Risk - Retail Credit | • This council reviews the trends on cyber frauds/attempted frauds across all the digital payment channels and retail loans. Council identifies and recommends preventive steps to mitigate the cyber-risk of the Bank. |
Information Security Group
The Board and senior management of our Bank have recognised the risks associated with the adoption of Information Technology (IT) and digital transformation initiatives aimed at enhancing customer service. The Chief Information Security Officer (CISO) Office oversees documented Information Security Management System (ISMS) procedures, including Change Management and Incident Management protocols. In case of security issues, the CISO Office follows a rigorous Incident Response process, including Root Cause Analysis (RCA) and corrective action implementation. Additionally, our Bank has implemented IT system Baselines as per best practices.
Acknowledging the significance of cyber security in todays interconnected world, we have approved appropriate policies and procedures aligned with global standards and regulatory guidelines to protect information assets according to a predetermined risk profile.
The Information Security Group is responsible for designing, developing, implementing, maintaining, and monitoring the Information Security Management System (ISMS), which includes various policies, procedures, systems, and processes. The primary objective is to promptly detect, prevent, and respond to continually evolving cyber security threats. Our Banks ISMS reinforces not only the confidentiality, integrity, and availability of information but also other security principles such as authenticity, non-repudiation, and accountability, ensuring the safety and privacy of sensitive customer and Bank information.
The objectives of our Banks ISMS include:
• Ensuring the safety and privacy of sensitive customer and Bank information.
• Preventing unauthorised access to IT Assets and Information Systems.
• Protecting Data / IT Systems from threats such as Phishing, Ransomware, and other malware, as well as malicious actors targeting cloud services and integrated systems across multiple locations over the Internet and zero-day attacks.
• Ensuring timely availability of Data / IT Systems to authorised users.
To further strengthen security measures, our Bank has established a fully functional state-of-the-art Security Operations Centre (SOC) to monitor our Banks IT environment round-the-clock, year-round, safeguarding information assets from undesirable events. Additionally, investments have been made in Artificial
Intelligence & Machine Learning (AI & ML) based monitoring and defence systems.
Besides technology tools and solutions, our Bank places equal emphasis on enhancing employee awareness about new cyber threats in the technology landscape. It is worth noting that our Bank is compliant with ISO/IEC 27001, the international standard for information security, duly certified by M/s TUV SUD since 2018.
Key initiatives
Our Bank has included the Near Data Centre [NDC] under ISO/IEC 27001:2013 compliance.
Our Bank has focussed on imparting Cyber Security awareness to the employees, associated partners / vendors, and customers.
Our Bank performed the Risk Assessments and Security Assessments on the various critical IT systems to identify emerging cyber threats and close the gaps.
Outlook
• Our Bank is currently in the process of upgrading its ISMS certification standards from ISO 27001:2013 to ISO 27001:2022.
• Our Bank will emphasise the importance of cyber resilience, which is vital for business continuity.
• Our Bank will focus on Data Rights Management to protect sensitive information from unauthorised access.
Compliance
At KVB, we maintain a transparent and comprehensive compliance policy, along with a robust Know Your Customer (KYC)/ AntiMoney Laundering (AML) / Combating the Financing of Terrorism (CFT) policy, both duly approved by the Board and subject to annual review. Our compliance department operates independently to track, monitor, assess, and ensure adherence to regulatory guidelines and internal standards. The team collaborates closely with compliance coordinators across business/support teams and Divisional Offices. The Chief Compliance Officer (CCO) leads the compliance department, assisting the Board, the Boards Audit Committee, and the leadership team in managing compliance risk. The compliance framework includes the risk of legal or regulatory sanctions, financial loss, or reputational damage arising from any failure to comply with applicable laws, regulations, or codes of conduct governing our activities.
The compliance team remains vigilant in staying updated with regulatory developments and promptly ensures that the respective business/support teams adhere to guidelines in a timely manner. Additionally, it actively participates in industry working groups focussed on discussing emerging regulatory requirements. The team provides ongoing training to employees on compliance matters. The CCO is actively involved as a member of various executive committees, facilitating the exchange of information.
Furthermore, the compliance team keeps the management, Board, and Audit Committee of the Board informed about compliance-related matters through regular monthly, quarterly, and annual compliance reviews. The Board and leadership team are fully committed to promoting and maintaining a robust compliance culture throughout our organisation.
Effective governance oversight:
• Mechanisms to ensure the implementation of new regulations.
• Identification through gaps in controls through Risk Assessment results.
• Reporting of Compliance Breaches promptly.
• Clear definition of ownership and responsibility.
• Approach to holding staff accountable for compliance failures.
Promotion of a strong compliance culture:
• Dissemination through e-services/advisories.
• Guidance and insights are provided through interactive discussions, among others.
• Providing online/classroom training sessions.
Comprehensive risk management practices include:
• Conducting Compliance Risk Assessment.
• Implementing Mystery Shopping Framework.
• Undertaking robust ML-TF Risk Assessment.
• Monitoring Key Compliance Indicators.
Outlook
• To earn the confidence of the Regulator.
• To provide reasonable assurance to the Board.
• To establish a reputation as a centre of Regulatory Excellence.
Human Resource Management
Our Bank recognises the pivotal role of its human resources in driving its success, serving as the primary differentiating factor in a highly competitive sector. We are committed to cultivating a work environment conducive to employee growth, characterised by transparent and well-defined policies and practices that prioritise meritocracy in staff augmentation, appointment, and development. Moreover, our Bank maintains a consistent effort to modernise both its workforce and operational processes to enhance convenience for employees and ensure operational efficiency.
(For further details, please refer to page 40 of Narrative section)
Internal Control Systems and their Adequacy
Your Banks Inspection and Audit functions is tasked with autonomously assessing the adequacy and efficiency of Internal Control mechanism, risk management practices, governance systems and processes. Internal Audit functions ensures adherence to internal policies, procedures, and regulatory compliance. It offers timely feedback to Management to engage in corrective measures and proactively suggests enhancement to operational processes. Audit functions also support its efforts in fostering asset quality.
The audit functionary reports to the MD & CEO. The Audit Committee of the Board reviews the effectiveness of controls, compliance with regulatory guidelines as also the performance of the Inspection and Audit functions and offers guidance and direction that may be required to enhance the audit functions. The Internal Audit Policy is reviewed by the Audit Committee of the Board and is approved by the Board. Audit is staffed with appropriate skilled and experienced personnel, including specialists in Information Technology, Cyber Security etc.
Various type of audits like RBIA, Concurrent Audit, Surprise Audits, Revenue Audit etc. are conducted across various businesses and functions i.e. Branches/Business Units (BUs) and other Back Offices (BOs). These include audit of Operations units, Risk and Support functions, Information Security Audits, Information Technology audits, IT Governance, and Infrastructure audits etc. Ample audits are conducted to independently evaluate the adequacy and effectiveness of internal controls on an ongoing basis and to pro-actively recommend enhancements thereon.
Audit adopts a risk-based audit approach in congruence with the RBI Guidelines on Risk Based Internal Audit (RBIA). RBIA focusses on the assessment and measuring of risks based on inherent business risks and control gaps in major areas under Credit, Operations and Market risks. RBIA also identifies weaknesses / control gaps to aid in early detection of possible impending weaknesses. Audit utilises technical tools (IT, Analytics etc.) for the purpose of the audit program, right from the identification of branches/business units to be inspected, to follow-up & compliance and arriving at the risk categorisation. The Bank has completed audit of all the branches, BUs and BOs identified as eligible for audit for FY 2023-24. A separate team ensures the genuineness of compliance submitted by the branches for audit observations.
During the year, your Bank has implemented off-site audit mechanism with the objective to ensure that the loan life cycle is audited on a near real-time basis with the support of digitalisation. Completion of selective post-sanction activities are being tracked on a continuous basis offsite thus ensuring preparedness of the units for full onsite audit. This in turn helps to close the gaps if any in time, and thus reducing the credit and operational risk to the Bank. "First Time Right" Approach is being insisted on at all levels to ensure that the actions/processes carried out by the respective teams shall be full and complete without gaps. This has considerably reduced turnaround time for file closure and has also improved compliance culture at the BUs. The implementation of off-site audit coupled with RADAR monitoring is expected to reduce the audit cost substantially in future.
The Concurrent Audit covers key branches, Business Units, and other Back Offices. Service of experienced external auditors is used for conducting concurrent audits as per the Auditor Appointment Policy of the Bank approved by the Board. During
FY 2023-24, Concurrent Audit covered selective branches, all Corporate Business Units (CBU), all Business Banking Units (BBU), NEO, Treasury Operations, Transaction Banking Group, Centralised Processing Centres like Forex, Branch Operations, Depository Operations etc.
The Bank undertakes Credit Audit for large credit exposures as part of the loan review mechanism stipulated by the regulator. The Bank has a system of re-appraisal of jewels pledged under the Jewel Loan portfolio at least once a year (864 instances during FY 2023-24) covering all jewel loan lending branches. Apart from periodical reappraisal, jewels are verified in onsite audits on random basis. As a part of deterrence and preventive measures, the Bank also conducts Jewel Loan Mystery Audit.
During the year, Bank has conducted Process Audits on selected key processes for examining their effectiveness and efficiency to provide insights on both the design and control effectiveness of the processes. Examination of business and operational key risks, controls established to mitigate those risks, including compliance with regulations and established policy, and procedures have been carried out in this activity.
With your Bank having ventured into new avenues for business acquisition through digitalisation, audit has increased its oversight on areas such as co-lending and direct assignment. Management audits of central office verticals, inspection of currency chests are conducted in line with RBI guidelines.
Your Bank has a Board-approved IS Audit Policy which is reviewed annually. IS Audit is governed by the IT Strategy and Digital Transaction Monitoring Committee of the Board and the Audit Committee of the Board. Information Systems (IS) Audit is conducted once in a year covering all critical processes, infrastructure, applications, technical centres, and back offices. During FY 2023-24, the Bank has conducted Information Systems audits across 496 branches, 15 offices and specialised audits covering various aspects of IT systems and security. The Bank has qualified team to conduct/manage various IS audits including VAPT, Continuous IS Audit of Data Centre, Disaster Recovery Site and Vendor Audit etc. External expertise, preferably through CERT-In empanelled firms, is utilised for the audit, wherever required.
Key highlights of FY 2023-24
RBIA for 496 branches and all other Business Units identified for inspection for FY 2023-24 was completed. RBIA reports of all 496 branches were closed and Risk rating was also finalised. Improvements witnessed in the Risk rating of the branches, as 84.50% of audited units secured LOW RISK Rating in FY 2023-24 as against 78% in FY 2022-23. Similarly, the rating upgraded units were increased from 15.16% (FY 2022-23) to 20.79% (FY 2023-24).
Conducted Study on repeated audit remarks as a measure to address the root cause.
Concurrent Audit, covering 55.16% of the total advances of the Bank business.
Coverage of off-site audit of Branches, BBUs, Smart Unit.
Offsite surveillance areas strengthened by including new areas under continuous near real-time monitoring.
"Continuous off-site monitoring" was implemented covering selected areas to reduce credit risk and improve compliance culture.
IT-related process audits and thematic audits were undertaken to ensure adherence to Banks policies and guidelines.
Outlook
• IAD has introduced new initiatives aimed at continuous near real-time audit and risk assessment. Vertical intends to employ data and document driven audits to enhance the performance.
• Analytical inputs will be used as a tool and the audit program (Selection, Audit, Follow-up, Review) will be system-driven.
• Eliminating possible audit overlapping to reduce compliance cost.
• IAD will leverage technology at all levels of audit function to enhance the coverage of off-site surveillance and off-site audit tools.
• IAD will carry out more process audits to ensure sustenance of expected system behaviour and adequacy of controls in place.
• Proactive and collaborative work practices amongst Compliance, Risk and Internal Audit functions of the Bank will be ensured using cross-functional committee representations for these functions.
Disclosure of Accounting Treatment
The financial statements are prepared on a going concern concept, on a historical cost basis, and conform to the Generally Accepted Accounting Principles (GAAP) in India which encompasses applicable statutory provisions, regulatory norms prescribed by the Reserve Bank of India (RBI) from time to time, notified Accounting Standards (AS) issued under Section 133 of the Companies Act, 2013 read together with paragraph 7 of the Companies (Accounts) Rules, 2014 to the extent applicable to banks and current practices prevailing in the banking sector in India. Income and Expenditure are generally accounted on an accrual basis, unless otherwise stated and comply with requirements as per RBI guidelines and the provisions of the Banking Regulation Act, 1949. Accounting Policies adopted in the preparation of financial statements are consistent with those followed in the previous year.
Cautionary Statement
Certain statements in the ‘Management Discussion and Analysis describing our objectives, estimates and expectations may be ‘forward-looking statements within the meaning of applicable securities laws and regulations. Actual results could differ substantially from those expressed or implied. These statements are subject to risks and uncertainties, including the effect of economic and political conditions in India and outside India, volatility in interest rates and in the securities market, new regulations and government policies that may impact our businesses as well as our ability to implement the strategy. We do not undertake to update these statements. Figures for the previous year have been regrouped wherever necessary to conform to the current years presentation. Important factors that could make a difference include economic conditions in the domestic and overseas markets, changes in laws/regulations and other incidental facts. This document also does not constitute an offer or recommendation to buy or sell any financial products offered by our Bank.
IIFL Customer Care Number
(Gold/NCD/NBFC/Insurance/NPS)
1860-267-3000 / 7039-050-000
IIFL Capital Services Support WhatsApp Number
+91 9892691696
Download The App Now
Follow us on
2024, IIFL Capital Services Ltd. All Rights Reserved
IIFL Securities Limited - Stock Broker SEBI Regn. No: INZ000164132, PMS SEBI Regn. No: INP000002213,IA SEBI Regn. No: INA000000623, SEBI RA Regn. No: INH000000248
This Certificate Demonstrates That IIFL As An Organization Has Defined And Put In Place Best-Practice Information Security Processes.
Invest wise with Expert advice
