Axis Bank Limited Annual Report 2013

Plain-text annual report

CONTENTS Managing Director & CEO’s Letter to Shareholders Board of Directors Snap Shot of Key Financial Indicators : 2009-2013 Highlights Directors’ Report Management’s Discussion & Analysis Auditors’ Report Balance Sheet Proﬁ t and Loss Account Cash Flow Statement Schedules Forming Part of Balance Sheet Schedules Forming Part of Proﬁ t and Loss Account Signiﬁ cant Accounting Policies Notes to Accounts Auditors’ Certiﬁ cate on Corporate Governance Corporate Governance Auditors’ Report on Consolidated Financial Statements Consolidated Financial Statements Business Responsibility Report Disclosures under the New Capital Adequacy Framework (Basel II Guidelines) Bank’s Network : List of Centres 3 4 5 6 7 16 29 31 32 33 35 41 42 50 88 89 111 112 155 167 185 1 MANAGING DIRECTOR & CEO’S LETTER TO THE SHAREHOLDERS It has been a challenging environment but despite the slowing momentum of growth in the economy, your Bank has reported another consistent performance - reﬂ ected in a steady growth of our customer base, widening reach through multiple channels, healthy growth of business and revenues and stable asset quality. It is also an afﬁ rmation of the Bank’s focus on a balanced growth strategy. The Bank’s retail businesses grew steadily during the year and there was credible growth of both retail deposits and loans, supported by an expanding network that is critical to the retail franchise. We added 325 branches and 1,321 ATMs in FY 2012-13. Your Bank continues to balance growth with proﬁ tability and generate value for our stakeholders. This is evidenced by the consistently healthy return on assets and return on equity. We also have a deep and abiding commitment to the environment and the underprivileged. Towards this end, your Bank has adopted the ambitious goal of facilitating the creation of one million sustainable livelihoods by 2017 in partnership with reputed organizations in the ﬁ eld. During the current ﬁ nancial year, your Bank undertook a successful equity capital raising exercise and global and domestic investors have invested `5,537 crores in the Bank. We are grateful to all the investors who have reposed conﬁ dence in us. Looking ahead, we are optimistic about the future and we believe that your Bank is positioned to adapt suitably to challenges and capitalise on emerging opportunities in the economy. I truly appreciate your support and association with the Bank and remain committed to delivering value to all our stakeholders. Shikha Sharma 24th April, 2013 3 BOARD OF DIRECTORS* Sanjiv Misra Shikha Sharma K. N. Prithviraj V. R. Kaundinya S. B. Mathur Prasad R. Menon R. N. Bhattacharyya Samir K. Barua A. K. Dasgupta Som Mittal Ireena Vittal Rohit Bhagat Somnath Sengupta V. Srinivasan P. J. Oza THE CORE MANAGEMENT TEAM R. K. Bammi P. Mukherjee S. S. Bajaj Vinod George M. V. Subramanian S. K. Mitra B. Gopalakrishnan Bapi Munshi C. Babu Joseph Sanjeev K. Gupta V. K. Bajaj Sidharth Rath A. R. Gokulakrishnan Rajendra D. Adsul R. V. S. Sridhar Lalit Chawla Rajesh Kumar Dahiya Sharad Bhatia Rajiv Anand Jairam Sridharan *as on 24th April 2013 Chairman Managing Director & CEO Director Director Director Director Director Director Director Director Director Director Executive Director & Head (Corporate Centre) Executive Director & Head (Corporate Banking) Company Secretary Executive Director (Retail Banking) President – Large Corporate and International Banking President & Chief Audit Executive President – Wholesale Banking Operations President – Rural & Inclusive Banking President – Distribution President – Law President & Chief Risk Ofﬁ cer President – Executive Trustee & CEO – Axis Bank Foundation President & Chief Financial Ofﬁ cer President – Mid Corporates & SME President – Treasury & Business Banking President – Wholesale Banking Operations (Designate) President – SME President – IT & Retail Operations President – Corporate Credit President – Human Resources President – Stressed Assets President – Retail Banking President – Consumer Lending Auditors Registrar and Share Transfer Agents M/s Deloitte Haskins & Sells Chartered Accountants M/s Karvy Computershare Private Limited UNIT: AXIS BANK LIMITED Plot No. 17 to 24, Vittalrao Nagar, Madhapur, Hyderabad - 500 081. Tel. No. : 040-23420815 to 23420824 Fax No. : 040-23420814 Registered Ofﬁ ce ‘Trishul’, 3rd Floor, Opp. Samartheshwar Temple, Law Garden, Ellisbridge, Ahmedabad - 380 006. Tel. No. : 079-2640 9322 Fax No: 079-2640 9321 Email: p.oza@axisbank.com,sanjeev.kapoor@axisbank.com,rajendra.swaminarayan@axisbank.com Web site : www.axisbank.com Corporate Ofﬁ ce Axis House, C-2, Wadia International Centre, Pandurang Budhkar Marg, Worli, Mumbai – 400 025. Tel. No. : 022-24252525/43252525 and Fax No. : 022-24251800 4 1_Contents_Highlights.indd 4 6/11/2013 1:21:48 PM SNAP SHOT OF KEY FINANCIAL INDICATORS : 2009 - 2013 FINANCIAL HIGHLIGHTS 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 (` in crores) CAGR (5 Years) Total Deposits 117,374.11 141,300.22 189,237.80 220,104.30 252,613.59 23.58% - Savings Bank Deposits 25,822.12 33,861.80 40,850.31 51,667.96 63,777.73 26.13% - Current Account Deposits 24,821.61 32,167.74 36,917.09 39,754.07 48,322.10 19.24% Total Advances 81,556.77 104,340.95 142,407.83 169,759.54 196,965.96 26.98% - Retail Advances 16,051.78 20,820.73 27,759.23 37,570.33 53,959.79 31.75% Total Investments 46,330.35 55,974.82 71,991.62 93,192.09 113,737.54 27.54% Shareholders' Funds 10,213.59 16,044.45 18,998.83 22,808.54 33,107.86 30.44% Total Assets/Liabilities 147,722.05 180,647.85 242,713.37 285,627.79 340,560.66 25.46% Net Interest Income 3,686.21 5,004.49 6,562.99 8,017.75 9,666.26 30.18% Other Income 2,896.88 3,945.78 4,632.13 5,420.22 6,551.11 29.55% Operating Revenue 6,583.09 8,950.27 11,195.12 13,437.97 16,217.37 29.92% Operating Expenses 2,858.21 3,709.72 4,779.43 6,007.10 6,914.24 26.26% Operating Proﬁ t 3,724.88 5,240.55 6,415.69 7,430.87 9,303.13 33.11% Provisions and Contingencies 1,909.52 2,726.02 3,027.20 3,188.66 4,123.70 28.99% Net Proﬁ t 1,815.36 2,514.53 3,388.49 4,242.21 5,179.43 37.06% FINANCIAL RATIOS 2008 - 2009 2009 - 2010 2010 - 2011 2011 - 2012 2012 - 2013 Earnings Per Share (Basic) (in `) 50.61 65.78 82.95 102.94 119.67 Book Value (in `) Return on Equity Return on Assets 284.50 395.99 462.77 551.99 707.50 19.93% 19.89% 20.13% 21.22% 20.51% 1.44% 1.67% 1.68% 1.68% 1.70% Capital Adequacy Ratio (CAR) 13.69% 15.80% 12.65% 13.66% 17.00% Tier I Capital (CAR) 9.26% 11.18% 9.41% 9.45% 12.23% Dividend Per Share (in `) 10.00 12.00 14.00 16.00 18.00 Dividend Payout Ratio 23.16% 22.57% 19.78% 18.15% 19.06% 5 HIGHLIGHTS Proﬁ t after tax up 22.09% to `5,179.43 crores Net Interest Income up 20.56% to `9,666.26 crores Fee & Other Income up 14.59% to `5,796.51crores Deposits up 14.77% to `252,613.59 crores Demand Deposits up 22.62% to `112,099.83 crores Advances up 16.03% to `196,965.96 crores Retail Assets up 43.62% to `53,959.79 crores Network of branches and extension counters increased from 1,622 to 1,947 Total number of ATMs went up from 9,924 to 11,245 Earnings per share (Basic) increased from `102.94 to `119.67 Proposed Dividend up from 160% to 180% Capital Adequacy Ratio stood at 17.00% as against the minimum regulatory norm of 9% Tier - I Capital Adequacy Ratio up from 9.45% to 12.23% 6 DIRECTORS’ REPORT: 2012-13 The Board of Directors is pleased to present the Nineteenth Annual Report of the Bank together with the Audited Statement of Accounts, Auditors’ Report and the report on business and operations of the Bank for the ﬁ nancial year ended 31st March 2013. FINANCIAL PERFORMANCE The ﬁ nancial highlights for the year under review are presented below: PARTICULARS Deposits Out of which (cid:2) Savings Bank Deposits (cid:2) Current Account Deposits Advances Out of which (cid:2) Retail Advances (cid:2) Non-retail Advances Total Assets/Liabilities Net Interest Income Other Income Out of which (cid:2) Trading Proﬁ t (1) (cid:2) Fee and other income Operating Expenses (excluding depreciation) Proﬁ t before Depreciation, Provisions and Tax Depreciation Provision for Tax Other Provisions and Write offs Net Proﬁ t Appropriations: Transfer to Statutory Reserve Transfer to Investment Reserve Transfer to Capital Reserve Transfer to Reserve Fund Proposed Dividend Surplus carried over to Balance Sheet (1) Excluding Merchant Exchange Proﬁ t 2012-13 252,613.59 2011-12 220,104.30 (` in crores) GROWTH 14.77% 63,777.73 48,322.10 196,965.96 53,959.79 143,006.17 340,560.66 9,666.26 6,551.11 754.60 5,796.51 6,562.51 9,654.86 351.73 2,373.26 1,750.44 5,179.43 1,294.86 53.46 141.46 2.61 987.24 2,699.80 51,667.96 39,754.07 169,759.54 37,570.33 132,189.21 285,627.79 8,017.75 5,420.22 361.56 5,058.66 5,664.86 7,773.11 342.24 2,045.63 1,143.03 4,242.21 1,060.55 - 51.90 - 770.08 2,359.68 23.44% 21.55% 16.03% 43.62% 8.18% 19.23% 20.56% 20.86% 108.71% 14.59% 15.85% 24.21% 2.77% 16.02% 53.14% 22.09% 22.09% - 172.56% - 28.20% 14.41% KEY PERFORMANCE INDICATORS Interest Income as a percentage of working funds* Non-Interest Income as a percentage of working funds* Net Interest Margin Return on Average Net Worth Operating Proﬁ t as a percentage of working funds* Return on Average Assets Proﬁ t per employee** Business (Deposits less inter-bank deposits + Advances) per employee** Net non-performing assets as a percentage of net customer assets*** * Working funds represent average total assets. ** Productivity ratios are based on average number of employees for the year. *** Customer assets include advances and credit substitutes. 2012-13 8.90% 2.15% 3.53% 20.51% 3.05% 1.70% `14.58 lacs `12.15 crores 0.32% 2011-12 8.71% 2.15% 3.59% 21.22% 2.94% 1.68% `14.34 lacs `12.76 crores 0.25% Previous year ﬁ gures have been re-grouped wherever necessary. 7 16,217 (` in crores) (` in crores) RISING PROFITABILITY The Bank continued to grow steadily, both in business and earnings, in an increasingly competitive ﬁ nancial market and reported a net proﬁ t of `5,179.43 crores for the year ended 31st March 2013, registering a growth of 22.09% over the net proﬁ t of `4,242.21 crores last year. The strong performance in earnings resulted from the robust growth across all segments. During the year, the Bank’s total income increased by 23.05% to reach `33,733.68 crores, compared to `27,414.86 crores last year. Operating revenue during this period increased by 20.68% to `16,217.37 crores while operating proﬁ t increased by 25.20% to `9,303.13 crores. The growth in earnings may be attributed to the performance of the Bank’s core income streams: net interest income (NII), fee and other income. NII increased by 20.56% to `9,666.26 crores from `8,017.75 crores last year. Fee, trading and other income increased by 20.86% to `6,551.11 crores from `5,420.22 crores last year. The increase in earnings was partly offset by an increase in operating expenses by 15.10% to `6,914.24 crores. 2008-09 2009-10 2010-11 2009-10 2010-11 2011-12 2012-13 Operating Revenue 2011-12 2012-13 Net Profit 2008-09 11,195 13,438 6,583 1,815 3,388 2,515 4,242 5,179 8,950 2010-11 2008-09 2011-12 2009-10 2012-13 2010-11 2012-13 2009-10 2008-09 2011-12 755 497 822 362 374 2,523 3,123 4,135 5,059 5,797 (` in crores) TRADING PROFITS FEE & MISCELLANEOUS INCOME During the year under review, the growth in NII is attributable to an expansion in the balance sheet size and healthy low- cost Current Account and Savings Bank (CASA) deposits. During the year, the total earning assets on a daily average basis increased by 22.64% to `273,738 crores, compared to `223,206 crores last year. A steady growth of low-cost CASA deposits, which on a daily average basis increased to `80,941 crores from `70,845 crores, helped in containing the cost of funds, which had risen over the period due to the hardening of interest rates on term deposits. Overall, the daily average cost of funds in the year increased to 6.55% from 6.28% last year. During the year, the cost of deposits increased to 6.73% from 6.47% last year primarily due to an increase in cost of term deposits by 18 basis points (from 8.92% to 9.10%). During the same period, the yield on earning assets increased by 9 basis points to 9.75% from 9.66% last year. Other income comprising fees, trading proﬁ t and miscellaneous income increased by 20.86% to `6,551.11 crores in 2012-13 from `5,420.22 crores last year and constituted 40.40% of the operating revenue of the Bank. Fee income constituted 34.04% of the operating revenue of the Bank and increased by 16.80% to `5,520.93 crores from `4,726.94 crores last year. The Bank earns fee income from a diverse set of products and businesses such as client-based merchant foreign exchange trade, transaction banking (including cash management services), syndication and placement fees, processing fees from loans and commission on non-funded products (such as letters of credit and bank guarantees), inter-change fees on ATM-sharing arrangements and fee income from the distribution of third-party personal investment products. During the year, proprietary trading proﬁ ts increased by 108.71% to `754.60 crores from `361.56 crores last year. Miscellaneous income decreased by 16.92% to `275.58 crores from `331.72 crores last year mainly due to lower recoveries of loans/investments written-off in earlier years. During the year, such recoveries accounted for `268.51 crores. As a result, the operating revenue of the Bank increased by 20.68% to `16,217.37 crores from `13,437.97 crores last year. The core income streams (NII, fee and miscellaneous income) now constitute 95.35% of the operating revenue, reﬂ ecting the sustainability of the Bank’s earnings. Operating expenses increased by 15.10% to `6,914.24 crores from `6,007.10 crores last year, largely as a result of the growth of the Bank’s network and other infrastructure required for supporting the existing and new businesses. The Cost to Income ratio of the Bank was 42.63% compared to 44.70% last year. 8 285 708 552 396 463 19.9 20.5 19.9 21.2 20.1 1.44% RETURN ON ASSETS 1.67% 1.68% 1.68% 1.70% SHAREHOLDER RETURNS During the year, t h e o p e r a t i n g p r o f i t o f t h e Bank increased b y 2 5 . 2 0 % t o `9,303.13 crores from `7,430.87 crores last year. During this period, the Bank created total provisions ( e x c l u d i n g provisions for tax) of `1,750.44 crores compared to `1,143.03 crores last year. The Bank provided `1,179.22 crores towards non-performing assets compared to `860.43 crores last year and `196.68 crores towards provision for standard assets compared to `150.30 crores last year. The Bank also provided `103.95 crores compared to `88.86 crores last year against restructured assets. The Bank has also created a contingent provision of `375 crores against advances and other exposures as a prudent measure. During 2012- 13, the Bank restructured loans of `2,110.09 crores. The ratio of Gross NPAs to gross customer assets was 1.06% compared to 0.94% last year and Net NPA ratio (Net NPAs as percentage of net customer assets) was 0.32% compared to 0.25% last year. With higher levels of provisions built over and above regulatory norms during the year, the Bank has maintained its provision coverage to 79.15% (after considering prudential write-offs). 2010-11 Book value per Share (`) Return on Average Net Worth (%) 2008-09 2009-10 2010-11 2011-12 2012-13 2012-13 2011-12 2012-13 2011-12 2009-10 2009-10 2010-11 2008-09 2008-09 The healthy growth in business and revenue has been reﬂ ected in a set of ﬁ nancial parameters and ratios during the year. Basic Earnings Per Share (EPS) was `119.67 compared to `102.94 last year, while the Diluted Earnings Per Share was `118.85 compared to `102.20 last year. Return on Equity (RoE) was 20.51% compared to 21.22% last year and Book Value Per Share increased from `551.99 to `707.50. Return on Assets (RoA) is 1.70% compared to 1.68% last year. The net interest margin (NIM) for the year was 3.53% compared to 3.59% last year. The Bank displayed healthy growth in several key balance sheet parameters for the year ended 31st March 2013. The balance sheet size increased by 19.23% to `340,561 crores on 31st March 2013 from `285,628 crores on 31st March 2012. As on 31st March 2013, the total deposits of the Bank stood at `252,614 crores against `220,104 crores last year, increasing by 14.77% over last year. Savings Bank deposits increased by 23.44% to `63,778 crores, while Current Account deposits increased by 21.55% to `48,322 crores. Low-cost demand deposits: Current Accounts and Savings Bank (CASA) deposits were `112,100 crores as on 31st March 2013 as compared to `91,422 crores last year, rising 22.62% over the year. As on 31st March 2013, CASA deposits constituted 44.38% of total deposits as compared to 41.54% last year. On a daily average basis, Savings Bank deposits increased by 20.26% to `52,243 crores, while Current Account deposits increased by 4.73% to `28,698 crores. The percentage share of CASA in total deposits, on a daily average basis, was 36.28% compared to 37.65% last year. In order to broaden the term deposit base, the Bank continued to focus on increasing the share of retail term deposits in total term deposits. As on 31st March 2013, the retail term deposits grew 24.37% and stood at `59,531 crores, constituting 42.37% of the total term deposits compared to 37.20% last year. Total advances of the Bank were `196,966 crores as on 31st March 2013, increasing by 16.03% from `169,760 crores as on 31st March 2012. Of this, corporate advances (comprising large, infrastructure and mid-corporate accounts) increased 7.89% to `98,239 crores and SME loans increased 25.75% to `29,922 crores. Agricultural lending (including micro ﬁ nance) stood at `14,845 crores, decreasing 14.39% over the last year. Retail loans increased by 43.62% to `53,960 crores. The percentage share of retail loans to total advances has increased to 27.40% from 22.13% last year. The retail loan portfolio continues to be focused on secured products. However, a diversiﬁ cation into multi- product portfolio continued during the year. Secured loans accounted for 87.14% of the total retail loans. The total investments of the Bank increased by 22.05% to `113,737 crores and investments in government and approved securities, held mainly for SLR requirement, increased by 23.89% to `72,518 crores. Other investments, including corporate debt securities, increased by 18.93% to `41,219 crores. As on 31st March 2013, the total assets of the Bank’s overseas branches stood at `37,152 crores, constituting 10.91% of the Bank’s total assets. 9 The Bank continued to enlarge its distribution network by widening its geographical reach, which is seen to be critical for tapping low-cost CASA deposits, lending to retail, agriculture and SME segments and the distribution of third- party products. During the year under review, the Bank added 325 new branches, taking the total number of branches and extension counters (ECs) to 1,947, of which 883 branches/ECs are in semi-urban and rural areas and 1,064 branches are in metropolitan and urban areas. The Bank is present in all the States and Union Territories (except Lakshadweep), covering a total of 1,263 centres. The Bank also increased its ATM network to 11,245, as compared to 9,924 ATMs last year. Apart from this, the Bank has an overseas presence in the form of branches at Singapore, Hong Kong, DIFC (Dubai International Financial Centre) and Colombo and representative ofﬁ ces at Shanghai, Dubai and Abu Dhabi. CAPITAL & RESERVES ENHANCING SHAREHOLDER VALUE 180 140 100 160 120 64.31 50.27 81.61 102.20 118.85 During the year under review, the Bank raised capital in the form of equity and debt to support future growth. It raised Tier I capital in the form of equity capital through a Qualiﬁ ed Institutional Placement (QIP) and a preferential allotment of equity shares to the promoters of the Bank. The Bank mobilised an aggregate of `5,537.47 crores through this offering, by issuing 34,000,000 equity shares through a QIP offering and 5,837,945 shares to promoters (Life Insurance Corporation of India, General Insurance Corporation of India, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited) in order to maintain their percentage shareholding of the Bank’s promoters at the pre-QIP offering levels. The equity shares offered under the QIP offering and preferential allotment were both priced at `1,390 per share. During the year, the Bank also raised capital of `2,500 crores by way of sub-ordinated bonds (unsecured redeemable non- convertible debentures) qualifying as Tier II capital. These measures have signiﬁ cantly strengthened the capital position of the Bank, particularly core Tier I capital, providing adequate support for future growth. The Bank is well capitalised with an overall capital adequacy ratio (CAR) of 17.00% at the end of the year, well above the benchmark requirement of 9% stipulated by Reserve Bank of India (RBI). Of this, Tier I CAR was 12.23% against 9.45% last year, while the Tier II CAR was at 4.77% against 4.21% last year. During the year, a total of 2,822,571 equity shares were allotted to employees of the Bank/subsidiary companies pursuant to exercise of options under its Employee Stock Option Scheme. The paid-up capital of the Bank rose to `467.95 crores, as compared to `413.20 crores last year. The shareholding pattern of the Bank as of 31st March 2013 was as under: Earning Per Share (Diluted) ` Dividend (%) 2009-10 2011-12 2009-10 2011-12 2008-09 2008-09 2010-11 2012-13 2012-13 2010-11 Sr. No. i. ii. iii. iv. v. vi. vii. Name of Shareholders Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (SUUTI) Life Insurance Corporation of India (LIC) (1) General Insurance Corporation and four PSU insurance companies Overseas investors (including FIIs/OCBs/NRIs) Foreign Direct Investment (GDR issue) Other Indian ﬁ nancial institutions/mutual funds/banks Others Total % of Paid-up Capital 20.78 9.26 3.84 41.13 8.16 4.50 12.33 100.00 (1) As per Benpos dated 31st March 2013, save and except 43,335,460 shares equivalent to 9.26% of the total paid-up capital of the Bank held by LIC, all other holdings are not considered for arriving at the Promoter’s shareholding 10 The Bank’s shares are listed on the NSE and the BSE. The GDRs issued by the Bank are listed on the London Stock Exchange (LSE). The Bonds issued by the Bank under the MTN programme are listed on the Singapore Stock Exchange. The listing fees relating to all stock exchanges for the current year have been paid. DIVIDEND The Diluted Earnings Per Share (EPS) for 2012-13 rose to `118.85 from `102.20 last year. In view of the overall performance of the Bank and the objective of rewarding shareholders with cash dividends while retaining capital to maintain a healthy capital adequacy ratio to support future growth, the Board of Directors has recommended a higher dividend of `18.00 per equity share, compared to `16.00 per equity share declared last year. This dividend shall be subject to tax on dividend to be paid by the Bank. This increase reﬂ ects our conﬁ dence in the Bank’s ability to consistently grow earnings over time. BOARD OF DIRECTORS During the year, some changes in the composition of the Board of Directors have taken place. The term of Dr. Adarsh Kishore as non-executive Chairman of the Bank ended on 7th March 2013. Dr. Sanjiv Misra, former Secretary, Department of Expenditure, Ministry of Finance, Government of India, former member of Finance Commission and nominee of the Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (SUUTI) was appointed as the non-executive Chairman with effect from 8th March 2013. Reserve Bank of India vide its letter dated 6th March 2013 has granted approval for the appointment of Dr. Sanjiv Misra as the Chairman of the Bank. Shri Somnath Sengupta and Shri V. Srinivasan who were inducted in the Board, took charge as the Executive Directors of the Bank with effect from 15th October 2012. Smt. Ireena Vittal, Independent Strategic Advisor was appointed as an Additional Independent Director of the Bank with effect from 3rd November 2012. Shri Rohit Bhagat, former Chairman, Asia Paciﬁ c, BlackRock Inc. was appointed as an Additional Independent Director of the Bank with effect from 16th January 2013. Smt. Rama Bijapurkar ceased to be a director with effect from 17th January 2013 on completion of her term of eight years pursuant to provisions of section 10A(2A)(i) of the Banking Regulation Act, 1949. The Board of Directors places on record its deep appreciation and gratitude to Dr. Adarsh Kishore for his valuable contribution as Chairman of the Bank. The Board also places on record its appreciation to Smt. Rama Bijapurkar for the valuable services rendered by her during her tenure as Director of the Bank. In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Bank, Shri S. B. Mathur, Shri Prasad R. Menon and Shri R. N. Bhattacharyya retire by rotation at the Nineteenth Annual General Meeting and, being eligible, offer themselves for re-appointment as Directors of the Bank. SUBSIDIARIES As on 31st March 2013, the Bank has seven subsidiaries: Axis Capital Ltd. (formerly Axis Securities and Sales Ltd.), Axis Finance Private Ltd. (formerly Enam Finance Private Ltd.), Axis Private Equity Ltd., Axis Trustee Services Ltd., Axis Asset Management Company Ltd., Axis Mutual Fund Trustee Ltd., and Axis U.K. Ltd. Axis Capital Ltd. was primarily in the business of marketing of credit cards and retail asset products and also provides retail broking services. Pursuant to receipt of regulatory approvals to the Revised Scheme of Arrangement, certain businesses of Enam Securities Private Ltd. were demerged into Axis Capital Ltd., with effect from 20th October 2012. Consequently, Axis Capital Ltd. now also provides services relating to investment banking, equity capital markets, institutional stock broking, mergers and acquisition, etc. During the year, the Bank also acquired the entire share capital of Axis Finance Private Ltd., a wholly owned subsidiary of Axis Capital Ltd., and pursuant to such acquisition, Axis Finance Private Ltd. has become a direct subsidiary of the Bank. Axis Finance Private Ltd., is a NBFC and carries on the activities of loan against shares, margin funding, IPO ﬁ nancing etc. Axis Private Equity Ltd. primarily carries on the activities of managing equity investments and provides venture capital support to businesses. Axis Trustee Services Ltd. is engaged in trusteeship activities (e.g. acting as debenture trustee and as trustee to various securitisation trusts). Axis Asset Management Company Ltd. undertakes the activities of managing the mutual fund business. Axis Mutual Fund Trustee Ltd. was formed to act as the trustee for the mutual fund business. Axis U.K. Ltd. had ﬁ led an application with the Financial Services Authority (FSA), UK for a banking license and to create the necessary infrastructure for banking business. Till the 31st March 2013, pending receipt of the approval, it did not commence operations. Approval has been received from the FSA on the 19th April, 2013 to commence banking operations and subsequently, the name of the Company has been changed to Axis Bank UK Ltd. In terms of the General Circular No. 2/2011 dated 8th February 2011 issued by the Ministry of Corporate Affairs, Government of India, the copies of Directors’ Reports, Auditors’ Reports and the ﬁ nancial statements of the seven subsidiaries have not been 11 attached to the accounts of the Bank for the ﬁ nancial year ended 31st March 2013. Any shareholder who may be interested in obtaining a copy of the aforesaid documents may write to the Company Secretary at the Registered Ofﬁ ce of the Bank. These documents will also be available for examination by shareholders of the Bank at its Registered Ofﬁ ce. The documents related to individual subsidiaries will similarly be available for examination at the respective registered ofﬁ ces of the companies. In line with the Accounting Standard 21 (AS 21) issued by the Institute of Chartered Accountants of India, the consolidated ﬁ nancial results of the Bank along with its subsidiaries for the year ended 31st March 2013 are enclosed as an Annexure to this report. EMPLOYEE STOCK OPTION PLAN (ESOP) The Bank has instituted an Employee Stock Option Scheme to enable its employees and the employees of its subsidiaries including Whole-time Directors, to participate in the future growth and ﬁ nancial success of the Bank. Under the Scheme 40,517,400 options can be granted to employees. The employee stock option scheme is in accordance with the Securities and Exchange Board of India (Employee Stock Option and Employee Stock Purchase Scheme) Guidelines, 1999. The eligibility and number of options to be granted to an employee is determined on the basis of the employee’s work performance and is approved by the Board of Directors. Over the period February 2001 to June 2010, the Bank’s shareholders approved plans for the issuance of stock options to employees on ﬁ ve occasions. Under the ﬁ rst two plans and upto the grant made on 29th April 2004, the option conversion price was set at the average daily high-low price of the Bank’s equity shares traded during the 52 weeks preceding the date of grant at the Stock Exchange which has had the maximum trading volume of the Bank’s equity share during that period. Under the third plan and with effect from the grant made by the Bank on 10th June 2005, the pricing formula has been changed to the closing price on the day previous to the grant date. The Remuneration and Nomination Committee granted options under these plans on twelve occasions: 1,118,925 during 2000-01, 1,779,700 during 2001-02, 2,774,450 during 2003-04, 3,809,830 during 2004-05, 5,708,240 during 2005-06, 4,695,860 during 2006-07, 6,729,340 during 2007-08, 2,677,355 during 2008- 09, 4,413,990 during 2009-10, 2,915,200 during 2010-11, 3,268,700 during 2011-12 and 2,516,000 during 2012-13. The options granted, which are non-transferable, vest at rates of 30%, 30% and 40% on each of three successive anniversaries following the grant, subject to standard vesting conditions, and must be exercised within three years of the date of vesting. As of 31st March 2013, 27,190,658 options had been exercised and 10,865,025 options were in force. Other statutory disclosures as required by the revised SEBI guidelines on ESOPs are given in the Annexure to this report. CORPORATE GOVERNANCE The Bank is committed to achieve the highest standards of corporate governance, and it aspires to benchmark itself with international best practices in this regard. The corporate governance practices followed by the Bank are enclosed as an Annexure to this report. The Bank has adopted a major part of the recommendations contained in the Corporate Governance Voluntary Guidelines 2009 issued by the Ministry of Corporate Affairs and is examining the possibility of implementing the remaining recommendations. DIRECTORS’ RESPONSIBILITY STATEMENT The Board of Directors hereby declares and conﬁ rms that: (cid:2) The applicable accounting standards have been followed in the preparation of the annual accounts and proper explanations have been furnished, relating to material departures. (cid:2) Accounting policies have been selected and applied consistently and reasonably, and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Proﬁ t and Loss of the Bank for the ﬁ nancial year ended 31st March 2013. Proper and sufﬁ cient care has been taken for the maintenance of adequate accounting records, in accordance with the provisions of the Companies (Amendment) Act, 2000, for safeguarding the assets of the Bank, and for preventing and detecting fraud and other irregularities. The annual accounts have been prepared on a going concern basis. The Bank has in place a system to ensure compliance of all laws applicable to the Bank. (cid:2) (cid:2) (cid:2) 12 STATUTORY DISCLOSURE Considering the nature of activities of the Bank, the provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to the Bank. The Bank is, however, constantly pursuing its goal of technological upgradation in a cost-effective manner for delivering quality customer service. The statement containing particulars of employees as required under Section 217(2A) of the Companies Act, 1956 and the rules hereunder is given in an Annexure appended hereto and forms part of this report. In terms of Section 219(1)(iv) of the Act, the Report and Accounts are being sent to the shareholders excluding the aforesaid Annexure. Any shareholder interested in obtaining a copy of the Annexure may write to the Company Secretary at the Registered Ofﬁ ce of the Bank. BUSINESS RESPONSIBILITY REPORT The Securities and Exchange Board of India (SEBI) through its circular CIR/CFD/DIL/8/2012 dated 13th August 2012 has mandated the inclusion of Business Responsibility (BR) Report as part of the Annual Report for top 100 listed entities based on market capitalisation at Bombay Stock Exchange (BSE) and National Stock Exchange (NSE) as on 31st March 2012. The Business Responsibility Report of the Bank has been enclosed as an Annexure to this report. AUDITORS M/s Deloitte Haskins & Sells, Chartered Accountants, Statutory Auditors of the Bank will retire on the conclusion of the Nineteenth Annual General Meeting and are eligible for re-appointment, subject to the approval of Reserve Bank of India and the shareholders. As recommended by the Audit Committee of the Board, the Board of Directors has proposed the appointment of M/s Deloitte Haskins & Sells, Chartered Accountants as Statutory Auditors for the ﬁ nancial year 2013-14. The shareholders are requested to consider their appointment on the remuneration to be decided by the Audit Committee of the Board. ACKNOWLEDGEMENTS The Board of Directors places on record its gratitude to the Reserve Bank of India, other government and regulatory authorities, ﬁ nancial institutions and correspondent banks for their strong support and guidance. The Board acknowledges the support of the shareholders and also places on record its sincere thanks to its valued clients and customers for their continued patronage. The Board also expresses its deep sense of appreciation to all employees of the Bank for their strong work ethic, excellent performance, professionalism, teamwork, commitment and initiative, which has led to the Bank making commendable progress in today’s challenging environment. For and on behalf of the Board of Directors Place : Mumbai Date : 24th April, 2013 Sanjiv Misra Chairman 13 ANNEXURE STATUTORY DISCLOSURES REGARDING ESOP (FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED 31st MARCH 2013) Options Granted Options Exercised & Shares Allotted* Options lapsed/cancelled Total Options (in force) as on 31st March, 2013 Options Vested Money realised by exercise of options (` in lacs) * One (1) share would arise on exercise of one (1) stock option Other details are as under: Pricing Formula Variation in terms of ESOP Details of options granted: 42,407,590 27,190,658 4,351,907 10,865,025 5,372,105 83,801.94 Fixed Price i.e. The average daily high – low price of the shares of the Bank traded during the 52 weeks preceding the date of grant at that stock exchange which has had the maximum trading volume of the Bank’s share during that period. For options granted on and after 10th June 2005, the exercise price considered is the closing market price as on the day preceding the date of the grant at that stock exchange which has had the maximum trading volume of the Bank’s share. None (cid:2) Employee wise details of grants to Senior managerial Managing Director & CEO : 675,000 options personnel Executive Director & Head (Corporate Centre): 403,880 options ** Executive Director & Head (Corporate Banking): 290,000 options ** (cid:2) Employees who were granted, during any one year, options amounting to 5% or more of the options granted during the year Managing Director & CEO : 200,000 options (cid:2) Identiﬁ ed employees who were granted options, during any one year, equal or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Bank under the grant None Diluted Earnings Per Share pursuant to issue of shares on exercise of options calculated in accordance with Accounting Standard (AS) 20 ‘Earnings Per Share’ `118.85 per share Weighted average exercise price of Options whose: (cid:2) Exercise price equals market price Weighted average exercise price of the stock options granted during the year is `1,086.65. (cid:2) Exercise price is greater than market price (cid:2) Exercise price is less than market price Nil Nil ** Represent options granted prior to appointment as Executive Director 14 Weighted average fair value of Options whose: (cid:2) Exercise price equals market price Weighted average fair value of the stock options granted during the year is `387.24. (cid:2) Exercise price is greater than market price (cid:2) Exercise price is less than market price Fair Value Related Disclosure Nil Nil (cid:2) Increase in the employee compensation cost computed at fair value over the cost computed using intrinsic cost method (cid:2) Net Proﬁ t, if the employee compensation cost had been computed at fair value (cid:2) Basic EPS, if the employee compensation cost had been computed at fair value (cid:2) Diluted EPS, if the employee compensation cost had been computed at fair value `117.08 crores `5,062.35 crores `116.97 per share `116.16 per share Signiﬁ cant Assumptions used to estimate fair value (cid:2) Risk free interest rate (cid:2) Expected life (cid:2) Expected Volatility (cid:2) Dividend Yield (cid:2) Price of the underlying share in the market at the time of option grant 8.14% to 8.33% 2 to 4 years 35.92% to 50.25% 1.20% `1,086.65 15 MANAGEMENT’S DISCUSSION AND ANALYSIS MACRO-ECONOMIC ENVIRONMENT Fiscal 2012-13 saw Gross Domestic Product (GDP) growth falling to 5.0% from 6.2% in the previous year. Persisting high inﬂ ation, macro-economic imbalances, including ﬁ scal and current account deﬁ cits resulted in a tight monetary policy stance for much part of the year. Investment dropped sharply due to high interest rates and project implementation bottlenecks resulting in the growth slowdown. A decline in the country’s exports – the result of declining domestic competitiveness and a slowing global economy, together with high imports has led to deterioration in the Current Account Deﬁ cit (CAD). Reduced capital inﬂ ows also led to a sharp depreciation of the Rupee. Subsidies rose to 2.6% in ﬁ scal 2012-13 from 1.4% of GDP in the previous year, with both the ﬁ scal deﬁ cit and inﬂ ation remaining at elevated levels. As part of the process of reforms and with a view to restoring investor conﬁ dence, the government has taken a number of measures since September 2012 including the partial de-regulation of diesel prices, capping of subsidies of LPG and liberalisation of FDI in multi-brand retail and aviation. The government has made ﬁ scal discipline a key objective and the deﬁ cit for ﬁ scal 2013-14 has been budgeted at 4.8% of GDP, lower than 5.2% declared for the previous year. Credit growth fell to less than 15% and in the absence of fresh investments and monetary policy easing in ﬁ scal 2013-14 may slow down further. Deposit growth in the banking sector, which remains the primary channel of ﬁ nancial intermediation, also witnessed a slowdown in ﬁ scal 2012-13. Aggregate deposits outstanding were `67.51 lac crores as on 22nd March 2013 growing 14.3% year-on-year while non-food bank credit grew 14% to `51.66 lac crores. Prospects for Fiscal 2013-14 Moderate global economic recovery and measures to revive domestic growth are likely to improve economic conditions and sentiment in India in ﬁ scal 2013-14. Core inﬂ ation is likely to decline gradually and remain range-bound thereafter. India’s Current Account Deﬁ cit (CAD) is likely to reduce gradually as a result of the measures initiated by the government and the RBI. Improvement in exports will act as a further impetus to domestic growth. The steps taken to revive investment, including monetary policy easing and liquidity infusion and progressive infrastructure de-bottlenecking is likely to increase capacity expansion. Recent measures by the government, including actions by the Cabinet Committee on Investments (CCI) and prospective award of road contracts is likely to boost the projects being implemented. As a result, GDP may potentially rise to around 6% in ﬁ scal 2013-14. With households re-allocating their savings from physical to ﬁ nancial assets and with improvement in ﬁ nancial performance by corporates, higher foreign capital inﬂ ows as well as better cash management by the government, it is hoped that there will be an increase in ﬁ nancial savings that would support deposit growth and improve systemic liquidity. For ﬁ scal 2013-14, we expect deposit growth to be 14-15% and non-food bank credit to be around 15-16%. The challenging conditions have enabled Indian corporates to become more competitive and efﬁ cient that will help them beneﬁ t from a cyclical upturn. OVERVIEW OF FINANCIAL AND BUSINESS PERFORMANCE In a year in which the banking sector in the country has faced increasing strain, from tight liquidity conditions, hardening interest rates, slowdown in capital expenditure, rising delinquencies and high incidence of assets being restructured, the Bank has reported a strong performance, sustained by its fundamental strengths - a sound infrastructure in the form of a well laid-out retail franchise and a large number of corporate relationships. 3.33 3.75 3.65 3.59 3.53 9,666 8,018 6,563 5,004 3,686 The Bank has registered robust growth in both business and revenues. The total assets of the Bank as on 31st March 2013 were `340,561 crores, increasing 19.23% over the year, with the total deposits of the Bank rising 14.77% to `252,614 crores and the total advances rising 16.03% to `196,966 crores as on 31st March 2013. During the year, the total income of the Bank increased 23.05% to `33,734 crores, while operating revenue increased 20.68% to `16,217 crores. The net proﬁ t rose 22.09% to `5,179 crores from `4,242 crores in the previous year. Net Interest Income (` in crores) Net Interest Margins (%) 2011-12 2012-13 2011-12 2012-13 2008-09 2010-11 2009-10 2010-11 2009-10 2008-09 16 46.73 43.15 41.54 41.10 LOW COST OF FUNDS 6.50 6.55 6.28 The Bank continued to create shareholder value, as a result of which the diluted earnings per share for the year increased to `118.85 from `102.20 last year, while the book value per share increased to `707.50 from `551.99 last year. 44.38 5.20 4.96 CAPITAL MANAGEMENT The Bank has consistently provided superior returns to its shareholders by using capital efﬁ ciently in supporting business growth. The capital management framework is driven by the objective of ensuring an appropriate mix of business, with optimal allocation of capital. 2010-11 2011-12 2012-13 2008-09 2009-10 2008-09 2009-10 Demand Deposits as % Share of Total Deposits Investor interest in the Bank continued to be strong, from both domestic and foreign institutional entities. In order to strengthen its core capital base, the Bank raised equity capital aggregating `5,537.47 crores during the year through a Qualiﬁ ed Institutional Placement and a preferential allotment of shares to its promoters. The Bank also raised Tier II Capital of `2,500 crores in the form of sub-ordinated bonds (unsecured redeemable non-convertible debentures) to augment the overall capital base. 2011-12 2012-13 Cost of Funds (%) 2010-11 The Bank has implemented the Revised Framework of the International Convergence of Capital Measurement and Capital Standards in 2008. In terms of RBI guidelines on Basel II, the capital charge for credit and market risk for the ﬁ nancial year ended 31st March 2013 is required to be maintained at the higher levels as required under Basel II or 80% of the minimum capital requirement computed under Basel I. In terms of regulatory guidelines on Basel II, the Bank has computed capital charge for operational risk under the Basic Indicator Approach and the capital charge for credit risk under the Standardised Approach. As on 31st March 2013, the Bank’s Capital Adequacy Ratio (CAR) under Basel II was 17.00% against 13.66% on 31st March 2012 and the minimum regulatory requirement of 9%. Of this, the Tier I Capital Adequacy Ratio was 12.23%, while the Tier II Capital Adequacy Ratio was 4.77%. The following table sets forth the capital, risk-weighted assets and capital adequacy ratios computed as on 31st March 2013 and 31st March 2012 in accordance with the applicable RBI guidelines under Basel II. AS ON 31ST MARCH Tier I Capital – Shareholders’ Funds Tier II Capital Out of which - Bonds qualifying as Tier II capital - Upper Tier II capital - Other eligible for Tier II capital (` in crores) 2013 2012 31,596.80 21,886.11 12,334.32 9,758.84 10,036.66 1,446.53 851.13 7,737.52 1,374.74 646.58 Total Capital qualifying for computation of Capital Adequacy Ratio 43,931.12 31,644.95 Total Risk-Weighted Assets and Contingencies Total Capital Adequacy Ratio (CAR) Out of above - Tier I Capital - Tier II Capital 258,355.49 231,711.39 17.00% 13.66% 12.23% 4.77% 9.45% 4.21% During the year, the RBI issued guidelines on implementation of Basel III capital regulation in India. These guidelines are to be implemented beginning 1st April 2013 in a phased manner and will stand fully implemented as on 31st March 2018. These guidelines cover the new capital regulations and the liquidity risk management framework. The Bank has taken appropriate steps to ensure adoption of these guidelines within the timeframe stipulated by RBI. The liquidity guidelines have been integrated into the asset liability management framework of the Bank through suitable amendments in order to ensure adherence to RBI guidelines on monitoring and management of liquidity including liquidity ratios. 17 BUSINESS OVERVIEW An overview of various business segments along with the performance during 2012-13 and their future strategies is presented below. RETAIL BANKING The Bank aims to increase its share in the ﬁ nancial services sector by continuing to build a strong retail franchise. The segment continues to be one of the key drivers of the Bank’s growth strategy, encompassing a wide range of products delivered through multiple channels to customers. The Bank offers a complete suite of products across deposits, loans, investment solutions, payments and cards and is committed to developing long-term relationships with its customers by providing high-quality services. The Bank pursues an effective customer segmentation strategy, the success of which is reﬂ ected in the fact that Savings Bank deposits grew at a Compounded Annual Growth Rate (CAGR) of 26.13% over the last ﬁ ve years. During the year, Savings Bank deposits grew 23.44% to `63,778 crores from `51,668 crores last year. On a daily average basis, Savings Bank deposits grew 20.26% to `52,243 crores. The Bank has also maintained its approach in increasing the proportion of Retail Term Deposits. On the 31st March 2013, retail term deposits grew 24.37% year-on-year to `59,531 crores, constituting 42.37% of total term deposits, compared to 37.20% last year. RETAIL ASSETS (` in crores) 37,570 53,960 20,821 27,759 16,052 Likewise, the Bank continued to focus on increasing its share of retail loans in total advances. The retail loans of the Bank grew 43.62% to `53,960 crores as on 31st March 2013 from `37,570 crores last year. Retail loans constituted 27.40% of the Bank’s total advances as on 31st March 2013, compared to 22.13% last year of which secured loans accounted for 87%. The distribution of speciﬁ c portfolios within the Retail loan segment as on 31st March 2013 was as follows: home loans - 65%, loans against property - 7%, auto loans - 14%, personal loans and credit cards - 9%. 2008-09 2009-10 2010-11 2011-12 2012-13 RETAIL ASSETS RETAIL LIABILITIES 63,778 51,668 40,850 33,862 25,822 2008-09 2009-10 2010-11 2011-12 2012-13 SB DEPOSITS (` in crores) 5% 7% 2% 7% 14% 65% Personal Loans Credit Cards Auto loans Housing loans Loans against Property Others The Bank sources retail loans through 120 Asset Sales Centres operating out of 96 cities with standardised appraisal and oversight mechanisms. Retail loans are also originated from 1,183 branches through which one-third of incremental retail loans are currently sourced. The cards business is an integral part of the Bank’s retail strategy with ever-increasing numbers of transactions moving to the electronic mode. The Bank is one of the largest debit card issuers in the country, with a base of 142.9 lacs, which rose from 124.99 lacs at the end of last year. With more than a million cards in force, the Bank is now the sixth largest credit card issuer in the country. The Bank has also emerged as one of the largest acquirers in the country with an installed base of 2.16 lac point-of-sale terminals. During the year, the Bank also launched mobile POS. To Indians living and working overseas, the Bank offers a complete suite of banking and investment products under its NRI Services. The Bank has 49 branches authorised to issue Portfolio Investment Scheme (PIS) permissions to NRIs/PIOs who wish to trade in the Indian secondary markets through registered stock brokers on recognised stock exchanges. To support the business, the Bank has launched a 24x7 integrated helpdesk for NRI customers with the facility of toll-free numbers from key geographies. As on 31st March 2013, the Bank’s aggregate NRI deposits (Savings + Term Deposits) stood at `13,104 crores against `8,624 crores last year. The Bank also offers products in the area of retail forex and remittances, including travel currency cards, inward and outward wire transfers, travellers cheques and foreign currency notes, remittance facilities through online portals as well as through collaboration with correspondent banks, exchange houses and money transfer operators. The Bank continued to 18 have a market leadership position in Travel Currency Cards with 11 currency options other than INR being offered. The Bank is planning to introduce two new currency options New Zealand Dollar (NZD) and Thai Baht (THB). Additionally, the Bank also launched a multi-currency card speciﬁ cally aimed at corporates and business travellers. The aggregate load value on Travel Currency Cards crossed USD 3 billion during the year. ‘Axis Bank Privée’, a business vertical offers private banking solutions to meet the personalised investment needs of high net worth individuals as well as the corporate advisory needs of families in business. Axis Bank Privée brings solutions offered by various business groups (retail and corporate) within the Bank and various group entities under one integrated platform. The Bank also distributes third party products such as mutual funds, Bancassurance products (life and general insurance), online trading and gold coins through its branches. The Bank is one of the leading banking distributors of mutual funds in India and distributes mutual fund products of all major asset management companies. These products are sold through the Bank’s branch distribution network based on client requirements. The Bank also distributes life insurance products of Max Life Insurance Company and during the year, it sold more than 1.86 lac policies with a premium mobilisation of `790.62 crores. During the year, the Bank entered into an arrangement with Tata AIG General Insurance Company Limited to distribute general insurance products. The Bank offers online trading services to its customers in collaboration with Axis Capital Ltd. (a 100% subsidiary of the Bank) under the name Axis Direct, an enhanced and simpliﬁ ed Online Trading platform which is now available to NRI customers. During the year, 148,390 online trading accounts were opened, taking the total number online trading accounts to 297,069 as on 31st March 2013. The Bank also sold gold and silver bars to retail and corporate customers under the brand ‘Mohur’ through its branches. During the year, the Bank added 325 branches spread across 279 centres. The Bank added 1,321 ATMs during the year to reach a network size of 11,245 as on 31st March 2013 compared to 9,924 ATMs last year. The Bank has deployed 550 Automated Deposit Machines (for cash deposits into customer accounts) and has extended this facility 24X7 in certain branches which have integrated self-service lobbies. Besides the ATM network, internet banking, mobile banking and phone banking have developed as important alternate channels of the Bank. CORPORATE CREDIT In the backdrop of a subdued macro-economic environment, capital expenditure by corporates remained lacklustre during the year. Loans for working capital and the drawdown on committed sanctions in existing projects under implementation contributed to the growth in corporate credit during the year. The corporate credit portfolio of the Bank comprising advances to large and mid-corporates (including infrastructure) grew 7.89% to `98,239 crores from `91,053 crores last year. This includes advances at overseas branches amounting to `29,972 crores (equivalent to USD 5.52 billion) comprising mainly the portfolio of Indian corporates and their subsidiaries as also trade ﬁ nance. The advances at overseas branches accounted for 15.22% of total advances. The Bank’s infrastructure business includes project and bid advisory services, project lending, debt syndication, project structuring and due diligence, securitisation and structured ﬁ nance. The Bank has introduced a relationship model, focusing on cross-selling a wide range of products to corporates. Fee-based business through loan syndication, trade ﬁ nance and treasury business continued to grow. The Bank’s sectoral approach to credit continued to achieve greater efﬁ ciency with increased attention on identifying sector-speciﬁ c opportunities. Portfolio composition is being continuously monitored by tracking industry, group and company-speciﬁ c exposure limits. The internal and external rating of the credit facilities of customers is undertaken and monitored on ongoing basis with the entire lending portfolio of the Bank being internally rated. The mid-corporate group continues to be an important business franchise of the Bank with an asset book of `20,010 crores as on 31st March 2013, registering a growth of 15.23% over last year. In view of the macro economic scenario, exposure was conﬁ ned to industries with a positive outlook only after evaluation of relevant credit risk factors with the objective of booking better-rated exposures. TREASURY The Bank has an integrated Treasury, which covers both domestic and global markets and funds the balance sheet across geographies. It plays an important role in the sovereign debt markets and participates in primary auctions of RBI. It also actively participates in the secondary government securities and corporate debt market. Over the last few years, the Bank has emerged as one of the leading banks providing foreign exchange and trade ﬁ nance services. Through its various verticals, the Treasury serves customers across various industries, segments and regions. The foreign exchange and money market group under Treasury 19 is an active participant in the inter-bank/ﬁ nancial institutions space. It also maintains proprietary positions to generate trading income for the Bank. An active Balance Sheet Management group within Treasury takes care of asset-liability mismatches and interest rate sensitivities of the Bank’s portfolio. The interest rates and derivatives group provides derivative solutions to customers for its balance sheet and currency exposures. The Global Financial Institutions Division (GFID) group in Treasury is responsible for fostering business relationships with ﬁ nancial institutions across geographies and undertakes foreign currency fund raising. The Bank continued to be a dominant player in placement and syndication of Rupee denominated debt. During the year, the Bank arranged debt aggregating to `145,461 crores and retained its top position in arranging Rupee denominated debt for the ﬁ fth consecutive calendar year as per Bloomberg and also as per PRIME Database for the nine months ended December 2012. During the calendar year 2012, the Bank won the Best Domestic Bond House in India by The Asset Triple A Country Awards by Asset Magazine, India Bond House by the IFR Asia, and Deal Maker of the year by Business World Magazine. BUSINESS BANKING Business Banking offers transactional banking services, leveraging upon the Bank’s network and technology. Its initiatives focus on procurement of low-cost funds by offering a range of current account products and cash management solutions across all business segments covering corporates, institutions, central and state government ministries and undertakings as well as small and retail business customers. Product offerings of this business segment aim at providing customised transactional banking solutions to fulﬁ l customer’s business requirement. Cross-sell of transactional banking products, product innovation and a customer-centric approach have succeeded in growing current account balances and realisation of transaction banking fees. As on 31st March 2013, balances in current accounts increased by 21.55% and stood at `48,322 crores compared to `39,754 crores last year. On a daily average basis, current accounts balances grew by 4.73% to `28,698 crores compared to `27,403 crores last year. CMS GROWTH 15,818 11,548 In the cash management services (CMS) business, the Bank focuses on offering customised service to its customer to cater to speciﬁ c corporate requirements and improve the existing product line to offer enhanced features to customers. The Bank is also focusing on host-to-host integration for both collections and payments, such as IT integration between corporates and the Bank for seamless transactions and information ﬂ ow. The Bank provides comprehensive structured MIS reports on a periodic basis, for better accounting and reporting. CMS continued to constitute an important source of fee income and contributed signiﬁ cantly to generate low cost funds. The Bank is one of the top CMS providers in the country with the number of locations covered under CMS increased to 890 from 801 last year. The number of CMS clients has grown to 15,818 from 11,548 last year. 8,465 6,614 4,852 2008-09 2009-10 2010-11 2011-12 2012-13 No. of CMS Clients The Bank has been acting as an agency bank for transacting government business to various central government ministries, departments, state governments and union territories. The Bank accepts income and other direct taxes through 406 authorised branches at 225 locations and central excise and service taxes though 56 authorised branches at 14 locations including e-payments. The Bank also handles the disbursement of civil pension through all its branches and defence pension through 151 authorised branches. In addition, the Bank provides collection and payment services to four central government ministries/departments and 13 state governments and union territories. The Bank is associated with 11 state governments towards undertaking Electronic Beneﬁ t Transfer (EBT) projects for disbursement of government beneﬁ ts (wages under MGNREGS and Social Security Pension (SSP)) through direct credit to beneﬁ ciary bank accounts under smart card based IT enabled ﬁ nancial inclusion model. The total government business throughput during the year was `92,680 crores. The Bank is a SEBI-registered custodian and offers custodial services to both domestic and offshore customers. As on 31st March 2013, the Bank held assets worth approximately `12,511 crores under its custody, registering a growth of 6% over last year. INVESTMENT BANKING The Bank’s investment banking business comprises equity capital markets, mergers and acquisitions and private equity syndication. The Bank is a SEBI registered Category-1 Merchant Banker and has been active in advising Indian corporates in raising equity through Pre-IPOs, IPOs/FPOs, QIPs, Rights issue etc. The Bank has built strong relationships with Indian companies, becoming an effective bridge between such corporates and FIIs, DIIs and domestic retail investors. During the year, the Bank closed 2 IPOs of 20 non-convertible debentures aggregating over `800 crores and managed buyback of shares transaction aggregating `50 crores. The private equity advisory team handles mandates on behalf of SME and mid-corporate clients for helping them to raise equity. Pursuant to the receipt of necessary approvals from various regulatory authorities, the demerger of certain ﬁ nancial services business undertaken by Enam Securities Private Ltd. (ESPL) to the Bank’s wholly owned subsidiary Axis Capital Ltd. (formerly Axis Securities and Sales Ltd.) has been concluded on 20th October 2012 and thus the Investment Banking business of the Bank is now being carried out from Axis Capital Ltd. LENDING TO SMALL AND MEDIUM ENTERPRISES The Small and Medium Enterprises (SME) business has been identiﬁ ed as one of the growth areas for the Bank. The business approach towards this segment, which is expected to contribute signiﬁ cantly to economic growth in future, is based upon building relationships and nurturing the entrepreneurial talent. The Bank extends working capital, project ﬁ nance as well as trade ﬁ nance facilities to SMEs. The relationship-based approach enables the Bank to deliver value through the entire life cycle of SMEs, creating enormous goodwill and stickiness. It also provides cross-sell opportunities and helps the Bank fulﬁ ls its priority sector obligations. The Bank has segmented its SME business in three groups: Medium Enterprises (MEG), Small Enterprises (SEG) and Supply Chain Finance (SCF). The Bank has set up 32 SME Centres and 9 SME Cells across the country to service customers effectively to cover 870 branches. The Bank has implemented a Loan Origination System (LOS) for SEG and SCF business segments to track applications, automate credit process and improve turn-around time. During the year, advances to SME increased by 25.75% to `29,922 crores from `23,795 crores last year and constituted 15.19% of the Bank’s total advances as compared to 14.02% at the end of last year. The Bank has continued to improve its risk management capabilities in the SME business. Micro and Small Enterprises (MSE) constitute an important segment of SME business. During the year, the Bank launched two new products ‘Micro Power’ for providing ﬁ nance to enterprises which are Micro enterprises as per the MSMED Act, 2006 and ‘Service Power’ for providing ﬁ nance to enterprises which are either a Micro or Small Enterprise as per the MSMED Act, 2006. Apart from the ﬁ nancial products and services offered to this segment, the Bank has initiated an awards program ‘Business Gaurav Awards’, to recognise top performing MSMEs. The second edition of the Business Gaurav SME Awards was held in November 2012. The awards received an enthusiastic response with over 7,200 business entities nominating themselves for the awards. 34 winners were felicitated across 14 sectors. The awards also saw release of the publication – ‘Leading SMEs of India 2012’. AGRICULTURE The Bank has identiﬁ ed agricultural lending as an area of potential growth and offers a diverse range of lending solutions to the farming clientele and other stakeholders in the agriculture value chain. Activity and geography speciﬁ c products and product variants were introduced to effectively reach out to the various value-chain participants and to meet their credit requirements. In order to provide a strategic focus to agricultural lending, the Bank has adopted a cluster-centric approach for agricultural lending in areas where the Bank believes agriculture is intensive and where a potential market exists. The business architecture for agriculture business is decentralised with Agriculture Business Centres (ABCs) at various locations across the country spearheading the business. To increase the focus on unbanked and under banked areas, 3 new ABCs were formed during the year at Guwahati (Assam), Bhubaneswar (Odisha) and Patna (Bihar). The branches and agriculture clusters follow a hub-and-spoke model with branches being the sole touch point for farmers. As of 31st March 2013, the agriculture business is operated through 759 branches attached to 93 agricultural clusters, which are controlled by 20 ABCs. To achieve the objectives of increasing the business reach, consistent growth of portfolio and maintaining quality of assets, business, credit, operations and collections functions in this business are handled independently. Apart from lending to farmers, the Bank also actively participates in awareness campaigns and forming farmer’s clubs in many of its upcountry branches in co-ordination with National Bank for Agriculture and Rural Development (NABARD). The Bank allies with reputed corporates in agro based industries to provide value to the farmers. The Bank will continue to increase its reach in rural and semi-urban areas by increasing the number of agriculture clusters and ABCs as per requirement and bring more and more branches under agriculture lending. The Bank also supports the weaker sections of society through its lending to Micro Finance Institutions (MFIs). To improve credit delivery to the target customers through smart use of technology, the Bank in the current year has started Axis Sahyog, a social collateral lending initiative wherein economically active weaker section individuals are provided with micro loans for agriculture and micro enterprises. Biometric enabled IT architecture is used for enrolment and for authorising transactions. Presently, Axis Sahyog has been implemented in two states : Bihar and Madhya Pradesh. The Bank also uses the services of institutional Business Correspondents for sourcing and servicing micro loans in a southern state. The Bank pioneered ﬁ rst ever 21 listing of Multi Originator Securitisation (MOSEC) transaction of microloans in the country. This initiative will go a long way in developing an alternate source of funding for the microﬁ nance sector. As on 31st March 2013, the Bank’s outstanding loans in the agricultural sector was `14,845 crores, constituting 7.54% of the Bank’s total advances. Financial inclusion The Bank regards ﬁ nancial inclusion not merely as a corporate social responsibility initiative but as an integral component of its rural strategy. The ﬁ nancial inclusion initiatives of the Bank are aimed at enabling customers in rural markets to use formal banking channels for their banking needs such as savings, payments, credit and insurance. Apart from savings, payments are the major requirement of such customers due to migration of workforce. The Bank offers no-frills accounts, tailor-made ﬁ xed deposits and recurring deposit products to meet the savings requirements of customers. As on 31st March 2013, the Bank had opened 61.61 lac no-frills accounts covering 42,338 villages. The Bank has been in the forefront of several innovations in this space. It has tied-up with leading telecom companies to provide savings and remittance facilities using the mobile phone and their distribution outlets in key domestic payment corridors. The Bank is also a leading player in the remittance market, enabling migrant workers in urban areas remit money to their families in the hinterland. The Bank endeavours to meet the entire set of ﬁ nancial needs of its customers, including micro-lending, ‘Chhota-deposits’ and micro-insurance (under life and general insurance categories). The Bank also actively participates in electronic/direct beneﬁ t transfer for disbursal of beneﬁ ts under various government schemes using smart cards and biometric authentication technology. The Bank has made signiﬁ cant investments in technology, and is integrated with the Aadhar platform through NPCI to enable transfer of Aadhar based social welfare beneﬁ ts. The Bank has launched several programmes to deliver micro-loans to rural customers through its business correspondents in Tamil Nadu, Bihar and Madhya Pradesh. It has also tied up with leading corporates to deliver credit to their end consumers through their rural supply chain partners. INTERNATIONAL BANKING The international operations of the Bank have generally catered to Indian corporates who have expanded their business overseas. The overseas network of the Bank currently spans the major ﬁ nancial hubs in Asia. The Bank now has a foreign network of four branches at Singapore, Hong Kong, DIFC-Dubai and Colombo (Sri Lanka), and three representative ofﬁ ces at Shanghai, Dubai and Abu Dhabi, besides strategic alliances with banks and exchange houses in the Gulf Co-operation Council (GCC) countries. While branches at Singapore, Hong Kong, DIFC-Dubai and Colombo enable the Bank to partner with Indian corporates doing business globally and primarily offer corporate banking, trade ﬁ nance, treasury and risk management solutions, the Bank also offers retail liability products from its branches at Hong Kong and Colombo. The representative ofﬁ ces and strategic alliances with banks and exchange houses in the GCC countries cater to the large Indian diaspora and promote the Bank’s NRI products. With management of liquidity being a major challenge in the present global markets, the Bank consciously restrained its asset growth at the overseas centres to report an asset size of USD 6.84 billion as at 31st March 2013 vis-à-vis USD 6.35 billion as at 31st March 2012. Further, interactions are also in progress with China Banking Regulatory Commission (CBRC) for upgrade of the Shanghai Representative Ofﬁ ce into a branch. RISK MANAGEMENT The objective of risk management is to balance the trade-off between risk and return and ensure optimum risk-adjusted return on capital. It entails independent identiﬁ cation, measurement and management of risks across the various businesses of the Bank. Risk is managed through a framework of policies and principles approved by the Board of Directors supported by an independent risk function which ensures that the Bank operates within its risk appetite. The risk management function in the Bank strives to proactively anticipate vulnerabilities at the transaction as well as at the portfolio level, through quantitative or qualitative examination of the embedded risks. The Bank continues to focus on reﬁ ning and improving its risk measurement systems not only to ensure compliance with regulatory requirements, but also to ensure better risk-adjusted return and optimal capital utilization, keeping in view business objectives. The overall risk appetite of the Bank is deﬁ ned by its Board of Directors. Further, the Individual Capital Adequacy Assessment Process (ICAAP) of the Bank assesses all the signiﬁ cant risks associated with various businesses. The independent risk management structure within the Bank is responsible for managing the credit, market, liquidity, operational and group risks. The risk management processes are guided by well-deﬁ ned policies appropriate for the various risk categories viz. credit risk, market 22 risk, operational risk, liquidity risk, counterparty risk, country risk and group risk supplemented by periodic validations of the methods used and monitoring through the sub-committees of the Board. The Risk Management Committee (RMC), which is a sub-committee of the Board, approves policies related to risk and reviews various aspects of risk arising from the businesses undertaken by the Bank. The Committee of Directors and the Audit Committee of the Board supervises certain functions and operations of the Bank, which ultimately enhances the risk and control governance framework within the Bank. Various senior management credit and investment committees, Credit Risk Management Committee (CRMC), Asset-Liability Committee (ALCO), and Operational Risk Management Committee (ORMC) operate within the broad policy framework of the Bank. Credit Risk Credit risk is the risk of ﬁ nancial loss if a client, issuer of securities that the Bank holds or any other counterparty fails to meet its contractual obligations. Credit risk arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, borrower or obligor. The goal of credit risk management is to maximise the Bank’s risk-adjusted rate of return on capital by maintaining a healthy asset portfolio and managing the credit risk inherent in individual exposures as well at the portfolio level. The emphasis is placed, both on evaluation and containment of risk at the individual exposures and analysis of the portfolio behaviour. The Bank has structured and standardised credit approval processes including a well-established procedure of comprehensive credit appraisal. Every extension of credit facility or material change to a credit facility to any counterparty requires credit approval at the appropriate authority level. Internal risk rating remains the foundation of the credit assessment process which provides standardisation and objectivity to the process. All sanctioning processes including the delegation of powers are linked to the ratings and the sizes of the exposure. The monitoring frequency applicable to the exposure also depends on the rating of the exposure. Individual borrower exposure ceilings linked to the internal rating and sector speciﬁ c caps are laid down in the Credit Policy to avoid concentration risk. For the retail portfolio including small businesses and small agriculture borrowers, the Bank uses different product-speciﬁ c scorecards. Both credit and market risk expertise are combined to manage risks arising out of traded credit products such as bonds and market related off-balance sheet transactions. Model validation is carried out periodically by objectively assessing its discriminatory power, calibration accuracy and stability of ratings both by the Risk Department as well as independently by a Validation Committee. The Bank continuously monitors portfolio concentrations by segment, borrower, groups, industry and geography, where applicable. Portfolio level delinquency matrices are tracked at frequent intervals with focus on detection of early warning signals of stress. Key sectors are analysed in detail to suggest strategies for business, considering both risks and opportunities. Such analysis is reviewed by the Credit Risk Management Committee to arrive at the appropriate industry ceilings as well as deﬁ ne the origination and account management strategy for the sector. The Risk Management Committee of the Board periodically reviews the impact of the stress scenarios resulting from various scenarios like increased provisioning requirements, rating downgrades, or drop in the asset values in case of secured exposures, on the portfolio. The portfolio level risk analytics provide insight into the capital allocation required to absorb unexpected losses at a deﬁ ned conﬁ dence level. Market Risk The market risk management framework of the Bank aims at maximising the risk-adjusted rate of return by providing inputs regarding the extent of market risk exposures, the performance of portfolios vis-à-vis the risk exposure and comparable benchmarks. Market risk is the risk of losses in ‘on and off-balance sheet’ positions arising from the movements in market price as well as the volatilities of those changes, which may impact the Bank’s earnings and capital. The risk may pertain to interest rate related instruments (interest rate risk), equities (equity price risk) and foreign exchange rate risk (currency risk). Market Risk for the Bank emanates from its trading and investment activities, which are undertaken both for the customers and on a proprietary basis. The Bank adopts a comprehensive approach to market risk management for its banking book as well as trading book for both its domestic and overseas operations. The market risk management framework of the Bank provides necessary inputs regarding the extent of market risk exposures, the performance of portfolios vis-à-vis the risk exposure and comparable benchmarks which assists in maximising the risk-adjusted rate of return of the Bank’s trading and investment portfolio. Market risk management is guided by well laid policies, guidelines, processes and systems for the identiﬁ cation, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. Treasury Mid-Ofﬁ ce independently monitors the Bank’s investment and trading portfolio in terms of risk limits stipulated in the Market Risk Management Policy and reports deviations, if any, to the appropriate authorities as laid down in the policy. The procedures for the measurement of various types of market risks by the Treasury Mid-Ofﬁ ce are well-documented. The Bank utilises both 23 statistical as well as non-statistical measures for the market risk management of its trading and investment portfolios. The statistical measures include Value at Risk (VaR), stress tests, back tests and scenario analysis while position limits, marked-to- market (MTM), stop-loss limits, alarm limits, gaps and sensitivities (duration, PVBP, option greeks) are used as non-statistical measures of market risk management. Historical simulation and its variants are used to compute VaR for the trading portfolio which is calculated at a 99% conﬁ dence level for a one-day holding period over a time horizon of 250 days. VaR models for different portfolios are back-tested on an ongoing basis and the results are used to maintain and improve the efﬁ cacy of the model. VaR measurements are supplemented with a series of stress tests and sensitivity analysis as per a well laid stress testing framework. Liquidity Risk The Bank’s Asset Liability Management Policy lays down a broad framework for liquidity risk management to ensure that the Bank is in a position to meet its daily liquidity obligations as well as to withstand a period of liquidity stress from, bank-wide factors, market-wide factors or a combination of them. The liquidity proﬁ le of the Bank is analysed on a static as well as on a dynamic basis by using the gap analysis technique supplemented by monitoring of key liquidity ratios and conduct of liquidity stress tests periodically. The liquidity position is monitored for both domestic as well as overseas operations. The Bank has laid down liquidity risk policies for its overseas branches in line with host country regulations and the asset-liability management framework as stipulated for domestic operations. Periodical liquidity positions and liquidity stress results of overseas branches are reviewed by the Bank’s ALCO along with domestic positions. Operational Risk Operational risks may emanate from inadequate and/or missing controls in internal processes, people, and systems or from external events or a combination of all the four. The Bank has in place an Operational Risk Management (ORM) policy to manage the operational risk in an effective, efﬁ cient and proactive manner. The policy aims at assessing and measuring the magnitude of risks, monitoring and mitigating them through well-deﬁ ned framework and governance structure. The Risk Management Committee (RMC) of the Board at the apex level is the policy making body. The RMC is supported by the Operational Risk Management Committee (ORMC), responsible for the implementation of the Operational Risk framework of the Bank and the management of operational risks across the Bank. A sub-committee of the ORMC, Sub-ORMC has been constituted to assist the ORMC in discharging its functions by deliberating the operational risk issues in detail and escalating the critical issues to ORMC. All new products and processes are subjected to rigorous risk evaluation by the Bank’s Product Management Committee and Change Management Committee. Similarly, outsourcing arrangements are examined and approved by the Bank’s Outsourcing Committee. The IT Security Committee of the Bank provides directions for mitigating operational risk in the information systems. The Bank is in the process of setting up a comprehensive Operational Risk Measurement System (ORMS) through the implementation of a software solution. Recognising its responsibility to ensure continuity of service to its large customer base, the Bank has in placed a well-deﬁ ned Business Continuity Framework. The effectiveness of the approved Business Continuity Plan (BCP) framework is tested selectively to ensure readiness to meet various contingency scenarios. The learning from the BCP exercises are used as inputs to further reﬁ ne the framework. OPERATIONS Over the past few years, the Bank has carried out separation of the production and distribution functions, with centralised transaction processing and customer databases becoming increasingly centralised and product sales and customer handling (the distribution technology) primarily carried out at the branches. The business process re-engineering has enabled reduction of transaction costs besides ensuring smoothness in operations and increasing productivity. To bring about greater precision in the management of operations, processes were constantly reﬁ ned during the year on a continual basis from the perspective of implementation of best practices, risk identiﬁ cation and containment. Operational instructions were issued on a continual basis and efforts are made to introduce risk-free working at branches. Retail Banking Operations Retail Banking Operations (RBO) provides seamless service to retail customers while ensuring secure and compliant systems for risk 24 containment and regulatory compliance. The oversight function in the Bank has been further strengthened through centralised monitoring of the working of the branches in respect of KYC, AML, other regulatory compliances, cash management, clearing operations and internal housekeeping resulting in better compliance and higher operational efﬁ ciencies. During the year, the Bank continued to move more operations to centralised hubs thereby reducing operational activities at branches. The Bank has also invested in de-duplication in customer acquisition, thereby improving online monitoring. An automated system to identify existing customer base, highlight exceptions and manage activity ﬂ ow has now been successfully implemented. Increased emphasis has been laid out on service quality covering the entire operations area. The Bank has also implemented a robust system of identiﬁ cation and remedy of customer-service deﬁ ciencies through root cause analysis and trend of customer requests and escalated complaints. During the year, the Bank has set up a 24x7 dedicated contact centre for NRI customers, as well as a dedicated contact centre for retail asset customers. The Bank’s existing liabilities contact centre offers services in 11 languages. Wholesale Banking Operations Wholesale Banking Operations (WBO) function is responsible for providing best in class service to non-retail customers of the Bank through four verticals: Corporate Banking Operations, Treasury Operations, Trade and Forex Operations and Centralised Collection and Payment Hub. The Corporate Banking Operations (CBO) ensures delivery, control, monitoring and administration of credit facilities of large corporates, mid corporates, SME and corporate agriculture segments. It also processes domestic trade ﬁ nance, channel ﬁ nance and micro ﬁ nance transactions. CBO operates through Corporate Banking Branches (CBBs)/Credit Management Centres (CMCs) located at 8 major centres, 56 Mini-Credit Management Centres (MCMCs) at Tier II cities, and Corporate Credit Operations Hub (CCOH) at Hyderabad and Gurgaon. Treasury Operations involves the settlement and accounting of treasury-related transactions and operates the centralised electronic payment hubs for RTGS and NEFT. The Trade and Forex Operations (TFO) handles remittances and trade ﬁ nance transaction processing on behalf of distribution channels dealing in trade ﬁ nance and foreign exchange through 200 ‘B’ category branches and state-of-the-art centralised knowledge processing centres located at Mumbai and Hyderabad. TFO is also responsible for ensuring compliance of regulatory and internal guidelines in respect of foreign exchange transactions of the Bank. The Centralised Collections and Payment Hub (CCPH) handles payments and collections, and operates through 2 units located at Mumbai and Hyderabad. Further, in order to extend operational support and customer hand-holding at the local level, 11 Transaction Banking Centres (TBCs) have been set-up during the year, which are manned by skilled resources, thereby ensuring efﬁ cient service delivery coupled with control over operations. The Bank’s payment service is one of the key differentiating services for all customer segments. In order to enhance speed, scalability and straight through processing by technological advancement, the Bank has launched a plan of introducing an Enterprise Payment Hub (EPH) to handle all types of payment services through a centralised and channel agnostic processing engine. This will enhance customer experience across all customer segments and take care of growing volumes, minimise manual processing, reduce operational risk and avoid duplication in infrastructure. INFORMATION TECHONOLOGY Technology is one of the key enablers for business and for delivering customised ﬁ nancial solutions. The Bank continued to focus on introducing innovative banking services through investments in scalable, robust and function-rich technology platforms to enable delivery of efﬁ cient and seamless services across multiple channels for customer convenience and cost reduction. The Bank has also focused on improving the governance process in IT. During the year, the Bank has received certiﬁ cation of ISO 27001:2005 by BSI (ANAB accredited) for complying with the standards of Information Security Management System for its data centres located in Navi Mumbai and Bengaluru. The Bank has also successfully completed migration of its data centre to a co-hosted location during the year. The new premises offer a category IV data center that complies with the highest benchmarking standards applicable to data centres promising built-in redundancy of infrastructure. A robust Project Management framework is used to ensure that investments in IT are based on good gate-keeping principles and result in appropriate payback in value terms. The Bank has made signiﬁ cant progress in implementing the recommendations of the RBI Working Group issued in April 2011 on Information Security, Electronic Banking, Technology Risk Management and Cyber Frauds. The Bank is committed to implementing the recommendations on the various subject areas indicated in the guidelines. The broad measures taken in respect of the various areas included conducting a detailed gap analysis to implement the controls/suggestions contained in the guidelines, examining each recommendation closely and taking decisions either to acquire a solution or implement procedural controls. The Bank has put in place the appropriate organisational framework as recommended in the guidelines. Several information security solutions have either been implemented or ﬁ nalised for implementation to protect customer data, prevent 25 external attacks as well as strengthening internal controls. Policies and procedures of the Bank have also been reviewed and suitably modiﬁ ed. The progress in each area of the recommendations has been closely monitored by the top management and the status of implementation has been reported to the Board and RBI at regular intervals. COMPLIANCE The Bank continued to vigorously pursue its commitment in adhering to the highest standards of compliance. The compliance function in the Bank plays a pivotal role in ensuring that the overall business of the Bank is conducted in accordance with regulatory prescriptions. The Compliance function facilitates improvement in the compliance culture in the Bank through various enablers like dissemination of regulatory changes and spreading compliance knowledge through training, newsletters and other means of communication and direct interaction. To ensure that all the businesses of the Bank are aware of compliance requirements, the compliance function is involved in vetting of new products and processes, evaluating adequacy of internal controls and examining systemic correction required, based on its analysis and interpretation of the regulatory doctrine and the deviations observed during compliance monitoring and testing programmes. This function also ensures that internal policies address the regulatory requirements, besides vetting processes for their robustness and regulatory compliances. For more focused management of compliance risk, the Bank is in an advanced stage of implementing an Enterprise-wide Governance Risk and Compliance Framework, an online tool, which would address operational, compliance and ﬁ nancial reporting risks and help in bringing efﬁ ciency in processes and improvement in compliance levels. Signiﬁ cant aspects of the Bank’s compliance culture are the Whistleblower Policy and zero tolerance for fraud, corruption and ﬁ nancial irregularities. INTERNAL AUDIT The Bank’s internal audit function performs an independent and objective evaluation of the adequacy and efﬁ ciency of internal controls on an ongoing basis to ensure that operating units adhere to compliance requirements and internal guidelines. The Internal Audit function undertakes a comprehensive risk-based audit of all operating units. An Audit Plan is drawn up on the basis of a risk-proﬁ ling of auditee units. Accordingly, the Bank undertakes internal audit of the operating units at a frequency synchronised to the risk proﬁ le of each unit in line with the spirit of guidelines relating to Risk-Based Internal Audit (RBIA). The scope of risk-based internal audit, besides examining the adequacy and effectiveness of internal control systems and external compliance, also evaluates the risk residing at the auditee units. The RBIA approach has been thoughtfully structured taking into account RBI guidelines and international best practices. To complement the Internal Audit function, the Bank has put in place a strong Concurrent Audit system. To ensure independence of the Audit function and in line with the best corporate governance practices, the Internal Audit department functions independently under the supervision of the Audit Committee of the Board, which reviews performance of the internal audit department and effectiveness of controls laid down by the Bank and compliance with regulatory guidelines. CORPORATE SOCIAL RESPONSIBILITY (CSR) As an integral part of society, the Bank is aware of its corporate social responsibilities and has been engaged in community and social investments. For this purpose, the Bank has set up a Trust – the Axis Bank Foundation (ABF) to channel its philanthropic initiatives. The Foundation has committed itself to participate in various socially relevant endeavours with a special focus on providing sustainable livelihoods, poverty alleviation, education of the underprivileged, healthcare etc. The Bank has decided to contribute upto one percent of its net proﬁ t annually to the Foundation under its CSR initiatives. The Foundation is constantly engaged in identifying the right target group and ensuring that support reaches the ultimate beneﬁ ciary. Presently, the Foundation is running 40 programs across 163 districts in 19 states, targeting 7,27,059 beneﬁ ciaries. The Foundation has been providing support to various initiatives in education, targeting underprivileged children. Presently, 23 programs are running in the ﬁ eld of education covering 33 districts in 13 states promoting supplementary education, education for the mentally/physically challenged, hearing impaired, visually challenged etc. During the year, the Foundation has disbursed `6.23 crores for various education programs. The Foundation also works for providing highway trauma care and rural medical relief. The Foundation has been working with Lifeline Foundation since 2007 for supporting the highway rescue projects in the states of Maharashtra, Kerala, Gujarat and Rajasthan. It has provided aid to around 7,500 critical accident victims and more than 15,000 minor accident victims. The Foundation aims to provide one million livelihoods to the underprivileged in some of the most backward regions of the country by 2017, 50% of the beneﬁ ciaries being women. The Foundation has so far partnered with 17 NGOs to provide sustainable livelihoods and has launched projects in partnership with these NGOs in the states of West Bengal, Odisha, Tamil Nadu, Maharashtra, Jharkhand, Chhattisgarh, Bihar, Uttar Pradesh and Madhya Pradesh. These programs aim at alleviating poverty and help in providing sustainable livelihood options. Presently, 17 programs are running in 26 the ﬁ eld of livelihood covering 136 districts in 17 states. During the year, an amount of `31.09 crores was disbursed towards various livelihood programs. The Foundation is also actively involved in implementing several initiatives in Green Banking. In line with the Bank’s initiative in Green Banking with the theme of ‘Reduce, Reuse and Recycle’, the Foundation has initiated the process of collecting all the dry waste, generated in the Corporate Ofﬁ ce and seventeen ofﬁ ces of the Bank in Mumbai and recycle it into notebooks, notepads and envelopes. This initiative was launched in August 2011, has helped recycle around 87,206 kilograms since inception. The Foundation also has an Ofﬁ cer Engagement Program, which encourages ofﬁ cers of the Bank to get involved in various volunteering activities. The Bank launched an employee payroll program titled ‘Axis Cares’. As on 31st March 2013, 7,524 ofﬁ cers of the Bank have enrolled for Axis Cares with a monthly collection of `14.64 lacs. The funds collected under this initiative are utilised for the programs of the Foundation and the details of utilisation are shared with the ofﬁ cers every month. Under the aegis of ‘Basket of Hope’, the Foundation organises collection drives for clothes, books and toys for distribution to the needy. The Foundation has also launched a new initiative titled ‘Gift of Life’. During the year, 27 blood donation drives have been organised across the country, through which 1,934 units of blood has been collected. Exhibitions of various NGOs are held at the Corporate Ofﬁ ce and other ofﬁ ces of the Bank, to provide a platform to these NGOs for exhibiting their products and popularise their work. Conducting the exhibitions has also promoted volunteering among our ofﬁ cers with NGO partners. During the ﬁ nancial year, 56 such exhibitions have been organised which has helped these NGOs to generate sales over `14.40 lacs. HUMAN RESOURCES The Human Resources (HR) function is instrumental in creating and developing human capital in alignment with the Bank’s vision. Talent Management with particular focus on grooming future leaders, learning and development and employee engagement have been the key focus areas in the Bank’s HR objectives. The Bank has built a learning infrastructure to ensure availability of skilled and empowered workforce. The Learning Maps aligned to the overall development plan of employees are designed to facilitate learning process across all levels through a blended learning approach of classroom programmes, external programmes, certiﬁ cation programmes as well as e-learning modules. The Bank also creates alternate talent pipelines by entering into arrangements with Training and Education Institutes and continues to maintain a strong employer brand in the ﬁ nancial services sector especially on the campuses of the premier business schools of the country. Apart from having a strong presence in the talent market, the Bank also believes in maintaining a strong image internally by keeping its workforce engaged at all levels. 34.90% INTELLECTUAL CAPITAL 0.02%1.89% 6.82% 1.49% 54.88% To inculcate and live its motto of ‘One Bank, One Axis’ and foster a spirit of connectedness, the Bank hosts several employee engagement programmes and channels to connect its thinly-spread employee population across a widely dispersed geographical network. Through these platforms, employees can share their unique experiences, facilitate best practice sharing, cast their opinion and feedback about the Bank’s products and services. The Bank also offers avenues for several employee health and wellness initiatives throughout our network. Graduates/Post Graduate Bankers/Law Prof. CA/CS/ICWA/CFA MBA/Masters Engg/Tech Doctorate The Bank has been conducting its annual Employee Engagement Study to capture, analyse and draw action plans to enhance the engagement quotient. A third-party framework, benchmarked as one of the best, is used for administering and analysing the results of the study, with focus on measuring and improving employee engagement quotient. Taking concrete steps based on the study ﬁ ndings helps in building a stronger and more engaged workforce. The Bank seeks regular feedback from employees on the policies and practices to ensure that it is in consonance with employee empowerment. Incidentally, the focus areas for the Bank’s performance management system are Ownership, Continuous Process and Humane Touch, which are driven by strengthening the culture of performance feedback (both formal and informal). In addition to performance, the personal development plan of an employee includes a feedback on behavioural competencies for growth. Axis Leadership Practices (ALPs) are deﬁ ned for employees at different levels of the hierarchy to promote desired behaviour and to facilitate an objective assessment. The ALPs form a framework for all the people processes in the Bank. These are an integral part of processes like Talent Acquisition, Performance Management System, Promotion, Talent Appreciation, Leadership Development and Feedback. The Bank has partnered with the best in class leadership trainers of the country to provide key 27 position holders and unit heads the fundamentals of managing self and team leadership though a series of ‘Inspired Leadership’ workshops. The Bank has also launched an in- house multi-rater feedback tool ‘ALP Compass’, based on the Axis Leadership Practices. PROFILE BY AGE 3.31% 0.66% The strength of the workforce was 37,901 at the end of the year as compared to 31,738 last year. A young workforce with an average age of 29 years and the Bank’s policy of being an equal opportunity employer continues to signiﬁ cantly contribute towards emergence of the Axis Bank brand. The Bank inspires everyone to excel and contribute to, irrespective of gender, race or age, and this echoes in all HR initiatives undertaken. The Bank is also a socially responsible employer. Apart from housing its own NGO ‘Axis Bank Foundation’, the Bank has partnered with Teach for India for promoting the noble objective of providing education to underprivileged children. The Bank continues to strive towards realisation of its vision of being the preferred ﬁ nancial service provider excelling in customer delivery through insight, empowered employees and smart use of technology. 28.10% 67.93% Below 30 Years Above 30 yrs to 40 yrs Above 40 yrs to 50 yrs Above 50 yrs to 60 yrs 28 INDEPENDENT AUDITORS’ REPORT TO THE MEMBERS OF AXIS BANK LIMITED Report on the Financial Statements We have audited the accompanying ﬁ nancial statements of AXIS BANK LIMITED (“the Bank”), which comprise the Balance Sheet as at 31 March, 2013, the Proﬁ t and Loss Account and the Cash Flow Statement of the Bank for the year then ended and a summary of the signiﬁ cant accounting policies and other explanatory information. Management’s Responsibility for the Financial Statements The Bank’s Management is responsible for the preparation of these ﬁ nancial statements that give a true and fair view of the ﬁ nancial position, ﬁ nancial performance and cash ﬂ ows of the Bank in accordance with the provisions of Section 29 of the Banking Regulation Act, 1949, Accounting Standards referred to in Section 211 (3C) of the Companies Act, 1956 in so far as they apply to the banks and the Guidelines issued by Reserve Bank of India. This responsibility includes the design, implementation and maintenance of internal control relevant to the preparation and presentation of the ﬁ nancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these ﬁ nancial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the ﬁ nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the ﬁ nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the Bank’s preparation and fair presentation of the ﬁ nancial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the aforesaid ﬁ nancial statements give the information required by the Banking Regulation Act, 1949; the Companies Act, 1956 in the manner so required for banking companies and the Guidelines issued by Reserve Bank of India from time to time and give a true and fair view in conformity with the accounting principles generally accepted in India: (a) in the case of the Balance Sheet, of the state of affairs of the Bank as at 31 March, 2013; (b) in the case of the Proﬁ t and Loss Account, of the proﬁ t of the Bank for the year ended on that date; and (c) in the case of the Cash Flow Statement, of the cash ﬂ ows of the Bank for the year ended on that date. Report on Other Legal and Regulatory Requirements 1. As required by Section 227(3) of the Companies Act, 1956 and Section 30 of the Banking Regulation Act, 1949, we report that: (a) We have obtained all the information and explanations which to the best of our knowledge and belief were necessary for the purposes of our audit and found them to be satisfactory. (b) In our opinion, the transactions of the Bank which have come to our notice have been within the powers of the Bank. (c) The ﬁ nancial accounting systems of the Bank are centralised and, therefore, accounting returns are not required to be submitted by the Branches. 29 (d) In our opinion, proper books of account as required by law have been kept by the Bank so far as it appears from our examination of those books. (e) The Balance Sheet, the Proﬁ t and Loss Account and the Cash Flow Statement dealt with by this Report are in agreement with the books of account. (f) In our opinion, the Balance Sheet, the Proﬁ t and Loss Account and the Cash Flow Statement comply with the Accounting Standards referred to in Section 211(3C) of the Companies Act, 1956 in so far as they apply to banks. 2. On the basis of the written representations received from the Directors as on 31 March, 2013 taken on record by the Board of Directors, we report that none of the Directors is disqualiﬁ ed as on 31 March, 2013 from being appointed as a director in terms of Section 274(1)(g) of the Companies Act, 1956. 3. We report that during the course of our audit we have visited 98 Branches. Since the key operations of the Bank are completely automated with the key applications integrated to the core banking systems, the audit is carried out centrally at the Head Ofﬁ ce as all the necessary records and data required for the purposes of our audit are available therein and the Branches are not required to submit any ﬁ nancial returns. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No. 117365W) Z. F. Billimoria Partner (Membership No. 42791) Date : 24th April, 2013 Place : Mumbai 30 AXIS BANK LIMITED - BALANCE SHEET BALANCE SHEET AS AT 31 MARCH, 2013 CAPITAL AND LIABILITIES Capital Reserves & Surplus Deposits Borrowings Other Liabilities and Provisions TOTAL ASSETS Cash and Balances with Reserve Bank of India Balances with Banks and Money at Call and Short Notice Investments Advances Fixed Assets Other Assets TOTAL Contingent Liabilities Bills for Collection As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) Schedule No. 1 2 3 4 5 6 7 8 9 10 11 4,679,545 4,132,039 326,399,054 223,953,384 2,526,135,881 2,201,043,033 439,510,984 340,716,721 108,881,120 86,432,757 3,405,606,584 2,856,277,934 147,920,883 107,029,214 56,428,716 32,309,943 1,137,375,370 931,920,859 1,969,659,574 1,697,595,386 23,556,420 22,593,250 70,665,621 64,829,282 3,405,606,584 2,856,277,934 12 5,481,158,951 4,802,373,747 278,948,780 346,346,043 Signiﬁ cant Accounting Policies and Notes to Accounts 17 & 18 Schedules referred to above form an integral part of the Balance Sheet In terms of our report attached. For Axis Bank Ltd. For Deloitte Haskins & Sells Chartered Accountants Sanjiv Misra Chairman Z. F. Billimoria Partner K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 31 AXIS BANK LIMITED - PROFIT & LOSS ACCOUNT PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2013 I II INCOME Interest earned Other income TOTAL EXPENDITURE Interest expended Operating expenses Provisions and contingencies TOTAL III NET PROFIT FOR THE YEAR (I - II) Balance in Proﬁ t & Loss Account brought forward from previous year IV AMOUNT AVAILABLE FOR APPROPRIATION V APPROPRIATIONS : Transfer to Statutory Reserve Transfer to Investment Reserve Transfer to Capital Reserve Transfer to Reserve Fund Proposed dividend (includes tax on dividend) Balance in Proﬁ t & Loss Account carried forward TOTAL VI EARNINGS PER EQUITY SHARE (Face value `10/- per share) (Rupees) Basic Diluted Signiﬁ cant Accounting Policies and Notes to Accounts 17 & 18 Schedules referred to above form an integral part of the Proﬁ t and Loss Account Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) Schedule No. 13 14 271,825,744 65,511,063 337,336,807 219,946,474 54,202,163 274,148,637 15 16 18 (2.1.1) 18 (2.2.1) 18 (2.2.2) 18 (2.2.5) 18 (2.2.3) 175,163,111 69,142,375 41,236,992 285,542,478 51,794,329 73,294,476 125,088,805 12,948,583 534,571 1,414,579 26,084 9,872,364 100,292,624 125,088,805 139,769,024 60,070,995 31,886,564 231,726,583 42,422,054 49,697,707 92,119,761 10,605,513 - 519,047 - 7,700,725 73,294,476 92,119,761 119.67 118.85 102.94 102.20 In terms of our report attached. For Axis Bank Ltd. For Deloitte Haskins & Sells Chartered Accountants Sanjiv Misra Chairman Z. F. Billimoria Partner K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 32 AXIS BANK LIMITED - CASH FLOW STATEMENT CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2013 Cash ﬂ ow from operating activities Net proﬁ t before taxes Adjustments for: Depreciation on ﬁ xed assets Depreciation on investments Amortisation of premium on Held to Maturity investments Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) 75,526,929 62,878,354 3,517,343 3,422,363 (1,039,359) 674,599 580,985 627,967 Provision for Non Performing Assets (including bad debts) 11,792,245 8,604,298 Provision on standard assets Provision for wealth tax (Proﬁ t)/Loss on sale of ﬁ xed assets (net) Provision for country risk Provision for restructured assets Provision for other contingencies Adjustments for: (Increase)/Decrease in investments (Increase)/Decrease in advances Increase/(Decrease) in deposits (Increase)/Decrease in other assets Increase/(Decrease) in other liabilities & provisions Direct taxes paid Net cash ﬂ ow from operating activities Cash ﬂ ow from investing activities Purchase of ﬁ xed assets 1,966,686 1,503,036 3,800 3,600 44,662 (203,026) (96,300) 48,100 1,039,492 888,600 3,837,828 (198,354) 97,267,925 78,155,923 (95,527,142) (165,599,005) (284,769,149) (282,226,283) 325,092,849 308,665,023 (3,340,140) (15,673,352) 14,760,950 1,757,949 (26,294,900) (23,349,523) 27,190,393 (98,269,268) (4,718,705) (3,843,375) (Increase)/Decrease in Held to Maturity investments (109,099,212) (47,204,626) (Increase)/Decrease in Investment in Subsidiaries Proceeds from sale of ﬁ xed assets (718,875) (900,000) 193,531 762,243 Proceeds from transfer of net assets acquired under demerger to subsidiary 2,741,502 - Net cash used in investing activities (111,601,759) (51,185,758) 33 CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2013 Cash ﬂ ow from ﬁ nancing activities Proceeds from issue of subordinated debt, perpetual debt & upper Tier II instruments (net of repayment) Increase/(Decrease) in borrowings (excluding subordinated debt, perpetual debt & upper Tier II instruments) Proceeds from issue of share capital Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) 19,654,731 35,808,360 79,139,533 42,229,536 426,605 26,581 Proceeds from share premium (net of share issue expenses) 56,227,263 1,336,820 Payment of dividend Net cash generated from ﬁ nancing activities Effect of exchange ﬂ uctuation translation reserve Net increase in cash and cash equivalents (7,702,164) (6,697,611) 147,745,968 72,703,686 1,675,840 2,003,938 65,010,442 (74,747,402) Cash and cash equivalents at the beginning of the year 139,339,157 214,086,559 Cash and cash equivalents at the end of the year 204,349,599 139,339,157 Note : 1. Cash and cash equivalents comprise of cash on hand (including foreign currency notes), balances with Reserve Bank of India, balances with banks and money at call & short notice (Refer Schedules 6 and 7 of the Balance Sheet). In terms of our report attached. For Axis Bank Ltd. For Deloitte Haskins & Sells Chartered Accountants Sanjiv Misra Chairman Z. F. Billimoria Partner K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 34 AXIS BANK LIMITED - SCHEDULES SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 1 - CAPITAL Authorised Capital 850,000,000 (Previous year - 500,000,000) Equity Shares of `10/- each Issued, Subscribed and Paid-up capital 467,954,468 (Previous year - 413,203,952) Equity Shares of `10/- each fully paid-up [Refer Schedule 18.1b] SCHEDULE 2 - RESERVES AND SURPLUS I. Statutory Reserve Opening Balance Additions during the year II. Share Premium Account Opening Balance Additions during the year Less: Share issue expenses [Refer Schedule 18 (2.1.29)] III. Investment Reserve Account Opening Balance Additions during the year IV. General Reserve Opening Balance Additions during the year V. Capital Reserve Opening Balance Additions during the year [Refer Schedule 18.1a and Schedule 18 (2.2.1)] VI. Foreign Currency Translation Reserve [Refer Schedule 17 (4.5)] Opening Balance Additions during the year VII. Reserve Fund Opening Balance Additions during the year [Refer Schedule 18 (2.2.2)] VIII. Balance in Proﬁ t & Loss Account TOTAL As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 8,500,000 5,000,000 4,679,545 4,132,039 38,425,863 27,820,350 12,948,583 10,605,513 51,374,446 38,425,863 101,387,610 100,050,790 56,626,088 1,336,820 (398,826) - 157,614,872 101,387,610 - 534,571 534,571 - - - 3,543,100 3,534,600 - 8,500 3,543,100 3,543,100 5,424,982 4,905,935 4,035,182 9,460,164 519,047 5,424,982 1,877,353 1,675,840 3,553,193 (126,585) 2,003,938 1,877,353 - 26,084 26,084 - - - 100,292,624 73,294,476 326,399,054 223,953,384 35 SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 3 - DEPOSITS A. I. Demand Deposits (i) From banks (ii) From others II. Savings Bank Deposits III. Term Deposits (i) From banks (ii) From others TOTAL B. I. Deposits of branches in India II. Deposits of branches outside India TOTAL SCHEDULE 4 - BORROWINGS I. Borrowings in India (i) Reserve Bank of India (ii) Other banks # (iii) Other institutions & agencies ** II. Borrowings outside India $ TOTAL As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 29,255,626 20,980,835 453,965,348 376,559,884 637,777,349 516,679,577 151,218,877 100,943,739 1,253,918,681 1,185,878,998 2,526,135,881 2,201,043,033 2,386,893,082 2,094,495,868 139,242,799 106,547,165 2,526,135,881 2,201,043,033 - 1,150,000 22,367,200 4,472,000 144,085,033 121,210,990 273,058,751 213,883,731 439,510,984 340,716,721 Secured borrowings included in I & II above - # Borrowings from other banks include Subordinated Debt of `557.60 crores (previous year `359.60 crores) in the nature of Non-Convertible Debentures, Perpetual Debt of Nil (previous year Nil) and Upper Tier II instruments of `59.10 crores (previous year `59.10 crores) [Also refer Notes 18 (2.1.2) & 18 (2.1.3)] - ** Borrowings from other institutions & agencies include Subordinated Debt of `10,071.70 crores (previous year `8,391.70 crores) in the nature of Non-Convertible Debentures, Perpetual Debt of `214.00 crores (previous year `214.00 crores) and Upper Tier II instruments of `248.40 crores (previous year `248.40 crores) [Also refer Notes 18 (2.1.2) & 18 (2.1.3)] $ Borrowings outside India include Perpetual Debt of `249.71 crores (previous year `234.03 crores) and Upper Tier II instruments of `1,139.03 crores (previous year `1,067.24 crores) [Also refer Note 18 (2.1.3)] SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. II. Bills payable Inter-ofﬁ ce adjustments (net) III. Interest accrued IV. Proposed dividend (includes tax on dividend) V. Contingent provision against standard assets VI. Others (including provisions) TOTAL 36 35,288,164 30,853,220 - - 8,267,309 6,478,322 9,852,151 7,681,950 9,766,369 7,799,683 45,707,127 33,619,582 108,881,120 86,432,757 SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA I. II. Cash in hand (including foreign currency notes) Balances with Reserve Bank of India : (i) (ii) TOTAL in Current Account in Other Accounts As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 40,538,842 35,957,442 107,382,041 - 147,920,883 71,071,772 - 107,029,214 SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India (i) Balance with Banks (a) (b) in Current Accounts in Other Deposit Accounts (ii) Money at Call and Short Notice (a) With banks (b) With other institutions TOTAL II. Outside India in Current Accounts (i) (ii) in Other Deposit Accounts (iii) Money at Call & Short Notice TOTAL GRAND TOTAL (I+II) SCHEDULE 8 - INVESTMENTS Investments in India in - I. (i) Government Securities ## ** (ii) Other approved securities (iii) Shares (iv) Debentures and Bonds (v) (vi) Others (Mutual Fund units, CD/CP, NABARD deposits, PTC etc.) @ Total Investments in India Investments outside India in - (i) Government Securities (including local authorities) (ii) Subsidiaries and/or joint ventures abroad (amount less than `1,000 for current Investment in Subsidiaries/Joint Ventures II. 3,353,513 9,491,675 3,516,323 6,146,450 - - 12,845,188 - - 9,662,773 11,440,321 13,474,234 18,668,973 43,583,528 56,428,716 7,666,358 3,845,537 11,135,275 22,647,170 32,309,943 722,498,592 - 7,549,074 260,744,089 4,214,375 133,587,622 1,128,593,752 584,162,116 - 7,399,921 231,507,877 3,495,500 98,082,541 924,647,955 2,683,274 1,170,306 year and previous year) - 6,102,598 7,272,904 931,920,859 ## Includes securities costing `4,766.66 crores (previous year `4,427.15 crores) pledged for availment of fund transfer facility, (iii) Others Total Investments outside India GRAND TOTAL (I+II) - 6,098,344 8,781,618 1,137,375,370 clearing facility and margin requirements ** Inclusive of Repo Lending of `7,350.00 crores (previous year `3,675.00 crores) and net of Repo borrowing of Nil (previous year `3,140.76 crores) under the Liquidity Adjustment Facility in line with the RBI requirements @ Includes priority sector shortfall deposits `6,980.42 crores (previous year `5,100.53 crores) and PTC’s `1,471.03 crores (previous year `204.67 crores) net of depreciation, if any 37 SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 9 - ADVANCES A. (i) Bills purchased and discounted * (ii) Cash credits, overdrafts and loans repayable on demand @ (iii) Term loans # TOTAL B. (i) Secured by tangible assets $ (ii) Covered by Bank/Government Guarantees && (iii) Unsecured TOTAL C. I. Advances in India (i) Priority Sector (ii) Public Sector (iii) Banks (iv) Others TOTAL II. Advances Outside India (i) Due from banks (ii) Due from others - (a) Bills purchased and discounted (b) Syndicated loans (c) Others TOTAL As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 56,079,021 39,089,332 546,437,284 468,608,528 1,367,143,269 1,189,897,526 1,969,659,574 1,697,595,386 1,613,648,122 1,417,163,384 18,089,151 50,233,791 337,922,301 230,198,211 1,969,659,574 1,697,595,386 484,982,533 484,792,379 39,189,817 32,535,626 449,490 3,477,937 1,143,709,623 923,767,773 1,668,331,463 1,444,573,715 10,371,975 1,127,900 2,687,649 6,438,231 109,487,196 108,035,085 178,781,291 137,420,455 301,328,111 253,021,671 GRAND TOTAL (CI+CII) Net of borrowings under Bills Rediscounting Scheme `1,000.00 crores (previous year `3,480.00 crores) * @ Net of borrowings under Inter Bank Participation Certiﬁ cate `205.89 crores (previous year `60.36 crores) 1,969,659,574 1,697,595,386 # $ Net of borrowings under Inter Bank Participation Certiﬁ cate `10,256.09 crores (previous year `7,968.24 crores) Includes advances against book debts && Includes advances against L/Cs issued by banks 38 SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH, 2013 As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) SCHEDULE 10 - FIXED ASSETS I. Premises Gross Block At cost at the beginning of the year Additions during the year Deductions during the year TOTAL Depreciation As at the beginning of the year Charge for the year Deductions during the year Depreciation to date Net Block II. Other ﬁ xed assets (including furniture & ﬁ xtures) Gross Block At cost at the beginning of the year Additions during the year Deductions during the year TOTAL Depreciation As at the beginning of the year Charge for the year Deductions during the year Depreciation to date Net Block III. CAPITAL WORK-IN-PROGRESS (including capital advances) GRAND TOTAL (I+II+III) SCHEDULE 11 - OTHER ASSETS I. II. Inter-ofﬁ ce adjustments (net) Interest Accrued III. Tax paid in advance/tax deducted at source (net of provisions) IV. Stationery and stamps V. Non banking assets acquired in satisfaction of claims VI. Others # TOTAL # Includes deferred tax assets of `1,374.77 crores (previous year `1,027.45 crores) 9,001,944 9,117,340 39,131 96,841 - (212,237) 9,041,075 9,001,944 262,236 147,275 - 409,511 198,381 146,310 (82,455) 262,236 8,631,564 8,739,708 26,834,786 25,147,573 4,136,185 3,265,751 (566,132) (1,578,538) 30,404,839 26,834,786 13,688,918 11,561,967 3,370,068 3,276,053 (327,940) (1,149,102) 16,731,046 13,688,918 13,673,793 13,145,868 1,251,063 707,674 23,556,420 22,593,250 - - 27,143,759 24,194,553 270,351 1,185,052 11,221 209,600 12,623 262,681 43,030,690 39,174,373 70,665,621 64,829,282 39 SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 12 - CONTINGENT LIABILITIES I. II. Claims against the Bank not acknowledged as debts Liability for partly paid investments As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 1,667,558 2,602,138 - - III. Liability on account of outstanding forward exchange and derivative contracts : (a) Forward Contracts 2,320,162,574 2,009,254,981 (b) Interest Rate Swaps, Currency Swaps, Forward Rate Agreement & Interest Rate Futures (c) Foreign Currency Options TOTAL (a+b+c) IV. Guarantees given on behalf of constituents In India Outside India V. Acceptances, endorsements and other obligations VI. Other items for which the Bank is contingently liable GRAND TOTAL (I+II+III+IV+V+VI) 2,210,541,350 1,752,490,787 80,228,625 130,543,459 4,610,932,549 3,892,289,227 517,036,841 467,505,902 111,222,144 98,612,604 228,015,939 302,612,607 12,283,920 38,751,269 5,481,158,951 4,802,373,747 40 SCHEDULES FORMING PART OF THE PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2013 SCHEDULE 13 - INTEREST EARNED I. II. Interest/discount on advances/bills Income on investments Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) 191,662,356 153,793,526 77,469,805 63,942,666 III. Interest on balances with Reserve Bank of India and other inter-bank funds 1,112,621 984,267 IV. Others TOTAL SCHEDULE 14 - OTHER INCOME I. II. Commission, exchange and brokerage Proﬁ t/(Loss) on sale of investments (net) III. Proﬁ t/(Loss) on sale of ﬁ xed assets (net) IV. Proﬁ t on exchange/derivative transactions (net) V. Income earned by way of dividends etc. from subsidiaries/companies and/or joint venture abroad/in India VI. Miscellaneous income [including recoveries on account of advances/investments written off in earlier years `268.51 crores (previous year `291.84 crores) and net loss on account of portfolio sell downs/securitisation `5.88 crores (previous year net loss of `1.60 crores)] TOTAL SCHEDULE 15 - INTEREST EXPENDED I. II. Interest on deposits Interest on Reserve Bank of India/Inter-bank borrowings III. Others TOTAL SCHEDULE 16 - OPERATING EXPENSES I. II. Payments to and provisions for employees Rent, taxes and lighting III. Printing and stationery IV. Advertisement and publicity V. Depreciation on bank’s property VI. Directors’ fees, allowance and expenses VII. Auditors’ fees and expenses VIII. Law charges IX. Postage, telegrams, telephones etc. X. Repairs and maintenance XI. Insurance XII. Other expenditure TOTAL 1,580,962 1,226,015 271,825,744 219,946,474 50,251,479 43,417,022 5,863,030 (44,662) 728,329 203,026 6,640,744 6,739,668 15,000 11,250 2,785,472 3,102,868 65,511,063 54,202,163 150,155,486 121,836,378 4,596,175 2,319,578 20,411,450 15,613,068 175,163,111 139,769,024 23,769,825 20,801,677 7,506,045 6,564,159 1,003,940 1,196,483 934,980 881,458 3,517,343 3,422,363 15,355 11,088 8,397 9,267 179,019 182,725 2,791,263 2,586,992 5,858,902 5,294,832 2,622,194 2,312,956 20,670,918 17,071,189 69,142,375 60,070,995 41 17 Signiﬁ cant accounting policies for the year ended 31 March, 2013 1 Background Axis Bank Limited (‘the Bank’) was incorporated in 1993 and provides a complete suite of corporate and retail banking products. 2 Basis of preparation The ﬁ nancial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting, and comply with the generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, the circulars and guidelines issued by the Reserve Bank of India (‘RBI’) from time to time and the Accounting Standards notiﬁ ed under the Companies (Accounting Standards) Rules, 2006, to the extent applicable and current practices prevailing within the banking industry in India. 3 Use of estimates The preparation of the ﬁ nancial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the ﬁ nancial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the ﬁ nancial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods. 4 Signiﬁ cant accounting policies 4.1 Investments Classiﬁ cation In accordance with the RBI guidelines, investments are classiﬁ ed at the date of purchase as: • • • Held for Trading (‘HFT’); Available for Sale (‘AFS’); and Held to Maturity (‘HTM’). Investments that are held principally for sale within a short period are classiﬁ ed as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassiﬁ ed as AFS securities as on that date. Investments that the Bank intends to hold till maturity are classiﬁ ed under the HTM category. All other investments are classiﬁ ed as AFS securities. However, for disclosure in the Balance Sheet, investments in India are classiﬁ ed under six categories - Government Securities, Other approved securities, Shares, Debentures and Bonds, Investment in Subsidiaries/Joint Ventures and Others. Investments made outside India are classiﬁ ed under three categories – Government Securities, Subsidiaries and/or Joint Ventures abroad and Others. Transfer of security between categories Transfer of security between categories of investments is accounted as per the RBI guidelines. Acquisition cost Costs including brokerage, commission pertaining to investments, paid at the time of acquisition, are charged to the Proﬁ t and Loss Account. 42 Broken period interest is charged to the Proﬁ t and Loss Account. Cost of investments is computed based on the weighted average cost method. Valuation Investments classiﬁ ed under the HTM category are carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over the period remaining to maturity. In terms of RBI guidelines, discount on securities held under HTM category is not accrued and such securities are held at the acquisition cost till maturity. Investments classiﬁ ed under the AFS and HFT categories are marked to market. The market/fair value of quoted investments included in the ‘AFS’ and ‘HFT’ categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges or prices declared by Primary Dealers Association of India (‘PDAI’) jointly with Fixed Income Money Market and Derivatives Association of India (‘FIMMDA’), periodically. Net depreciation, if any, within each category of each investment classiﬁ cation is recognised in the Proﬁ t and Loss Account. The net appreciation if any, under each category of each investment classiﬁ cation is ignored. The book value of individual securities is not changed consequent to the periodic valuation of investments. Treasury Bills, Exchange Funded Bills, Commercial Paper and Certiﬁ cate of Deposits being discounted instruments, are valued at carrying cost. Units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual fund. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under: • • • • • • in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the YTM for Government Securities as published by FIMMDA/PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA is adopted for this purpose; in case of bonds and debentures (including Pass Through Certiﬁ cates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI; equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company’s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at `1 per company; units of Venture Capital Funds (‘VCF’) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (‘NAV’) shown by VCF as per the latest audited ﬁ nancials of the fund. In case the audited ﬁ nancials are not available for a period beyond 18 months, the investments are valued at `1 per VCF. Investment in unquoted VCF after 23 August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines; investments in Credit Linked Notes (‘CLNs’), are valued based on current quotations where the same are available. In the absence of quotes, the same are valued based on internal valuation methodology using appropriate mark-up and other estimates such as price of the underlying Foreign Currency Convertible Bond (‘FCCB’), rating category of the CLN etc. and security receipts are valued as per the NAV obtained from the issuing Reconstruction Company/Securitisation Company. Investments in subsidiaries/joint ventures are categorised as HTM and assessed for impairment to determine permanent diminution, if any, in accordance with the RBI guidelines. 43 Realised gains on investments under the HTM category are recognised in the Proﬁ t and Loss Account and subsequently appropriated to Capital Reserve account in accordance with the RBI guidelines. Losses are recognised in the Proﬁ t and Loss Account. All investments are accounted for on settlement date except investments in equity shares which are accounted for on trade date as the corporate actions are effected in equity on the trade date. Repurchase and reverse repurchase transactions Repurchase and reverse repurchase transactions [excluding those conducted under the Liquid Adjustment Facility (‘LAF’) with RBI] are accounted as collateralised borrowing and lending respectively. Such transactions done under LAF are accounted as outright sale and outright purchase respectively. However, depreciation in their value, if any, compared to their original cost, is recognised in the Proﬁ t and Loss Account. Policy for Short Sale In accordance with RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reﬂ ected in ‘Securities Short Sold (‘SSS’) A/c’, speciﬁ cally created for this purpose. Such short positions are categorised under HFT category. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier. 4.2 Advances Advances are classiﬁ ed into performing and non-performing advances (‘NPAs’) as per the RBI guidelines and are stated net of speciﬁ c provisions made towards NPAs and ﬂ oating provisions. Further, NPAs are classiﬁ ed into sub-standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made for sub-standard and doubtful assets at rates as prescribed by the RBI with the exception for agriculture advances and schematic retail advances. In respect of schematic retail advances, provisions are made in terms of a bucket-wise policy upon reaching speciﬁ ed stages of delinquency (90 days or more of delinquency) under each type of loan, which satisﬁ es the RBI prudential norms on provisioning. Provisions in respect of agriculture advances classiﬁ ed into sub-standard and doubtful assets are made at rates which are higher than those prescribed by the RBI. In addition to the above, the Bank on a prudential basis, makes provision for expected losses against advances or other exposures to speciﬁ c assets/industry/sector either on a case-by-case basis or for a group of assets, based on speciﬁ c information or general economic environment. These are classiﬁ ed as contingent provision and included under Schedule 5 - Other Liabilities in the Balance Sheet. Loss assets and unsecured portion of doubtful assets are provided/written off as per the extant RBI guidelines. NPAs are identiﬁ ed by periodic appraisals of the loan portfolio by the Management. Amounts recovered against debts written off are recognised in the Proﬁ t and Loss account. For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. A general provision @ 0.25% in case of direct advances to agricultural and SME sectors, 1% in respect of advances classiﬁ ed as commercial real estate, 2% in respect of housing loans at teaser rates, 2.75% (previous year 2%) in respect of certain class of restructured assets and 0.40% for all other advances is made as prescribed by the RBI. In case of overseas branches, general provision on standard advances is maintained at the higher of the levels stipulated by the respective overseas regulator or RBI. Under its home loan portfolio, the Bank offers housing loans with certain features involving waiver of Equated Monthly Installments (‘EMIs’) of a speciﬁ c period subject to fulﬁ lment of a set of conditions by the borrower. The Bank makes provision on an estimated basis against the probable loss that could be incurred in future on account of waivers to eligible borrowers in respect of such loans. This provision is classiﬁ ed under Schedule 5 – Other Liabilities in the Balance Sheet. 44 4.3 Country risk In addition to the provisions required to be held according to the asset classiﬁ cation status, provisions are held for individual country exposure (other than for home country as per the RBI guidelines). The countries are categorised into seven risk categories namely insigniﬁ cant, low, moderate, high, very high, restricted and off-credit and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure. 4.4 Securtisation The Bank enters into purchase/sale of corporate and retail loans through direct assignment/Special Purpose Vehicle (‘SPV’). In most cases, post securtisation, the Bank continues to service the loans transferred to the assignee/SPV. The Bank also provides credit enhancement in the form of cash collaterals and/or by subordination of cash ﬂ ows to Senior Pass Through Certiﬁ cate (‘PTC’) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/disclosure is made at the time of sale in accordance with AS 29, Provisions, Contingent Liabilities and Contingent Assets as notiﬁ ed under the Companies (Accounting Standards) Rules, 2006. In accordance with RBI guidelines of 7 May 2012, on ‘Guidelines on Securitisation of Standard Assets’, gain on securtisation transaction is recognised over the period of the underlying securities issued by the SPV as prescribed under RBI guidelines. Loss on securtisation is immediately debited to the Proﬁ t and Loss Account. 4.5 Foreign currency transactions In respect of domestic operations, transactions denominated in foreign currencies are accounted for at the rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities are translated at the Balance Sheet date at rates notiﬁ ed by Foreign Exchange Dealers Association of India (‘FEDAI’). All proﬁ ts/losses resulting from year end revaluations are recognised in the Proﬁ t and Loss Account. Financial statements of foreign branches classiﬁ ed as non-integral foreign operations are translated as follows: • • • Assets and liabilities (both monetary and non-monetary as well as contingent liabilities) are translated at closing rates notiﬁ ed by FEDAI at the year end. Income and expenses are translated at the rates prevailing on the date of the transactions. All resulting exchange differences are accumulated in a separate ‘Foreign Currency Translation Reserve’ till the disposal of the net investments. Outstanding forward exchange contracts (excluding currency swaps undertaken to hedge foreign currency assets/ liabilities and funding swaps which are not revalued) and spot exchange contracts are revalued at year end exchange rates notiﬁ ed by FEDAI for speciﬁ ed maturities and at interpolated rates for contract of interim maturities. The resulting gains or losses on revaluation are included in the Proﬁ t and Loss Account in accordance with RBI/FEDAI guidelines. The forward exchange contracts of longer maturities where exchange rates are not notiﬁ ed by FEDAI are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the Proﬁ t and Loss Account. Premium/discount on currency swaps undertaken to hedge foreign currency assets and liabilities and funding swaps is recognised as interest income/expense and is amortised on a pro-rata basis over the underlying swap period. Contingent liabilities on account of foreign exchange contracts/options, guarantees, acceptances, endorsements and other obligations denominated in foreign currencies are disclosed at closing rates of exchange notiﬁ ed by FEDAI. 45 4.6 Derivative transactions Derivative transactions comprise of forward contracts, swaps and options which are disclosed as contingent liabilities. The forwards, swaps and options are categorised as trading or hedge transactions. Trading derivative contracts are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Proﬁ t and Loss Account and correspondingly in other assets or other liabilities respectively. For hedge transactions, the Bank identiﬁ es the hedged item (asset or liability) at the inception of transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge swaps are accounted for on accrual basis except in case of swaps designated with an asset or liability that is carried at market value or lower of cost or market value in the ﬁ nancial statements. In such cases the swaps are marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. The premium on option contracts is accounted for as per FEDAI guidelines. Pursuant to the RBI guidelines any receivables under derivative contracts comprising of crystallised receivables as well as positive Mark to Market (MTM) in respect of future receivables which remain overdue for more than 90 days are reversed through the Proﬁ t and Loss account and are held in separate Suspense account. Currency futures contracts are marked to market using daily settlement price on a trading day, which is the closing price of the respective futures contracts on that day. While the daily settlement price is computed based on the last half an hour weighted average price of such contract, the ﬁ nal settlement price is taken as the RBI reference rate on the last trading day of the futures contract or as may be speciﬁ ed by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market proﬁ t/loss is daily settled with the exchange. Valuation of Exchange Traded Currency Options (ETCO) is carried out on the basis of the daily settlement price of each individual option provided by the exchange. 4.7 Revenue recognition Interest income is recognised on an accrual basis except interest income on non-performing assets, which is recognised on receipt in accordance with AS-9, Revenue Recognition as notiﬁ ed under the Companies (Accounting Standards) Rules, 2006 and the RBI guidelines. Fees and commission income is recognised when due, except for guarantee commission which is recognised pro-rata over the period of the guarantee. Arrangership/syndication fee is accounted for on completion of the agreed service and when right to receive is established. Dividend is accounted on an accrual basis when the right to receive the dividend is established. Gain/loss on sell down of loans and advances through direct assignment is recognised at the time of sale. Gain or loss arising on sale of NPAs is accounted as per the guidelines prescribed by the RBI, which require provisions to be made for any deﬁ cit (where sale price is lower than the net book value), while surplus (where sale price is higher than the net book value) is ignored. 4.8 Fixed assets and depreciation Fixed assets are carried at cost of acquisition less accumulated depreciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Capital work-in-progress includes cost of ﬁ xed assets that are not ready for their intended use and also includes advances paid to acquire ﬁ xed assets. Depreciation is provided on the straight-line method from the date of addition. The rates of depreciation prescribed in Schedule XIV to the Companies Act, 1956 are considered as the minimum rates. If the Management’s estimate of the useful life of a ﬁ xed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter, then depreciation is provided at a higher rate based on the Management’s estimate of the useful life/remaining useful life. Pursuant to this policy, depreciation has been provided using the following estimated useful lives: 46 Asset Owned premises Assets given on operating lease Computer hardware including printers Application software Vehicles EPABX, telephone instruments CCTV and video conferencing equipment Mobile phone Locker cabinets/cash safe/strong room door Modem, scanner, routers, hubs, switches, racks/cabinets for IT equipment UPS, VSAT, fax machines Cheque book/cheque encoder, currency counting machine, fake note detector Assets at staff residence All other ﬁ xed assets Estimated useful life 61 years 20 years 3 years 5 years 4 years 8 years 3 years 2 years 16 years 5 years 5 years 5 years 3 years 10 years All ﬁ xed assets individually costing less than `5,000 are fully depreciated in the year of installation. Depreciation on assets sold during the year is recognised on a pro-rata basis to the Proﬁ t and Loss Account till the date of sale. The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value at the weighted average cost of capital. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. Proﬁ t on sale of premises is appropriated to Capital Reserve Account in accordance with RBI instructions. 4.9 Lease transactions Assets given on operating lease are capitalised at cost. Rentals received by the Bank are recognised in the Proﬁ t and Loss Account on accrual basis. Leases where the lessor effectively retains substantially all the risks and beneﬁ ts of ownership over the lease term are classiﬁ ed as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Proﬁ t and Loss Account on a straight-line basis over the lease term. 4.10 Retirement and other employee beneﬁ ts Provident Fund Retirement beneﬁ t in the form of provident fund is a deﬁ ned beneﬁ t plan wherein the contributions are charged to the Proﬁ t and Loss Account of the year when the contributions to the fund are due. Further, an actuarial valuation is conducted by an independent actuary to determine the deﬁ ciency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate. Gratuity The Bank contributes towards gratuity fund (deﬁ ned beneﬁ t retirement plan) administered by various insurers for eligible employees. Under this scheme, the settlement obligations remain with the Bank, although various insurers administer the scheme and determine the contribution premium required to be paid by the Bank. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee’s salary and the years of employment with the Bank. Liability with regard to gratuity fund is accrued based on actuarial valuation 47 conducted by an independent actuary using the Projected Unit Credit Method as at 31 March each year. In respect of employees at overseas branches (other than expats) liability with regard to gratuity is provided on the basis of a prescribed method as per local laws, wherever applicable. Leave Encashment Short term compensated absences are provided for based on estimates. The Bank provides leave encashment beneﬁ t (long term), which is a deﬁ ned beneﬁ t scheme based on actuarial valuation conducted by an independent actuary. The actuarial valuation is carried out as per the Projected Unit Credit Method as at 31 March each year. Superannuation Employees of the Bank are entitled to receive retirement beneﬁ ts under the Bank’s Superannuation scheme either under a cash-out option through salary or under a deﬁ ned contribution plan. Through the deﬁ ned contribution plan, the Bank contributes annually a speciﬁ ed sum of 10% of the employee’s eligible annual basic salary to LIC, which undertakes to pay the lumpsum and annuity beneﬁ t payments pursuant to the scheme. Superannuation contributions are recognised in the Proﬁ t and Loss Account in the period in which they accrue. Actuarial gains/losses are immediately taken to the Proﬁ t and Loss Account and are not deferred. 4.11 Debit/Credit card reward points The Bank estimates the probable redemption of debit and credit card reward points using an actuarial method at the Balance Sheet date by employing an independent actuary. Provision for the said reward points is then made based on the actuarial valuation report as furnished by the said independent actuary. 4.12 Taxation Income tax expense is the aggregate amount of current tax and deferred tax charge. Current year taxes are determined in accordance with the Income tax Act, 1961. Deferred income taxes reﬂ ects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufﬁ cient future taxable income will be available against which such deferred tax assets can be realised. The impact of changes in the deferred tax assets and liabilities is recognised in the Proﬁ t and Loss Account. Deferred tax assets are recognised and reassessed at each reporting date, based upon the Management’s judgement as to whether realisation is considered as reasonably certain. Deferred tax assets are recognised on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty that such deferred tax asset can be realised against future proﬁ ts. 4.13 Share issue expenses Share issue expenses are adjusted from Share Premium Account in terms of Section 78 of the Companies Act, 1956. 4.14 Earnings per share The Bank reports basic and diluted earnings per share in accordance with AS-20, Earnings per Share, as notiﬁ ed by the Companies (Accounting Standards) Rules, 2006. Basic earnings per share is computed by dividing the net proﬁ t after tax by the weighted average number of equity shares outstanding for the year. Diluted earnings per share reﬂ ect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. 48 4.15 Employee stock option scheme The 2001 Employee Stock Option Scheme (‘the Scheme’) provides for grant of stock options on equity shares of the Bank to employees and Directors of the Bank and its subsidiaries. The Scheme is in accordance with the Securities and Exchange Board of India (SEBI) (Employees Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The Bank follows the intrinsic value method to account for its stock based employee compensation plans as per the Guidance Note on ‘Accounting for Employee Share-based Payments’ issued by the ICAI. Options are granted at an exercise price, which is equal to/less than the fair market price of the underlying equity shares. The excess of such fair market price over the exercise price of the options as at the grant date is recognised as a deferred compensation cost and amortised on a straight-line basis over the vesting period of such options. The fair market price is the latest available closing price, prior to the date of grant, on the stock exchange on which the shares of the Bank are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date is considered. 4.16 Provisions, contingent liabilities and contingent assets A provision is recognised when the Bank has a present obligation as a result of past event where it is probable that an outﬂ ow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reﬂ ect the current best estimates. A disclosure of contingent liability is made when there is: • • a possible obligation arising from a past event, the existence of which will be conﬁ rmed by occurrence or non occurrence of one or more uncertain future events not within the control of the Bank; or a present obligation arising from a past event which is not recognised as it is not probable that an outﬂ ow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. When there is a possible obligation or a present obligation in respect of which the likelihood of outﬂ ow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the ﬁ nancial statements. However, contingent assets are assessed continually and if it is virtually certain that an inﬂ ow of economic beneﬁ ts will arise, the asset and related income are recognised in the period in which the change occurs. 49 18 Notes forming part of the ﬁ nancial statements for the year ended 31 March, 2013 (Currency: In Indian Rupees) 1 a) On 17 November, 2010, the Board of Directors of the Bank had approved the acquisition of certain ﬁ nancial services businesses undertaken by Enam Securities Private Limited (ESPL) directly and through its wholly owned subsidiaries, by Axis Securities and Sales Limited (ASSL), a wholly owned subsidiary of the Bank by way of a demerger. However, pursuant to conditions prescribed by the Reserve Bank of India, certain modiﬁ cations were carried out to the demerger structure in terms of a revised Scheme of Arrangement under Sections 391-394 and other relevant provisions of the Companies Act, 1956. Accordingly, the acquisition now comprises of (a) a demerger of the ﬁ nancial services businesses (“the business”) from ESPL to the Bank, in consideration of which the Bank will issue shares to the shareholders of ESPL, and (b) immediately upon completion of the demerger under the Scheme, a simultaneous sale of the ﬁ nancial services businesses will be undertaken from the Bank to ASSL for a cash consideration, with both the aforesaid steps occurring simultaneously. The Reserve Bank of India has on 30 March, 2012, conveyed it’s no objection to the Scheme. Further, on 27 April, 2012, the Board of Directors of the Bank approved the reassessment of the valuation of the ESPL business at `1,396 crores and consequently, in consideration for the demerger of the ﬁ nancial services business of ESPL, the Bank was required to issue shares in the ratio of 5 equity shares of the Bank of the face value of `10 each for every 1 equity share of `10 each held by the shareholders of ESPL. The sale of the ﬁ nancial services businesses was to be simultaneously undertaken from the Bank to ASSL for a cash consideration of `274.15 crores only. On 18 October, 2012, the Bank received the necessary approvals under applicable law from various regulatory authorities to the revised Scheme of Arrangement in respect of the demerger of the ﬁ nancial services businesses from ESPL to the Bank and simultaneous sale of such businesses to ASSL (now known as Axis Capital Limited (“ACL”)), a wholly owned subsidiary of the Bank, with effect from 1 April, 2010 and consequently, the Bank has issued 12,090,000 equity shares of the face value of `10 each to the shareholders of ESPL amounting to `12.09 crores and accounted for the net assets of ESPL of `274.15 crores at book value. Further, as advised by RBI, an amount of `262.06 crores being the difference between the value of the net assets acquired from ESPL and the shares issued has been transferred to the capital reserve. There was a simultaneous transfer of the business by the Bank to ACL and a consideration of `274.15 crores was received against the transfer of the net assets of equivalent value. The appointed date under the Scheme is 1 April, 2010. b) During the year, the Bank raised additional equity capital through a Qualiﬁ ed Institutional Placement (QIP) of 34,000,000 shares and a preferential allotment of 5,837,945 shares at a price of `1,390.00 per share. As a consequence, the paid-up share capital of the Bank has increased by `39.84 crores and the reserves of the Bank have increased by `5,457.76 crores after charging of issue related expenses. The funds mobilised from the equity raising (through QIP and Preferential issue) were utilised for enhancing the capital adequacy ratio and for general corporate purposes. 2 Statutory disclosures as per RBI 2.1.1 ‘Provisions and contingencies’ recognised in the Proﬁ t and Loss Account include: For the year ended Provision for income tax - Current tax for the year - Deferred tax for the year Provision for wealth tax Provision for non-performing assets (including bad debts written off and write backs) 50 31 March, 2013 (` in crores) 31 March, 2012 2,720.58 (347.32) 2,373.26 0.38 2,256.23 (210.60) 2,045.63 0.36 1,179.22 860.43 For the year ended Provision for restructured assets Provision towards standard assets Provision for depreciation in value of investments Provision for country risk Provision for other contingencies Total 31 March, 2013 103.95 196.68 (103.94) (9.63) 383.78 4,123.70 (` in crores) 31 March, 2012 88.86 150.30 58.10 4.81 (19.83) 3,188.66 2.1.2 The capital adequacy ratio of the Bank, calculated as per the RBI guidelines (Basel II requirement being higher) is set out below: Capital adequacy Tier I Tier II Total capital Total risk weighted assets and contingents Capital ratios Tier I Tier II CRAR Amount raised by issue of Innovative Perpetual Debt Instruments (IPDI) Amount raised by issue of Upper Tier II instruments Amount of Subordinated Debt raised as Tier II capital (details given below) 31 March, 2013 (` in crores) 31 March, 2012 31,596.80 12,334.32 43,931.12 258,355.49 12.23% 4.77% 17.00% - - `2,500 crores 21,886.11 9,758.84 31,644.95 231,711.39 9.45% 4.21% 13.66% - - `3,425 crores During the year ended 31 March, 2013, the Bank raised subordinated debt of `2,500 crores, the details of which are set out below: Date of allotment 31 December, 2012 Period 120 months Coupon 9.15% Amount `2,500.00 crores During the year ended 31 March, 2012, the Bank raised subordinated debt of `3,425 crores, the details of which are set out below: Date of allotment 1 December, 2011 20 March, 2012 Period 120 months 120 months Coupon 9.73% 9.30% Amount `1,500.00 crores `1,925.00 crores During the year ended 31 March, 2013, the Bank redeemed subordinated debt of `622 crores, the details of which are set out below: Date of maturity 20 June, 2012 25 July, 2012 21 September, 2012 Period 117 months 84 months 117 months Coupon 9.30% 8.67% 8.95% Amount `62.00 crores `500.00 crores `60.00 crores During the year ended 31 March, 2012, the Bank redeemed subordinated debt of `5 crores, the details of which are set out below: Date of maturity 26 April, 2011 Period 93 months Coupon 6.70% 2.1.3 The Bank has not raised any hybrid capital during the years ended 31 March, 2013 and 31 March, 2012. Amount `5.00 crores 51 2.1.4 The key business ratios and other information is set out below: As at 31 March, 2013 31 March, 2012 Interest income as a percentage to working funds# Non-interest income as a percentage to working funds# Operating proﬁ t as a percentage to working funds# Return on assets (based on working funds) # Business (deposits less inter bank deposits plus advances) per employee** Proﬁ t per employee** % 8.90 2.15 3.05 % 8.71 2.15 2.94 1.70 `12.15 crores `0.15 crore 1.68 `12.76 crores `0.14 crore Net non performing assets as a percentage of net customer assets* 0.32 0.25 # Working funds represent average of total assets as reported to RBI in Form X under Section 27 of the Banking Regulation Act, 1949 during the year * Net Customer assets include advances and credit substitutes ** Productivity ratios are based on average employee numbers for the year 2.1.5 The provisioning coverage ratio of the Bank computed in terms of the RBI guidelines as on 31 March, 2013 was 79.15% (previous year 80.91%). 2.1.6 Asset Quality i) Net non-performing assets to net advances is set out below: Net non-performing assets as a percentage of net advances ii) Movement in gross non-performing assets is set out below: 31 March, 2013 31 March, 2012 % 0.36 % 0.27 (` in crores) 31 March, 2013 Advances Investments Others* Total Gross NPAs as at the beginning of the year Intra Category Transfer Additions (fresh NPAs) during the year Sub-total (A) Less:- (i) Upgradations (ii) Recoveries (excluding recoveries made from upgraded accounts) (iii) Write-offs Sub-total (B) Gross NPAs as at the end of the year (A-B) 1,720.23 18.75 2,015.13 3,754.11 79.46 (18.75) 3.12 63.83 329.15 - 253.90 799.65 1,382.70 2,371.41 1.21 52.33 53.54 10.29 6.61 1,806.30 - 5.11 11.72 - - - - - 2,023.36 3,829.66 329.15 255.11 851.98 1,436.24 11.72 2,393.42 52 Gross NPAs as at the beginning of the year Intra Category Transfer Additions (fresh NPAs) during the year Sub-total (A) Less:- (i) Upgradations (ii) Recoveries (excluding recoveries made from upgraded accounts) (iii) Write-offs Sub-total (B) Gross NPAs as at the end of the year (A-B) (` in crores) 31 March, 2012 Advances Investments 12.43 - 67.81 1,586.99 (5.29) 1,772.81 Others* - 5.29 1.32 Total 1,599.42 - 1,841.94 3,354.51 80.24 6.61 3,441.36 744.99 223.41 665.88 1,634.28 1,720.23 - 0.78 - 0.78 79.46 - - - - 6.61 744.99 224.19 665.88 1,635.06 1,806.30 *represents amount outstanding under application money classiﬁ ed as non-performing asset iii) Movement in net non-performing assets is set out below: Opening balance at the beginning of the year Additions during the year* Reductions during the year Interest Capitalisation – Restructured NPA Accounts Closing balance at the end of the year 31 March, 2013 Advances Investments 455.58 834.07 (565.06) (20.46) 704.13 15.94 (15.68) 2.81 (3.07) - Others 1.12 (1.12) - - - (` in crores) Total 472.64 817.27 (562.25) (23.53) 704.13 *includes transfer from non-performing investments to non-performing loans amounting to `18.75 crores Opening balance at the beginning of the year Additions during the year Reductions during the year Interest Capitalisation – Restructured NPA Accounts Closing balance at the end of the year 31 March, 2012 Advances Investments - 410.35 1,000.15 (947.51) (7.41) 455.58 15.94 - - 15.94 Others - 1.12 - - 1.12 iv) Movement in provisions for non-performing assets is set out below: 31 March, 2013 Opening balance at the beginning of the year Provisions made during the year Transfer from restructuring provision Write-offs/(write back) of excess provision Closing balance at the end of the year Advances Investments 63.52 1,254.91 1,185.92 13.89 (817.64) 1,637.08 0.05 - (56.35) 7.22 Others 5.49 6.23 - - (` in crores) Total 410.35 1,017.21 (947.51) (7.41) 472.64 (` in crores) Total 1,323.92 1,192.20 13.89 (873.99) 11.72 1,656.02 53 Opening balance at the beginning of the year Provisions made during the year Transfer to restructuring provision Write-offs/(write back) of excess provisions Closing balance at the end of the year 31 March, 2012 Advances Investments 12.43 1,174.31 Others - 768.75 (1.38) (686.77) 1,254.91 51.87 - (0.78) 63.52 5.49 - - 5.49 (` in crores) Total 1,186.74 826.11 (1.38) (687.55) 1,323.92 v) Total exposure to top four non-performing assets is given below: Total exposure to top four NPA accounts 31 March, 2013 938.23 (` in crores) 31 March, 2012 582.10 vi) Non-performing assets as percentage of total assets in that sector is set out below: Sr. No. Sector 1. 2. 3. 4. Agriculture and allied activities Industry (Micro & Small, Medium and Large) Services* Personal loans 31 March, 2013 % 2.36 1.09 1.60 0.64 31 March, 2012 % 2.33 0.75 0.96 0.81 * includes 0.01% (previous year 0.01%) NPAs in respect of commercial real estate and 0.08% (previous year 0.16%) in respect of trade segment 2.1.7 Movement in ﬂ oating provision is set out below: For the year ended Opening balance at the beginning of the year Provisions made during the year Draw down made during the year Closing balance at the end of the year 31 March, 2013 3.25 - - 3.25 (` in crores) 31 March, 2012 3.25 - - 3.25 The Bank has not made any draw down out of the ﬂ oating provision during the current and the previous year. 2.1.8 Provision on Standard Assets Provision towards Standard Assets [includes `18.47 crores (previous year `21.61 crores) of standard provision on derivative exposures] 2.1.9 Details of Investments are set out below: i) Value of Investments: 1) Gross value of Investments In India a) b) Outside India 2) (i) Provision for Depreciation a) In India b) Outside India (ii) Provision for Non-Performing Investments a) In India b) Outside India 54 31 March, 2013 (` in crores) 31 March, 2012 976.64 779.96 31 March, 2013 (` in crores) 31 March, 2012 113,127.94 840.43 92,875.81 707.35 (261.34) 37.73 (7.22) - (348.00) 20.45 (63.01) (0.51) 3) Net value of Investments In India a) b) Outside India (ii) Movement of provisions held towards depreciation on investments: Opening balance Add: Provisions made during the year Less: Write-offs/write back of excess provisions during the year Closing balance 2.1.10 A summary of lending to sensitive sectors is set out below: As at A. Exposure to Real Estate Sector 1) Direct Exposure (i) Residential mortgages - of which housing loans eligible for inclusion in priority sector advances (ii) Commercial real estate (iii) Investments in Mortgage Backed Securities (MBS) and other securitised exposures - a. Residential b. Commercial real estate 2) Indirect Exposure Fund based and non-fund based exposures on National Housing Bank (NHB) and Housing Finance Companies (HFCs) Total Exposure to Real Estate Sector B. Exposure to Capital Market 1. 2. 3. 4. Direct investments in equity shares, convertible bonds, convertible debentures and units of equity-oriented mutual funds the corpus of which is not exclusively invested in corporate debt Advances against shares/bonds/debentures or other securities or on clean basis to individuals for investment in shares (including IPOs/ ESOPs), convertible bonds, convertible debentures and units of equity-oriented mutual funds Advances for any other purposes where shares or convertible bonds or convertible debentures or units of equity-oriented mutual funds are taken as primary security Advances for any other purposes to the extent secured by the collateral security of shares or convertible bonds or convertible debentures or units of equity-oriented mutual funds i.e. where primary security other than shares/convertible bonds/convertible debentures/units of equity-oriented mutual funds does not fully cover the advances 31 March, 2013 31 March, 2012 112,859.38 878.16 92,464.80 727.29 31 March, 2013 327.55 - 103.94 223.61 (` in crores) 31 March, 2012 269.45 105.97 47.87 327.55 (` in crores) 31 March, 2013 31 March, 2012 41,550.75 30,774.98 13,312.69 11,356.68 10,248.76 11,292.31 - - - - 9,113.26 62,020.69 10,663.10 52,730.39 1,205.59 1,326.85 1.73 2.48 1,249.18 448.09 1,171.95 1.55 55 As at 5. 6. 7. 8. Secured and unsecured advances to stockbrokers and guarantees issued on behalf of stockbrokers and market makers Loans sanctioned to corporates against the security of shares/bonds/ debentures or other securities or on clean basis for meeting promoter’s contribution to the equity of new companies in anticipation of raising resources Bridge loans to companies against expected equity ﬂ ows/issues Underwriting commitments taken up in respect of primary issue of shares or convertible bonds or convertible debentures or units of equity-oriented mutual funds 9. Financing to stock brokers for margin trading 10. All exposures to Venture Capital Funds (both registered and unregistered) Total exposure to Capital Market (Total of 1 to 10) (` in crores) 31 March, 2013 31 March, 2012 2,603.33 2,521.87 22.90 3.38 303.11 2.00 - - - - 106.78 6,364.84 140.90 4,746.85 2.1.11 During the year ended 31 March, 2013 & 31 March, 2012 there are no unsecured advances for which intangible securities such as charge over the rights, licenses, authority, etc. has been taken as collateral by the Bank. 2.1.12 Details of Non-SLR investment portfolio are set out below: i) Issuer composition as at 31 March, 2013 of non-SLR investments*: No. Issuer Total Amount Extent of private placement Extent of “below investment grade” securities (` in crores) Extent of “unrated” securities Extent of “unlisted” securities (1) (2) (3) (4) (5) (6) i. ii. iii. iv. v. vi. vii. viii Public Sector Units Financial Institutions Banks 6,045.10 5,275.03 10,621.91 4,984.86 9,145.77 1,126.60 - - - - - - Private Corporates 17,859.44 15,143.54 1,274.01 142.67 Subsidiaries/Joint Ventures 421.44 421.44 Others 1,785.74 1,508.48 - - - - Provision held towards depreciation on investments Provision held towards non performing investments (223.59) (7.22) (7) 44.78 6,980.42 4,343.95 3,152.90 421.44 1,599.99 Total 41,487.68 32,620.86 1,274.01 142.67 16,543.48 Amounts reported under columns (4), (5), (6) and (7) above are not mutually exclusive. 56 Issuer composition as at 31 March, 2012 of non-SLR investments*: No. Issuer (1) (2) Public Sector Units Financial Institutions Banks i. ii. iii. iv. v. vi. vii. viii Total Amount Extent of private placement Extent of “below investment grade” securities (` in crores) Extent of “unrated” securities Extent of “unlisted” securities (3) 3,220.12 9,681.20 5,160.69 (4) 2,202.86 7,824.38 2,531.39 (5) (6) 167.00 - - - - - (7) 10.00 5,100.53 4,427.19 743.69 349.55 290.71 Private Corporates 16,270.98 13,134.49 486.34 175.59 Subsidiaries/Joint Ventures Others Provision held towards depreciation on investments Provision held towards non performing investments 349.55 412.65 (255.79) (63.52) 349.55 258.17 - - - - Total 34,775.88 26,300.84 653.34 175.59 10,921.67 Amounts reported under columns (4), (5), (6) and (7) above are not mutually exclusive. * Excludes investments in non-SLR government securities amounting to `127.91 crores (Previous year `156.68 crores) ii) Non-performing non SLR investments is set out below: Opening balance Additions during the year Reductions during the year Closing balance Total provisions held 31 March, 2013 31 March, 2012 (` in crores) 79.46 3.12 12.43 67.81 (72.29)* (0.78) 10.29 7.22 79.46 63.52 *includes transfer from non-performing investments to non-performing loans amounting to `18.75 crores 2.1.13 Details of securities sold/purchased (in face value terms) during the years ended 31 March, 2013 and 31 March, 2012 under repos/reverse repos (excluding LAF transactions): Year ended 31 March, 2013 Minimum outstanding during the year Maximum outstanding during the year Daily Average outstanding during the year (` in crores) As at 31 March, 2013 Securities sold under repos i. Government Securities - 119.35 0.62 - ii. Corporate debt Securities - - - - Securities purchased under reverse repos i. Government Securities - 6,036.59 416.78 - ii. Corporate debt Securities - - - - 57 Year ended 31 March, 2012 Securities sold under repos Minimum outstanding during the year Maximum outstanding during the year Daily Average outstanding during the year (` in crores) As at 31 March, 2012 i. Government Securities - 122.15 26.31 - ii. Corporate debt Securities - - - - Securities purchased under reverse repos i. Government Securities - 1,952.36 105.45 - ii. Corporate debt Securities - - - - 2.1.14 Details of ﬁ nancial assets sold to Securitisation/Reconstruction companies for Asset Reconstruction: 31 March, 2013 31 March, 2012 (` in crores) Number of accounts* Book value of loan asset securitised* Aggregate value (net of provisions) of accounts sold Aggregate consideration Additional consideration realised in respect of accounts transferred in earlier years Aggregate gain/loss over net book value - - - - - - - - - - - - * Excludes 30 accounts already written-off from books amounting to `93.15 crores (Previous year 71 accounts amounting to `277.73 crores) 2.1.15 During the years ended 31 March, 2013 and 31 March, 2012 there were no Non-Performing Financial Assets Purchased or Sold (excluding accounts previously written off) by the Bank. 2.1.16 Details of securitisation transactions undertaken by the Bank are as follows: Particulars 31 March, 2013 31 March, 2012 (` in crores) No. of SPVs sponsored by the bank for securitisation transactions Total amount of securitised assets as per books of the SPVs sponsored by the bank Total amount of exposures retained by the bank to comply with MRR as on the date of balance sheet a) Off-balance sheet exposures First loss Others b) On-balance sheet exposures First loss Others - - - - - - - - - - - - S. No. 1 2 3 58 S. No. Particulars 31 March, 2013 31 March, 2012 (` in crores) 4 Amount of exposures to securitisation transactions other than MRR a) Off-balance sheet exposures i) Exposure to own securitisations First loss Loss ii) Exposure to third party securitisations First loss Others b) On-balance sheet exposures i) Exposure to own securitisations First loss Loss ii) Exposure to third party securitisations First loss Others - - - - - - - - - - - - - - - - 2.1.17 The information on concentration of deposits is given below: Total deposits of twenty largest depositors Percentage of deposits of twenty largest depositors to total deposits 2.1.18 The information on concentration of advances* is given below: Total advances to twenty largest borrowers Percentage of advances to twenty largest borrowers to total advances of the Bank (` in crores) 31 March, 2013 31 March, 2012 35,083.32 13.89 31,117.71 14.14 (` in crores) 31 March, 2013 31 March, 2012 39,764.46 40,359.18 10.59 11.87 * Advances represent credit exposure (funded and non-funded) including derivative exposure as deﬁ ned by RBI 2.1.19 The information on concentration of exposure* is given below: (` in crores) 31 March, 2013 31 March, 2012 Total exposure to twenty largest borrowers/customers 48,982.01 45,791.99 Percentage of exposures to twenty largest borrowers/customers to total exposure on borrowers/customers 11.82 12.29 * Exposure includes credit exposure (funded and non-funded), derivative exposure and investment exposure (including underwriting and similar commitments) 2.1.20 During the year ended 31 March, 2013 and 31 March, 2012, the Bank’s credit exposure to single borrower and group borrowers was within the prudential exposure limits prescribed by RBI. 59 2.1.21 Details of Risk Category wise Country Exposure: Risk Category Insigniﬁ cant Low Moderate High Very High Restricted Off-Credit Total Exposure (Net) as at 31 March, 2013 553.49 11,220.91 2,290.54 2,369.79 761.53 0.17 - 17,196.43 Provision Held as at 31 March, 2013 - - - - - - - - Exposure (Net) as at 31 March, 2012 1,877.46 13,397.86 2,667.73 702.55 518.24 0.07 0.06 19,163.97 (` in crores) Provision Held as at 31 March, 2012 - 9.63 - - - - - 9.63 2.1.22 A maturity pattern of certain items of assets and liabilities at 31 March, 2013 and 31 March, 2012 is set out below: Year ended 31 March, 2013 1 day 2 days to 8 days to 15 days to 29 days Over 3 Over 6 Over 1 Over 3 (` in crores) Total Over 5 7 days 14 days 28 days and upto months months year and years and years 3 months and upto and upto upto 3 upto 5 Deposits 2,738.92 10,164.38 5,246.82 6,590.52 26,258.30 6 months 28,536.37 1 year 35,326.44 years 33,216.55 years 22,444.23 82,091.06 252,613.59 Advances Investments Borrowings Foreign Currency Assets Foreign Currency Liabilities 2,317.44 1,959.35 1,777.23 2,438.04 10,197.27 11,220.30 12,348.87 45,312.01 26,146.22 83,249.23 196,965.96 6,816.23 65.02 9,369.90 568.94 2,850.59 386.33 2,496.50 786.68 8,249.24 3,918.49 9,327.98 4,049.95 11,780.01 6,605.00 20,263.99 7,605.93 9,049.77 9,370.80 33,533.33 10,593.96 113,737.54 43,951.10 1,927.10 2,779.48 403.75 4,388.79 7,679.14 4,063.19 3,013.13 6,743.88 7,194.70 9,655.30 47,848.46 141.57 2,206.50 317.82 1,426.23 4,823.23 5,423.32 12,361.81 7,496.34 9,070.70 4,340.63 47,608.15 Year ended 31 March, 2012 (` in crores) 1 day 2 days to 8 days to 15 days to 29 days Over 3 Over 6 Over 1 Over 3 Over 5 Total 7 days 14 days 28 days and upto months months year and years and years 3 months and upto and upto upto 3 upto 5 Deposits 1,959.72 7,135.57 7,596.24 7,681.44 23,774.95 6 months 25,808.43 1 year 53,359.17 years 18,231.86 years 13,844.74 60,712.18 220,104.30 Advances Investments Borrowings Foreign Currency Assets Foreign Currency Liabilities 2,707.12 1,219.95 1,152.06 1,532.15 9,362.88 10,988.78 11,477.47 39,002.39 23,791.70 68,525.04 169,759.54 1,815.57 - 4,967.79 464.44 3,691.25 1,907.21 5,874.62 1,420.21 13,506.00 2,800.74 7,463.40 4,317.12 15,172.80 2,221.73 13,743.18 3,504.87 6,997.13 6,597.90 19,960.35 10,837.45 93,192.09 34,071.67 1,432.15 1,956.25 629.68 670.58 2,949.75 2,497.41 2,139.05 6,067.84 5,943.49 8,192.57 32,478.77 731.15 3,662.42 2,378.68 2,289.33 5,357.83 4,265.14 4,882.35 2,781.96 6,165.64 4,655.76 37,170.26 Classiﬁ cation of assets and liabilities under the different maturity buckets is based on the same estimates and assumptions as used by the Bank for compiling the return submitted to the RBI, which has been relied upon by the auditors. Maturity proﬁ le of foreign currency assets and liabilities is excluding forward contracts. 60 2.1.23 Details of loan assets subjected to restructuring during the year ended 31 March, 2013 are given below: (` in crores) Under SME Debt Restructuring Mechanism (II) Total Doubtful Standard Loss Type of Restructuring Asset Classiﬁ cation Restructured accounts as on April 1 of the FY (Opening Balance) Movement in balance for accounts appearing under opening balance1 Fresh Restructuring during the year2,3 Upgradation to restructured standard category during the FY Restructured Standard Advances which cease to attract higher provisioning and/or additional risk weight at the end of FY Downgradation of restructured accounts during the FY4 Write-offs of restructured accounts during the FY5,6 Restructured accounts as on March 31 of the FY (closing ﬁ gures) No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon Type of Restructuring (Contd. from above) Asset Classiﬁ cation Restructured accounts as on April 1 of the FY (Opening Balance) Movement in balance for accounts appearing under opening balance1 Fresh Restructuring during the year2, 3 Upgradation to restructured standard category during the FY Restructured Standard Advances which cease to attract higher provisioning and/or additional risk weight at the end of FY Downgradation of restructured accounts during the FY4 Write-offs of restructured accounts during the FY5,6 Restructured accounts as on March 31 of the FY (closing ﬁ gures) No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility No. of borrowers Amount Outstanding – Restructured facility Amount Outstanding – Other facility Provision thereon Under CDR Mechanism (I) Standard Sub- Standard Doubtful Loss Total 17 1,040.37 21.97 144.55 - 162.01 4.57 (57.95) 17 1,430.47 23.22 139.68 1 84.33 - 17.22 (2) (77.69) (2.40) (10.26) (3) (176.52) - (21.02) - - - 30 2,462.97 47.36 212.22 - - - - - - - - - - - - - - - - 3 88.89 22.24 10.65 - - - 3 88.89 22.24 10.65 1 4.19 - - - 0.11 - - 1 66.92 - 3.12 (1) (84.33) - (17.22) 1 84.33 - 17.22 - - - 2 71.22 - 3.12 Others (III) 3 21 61.05 1,105.61 31.41 9.44 144.55 - - - 162.12 - 4.57 - (57.95) - - 18 - 1,497.39 23.22 - 142.80 - - - - - - - - - (2) (77.69) (2.40) (10.26) 2 55.00 22.24 6.85 - (28.94) - 39 90.41 2,713.49 79.04 9.44 225.99 - 1 58.30 - - - (28.94) - 4 Sub- Standard 1 0.03 - - - - - - - - - - - - - - - 3.00 - - - - - 1 3.03 - - 7 92.54 6.09 3.51 (1) (1.50) 0.44 (1.40) 2 55.63 - 6.60 - - - - (1) (2.63) (2.66) - - - - - - - - 7 144.04 3.87 8.71 Standard 256 1,044.90 54.93 4.44 (23) (193.54) 10.41 26.74 1,168 975.28 18.17 30.01 - - - - (5) (5.43) (3.71) (0.05) (84) (60.71) (2.69) (0.07) - - - 1,312 1,760.50 77.11 61.07 Sub- Standard 18 24.18 1.49 0.20 (3) 0.65 (0.71) (0.09) - - - - - - - - 99 (12.81) 2.43 (0.02) (22) (0.83) (0.28) 92 11.19 2.93 0.09 Doubtful Loss Total Standard 15 2.65 - - (4) (0.88) - - - - - - - - - - 7 24.25 0.51 0.10 (1) (0.01) - 17 26.01 0.51 0.10 12 - - - (2.21) - - - - - - - - - - 301 83.06 1,154.79 56.42 4.64 (30) (195.98) 9.70 26.65 1,168 975.28 18.17 30.01 - - - - (5) (5.43) (3.71) (0.05) 30 1.64 0.33 0.01 (25) (113.89) (0.28) 1,439 18.71 1,816.41 80.63 0.08 61.26 - 8 50.91 0.08 - (2) (113.05) - 18 280 2,177.81 82.99 152.50 (24) (33.03) 15.42 (32.61) 1,187 2,461.38 41.39 176.29 1 84.33 - 17.22 (8) (85.75) (8.77) (10.31) (87) (237.23) (2.69) (21.09) - - - 1,349 4,367.51 128.34 282.00 Sub- Standard 19 24.21 1.49 0.20 (3) 0.65 (0.71) (0.09) - - - - - - - - 102 79.08 24.67 10.63 (22) (0.83) (0.28) 96 103.11 25.17 10.74 - - - - - - - - - - - - - - - - 1 0.03 - - - - - 1 0.03 - - 9 24.89 5.29 - (3) (2.78) (1.10) - - - - - - - - - 17 117.46 11.38 3.51 (4) (4.28) (0.66) (1.40) 2 55.63 - 6.60 - - - - (1) (2.63) (2.66) - 3 2 6.53 3.50 2.50 2.50 - - (3) (3) (1.15) (1.15) (2.85) (2.85) 14 5 171.56 24.46 7.71 3.84 - 8.71 (` in crores) Loss Total 16 6.84 - - (4) (0.77) - - 1 66.92 - 3.12 (1) (84.33) - (17.22) 9 108.61 0.51 17.32 (1) (0.01) - 20 97.26 0.51 3.22 24 339 169.00 2,377.86 99.21 14.73 152.70 - (34) (3) (38.14) (4.99) 13.61 (1.10) (32.70) - - 1,188 - 2,528.30 41.39 - 179.41 - - - - - - - - - (8) (85.75) (8.77) (10.31) 35 63.17 25.07 6.86 (28) (143.98) (3.13) 1,492 133.58 4,701.46 167.38 13.36 295.96 - 11 112.71 2.58 - (5) (143.14) (2.85) 27 Total (I + II+ III) Doubtful Amount outstanding under restructuring facilities and other facilities is as on 31 March, 2013 1Includes accounts closed during the year on account of payment of outstanding facilities by the borrower 2Amount reported here represents outstanding as on 31 March, 2013. Actual amount subjected to restructuring determined as on the date of approval of restructuring proposal is `2,110.09 crore for the FY 2012-13 3Includes accounts on account of re-work of restructuring and these accounts are not included in opening balance of standard restructured accounts 4Includes accounts which were not attracting higher provisioning and/or additional risk weight at the beginning of FY 5Includes accounts partially written-off during the year 6Amount outstanding under restructuring facilities and other facilities is as on the date of write-off in the books 61 2.1.24 Disclosure in respect of Interest Rate Swaps (IRS), Forward Rate Agreement (FRA) and Cross Currency Swaps (CCS) outstanding is set out below: Sr. No. i) ii) iii) iv) v) Items Notional principal of swap agreements Losses which would be incurred if counterparties failed to fulﬁ ll their obligations under the agreements Collateral required by the Bank upon entering into swaps Concentration of credit risk arising from the swaps Maximum single industry exposure with Banks (previous year with Banks) - Interest Rate Swaps/FRAs - Cross Currency Swaps Fair value of the swap book (hedging & trading) - Interest Rate Swaps/FRAs - Currency Swaps The nature and terms of the IRS as on 31 March, 2013 are set out below: As at 31 March, 2013 221,054.14 (` in crores) As at 31 March, 2012 175,249.08 1,697.05 364.53 1,799.58 260.61 2,288.76 615.67 2,334.72 461.46 261.50 334.55 315.89 167.84 (` in crores) Nature Hedging Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Trading Nos. 38 50 65 143 220 12 3 3 884 924 203 100 1 1 1 2,648 Notional Principal Benchmark 10,938.43 LIBOR 1,799.10 INBMK 3,867.00 INBMK 8,096.09 LIBOR 11,656.12 LIBOR 835.99 LIBOR 81.43 LIBOR 81.43 LIBOR 79,333.63 MIBOR 77,695.32 MIBOR 8,045.00 MIFOR 4,222.00 MIFOR 150.00 OTHERS 447.85 LIBOR 447.85 LIBOR 207,697.24 Terms Fixed receivable v/s ﬂ oating payable Fixed receivable v/s ﬂ oating payable Floating receivable v/s ﬁ xed payable Fixed receivable v/s ﬂ oating payable Floating receivable v/s ﬁ xed payable Floating receivable v/s ﬂ oating payable Pay cap Receive cap Fixed receivable v/s ﬂ oating payable Floating receivable v/s ﬁ xed payable Fixed receivable v/s ﬂ oating payable Floating receivable v/s ﬁ xed payable Fixed payable v/s ﬁ xed receivable Pay cap/receive ﬂ oor Pay ﬂ oor/receive cap The nature and terms of the IRS as on 31 March, 2012 are set out below: (` in crores) Nos. 5 1,058 1,020 154 112 60 74 21 Notional Principal Benchmark Terms 450.00 MIBOR Fixed receivable v/s ﬂ oating payable 65,107.82 MIBOR 60,976.02 MIBOR 6,161.00 MIFOR 4,402.00 MIFOR 2,560.10 INBMK 4,628.00 INBMK Fixed receivable v/s ﬂ oating payable Fixed payable v/s ﬂ oating receivable Fixed receivable v/s ﬂ oating payable Fixed payable v/s ﬂ oating receivable Fixed receivable v/s ﬂ oating payable Fixed payable v/s ﬂ oating receivable 6,410.25 LIBOR Fixed receivable v/s ﬂ oating payable Nature Hedging Trading Trading Trading Trading Trading Trading Hedging 62 (` in crores) Nature Trading Trading Trading Trading Trading Trading Nos. 122 180 1 1 1 8 Notional Principal Benchmark Terms 6,120.15 LIBOR Fixed receivable v/s ﬂ oating payable 8,473.81 LIBOR Fixed payable v/s ﬂ oating receivable 150.00 OTHERS Fixed payable v/s ﬁ xed receivable 419.72 LIBOR 419.72 LIBOR 401.91 LIBOR Pay cap/receive ﬂ oor Pay ﬂ oor/receive cap Floating payable v/s ﬂ oating receivable 2,817 166,680.50 The nature and terms of the FRA’s as on 31 March, 2013 are set out below: (` in crores) Nature Hedging Nos. Notional Principal Benchmark Terms 2 2 2,171.40 LIBOR Fixed receivable v/s ﬂ oating payable 2,171.40 The nature and terms of the FRA’s as on 31 March, 2012 are set out below: (` in crores) Nature Trading Trading Nos. Notional Principal Benchmark Terms 4 9 13 203.50 LIBOR 508.75 LIBOR 712.25 Fixed receivable v/s ﬂ oating payable Fixed payable v/s ﬂ oating receivable The nature and terms of the CCS as on 31 March, 2013 are set out below: (` in crores) Nature Hedging Hedging Trading Trading Trading Trading Trading Nos. Notional Principal Benchmark Terms 1 1 33 52 1 6 80 174 79.29 Principal & Fixed payable v/s ﬁ xed receivable Coupon Swap 274.12 LIBOR Fixed receivable v/s ﬂ oating payable 2,720.49 LIBOR 4,006.36 LIBOR Fixed receivable v/s ﬂ oating payable Floating receivable v/s ﬁ xed payable 48.86 LIBOR/INBMK Floating receivable v/s ﬂ oating payable 270.43 Principal only Fixed receivable 3,785.95 Principal only Fixed payable 11,185.50 Agreements with Banks/Financial Institutions and corporates are under approved credit lines. The nature and terms of the CCS as on 31 March, 2012 are set out below: Nature Hedging Hedging Trading Trading Nos. 1 1 34 24 Notional Principal Benchmark 70.21 Principal & Coupon Swap Terms Fixed payable v/s ﬁ xed receivable 254.38 Principal & Coupon Fixed receivable v/s ﬂ oating payable Swap 2,675.41 LIBOR 2,133.64 LIBOR Fixed payable v/s ﬂ oating receivable Fixed receivable v/s ﬂ oating payable (` in crores) 63 Nature Trading Trading Trading Trading Trading Trading Nos. 1 4 25 1 1 22 114 Notional Principal Benchmark 45.79 LIBOR/INBMK 215.17 Principal Only 982.84 Principal Only 76.31 Principal Only 76.31 Principal Only 1,326.27 Principal & Coupon Swap 7,856.33 Terms Floating receivable v/s ﬂ oating payable Fixed receivable Fixed payable Floating payable Floating receivable Fixed payable v/s ﬁ xed receivable Agreements with Banks/Financial Institutions and corporates are under approved credit lines. Details of Exchange Traded Interest Rate Derivatives for the year ended 31 March, 2013 are set out below: Sr. No. i) Particulars Notional principal amount of exchange traded interest rate derivatives undertaken during the year ii) iii) iv) Notional principal amount of exchange traded interest rate derivatives outstanding as on 31 March, 2013 Notional principal amount of exchange traded interest rate derivatives outstanding as on 31 March, 2013 and “not highly effective” Mark-to-market value of exchange traded interest rate derivatives outstanding as on 31 March, 2013 and “not highly effective” (` in crores) As at 31 March, 2013 - - - - N.A. N.A. Details of Exchange Traded Interest Rate Derivatives for the year ended 31 March, 2012 are set out below: Sr. No. i) Particulars Notional principal amount of exchange traded interest rate derivatives undertaken during the year 91 day T-Bill - July 11 ii) iii) iv) Notional principal amount of exchange traded interest rate derivatives outstanding as on 31 March, 2012 Notional principal amount of exchange traded interest rate derivatives outstanding as on 31 March, 2012 and “not highly effective” Mark-to-market value of exchange traded interest rate derivatives outstanding as on 31 March, 2012 and “not highly effective” (` in crores) As at 31 March, 2012 5.04 5.04 - - N.A. N.A. The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year ended 31 March, 2013. 2.1.25 Disclosure on risk exposure in Derivatives Qualitative disclosures: (a) Structure and organisation for management of risk in derivatives trading, the scope and nature of risk measurement, risk reporting and risk monitoring systems, policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigants: Derivatives are ﬁ nancial instruments whose characteristics are derived from an underlying asset, or from interest and exchange rates or indices. The Bank undertakes Over The Counter (OTC)and Exchange Traded derivative transactions for Balance Sheet management and also for proprietary trading/market making whereby the Bank 64 offers derivative products to the customers to enable them to hedge their earnings risks within the prevalent regulatory guidelines. Proprietary trading includes Interest Rate Futures, Currency Futures and Rupee Interest Rate Swaps under different benchmarks (viz. MIBOR, MIFOR and INBMK), and Currency Options for USD/INR pair (both OTC and exchange traded). The Bank also undertakes transactions in Cross Currency Swaps, Principal Only Swaps, Coupon Only Swaps and Long Term Forex Contracts (LTFX) for hedging its Balance Sheet and also offers them to its customers. These transactions expose the Bank to various risks, primarily credit, market and operational risk. The Bank has adopted the following mechanism for managing risks arising out of the derivative transactions. There is a functional separation between the Treasury Front Ofﬁ ce, Risk and Treasury Back Ofﬁ ce to undertake derivative transactions. The derivative transactions are originated by Treasury Front Ofﬁ ce, which ensures compliance with the trade origination requirements as per the Bank’s policy and the RBI guidelines. The Market Risk Group within the Bank’s Risk Department independently identiﬁ es, measures and monitors the market risks associated with derivative transactions and apprises the Asset Liability Management Committee (ALCO) and the Risk Management Committee of the Board (RMC) on the compliance with the risk limits. The Treasury Back Ofﬁ ce undertakes activities such as trade conﬁ rmation, settlement, ISDA documentation, accounting and other MIS reporting. The derivative transactions are governed by the derivative policy, market risk management policy, hedging policy and the suitability and appropriateness policy of the Bank as well as by the extant RBI guidelines. The Bank has also put in place a detailed process ﬂ ow for customer derivative transactions for effective management of operational risk/reputation risk. Various risk limits are set up and actual exposures are monitored vis-à-vis the limits. These limits are set up taking into account market volatility, business strategy and management experience. Risk limits are in place for risk parameters viz. PV01, VaR, Stop Loss, Delta, Gamma and Vega. Actual positions are monitored against these limits on a daily basis and breaches, if any, are reported promptly. Risk assessment of the portfolio is undertaken periodically. The Bank ensures that the Gross PV01 (Price value of a basis point) position arising out of all non- option rupee derivative contracts are within 0.25% of net worth of the Bank as on Balance Sheet date. Hedging transactions are undertaken by the Bank to protect the variability in the fair value or the cash ﬂ ow of the underlying Balance Sheet item. These deals are accounted on an accrual basis except the swap designated with an asset/liability that is carried at market value or lower of cost or market value. In that case, the swap is marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. These transactions are tested for hedge effectiveness and in case any transaction fails the test, the same is re-designated as a trading deal with the approval of the competent authority and appropriate accounting treatment is followed. (b) Accounting policy for recording hedge and non-hedge transactions, recognition of income, premiums and discounts, valuation of outstanding contracts The Hedging Policy approved by the RMC governs the use of derivatives for hedging purpose. Subject to the prevailing RBI guidelines, the Bank deals in derivatives for hedging ﬁ xed rate and ﬂ oating rate coupon or foreign currency assets/liabilities. Transactions for hedging and market making purposes are recorded separately. For hedge transactions, the Bank identiﬁ es the hedged item (asset or liability) at the inception of the transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge derivative transactions are accounted for in accordance with the hedge accounting principles. Derivatives for market making purpose are marked to market and the resulting gain/loss is recorded in the Proﬁ t and Loss Account. The premium on option contracts is accounted for as per FEDAI guidelines. Derivative transactions are covered under International Swaps and Derivatives Association (ISDA) master agreements with respective counterparties. The exposure on account of derivative transactions is computed as per the RBI guidelines and is marked against the credit limits approved for the respective counterparties. 65 (c) Provisioning, collateral and credit risk mitigation Derivative transactions comprise of swaps and options which are disclosed as contingent liabilities. The swaps are categorised as trading or hedging and all the options are categorised as the trading book. Trading swaps/ options are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Proﬁ t and Loss Account and correspondingly in other assets or other liabilities respectively. Hedged swaps are accounted for as per the RBI guidelines. Pursuant to the RBI guidelines, any receivables (crystallised receivables and positive MTM) under derivatives contracts, which remain overdue for more than 90 days, are reversed through the Proﬁ t and Loss Account and are held in a separate Suspense account. Collateral requirements for derivative transactions are laid down as part of credit sanction terms on a case by case basis. Such collateral requirements are determined, based on usual credit appraisal process. The Bank retains the right to terminate transactions as a risk mitigation measure in certain cases. The credit risk in respect of customer derivative transactions is sought to be mitigated through a laid down policy on sanction of Loan Equivalent Risk (LER) limits, monitoring mechanism for LER limits and trigger events for escalation/margin calls/termination. Quantitative Disclosure: As at 31 March, 2013 Currency Derivatives Forward Contracts CCS Options (` in crores) Interest rate Derivatives 13,218.41 353.41 218,797.85 10,832.09 - 8,022.86 13,109.83 196,758.81 328.93 - 7,764.61 338.93 - 1,835.46 - (13.64) 130.78 - (108.35) 2,743.39 0.24 2.38 9.49 191.19 - 1.34 307.66 417.04 Sr. No. Particulars 1 2 3 4 5 Derivatives (Notional Principal Amount) a) For hedging b) For trading Marked to Market Positions # a) Asset (+) b) Liability (-) Credit Exposure @ Likely impact of one percentage change in interest rate (100*PV01) (as at 31 March, 2013) a) on hedging derivatives b) on trading derivatives Maximum and Minimum of 100*PV01 observed during the year a) on hedging I) Minimum II) Maximum b) on Trading I) Minimum II) Maximum - 1.31 1.57 6.60 9.49 12.82 62.22 193.67 - - 0.21 6.78 275.34 353.77 242.62 419.32 # Only on trading derivatives and represents net position @ Includes accrued interest 66 As at 31 March, 2012 Currency Derivatives Forward Contracts CCS Options (` in crores) Interest rate Derivatives 6,737.20 324.59 - 6,860.25 194,188.30 7,531.74 12,511.44 160,532.50 158.08 184.07 - - 6.10 - 36.69 - 7,696.90 1,213.66 264.01 2,776.65 Sr. No. Particulars Derivatives (Notional Principal Amount) a) For hedging b) For trading Marked to Market Positions # a) Asset (+) b) Liability (-) Credit Exposure @ Likely impact of one percentage change in interest rate (100*PV01) (as at 31 March, 2012) 1 2 3 4 5 a) on hedging derivatives b) on trading derivatives 0.14 1.66 12.53 48.73 - 1.69 283.14 72.38 Maximum and Minimum of 100*PV01 observed during the year a) on hedging I) Minimum II) Maximum b) on Trading I) Minimum II) Maximum - 0.86 0.01 3.16 0.02 12.66 0.02 88.77 - - 1.26 7.17 127.34 286.69 2.14 92.70 # Only on trading derivatives and represents net position @ Includes accrued interest Pursuant to RBI guidelines, the Bank has started dealing in Exchange Traded Currency Options. The outstanding notional principal amount of these derivatives as at 31 March, 2013 was `Nil crores (previous year `542.91 crores) and the mark-to-market value was `Nil crores (previous year `5.67 crores) 2.1.26 No penalty/strictures have been imposed on the Bank during the year ended 31 March, 2013. During the previous year ended 31 March, 2012, RBI levied a penalty of `0.15 crores on the Bank for non-compliance of certain instructions relating to derivative transactions. The Bank has paid the penalty of `0.15 crores on 5 May, 2011. 2.1.27 Disclosure of Customer Complaints a. b. c. d. No. of complaints pending at the beginning of the year No. of complaints received during the year No. of complaints redressed during the year No. of complaints pending at the end of the year 31 March, 2013 2,188 197,733 198,164 1,757 31 March, 2012 2,198 279,586 279,596 2,188 The above information does not include complaints redressed within 1 working day and is as certiﬁ ed by the Management and relied upon by the auditors. 67 2.1.28 Disclosure of Awards passed by the Banking Ombudsman a. b. c. d. No. of unimplemented awards at the beginning of the year No. of awards passed by the Banking Ombudsman during the year No. of awards implemented during the year No. of unimplemented awards at the end of the year 31 March, 2013 - 31 March, 2012 - 4 1 3* 1 1 - *under appeal The above information is as certiﬁ ed by the Management and relied upon by the auditors. 2.1.29 Draw Down from Reserves The Bank has not undertaken any drawdown from reserves during the year, except towards issue expenses incurred for the equity raising through the QIP and Preferential issue, which have been adjusted against the share premium account. 2.1.30 Letter of Comfort The Bank has not issued any Letter of Comfort (LoC) on behalf of its subsidiaries. 2.1.31 Disclosure on Remuneration Qualitative disclosures a) Information relating to the composition and mandate of the Remuneration Committee The HR and Remuneration Committee of the Board oversees the framing, review and implementation of the compensation policy of the Bank on behalf of the Board. The Committee works in close coordination with the Risk Management Committee of the Bank, in order to achieve effective alignment between remuneration and risks. As on 31 March, 2013, the HR and Remuneration Committee comprises of the following non-executive independent directors. 1. 2. 3. 4. Shri Prasad R. Menon - Chairman (with effect from 17 January 2013) Shri K. N. Prithiviraj Shri V. R. Kaundinya Prof. Samir K. Barua The HR and Remuneration Committee of the Board, functions with the following main objectives: a. b. c. d. e. To review and recommend to the Board for approval, the overall remuneration philosophy and policy of the Bank, including the level and structure of ﬁ xed pay, variable pay, perquisites, bonus pool, stock-based compensation to employees of the Bank, and any other form of compensation as may be included from time to time. To review and recommend to the Board for approval, an increase in manpower cost budget of the Bank as a whole, at an aggregate level, for the next year. To review and recommend to the Board for approval, the talent management and succession policy and process in the Bank for ensuring business continuity, especially at the level of Managing Director and Chief Executive Ofﬁ cer (MD & CEO), the other Whole-time Directors, senior managers one level below the Board position and other key roles. To review organisation health through feedback from employee surveys conducted on a regular basis. To review the Code of Conduct and HR strategy, policy and performance appraisal process within the Bank, as well as any fundamental changes in organisation structure which could have wide ranging or high risk implications. 68 f. g. h. i. j. To review and recommend to the Board for approval, the creation of new positions at the level of Executive Director and above. To review appointments, promotions and exits of senior managers, one level below the Board position. To set the goals, objectives and performance benchmarks for the Bank and for MD & CEO, the other Whole-time Directors and Executive Directors for the ﬁ nancial year and for the medium to long term. To review the performance of the MD & CEO, other Whole-time Directors and Executive Directors at the end of each year. To recommend to the Board the remuneration package for the MD & CEO, the other Whole-time Directors and the senior managers one level below the Board. k. To recommend to the Board the compensation payable to the Chairman of the Bank. b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy Objectives of the Remuneration Policy The compensation philosophy of the Bank aims to attract, retain and motivate professionals in order to enable the Bank to attain its strategic objectives and develop a strong performance culture in the competitive environment in which it operates. To achieve this, the following principles are adopted. - - - - - - Competitiveness in talent market: Benchmarking with peer group for relevant talent pools. Pay for job through ﬁ xed pay: To position the median level ﬁ xed pay in the Bank to the median of the market of respective businesses. Pay for performance to drive meritocracy through variable pay: By positioning median total pay to median of the market and high performers to the top quartile of the market by using variable pay with appropriate risk-adjusted metrics. Employee Stock Options for long-term value creation: In order to align executive decision making with long-term value creation, a signiﬁ cant part of executive compensation is delivered through long-term incentives in the form of ESOPs, which vests over a period of 3 years. Beneﬁ ts and perquisites are offered to employees to remain aligned with market practices and provide ﬂ exibility. Affordability: Pay to reﬂ ect productivity improvements to retain cost-income competitiveness. Apart from the above, the compensation structure for MD & CEO & Whole-time Directors (WTDs) is aligned to RBI’s guidelines for sound compensation practices (effective FY 2012-13) and addresses the general principles of: - - - Effective and independent governance and monitoring of compensation. Alignment of compensation with prudent risk-taking through well designed and consistent compensation structures. Clear and timely disclosure to facilitate supervisory oversight by all stakeholders. Accordingly, the Compensation Policy for MD & CEO and WTDs seeks to: a) b) c) d) Ensure that the compensation, in terms of structure and total amount, is in line with the best practices, as well as competitive vis-à-vis that of peer banks. Establish the linkage of compensation with individual performance as well as achievement of the corporate objectives of the Bank. Include a signiﬁ cant variable pay component tied to the achievement of pre-established objectives in line with Bank’s scorecard while ensuring that the compensation is aligned with prudent risk taking. Encourage attainment of long term shareholder returns through inclusion of equity linked long-term incentives as part of compensation. 69 Design & Structure of Remuneration process Compensation is structured in terms of ﬁ xed pay, variable pay and employee stock options (for selective employees), with the last two being strongly contingent on employee performance. The compensation policy of the Bank is approved by the HR and Remuneration Committee. Additional approval from Shareholders and RBI is obtained speciﬁ cally for compensation of MD & CEO and WTD’s. c) Description of the ways in which current and future risks are taken into account in the remuneration process Categorization of employees under Risk alignment of compensation framework The MD & CEO, WTD’s and employees in the Grade of Vice President and above engaged in the functions of Risk Control and Compliance are included in the policy of risk alignment of compensation. Performance Parameters aligned to relevant risk measures The following relevant risk measures are included in the scorecards of MD & CEO and WTDs • • • NPA – net slippages Ratio of Risk Weighted Assets to Total Assets Liquidity Coverage Ratio Inclusion of the above measures ensure that performance parameters are aligned to risk measures at the time of performance evaluation Deferral of Variable Pay To ensure that risk measures do not focus only on achieving short term goals; variable payout is deferred, if it exceeds 40% of the ﬁ xed pay. Other Risk Takers For other staff (including risk takers) a policy on similar lines is proposed to be put in place in future. d) Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration The Bank’s performance management and compensation philosophies are structured to support the achievement of the Bank’s on-going business objectives by rewarding achievement of objectives linked directly to its strategic business priorities. These strategic priorities are cascaded through annualised objectives to the employees. The Bank follows the balanced scorecard approach in designing its performance management system. Adequate attention is given to robust goal setting process to ensure alignment of individual objectives to support the achievement of business strategy, ﬁ nancial and non-ﬁ nancial goals across and through the organization. The non-ﬁ nancial goals for employees includes customer service, process improvement, adherence to risk and compliance norms, self-capability development and behaviours such as integrity and team management. Appraisals are conducted annually and initiated by the self-appraisal of an employee. The immediate supervisor reviews the appraisal ratings in a joint consultation meeting with the employee and assigns the performance rating. The ﬁ nal rating is discussed by a Moderation Committee comprising of senior ofﬁ cials of the Bank. Both relative and absolute individual performance is considered in the moderation process. Individual ﬁ xed pay increases, variable pay and ESOPs are linked to the ﬁ nal performance ratings. In addition, the ﬁ xed pay increase is also inﬂ uenced by an employee’s position in the salary range. e) Bank’s policy on deferral and vesting of variable remuneration and Bank’s policy and criteria for adjusting deferred remuneration before vesting and after vesting The policy for risk alignment of compensation effective from ﬁ nancial year 2012-13 provides for the deferral of variable pay for MD & CEO and WTD’s. 70 The following clauses with regard to deferral are included in the policy: • • • If the variable pay exceeds 40% of the ﬁ xed pay, 45% of the variable pay is deferred proportionately over a period of three years. The deferred variable pay amount of reference year is held back in case of any misrepresentation or gross inaccuracy resulting in a wrong risk assessment. Also, a sharp fall in proﬁ t, say to the extent of 30% of the reference year triggers further examination of the causes and the HR and Remuneration Committee thereafter takes decision on holding back or release of deferred variable pay. f) Description of the different forms of variable remuneration (i.e. Cash, Shares, ESOPs and other forms) that the Bank utilises and the rationale for using these different forms Different forms of variable remuneration are as mentioned below: • • Variable Pay: Variable Pay is linked to corporate performance, business performance and individual performance and ensures differential pay based on the performance levels of employees. ESOPs: ESOPs are given to selective set of employees at senior levels based on their level of performance. ESOP scheme has an inbuilt deferral vesting design which helps in retention of employees along with providing an opportunity of long term wealth creation for the employees. Quantitative disclosures The quantitative disclosures pertaining to the MD & CEO and WTDs identiﬁ ed as risk takers for the ﬁ nancial year 2012- 13 are given below. a. i) Number of meetings held by the Remuneration Committee during the ﬁ nancial year ii) Remuneration paid to its members (sitting fees) Number of employees having received a variable remuneration award during the ﬁ nancial year Number and total amount of sign-on awards made during the ﬁ nancial year Details of guaranteed bonus, if any, paid as joining/sign on bonus Details of severance pay, in addition to accrued beneﬁ ts, if any Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms Total amount of deferred remuneration paid out in the ﬁ nancial year Breakdown of amount of remuneration awards for the ﬁ nancial year to show ﬁ xed and variable, deferred and non-deferred Total amount of outstanding deferred remuneration and retained remuneration exposed to ex-post explicit and/or implicit adjustments Total amount of reductions during the ﬁ nancial year due to ex-post explicit adjustments Total amount of reductions during the ﬁ nancial year due to ex-post implicit adjustments b. c. d. e. f. g. h. i. j. k. 31 March, 2013 6 `340,000 1* N.A. N.A. N.A. N.A. N.A. Fixed- `3.76 crores** Variable- `0.38 crores* Deferred - Nil Non-Deferred - `0.38 crores* N.A. N.A. N.A. * pertains to FY 2011-12 paid to MD & CEO ** includes basic salary, leave fare concession, house rent allowance, superannuation allowance and contribution towards provident fund 71 2.1.32 Bancassurance Business Details of income earned from Bancassurance business are as under: Sr. No. Nature of Income* 31 March, 2013 31 March, 2012 (` in crores) 1. 2. 3. 4. For selling life insurance policies For selling non-life insurance policies For selling mutual fund products Others (selling of gold coins, wealth advisory, RBI and other bonds etc.) Total 336.76 19.41 79.99 74.45 510.61 258.62 31.33 57.66 24.67 372.28 *includes receipts on account of marketing activities undertaken on behalf of bank assurance partners 2.1.33 The Bank has not sponsored any special purpose vehicle which is required to be consolidated in the consolidated ﬁ nancial statements as per accounting norms. 2.1.34 Amount of total assets, non-performing assets and revenue of overseas branches is given below: Particulars Total assets Total NPAs Total revenue (` in crores) 31 March, 2013 31 March, 2012 37,151.94 219.29 2,161.26 32,302.40 0.51 1,628.02 2.1.35 During the year ended 31 March, 2013 and 31 March, 2012, the value of sales/transfers of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of investments held in HTM category at the beginning of the year. 2.2 Other disclosures 2.2.1 During the year, the Bank has appropriated `141.46 crores (previous year `38.22 crores), net of taxes and transfer to statutory reserve to the Capital Reserve, being the gain on sale of HTM investments in accordance with RBI guidelines. During the previous year ended 31 March, 2012, as advised by the RBI, the Bank appropriated `13.68 crores, net of taxes and transfer to statutory reserve, being the proﬁ t earned on sale of premises to the Capital Reserve. 2.2.2 During the year, the Bank has appropriated an amount of `2.61 crores to Reserve Fund account in accordance with guidelines issued by Central Bank of Sri Lanka in respect of Sri Lanka branch operations. 2.2.3 Earnings Per Share (‘EPS’) The details of EPS computation is set out below: Basic and Diluted earnings for the year (Net proﬁ t after tax) (` in crores) 5,179.43 4,242.21 Basic weighted average no. of shares (in crores) 43.28 41.21 31 March, 2013 31 March, 2012 Add: Equity shares for no consideration arising on grant of stock options under ESOP (in crores) Diluted weighted average no. of shares (in crores) Basic EPS (`) Diluted EPS (`) Nominal value of shares (`) 0.30 43.58 119.67 118.85 10.00 0.30 41.51 102.94 102.20 10.00 Dilution of equity is on account of 2,975,646 (previous year 2,991,727) stock options. 72 2.2.4 Employee Stock Options Scheme (‘the Scheme’) In February 2001, pursuant to the approval of the shareholders at the Extraordinary General Meeting, the Bank approved an Employee Stock Option Scheme. Under the Scheme, the Bank is authorised to issue upto 13,000,000 equity shares to eligible employees. Eligible employees are granted an option to purchase shares subject to vesting conditions. The options vest in a graded manner over 3 years. The options can be exercised within 3 years from the date of the vesting. Further, over the period June 2004 to June 2010, pursuant to the approval of the shareholders at Annual General Meetings, the Bank approved an ESOP scheme for additional options aggregating 27,517,400. Within the overall ceiling of 40,517,400 stock options approved for grant by the shareholders as stated earlier, the Bank is also authorised to issue options to employees and directors of the subsidiary companies. 39,891,590 options have been granted under the Scheme till the previous year ended 31 March, 2012. On 27 April, 2012, the Bank granted 2,343,500 stock options (each option representing entitlement to one equity share of the Bank) to its employees including the MD & CEO and 172,500 stock options to employees of Axis Asset Management Company Limited, a subsidiary of the Bank. These options can be exercised at a price of `1,086.65 per option. Stock option activity under the Scheme for the year ended 31 March, 2013 is set out below: Options outstanding Range of exercise prices (`) Weighted average exercise price (`) Weighted average remaining contractual life (Years) Outstanding at the beginning of the year 11,428,248 319.00 to 1,447.55 965.90 2.79 Granted during the year 2,516,000 1,086.65 1,086.65 Forfeited during the year (175,698) 319.00 to 1,447.55 1,144.00 Expired during the year (80,954) 319.00 to 824.40 568.70 Exercised during the year (2,822,571) 319.00 to 1,447.55 594.48 Outstanding at the end of the year 10,865,025 468.90 to 1,447.55 1,090.43 Exercisable at the end of the year 5,372,105 468.90 to 1,447.55 941.06 The weighted average share price in respect of options exercised during the year was `1,217.66. Stock option activity under the Scheme for the year ended 31 March, 2012 is set out below: - - - - 2.69 1.57 Options outstanding Range of exercise prices (`) Weighted average exercise price (`) Weighted average remaining contractual life (Years) Outstanding at the beginning of the year 11,122,518 232.10 to 1,245.45 712.90 2.86 Granted during the year 3,268,700 1,447.55 1,447.55 Forfeited during the year (243,596) 232.10 to 1,447.55 960.75 Expired during the year (61,265) 232.10 to 468.90 406.46 Exercised during the year (2,658,109) 232.10 to 1,159.30 512.92 Outstanding at the end of the year 11,428,248 319.00 to 1,447.55 965.90 Exercisable at the end of the year 4,983,892 319.00 to 1,245.45 717.76 The weighted average share price in respect of options exercised during the year was `1,200.12. - - - - 2.79 1.53 73 Fair Value Methodology On applying the fair value based method in Guidance Note on ‘Accounting for Employee Share-based Payments’ the impact on reported net proﬁ t and EPS would be as follows: Net Proﬁ t (as reported) (` in crores) Add: Stock based employee compensation expense included in net income (` in crores) Less: Stock based employee compensation expense determined under fair value based method (proforma) (` in crores) Net Proﬁ t (Proforma) (` in crores) Earnings per share: Basic (in ` ) As reported Proforma Earnings per share: Diluted (in `) As reported Proforma 31 March, 2013 31 March, 2012 5,179.43 4,242.21 - - (117.08) 5,062.35 (147.16) 4,095.05 119.67 116.97 118.85 116.16 102.94 99.37 102.20 98.65 The fair value of the options is estimated on the date of the grant using the Black-Scholes options pricing model, with the following assumptions: Dividend yield Expected life Risk free interest rate Volatility 31 March, 2013 31 March, 2012 1.20% 2-4 years 1.23% 2-4 years 8.14% to 8.33% 8.05% to 8.10% 35.92% to 50.25% 39.43% to 53.33% Volatility is the measure of the amount by which a price has ﬂ uctuated or is expected to ﬂ uctuate during a period. The measure of volatility used in the Black-Scholes options pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volatility of the stock prices on the National Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options has been considered. The weighted average fair value of options granted during the year ended 31 March, 2013 is `387.24 (previous year `559.31). 2.2.5 Dividend paid on shares issued on exercise of stock options The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March, 2013, if approved at the ensuing Annual General Meeting. Dividend relating to these shares has not been recorded in the current year. Appropriation to proposed dividend during the year ended 31 March, 2013 includes dividend of `2.02 crores (previous year `1.88 crores) paid pursuant to exercise of 1,086,994 employee stock options after the previous year end but before the record date for declaration of dividend for the year ended 31 March, 2012. 74 2.2.6 Segmental reporting The business of the Bank is divided into four segments: Treasury, Retail Banking, Corporate/Wholesale Banking and Other Banking Business. These segments have been identiﬁ ed based on the RBI’s revised guidelines on Segment Reporting issued on 18 April, 2007 vide Circular No. DBOD.No.BP.BC.81/21.04.018/2006-07. The principal activities of these segments are as under. Segment Treasury Retail Banking Corporate/Wholesale Banking Principal Activities Treasury operations include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the proprietary account and for customers and central funding. Constitutes lending to individuals/small businesses subject to the orientation, product and granularity criterion and also includes low value individual exposures not exceeding the threshold limit of `5 crores as deﬁ ned by RBI. Retail Banking activities also include liability products, card services, internet banking, ATM services, depository, ﬁ nancial advisory services and NRI services. Includes corporate relationships not included under Retail Banking, corporate advisory services, placements and syndication, management of public issue, project appraisals, capital market related services and cash management services. Other Banking Business Includes para banking activities like third party product distribution and other banking transactions not covered under any of the above three segments. Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses. Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classiﬁ ed under this segment and fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses. Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and internal benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment. 75 Segmental results are set out below: 31 March, 2013 (` in crores) Treasury Corporate/ Wholesale Banking Retail Banking Other Banking Business Total Segment Revenue Gross interest income (external customers) 6,969.72 13,081.18 7,131.67 - 27,182.57 Other income 1,581.20 2,843.97 1,610.88 515.06 6,551.11 Total income as per Proﬁ t and Loss Account 8,550.92 15,925.15 8,742.55 515.06 33,733.68 Add/(less) inter segment interest income 33,112.64 3,371.64 9,374.05 - 45,858.33 Total segment revenue 41,663.56 19,296.79 18,116.60 515.06 79,592.01 Less: Interest expense (external customers) 10,389.84 285.85 6,840.62 Less: Inter segment interest expense 29,937.22 10,113.35 5,807.76 - - 17,516.31 45,858.33 Less: Operating expenses 446.02 1,621.19 4,709.94 137.09 6,914.24 Operating proﬁ t 890.48 7,276.40 758.28 377.97 9,303.13 Less: Provision for non-performing assets/others (94.48) 1,614.12 230.42 0.38 1,750.44 Segment result Less: Provision for tax Extraordinary proﬁ t/loss Net Proﬁ t Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Net assets 984.96 5,662.28 527.86 377.59 7,552.69 2,373.26 - 5,179.43 135,490.74 128,119.81 75,260.84 247.45 339,118.84 1,441.82 340,560.66 126,806.66 63,289.17 116,295.95 31.20 306,422.98 8,684.08 64,830.64 (41,035.11) 216.25 33,107.86 1,029.82 307,452.80 Capital expenditure for the year Depreciation on ﬁ xed assets for the year 20.79 17.52 99.37 288.91 83.71 243.38 8.46 7.12 417.53 351.73 76 (` in crores) 31 March, 2012 Treasury Corporate/ Wholesale Banking Retail Banking Other Banking Business Total Segment Revenue Gross interest income (external customers) 5,992.51 11,292.20 4,709.94 - 21,994.65 Other income 1,003.66 2,800.89 1,238.86 376.81 5,420.22 Total income as per Proﬁ t and Loss Account 6,996.17 14,093.09 5,948.80 376.81 27,414.87 Add/(less) inter segment interest income 28,992.40 3,093.62 7,274.96 0.15 39,361.13 Total segment revenue 35,988.57 17,186.71 13,223.76 376.96 66,776.00 Less: Interest expense (external customers) 8,747.14 214.71 5,015.05 - 13,976.90 Less: Inter segment interest expense 25,817.89 9,335.77 4,207.43 0.04 39,361.13 Less: Operating expenses Operating proﬁ t Less: Provision for non-performing assets/others Segment result Less: Provision for tax Extraordinary proﬁ t/loss Net Proﬁ t Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Net assets 426.36 997.18 160.78 1,735.51 3,759.65 85.58 6,007.10 5,900.72 241.63 291.34 7,430.87 735.59 246.30 0.36 1,143.03 836.40 5,165.13 (4.67) 290.98 6,287.84 2,045.63 - 4,242.21 108,394.17 117,647.10 58,258.41 168.65 284,468.33 1,159.46 285,627.79 116,445.51 51,261.01 94,305.75 19.49 262,031.76 (8,051.34) 66,386.09 (36,047.34) 149.16 22,808.54 787.49 262,819.25 Capital expenditure for the year Depreciation on ﬁ xed assets for the year 20.30 20.67 97.03 98.75 213.74 217.54 5.19 5.28 336.26 342.24 Geographic Segments Domestic International Total 31 March, 2013 31 March, 2012 31 March, 2013 31 March, 2012 31 March, 2013 31 March, 2012 31,572.42 25,786.85 2,161.26 1,628.02 33,733.68 27,414.87 303,408.72 253,325.39 37,151.94 32,302.40 340,560.66 285,627.79 Revenue Assets (` in crores) 77 2.2.7 Related party disclosure The related parties of the Bank are broadly classiﬁ ed as: a) Promoters The Bank has identiﬁ ed the following entities as its Promoters: • • • Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (UTI-1) Life Insurance Corporation of India (LIC) General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Limited, National Insurance Co. Limited, United India Insurance Co. Limited and The Oriental Insurance Co. Limited. b) Key Management Personnel • • • Mrs. Shikha Sharma (Managing Director & Chief Executive Ofﬁ cer) Mr. Somnath Sengupta [Executive Director & Head (Corporate Centre)] with effect from 15 October, 2012 Mr. V. Srinivasan [Executive Director & Head (Corporate Banking)] with effect from 15 October, 2012 c) Relatives of Key Management Personnel Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Chaitaly Sengupta, Ms. Renukona Sengupta, Mr. Niloy Sengupta, Mrs. Gayathri Srinivasan, Mrs. Vanjulam Varadarajan, Mr. V. Satish, Mrs. Camy Satish, Ms. Ananya Srinivasan, Ms. Anagha Srinivasan, Mr. Kuppusamy, Mrs. Komalavalli, Mrs. Ranganayagi, Mr. Srinivasa Raghavan, Ms. Geetha N., Ms. Chitra R., Ms. Sumathi N., Mr. S. Narayanan, Mr. S. Ranganathan and Mr. R. Narayan. d) Subsidiary Companies • • • • • • • Axis Capital Limited (formerly Axis Securities & Sales Limited) Axis Private Equity Limited Axis Trustee Services Limited Axis Asset Management Company Limited Axis Mutual Fund Trustee Limited Axis U.K. Limited Axis Finance Private Limited (formerly Enam Finance Private Limited) (with effect from 8 February, 2013) e) Step down Subsidiary Companies (with effect from 1 April 2012) • • • • Axis Finance Private Limited (formerly Enam Finance Private Limited) (upto 7 February, 2013) Axis Securities Limited (formerly Enam Securities Direct Private Limited) Enam International Limited Enam Securities Europe Limited f) Associate • Bussan Auto Finance India Private Limited The above investment does not fall within the deﬁ nition of a Joint Venture as per AS-27, Financial Reporting of Interest in Joint Ventures, notiﬁ ed under the Companies (Accounting Standards) Rules, 2006, and the said accounting standard is thus not applicable. However, pursuant to RBI guidelines, the Bank has classiﬁ ed the same as investment in joint ventures in the Balance Sheet. Such investment has been accounted as an Associate in Consolidated Financial Statements as per AS-23, Accounting for Investments in Associates in Consolidated Financial Statements, notiﬁ ed under the Companies (Accounting Standards) Rules, 2006. Based on RBI guidelines, details of transactions with Associates are not disclosed since there is only one entity/party in this category. 78 The details of transactions of the Bank with its related parties during the year ended 31 March, 2013 are given below: (` in crores) Items/Related Party Promoters Key Management Personnel Relatives of Key Management Personnel Subsidiaries Step down Subsidiaries Total Dividend paid Dividend received Interest paid Interest received Investment of the Bank Investment of related party in the Bank Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Redemption of subordinated debt Purchase of investments Sale of investments Management contracts Contribution to employee beneﬁ t fund Purchase of ﬁ xed assets Sale of ﬁ xed assets Non-funded commitments Advance granted (net) Advance repaid Receiving of services Rendering of services Consideration received towards demerger Consideration paid towards acquisition of subsidiary Other reimbursements from related party Other reimbursements to related party 247.25 - 768.37 0.02 - 811.47 1,000.00 90.00 - 1,442.84 - 14.58 - - 0.06 - 15.51 60.79 2.07 - - - - 0.02 - 0.16 0.10 - 4.60 - - - - 4.25 - - - - - 0.14 - - - - - - - - 0.03 - - - - - - - - - - - - - - - - - - - - - 1.50 13.54 0.03 25.00 - - - - - 8.91 - 1.17 - - - - 201.73 22.97 274.15 90.40 10.13 0.97 - - 1.73 0.01 - - - - - - - - - - 4.35 - - 0.08 0.09 - - - - 247.27 1.50 783.83 0.16 25.00 816.07 1,000.00 90.00 - 1,442.84 13.16 14.58 1.17 - 4.41 - 15.65 262.60 25.13 274.15 90.40 10.13 0.97 The balances payable to/receivable from the related parties of the Bank as on 31 March, 2013 are given below: Items/Related Party Promoters Key Management Personnel Relatives of Key Management Personnel Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments - 9,915.42 0.16 28.13 - 158.52 3.07 - 4.23 - 2.04 - 0.08 - - 0.51 - - - - - (` in crores) Subsidiaries Step down Subsidiaries Total - - - 434.32 30.15 10,384.63 - - 382.44 - - - - - - 4.35 0.16 30.17 382.44 158.60 7.42 79 Items/Related Party Promoters (` in crores) Subsidiaries Step down Subsidiaries Total Key Management Personnel Relatives of Key Management Personnel Investment of related party in Subordinated Debt/Hybrid Capital of the Bank 3,817.30 Advance for rendering of services Other receivables Other payables - - - - - - - - - - - - - 49.92* 23.30 - - - - 3,817.30 - 49.92 23.30 The maximum balances payable to/receivable from the related parties of the Bank during the year ended 31 March, 2013 are given below: Items/Related Party Promoters Key Management Personnel Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Other receivables Other payables - 9,915.42 0.16 46.54 - 158.52 3.07 3,817.30 - - - 9.01 - 2.16 - 0.08 - - - - Relatives of Key Management Personnel - 3.91 - - - - - - - - Subsidiaries (` in crores) Total Step down Subsidiaries - 464.43 - 23.93 382.44 - 16.00 - 49.92 35.06 - - 35.79 10,428.56 0.16 78.59 382.44 158.60 23.42 - 5.96 - - 4.35 - - - 3,817.30 49.92 35.06 The details of transactions of the Bank with its related parties during the year ended 31 March, 2012 are given below: Items/Related Party Promoters Dividend paid Dividend received Interest paid Interest received Investment of the Bank Investment of related party in the Bank Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Redemption of subordinated debt Purchase of investments Sale of investments Management contracts 214.22 - 540.45 0.02 - - - - - 244.81 - Key Management Personnel 0.06 - 0.01 0.01 - 1.84 - - - - 5.51 Relatives of Key Management Personnel - - 0.03 - - - - - - - - (` in crores) Subsidiaries Total - 1.13 7.72 - 90.00 - - - - - 6.90 214.28 1.13 548.21 0.03 90.00 1.84 - - - 244.81 12.41 80 Items/Related Party Promoters Contribution to employee beneﬁ t fund Purchase of ﬁ xed assets Sale of ﬁ xed assets Non-funded commitments Advance granted (net) Advance repaid Receiving of services Rendering of services Other reimbursements from related party Other reimbursements to related party 13.75 - - - 0.64 - 51.49 1.65 - 1.02 Key Management Personnel - - - - - 0.03 - - - - Relatives of Key Management Personnel - - - - - - - - - - (` in crores) Subsidiaries Total - - - 16.00 - - 140.95 12.54 10.29 1.68 13.75 - - 16.00 0.64 0.03 192.44 14.19 10.29 2.70 The balances payable to/receivable from the related parties of the Bank as on 31 March, 2012 are given below: Items/Related Party Promoters Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Advance for rendering of services Other receivables Other payables - 5,693.55 0.16 43.65 - 154.44 3.01 2,837.30 - - - Key Management Personnel - 0.31 - 0.24 - 0.02 - - - - - Relatives of Key Management Personnel - 0.26 - - - - - Subsidiaries (` in crores) Total - 116.62 - - 310.55 - 16.00 - 5,810.74 0.16 43.89 310.55 154.46 19.01 - - - - - - 34.51* 21.16 2,837.30 - 34.51 21.16 The maximum balances payable to/receivable from the related parties of the Bank during the year ended 31 March, 2012 are given below: Items/Related Party Promoters Key Management Personnel Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Other receivables Other payables - 5,693.55 0.16 48.22 - 155.12 3.01 2,837.30 - - - 1.24 - 0.27 - 0.05 - - - - Relatives of Key Management Personnel - 2.70 - - - - - - - - Subsidiaries (` in crores) Total - 185.02 - - 310.55 - 16.00 - 34.51 22.77 - 5,882.51 0.16 48.49 310.55 155.17 19.01 2,837.30 34.51 22.77 81 Details of transactions with Axis Mutual Fund and Axis Infrastructure Fund-I, the funds ﬂ oated by Axis Asset Management Company Ltd. and Axis Private Equity Ltd., the Bank’s subsidiaries have not been disclosed since these entities do not qualify as Related Parties as deﬁ ned under the Accounting Standard 18, Related Party Disclosure, as notiﬁ ed under the Companies (Accounting Standards) Rules, 2006 and as per RBI guidelines. * During the year ended 31 March, 2012, the Bank entered into an arrangement with Axis Asset Management Company Ltd. (Axis AMC), the Bank’s subsidiary, in terms of which payment of brokerage in respect of distribution of certain schemes is scheduled over a period of 3 years. This change, however, has no effect on the accounting policy of the Bank, as such brokerage income is recognised by the Bank as and when the same is due. Other receivables include such brokerage recoverable from Axis AMC as on the reporting date. 2.2.8 Leases Disclosure in respect of assets given on operating lease The Bank has not given any assets on operating lease. Disclosure in respect of assets taken on operating lease Operating lease comprises leasing of ofﬁ ce premises/ATMs, cash deposit machines, staff quarters, electronic data capturing machines and IT equipment. Future lease rentals payable as at the end of the year: - Not later than one year - Later than one year and not later than ﬁ ve years - Later than ﬁ ve years Total of minimum lease payments recognised in the Proﬁ t and Loss Account for the year Total of future minimum sub-lease payments expected to be received under non-cancellable subleases Sub-lease payments recognised in the Proﬁ t and Loss Account for the year The Bank has sub-leased certain of its properties taken on lease. There are no provisions relating to contingent rent. 31 March, 2013 31 March, 2012 (` in crores) 575.90 1,689.30 816.07 465.15 1,371.51 722.72 602.76 560.41 - 0.60 0.30 1.08 The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements. 2.2.9 Other Fixed Assets (including furniture & ﬁ xtures) The movement in ﬁ xed assets capitalised as application software is given below: Particulars At cost at the beginning of the year Additions during the year Deductions during the year Accumulated depreciation as at 31 March Closing balance as at 31 March Depreciation charge for the year 82 31 March, 2013 31 March, 2012 (` in crores) 378.88 78.73 (0.21) (311.30) 146.10 53.45 330.28 57.01 (8.41) (258.01) 120.87 54.70 2.2.10 The major components of deferred tax assets and deferred tax liabilities arising out of timing differences are as under: (` in crores) As at 31 March, 2013 31 March, 2012 Deferred tax assets on account of provisions for loan losses Deferred tax assets on account of amortisation of HTM investments Deferred tax assets on account of provision for employee beneﬁ ts Deferred tax assets on account of other contingencies Deferred tax assets Deferred tax liabilities on account of depreciation on ﬁ xed assets Deferred tax liabilities Net Deferred tax assets 2.2.11 Employee Beneﬁ ts Provident Fund 924.57 192.52 106.76 176.43 743.17 184.09 82.60 40.65 1,400.28 1,050.51 25.51 25.51 23.06 23.06 1,374.77 1,027.45 The contribution to the employee’s provident fund amounted to `80.78 crores (previous year `67.88 crores) for the year. The rules of the Bank’s Provident Fund administered by a Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees’ Provident Fund by the Government under para 60 of the Employees’ Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deﬁ ciency shall be made good by the Bank. Based on an actuarial valuation conducted by an independent actuary, there is no deﬁ ciency as at the Balance Sheet date. The principal assumptions used by the actuary are as under. Discount rate for the term of the obligation Average historic yield on the investment portfolio Discount rate for the remaining term to maturity of the investment portfolio Expected investment return Guaranteed rate of return Superannuation 31 March, 2013 7.90% 9.13% 7.94% 9.09% 8.50% 31 March, 2012 8.35% 9.09% 8.45% 8.99% 8.25% The Bank contributed `14.35 crores (previous year `13.89 crores) to the employees’ superannuation plan for the year. Leave Encashment The actuarial liability of compensated absences of accumulated privileged and sick leaves of the employees of the Bank is given below: Privileged leave Sick leave Total actuarial liability Assumptions Discount rate Salary escalation rate Gratuity 31 March, 2013 31 March, 2012 (` in crores) 313.92 22.80 336.72 252.40 20.26 272.66 7.90% p.a. 7.00% p.a. 8.35% p.a. 6.00% p.a. The following tables summarise the components of net beneﬁ t expenses recognised in the Proﬁ t and Loss Account and funded status and amounts recognised in the Balance Sheet for the Gratuity beneﬁ t plan. 83 Proﬁ t and Loss Account Net employee beneﬁ t expenses (recognised in payments to and provisions for employees) Current Service Cost Interest on Deﬁ ned Beneﬁ t Obligation Expected Return on Plan Assets Net Actuarial Losses/(Gains) recognised in the year Past Service Cost Total included in “Employee Beneﬁ t Expense” Actual Return on Plan Assets Balance Sheet Details of provision for gratuity Fair Value of Plan Assets Present Value of Funded Obligations Net Asset/(Liability) Amounts in Balance Sheet Liabilities Assets Net Asset/(Liability) Changes in the present value of the deﬁ ned beneﬁ t obligation are as follows: Change in Deﬁ ned Beneﬁ t Obligation Opening Deﬁ ned Beneﬁ t Obligation Current Service Cost Interest Cost Actuarial Losses/(Gains) Past service cost Beneﬁ ts Paid Closing Deﬁ ned Beneﬁ t Obligation Changes in the fair value of plan assets are as follows: Change in the Fair Value of Assets Opening Fair Value of Plan Assets Expected Return on Plan Assets Actuarial Gains/(Losses) Contributions by Employer Beneﬁ ts Paid Closing Fair Value of Plan Assets 84 31 March, 2013 31 March, 2012 (` in crores) 16.98 8.70 (7.25) 16.80 5.50 40.73 9.32 11.61 5.49 (4.83) 23.74 (3.72) 32.29 5.30 31 March, 2013 31 March, 2012 (` in crores) 146.22 (137.60) 8.62 - 8.62 8.62 97.91 (93.40) 4.51 - 4.51 4.51 31 March, 2013 31 March, 2012 (` in crores) 93.40 16.98 8.70 18.87 5.50 (5.85) 137.60 60.65 11.61 5.49 24.22 (3.72) (4.85) 93.40 31 March, 2013 31 March, 2012 (` in crores) 97.91 7.25 2.07 44.84 (5.85) 146.22 63.43 4.83 0.48 34.02 (4.85) 97.91 Experience adjustments 31 March, 2013 31 March, 2012 31 March, 2011 31 March, 2010 (` in crores) 31 March, 2009 Deﬁ ned Beneﬁ t Obligations Plan Assets Surplus/(Deﬁ cit) Experience Adjustments on Plan Liabilities Experience Adjustments on Plan Assets 137.60 146.22 8.62 4.58 2.07 93.40 97.91 4.51 27.08 0.48 60.65 63.43 2.78 1.40 (0.78) 42.56 43.97 1.41 1.16 0.46 36.37 29.75 (6.62) 3.38 (0.73) Major categories of plan assets (managed by Insurers) as a percentage of fair value of total plan assets Government securities Bonds, debentures and other ﬁ xed income instruments Money market instruments Equity shares Others Principal actuarial assumptions at the Balance Sheet date: Discount Rate Expected Rate of Return on Plan Assets Salary Escalation Rate Employee Turnover - 21 to 30 (age in years) - 31 to 44 (age in years) - 45 to 59 (age in years) 31 March, 2013 % 40.87 38.48 18.45 2.20 - 31 March, 2012 % 42.81 43.85 9.89 2.31 1.14 31 March, 2013 31 March, 2012 7.90% p.a. 7.50% p.a. 7.00% p.a. 20.14% 10.00% 1.00% 8.35% p.a. 7.50% p.a. 6.00% p.a. 20.41% 10.00% 1.00% The estimates of future salary increases considered in actuarial valuation take account of inﬂ ation, seniority, promotion and other relevant factors. The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations. As the contribution expected to be paid to the plan during the annual period beginning after the balance sheet date is based on various internal/external factors, a best estimate of the contribution is not determinable. The above information is as certiﬁ ed by the actuary and relied upon by the auditors. 2.2.12 Provisions and contingencies a) Movement in provision for frauds included under other liabilities is set out below: Opening balance at the beginning of the year Additions during the year Reductions on account of payments during the year Reductions on account of reversals during the year Closing balance at the end of the year 31 March, 2013 31 March, 2012 (` in crores) 17.35 4.57 (5.57) (2.38) 13.97 4.99 12.40 (0.02) (0.02) 17.35 85 b) Other liabilities include provision for debit/credit card reward points, the movement of which is set out below: Opening provision at the beginning of the year Provision made during the year Reductions during the year Closing provision at the end of the year c) Movement in provision for other contingencies is set out below: Opening provision at the beginning of the year Provision made during the year Reductions during the year Closing provision at the end of the year 31 March, 2013 43.28 28.03 (3.42) 67.89 31 March, 2013 0.81 561.55 (180.57) 381.79 (` in crores) 31 March, 2012 25.01 20.28 (2.01) 43.28 (` in crores) 31 March, 2012 36.44 0.38 (36.01) 0.81 The above provision includes contingent provision for advances/other exposures, legal cases and other contingencies. 2.2.13 Unclaimed Shares Details of unclaimed shares as of 31 March, 2013 and 31 March, 2012 are as follows: Aggregate number of shareholders at the beginning of the year Total outstanding shares in Unclaimed Suspense Account at the beginning of the year Number of shareholders who approached to issuer for transfer of shares from Unclaimed Suspense Account during the year Number of shareholders to whom shares were transferred from Unclaimed Suspense Account during the year Aggregate number of shareholders at the end of the year Total outstanding shares in Unclaimed Suspense Account at the end of the year 31 March, 2013 29 31 March, 2012 38 3,600 4,900 - - 29 3,600 9 9 29 3,600 2.2.14 Small and Micro Industries Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors. 2.2.15 Description of contingent liabilities a) Claims against the Bank not acknowledged as debts These represent claims ﬁ led against the Bank in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Bank. b) Liability on account of forward exchange and derivative contracts The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash ﬂ ows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange ﬁ xed and ﬂ oating interest rate cash ﬂ ows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a speciﬁ ed price, on a speciﬁ ed future date. Forward rate agreements are agreements to pay or receive a certain sum 86 based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a speciﬁ ed amount of currency at a speciﬁ c price within a speciﬁ ed time period or at a speciﬁ ed future time. An Exchange Traded Currency Option contract is a standardised foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre-agreed exchange rate on a speciﬁ ed date on the date of expiry. Currency Futures contract is a standardised, exchange- traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a speciﬁ ed price. c) Guarantees given on behalf of constituents As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulﬁ ll its ﬁ nancial or performance obligations. d) Acceptances, endorsements and other obligations These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank’s customers that are accepted or endorsed by the Bank. e) Other items Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account and commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end. 2.2.16 Previous year ﬁ gures have been regrouped and reclassiﬁ ed, where necessary to conform to current year’s presentation. For Axis Bank Ltd. Sanjiv Misra Chairman K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 87 AUDITORS’ CERTIFICATE TO THE MEMBERS OF AXIS BANK LIMITED We have examined the compliance of conditions of corporate governance by AXIS BANK LIMITED (“the Bank”) for the year ended 31st March, 2013, as stipulated in clause 49 of the Listing Agreement of the said Bank with the stock exchanges. The compliance of conditions of corporate governance is the responsibility of the Management. Our examination was limited to procedures and implementation thereof, adopted by the Bank for ensuring the compliance of the conditions of the corporate governance. It is neither an audit nor an expression of opinion on the ﬁ nancial statements of the Bank. In our opinion and to the best of our information and according to the explanations given to us, we certify that the Bank has complied with the conditions of corporate governance as stipulated in the abovementioned Listing Agreement. We further state that such compliance is neither an assurance as to the future viability of the Bank nor the efﬁ ciency or effectiveness with which the Management has conducted the affairs of the Bank. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No. 117365W) Z. F. Billimoria Partner (Membership No.42791) Date : 24th April, 2013 Place: Mumbai 88 CORPORATE GOVERNANCE (Forming Part of the Directors’ Report for the year ended 31st March 2013) 1. Philosophy on Code of Governance The Bank’s policy on Corporate Governance has been: I. II. To enhance the long term interest of its shareholders, provide good management, adopt prudent risk management techniques and comply with the required standards of capital adequacy, thereby safeguarding the interest of its other stakeholders such as depositors, creditors, customers, suppliers and employees. To identify and recognise the Board of Directors and the Management of the Bank as the principal instruments through which good corporate governance principles are articulated and implemented. To also identify and recognise accountability, transparency and equality of treatment for all stakeholders, as central tenets of good corporate governance. 2. Board of Directors The composition of the Board of Directors of the Bank is governed by the Companies Act, 1956, the Banking Regulation Act, 1949 and Clause 49 of the Listing Agreement. The Bank’s Board comprises a combination of executive and non- executive Directors. The Board presently consists of 14 Directors and its mix provides a combination of professionalism, knowledge and experience required in the banking business. There are 7 independent Directors constituting one-half of the Board’s membership with Shri S. B. Mathur designated as the Lead Independent Director. The Board is responsible for the management of the Bank’s business. The functions, responsibilities, role and accountability of the Board are well deﬁ ned. In addition to monitoring corporate performance, the Board also carries out functions such as taking care of all the statutory agenda, approving the Business Plan and all major policies, reviewing and approving the annual budgets and borrowing limits and ﬁ xing exposure limits. It ensures that the Bank keeps shareholders informed about plans, strategies and performance. The detailed reports of the Bank’s performance are periodically placed before the Board. The composition of the Bank’s Board includes the representatives of the Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (SUUTI) and the Life Insurance Corporation of India, the Bank’s promoters. The following members constitute the Board: Sanjiv Misra Shikha Sharma K. N. Prithviraj V. R. Kaundinya S. B. Mathur Prasad R. Menon R.N. Bhattacharyya Samir K. Barua A. K. Dasgupta Som Mittal Ireena Vittal Rohit Bhagat Somnath Sengupta V. Srinivasan Chairman Promoter – Nominee of SUUTI Managing Director & CEO Promoter – Nominee of SUUTI Independent Independent Independent Promoter – Nominee of SUUTI Independent Promoter – Nominee of the Life Insurance Corporation of India Independent Independent Independent Executive Director and Head (Corporate Centre) Executive Director and Head (Corporate Banking) Dr. Adarsh Kishore (Chairman & Director upto 7th March 2013), Smt. Shikha Sharma, Smt. Rama Bijapurkar (Director upto 16th January 2013), Shri K. N. Prithviraj, Shri V. R. Kaundinya, Shri Prasad R. Menon, Shri R. N. Bhattacharyya, Prof. Samir K. Barua and Shri A. K. Dasgupta attended the last Annual General Meeting held on 22nd June 2012 at Ahmedabad. 89 In all, 11 meetings of the Board were held during the year on 26th April 2012, 27th April 2012, 17th May 2012, 22nd June 2012, 17th July 2012, 15th October 2012, 16th October 2012, 3rd November 2012, 17th December 2012, 15th January 2013 and 16th January 2013. Dr. Adarsh Kishore, Smt. Shikha Sharma, Shri K. N. Prithviraj, Shri R. N. Bhattacharyya and Shri A. K. Dasgupta attended all the eleven meetings. Shri S. B. Mathur and Shri Prasad R. Menon attended nine meetings. Smt. Rama Bijapurkar, Shri V. R. Kaundinya and Prof. Samir K. Barua attended eight meetings. Shri Somnath Sengupta and Shri V. Srinivasan attended all the six meetings for which they were eligible. Shri Som Mittal attended ﬁ ve meetings. Smt. Ireena Vittal attended all the three meetings for which she was eligible. Shri M. V. Subbiah attended one meeting for which he was eligible. The Directors of the Bank also hold positions as directors as on 31st March 2013, in other companies as per the details given below: i. SANJIV MISRA Sr. No. Name of the Company/Institution 1. 2. BSE Limited Akzo Nobel India Limited ii. SHIKHA SHARMA Nature of Interest Director/Chairman – Audit Committee Director/Chairman – Shareholders Grievance Committee/ Member – Audit Committee Sr. No. Name of the Company/Institution Nature of Interest 1. 2. 3. 4. Axis Asset Management Company Limited Axis Bank UK Limited* Axis Capital Limited Axis Private Equity Limited iii. K. N. PRITHVIRAJ Sr. No. Name of the Company/Institution 1. 2. 3. 4. 5. 6. 7. UTI Infrastructure Technology & Services Limited Surana Industries Limited Surana Mines and Minerals Limited, Singapore* Dwarikeshwar Sugars Industries Limited Falcon Tyres Limited Daiwa Trustee Company (India) Pvt. Limited PNB Investment Services Limited 8. 9. 10. 11. Brickwork Ratings (India) Pvt. Limited Speciﬁ ed Undertaking of the Unit Trust of India Eurasia Investment Advisors Pvt. Limited National Financial Holdings Limited iv. V. R. KAUNDINYA Sr. No. Name of the Company/Institution 1. 2. 3. Advanta India Limited Advanta Seeds Limited Warrantify Oy* * Foreign Company Chairperson Chairperson Chairperson Director Nature of Interest Chairman Director/Member – Audit Committee Director/Member – Audit Committee Director/Chairman – Audit Committee Director/Member – Audit Committee Director Director/Member – Audit Committee/Member – HR Committee Director/Member – Audit Committee Administrator & Member of Board of Advisors Director Director Nature of Interest Managing Director & CEO Director Director 90 v. S. B. MATHUR Sr. No. Name of the Company/Institution IDFC Trustee Company Limited 1. Cholamandalam MS General Insurance Company 2. Limited DCM Sriram Industries Limited Havells India Limited Housing Development Infrastructure Limited Hindustan Oil Exploration Company Limited Infrastructure Leasing and Financial Services Limited ITC Limited National Collateral Management Services Co. Limited National Stock Exchange of India Limited Ultratech Cement Limited Janalakshmi Financial Services Private Limited Munich Re India Services Private Limited J.M. Financial Asset Reconstruction Company Private Limited India Mortgage Guarantee Corporation Pvt. Limited Mindas Corporation Limited 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. 14. 15. 16. Nature of Interest Chairman Chairman/Member – Audit Committee Director/Member – Audit Committee Director/Member – Audit Committee Director Director/Member – Audit Committee Director Director/Chairman – Audit Committee Director Director Director Director Director Director Nominee Director of National Housing Bank Director/Member – Audit Committee vi. PRASAD R. MENON Sr. No. Name of the Company/Institution Nature of Interest 1. 2. 3. 4. 5. 6. 7. 8. NELCO Limited Tata Consulting Engineers Limited Chairman/Chairman – Nominations, HR & Remuneration Committee/Chairman – Executive Committee of the Board Chairman/Member – Remuneration & Nomination Committee/Chairman – Executive Committee of the Board Tata Power Solar Systems Limited Chairman/Member – Audit Committee Tata Chemicals Limited Tata Projects Limited Tata Industries Limited SKF India Limited Director/Member – Executive Committee of the Board/Chairman – SHES Committee Director/Member – Remuneration Committee/ Member – Audit Committee/Member – Safety Committee Director/Member – Audit Committee Director/Member – Audit Committee TCE QSTP-LLC Doha, Qatar* Director * Foreign Company vii. R. N. BHATTACHARYYA - NIL 91 viii. SAMIR K. BARUA Sr. No. Name of the Company/Institution Nature of Interest 1. 2. 3. 4. Coal India Limited Torrent Power Limited IOT Infrastructure and Energy Services Limited Oil and Natural Gas Corporation Limited Director/Chairman – HRM Committee/Chairman –Remuneration Committee/Member – Audit Committee Director/Member – Audit Committee Director/Member – Audit Committee Non-ofﬁ cial Part-time Director/Chairman – HRM Committee/Member – Audit & Ethics Committee/ Member – Project Appraisal Committee/Member – Shareholders’/Investors’ Grievance Committee/ Member – Health, Safety & Environment Committee/Member – Financial Management Committee 5. Axis Capital Limited Director ix. A. K. DASGUPTA Sr. No. Name of the Company/Institution Nature of Interest 1. ABB Limited x. SOM MITTAL Director/Member – Audit Committee Sr. No. Name of the Company/Institution Nature of Interest 1. 2. 3. 4. National Institute for Smart Government Director National Research Development Corporation Non-ofﬁ cial Part-time Director Media Lab Asia Data Security Council of India Director Director xi. IREENA VITTAL Sr. No. Name of the Company/Institution Nature of Interest 1. Titan Industries Limited Director xii. ROHIT BHAGAT Sr. No. Name of the Company/Institution 1. 2. Tandem Habit Fund Partner SPV, LLC* Tandem Habit Fund Partners, LLC* Nature of Interest Managing Member Managing Member xiii. SOMNATH SENGUPTA Sr. No. Name of the Company/Institution Nature of Interest 1. Axis Bank UK Limited* * Foreign Company 92 Director/Member-Committee of Directors/ Member-Audit and Compliance Committee xiv. V. SRINIVASAN Sr. No. Name of the Company/Institution Nature of Interest 1. 2. 3. Axis Trustee Services Limited Axis Finance Private Limited Axis Bank UK Limited* 4. Axis Capital Limited * Foreign Company Chairman Chairman/Member – Audit Committee/Member – Credit Committee/Member – Nomination Committee Director/Chairman-Human Resources, Remuneration & Negotiation Committee/ Member-Committee of Directors/Member-Risk Management Committee Director/Member – Audit Committee/Member – Risk Committee/Member – Remuneration Committee The business of the Board is also conducted through the following Committees constituted by the Board to deal with speciﬁ c matters and delegated powers for different functional areas: a) Committee of Directors K. N. Prithviraj – Chairman Shikha Sharma S. B. Mathur Prasad R. Menon R. N. Bhattacharyya Somnath Sengupta V. Srinivasan b) Audit Committee S. B. Mathur – Chairman K. N. Prithviraj V. R. Kaundinya Samir K. Barua c) Risk Management Committee Sanjiv Misra Shikha Sharma K. N. Prithviraj Samir K. Barua Ireena Vittal d) Shareholders/Investors Grievance Committee S. B. Mathur – Chairman R. N. Bhattacharyya Somnath Sengupta 93 e) HR and Remuneration Committee Prasad R. Menon – Chairman K. N. Prithviraj V. R. Kaundinya Samir K. Barua f) Nomination Committee S. B. Mathur – Chairman V. R. Kaundinya Samir K. Barua g) Special Committee of the Board of Directors for Monitoring of Large Value Frauds Shikha Sharma – Chairperson V. R. Kaundinya R. N. Bhattacharyya Samir K. Barua A. K. Dasgupta h) Customer Service Committee Shikha Sharma Samir K. Barua Ireena Vittal i) Committee of Whole-Time Directors Shikha Sharma – Chairperson Somnath Sengupta V. Srinivasan j) Acquisitions, Divestments and Mergers Committee Prasad R. Menon – Chairman Shikha Sharma K. N. Prithviraj S. B. Mathur Ireena Vittal k) IT Strategy Committee Som Mittal – Chairman Shikha Sharma Prasad R. Menon Somnath Sengupta The functions of the Committees are discussed below: a) Committee of Directors The Committee of Directors exercises powers delegated to it by the Board relating to loans, credit policy, credit portfolio, monitoring of exposures (both credit and investment), expenditures, investment, branch expansion, compliance with the statutory and regulatory framework, proposals relating to the Bank’s operations covering all departments and business segments and important issues relating to day to day affairs/problems and to take such steps as may be deemed necessary for the smooth functioning of the Bank. 94 The Committee of Directors also exercises functions relating to all routine matters other than the strategic matters and review of policies other than strategic policies like Credit Policy, Investment Policy and other policies which the Committee of Directors may consider necessary or Reserve Bank of India (RBI) may speciﬁ cally require to be reviewed by the Board. Meetings and Attendance during the year: 10 meetings of the Committee of Directors were held during the year on 30th April 2012, 26th May 2012, 25th June 2012, 1st August 2012, 31st August 2012, 27th September 2012, 6th November 2012, 17th December 2012, 1st February 2013 and 15th March 2013. Smt. Shikha Sharma attended all the ten meetings. Shri S. B. Mathur and Shri K. N. Prithviraj attended nine meetings. Shri R. N. Bhattacharyya attended all the nine meetings for which he was eligible. Shri Prasad R. Menon attended seven meetings. Shri V. Srinivasan attended both the meetings for which he was eligible. Shri Somnath Sengupta could not attend any meeting out of two meetings for which he was eligible. b) Audit Committee The Audit Committee of the Board of Directors functions with the following main objectives: i. ii. iii. iv. v. vi. To provide direction and to oversee the operation of the audit function. To review the internal audit system with special emphasis on its quality and effectiveness. To review internal and concurrent audit reports of large branches with a focus on all major areas of housekeeping, particularly inter branch adjustment accounts, arrears in the balancing of the books and un-reconciled entries in inter-bank and Nostro accounts and frauds. To discuss matters related to frauds. To discuss and follow up for audit issues related to Long Form Audit Report. To discuss and follow up for issues related to RBI Inspection Report(s). vii. To review the system of appointment and remuneration of concurrent auditors and external auditors. viii. To oversee the Bank’s ﬁ nancial reporting process and the disclosure of its ﬁ nancial information to ensure that the ﬁ nancial statements are correct, sufﬁ cient and credible. ix. x. xi. To recommend to the Board, the appointment, re-appointment, and if required, the replacement or removal of the Statutory Auditor and the ﬁ xation of their audit fees. To approve payments to Statutory Auditors for any other services rendered by them. To review, with the management, the annual ﬁ nancial statements before submission to the Board for its approval with particular reference to: a. Matters required to be included in the Director’s Responsibility Statement in the Board’s report in terms of clause (2AA) of section 217 of the Companies Act, 1956. b. Changes, if any, in accounting policies & practices and reasons for the same. c. Major accounting entries involving estimates based on the exercise of judgment by the management. d. e. f. g. Signiﬁ cant adjustments made in the ﬁ nancial statements arising out of audit ﬁ ndings. Compliance with listing and other legal requirements relating to ﬁ nancial statements. Disclosure of any related party transactions. Qualiﬁ cations in the draft audit report. xii. To review, with the management, the quarterly ﬁ nancial statements before submission to the Board for its approval. xiii. To review, with the management, the statement of uses/application of funds raised through an issue (public issue, rights issue, preferential issue, etc.), the statement of funds utilised for purposes other than those stated in the offer document/prospectus/notice and the report submitted by the agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board for taking steps in the matter. 95 xiv. To review, with the management, performance of statutory and internal auditors, and adequacy of the internal control systems. xv. To obtain and review quarterly/half yearly reports of the Compliance Ofﬁ cer appointed in the Bank in terms of RBI instructions. xvi. To review the adequacy of internal audit function, if any, including the structure of the internal audit department, stafﬁ ng, seniority of the ofﬁ cial heading the department, reporting structure, coverage and frequency of internal audit. xvii. To discuss with internal auditors any signiﬁ cant audit ﬁ ndings and follow up thereon. xviii. To review the ﬁ ndings of any internal investigations by the internal auditors into matters where there is suspected fraud or irregularity or a failure of internal control systems of a material nature and reporting the matter to the Board. xix. To discuss with Statutory Auditors, before the commencement of audit, the nature and scope of audit as also conduct post-audit discussion to ascertain any area of concern. xx. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors. xxi. To review the functioning of the Whistleblower Mechanism. xxii. To approve the appointment of the Chief Financial Ofﬁ cer before ﬁ nalisation of the same by the management. The Audit Committee, while approving the appointment, shall assess the qualiﬁ cations, experience & background etc. of the candidate. xxiii. Carrying out any other function as is mentioned in terms of reference of the Audit Committee. Meetings and Attendance during the year: 12 meetings of the Audit Committee were held during the year on 26th April 2012, 26th May 2012, 2nd July 2012, 17th July 2012, 16th August 2012, 17th September 2012, 15th October 2012, 29th November 2012, 17th December 2012, 15th January 2013, 1st February 2013 and 15th March 2013. Shri S. B. Mathur and Shri K. N. Prithviraj attended all the twelve meetings. Prof. Samir K. Barua attended ten meetings. Shri V. R. Kaundinya attended eight meetings. c) Risk Management Committee The Risk Management Committee of the Board of Directors functions with the following main objectives: i. To perform the role of Risk Management in pursuance of the Risk Management Guidelines issued periodically by RBI and Board. ii. To oversee and advise to the Board on: a. b. Deﬁ ning risk appetite, tolerance thereof and review the same, as appropriate. Systems of risk management framework, internal control and compliance to identify, measure, aggregate, control and report key risks. c. Alignment of business strategy with the Board’s risk appetite; and d. Maintenance and development of a supportive culture, in relation to the management of risk, appropriately embedded through procedures, training and leadership actions so that all employees are alert to the wider impact on the whole organisation of their actions and decisions. iii. iv. v. To advise the Board on all high level risk matters. To require regular risk management reports from management which enable the Committee to assess the risks involved in the Bank’s business and how they are controlled and monitored by management, and give clear focus to current and forward-looking aspects of risk exposure. To review the effectiveness of the Bank’s internal control and risk management framework, in relation to its core strategic objectives, and to seek such assurance as may be appropriate. 96 vi. To review the Asset Liability Management (ALM) of the Bank on a regular basis. vii. To consider any major regulatory issues that may have bearing on the risks and risk appetite of the Bank. viii. To provide to the Board with such additional assurance as it may require regarding the quality of risk information submitted to it. ix. x. To decide the policy and strategy for integrated risk management containing various risk exposures of the Bank including the credit, market, liquidity, operational and reputation risk; and To review risk return proﬁ le of the Bank, capital adequacy based on the risk proﬁ le of the Bank’s balance sheet, Basel-II implementation, assessment of Pillar II risk under Internal Capital Adequacy Assessment Process (ICAAP), business continuity plan and disaster recovery plan, key risk indicators and signiﬁ cant risk exposures. Meetings and Attendance during the year: 5 meetings of the Risk Management Committee were held during the year on 6th April 2012, 21st June 2012, 17th July 2012, 7th December 2012 and 8th February 2013. Dr. Adarsh Kishore, Smt. Shikha Sharma and Prof. Samir K. Barua attended all the ﬁ ve meetings. Shri K. N. Prithviraj attended three meetings. Smt. Ireena Vittal attended one meeting for which she was eligible. d) Shareholders/Investors Grievance Committee The primary objective of the Shareholders/Investors Grievance Committee is to look into redressal of shareholders’ and investors’ grievances relating to non-receipt of dividend, refund orders, shares sent for transfer, non-receipt of Annual Report and other similar grievances. Meetings and Attendance during the year: the year on 4 meetings of 17th May 2012, 16th July 2012, 3rd November 2012 and 16th January 2013. Dr. Adarsh Kishore, Shri S. B. Mathur and Shri R. N. Bhattacharyya attended all the four meetings. the Shareholders/Investors Grievance Committee were held during The details of the status of the references/complaints received for the year are given in the following statement: Status of the References/Complaints from 1st April 2012 to 31st March 2013 Sr. No. Nature of Reference/Complaints Received Disposed Off Pending 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 13. Change of Address Bank Mandates ECS Nomination Non-receipt of Share Certiﬁ cates Correction of names Stock Exchange queries NSDL/CDSL Queries SEBI Receipt of dividend warrant for revalidation Non-receipt of Dividend Non-receipt of Annual Report Transfers 458 30 292 63 31 01 08 01 14 306 1170 34 324 458 30 292 63 31 01 08 01 14 306 1170 34 324 Shri P. J. Oza, Company Secretary, is the Compliance Ofﬁ cer for SEBI/Stock Exchange related issues. - - - - - - - - - - - - - 97 e) HR and Remuneration Committee The HR and Remuneration Committee of the Board of Directors functions with the following main objectives: i. ii. iii. To review and recommend to the Board for approval the overall remuneration philosophy and policy of the Bank, including the level and structure of ﬁ xed pay, variable pay, perquisites, bonus pool, stock-based compensation to employees of the Bank, and any other form of compensation as may be included from time to time. This was to be undertaken keeping in mind the strategic objectives, market environment and the regulatory framework as may exist from time to time. To review and recommend to the Board for approval, the total increase in manpower cost budget of the Bank as a whole, at an aggregate level, for the next year. To review and recommend to the Board for approval the talent management and succession policy and process in the Bank for ensuring business continuity, especially at the level of Managing Director and Chief Executive Ofﬁ cer (MD & CEO), the other Whole-time Directors, senior managers one level below the Board position and other key roles. iv. To review organisation health through feedback from employee surveys conducted on a regular basis. v. To review the Code of Conduct and HR strategy, policy and performance appraisal process within the Bank, as well as any fundamental changes in organisation structure which could have wide ranging or high risk implications. vi. To review and recommend to the Board for approval the creation of new positions at the level of Executive Director and above. vii. To review appointments, promotions and exits of senior managers one level below the Board position. viii. To set the goals, objectives and performance benchmarks for the Bank and for MD & CEO, the other Whole- time Directors and Executive Directors for the ﬁ nancial year and over the medium to long term. ix. x. To review the performance of the MD & CEO, other Whole-time Directors and Executive Directors at the end of each year. To recommend to the Board the remuneration package for the MD & CEO, the other Whole-time Directors and senior managers one level below the Board. xi. To recommend to the Board the compensation payable to the Chairman of the Bank. Meetings and Attendance during the year: 6 meetings of HR and Remuneration Committee were held during the year on 10th April 2012, 20th April 2012, 29th May 2012, 17th July 2012, 26th September 2012 and 15th January 2013. Smt. Rama Bijapurkar and Shri Prasad R. Menon attended all the six meetings. Shri K. N. Prithviraj attended ﬁ ve meetings. Dr. R. H. Patil (expired on 12th April 2012) could not attend one meeting for which he was eligible. The members of the Risk Management Committee were invited to attend the meeting of HR & Remuneration Committee held on 20th April 2012. Remuneration Policy The compensation philosophy of the Bank aims to attract, retain and motivate professionals in order to enable the Bank to attain its strategic objectives and develop a strong performance culture in the competitive environment in which it operates. To achieve this, the Bank follows the principles of competitiveness in talent market, pay for job through ﬁ xed pay, pay for performance to drive meritocracy through variable pay, Employee stock options for long-term value creation and aligning the beneﬁ ts and perquisites with market practices and affordability. The compensation structure for Managing Director & CEO, and Whole-Time Directors (WTDs) is aligned to RBI’s guidelines for sound compensation practices and addresses the general principles of effective and independent governance and monitoring of compensation, alignment of compensation with prudent risk-taking through well designed and consistent compensation structures and clear and timely disclosure to facilitate supervisory oversight by all stakeholders. 98 Remuneration of Directors i. Dr. Adarsh Kishore was appointed as Chairman of the Bank for a period of three years w.e.f. 8th March 2010. His term came to an end on 7th March 2013. The details of remuneration of Dr. Adarsh Kishore during the year under review are: Salary of `1,25,000 per month. The Bank has received approval of RBI, shareholders and of the Central Government under the provisions of Section 309(4) of the Companies Act, 1956 for payment of salary to Dr. Adarsh Kishore. Expenses for maintenance of ofﬁ ce `1,25,000 per month. Approval of the Board, Reserve Bank of India, the shareholders and the Central Government have been obtained for the same. ii. The Speciﬁ ed Undertaking of the Unit Trust of India had vide its letter dated 10th January 2013 nominated Dr. Sanjiv Misra as the Non-Executive Chairman of the Bank in place of Dr. Adarsh Kishore whose term ended on 7th March 2013. The Board of Directors of the Bank has at its meeting held on 16th January 2013, appointed him as an Additional Director and also subject to approval of Reserve Bank of India, Government of India, the shareholders and such other approvals to the extent required, appointed Dr. Sanjiv Misra as the Non-Executive Chairman of the Bank for a period of 3 years effective 8th March 2013. RBI vide its letter dated 6th March 2013 approved the appointment of Dr. Sanjiv Misra as the Non-Executive Chairman of the Bank as also for the payment of remuneration to him with effect from 8th March 2013. The following remuneration has been approved by Reserve Bank of India to be paid to Dr. Sanjiv Misra effective 8th March 2013: 1. Salary of `15 lacs per annum. 2. Expenses for maintenance of ofﬁ ce `1,25,000 per month. The Board has also approved providing a furnished ofﬁ ce including all equipments to Dr. Sanjiv Misra upto a total cost of `7.50 lacs (one-time expense). The Bank has received RBI approval for payment of remuneration to Dr. Sanjiv Misra and has applied to the Central Government for its approval under the provisions of Section 309(4) of the Companies Act, 1956, which is awaited. The approval of the shareholders is being sought in the ensuing Annual General Meeting to be held on 19th July 2013. iii. Smt. Shikha Sharma was re-appointed as the Managing Director & CEO of the Bank for a period of three years w.e.f. 1st June 2012. The approval of the shareholders to the appointment of Smt. Shikha Sharma as the Managing Director & CEO and payment of remuneration was obtained in the Annual General Meeting held on 22nd June 2012. The details of remuneration paid to Smt. Shikha Sharma during the year under review are given below in sub-para vii. Smt. Shikha Sharma was granted 1,00,000, 1,75,000, 2,00,000 and 2,00,000 options under the Employee Stock Option Plan Grant IX B (13th July 2009), Grant X (20th April 2010), Grant XI (22nd April 2011) and Grant XII (27th April 2012) respectively. From these tranches, 2,65,000 options were vested up to 31st March 2013 and 35,000 options have been exercised by Smt. Shikha Sharma till 31st March 2013. iv. Shri Somnath Sengupta was appointed as the Executive Director of the Bank and he took charge with effect from 15th October 2012. The term of Shri Somnath Sengupta is up to 31st May 2015, the last day of the month in which he reaches the age of superannuation. The approval of the shareholders to the appointment of Shri Somnath Sengupta as the Executive Director and payment of remuneration was obtained in the Annual General Meeting held on 22nd June 2012. The details of remuneration paid to Shri Somnath Sengupta during the year under review are given below in sub-para vii. Shri Somnath Sengupta was granted 4,03,880 options in total under various tranches under the Employee Stock Option Plan. All the above options were granted to him before he became Executive Director of the Bank. From these tranches, 2,31,380 options were vested out of which 1,34,621 options were exercised up to 31st March 2013 and 96,759 options were unexercised. 1,72,500 options were unvested as on 31st March 2013. 99 v. Shri V. Srinivasan was appointed as the Executive Director of the Bank and he took charge with effect from 15th October 2012. The term of Shri V. Srinivasan is for a period of three years i.e. up to 14th October 2015. The approval of the shareholders to the appointment of Shri V. Srinivasan as the Executive Director and payment of remuneration was obtained in the Annual General Meeting held on 22nd June 2012. The details of remuneration paid to Shri V. Srinivasan during the year under review are given below in sub-para vii. Shri V. Srinivasan was granted 2,90,000 options in total under various tranches under the Employee Stock Option Plan. All the above options were granted to him before he became Executive Director of the Bank. From these tranches, 1,17,500 options were vested out of which 22,500 options were exercised up to 31st March 2013 and 95,000 options were unexercised. 1,72,500 options were unvested as on 31st March 2013. vi. In accordance with the present regulations of RBI, the Bank does not grant ESOPs to Non-Executive Directors. vii. The details of remuneration paid to the Whole-time Directors during 2012-13 are as under: Smt. Shikha Sharma 1.4.2012 to 31.3.2013 1,54,98,000 10,00,000 Shri Somnath Sengupta 15.10.2012 to 31.3.2013 51,54,452 2,31,185 (In `) Shri V. Srinivasan 15.10.2012 to 31.3.2013 58,12,213 2,31,185 59,52,000 38,01,667 29,416 6,622 12% of basic pay with equal contribution by the Bank or as may be decided upon by the Board/Trustees from time to time One month’s salary for each completed year of service or part thereof 10% of Basic Pay p.a. - 32,36,940* 43,322 28,087 12% of basic pay with equal contribution by the Bank or as may be decided upon by the Board/Trustees from time to time One month’s salary for each completed year of service or part thereof (on pro-rata basis) 10% of Basic Pay p.a. - 41,51,280* 26,415 15,225 12% of basic pay with equal contribution by the Bank or as may be decided upon by the Board/Trustees from time to time One month’s salary for each completed year of service or part thereof (on pro-rata basis) 10% of Basic Pay p.a. For the Period Salary (Basic) Leave Fare Concession facility House Rent Allowance Variable pay Medical Utility Reimbursement Provident Fund Gratuity Superannuation Allowance * Pertains to FY11-12 which was paid to them prior to their appointment as Executive Directors effective 15.10.2012. Perquisites (evaluated as per Income Tax Rules, wherever applicable, or otherwise at actual cost to the Bank) such as the beneﬁ t of the Bank’s furnished accommodation, electricity, water and furnishings, club fees, personal accident insurance, loans, use of car and telephone at residence, medical reimbursement, travelling and halting allowances, newspapers and periodicals, and others were provided in accordance with the Rules of the Bank. viii. All Directors of the Bank, except for Smt. Shikha Sharma, Shri Somnath Sengupta and Shri V. Srinivasan, were paid sitting fees of `20,000 for every meeting of the Board and also for every meeting of the Committees attended by them. Reimbursement of expenses, if any, for travel to and from the places of their residence to the venue of the meeting, lodging and boarding when attending the meeting, being on actual basis, is made directly by the Bank to the service providers. During the year, sitting fees of `53,80,000 was paid to the Directors of the Bank. 100 Sitting Fees The details of sitting fees paid to the Directors during 2012-13 are as follows: Sr. No. Name of Director Dr. Adarsh Kishore 1. Smt. Rama Bijapurkar 2. Shri M. V. Subbiah 3. Shri K. N. Prithviraj 4. Shri V. R. Kaundinya 5. Shri S. B. Mathur 6. Shri Prasad R. Menon 7. Shri R. N. Bhattacharyya 8. Prof. Samir K. Barua 9. Shri A. K. Dasgupta 10. Shri Som Mittal 11. Smt. Ireena Vittal 12. TOTAL Sitting Fees (`) 5,00,000 3,80,000 20,000 8,80,000 4,60,000 8,00,000 6,20,000 5,40,000 6,00,000 2,80,000 2,00,000 1,00,000 53,80,000 None of the non-whole time Directors was holding any share of the Bank as on 31st March 2013. f) Nomination Committee The Nomination Committee of the Board of Directors functions with the following main objectives: i. ii. iii. iv. v. To undertake a process of due diligence to determine the suitability of any person for appointment/ continuing to hold appointment as a director on the Board, based upon qualiﬁ cation, expertise, track record, integrity and other ‘ﬁ t and proper’ criteria. To examine the vacancies that will come up at the Board on account of retirement or otherwise. To evaluate the skills that exist, and those that are absent but needed at the Board level, and search for appropriate candidates who have the proﬁ le to provide such skill sets. To create a recommendatory list of Directors for deliberation and decision-making at the Board-level. To review the composition of Committees of the Board, and identify and recommend to the Board, the Directors who can best serve as members of each Board Committee. Meetings and Attendance during the year: 5 meetings of Nomination Committee were held during the year on 20th April 2012, 29th August 2012, 3rd November 2012, 29th November 2012 and 15th January 2013. Shri S. B. Mathur and Smt. Rama Bijapurkar attended all the ﬁ ve meetings. Shri V. R. Kaundinya attended four meetings. g) Special Committee of the Board of Directors for Monitoring of Large Value Frauds The major functions of the Special Committee are to monitor and review all the frauds of `1 crore and above, so as to: i. Identify the systemic lacunae, if any, which facilitated perpetration of the fraud and put in place measures to plug the same. ii. Identify the reasons for delay, if any, in detection and reporting to top management of the Bank and RBI. iii. Monitor progress of CBI/Police investigation and recovery position. iv. v. Ensure that staff accountability is examined at all levels in all the cases of frauds and staff related action, if required, is completed quickly without loss of time. Review the efﬁ cacy of the remedial action taken to prevent recurrence of frauds, such as, strengthening of internal controls. vi. Put in place other measures as may be considered relevant to strengthen preventive measures against frauds. 101 Meetings and Attendance during the year: 3 meetings of Special Committee of the Board of Directors for Monitoring of Large Value Frauds were held during the year on 16th July 2012, 7th December 2012 and 15th March 2013. Smt. Shikha Sharma, Shri R. N. Bhattacharyya and Shri A. K. Dasgupta attended all the three meetings. Prof. Samir K. Barua attended two meetings. Shri V. R. Kaundinya attended one meeting. h) Customer Service Committee The Customer Service Committee of the Board of Directors functions with the following main objectives: i. ii. iii. iv. v. vi. Overseeing the functioning of the Bank’s internal committee set-up for customer service. To review the level of customer service in the Bank including customer complaints and the nature of their resolution. Provide guidance in improving the customer service level. Review any award by the Banking Ombudsman to any customer on a complaint ﬁ led with the Ombudsman. To ensure that the Bank provides and continues to provide, best-in-class service across all its category of customers which will help the Bank in protecting and growing its brand equity. The Committee could address the formulation of a Comprehensive Deposit Policy, incorporating the issues such as the treatment of death of a depositor for operations of his/her account, the product approval process, the annual survey of depositor satisfaction and the triennial audit of such services. vii. To examine any other issues having a bearing on the quality of customer service rendered. viii. To ensure implementation of directives received from RBI with respect to rendering services to customers of the Bank. Meetings and Attendance during the year: 4 meetings of the Customer Service Committee were held during the year on 22nd June 2012, 26th September 2012, 7th December 2012 and 8th February 2013. Dr. Adarsh Kishore, Smt. Shikha Sharma and Prof. Samir K. Barua attended all the four meetings. Smt. Ireena Vittal attended one meeting for which she was eligible. i) Committee of Whole-Time Directors The Committee of Whole-time Directors exercises powers delegated to it by the Board, for managing the affairs of the Bank, for review and efﬁ cient control of various operational areas such as treasury, branch banking etc., and for ensuring speedy disposal of matters requiring immediate approval. The Committee consists of all Whole-time Directors of the Bank. Meetings during the year: 6 meetings of the Committee of Whole-time Directors were held during the year on 29th October 2012, 22nd November 2012, 17th December 2012, 14th January 2013, 25th February 2013 and 25th March 2013. j) Acquisitions, Divestments and Mergers Committee The main function of the Committee is to discuss and consider any idea or proposal for merger and acquisition. This Committee will consider and give its in-principle approval in the matter and the proposal will then be placed before the Board of Directors for its ﬁ nal decision. Meetings and Attendance during the year: 4 meetings of Acquisitions, Divestments and Mergers Committee were held during the year on 24th April 2012, 27th April 2012, 26th September 2012 and 29th November 2012. Smt. Shikha Sharma, Shri K. N. Prithviraj and Shri Prasad R. Menon attended all the four meetings. Shri V. R. Kaundinya attended two meetings. Shri S. B. Mathur attended one meeting. Smt. Rama Bijapurkar could not attend any meeting. Shri V. R. Kaundinya also attended one meeting through tele-conference. 102 k) IT Strategy Committee The IT Strategy Committee functions with the following main objectives: i. ii. iii. iv. v. Approving IT strategy and policies. Ensuring that management has an effective strategic planning process in place. Ensuring that the business strategy is aligned with the IT strategy. Ensuring that the IT organizational structure serves business requirements and direction. Oversight over implementation of processes and practices that ensures IT delivers value to businesses. vi. Monitoring the method that management uses to determine the IT resources needed to achieve strategic goals and provide high-level direction for sourcing and use of IT resources. vii. Ensuring proper balance of IT investments for sustaining the Bank’s growth. viii. Assess exposure to IT risks and its controls and evaluating effectiveness of management’s monitoring of IT risks. ix. Assessing management’s performance in implementing IT strategies. x. Assessing if IT architecture has been designed to derive maximum business value. xi. Reviewing IT performance measurement and contribution to businesses. xii. Approving capital and revenue expenditure in respect of IT procurements. Meetings and Attendance during the year: 5 meetings of IT Strategy Committee were held during the year on 27th April 2012, 17th July 2012, 13th September 2012, 28th December 2012 and 22nd March 2013. Shri Som Mittal and Shri Prasad R. Menon attended all the ﬁ ve meetings. Smt. Shikha Sharma attended four meetings. Shri Somnath Sengupta attended one meeting for which he was eligible. 3. General Body Meetings: The last three Annual General Meetings were held as follows: Annual General Meeting Date and Day Time Location 16th 17th 18th 8.6.2010 - Tuesday 10.00 a.m. Bhaikaka Bhavan, Ellisbridge, Ahmedabad – 380 006 17.6.2011 - Friday 10.00 a.m. 22.06.2012 - Friday 10.00 a.m. J. B. Auditorium, Ahmedabad Management Association, AMA Complex, ATIRA, Dr. Vikram Sarabhai Marg, Ahmedabad – 380 015 J. B. Auditorium, Ahmedabad Management Association, AMA Complex, ATIRA, Dr. Vikram Sarabhai Marg, Ahmedabad – 380 015 103 The special resolutions passed during the last three Annual General Meetings/Postal Ballot were as under: Annual General Meeting Date of Annual General Meeting Special Resolutions 16th 8.6.2010 • Resolution No. 5 - Appointment of Statutory Auditors under Section 224A of the Companies Act, 1956. • Resolution No. 14 - Approval of the shareholders of the Bank pursuant to Section 81 of the Companies Act, 1956 authorising the Board of Directors of the Bank to issue, offer and allot equity stock options under the Employees Stock Option Scheme of the Bank. • Resolution No. 15 - Approval of the shareholders of the Bank pursuant to Section 81(1A) of the Companies Act, 1956 authorising the Board of Directors of the Bank to create, offer, issue and allot equity stock options to the permanent employees of the subsidiaries of the Bank, present and future, including any Director of the Subsidiary Companies, under the Employees Stock Option Scheme of the Bank. 17th 18th 17.6.2011 • Resolution No. 5 - Appointment of Statutory Auditors under Section 224A of the Companies Act, 1956. 22.6.2012 • Resolution No. 5 - Appointment of Statutory Auditors under Section 224A of the Companies Act, 1956. Resolution passed through Postal Ballot Date of Scrutinizer’s Report - 28.1.2013 • Special Resolution for alteration of articles relating to increase in authorised share capital from `500 crores to `850 crores*. • Special Resolution for raising of Tier I capital**. * A total of 3,963 number of valid ballots were received and 99.17% of votes were cast in favour of the resolution and 0.83% against the resolution. ** A total of 3,884 number of valid ballots were received and 98.83% of votes were cast in favour of the resolution and 1.17% against the resolution. The Bank had provided the members e-voting facility in respect of the above resolution passed through postal ballot. No Resolution in the notice of the proposed Nineteenth Annual General Meeting is proposed to be passed by Postal Ballot. 4. Dividend History of Last Five Years Sr. No. Financial Year Rate of Dividend i. ii. iii. iv. v. 2007-08 2008-09 2009-10 2010-11 2011-12 Unclaimed Dividends: 60% (`6.00 per share) 100% (`10.00 per share) 120% (`12.00 per share) 140% (`14.00 per share) 160% (`16.00 per share) Date of Declaration (AGM) Date of Payment (Date of Dividend Warrant) 6.6.2008 1.6.2009 8.6.2010 17.6.2011 22.6.2012 7.6.2008 2.6.2009 9.6.2010 18.6.2011 23.6.2012 All shareholders whose dividends are unpaid have been intimated individually to claim their dividends. Under the Transfer of Unclaimed Dividend Rules, it would not be possible to claim the dividend amount once deposited in Investors’ Education & Protection Fund (IEPF). Shareholders are, therefore, again requested to claim their unpaid dividend, if not already claimed. 104 Transfer to Investor Protection Fund: Pursuant to Section 205C of the Companies Act, 1956, dividends that are unclaimed for a period of seven years are transferred to the Investors’ Education and Protection Fund administered by the Central Government. Listed in the table below are the dates of dividend declaration since 2005-06 and the corresponding dates when unclaimed dividends are due to be transferred to the Central Government. Year 2005-06 2006-07 2007-08 2008-09 2009-10 2010-11 2011-12 5. Disclosures Dividend-Type Date of Declaration Due Date of Transfer Final Final Final Final Final Final Final 2.6.2006 1.6.2007 6.6.2008 1.6.2009 8.6.2010 17.6.2011 22.6.2012 2.7.2013 1.7.2014 6.7.2015 1.7.2016 8.7.2017 17.7.2018 22.7.2019 • • There were no transactions of a material nature undertaken by the Bank with its promoters, directors or the management, their subsidiaries or relatives that may have a potential conﬂ ict with the interests of the Bank. There are no instances of non-compliance by the Bank, penalties and strictures imposed by Stock Exchanges and SEBI/other statutory authorities on any matter related to capital markets during the last three years other than the following: i. A penalty of `2 lacs was imposed by SEBI vide its adjudication order dated 10th March 2011. It was passed with respect to the Debenture Trustee activity carried out by the Bank. The Bank had ﬁ led an appeal against the said order with the Securities Appellate Tribunal. After taking note of the responses and submissions made by the Bank and on the background that there was no loss caused to any Investor, the Hon’ble Tribunal dismissed the appeal by upholding the Adjudication Ofﬁ cer’s Order with a special mention that the breaches of SEBI Regulations did not appear to be intentional and lenient view needs to be taken. The Bank has since paid the penalty as directed by SEBI. ii. SEBI has conveyed to the Bank its displeasure in not exercising the required level of diligence in preventing certain errors during the IPO of Orient Green Power Company Limited wherein the Bank had acted as a merchant banker. iii. During the buyback of shares by India Infoline Limited, wherein the Bank acted as a merchant banker, SEBI has warned the Bank to be more careful in exercising due diligence while drafting public announcements in future. iv. v. vi. During the current ﬁ nancial year 2012-13, there are 2 instances wherein penalty of `150/- and `50/- was imposed by National Securities Depository Limited (NSDL) on the Bank for data entry errors while capturing PAN details in demat accounts in NSDL system. The inspection of depository services (CDSL & NSDL) was conducted by Securities and Exchange Board of India (SEBI) in June, 2012. Subsequently, SEBI vide their letter dated 6th November 2012 has issued administrative warning to the Bank for delay in redressal of investor grievances and for submitting wrong information in reply to pre-inspection questionnaire. SEBI (through its Adjudicating Ofﬁ cer) vide its letter reference no. EAD-5/PG/SPV/22106/2012 dated 3rd October 2012 had issued notice to the Bank informing that the Adjudicating Ofﬁ cer has been appointed to inquire into and adjudge under Sections 15G and 15HB of the SEBI Act, the alleged violation of various provisions of SEBI (Prohibition of Insider Trading) Regulations, 1992, SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997, the SEBI (Merchant Bankers) Regulations, 1992, while acting as the 105 Manager to the open offers of KSK Energy Ventures Limited and Bombay Rayon Fashions Limited. The Bank has submitted its preliminary response to the Show cause Notice on 11th January 2013, wherein it has refuted the various violation charges levelled against it. In the personal hearing held on 5th February 2013, the Bank has once again reiterated its above stand. The adjudicating ofﬁ cer vide order dated 28th March 2013 indicated that no charges were established under SEBI (Substantial Acquisition of Shares and Takeovers) Regulations, 1997. No penalty was levied on the Bank. vii. National Securities Clearing Corporation Limited (NSCCL) has levied a penalty of `40,507.81 in September 2012 on account of short reporting of margin in currency segment of NSE. • Whistleblower Policy: A central tenet in the Bank’s Policy on Corporate Governance is commitment to ethics, integrity, accountability and transparency. To ensure that the highest standards are maintained in these aspects on an on-going basis and to provide safeguards to various stakeholders (including shareholders, depositors and employees) the Bank has formulated a ‘Whistleblower Policy’. The Policy provides employees with the opportunity to address serious concerns arising from irregularities, malpractices and other misdemeanours committed by the Bank’s personnel by approaching a Committee set-up for the purpose (known as the Whistleblower Committee). In case senior management commits the offences, the Policy enables the Bank’s staff to report the concerns directly to the Audit Committee of the Board. The Policy is intended to encourage employees to report suspected or actual occurrence of illegal, unethical or inappropriate actions, behaviour or practices by staff without fear of retribution. The employees use this Policy regularly as a tool to voice their concerns on irregularities, malpractices and other misdemeanours. To ensure smooth ﬂ ow and management of complaints under Whistleblower policy, a new web-based application - ‘Corporate Whistleblower’ has been set up which also provides an option for anonymous reporting thereby enabling the employees to lodge their complaints online over a secure platform without fear of revelation of identity. This would create a business culture of honesty, integrity and compliance and would encourage employees to speak up so that preventive action is initiated. It is hereby afﬁ rmed that the Bank has not denied personal access to the Audit Committee of the Board and that the Policy contains provisions protecting Whistleblowers from unfair termination and other unfair prejudicial and employment practice. The Whistleblower Policy is required to be reviewed by the Audit Committee of the Board. • The Bank has complied with the mandatory requirements regarding the Board of Directors, Audit Committee and other Board Committees and other disclosures as required under the provisions of Clause 49 of the Listing Agreement. The Bank has also complied with non-mandatory requirements like formation of HR & Remuneration Committee and Nomination Committee, sending half-yearly results to each shareholder, the performance evaluation of all Directors under ‘Fit & Proper’ Criteria laid down by RBI, unqualiﬁ ed ﬁ nancial statements and establishment of a Whistleblower Policy. 6. Means of Communication • • • • • Quarterly/Half-yearly results are communicated through newspaper advertisements, press releases and by posting information on the Bank’s web site. Also, Half-yearly results are generally forwarded to each shareholder through post and also by email along with a letter from the Managing Director & CEO. The results are generally published in the Economic Times and Gujarat Samachar or Sandesh or Divya Bhaskar. Address of our ofﬁ cial website is www.axisbank.com where the information is displayed. Generally, after the half-yearly and the annual results are approved by the Board, formal presentations are made to analysts by the management and the same is also placed on the Bank’s website. The Management’s Discussion and Analysis Report for the year 2012-13 is part of the Annual Report. 7. General Shareholder Information • AGM: Date, time and venue - 19th July 2013 – 10.00 A.M. At J. B. Auditorium Ahmedabad Management Association AMA Complex, ATIRA, Dr. Vikram Sarabhai Marg, Ahmedabad – 380 015. 106 • Financial Year/Calendar - 1st April 2013 to 31st March 2014. The meetings to consider quarterly results for the quarter ending June 2013, September 2013 and December 2013 are proposed to be held during second half of July 2013, October 2013 and January 2014. The meeting to consider audited annual accounts and Q4 results is proposed to be held during the second half of April 2014. • Date of Book Closure - 9th July 2013 to 19th July 2013 (both days inclusive) The Dividend would be paid to the shareholders whose names stand on the Register of Members on the close of business hours of 8th July 2013. • Dividend Payment Date - The despatch of the dividend warrants/ECS credit would commence on 20th July 2013 and is expected to be completed on or before 26th July 2013. • The Bank’s shares are listed on the following Stock Exchanges: i. ii. The BSE Limited, P. J. Towers, Dalal Street, Mumbai – 400 001. The National Stock Exchange of India Limited, Exchange Plaza, Plot No. C/1, “G” Block, Bandra-Kurla Complex, Bandra (East), Mumbai – 400 051. • The Bank’s Global Depositary Receipts (GDRs) are listed and traded on the London Stock Exchange, 10 Paternoster Square, London EC4M 7LS, UK. • Listing of equity shares/GDRs on Stock Exchanges (with stock code): Name of Stock Exchange The BSE Limited The National Stock Exchange of India Limited London Stock Exchange Stock Code 532215 AXISBANK AXB The annual fees for ﬁ nancial year 2013-14 have been paid to all the Stock Exchanges where the shares are listed. ISIN for equity shares Name of Depositories : : INE 238A01026 i. National Securities Depository Limited ii. Central Depository Services (India) Limited US05462W1099 ISIN for GDRs : • Market Price Data: The price of the Bank’s Share - High, Low during each month in the last ﬁ nancial year on NSE was as under: MONTH April 2012 May 2012 June 2012 July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 January 2013 February 2013 March 2013 HIGH (`) 1,226.50 1,127.65 1,072.00 1,081.40 1,122.00 1,174.50 1,246.15 1,324.60 1,379.00 1,516.05 1,515.00 1,427.70 LOW (`) 1,076.15 922.00 944.10 991.70 988.55 927.25 1,008.50 1,177.00 1,304.50 1,343.05 1,333.95 1,277.05 107 • The Bank’s share price has moved in accordance with the movement of NIFTY. It touched a high of `1,516.05 in January 2013 and low of `922.00 in May 2012 on the National Stock Exchange. Performance in comparison to NIFTY 1,600 1,400 1,200 1,000 800 600 400 200 - 7,000 6,000 5,000 4,000 3,000 2,000 1,000 - NIFTY Axis Bank Apr-12 M ay-12 Jun-12 Jul-12 Aug-12 Sep-12 Oct-12 Nov-12 Dec-12 Jan-13 Feb-13 M ar-13 • The high and low closing prices of the Bank’s GDRs traded during the last ﬁ nancial year on the London Stock Exchange are given below: MONTH April 2012 May 2012 June 2012 July 2012 August 2012 September 2012 October 2012 November 2012 December 2012 January 2013 February 2013 March 2013 HIGH (USD) LOW (USD) 23.89 21.29 19.72 19.53 21.25 21.80 23.66 24.81 26.08 28.78 28.67 26.55 20.40 16.82 16.97 18.00 17.90 16.65 20.40 21.66 23.31 24.10 24.63 23.35 • Registrar and Share Transfer Agents: M/s. Karvy Computershare Private Limited Unit : Axis Bank Limited Plot No. 17 to 24, Vittalrao Nagar Madhapur, Hyderabad – 500 081 Phone No. 040-23420815 to 23420824 Fax No. 040-23420814 Email: einward.ris@karvy.com Contact Persons: Shri V. K. Jayaraman, GM (RIS)/Ms. Varalakshmi, Sr. Manager (RIS) 108 • Share Transfer System A Share Committee consisting of President (Law) and the Company Secretary of the Bank has been formed to look after the matters relating to the transfer of shares, issue of duplicate share certiﬁ cates in lieu of mutilated share certiﬁ cates, and other related matters. The resolutions passed by the Share Committee are conﬁ rmed at subsequent Board meetings. The Bank’s Registrar and Share Transfer Agents, M/s Karvy Computershare Private Limited, Hyderabad looks after the work relating to transfers. The Bank ensures that all transfers are effected within a period of 15 days from the date of their lodgement. The equity shares of the Bank are to be compulsorily traded in Demat form by all investors. The Bank has entered into agreements with the National Securities Depository Limited (NSDL) and the Central Depository Services (India) Limited (CDSL) so as to provide the members an opportunity to hold and trade shares of the Bank in electronic form. The number of equity shares of Axis Bank transferred/processed during the last three years (excluding electronic transfer of shares in dematerialised form) is given below: Number of transfer deeds Number of shares transferred 2010-11 623 42,200 2011-12 421 32,601 2012-13 324 18,100 As required under Clause 47(c) of the listing agreement, a practicing Company Secretary has examined the records relating to share transfer deeds, memorandum of transfers, registers, ﬁ les and other related documents on a half- yearly basis and has certiﬁ ed compliance with the provisions of the above clause of the listing agreement. The certiﬁ cates are forwarded to BSE and NSE where the Bank’s equity shares are listed and also placed before the Shareholders/Investors Grievance Committee. As required by SEBI, a Share Capital Audit is conducted on a quarterly basis by a practicing Company Secretary, for the purpose of, inter alia, reconciliation of the total admitted equity share capital with the depositories and in the physical form with the total issued/paid-up equity capital of Axis Bank Limited. Certiﬁ cates issued in this regard are placed before the Shareholders/Investors Grievance Committee and forwarded to BSE and NSE, where the equity shares of Axis Bank Limited are listed. Shareholders of Axis Bank with more than one per cent holding at 31 st March 2013 Name of Shareholder No. of Shares % to total No. of shares Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (SUUTI) Life Insurance Corporation of India* The Bank of New York Mellon – as depositary for the equity shares representing the underlying shares to the Global Depositary Receipts (GDRs) issued to the investors overseas 9,72,24,373 4,33,35,460 3,81,91,452 Europaciﬁ c Growth Fund 1,75,68,985 HSBC Bank (Mauritius) Limited A/C Cinnamon Capital Limited 1,68,60,155 Genesis Indian Investment Company Limited - General Sub Fund ICICI Prudential Life Insurance Company Limited General Insurance Corporation of India American Funds Insurance Series International Fund Centaura Investments (Mauritius) Pte Ltd 87,16,992 81,92,627 78,21,990 49,61,634 48,03,544 20.78 9.26 8.16 3.75 3.60 1.86 1.75 1.67 1.06 1.03 * As per Benpos dated 31st March 2013, save and except 4,33,35,460 shares equivalent to 9.26% of the total paid up capital of the Bank held by LIC, all other holdings are not considered for arriving at the Promoter’s shareholding. 109 • Distribution of shareholding as on 31st March 2013 Total nominal value ` Nominal value of each equity share ` Total number of equity shares Distinctive numbers : : : : Shareholding of Nominal Value Shareholders ` Up to 5,001 10,001 20,001 30,001 40,001 50,001 100,001 Total ` Numbers 5,000 10,000 20,000 30,000 40,000 50,000 100,000 Above 1,52,233 3,686 1,483 504 241 176 402 986 1,59,711 % to total Shareholders 95.32 2.31 0.93 0.31 0.15 0.11 0.25 0.62 100.00 4,67,95,44,680 10 46,79,54,468 1 to 46,79,54,468 Share Amount Nominal Value In ` % to total Capital 10,31,21,190 2,69,99,480 2,14,53,260 1,25,97,330 84,61,320 80,24,870 2,85,50,710 4,47,03,36,520 4,67,95,44,680 2.20 0.58 0.46 0.27 0.18 0.17 0.61 95.53 100.00 As on 31st March 2013, out of total equity shares of the Bank, 46,41,25,455 shares representing 99.18% of the total shares have been dematerialised. The Bank has issued in the course of international offerings to the investors overseas, securities linked to ordinary shares in the form of Global Depositary Receipts (GDRs) during March/April 2005, July 2007 and September 2009 and the GDRs have been listed and traded on the London Stock Exchange. The Bank has simultaneously issued the underlying shares to the Global Depositary Receipts (GDRs) to the investors overseas. The underlying equity shares have been listed and permitted to be traded on the NSE and BSE. The number of outstanding GDRs as on 31st March, 2013 were 3,81,91,452. The Bank has not issued any ADRs/Warrants or any other convertible instruments, the conversion of which will have an impact on equity shares. Branch Locations – Given elsewhere Address for Correspondence: • • • • The Company Secretary Axis Bank Limited Registered Ofﬁ ce ‘Trishul’, 3rd Floor, Opp. Samartheshwar Temple, Law Garden, Ellisbridge, Ahmedabad – 380 006 Phone No. : : Fax No. : Email 079-26409322 079-26409321 p.oza@axisbank.com/sanjeev.kapoor@axisbank.com/rajendra.swaminarayan@axisbank.com Compliance with the Code of Conduct - FY 2012-13 I conﬁ rm that for the year under review all Directors and members of the Senior Management have afﬁ rmed compliance with the Code of Conduct of the Bank. Shikha Sharma Managing Director & CEO 24th April 2013 110 AXIS BANK LIMITED GROUP - AUDITORS’ REPORT INDEPENDENT AUDITORS’ REPORT TO THE BOARD OF DIRECTORS OF AXIS BANK LIMITED Report on the Consolidated Financial Statements We have audited the accompanying consolidated ﬁ nancial statements of AXIS BANK LIMITED (“the Bank”), its subsidiaries (the Bank and its subsidiaries constitute “the group”), which comprise the Consolidated Balance Sheet as at 31 March, 2013, the Consolidated Proﬁ t and Loss Account and the Consolidated Cash Flow Statement for the year then ended and a summary of the signiﬁ cant accounting policies and other explanatory information. Management’s Responsibility for the Consolidated Financial Statements The Bank’s Management is responsible for the preparation of these consolidated ﬁ nancial statements that give a true and fair view of the consolidated ﬁ nancial position, consolidated ﬁ nancial performance and consolidated cash ﬂ ows of the Group in accordance with the accounting principles generally accepted in India. This responsibility includes the design, implementation and maintenance of internal controls relevant to the preparation and presentation of the consolidated ﬁ nancial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. Auditors’ Responsibility Our responsibility is to express an opinion on these consolidated ﬁ nancial statements based on our audit. We conducted our audit in accordance with the Standards on Auditing issued by the Institute of Chartered Accountants of India. Those Standards require that we comply with the ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the consolidated ﬁ nancial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures in the consolidated ﬁ nancial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the consolidated ﬁ nancial statements, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control relevant to the Bank’s preparation and presentation of the consolidated ﬁ nancial statements that give a true and fair view in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Bank’s internal control. An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of the accounting estimates made by the Management, as well as evaluating the overall presentation of the consolidated ﬁ nancial statements. We believe that the audit evidence we have obtained is sufﬁ cient and appropriate to provide a basis for our audit opinion. Opinion In our opinion and to the best of our information and according to the explanations given to us, the aforesaid consolidated ﬁ nancial statements give a true and fair view in conformity with the accounting principles generally accepted in India: (a) (b) (c) Other Matter We did not audit the ﬁ nancial statements of 9 subsidiaries, whose ﬁ nancial statements reﬂ ect total assets (net) of `431.71 crores as at 31 March, 2013, total revenues of `294.56 crores and net cash ﬂ ows amounting to `64.65 crores for the year ended on that date, as considered in the consolidated ﬁ nancial statements. The consolidated ﬁ nancial statements also include the Group’s share of net proﬁ t of `1.22 crores for the year ended 31 March, 2013, as considered in the consolidated ﬁ nancial statements, in respect of an associate, whose ﬁ nancial statements have not been audited by us. These ﬁ nancial statements have been audited by other auditors whose reports have been furnished to us by the Management and our opinion, in so far as it relates to the amounts and disclosures included in respect of these subsidiaries and associates, is based solely on the reports of the other auditors. Our report is not qualiﬁ ed in respect of this matter. in the case of the Consolidated Balance Sheet, of the state of affairs of the Group as at 31 March, 2013; in the case of the Consolidated Proﬁ t and Loss Account, of the proﬁ t of the Group for the year ended on that date; and in the case of the Consolidated Cash Flow Statement, of the cash ﬂ ows of the Group for the year ended on that date. For DELOITTE HASKINS & SELLS Chartered Accountants (Registration No: 117365W) Z. F. Billimoria Partner (Membership No. 42791) Date : 24th April, 2013 Place: Mumbai 111 AXIS BANK LIMITED GROUP - BALANCE SHEET CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) Schedule No. CAPITAL AND LIABILITIES Capital Reserves & Surplus Minority Interest Deposits Borrowings Other Liabilities and Provisions TOTAL ASSETS Cash and Balances with Reserve Bank of India Balances with Banks and Money at Call and Short Notice Investments Advances Fixed Assets Other Assets TOTAL Contingent Liabilities Bills for Collection 1 2 2A 3 4 5 6 7 8 9 10 11 4,679,545 4,132,039 326,904,199 222,685,105 125,337 - 2,521,491,177 2,199,876,805 441,050,984 340,716,721 111,326,074 86,754,428 3,405,577,316 2,854,165,098 147,921,100 107,029,222 57,078,130 32,313,084 1,133,780,559 929,214,413 1,969,901,405 1,697,595,386 23,873,291 22,841,378 73,022,831 65,171,615 3,405,577,316 2,854,165,098 12 5,481,234,674 4,802,382,789 278,948,780 346,346,043 Signiﬁ cant Accounting Policies and Notes to Accounts 17 & 18 Schedules referred to above form an integral part of the Consolidated Balance Sheet In terms of our report attached. For Axis Bank Ltd. For Deloitte Haskins & Sells Chartered Accountants Sanjiv Misra Chairman Z. F. Billimoria Partner K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 112 AXIS BANK LIMITED GROUP - PROFIT & LOSS ACCOUNT CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2013 Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) Schedule No. I II INCOME Interest earned Other income TOTAL EXPENDITURE Interest expended Operating expenses Provisions and contingencies TOTAL III NET PROFIT FOR THE YEAR Minority interest Share in Proﬁ t/(Loss) of Associate 13 14 15 16 18 (2.1.1) IV CONSOLIDATED NET PROFIT ATTRIBUTABLE TO GROUP Balance in Proﬁ t & Loss Account brought forward from previous year Proﬁ t of business acquired under demerger V AMOUNT AVAILABLE FOR APPROPRIATION VI APPROPRIATIONS : 18.1a Transfer to Statutory Reserve Transfer to Reserve Fund u/s 45 IC of RBI Act, 1934 Transfer to Investment Reserve Transfer to Capital Reserve Transfer to General Reserve Transfer to Reserve Fund Proposed dividend (includes tax on dividend) Balance in Proﬁ t & Loss Account carried forward TOTAL 18 (2.1.6) 272,019,752 68,328,045 340,347,797 175,133,879 71,405,164 41,470,830 288,009,873 52,337,924 (2,473) 12,193 52,347,644 72,004,480 1,123,298 125,475,422 12,948,583 81,100 534,571 1,414,579 141,678 26,084 9,874,798 100,454,029 125,475,422 VII EARNINGS PER EQUITY SHARE 18 (2.1.4) (Face value `10/- per share) (Rupees) Basic Diluted Signiﬁ cant Accounting Policies and Notes to Accounts Schedules referred to above form an integral part of the Consolidated Proﬁ t and Loss Account 17 & 18 120.95 120.12 219,948,991 54,871,922 274,820,913 139,691,770 60,998,947 31,945,090 232,635,807 42,185,106 - 12,683 42,197,789 48,644,522 - 90,842,311 10,605,513 - - 519,047 10,721 - 7,702,550 72,004,480 90,842,311 102.40 101.66 In terms of our report attached. For Deloitte Haskins & Sells Chartered Accountants For Axis Bank Ltd. Sanjiv Misra Chairman Z. F. Billimoria Partner K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 113 AXIS BANK LIMITED GROUP - CASH FLOW STATEMENT CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2013 Cash ﬂ ow from operating activities Net proﬁ t before taxes Adjustments for: Depreciation on ﬁ xed assets Depreciation on investments Amortisation of premium on Held to Maturity investments Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) 76,243,422 62,699,932 3,587,667 3,481,517 (982,186) 674,599 580,985 627,967 Provision for Non Performing Assets (including bad debts) 11,791,902 8,604,298 Provision on standard assets Provision for wealth tax (Proﬁ t)/loss on sale of ﬁ xed assets (net) Provision for country risk Provision for restructured assets Provision for other contingencies Adjustments for: (Increase)/Decrease in investments (Increase)/Decrease in advances Increase/(Decrease) in deposits (Increase)/Decrease in other assets Increase/(Decrease) in other liabilities & provisions Direct taxes paid Net cash ﬂ ow from operating activities Cash ﬂ ow from investing activities 1,966,379 1,503,036 3,800 44,308 (96,300) 1,039,492 3,600 (191,093) 48,100 888,600 3,839,773 (198,354) 98,112,856 78,048,588 (94,626,080) (165,820,597) (284,638,942) (282,226,283) 321,779,561 308,212,491 (2,927,589) (15,613,749) 14,693,370 1,790,934 (26,659,402) (23,434,170) 25,733,774 (99,042,786) Purchase of ﬁ xed assets (4,838,186) (3,965,641) (Increase)/Decrease in Held to Maturity investments (108,709,212) (47,204,626) Proceeds from sale of ﬁ xed assets Net cash used in investing activities 226,674 763,001 (113,320,724) (50,407,266) 114 CONSOLIDATED CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH, 2013 Cash ﬂ ow from ﬁ nancing activities Proceeds from issue of subordinated debt, perpetual debt & upper Tier II instruments (net of repayment) Increase/(Decrease) in borrowings (excluding subordinated debt, perpetual debt & upper Tier II instruments) Proceeds from issue of share capital Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) 19,654,731 35,808,360 80,679,532 42,229,537 426,605 26,581 Proceeds from share premium (net of share issue expenses) 56,329,659 1,336,820 Payment of dividend Increase in minority interest (7,901,877) (6,699,437) 125,337 - Net cash generated from ﬁ nancing activities 149,313,987 72,701,861 Effect of exchange ﬂ uctuation translation reserve 1,677,300 2,003,938 Net cash and cash equivalents on business acquired under demerger 2,252,587 - Net increase in cash and cash equivalents 65,656,924 (74,744,253) Cash and cash equivalents at the beginning of the year 139,342,306 214,086,559 Cash and cash equivalents at the end of the year 204,999,230 139,342,306 Note : 1. Cash and cash equivalents comprise of cash on hand (including foreign currency notes), balances with Reserve Bank of India, balances with banks and money at call & short notice (Refer Schedules 6 and 7 of the Balance Sheet). In terms of our report attached. For Axis Bank Ltd. For Deloitte Haskins & Sells Chartered Accountants Sanjiv Misra Chairman Z. F. Billimoria Partner K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 115 AXIS BANK LIMITED GROUP - SCHEDULES SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 1 - CAPITAL Authorised Capital 850,000,000 (Previous year - 500,000,000) Equity Shares of `10/- each Issued, Subscribed and Paid-up capital 467,954,468 (Previous year - 413,203,952) Equity Shares of `10/- each fully paid- up [Refer Schedule 18.1b] SCHEDULE 2 - RESERVES AND SURPLUS I. II. Statutory Reserve Opening Balance Additions during the year Share Premium Account Opening Balance Additions during the year Less: Share issue expenses III. Investment Reserve Account Opening Balance Additions during the year IV. General Reserve Opening Balance Additions during the year V. Capital Reserve Opening Balance Additions during the year [Refer Schedule 18.1a] VI. Foreign Currency Translation Reserve [Refer Schedule 17 (4.5)] Opening Balance Additions during the year VII. Reserve Fund Opening Balance Additions during the year [Refer Schedule 18.1c] VIII. Reserve Fund u/s 45 IC of RBI Act, 1934 Opening Balance Additions during the year IX. Balance in Proﬁ t & Loss Account TOTAL 116 As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 8,500,000 5,000,000 4,679,545 4,132,039 38,425,863 12,948,583 51,374,446 27,820,350 10,605,513 38,425,863 101,387,610 56,626,088 (296,429) 157,717,269 100,050,790 1,336,820 - 101,387,610 - 534,571 534,571 3,564,817 141,678 3,706,495 5,424,982 4,035,182 9,460,164 1,877,353 1,672,688 3,550,041 - 26,084 26,084 - - - 3,545,596 19,221 3,564,817 4,905,935 519,047 5,424,982 (126,585) 2,003,938 1,877,353 - - - - 81,100 81,100 100,454,029 326,904,199 - - - 72,004,480 222,685,105 SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 2A - MINORITY INTEREST I. Minority Interest Opening Balance Increase during the year Closing Minority Interest SCHEDULE 3 - DEPOSITS A. I. Demand Deposits (i) From banks (ii) From others II. Savings Bank Deposits III. Term Deposits (i) From banks (ii) From others TOTAL B. I. Deposits of branches in India II. Deposits of branches outside India TOTAL SCHEDULE 4 - BORROWINGS I. Borrowings in India (i) Reserve Bank of India (ii) Other banks # (iii) Other institutions & agencies ** II. Borrowings outside India $ TOTAL Secured borrowings included in I & II above As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) - 125,337 125,337 - - - 29,255,626 20,980,835 452,753,586 376,461,674 637,777,349 516,679,577 151,218,877 100,943,739 1,250,485,739 1,184,810,980 2,521,491,177 2,199,876,805 2,382,248,378 2,093,329,640 139,242,799 106,547,165 2,521,491,177 2,199,876,805 - 22,367,200 1,150,000 4,472,000 145,625,033 121,210,990 273,058,751 213,883,731 441,050,984 340,716,721 - - # Borrowings from other banks include Subordinated Debt of `557.60 crores (previous year `359.60 crores) in the nature of Non-Convertible Debentures, Perpetual Debt of Nil (previous year Nil) and Upper Tier II instruments of `59.10 crores (previous year `59.10 crores) [Also refer Notes 18 (2.1.2) & 18 (2.1.3)] ** Borrowings from other institutions & agencies include Subordinated Debt of `10,071.70 crores (previous year `8,391.70 crores) in the nature of Non-Convertible Debentures, Perpetual Debt of `214.00 crores (previous year `214.00 crores) and Upper Tier II instruments of `248.40 crores (previous year `248.40 crores) [Also refer Notes 18 (2.1.2) & 18 (2.1.3)] $ Borrowings outside India include Perpetual Debt of `249.71 crores (previous year `234.03 crores) and Upper Tier II instruments of `1,139.03 crores (previous year `1,067.24 crores) [Also refer Note 18 (2.1.3)] 117 SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 5 - OTHER LIABILITIES AND PROVISIONS I. II. Bills payable Inter-ofﬁ ce adjustments (net) III. Interest accrued IV. Proposed dividend (includes tax on dividend) V. Contingent provision against standard assets VI. Others (including provisions) TOTAL SCHEDULE 6 - CASH AND BALANCES WITH RESERVE BANK OF INDIA As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 35,288,164 30,853,220 - - 8,343,254 6,478,322 9,852,151 7,681,950 9,766,994 7,799,683 48,075,511 33,941,253 111,326,074 86,754,428 Cash in hand (including foreign currency notes) 40,539,059 35,957,450 I. II. Balances with Reserve Bank of India : (i) in Current Account (ii) in Other Accounts TOTAL SCHEDULE 7 - BALANCES WITH BANKS AND MONEY AT CALL AND SHORT NOTICE I. In India (i) Balance with Banks (a) in Current Accounts (b) in Other Deposit Accounts (ii) Money at Call and Short Notice (a) With banks (b) With other institutions TOTAL II. Outside India (i) in Current Accounts (ii) in Other Deposit Accounts (iii) Money at Call & Short Notice TOTAL GRAND TOTAL (I+II) 118 107,382,041 71,071,772 - - 147,921,100 107,029,222 3,473,308 3,516,323 9,853,149 6,146,450 - - - - 13,326,457 9,662,773 11,608,466 7,669,498 13,474,234 3,845,538 18,668,973 11,135,275 43,751,673 22,650,311 57,078,130 32,313,084 SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 8 - INVESTMENTS I. Investments in India in - (i) Government Securities ## ** (ii) Other approved securities (iii) Shares (iv) Debentures and Bonds (v) Investment in Joint Ventures $ As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 722,498,592 584,162,116 - - 7,549,074 7,399,921 260,744,089 231,507,877 367,217 355,024 (vi) Others (Mutual Fund units, CD/CP, NABARD deposits, PTC etc.) @ 133,809,991 98,516,571 Total Investments in India II. Investments outside India in - 1,124,968,963 921,941,509 (i) Government Securities (including local authorities) 2,683,274 1,170,306 (ii) Subsidiaries and/or joint ventures abroad (amount less than `1,000 for previous year) [Refer Schedule 17.2b] (iii) Others Total Investments outside India GRAND TOTAL (I+II) 29,978 - 6,098,344 6,102,598 8,811,596 7,272,904 1,133,780,559 929,214,413 ## ** $ Includes securities costing `4,766.66 crores (previous year `4,427.15 crores) pledged for availment of fund transfer facility, clearing facility and margin requirements. Inclusive of Repo Lending of `7,350.00 crores (previous year `3,675.00 crores) and net of Repo borrowing of NIL (previous year `3,140.76 crores) under the Liquidity Adjustment Facility in line with the RBI requirements. Represents investment accounted as an Associate in line with AS-23, Accounting for Investments in Associates in Consolidated Financial Statements, as notiﬁ ed under the Companies (Accounting Standards) Rules, 2006 [Refer Schedule 17.2d]. @ Includes priority sector shortfall deposits `6,980.42 crores (previous year `5,100.53 crores) and PTC’s `1,471.03 crores (previous year `204.67 crores) net of depreciation, if any. 119 SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 9 - ADVANCES A. (i) Bills purchased and discounted * 56,079,021 39,089,332 (ii) Cash credits, overdrafts and loans repayable on demand @ 546,679,115 468,608,528 As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) (iii) Term loans # TOTAL B. (i) Secured by tangible assets $ (ii) Covered by Bank/Government Guarantees && (iii) Unsecured TOTAL C. I. Advances in India (i) Priority Sector (ii) Public Sector (iii) Banks (iv) Others TOTAL II. Advances Outside India (i) Due from banks (ii) Due from others - (a) Bills purchased and discounted (b) Syndicated loans (c) Others TOTAL GRAND TOTAL (CI+CII) 1,367,143,269 1,189,897,526 1,969,901,405 1,697,595,386 1,613,889,953 1,417,163,384 18,089,151 50,233,791 337,922,301 230,198,211 1,969,901,405 1,697,595,386 484,982,533 484,792,379 39,189,817 32,535,626 449,490 3,477,937 1,143,951,454 923,767,773 1,668,573,294 1,444,573,715 10,371,975 1,127,900 2,687,649 6,438,231 109,487,196 108,035,085 178,781,291 137,420,455 301,328,111 253,021,671 1,969,901,405 1,697,595,386 * Net of borrowings under Bills Rediscounting Scheme `1,000.00 crores (previous year `3,480.00 crores) @ Net of borrowings under Inter Bank Participation Certiﬁ cate `205.89 crores (previous year `60.36 crores) # Net of borrowings under Inter Bank Participation Certiﬁ cate `10,256.09 crores (previous year `7,968.24 crores) $ Includes advances against book debts && Includes advances against L/Cs issued by banks 120 SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) SCHEDULE 10 - FIXED ASSETS I. Premises Gross Block At cost at the beginning of the year Additions during the year Deductions during the year TOTAL Depreciation As at the beginning of the year Charge for the year Deductions during the year Depreciation to date Net Block II. Other ﬁ xed assets (including furniture & ﬁ xtures) Gross Block At cost at the beginning of the year Additions on demerger Additions during the year Deductions during the year TOTAL Depreciation As at the beginning of the year Additions on demerger Charge for the year Deductions during the year Depreciation to date Net Block III. CAPITAL WORK-IN-PROGRESS (including capital advances) GRAND TOTAL (I+II+III) SCHEDULE 11 - OTHER ASSETS I. II. Inter-ofﬁ ce adjustments (net) Interest Accrued III. Tax paid in advance/tax deducted at source (net of provisions) IV. Stationery and stamps V. Non banking assets acquired in satisfaction of claims VI. Others # TOTAL # Includes deferred tax assets of `1,378.09 crores (previous year `1,027.44 crores) 9,001,944 9,117,340 39,131 - 9,041,075 96,841 (212,237) 9,001,944 262,236 147,275 - 409,511 198,381 146,310 (82,455) 262,236 8,631,564 8,739,708 27,125,650 25,442,102 82,684 - 4,173,021 3,300,281 (640,598) (1,616,733) 30,740,757 27,125,650 13,822,155 11,661,494 30,307 - 3,440,392 3,335,207 (369,616) (1,174,546) 16,923,238 13,822,155 13,817,519 13,303,495 1,424,208 798,175 23,873,291 22,841,378 - - 27,157,882 24,194,449 581,969 11,221 209,600 1,280,325 12,623 262,681 45,062,159 39,421,537 73,022,831 65,171,615 121 SCHEDULES FORMING PART OF THE CONSOLIDATED BALANCE SHEET AS AT 31 MARCH, 2013 SCHEDULE 12 - CONTINGENT LIABILITIES I. II. Claims against the Group not acknowledged as debts Liability for partly paid investments As at 31-03-2013 (` in Thousands) As at 31-03-2012 (` in Thousands) 1,676,197 2,602,142 - - III. Liability on account of outstanding forward exchange and derivative contracts : (a) Forward Contracts 2,320,162,574 2,009,254,981 (b) Interest Rate Swaps, Currency Swaps, Forward Rate Agreement & Interest Rate Futures (c) Foreign Currency Options TOTAL (a+b+c) IV. Guarantees given on behalf of constituents In India Outside India V. Acceptances, endorsements and other obligations VI. Other items for which the Group is contingently liable GRAND TOTAL (I+II+III+IV+V+VI) 2,210,541,350 1,752,490,787 80,228,625 130,543,459 4,610,932,549 3,892,289,227 517,036,841 467,505,902 111,222,144 98,612,604 228,015,939 302,612,607 12,351,004 38,760,307 5,481,234,674 4,802,382,789 122 SCHEDULES FORMING PART OF THE CONSOLIDATED PROFIT & LOSS ACCOUNT FOR THE YEAR ENDED 31 MARCH, 2013 SCHEDULE 13 - INTEREST EARNED Interest/discount on advances/bills Income on investments Interest on balances with Reserve Bank of India and other inter-bank funds I. II. III. IV. Others TOTAL SCHEDULE 14 - OTHER INCOME Commission, exchange and brokerage Proﬁ t/(Loss) on sale of investments (net) Proﬁ t/(Loss) on sale of ﬁ xed assets (net) I. II. III. IV. Proﬁ t on exchange/derivative transactions (net) Income earned by way of dividends etc. from V. subsidiaries/companies and/or joint venture abroad/in India VI. Miscellaneous Income [including recoveries on account of advances/investments written off in earlier years `268.51 crores (previous year `291.84 crores) and net loss on account of portfolio sell downs/securitisation `5.88 crores (previous year net loss of `1.60 crores)] TOTAL SCHEDULE 15 - INTEREST EXPENDED Interest on deposits Interest on Reserve Bank of India/Inter-bank borrowings I. II. III. Others TOTAL SCHEDULE 16 - OPERATING EXPENSES Payments to and provisions for employees I. Rent, taxes and lighting II. III. Printing and stationery IV. Advertisement and publicity V. Depreciation on Group’s property VI. Directors’ fees, allowance and expenses VII. Auditors’ fees and expenses VIII. Law charges IX. Postage, telegrams, telephones etc. X. Repairs and maintenance XI. XII. Other expenditure Insurance TOTAL Year ended 31-03-2013 (` in Thousands) Year ended 31-03-2012 (` in Thousands) 191,712,828 77,469,806 1,112,621 1,724,497 272,019,752 153,793,526 63,942,667 984,267 1,228,531 219,948,991 52,655,041 6,346,482 (44,308) 6,640,573 44,156,852 750,000 191,092 6,739,668 - 2,730,257 - 3,034,310 68,328,045 54,871,922 150,002,762 4,596,175 20,534,942 175,133,879 121,759,124 2,319,578 15,613,068 139,691,770 26,753,665 7,666,611 1,030,852 1,238,348 3,587,667 18,240 15,851 179,019 2,869,492 5,960,356 2,626,618 19,458,445 71,405,164 22,540,184 6,685,783 950,424 903,390 3,481,517 10,202 12,044 182,725 2,622,730 5,382,245 2,315,133 15,912,570 60,998,947 123 17 Signiﬁ cant accounting policies for the year ended 31 March, 2013 (Currency: In Indian Rupees) 1 Principles of Consolidation The consolidated ﬁ nancial statements comprise the ﬁ nancial statements of Axis Bank Limited (‘the Bank’) and its subsidiaries, which together constitute ‘the Group’. The Bank consolidates its subsidiaries in accordance with AS-21, Consolidated Financial Statements notiﬁ ed under the Companies (Accounting Standards) Rules, 2006, on a line-by-line basis by adding together the like items of assets, liabilities, income and expenditure. All signiﬁ cant inter-company accounts and transactions are eliminated on consolidation. Further, the Bank accounts for investments in associates in accordance with AS-23, Accounting for Investments in Associates in Consolidated Financial Statements, notiﬁ ed under the Companies (Accounting Standard) Rules, 2006, by the equity method of accounting. 2 Basis of preparation a) The ﬁ nancial statements have been prepared and presented under the historical cost convention on the accrual basis of accounting, and comply with the generally accepted accounting principles, statutory requirements prescribed under the Banking Regulation Act, 1949, the circulars and guidelines issued by the Reserve Bank of India (‘RBI’) from time to time and the Accounting Standards notiﬁ ed under the Companies (Accounting Standards) Rules, 2006, to the extent applicable and current practices prevailing within the banking industry in India. b) The consolidated ﬁ nancial statements present the accounts of Axis Bank Limited with its following subsidiaries and associates: Name Relation Country of Incorporation Ownership Interest Axis Capital Ltd. (Formerly Axis Securities & Sales Ltd.) Subsidiary Axis Private Equity Ltd. Axis Trustee Services Ltd. Axis Mutual Fund Trustee Ltd. Axis Asset Management Company Ltd. Axis Finance Private Ltd. (Formerly Enam Finance Private Ltd.) Axis U.K. Ltd. Bussan Auto Finance India Private Ltd. (see ‘d’ below) * with effect from 8 March, 2013 Subsidiary Subsidiary Subsidiary Subsidiary Subsidiary* Subsidiary Associate India India India India India India U.K. India 100.00% 100.00% 100.00% 75.00% 75.00% 100.00% 100.00% 26.00% The consolidated ﬁ nancial statements also include the results of Axis Securities Ltd. and Enam Securities Europe Ltd., the step down subsidiaries of the Bank. The ﬁ nancial statements of Enam International Ltd., a step down subsidiary of the Bank, have not been consolidated since the company is under voluntary dissolution as on 31 March, 2013. c) d) The audited ﬁ nancial statements of the above subsidiaries (including step down subsidiaries) and the unaudited ﬁ nancial statements of the associate have been drawn up to the same reporting date as that of the Bank, i.e. 31 March, 2013. This investment does not fall within the deﬁ nition of a Joint Venture as per AS-27, Financial Reporting of Interest in Joint Ventures, notiﬁ ed under the Companies (Accounting Standards) Rules, 2006, and the said accounting standard is thus not applicable. However, pursuant to RBI guidelines, the Bank has classiﬁ ed the same as 124 investment in joint ventures in the balance sheet. Such investment has been accounted as an Associate in line with AS-23, Accounting for Investment in Associates in Consolidated Financial Statements notiﬁ ed under the Companies (Accounting Standards) Rules, 2006. 3 Use of estimates The preparation of the ﬁ nancial statements in conformity with the generally accepted accounting principles requires the Management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and disclosure of contingent liabilities at the date of the ﬁ nancial statements. Actual results could differ from those estimates. The Management believes that the estimates used in the preparation of the ﬁ nancial statements are prudent and reasonable. Any revisions to the accounting estimates are recognised prospectively in the current and future periods. 4 Signiﬁ cant accounting policies 4.1 Investments Axis Bank Ltd. Classiﬁ cation In accordance with the RBI guidelines, investments are classiﬁ ed at the date of purchase as: • Held for Trading (‘HFT’); • Available for Sale (‘AFS’); and • Held to Maturity (‘HTM’). Investments that are held principally for sale within a short period are classiﬁ ed as HFT securities. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassiﬁ ed as AFS securities as on that date. Investments that the Bank intends to hold till maturity are classiﬁ ed under the HTM category. All other investments are classiﬁ ed as AFS securities. However, for disclosure in the Balance Sheet, investments in India are classiﬁ ed under six categories - Government Securities, Other approved securities, Shares, Debentures and Bonds, Investment in Subsidiaries/Joint Ventures and Others. Investments made outside India are classiﬁ ed under three categories – Government Securities, Subsidiaries and/or Joint Ventures abroad and Others. Transfer of security between categories Transfer of security between categories of investments is accounted as per the RBI guidelines. Acquisition cost Costs including brokerage, commission pertaining to investments, paid at the time of acquisition, are charged to the Proﬁ t and Loss Account. Broken period interest is charged to the Proﬁ t and Loss Account. Cost of investments is computed based on the weighted average cost method. Valuation Investments classiﬁ ed under the HTM category are carried at acquisition cost unless it is more than the face value, in which case the premium is amortised over the period remaining to maturity. In terms of RBI guidelines, discount on securities held under HTM category is not accrued and such securities are held at the acquisition cost till maturity. 125 Investments classiﬁ ed under the AFS and HFT categories are marked to market. The market/fair value of quoted investments included in the ‘AFS’ and ‘HFT’ categories is the market price of the scrip as available from the trades/quotes on the stock exchanges or prices declared by Primary Dealers Association of India (‘PDAI’) jointly with Fixed Income Money Market and Derivatives Association of India (‘FIMMDA’), periodically. Net depreciation, if any, within each category of each investment classiﬁ cation is recognised in the Proﬁ t and Loss Account. The net appreciation if any, under each category of each investment classiﬁ cation is ignored. The book value of individual securities is not changed consequent to the periodic valuation of investments. Treasury Bills, Exchange Funded Bills, Commercial Paper and Certiﬁ cate of Deposits being discounted instruments, are valued at carrying cost. Units of mutual funds are valued at the latest repurchase price/net asset value declared by the mutual fund. Market value of investments where current quotations are not available, is determined as per the norms prescribed by the RBI as under: • • • • • • in case of unquoted bonds, debentures and preference shares where interest/dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the YTM for Government Securities as published by FIMMDA/PDAI and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each categories and credit ratings along with residual maturity issued by FIMMDA is adopted for this purpose; in case of bonds and debentures (including Pass Through Certiﬁ cates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by RBI; equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company’s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at Re 1 per company; units of Venture Capital Funds (‘VCF’) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (‘NAV’) shown by VCF as per the latest audited ﬁ nancials of the fund. In case the audited ﬁ nancials are not available for a period beyond 18 months, the investments are valued at Re 1 per VCF. Investment in unquoted VCF after 23 August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines; investments in Credit Linked Notes (‘CLNs’), are valued based on current quotations where the same are available. In the absence of quotes, the same are valued based on internal valuation methodology using appropriate mark-up and other estimates such as price of the underlying Foreign Currency Convertible Bond (‘FCCB’), rating category of the CLN etc. and security receipts are valued as per the NAV obtained from the issuing Reconstruction Company/Securitisation Company. Investments in joint ventures are categorised as HTM and assessed for impairment to determine permanent diminution, if any, in accordance with the RBI guidelines. Realised gains on investments under the HTM category are recognised in the Proﬁ t and Loss Account and subsequently appropriated to Capital Reserve account in accordance with the RBI guidelines. Losses are recognised in the Proﬁ t and Loss Account. All investments are accounted for on settlement date except investments in equity shares which are accounted for on trade date as the corporate actions are effected in equity on the trade date. Repurchase and reverse repurchase transactions Repurchase and reverse repurchase transactions [excluding those conducted under the Liquid Adjustment Facility (‘LAF’) with RBI] are accounted as collateralised borrowing and lending respectively. Such transactions done 126 under LAF are accounted as outright sale and outright purchase respectively. However, depreciation in their value, if any, compared to their original cost, is recognised in the Proﬁ t and Loss Account. Policy for Short Sale In accordance with RBI guidelines, the Bank undertakes short sale transactions in Central Government dated securities. The short positions are reﬂ ected in ‘Securities Short Sold (‘SSS’) A/c’, speciﬁ cally created for this purpose. Such short positions are categorised under HFT category. These positions are marked-to-market along with the other securities under HFT portfolio and the resultant mark-to-market gains/losses are accounted for as per the relevant RBI guidelines for valuation of investments discussed earlier. Subsidiaries Investments which are readily realisable and intended to be held for not more than one year from the date on which such investments are made, are classiﬁ ed as current investments. All other investments are classiﬁ ed as long term investments. Current investments are carried in the ﬁ nancial statements at lower of cost and fair value determined on an individual investment basis. Any reduction in the carrying amount and any reversal of such reductions are charged or credited to the Proﬁ t and Loss Account. Long term investments are stated at cost. Provision is made to recognise a decline, other than temporary, in the value of such investments. 4.2 Advances Axis Bank Ltd. Advances are classiﬁ ed into performing and non-performing advances (‘NPAs’) as per the RBI guidelines and are stated net of speciﬁ c provisions made towards NPAs and ﬂ oating provisions. Further, NPAs are classiﬁ ed into sub- standard, doubtful and loss assets based on the criteria stipulated by the RBI. Provisions for NPAs are made for sub-standard and doubtful assets at rates as prescribed by the RBI with the exception for agriculture advances and schematic retail advances. In respect of schematic retail advances, provisions are made in terms of a bucket- wise policy upon reaching speciﬁ ed stages of delinquency (90 days or more of delinquency) under each type of loan, which satisﬁ es the RBI prudential norms on provisioning. Provisions in respect of agriculture advances classiﬁ ed into sub-standard and doubtful assets are made at rates which are higher than those prescribed by the RBI. In addition to the above, the Bank on a prudential basis, makes provision for expected losses against advances or other exposures to speciﬁ c assets/industry/sector either on a case-by-case basis or for a group of assets, based on speciﬁ c information or general economic environment. These are classiﬁ ed as contingent provision and included under Schedule 5 - Other Liabilities in the Balance Sheet. Loss assets and unsecured portion of doubtful assets are provided/written off as per the extant RBI guidelines. NPAs are identiﬁ ed by periodic appraisals of the loan portfolio by the Management. Amounts recovered against debts written off are recognised in the Proﬁ t and Loss Account. For restructured/rescheduled assets, provision is made in accordance with the guidelines issued by RBI, which requires the diminution in the fair value of the assets to be provided at the time of restructuring. A general provision @ 0.25% in case of direct advances to agricultural and SME sectors, 1% in respect of advances classiﬁ ed as commercial real estate, 2% in respect of housing loans at teaser rates, 2.75% (previous year 2%) in respect of certain class of restructured assets and 0.40% for all other advances is made as prescribed by the RBI. In case of overseas branches, general provision on standard advances is maintained at the higher of the levels stipulated by the respective overseas regulator or RBI. Under its home loan portfolio, the Bank offers housing loans with certain features involving waiver of Equated Monthly Installments (‘EMIs’) of a speciﬁ c period subject to fulﬁ lment of a set of conditions by the borrower. The 127 Bank makes provision on an estimated basis against the probable loss that could be incurred in future on account of waivers to eligible borrowers in respect of such loans. This provision is classiﬁ ed under Schedule 5 – Other Liabilities in the balance sheet. 4.3 Country risk Axis Bank Ltd. In addition to the provisions required to be held according to the asset classiﬁ cation status, provisions are held for individual country exposure (other than for home country as per the RBI guidelines). The countries are categorised into seven risk categories namely insigniﬁ cant, low, moderate, high, very high, restricted and off- credit and provision is made on exposures exceeding 180 days on a graded scale ranging from 0.25% to 100%. For exposures with contractual maturity of less than 180 days, 25% of the normal provision requirement is held. If the country exposure (net) of the Bank in respect of each country does not exceed 1% of the total funded assets, no provision is maintained on such country exposure. 4.4 Securtisation Axis Bank Ltd. The Bank enters into purchase/sale of corporate and retail loans through direct assignment/Special Purpose Vehicle (‘SPV’). In most cases, post securtisation, the Bank continues to service the loans transferred to the assignee/SPV. The Bank also provides credit enhancement in the form of cash collaterals and/or by subordination of cash ﬂ ows to Senior Pass Through Certiﬁ cate (‘PTC’) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/ disclosure is made at the time of sale in accordance with AS-29, Provisions, Contingent Liabilities and Contingent Assets as notiﬁ ed under the Companies (Accounting Standards) Rules, 2006. In accordance with RBI guidelines of 7 May, 2012 on ‘Guidelines on Securitisation of Standard Assets’, gain on securtisation transaction is recognised over the period of the underlying securities issued by the SPV as prescribed under RBI guidelines. Loss on securtisation is immediately debited to the Proﬁ t and Loss Account. 4.5 Foreign currency transactions Axis Bank Ltd. In respect of domestic operations, transactions denominated in foreign currencies are accounted for at the rates prevailing on the date of the transaction. Monetary foreign currency assets and liabilities are translated at the Balance Sheet date at rates notiﬁ ed by Foreign Exchange Dealers Association of India (‘FEDAI’). All proﬁ ts/losses resulting from year end revaluations are recognised in the Proﬁ t and Loss Account. Financial statements of foreign branches classiﬁ ed as non-integral foreign operations are translated as follows: • Assets and liabilities (both monetary and non-monetary as well as contingent liabilities) are translated at closing rates notiﬁ ed by FEDAI at the year end. • Income and expenses are translated at the rates prevailing on the date of the transactions. • All resulting exchange differences are accumulated in a separate ‘Foreign Currency Translation Reserve’ till the disposal of the net investments. Outstanding forward exchange contracts (excluding currency swaps undertaken to hedge foreign currency assets/liabilities and funding swaps which are not revalued) and spot exchange contracts are revalued at year end exchange rates notiﬁ ed by FEDAI for speciﬁ ed maturities and at interpolated rates for contract of interim maturities. The resulting gains or losses on revaluation are included in the Proﬁ t and Loss Account in accordance with RBI/FEDAI guidelines. The forward exchange contracts of longer maturities where exchange rates are not notiﬁ ed by FEDAI are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resultant gains or losses are recognised in the Proﬁ t and Loss Account. 128 Premium/discount on currency swaps undertaken to hedge foreign currency assets and liabilities and funding swaps is recognised as interest income/expense and is amortised on a pro-rata basis over the underlying swap period. Contingent liabilities on account of foreign exchange contracts/options, guarantees, acceptances, endorsements and other obligations denominated in foreign currencies are disclosed at closing rates of exchange notiﬁ ed by FEDAI. Subsidiaries Transactions in foreign currencies are recorded at the exchange rate prevailing on the date of the transactions. Monetary assets and liabilities denominated in foreign currencies as at the Balance Sheet date are translated at the closing rate on that date. Non-monetary items, which are measured in terms of historical cost denominated in a foreign currency, are reported using the exchange rate at the date of the transaction. Non-monetary items, which are measured at fair value or other similar valuation denominated in a foreign currency, are translated using the exchange rate at the date when such value was determined. The exchange differences, if any, either on settlement or translation are recognised in Proﬁ t and Loss Account. 4.6 Derivative transactions Axis Bank Ltd. Derivative transactions comprise of forward contracts, swaps and options which are disclosed as contingent liabilities. The forwards, swaps and options are categorised as trading or hedge transactions. Trading derivative contracts are revalued at the Balance Sheet date with the resulting unrealised gain or loss being recognised in the Proﬁ t and Loss Account and correspondingly in other assets or other liabilities respectively. For hedge transactions, the Bank identiﬁ es the hedged item (asset or liability) at the inception of transaction itself. The effectiveness is ascertained at the time of inception of the hedge and periodically thereafter. Hedge swaps are accounted for on accrual basis except in case of swaps designated with an asset or liability that is carried at market value or lower of cost or market value in the ﬁ nancial statements. In such cases the swaps are marked to market with the resulting gain or loss recorded as an adjustment to the market value of designated asset or liability. The premium on option contracts is accounted for as per FEDAI guidelines. Pursuant to the RBI guidelines any receivables under derivative contracts comprising of crystallised receivables as well as positive Mark to Market (MTM) in respect of future receivables which remain overdue for more than 90 days are reversed through the Proﬁ t and Loss Account and are held in separate Suspense account. Currency futures contracts are marked to market using daily settlement price on a trading day, which is the closing price of the respective futures contracts on that day. While the daily settlement price is computed based on the last half an hour weighted average price of such contract, the ﬁ nal settlement price is taken as the RBI reference rate on the last trading day of the futures contract or as may be speciﬁ ed by the relevant authority from time to time. All open positions are marked to market based on the settlement price and the resultant marked to market proﬁ t/loss is daily settled with the exchange. Valuation of Exchange Traded Currency Options (ETCO) is carried out on the basis of the daily settlement price of each individual option provided by the exchange. 4.7 Revenue recognition Axis Bank Ltd. Interest income is recognised on an accrual basis except interest income on non-performing assets, which is recognised on receipt in accordance with AS-9, Revenue Recognition as notiﬁ ed under the Companies (Accounting Standards) Rules, 2006 and the RBI guidelines. Fees and commission income is recognised when due, except for guarantee commission which is recognised pro-rata over the period of the guarantee. Arrangership/syndication fee is accounted for on completion of the agreed service and when right to receive is established. 129 Dividend is accounted on an accrual basis when the right to receive the dividend is established. Gain/loss on sell down of loans and advances through direct assignment is recognised at the time of sale. Gain or loss arising on sale of NPAs is accounted as per the guidelines prescribed by the RBI, which require provisions to be made for any deﬁ cit (where sale price is lower than the net book value), while surplus (where sale price is higher than the net book value) is ignored. Subsidiaries Revenue is recognised to the extent that it is probable that the economic beneﬁ ts will ﬂ ow to the Company and the revenue can be reliably measured. Fee income is recognised on the basis of accrual when all the services are performed. Interest income is recognised on an accrual basis. Dividend income is recognised when the right to receive payment is established by the Balance Sheet date. Axis Capital Limited Business sourcing and resource management fee is recognised on accrual basis when all the services are performed. Brokerage income in relation to stock broking activity is recognised on a trade date basis. Gains/losses on dealing in securities are recognised on a trade date basis. Income from Super Value Plan to the extent of account opening fees is recognised upfront and balance is amortised over the validity of plan. Income from other existing prepaid plans is recognised on utilisation of complementary turnover limit or validity of plan, whichever is earlier. Revenue from issue management, loan syndication, ﬁ nancial advisory services is recognised based on the stage of completion of assignments and terms of agreement with the client. Selling commissions/brokerage generated from primary market operations i.e. procuring subscriptions from investors for public offerings of companies, mutual funds, etc. are recorded on determination of the amount due to the Company, once the allotment of securities are completed. Axis Private Equity Limited Management Fee is recognised on accrual basis. Axis Trustee Services Limited Trusteeship fees are recognised, on a straight line basis, over the period when services are performed. Initial acceptance fee is recognised as and when the ‘Offer Letter’ for the services to be rendered is accepted by the customer. Axis Asset Management Company Limited Management fees are recognised on accrual basis at speciﬁ c rates, applied on the average daily net assets of each scheme. The fees charged are in accordance with the terms of scheme information documents of respective schemes and are in line with the provisions of SEBI (Mutual Funds) Regulations, 1996 as amended from time to time. Portfolio Management fees are recognised on an accrual basis as per the terms of the contract with the customers. Marketing Advisory fees and fees received for acting as Point of Service (‘POS’) for CDSL Ventures Ltd., an agency mandated by the Mutual Fund industry to handle the Know Your Clients (‘KYC’) documentation and necessary database are recognised on an accrual basis. Income from sale of investments is determined on weighted average basis and recognised on the trade date basis. 130 Axis Mutual Fund Trustee Limited Trustee fee is recognised on accrual basis, at the speciﬁ c rates/amount approved by the Board of Directors of the Company, within the limits speciﬁ ed under the Deed of Trust, and is applied on the net assets of each scheme of Axis Mutual Fund. Income from sale of investments is determined on weighted average basis and recognised on the trade date basis. Axis Finance Private Limited Interest from ﬁ nancing activities is recognised on accrual basis. Other revenue is recognised on accrual basis when no signiﬁ cant uncertainty exists as to its realisation or collection. Proﬁ t on sale of investment is recognised on trade date of transaction. Axis Securities Limited Brokerage received from secondary market operations is recognised on the trade date of the transaction. Depository fees are recognised on completion of the transaction. Portfolio Management fees are accounted on accrual basis as follows: • • In case of fees based on ﬁ xed percentage of the corpus/ﬁ xed amount, income is accrued at the end of the quarter/month. In case of fees, based on the returns of the portfolio, income is accounted on each anniversary as per the agreement. 4.8 Scheme expenses Axis Asset Management Company Limited Fund Expense Expenses of schemes of Axis Mutual Fund in excess of the stipulated limits as per SEBI (Mutual Fund) Regulations, 1996 and expenses incurred directly (inclusive of advertisement/brokerage expenses) on behalf of schemes of Axis Mutual Fund are charged to the Proﬁ t and Loss Account. New fund offer expenses Expenses relating to new fund offer of Axis Mutual Fund are charged to the Proﬁ t and Loss Account in the year in which they are incurred. Brokerage Upfront brokerage on close ended and ﬁ xed tenure schemes is amortised over the tenure of the respective scheme and in case of Equity Linked Saving Scheme (ELSS), upfront brokerage is amortised over 3 years. The unamortised portion of the brokerage is carried forward as prepaid expense. Any other brokerage is expensed out in the year in which they are incurred. 4.9 Fixed assets and depreciation Group Fixed assets are carried at cost of acquisition less accumulated depreciation and impairment, if any. Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation of the asset. Capital work-in-progress includes cost of ﬁ xed assets that are not ready for their intended use and also includes advances paid to acquire ﬁ xed assets. Depreciation is provided on the straight-line method from the date of addition. The rates of depreciation prescribed in Schedule XIV to the Companies Act, 1956 are considered as the minimum rates. If the Management’s estimate 131 of the useful life of a ﬁ xed asset at the time of acquisition of the asset or of the remaining useful life on a subsequent review is shorter, then depreciation is provided at a higher rate based on the Management’s estimate of the useful life/remaining useful life. Pursuant to this policy, depreciation has been provided using the following estimated useful lives: Asset Owned premises Assets given on operating lease Computer hardware including printers Application software Vehicles EPABX, telephone instruments CCTV and video conferencing equipment Mobile phone Locker cabinets/cash safe/strong room door Modem, scanner, routers, hubs, switches, racks/cabinets for IT equipment UPS, VSAT, fax machines Cheque book/cheque encoder, currency counting machine, fake note detector Assets at staff residence All other ﬁ xed assets Estimated useful life 61 years 20 years 3 years 5 years 4 years 8 years 3 years 2 years 16 years 5 years 5 years 5 years 3 years 10 years All ﬁ xed assets individually costing less than `5,000 are fully depreciated in the year of installation. Depreciation on assets sold during the year is recognised on a pro-rata basis to the Proﬁ t and Loss Account till the date of sale. The carrying amounts of assets are reviewed at each Balance Sheet date to ascertain if there is any indication of impairment based on internal/external factors. An impairment loss is recognised wherever the carrying amount of an asset exceeds its recoverable amount. The recoverable amount is the greater of the asset’s net selling price and value in use. In assessing value in use, the estimated future cash ﬂ ows are discounted to their present value at the weighted average cost of capital. After impairment, depreciation is provided on the revised carrying amount of the asset over its remaining useful life. Axis Bank Ltd. Proﬁ t on sale of premises is appropriated to Capital Reserve Account in accordance with RBI instructions. 4.10 Lease transactions Axis Bank Ltd. Assets given on operating lease are capitalised at cost. Rentals received by the Bank are recognised in the Proﬁ t and Loss Account on accrual basis. Group Leases where the lessor effectively retains substantially all the risks and beneﬁ ts of ownership over the lease term are classiﬁ ed as operating lease. Lease payments for assets taken on operating lease are recognised as an expense in the Proﬁ t and Loss Account on a straight-line basis over the lease term. 132 4.11 Retirement and other employee beneﬁ ts Provident Fund Axis Bank Ltd. Retirement beneﬁ t in the form of provident fund is a deﬁ ned beneﬁ t plan wherein the contributions are charged to the Proﬁ t and Loss Account of the year when the contributions to the fund are due. Further, an actuarial valuation is conducted by an independent actuary to determine the deﬁ ciency, if any, in the interest payable on the contributions as compared to the interest liability as per the statutory rate. Subsidiaries Contributions to a recognised Provident Fund scheme, which is a deﬁ ned contribution scheme are accounted for on an accrual basis and charged to Proﬁ t and Loss Account. Gratuity Axis Bank Ltd. The Bank contributes towards gratuity fund (deﬁ ned beneﬁ t retirement plan) administered by various insurers for eligible employees. Under this scheme, the settlement obligations remain with the Bank, although various insurers administer the scheme and determine the contribution premium required to be paid by the Bank. The plan provides a lump sum payment to vested employees at retirement or termination of employment based on the respective employee’s salary and the years of employment with the Bank. Liability with regard to gratuity fund is accrued based on actuarial valuation conducted by an independent actuary using the Projected Unit Credit Method as at 31 March each year. In respect of employees at overseas branches (other than expats) liability with regard to gratuity is provided on the basis of a prescribed method as per local laws, wherever applicable. Subsidiaries Gratuity liability is a deﬁ ned beneﬁ t obligation and is provided for on the basis of an actuarial valuation using Projected Unit Credit Method made at the end of each ﬁ nancial year. Actuarial gains/losses are immediately taken to the Proﬁ t and Loss Account and are not deferred. Leave Encashment Group Short term compensated absences are provided for based on estimates. The Group provides leave encashment beneﬁ t (long term), which is a deﬁ ned beneﬁ t scheme based on actuarial valuation conducted by an independent actuary. The actuarial valuation is carried out as per the Projected Unit Credit Method as at 31 March each year. Superannuation Axis Bank Ltd. Employees of the Bank are entitled to receive retirement beneﬁ ts under the Bank’s Superannuation scheme either under a cash-out option through salary or under a deﬁ ned contribution plan. Through the deﬁ ned contribution plan the Bank contributes annually a speciﬁ ed sum of 10% of the employee’s eligible annual basic salary to LIC, which undertakes to pay the lumpsum and annuity beneﬁ t payments pursuant to the scheme. Superannuation contributions are recognised in the Proﬁ t and Loss Account in the period in which they accrue. Actuarial gains/losses are immediately taken to Proﬁ t and Loss Account and are not deferred. 4.12 Long Term Incentive Plan (LTIP) Axis Asset Management Company Limited The Company has initiated Axis AMC - Long Term Incentive plan during the ﬁ nancial year. The points granted to employees as per the guidelines laid down in the plan, are encashable after they are held for a speciﬁ ed period 133 as per the terms of the plan. The Company accounts for the liability arising on points granted proportionately over the period from the date of grant till the end of the exercise window. The liability is assessed and provided on the basis of valuation carried out by an independent valuer. 4.13 Debit/Credit card reward points Axis Bank Ltd. The Bank estimates the probable redemption of debit and credit card reward points using an actuarial method at the Balance Sheet date by employing an independent actuary. Provision for the said reward points is then made based on the actuarial valuation report as furnished by the said independent actuary. 4.14 Taxation Group Income tax expense is the aggregate amount of current tax and deferred tax charge. Current year taxes are determined in accordance with the Income tax Act, 1961. Deferred income taxes reﬂ ects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax is measured based on the tax rates and the tax laws enacted or substantively enacted at the Balance Sheet date. Deferred tax assets and deferred tax liabilities are offset, if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred tax assets and deferred tax liabilities relate to the taxes on income levied by same governing taxation laws. Deferred tax assets are recognised only to the extent that there is reasonable certainty that sufﬁ cient future taxable income will be available against which such deferred tax assets can be realised. The impact of changes in the deferred tax assets and liabilities is recognised in the Proﬁ t and Loss Account. Deferred tax assets are recognised and reassessed at each reporting date, based upon the Management’s judgement as to whether realisation is considered as reasonably certain. Deferred tax assets are recognised on carry forward of unabsorbed depreciation and tax losses only if there is virtual certainty that such deferred tax asset can be realised against future proﬁ ts. 4.15 Share issue expenses Axis Bank Ltd. Share issue expenses are adjusted from Share Premium Account in terms of Section 78 of the Companies Act, 1956. 4.16 Earnings per share Group The Group reports basic and diluted earnings per share in accordance with AS-20, Earnings per Share, as notiﬁ ed by the Companies (Accounting Standards) Rules, 2006. Basic earnings per share is computed by dividing the net proﬁ t after tax by the weighted average number of equity shares outstanding for the year. Diluted earnings per share reﬂ ect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year. Diluted earnings per share is computed using the weighted average number of equity shares and dilutive potential equity shares outstanding at the year end. 4.17 Employee stock option scheme Axis Bank Ltd. The 2001 Employee Stock Option Scheme (‘the Scheme’) provides for grant of stock options on equity shares of the Bank to employees and Directors of the Bank and its subsidiaries. The Scheme is in accordance with the Securities and Exchange Board of India (SEBI) (Employees Stock Option Scheme and Employee Stock Purchase 134 Scheme) Guidelines, 1999. The Bank follows the intrinsic value method to account for its stock based employee compensation plans as per the Guidance Note on ‘Accounting for Employee Share-based Payments’ issued by the ICAI. Options are granted at an exercise price, which is equal to/less than the fair market price of the underlying equity shares. The excess of such fair market price over the exercise price of the options as at the grant date is recognised as a deferred compensation cost and amortised on a straight-line basis over the vesting period of such options. The fair market price is the latest available closing price, prior to the date of the grant, on the stock exchange on which the shares of the Bank are listed. If the shares are listed on more than one stock exchange, then the stock exchange where there is highest trading volume on the said date is considered. 4.18 Provisions, contingent liabilities and contingent assets Group A provision is recognised when the Group has a present obligation as a result of past event where it is probable that an outﬂ ow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are determined based on best estimate required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reﬂ ect the current best estimates. A disclosure of contingent liability is made when there is: • • a possible obligation arising from a past event, the existence of which will be conﬁ rmed by occurrence or non-occurrence of one or more uncertain future events not within the control of the Group; or a present obligation arising from a past event which is not recognised as it is not probable that an outﬂ ow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. When there is a possible obligation or a present obligation in respect of which the likelihood of outﬂ ow of resources is remote, no provision or disclosure is made. Contingent assets are not recognised in the ﬁ nancial statements. However, contingent assets are assessed continually and if it is virtually certain that an inﬂ ow of economic beneﬁ ts will arise, the asset and related income are recognised in the period in which the change occurs. 135 18 Notes forming part of the consolidated ﬁ nancial statements for the year ended 31 March, 2013 (Currency: In Indian Rupees) 1 a) On 17 November, 2010, the Board of Directors of the Bank had approved the acquisition of certain ﬁ nancial services businesses undertaken by Enam Securities Private Limited (ESPL) directly and through its wholly owned subsidiaries, by Axis Securities and Sales Limited (ASSL), a wholly owned subsidiary of the Bank by way of a demerger. However, pursuant to conditions prescribed by the Reserve Bank of India, certain modiﬁ cations were carried out to the demerger structure in terms of a revised Scheme of Arrangement under Sections 391-394 and other relevant provisions of the Companies Act, 1956. Accordingly, the acquisition now comprises of (a) a demerger of the ﬁ nancial services businesses (“the business”) from ESPL to the Bank, in consideration of which the Bank will issue shares to the shareholders of ESPL, and (b) immediately upon completion of the demerger under the Scheme, a simultaneous sale of the ﬁ nancial services businesses will be undertaken from the Bank to ASSL for a cash consideration, with both the aforesaid steps occurring simultaneously. The Reserve Bank of India has on 30 March, 2012, conveyed it’s no objection to the Scheme. Further, on 27 April, 2012, the Board of Directors of the Bank approved the reassessment of the valuation of the ESPL business at `1,396 crores and consequently, in consideration for the demerger of the ﬁ nancial services business of ESPL, the Bank was required to issue shares in the ratio of 5 equity shares of the Bank of the face value of `10 each for every 1 equity share of `10 each held by the shareholders of ESPL. The sale of the ﬁ nancial services businesses was to be simultaneously undertaken from the Bank to ASSL for a cash consideration of `274.15 crores only. On 18 October, 2012, the Bank received the necessary approvals under applicable law from various regulatory authorities to the revised Scheme of Arrangement in respect of the demerger of the ﬁ nancial services businesses from Enam Securities Private Limited (ESPL) to the Bank and simultaneous sale of such businesses to ASSL (now known as Axis Capital Limited (“ACL”)), a wholly owned subsidiary of the Bank, with effect from 1 April, 2010 and consequently, the Bank has issued 12,090,000 equity shares of the face value of `10 each to the shareholders of ESPL amounting to `12.09 crores and accounted for the net assets of ESPL of `274.15 crores at book value. Further, as advised by RBI, an amount of `262.06 crores being the difference between the value of the net assets acquired from ESPL and the shares issued has been transferred to the capital reserve. There was a simultaneous transfer of the business by the Bank to ACL and a consideration of `274.15 crores was received against the transfer of the net assets of equivalent value. The appointed date under the Scheme is 1 April, 2010. As a part of the acquisition of certain ﬁ nancial services businesses undertaken by Enam Securities Private Limited (ESPL) by way of a demerger, the Group acquired Axis Finance Private Limited, Enam International Limited and Enam Securities Europe Limited, certain wholly owned subsidiaries of ESPL resulting in a net increase in total assets of `58.46 crores as of 31 March, 2013 and net increase in proﬁ t after tax by `5.82 crores for the year ended 31 March, 2013. b) During the year ended 31 March, 2013, the Bank raised additional equity capital through a Qualiﬁ ed Institutional Placement (QIP) of 34,000,000 shares and a preferential allotment of 5,837,945 shares at a price of `1,390.00 per share. As a consequence, the paid-up share capital of the Bank has increased by `39.84 crores and the reserves of the Bank have increased by `5,457.76 crores after charging of issue related expenses. The funds mobilised from the equity raising (through QIP and Preferential issue) were utilised for enhancing the capital adequacy ratio and for general corporate purposes. c) During the year, the Bank has appropriated an amount of `2.61 crores to Reserve Fund account in accordance with guidelines issued by Central Bank of Sri Lanka in respect of Sri Lanka branch operations. 136 2 Other Disclosures 2.1.1 ‘Provisions and contingencies’ recognised in the Proﬁ t and Loss Account includes: For the year ended Provision for income tax - Current tax for the year - Deferred tax for the year Provision for wealth tax Provision for non-performing assets (including bad debts written off and write backs) Provision for restructured assets Provision towards standard assets Provision for depreciation in value of investments Provision for country risk Provision for other contingencies Total (` in crores) 31 March, 2013 31 March, 2012 2,740.53 (349.73) 2,390.80 2,262.05 (210.57) 2,051.48 0.38 0.36 1,179.19 860.43 103.95 88.86 196.64 150.30 (98.22) 58.10 (9.63) 4.81 383.97 (19.83) 4,147.08 3,194.51 2.1.2 During the year ended 31 March, 2013, the Bank has raised subordinated debt of `2,500 crores, the details of which are set out below: Date of allotment 31 December, 2012 Period 120 months Coupon 9.15% Amount `2,500.00 crores During the year ended 31 March, 2012, the Bank has raised subordinated debt of `3,425 crores, the details of which are set out below: Date of allotment 1 December, 2011 20 March, 2012 Period 120 months 120 months Coupon 9.73% 9.30% Amount `1,500.00 crores `1,925.00 crores During the year ended 31 March, 2013, the Bank redeemed subordinated debt of `622 crores, the details of which are set out below: Date of maturity Period Coupon 20 June, 2012 25 July, 2012 21 December, 2012 117 months 84 months 117 months 9.30% 8.67% 8.95% Amount `62.00 crores `500.00 crores `60.00 crores During the year ended 31 March, 2012, the Bank redeemed subordinated debt of `5 crores, the details of which are set out below: Date of maturity 26 April, 2011 Period 93 months Coupon 6.70% Amount `5.00 crores 2.1.3 The Bank has not raised any hybrid capital during the year ended 31 March, 2013 and year ended 31 March, 2012. 137 2.1.4 Earnings Per Share (‘EPS’) The details of EPS computation is set out below: As at 31 March, 2013 31 March, 2012 Basic and Diluted earnings for the year (Net proﬁ t after tax) (` in crores) Basic weighted average no. of shares (in crores) Add: Equity shares for no consideration arising on grant of stock options under ESOP (in crores) Diluted weighted average no. of shares (in crores) Basic EPS (`) Diluted EPS (`) Nominal value of shares (`) 5,234.76 43.28 4,219.78 41.21 0.30 43.58 120.95 120.12 10.00 0.30 41.51 102.40 101.66 10.00 Dilution of equity is on account of 2,975,646 (previous year 2,991,727) stock options. 2.1.5 Employee Stock Options Scheme (‘the Scheme’) In February 2001, pursuant to the approval of the shareholders at the Extraordinary General Meeting, the Bank approved an Employee Stock Option Scheme. Under the Scheme, the Bank is authorised to issue upto 13,000,000 equity shares to eligible employees. Eligible employees are granted an option to purchase shares subject to vesting conditions. The options vest in a graded manner over 3 years. The options can be exercised within 3 years from the date of the vesting. Further, over the period June, 2004 to June, 2010, pursuant to the approval of the shareholders at Annual General Meetings, the Bank approved an ESOP scheme for additional options aggregating 27,517,400. Within the overall ceiling of 40,517,400 stock options approved for grant by the shareholders as stated earlier, the Bank is also authorised to issue options to employees and directors of the subsidiary companies. 39,891,590 options have been granted under the Scheme till the previous year ended 31 March, 2012. On 27 April, 2012, the Bank granted 2,343,500 stock options (each option representing entitlement to one equity share of the Bank) to its employees including the MD & CEO and 172,500 stock options to employees of Axis Asset Management Company Limited, a subsidiary of the Bank. These options can be exercised at a price of `1,086.65 per option. Stock option activity under the Scheme for the year ended 31 March, 2013 is set out below: Options outstanding Range of exercise prices (`) Weighted average exercise price (`) Weighted average remaining contractual life (Years) Outstanding at the beginning of the year 11,428,248 319.00 to 1,447.55 965.90 2.79 Granted during the year 2,516,000 1,086.65 1,086.65 Forfeited during the year (175,698) 319.00 to 1,447.55 1,144.00 Expired during the year (80,954) 319.00 to 824.40 568.70 Exercised during the year (2,822,571) 319.00 to 1,447.55 594.48 Outstanding at the end of the year 10,865,025 468.90 to 1,447.55 1,090.43 Exercisable at the end of the year 5,372,105 468.90 to 1,447.55 941.06 The weighted average share price in respect of options exercised during the year was `1,217.66. - - - - 2.69 1.57 138 Stock option activity under the Scheme for the year ended 31 March, 2012 is set out below: Options outstanding Range of exercise prices (`) Weighted average exercise price (`) Weighted average remaining contractual life (Years) Outstanding at the beginning of the year 11,122,518 232.10 to 1,245.45 712.90 2.86 Granted during the year Forfeited during the year Expired during the year Exercised during the year 3,268,700 1,447.55 1,447.55 (243,596) 232.10 to 1,447.55 (61,265) 232.10 to 468.90 (2,658,109) 232.10 to 1,159.30 960.75 406.46 512.92 965.90 717.76 - - - - 2.79 1.53 Outstanding at the end of the year 11,428,248 319.00 to 1,447.55 Exercisable at the end of the year 4,983,892 319.00 to 1,245.45 The weighted average share price in respect of options exercised during the year was `1,200.12. Fair Value Methodology On applying the fair value based method in Guidance Note on ‘Accounting for Employee Share-based Payments’ the impact on reported net proﬁ t and EPS would be as follows: Net Proﬁ t (as reported) (` in crores) Add: Stock based employee compensation expense included in net income (` in crores) Less: Stock based employee compensation expense determined under fair value based method (proforma) (` in crores) Net Proﬁ t (Proforma) (` in crores) Earnings per share: Basic (in `) As reported Proforma Earnings per share: Diluted (in `) As reported Proforma 31 March, 2013 31 March, 2012 5,234.76 4,219.78 - - (117.08) 5,117.68 120.95 118.25 120.12 117.43 (147.16) 4,072.62 102.40 98.83 101.66 98.11 The fair value of the options is estimated on the date of the grant using the Black-Scholes options pricing model, with the following assumptions: Dividend yield Expected life Risk free interest rate Volatility 31 March, 2013 31 March, 2012 1.20% 2-4 years 1.23% 2-4 years 8.14% to 8.33% 8.05% to 8.10% 35.92% to 50.25% 39.43% to 53.33% Volatility is the measure of the amount by which a price has ﬂ uctuated or is expected to ﬂ uctuate during a period. The measure of volatility used in the Black-Scholes options pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volatility of the stock prices on the National Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options has been considered. 139 The weighted average fair value of options granted during the year ended 31 March, 2013 is `387.24 (previous year `559.31). 2.1.6 Dividend paid on shares issued on exercise of stock options The Bank may allot shares between the Balance Sheet date and record date for the declaration of dividend pursuant to the exercise of any employee stock options. These shares will be eligible for full dividend for the year ended 31 March, 2013, if approved at the ensuing Annual General Meeting. Dividend relating to these shares has not been recorded in the current year. Appropriation to proposed dividend during the year ended 31 March, 2013 includes dividend of `2.02 crores (previous year `1.88 crores) paid pursuant to exercise of 1,086,994 employee stock options after the previous year end but before the record date for declaration of dividend for the year ended 31 March, 2012. 2.1.7 Segmental reporting The business of the Bank is divided into four segments: Treasury, Retail Banking, Corporate/Wholesale Banking, and Other Banking Business. These segments have been identiﬁ ed and based on RBI’s revised guidelines on Segment Reporting issued on 18 April, 2007 vide Circular No. DBOD.No.BP.BC.81/21.04.018/2006-07. The principal activities of these segments are as under. Segment Treasury Retail Banking Principal Activities Treasury operations include investments in sovereign and corporate debt, equity and mutual funds, trading operations, derivative trading and foreign exchange operations on the proprietary account and for customers and central funding. Constitutes lending to individuals/small businesses subject to the orientation, product and granularity criterion and also includes low value individual exposures not exceeding the threshold limit of `5 crores as deﬁ ned by RBI. Retail Banking activities also include liability products, card services, internet banking, ATM services, depository, ﬁ nancial advisory services and NRI services. Corporate/Wholesale Banking Includes corporate relationships not included under Retail Banking, corporate advisory services, placements and syndication, management of public issue, project appraisals, capital market related services and cash management services. Other Banking Business Includes para banking activities like third party product distribution and other banking transactions not covered under any of the above three segments. Business segments in respect of operations of the subsidiaries (including step down subsidiaries) have been identiﬁ ed and reported taking into account the customer proﬁ le, the nature of product and services and the organisation structure. Revenues of the Treasury segment primarily consist of fees and gains or losses from trading operations and interest income on the investment portfolio. The principal expenses of the segment consist of interest expense on funds borrowed from external sources and other internal segments, premises expenses, personnel costs, other direct overheads and allocated expenses. Revenues of the Corporate/Wholesale Banking segment consist of interest and fees earned on loans given to customers falling under this segment and fees arising from transaction services and merchant banking activities such as syndication and debenture trusteeship. Revenues of the Retail Banking segment are derived from interest earned on loans classiﬁ ed under this segment and fees for banking and advisory services, ATM interchange fees and cards products. Expenses of the Corporate/Wholesale Banking and Retail Banking segments primarily comprise interest expense on deposits and funds borrowed from other internal segments, infrastructure and premises expenses for operating the branch network and other delivery channels, personnel costs, other direct overheads and allocated expenses. Segment income includes earnings from external customers and from funds transferred to the other segments. Segment result includes revenue as reduced by interest expense and operating expenses and provisions, if any, for that segment. 140 Segment-wise income and expenses include certain allocations. Inter segment interest income and interest expense represent the transfer price received from and paid to the Central Funding Unit (CFU) respectively. For this purpose, the funds transfer pricing mechanism presently followed by the Bank, which is based on historical matched maturity and internal benchmarks, has been used. Operating expenses other than those directly attributable to segments are allocated to the segments based on an activity-based costing methodology. All activities in the Bank are segregated segment-wise and allocated to the respective segment. Segmental results are set out below: (` in crores) 31 March, 2013 Treasury Corporate/ Wholesale Banking Retail Banking Other Banking Business Total Segment Revenue Gross interest income (external customers) 6,969.72 13,093.12 7,139.11 0.03 27,201.98 Other income 1,610.93 3,000.09 1,653.78 568.00 6,832.80 Total income as per Proﬁ t and Loss Account 8,580.65 16,093.21 8,792.89 568.03 34,034.78 Add/(less) inter segment interest income 33,112.64 3,371.64 9,374.05 - 45,858.33 Total segment revenue 41,693.29 19,464.85 18,166.94 568.03 79,893.11 Less: Interest expense (external customers) 10,389.84 298.17 6,825.38 Less: Inter segment interest expense 29,937.22 10,113.35 5,807.76 - - 17,513.39 45,858.33 446.02 1,733.43 4,764.98 196.09 7,140.52 Less: Operating expenses Operating proﬁ t Less: Provision for non-performing assets/others (94.48) 1,619.84 920.21 7,319.90 1,014.69 5,700.06 Segment result Less: Provision for tax Net Proﬁ t before minority interest and earnings from Associate Less: Minority Interest Add: Share of Proﬁ t in Associate Extraordinary proﬁ t/loss Net Proﬁ t Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities(1) Total liabilities Net assets Capital Expenditure for the year Depreciation on ﬁ xed assets for the year (1) Includes minority interest of `12.53 crores 768.82 230.55 538.27 371.94 9,380.87 0.37 1,756.28 371.57 7,624.59 2,390.80 5,233.79 0.25 1.22 - 5,234.76 135,106.04 128,353.67 75,319.35 302.34 339,081.40 1,476.33 340,557.73 126,702.45 63,506.02 116,098.32 49.97 306,356.76 1,042.60 307,399.36 8,403.59 64,847.65 (40,778.97) 252.37 33,158.37 20.79 17.52 99.48 84.80 291.58 247.74 9.37 8.71 421.22 358.77 141 (` in crores) 31 March, 2012 Treasury Corporate/ Wholesale Banking Retail Banking Other Banking Business Total Segment Revenue Gross interest income (external customers) 5,992.51 11,292.20 4,710.06 0.13 21,994.90 Other income 1,002.54 2,814.12 1,253.31 417.22 5,487.19 Total income as per Proﬁ t and Loss Account 6,995.05 14,106.32 5,963.37 417.35 27,482.09 Add/(less) inter segment interest income 28,992.40 3,093.62 7,274.96 0.15 39,361.13 Total segment revenue 35,987.45 17,199.94 13,238.33 417.50 66,843.22 Less: Interest expense (external customers) 8,747.14 214.71 5,007.33 - 13,969.18 Less: Inter segment interest expense 25,817.89 9,335.77 4,207.43 0.04 39,361.13 Less: Operating expenses 426.36 1,734.11 3,793.66 145.76 6,099.89 Operating proﬁ t 996.06 5,915.35 229.91 271.70 7,413.02 Less: Provision for non-performing assets/others 160.78 735.59 246.30 0.36 1,143.03 Segment result Less: Provision for tax Add: Share of Proﬁ t in Associate Extraordinary proﬁ t/loss Net Proﬁ t Segment assets Unallocated assets Total assets Segment liabilities Unallocated liabilities Total liabilities Net assets 835.28 5,179.76 (16.39) 271.34 6,269.99 2,051.48 1.27 - 4,219.78 108,080.13 117,651.99 58,282.48 232.91 284,247.51 1,169.00 285,416.51 116,445.51 51,260.24 94,207.91 33.40 261,947.06 (8,365.38) 66,391.75 (35,925.43) 199.51 22,681.71 787.74 262,734.80 Capital Expenditure for the year Depreciation on ﬁ xed assets for the year 20.30 20.67 97.08 215.00 98.77 220.80 7.33 7.91 339.71 348.15 142 Geographic Segments Domestic International Total 31 March, 2013 31 March, 2012 31 March, 2013 31 March, 2012 31 March, 2013 31 March, 2012 (` in crores) Revenue Assets 31,873.52 25,854.07 2,161.26 1,628.02 34,034.78 27,482.09 303,396.13 253,105.72 37,161.60 32,310.79 340,557.73 285,416.51 2.1.8 Related party disclosure The related parties of the Group are broadly classiﬁ ed as: a) Promoters The Bank has identiﬁ ed the following entities as its Promoters: • Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (UTI-1) • Life Insurance Corporation of India (LIC) • General Insurance Corporation and four Government-owned general insurance companies - New India Assurance Co. Limited, National Insurance Co. Limited, United India Insurance Co. Limited and The Oriental Insurance Co. Limited. b) Key Management Personnel • Mrs. Shikha Sharma (Managing Director & Chief Executive Ofﬁ cer) • Mr. Somnath Sengupta [Executive Director & Head (Corporate Centre)] with effect from 15 October, 2012 • Mr. V. Srinivasan [Executive Director & Head (Corporate Banking)] with effect from 15 October, 2012 c) Relatives of Key Management Personnel Mr. Sanjaya Sharma, Mrs. Usha Bharadwaj, Mr. Tilak Sharma, Ms. Tvisha Sharma, Dr. Sanjiv Bharadwaj, Dr. Prashant Bharadwaj, Dr. Brevis Bharadwaj, Dr. Reena Bharadwaj, Mrs. Chaitaly Sengupta, Ms. Renukona Sengupta, Mr. Niloy Sengupta, Mrs. Gayathri Srinivasan, Mrs. Vanjulam Varadarajan, Mr. V. Satish, Mrs. Camy Satish, Ms. Ananya Srinivasan, Ms. Anagha Srinivasan, Mr. Kuppusamy, Mrs. Komalavalli, Mrs. Ranganayagi, Mr. Srinivasa Raghavan, Ms. Geetha N., Ms. Chitra R., Ms. Sumathi N., Mr. S. Narayanan, Mr. S. Ranganathan and Mr. R. Narayan. d) Associate • Bussan Auto Finance India Private Limited Based on RBI guidelines, details of transactions with Associates are not disclosed since there is only one entity/party in this category. [Refer Schedule 17(2)] 143 The details of transactions of the Bank with its related parties during the year ended 31 March, 2013 are given below: Items/Related Party Promoters Dividend paid Dividend received Interest paid Interest received Investment of the Bank Investment of related party in the Bank Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Redemption of Subordinated Debt Purchase of investments Sale of investments Management contracts Contribution to employee beneﬁ t fund Purchase of ﬁ xed assets Sale of ﬁ xed assets Non-funded commitments Advance granted (net) Advance repaid Receiving of services Rendering of services Other reimbursements from related party Other reimbursements to related party 247.25 - 768.37 0.02 - 811.47 1,000.00 90.00 - 1,442.84 - 14.58 - - 0.06 - 15.51 60.79 2.07 - - Key Management Personnel 0.02 - 0.16 0.10 - 4.60 Relatives of Key Management Personnel - - 0.03 - - - - - - - 4.25 - - - - - 0.14 - - - - - - - - - - - - - - - - - - - (` in crores) Total 247.27 - 768.56 0.12 - 816.07 1,000.00 90.00 - 1,442.84 4.25 14.58 - - 0.06 - 15.65 60.79 2.07 - - The balances payable to/receivable from the related parties of the Bank as on 31 March, 2013 are given below: Items/Related Party Promoters Key Management Personnel - 4.23 - 2.04 - 0.08 - Relatives of Key Management Personnel - 0.51 - - - - - (` in crores) Total - 9,920.16 0.16 30.17 - 158.60 3.07 - 9,915.42 0.16 28.13 - 158.52 3.07 3,817.30 - - - - - - - - - - - 3,817.30 - - - Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Advance for rendering of services Other receivables Other payables 144 The maximum balances payable to/receivable from the related parties of the Bank during the year ended 31 March, 2013 are given below: Items/Related Party Promoters Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Other receivables Other payables Key Management Personnel - 9.01 - 2.16 - 0.08 - Relatives of Key Management Personnel - 3.91 - - - - - (` in crores) Total - 9,928.34 0.16 48.70 - 158.60 3.07 - 9,915.42 0.16 46.54 - 158.52 3.07 3,817.30 - - - - - - - - 3,817.30 - - The details of transactions of the Bank with its related parties during the year ended 31 March, 2012 are given below: Items/Related Party Promoters Dividend paid Dividend received Interest paid Interest received Investment of the Bank Investment of related party in the Bank Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Redemption of Subordinated Debt Purchase of investments Sale of investments Management contracts Contribution to employee beneﬁ t fund Purchase of ﬁ xed assets Sale of ﬁ xed assets Non-funded commitments Advance granted (net) Advance repaid Receiving of services Rendering of services Other reimbursements from related party Other reimbursements to related party 214.22 - 540.45 0.02 - - - - - 244.81 - 13.75 - - - 0.64 - 51.49 1.65 - 1.02 Key Management Personnel Relatives of Key Management Personnel 0.06 - - - 0.01 0.03 - 0.01 - - - 1.84 - - - - 5.51 - - - - - 0.03 - - - - - - - - - - - - - - - - - - - (` in crores) Total 214.28 - 540.49 0.03 - 1.84 - - - 244.81 5.51 13.75 - - - 0.64 0.03 51.49 1.65 - 1.02 145 The balances payable to/receivable from the related parties of the Bank as on 31 March, 2012 are given below: Items/Related Party Promoters Borrowings from the Bank Deposits with the Bank Placement of deposits Advances Investment of the Bank Investment of related party in the Bank Non-funded commitments Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Advance for rendering of services Other receivables Other payables - 5,693.55 0.16 43.65 - 154.44 3.01 2,837.30 - - - Key Management Personnel Relatives of Key Management Personnel (` in crores) Total - 0.31 - 0.24 - 0.02 - - - - - - - 0.26 5,694.12 - - - - - - - - - 0.16 43.89 - 154.46 3.01 2,837.30 - - - The maximum balances payable to/receivable from the related parties of the Bank during the year ended 31 March, 2012 are given below: Items/Related Party Promoters Key Management Personnel Relatives of Key Management Personnel (` in crores) Total Borrowings from the Bank Deposits with the Bank Placement of deposits - - - - 5,693.55 1.24 2.70 5,697.49 0.16 - - 0.16 Advances 48.22 0.27 - 48.49 Investment of the Bank - - - - Investment of related party in the Bank 155.12 0.05 - 155.17 Non-funded commitments 3.01 - - 3.01 Investment of related party in Subordinated Debt/Hybrid Capital of the Bank Other receivables Other payables 2.1.9 Leases 2,837.30 - - 2,837.30 - - - - - - - - Disclosure in respect of assets given on operating lease The Group has not given any asset on operating lease. Disclosure in respect of assets taken on operating lease 146 Operating lease comprises leasing of ofﬁ ce premises/ATMs, cash deposit machines, staff quarters, electronic data capturing machines and IT equipment. Future lease rentals payable as at the end of the year: - Not later than one year - Later than one year and not later than ﬁ ve years - Later than ﬁ ve years Total of minimum lease payments recognised in the Proﬁ t and Loss Account for the year There are no provisions relating to contingent rent. (` in crores) 31 March, 2013 31 March, 2012 591.44 1,731.72 831.28 473.36 1,393.03 724.95 613.67 570.35 The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements. 2.1.10 Other Fixed Assets (including furniture & ﬁ xtures) The movement in ﬁ xed assets capitalised as application software is given below: Particulars At cost at the beginning of the year Additions during the year Deductions during the year Accumulated depreciation as at 31 March Closing balance as at 31 March Depreciation charge for the year (` in crores) 31 March, 2013 31 March, 2012 391.34 80.78 (1.22) 341.11 58.64 (8.41) (318.58) (262.11) 152.32 56.16 129.23 57.32 2.1.11 The major components of deferred tax assets and deferred tax liabilities arising out of timing differences are as under: (` in crores) As at 31 March, 2013 31 March, 2012 Deferred tax assets on account of provisions for doubtful debts Deferred tax assets on account of amortization of HTM investments Deferred tax assets on account of provision for employee beneﬁ ts Other deferred tax assets Deferred tax assets Deferred tax liability on account of depreciation on ﬁ xed assets Deferred tax liabilities Net deferred tax asset 924.57 192.52 106.76 180.43 1,404.28 26.19 26.19 743.17 184.09 82.60 40.65 1,050.51 23.07 23.07 1,378.09 1,027.44 147 2.1.12 Employee Beneﬁ ts Group Provident Fund The contribution to the employee’s provident fund of the Group amounted to `86.96 crores for the year ended 31 March, 2013 (previous year `71.81 crores) Axis Bank Ltd. The rules of the Bank’s Provident Fund administered by a Trust require that if the Board of Trustees are unable to pay interest at the rate declared for Employees’ Provident Fund by the Government under para 60 of the Employees’ Provident Fund Scheme, 1952 for the reason that the return on investment is less or for any other reason, then the deﬁ ciency shall be made good by the Bank. Based on an actuarial valuation conducted by an independent actuary, there is no deﬁ ciency as at the Balance Sheet date for the Bank. The principal assumptions used by the actuary are as under: Discount rate for the term of the obligation Average historic yield on the investment portfolio Discount rate for the remaining term to maturity of the investment portfolio Expected investment return Guaranteed rate of return Superannuation 31 March, 2013 31 March, 2012 7.90% 9.13% 7.94% 9.09% 8.50% 8.35% 9.09% 8.45% 8.99% 8.25% The Bank contributed `14.58 crores to the employee’s superannuation plan for the year ended 31 March, 2013 (previous year `14.07 crores). Group Leave Encashment The actuarial liability of compensated absences of accumulated privileged and sick leaves of the employees of the Group is given below. As at 31 March, 2013 Axis Bank Ltd. Axis Capital Ltd. 313.92 22.80 336.72 0.10 - 0.10 7.90% p.a. 7.00% p.a. 7.80% p.a. 6.00% p.a. Privileged leave Sick leave Total actuarial liability Assumptions Discount rate Salary escalation rate 148 As at 31 March, 2012 Axis Bank Ltd. Axis Capital Ltd. 252.40 20.26 272.66 0.12 - 0.12 8.35% p.a. 6.00% p.a. 9.20% p.a. 6.00% p.a. Axis Trustee Services Ltd. -* - -* N.A. N.A. Privileged leave Sick leave Total actuarial liability Assumptions Discount rate Salary escalation rate *amount less than `50,000 Group Gratuity The following tables summarize the components of net beneﬁ t expenses recognised in the Proﬁ t and Loss Account and the funded status and amounts recognised in the Balance Sheet for the Gratuity beneﬁ t plan. Proﬁ t and Loss Account Net employee beneﬁ t expenses (recognised in payments to and provisions for employees) Current Service Cost Interest on Deﬁ ned Beneﬁ t Obligation Expected Return on Plan Assets Net Actuarial Losses/(Gains) recognised in the year Past Service Cost Total included in “Employee Beneﬁ t Expense” Actual Return on Plan Assets Balance Sheet Details of provision for gratuity Present Value of Funded Obligations Fair Value of Plan Assets Net Asset/(Liability) Amounts in Balance Sheet Liabilities Assets Net Asset/(Liability) (` in crores) 31 March, 2013 31 March, 2012 18.49 9.30 (7.65) 17.89 5.50 43.53 9.63 12.03 5.56 (4.85) 23.91 (3.72) 32.93 5.31 (` in crores) 31 March, 2013 31 March, 2012 (147.25) 152.17 4.92 (3.70) 8.62 4.92 (94.82) 98.21 3.39 (1.12) 4.51 3.39 149 Changes in the present value of the deﬁ ned beneﬁ t obligation are as follows: Change in Deﬁ ned Beneﬁ t Obligation Opening Deﬁ ned Beneﬁ t Obligation Current Service Cost Interest Cost Actuarial Losses/(Gains) Past Service Cost Liabilities assumed on acquisition Beneﬁ ts Paid Closing Deﬁ ned Beneﬁ t Obligation Changes in the fair value of plan assets are as follows: (` in crores) 31 March, 2013 31 March, 2012 94.83 18.49 9.29 19.91 5.50 5.85 (6.62) 147.25 61.42 12.03 5.56 24.39 (3.72) - (4.85) 94.83 (` in crores) 31 March, 2013 31 March, 2012 98.21 7.65 2.02 46.08 4.83 (6.62) 152.17 63.62 4.85 0.48 34.12 - (4.86) 98.21 (` in crores) Opening Fair Value of Plan Assets Expected Return on Plan Assets Actuarial Gains/(Losses) Contributions by Employer Assets acquired on acquisition Beneﬁ ts Paid Closing Fair Value of Plan Assets Experience adjustments Deﬁ ned Beneﬁ t Obligations Plan Assets Surplus/(Deﬁ cit) Experience Adjustments on Plan Liabilities Experience Adjustments on Plan Assets Axis Bank Ltd. 31 March, 2013 31 March, 2012 31 March, 2011 31 March, 2010 31 March, 2009 147.25 152.17 4.92 4.66 2.07 94.82 98.21 3.39 27.31 0.48 61.43 63.62 2.19 1.55 (0.78) 43.02 44.08 1.06 1.27 0.46 36.49 29.83 (6.66) 3.30 (0.73) Major categories of plan assets (managed by Insurers) as a percentage of fair value of total plan assets Government securities Bonds, debentures and other ﬁ xed income instruments Money market instruments Equity shares Others 150 31 March, 2013 % 40.87 38.48 18.45 2.20 - 31 March, 2012 % 42.81 43.85 9.89 2.31 1.14 Principal actuarial assumptions at the balance sheet date: Discount Rate Expected rate of Return on Plan Assets Salary Escalation Rate Employee Turnover - 21 to 30 (age in years) - 31 to 44 (age in years) - 45 to 59 (age in years) 31 March, 2013 31 March, 2012 7.90% p.a. 7.50% p.a. 7.00% p.a. 20.14% 10.00% 1.00% 8.35% p.a. 7.50% p.a. 6.00% p.a. 20.41% 10.00% 1.00% The estimates of future salary increases considered take into account the inﬂ ation, seniority, promotion and other relevant factors. The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations. As the contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is based on various internal/external factors, a best estimate of the contribution is not determinable. The above information is as certiﬁ ed by the actuary and relied upon by the auditors. Axis Capital Ltd. The major categories of plan assets* as a percentage of fair value of total plan assets – Insurer Managed Funds *composition of plan assets is not available Principal actuarial assumptions at the balance sheet date: Discount Rate Expected rate of Return on Plan Assets Salary Escalation Rate Employee Turnover - 21 to 44 (age in years) - 45 to 59 (age in years) 31 March, 2013 100.00 31 March, 2012 100.00 31 March, 2013 31 March, 2012 7.80% p.a. 7.50% p.a. 6.00% p.a. 9.20% p.a. 7.50% p.a. 6.00% p.a. 70.00% p.a. 1.00% p.a. 60.00% p.a. 1.00% p.a. The estimates of future salary increases, considered in actuarial valuation, take account of inﬂ ation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled. The Company expects to contribute `0.50 crore as gratuity in the year 2013-14. Axis Asset Management Company Ltd. Principal actuarial assumptions at the balance sheet date: Discount Rate Expected rate of Return on Plan Assets Salary Escalation Rate Employee Turnover 31 March, 2013 31 March, 2012 7.94% p.a. 8.18% p.a. N.A. 9.00% p.a. 10.00% p.a. N.A. 10.00% p.a. 10.00% p.a. 151 The estimates of future salary increases, considered in actuarial valuation, take account of inﬂ ation, seniority, promotion and other relevant factors, such as supply and demand in the employment market. Axis Securities Limited Principal actuarial assumptions at the balance sheet date: Discount Rate Expected rate of Return on Plan Assets Salary Escalation Rate Employee Turnover 31 March, 2013 7.80% p.a. N.A. 6.00% p.a. 7.00% p.a. The estimates of future salary increases considered take into account the inﬂ ation, seniority, promotion and other relevant factors. The expected rate of return on plan assets is based on the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations. 2.1.13 Provisions and contingencies a) Movement in provision for frauds included under other liabilities is set out below: Opening balance at the beginning of the year Additions during the year Reductions on account of payments during the year Reductions on account of reversals during the year Closing balance at the end of the year (` in crores) 31 March, 2013 31 March, 2012 17.35 4.57 (5.57) (2.38) 13.97 4.99 12.40 (0.02) (0.02) 17.35 b) Other liabilities include provision for debit/credit card reward points, the movement of which is set out below: Opening provision at the beginning of the year Provision made during the year Reductions during the year Closing provision at the end of the year c) Movement in provision for other contingencies is set out below: Opening provision at the beginning of the year Provision made during the year Reductions during the year Closing provision at the end of the year (` in crores) 31 March, 2013 31 March, 2012 43.28 28.03 (3.42) 67.89 25.01 20.28 (2.01) 43.28 (` in crores) 31 March, 2013 31 March, 2012 0.81 561.55 (180.57) 381.79 36.44 0.38 (36.01) 0.81 The above provision includes contingent provision for advances/other exposures, legal cases and other contingencies. 152 2.1.14 Description of contingent liabilities: a) Claims against the Group not acknowledged as debts These represent claims ﬁ led against the Group in the normal course of business relating to various legal cases currently in progress. These also include demands raised by income tax and other statutory authorities and disputed by the Group. b) Liability on account of forward exchange and derivative contracts The Bank enters into foreign exchange contracts, currency options/swaps, interest rate/currency futures and forward rate agreements on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash ﬂ ows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange ﬁ xed and ﬂ oating interest rate cash ﬂ ows. Interest rate futures are standardised, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a speciﬁ ed price, on a speciﬁ ed future date. Forward rate agreements are agreements to pay or receive a certain sum based on a differential interest rate on a notional amount for an agreed period. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a speciﬁ ed amount of currency at a speciﬁ c price within a speciﬁ ed time period or at a speciﬁ ed future time. An Exchange Traded Currency Option contract is a standardised foreign exchange derivative contract, which gives the owner the right, but not the obligation, to exchange money denominated in one currency into another currency at a pre- agreed exchange rate on a speciﬁ ed date on the date of expiry. Currency Futures contract is a standardised, exchange-traded contract, to buy or sell a certain underlying currency at a certain date in the future, at a speciﬁ ed price. c) Guarantees given on behalf of constituents As a part of its banking activities, the Bank issues guarantees on behalf of its customers to enhance their credit standing. Guarantees represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulﬁ ll its ﬁ nancial or performance obligations. d) Acceptances, endorsements and other obligations These include documentary credit issued by the Bank on behalf of its customers and bills drawn by the Bank’s customers that are accepted or endorsed by the Bank. e) Other items for which the Group is contingently liable Other items represent outstanding amount of bills rediscounted by the Bank, estimated amount of contracts remaining to be executed on capital account and commitments towards underwriting and investment in equity through bids under Initial Public Offering (IPO) of corporates as at the year end. 153 2.1.15 Statement pursuant to Section 212 of the Companies Act, 1956, relating to subsidiary companies. In terms of General Circular No. 2/2011 of the Ministry of Corporate Affairs, Government of India dated 8 February, 2011. (` in crores) For the year ended 31 March, 2013 Axis Capital Ltd. Axis Private Equity Ltd. Axis Trustee Services Ltd. Axis Mutual Fund Trustee Ltd. Axis Asset Management Company Ltd. Capital Reserves and Surplus 145.00 89.31 15.00 5.30 1.50 27.87 0.05 0.08 174.00 (123.98) Axis Finance Private Ltd. (formerly Enam Finance Pvt. Ltd.) Axis Securities Ltd.^ Enam Securites Europe Ltd.^@ 5.75 124.78 23.00 (0.23) 8.22 7.30 Axis U.K. Ltd.@ -* - Total Assets (Fixed Assets + Investments + Other Assets) Total Liabilities (Borrowings + Other Liabilities + Provisions) Investments Total Income Proﬁ t/(Loss) Before Taxation Provision for Taxation Proﬁ t/(Loss) After Taxation Proposed Dividend and Tax (including cess thereon) 600.27 20.63 39.69 0.15 103.76 17.48 130.82 46.71 15.60 365.96 49.85 393.69 162.79# 6.07 156.72 0.33 -* 9.77 1.87 0.36 1.51 10.32 - 24.15 18.34 5.90 12.44 - - 2.19 0.02 0.11 0.14 -* -* -* - 53.74 22.12 60.25 (6.34) - (6.34) - 17.48 - - - - - - 0.29 - 16.27 15.46 5.21 10.25 23.94 0.08 - 13.38 (2.40) -* (2.40) - - (0.08) 0.01 (0.07) - - - @ Amount in INR equivalent of GBP (£1 = `82.2275 as on 31 March, 2013) ^ Axis Securities Ltd. and Enam Securities Europe Ltd. are wholly owned subsidiaries of Axis Capital Ltd. (a wholly owned * # subsidiary of Axis Bank Ltd.) amount less than `50,000 includes `130.23 crores of proﬁ t of business acquired under demerger from appointed date i.e. 1 April, 2010 to 31 March, 2012 2.1.16 Comparative Figures Previous year ﬁ gures have been regrouped and reclassiﬁ ed, where necessary to conform to current year’s presentation. For Axis Bank Ltd. Sanjiv Misra Chairman K. N. Prithviraj Director V. R. Kaundinya Director S. B. Mathur Director Samir K. Barua Director Shikha Sharma Managing Director & CEO Somnath Sengupta Executive Director & Head (Corporate Centre) V. Srinivasan Executive Director & Head (Corporate Banking) P. J. Oza Company Secretary Sanjeev K. Gupta President & CFO Date : 24th April, 2013 Place: Mumbai 154 BUSINESS RESPONSIBILITY REPORT Section A General Information Axis Bank (henceforth referred to as “the Bank”) is a private sector bank which, as on 31st March 2013, has 1,947 domestic branches including extension counters and 11,245 ATMs spread across the country. The Bank also has branches in Singapore, Hong Kong, DIFC (Dubai International Financial Centre) and Colombo, as well as representative offices in Shanghai, Dubai and Abu Dhabi. The Bank has six subsidiaries in India in the financial services sector and one subsidiary in the United Kingdom - Axis U.K. Limited, which as on 31st March 2013 had not yet commenced operations. The three major product and service categories offered by the Bank are: a. Deposits b. Loans c. Investments and foreign exchange Corporate Identity Number L65110GJ1993PLC020769 Name of the Company Axis Bank Limited Registered Office Website E-mail id “TRISHUL”, Third Floor, Opp. Samartheshwar Temple, Law Garden, Ellisbridge, Ahmedabad - 380 006 www.axisbank.com brr@axisbank.com Financial Year reported 2012-13 Sector Section B Financial Information National Industrial Classification 2008 Section K : Financial and Insurance Activities Code : 64191 The Bank has a balance sheet size of `340,560.66 crores, and paid-up capital of `467.95 crores as on 31st March 2013. The Bank earned a total income of `33,733.68 crores for the financial year 2012-13 and the profit after tax for the year was `5,179.43 crores. The Corporate Social Responsibility (CSR) initiatives of the Bank are channeled through Axis Bank Foundation (ABF), a Trust which gives strategic direction to the philanthropic activities of the Bank. ABF participates in various socially relevant endeavors in the fields of education, sustainable livelihoods, public health and medical relief with focus on the underprivileged sections of society. The Bank contributes upto one per cent of its net profit after tax annually to the Foundation for its CSR initiatives, and the amount contributed for the year 2012-13 is `42.42 crores. Details of the initiatives that the Bank has undertaken are detailed in Section E of this report, under “Principle 8 – Impact on Social and Economic Development”. Section C Subsidiaries & Other Entities The Bank has six subsidiaries in India and one in the UK, which have been set up to look after various banking-related ancillary functions such as retail asset sales, retail broking, managing equity investments, providing venture capital support to businesses, trusteeship activities and the mutual fund business. These subsidiaries are relatively small at present and their involvement in the Bank’s BR initiatives has, therefore, been proportional to their size. 155 Section D Business Responsibility Governance Director responsible for implementation of the BR policy DIN Number Name Designation 02150691 Shri Somnath Sengupta Executive Director & Head (Corporate Centre) Business Responsibility Head DIN Number Name Designation N.A. Shri C. Babu Joseph ET & CEO (Axis Bank Foundation) Telephone number e-mail id 91-22-2425 2201 brr@axisbank.com The Sustainability Committee will meet at least half-yearly to evaluate the Bank’s sustainability and CSR policies, programs and performance. Scope of the BR Report The report primarily covers the activities of the Bank during financial year 2012-13, as well as any initiatives that commenced earlier but have led to outcomes during 2012-13. This is the first Business Responsibility Report of the Bank and will be published, henceforth, on an annual basis. The report forms part of Annual Report of the Bank for the financial year 2012-13 which is available at www.axisbank.com under the Section Shareholders’ Corner. Principle-wise Policies Questions Remarks Does the Bank have policy/policies for principles laid down in National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business? Has the policy been formulated in consultation with the relevant stakeholders? Does the policy conform to any national/international standards? Has the policy been approved by the Board? If yes, has it been signed by MD/owner/CEO/appropriate Board Director? Does the Bank have a specified committee of the Board/ Director/Official to oversee the implementation of the policy? The Bank has drawn up a Sustainable Development and Corporate Social Responsibility Policy based on the principles of National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business. The Policy has been framed taking into account the expectations of diverse stakeholders, recognizing the needs of society and the environment. The Bank’s Sustainable Development and CSR Policy is based upon the National Voluntary Guidelines on Social, Environmental and Economic Responsibilities of Business issued by the Ministry of Corporate Affairs, Government of India in July 2011. The Sustainable Development and CSR Policy has been approved by the Board and signed by the MD & CEO. The Bank has a Sustainable Development and CSR Committee to oversee the implementation of the Policy. Sr. No. 1 2 3 4 5 156 Questions Sr. No. Remarks 6 7 8 9 Link for the policy to be viewed www.axisbank.com Has the policy been formally communicated to all relevant internal and external stakeholders? Does the Bank have in-house structure to implement the policy/policies? The Bank’s Sustainable Development and CSR Policy is made available to all internal and external stakeholders through the Bank’s official website : www.axisbank.com The Bank has constituted a Sustainable Development and CSR Committee comprising senior officials of the Bank to monitor the implementation of the Policy and provide guidance for fulfillment of the Bank’s social responsibility. The Committee is headed by the Executive Director & Head (Corporate Centre.) Does the Bank have a grievance redressal mechanism related to the policy/policies to address stakeholders’ grievances related to the policy/policies? Grievances are to be brought to the notice of the Business Responsibility Head as mentioned in Section D - Governance. 10 Has the Bank carried out independent audit/evaluation of the working of this policy by an internal or external agency? The Bank has formulated a Sustainable Development and CSR Policy. The effectiveness of the Policy will be evaluated in future. recently Section E Principle-wise Performance Principle 1 - Governance It has been the endeavor of the Bank to attain corporate governance standards of the highest level. A major part of the recommendations contained in the Corporate Governance Voluntary Guidelines (2009) issued by the Ministry of Corporate Affairs have been adopted by the Bank and we are presently evaluating the process and means of implementing any residual recommendation of the Guidelines. The Bank has put in place various Codes of Conduct such as Fair Practices Code, Code of Commitment to its Customers, Code of Right Selling for Liability & Investment Products, Code of Banks’ Commitment to Micro and Small Enterprises and Code of Conduct for Direct Selling. The Employees’ Code of Conduct of the Bank lays down expected behaviour from employees of the Bank (including those on deputation to subsidiaries and other organisations) and covers the aspects of ethics, bribery and corruption. The Code guides employees to discharge their duties with integrity, honesty, devotion and diligence and to not act in a manner unbecoming of an employee of the Bank, or in a manner that is likely to tarnish the image of the Bank. Subsidiary companies have also adopted the Code of Conduct of the Bank for their employees. The Bank has put in place grievance redressal mechanisms to ensure that customer and employee concerns are addressed promptly and fairly. The Bank has also put in place a policy and framework to enable responsible and secure whistle blowing, intended to encourage employees to report suspected or actual occurrence of illegal, unethical or inappropriate action, behaviour or practices by staff without fear of retribution or reprisal. Principle 2 – Sustainability of Products and Services The Bank has recently adopted an “Environment & Social Safeguard Policy” (ESSP), for carrying out environmental and social due diligence, formulated in compliance with the International Finance Corporation (IFC) Performance Standards. The Bank, by developing and offering financial products and services that, directly or indirectly, lead to long-term environmental benefit and social development, is committed to providing banking services to a wider section of population. Social Commitment The Bank offers products and services that serve the under-privileged and vulnerable groups, a few of which are listed below: 157 (cid:2) Electronic Benefit Transfer (EBT) The Bank facilitates the disbursement of Government grants (wages/pension) directly to beneficiaries in unbanked areas, by opening accounts for beneficiaries and providing Smart Cards to them. This facilitates assimilation of the section of population in unbanked and under banked areas into the formal banking system. (cid:2) Remittances The Bank uses a Banking Correspondent model to facilitate fund transfers by migrant workers in urban areas to their dependents in their native villages/towns. This is carried out either the same day or the next working day at a nominal cost. (cid:2) Micro Loans and Insurance The Bank has recently started disbursing micro loans at the village level in unbanked and under banked areas, with the first such project in the state of Tamil Nadu, covering more than 100 villages. The objective is to encourage sustainable economic activity leading to generation of income. The following types of loans are covered under the project. a. Joint Liability Group: A group of 5 borrowers is formed and the loan is extended to the individual members. The liability of repayment is jointly shared by the group members. b. Micro Enterprise Loans: Loans are granted to individual borrowers engaged in retailing (shopkeepers, hawkers etc.). c. Micro Cattle Term Loan: These loans are granted for the purchase of cattle. (cid:2) Micro Insurance The project to provide affordable insurance has been implemented in the migrant-intensive urban pockets of Delhi, Chennai and Bengaluru. Two types of insurance are extended by the Bank. a. Group Term Life Insurance b. Accidental Insurance The project provides insurance coverage to the disadvantaged and low-income group of people such as labourers and artisans at low premium. Environmental Commitment The ESSP sets guardrails for environmental and social considerations while appraising and financing projects which may help prevent or mitigate any adverse impact/risk to the environment or people. Disbursement to a project is made only after ensuring it has MoEF (Ministry of Environment and Forests)/environmental approvals for the commencement of work. The Bank has negotiated a Line of Credit of USD 70 million from IFC to facilitate the funding of projects in renewable energy, clean technology and other energy-efficiency projects. A snapshot of the funding for implementation of renewable energy projects as on 31st March 2013 is as under: Wind Power Solar Power Biomass Mini-Hydel Total Power Generation Capacity (MW) Outstanding ( ` crores) 476 275 73 84 908 998 412 228 100 1,738 The Bank has extended corporate banking/credit related services to private companies towards funding or part-funding of projects for setting up units for solid waste management through processing, conversion and disposal. It is ensured that in the Bank’s Corporate Office itself waste and sewage generated by the Bank is handled in an environment-friendly manner. 158 Local Procurement The Bank aims at local procurement, supporting a supply chain that contributes to the economic development of the communities in which it operates, encouraging procurement from small and medium size enterprises (SMEs). Principle 3 – Employee Well-being Employee demographics GENDER-WISE BREAKUP Female Male The total manpower of the Bank as on 31st March 2013 was 37,901. 19% Employee Category Permanent employees Temporary/contract/casual workforce Employee Category Female employees Disabled employees Employee Welfare Number 37,901 - Number 7,117 108 81% The employees of the Bank are its most important asset and the organization ensures that it meets its moral, legal, ethical and humanitarian responsibilities towards them. Axis Bank group (the Bank and its subsidiaries) does not employ any person below the age of 18 (eighteen) years at the workplace. No employee of the Bank is made to work against his/her will, or is subject to corporal punishment or to coercion of any type related to work. The Bank is an equal opportunity employer and is committed to hiring, developing and promoting individuals who best meet the requirements of available positions, possess the required competencies, experience and qualifications to carry out the assigned tasks and have the potential for growth within the organization. Complaints Regarding Labour Practices The Bank conducts a number of employee engagement initiatives aimed at promoting employee well-being. It focuses on effective employee communication, encouraging and facilitating resolution of complaints and grievances, and fostering bonding between employees and their families. Medical facilities are available at the Corporate Office to ensure that any health concerns are adequately addressed. The Bank takes all necessary measures to ensure a harassment-free workplace and has instituted a Complaints Redressal Committee for redressal of complaints and to prevent sexual harassment. Employee Associations While the Bank respects the right of ‘Freedom of Association’ and collective bargaining, there is at present no employees’ union. The Bank ensures that employee grievances are received and addressed through various means such as the Whistle blower Policy and HResponse (a help desk for employee complaints to HR). Employee Training Programs Talent Management, Learning and Development and Employee Engagement have been key focus areas for the Bank. With an eye towards developing and providing trained manpower through a cost-effective and time-efficient process, the Bank has created alternate talent pipelines by entering into arrangements with Training and Education Institutes. The Bank has also built up learning infrastructure to ensure availability of skilled and empowered workforce. Learning at Axis The Learning and Development Team at the Bank is geared towards facilitating the learning process across all levels through a blended learning approach of classroom programs, external programs, certification programs and e-learning modules. 159 The following table indicates the number of employees who have undergone skill upgradation training in the past year. Skill upgradation Permanent male employees Permanent female employees 19,349 4,683 The Bank conducts regular training for safety and security measures like emergency evacuation drills, fire / life safety training, first-aid training at Corporate Office/other locations. Sessions are also arranged at the branch level through security service providers. Leadership Development As part of the leadership development initiative, the Bank has partnered with best-in-class leadership trainers of the country to coach key position holders and unit heads in the Bank on fundamentals of managing self and team leadership through a series of ‘Inspired Leadership’ workshops. Young Talent Development Axis Ahead, the Management Trainee program, has been in operation from 2001 and is designed to provide training across departments and locations for a holistic learning experience to the young managers who join the Bank every year from premier B-schools across India. The learning is “experiential” in nature and is not limited to job-related skills and competencies alone. Principle 4 – Responsiveness towards our Stakeholders With a wide geographical reach and large range of financial products and services, the Bank engages with numerous stakeholders, including shareholders and investors, customers, employees, suppliers, local communities, regulatory entities, government and policy makers. The engagement with multiple stakeholders occurs on an ongoing basis through formal and informal channels. The Bank has also recently launched an online platform called ProgressTogether.in to leverage the power and reach of social media to build a seamless connect and engagement experience with various stakeholders. Employee Engagement The Bank has been conducting its annual Employee Engagement Study for several years, which seeks to capture and analyze employee concerns and draw up action plans to address them. The Bank uses a third-party framework, globally regarded as one of the best, for administering and analyzing the results of the study, with a focus on measuring and improving Employee Engagement Quotient. Apart from these steps, the Bank undertakes other employee engagement initiatives such as conducting Intra-bank events and celebrating festivals and special days. Engagement with marginal groups The Bank understands that some stakeholder groups may be considered marginal because of their relatively lower numbers, power, affluence, etc. The Bank has put in place methods and mechanisms to cater to such groups within its capacity as a financial services provider. Reaching out to Micro, Small and Medium Enterprises The Bank is engaged in reaching out to Micro, Small and Medium Enterprises (MSME), which are recognized as playing an important role in the economic activity of the country. Apart from specialized financial products and services offered to this segment, the Bank has instituted the “Business Gaurav Awards” (in partnership with Dun & Bradstreet Information Services India Pvt. Ltd.) to recognize top performing MSMEs. The top performing business entity in each category across 14 sectors is recognized and awarded. The Bank is committed towards increased lending to priority sectors and towards this end, the Bank has designed simplified products for faster credit delivery at concessional pricing. Principle 5 – Rights of stakeholders The Bank’s commitment to its stakeholders is manifested through its Sustainable Development and Corporate Social Responsibility Policy and bears the responsibility of behaving as a conscientious corporate citizen across all geographies and demographic categories. 160 Customers The Bank has high standards for its conduct of business, in order to ensure that interactions with all customers are based on ethics and integrity. The values of the Bank and its Code of Conduct guide business operations and customer relationships. Supply Chain and Network The Bank is dependent on numerous partners and suppliers, who help the Bank compete more effectively in the marketplace. The Bank and its subsidiaries are expected to manage their businesses with high ethical standards and respect for human rights. Communities The Bank is mindful of the people and environment that may potentially be affected by its business and aims to be a positive influence in communities. Principle 6 – Caring for the Environment The banking sector has a lower environmental impact than many other sectors of the economy. Nevertheless, there is wholesome and sincere effort by the Bank to ensure that its operational, procurement and consumption practices are environment-friendly to the extent possible. Axis House At its Corporate Office located in Mumbai, the Bank has made a significant endeavor in contributing to a cleaner environment, with Axis House being designed and constructed as a Platinum LEED-Certified “green building”. Listed below are some of the practices followed at Axis House that lead to a considerably lower impact on the environment. • Renewable energy is generated through solar power plant • Renewable energy is used to power emergency lights • Use of natural light is maximised • All light fixtures are energy star-rated • Motion sensors are installed throughout the building • Sewage treatment plant has been installed for re-using waste water • Urinal and wash basin sensors installed • • Rainwater harvesting system has been installed Provision of quality indoor air for safety and comfort • Dry waste is recycled • Greenguard compliance certification obtained for furniture/fixtures & chairs. • Toxicity levels of carpets, furniture, chairs, paint and adhesives are low, contributing towards a safe and healthy environment for all occupants • Chairs and other office furniture are made of components with a high percentage of recycled materials Green Banking Over the past two years, the Bank has embedded in its culture, the practices of Green Banking, as part of the endeavor to carry out its part to protect the environment. In doing so, it has successfully brought the entire Axis Bank family together. 161 A few of the initiatives that have been taken under this program are outlined below. • Car-pooling initiative has been introduced to reduce carbon footprint • The Bank encourages customers to subscribe to the use of e-statements and other electronic formats in its communication1, significantly reducing paper consumption • Annual reports are being sent through e-mail: in the previous year, 61% of all shareholders received their annual reports via e-mail • Dry waste is collected at Axis House for recycling and manufacture of bio-degradable and eco-friendly bags and notepads • We have moved to e-greetings instead of the normal paper greetings sent earlier The Bank’s employees are trained and encouraged to follow the principles of Reduce, Reuse and Recycle in all decisions regarding consumption and which may lead to waste generation. The measures that arise out of these principles pay rich dividends by ensuring that a healthier environment is left for coming generations. The Bank has ensured that the emissions and wastes generated from its operations have always remained well within the limits specified by various local and national laws. The Bank has received no notices from any of the relevant Pollution Control Boards in this regard. The Bank’s environmental commitment in the lending function has also been outlined in Principle 2. Solar ATMs The Bank has recently initiated solar-based UPS for ten ATMs under its Independent ATM Deployment (IAD) model. These ATMs are deployed by Independent ATM Deployers in Coimbatore circle. The ATM uptime and overall performance of these ATMs is being analyzed for performance. Principle 7 – Policy Advocacy Policy advocacy is any effort to influence public policy by providing information, speaking to decision makers, demonstrating benefits for policy change and other such activities that encourage the adoption of the desired policy change. Policy advocacy for the Bank is not just about lobbying with government agencies to secure certain benefits - it is also about taking results and best practices and sharing them with the industry and larger society. Indian Banks Association (IBA) Fixed Income Money Market and Derivatives Association (FIMMDA) Foreign Exchange Dealers Association of India (FEDAI) The Bank is a member of various associations, among which are: • • • • Association of Investment Bankers of India (AIBI) • Confederation of Indian Industry (CII) • Associated Chambers of Commerce & Industry of India (ASSOCHAM) The Bank has been utilizing the collective platforms of such associations/bodies to undertake policy advocacy. 1 Account and credit card statements, welcome letters, Demat statements, loan payment schedules, password generation, duplicate password and pin generation process, etc. Principle 8 – Impact on Social and Economic Development Social initiatives The Bank carries out its Corporate Social Responsibility (CSR) initiatives under the aegis of the Axis Bank Foundation (ABF), which was set up in 2006 as a Public Trust. The Bank has been annually contributing upto 1% of its profits after tax to the Foundation. As of 31st March 2013, ABF has supported 96 NGOs and amounts disbursed under various programs aggregate to `81.97 crores. The Bank’s employees are also encouraged to actively participate in the various initiatives and projects undertaken by ABF. Axis Bank Foundation During the initial five years, the Foundation’s work was primarily focused on education. ABF partnered with sixty NGOs to provide equitable education to various underprivileged individuals across the country. ABF also supported public health and highway trauma care with three NGOs. In 2011, ABF ventured into providing sustainable livelihoods to the disadvantaged. ABF partnered with seventeen NGOs across the country, with an ambitious target of providing one million sustainable livelihoods by 2017. 162 Today ABF makes a significant difference in the lives of people across 163 districts in 19 states through 40 different Livelihood and Education programs. Our programs (cid:2) (cid:2) (cid:2) (cid:2) Education (cid:2) Balwadis Training the Trainers Supplementary Education Sustainable Livelihoods (cid:2) Agricultural and Extension Services Skill development Cooperatives Public Health and Medical Relief (cid:2) Highway Trauma Care Livelihood Programs: (cid:2) (cid:2) Vocational Training Pure Education (cid:2) Artisanal crafts (cid:2) Other programs (cid:2) Rural Medical Relief Providing sustainable livelihoods is a means to alleviate poverty and bring about positive changes in the socio-economic conditions of a community and of the country. Keeping in mind the need to address issues in regard to employment and employability, ABF focuses on developing and facilitating sustainable livelihoods. No. of programs Number of States covered Number of Districts covered Target beneficiaries (upto 2017) 17 17 136 ~6,23,000 20% SPREAD OF EXPENDITURE ON LIVELIHOOD PROGRAMS 29% 51% Agriculture Vocational training Others Indicative Project Project Name Region Coverage Purpose Target Beneficiaries Commitment Education Programs: Kherwadi Social Welfare Association West Maharashtra & Vidarbha Axis Bank Foundation in association with Kherwadi Social Welfare Association (KSWA) provides vocational training under various trades to the unmotivated school drop-outs and underprivileged youth under their “Yuva Parivartan (YP)” initiative. The target is to reach out to youths through 68 vocational training centres. 68,846 ~`25 crores The Bank believes that education is the key to alleviating poverty, and works with NGOs for children, making efforts to reach out to as many people as possible in the education space. It also aims to help create capabilities in terms of skills and employment opportunities for disadvantaged/differently-abled people. SPREAD OF EXPENDITURE ON EDUCATION PROGRAMS 34% 39% Supplementary education No. of programs Number of States covered Number of Districts covered 23 13 33 No. of beneficiaries ~60,000 27% Mentally/physically challenged beneficiaries Others 163 Indicative Project Name of Organization Region Coverage Purpose Target Beneficiaries Commitment Eklavya Foundation West 5 blocks of Madhya Pradesh (Shahpur, Hoshangabad, Pipariya, Harda, Dewas) Supporting the supplementary education of students in Classes 1 to 5 through 150 Shiksha Protsahan Kendras (SPKs) in 5 blocks of Madhya Pradesh. Besides the SPKs, Eklavya will work with 27 formal schools by using the Eklavya pedagogy thereby strengthening their performance and also work towards building partnerships with other NGOs to replicate the Eklavya model. 5,566 ~ `1 crore Public Health and Medical Relief The highway trauma care initiative of ABF has assisted ~11,000 major accident victims and ~7,000 minor accident victims till 31st March 2013. The program has a tie up with 289 ambulances, 139 hospitals and 85 police stations. The program covers ~4,200 kms across Rajasthan, Maharashtra, Kerala and Gujarat. Indicative Project Name of Organization Region Coverage Purpose Commitment Lifeline Foundation West, North, South Maharashtra, Rajasthan (Jaipur), Kerala (Cochin) and Gujarat Supporting the operation of Lifeline’s Highway Rescue Project ~`0.85 crores Employee Participation Besides supporting the philanthropic initiatives of ABF, the Bank also encourages employees to participate and become socially responsible citizens. ABF has an Officer Engagement Program, which includes a Payroll Program - “Axis Cares” and officers are also encouraged to get involved in various volunteering activities. In addition to these, ABF also organizes events like blood donation drives, clothes, books and toys collections, exhibitions of NGOs, talks by senior executives of the NGO partners, Talking Book Library etc. in order to involve Bank employees across the country, who are encouraged to actively participate. • • • Events are conducted across Corporate Office, circles and branches. Some events are driven by ABF centrally and others are decentralized at circle/branch level. Regular suggestions/inputs are given to Circle Heads/Branch Heads to carry out CSR activities in their geographical area. Branches provide support to programs that are conducted by ABF in their vicinity. Branches are encouraged to interact with our NGO partners and explore opportunities for volunteering in the program. Events Axis Cares (Payroll program of ABF) Green Banking initiatives NGO Exhibitions 164 Particulars ABF has a donor base of more than 7,500 individuals with a monthly collection of `14.63 lacs ABF recycles dry waste into note pads, note books and envelopes which are used at our Corporate Office and other branch offices. Till date, more than 100,000 kgs of dry waste has been recycled from the Corporate Office and 34 branch offices. This dry waste has been converted into about 12,000 eco-friendly note pads, note books and envelopes which are used at Corporate Office and branches of the Bank. 56 exhibitions were held with sale of `13.27 lacs to support NGO products. Events Volunteering Programs - Gift of Life (Blood Donation) 27 blood donation drives have been conducted with ~2,000 units of Particulars Basket of Hope (Collection Drives) Talking Book Library Other Activities, Events and Inspirational Hours collection. Regular health talks are held to create awareness. Clothes, books and toys are collected during these drives at Axis House and various branches. These are donated to NGOs like Goonj and other deserving organizations. This year, 18 such drives have been conducted and more than 10,000 kgs of goods were collected and donated. ABF volunteers record educational material (ICSE syllabus) for visually challenged students. 16 events have been conducted in the form of NGO interactions, visits, events, children parties. 10 talks were delivered by senior personnel from NGOs, creating awareness on the NGO’s profile and work that they do. Principle 9 – Customer Focus The Bank considers customer-centricity as the key pillar and guiding principle for delivering a differentiated and unique banking experience for its customers. Customer-centricity is one of the core values adopted and practiced by each of the Bank’s employees as part of the corporate vision of being the preferred financial services provider. As part of a continuing dialogue with its customers, the Bank has undertaken various customer engagement initiatives such as customer satisfaction surveys, ‘Let’s Talk’ programs etc. Customer Communication and Appropriate Product Disclosures The Bank follows the requirements of various codes in this regard: Code of Commitment to Customers A voluntary code which sets minimum standards of banking practices which have to be followed while dealing with individual customers. Code of Right Selling In order to ensure selling of a customized financial product to a client based on his profile and need. The objective is to ensure that there is complete transparency in all dealings with customers. Fair Practices Code The code deals with aspects such as providing comprehensive information including information about fees and charges if any payable for processing and amount of such fees refundable in case of non-acceptance of application, prepayment options and other matter which affects the interest of the borrowers of all categories of loans, irrespective of the amount of loan sought by them. Consumer Education: The Bank conducts Van Campaigns across rural markets to enhance financial inclusion and education, and a special education series called KrishiPragatishaala for farmers, which provides them a platform to interact with agricultural experts and undergo lessons in enhancing productivity. Regional Communication: In a multi-lingual country like India, the Bank believes that it is important to reach out to people in a language they are most comfortable with. Towards this end, we have mandated the usage of regional language in all our communication across our offices and branches in the country. The Bank’s existing Liabilities Contact Centre offers services in 11 languages, amongst the highest in the industry. Customer Complaints Pending Complaints As on 31.3.2012 Complaints received during 2012-13 Complaints redressed during 2012-13 Pending Complaints As on 31.3.2013 2,188 197,733 198,164 1,757 165 These complaints refer to various aspects of the Bank’s operations and include among other issues – systems, processes and technology, delay/deficiency in service and charges levied by the Bank. There have been no cases filed relating to unfair trade practices, irresponsible advertising and/or anti-competitive behavior in the past five years. Customer Satisfaction Studies The Bank uses different methods to gauge and understand customer satisfaction levels. A specially constituted Standing Committee of Customer Service with representatives from various functions of the Bank spearheads targeted customer engagement activities. The Customer Transaction Survey is an ongoing survey that is conducted with a sampling of customers to understand their experience with different aspects of the Bank. These interviews help the Bank have a pulse of its customers and ensure ongoing customer satisfaction. The Bank also carries out at a larger scale, an annual process called the Annual Customer Satisfaction Survey. This is carried out by a third party agency and uses online surveys and face-to-face interviews to solicit feedback from the customers across product ranges and vintage about their experience with different aspects of banking with Axis Bank. Through the Transaction and the Annual surveys, the Bank reaches out to close to 55,000 customers. In addition to these structured survey mechanisms, the Bank also has built a platform called Let’s Talk where it invites customers to its branches and discusses areas of improvements based on their experience with the Bank. This is a monthly exercise across all the Bank’s branches in the country and the results are fed back to the Customer Service Committee. Branches Customer Touch Points ATMs Mobile Banking Call Centre Point of Sale Internet Banking Traditional Channels Alternative Channels The outcome of these surveys are taken to be key inputs for the Bank’s Customer Service Committee, helping it understand areas where it can bring about structural, organizational or process improvement and, therefore, help achieve its objective of being a truly customer-centric Bank. 166 DISCLOSURES UNDER THE NEW CAPITAL ADEQUACY FRAMEWORK (BASEL II GUIDELINES) FOR THE YEAR ENDED 31st MARCH, 2013 I. SCOPE OF APPLICATION Axis Bank Limited (the ‘Bank’) is a commercial bank, which was incorporated on the 3rd December 1993. The Bank is the controlling entity for all group entities. The consolidated ﬁ nancial statements of the Bank comprise the ﬁ nancial statements of Axis Bank Limited and its subsidiaries (including step-down subsidiaries) that together constitute the ‘Group’. The Bank consolidates its subsidiaries in accordance with Accounting Standard 21 (AS-21) ‘Consolidated Financial Statements’ issued by the Institute of Chartered Accountants of India on a line-by-line basis by adding together the like items of assets, liabilities, income and expenditure. While computing the Bank’s Capital to Risk-weighted Assets Ratio (CRAR), the Bank’s investment in the equity capital of the wholly-owned subsidiaries is deducted, 50% from Tier-1 Capital and 50% from Tier-2 Capital. The table below lists Axis Bank’s Subsidiaries (including step-down Subsidiaries)/Associates/Joint ventures consolidated for accounting and their treatment for capital adequacy purpose. Sr. No. Name of the entity Nature of Business Holding Basis of Consolidation 1. 2. 3. 4. 5. 6. 7. 8. 9. Axis Capital Ltd. (Erstwhile Axis Securities and Sales Ltd.) Axis Private Equity Ltd. Investment institutional banking, broking, retail broking and marketing of retail asset products, credit cards and other products of the Bank Managing investments, venture capital funds and off-shore funds 100% Fully consolidated 100% Fully consolidated Axis Trustee Services Ltd. Trusteeship services 100% Fully consolidated Axis Asset Management Company Ltd. Axis Mutual Fund Trustee Ltd. Axis Finance Pvt. Ltd. (Erstwhile Enam Finance Pvt. Ltd.) Axis U.K. Ltd. (1) Asset management for Axis Mutual Fund 75% Fully consolidated Trustee company for Axis Mutual Fund 75% Fully consolidated Non-banking ﬁ nance company 100% Fully consolidated Banking company 100% Fully consolidated Axis Securities Ltd.. (2) Retail broking Enam Securities Europe Ltd.(2) To advise and arranging deals in investments - - Fully consolidated Fully consolidated 10. 11. Bussan Auto Finance India Pvt. Ltd.(3) Enam International Ltd. (2) (4) Non-banking ﬁ nance company 26% Treated as an associate Arranging credit or deals in investments and advising on ﬁ nancial products - Not consolidated 1 2 3 4 Axis U.K. Ltd. had ﬁ led an application with the Financial Services Authority (FSA), UK for a banking license and to create the necessary infrastructure for banking business. Till the 31st March 2013, pending receipt of the approval, it did not commence operations. Approval has been received from the FSA on the 19th April, 2013 to commence banking operations and subsequently, the name of the Company has been changed to Axis Bank UK Ltd. Step-down subsidiary. 100% of its share capital is owned by Axis Capital Ltd., a wholly owned subsidiary of the Bank. The investment in Bussan Auto Finance India Private Ltd. is not deducted from the capital funds of the Bank but is assigned risk-weights as an investment. The company has given notice of its voluntary dissolution with effect from 17th January 2013. Therefore, its ﬁ nancial results are not consolidated. 167 There is no deﬁ ciency in capital of any of the subsidiaries of the Bank as on 31 st March 2013. The Bank actively monitors all its subsidiaries through their respective Boards and provides regular updates to its Board of Directors. As on 31st March 2013, the Bank has an investment of `57.45 crores in Max Life Insurance Company Limited which is not deducted from the capital funds of the Bank, but is assigned risk weights as an investment for the purpose of Basel II, the details of which are given below: Country of Incorporation : Ownership Interest India less than 3% : The quantitative impact on regulatory capital of using risk weighted investments method versus using the deduction method at 31st March 2013 is set out in the following table. Method Deduction method Capital @ 9% of risk weighted assets II. CAPITAL STRUCTURE Summary ( ` in crores) Quantitative impact 57.45 10.09 As per RBI’s capital adequacy norms capital funds are classiﬁ ed into Tier-1 and Tier-2 capital. Tier-1 capital of the Bank consists of equity capital, statutory reserves, other disclosed free reserves, capital reserves and innovative perpetual debt instruments eligible for inclusion in Tier-1 capital that complies with the requirement speciﬁ ed by RBI. The Tier-2 capital consists of general provision and loss reserves, upper Tier-2 instruments and subordinate debt instruments eligible for inclusion in Tier-2 capital. The Bank has issued debt instruments that form a part of Tier-1 and Tier-2 capital. The terms and conditions that are applicable for these instruments comply with the stipulated regulatory requirements. Tier-1 bonds are non-cumulative and perpetual in nature with a call option after 10 years. Interest on Tier-1 bonds is payable either annually or semi-annually. Some of the Tier-1 bonds have a step-up clause on interest payment ranging up to 100 bps. The Upper Tier-2 bonds have an original maturity of 15 years with a call option after 10 years. The interest on Upper Tier-2 bonds is payable either annually or semi-annually. Some of the Upper Tier-2 debt instruments have a step-up clause on interest payment ranging up to 100 bps. The Lower Tier-2 bonds have an original maturity between 5 to 10 years. The interest on lower Tier-2 capital instruments is payable either semi-annually or annually. RBI through its circular dated 20th January 2011 stipulated that henceforth capital instruments issued with step-up option will not be eligible for inclusion in the capital funds. Capital issuances with step-up option prior to the release of the above-mentioned circular would continue to remain eligible for inclusion in regulatory capital. The Bank is in compliance with this stipulation and the existing Tier-1 and Tier-2 capital instruments with step-up option have been issued prior to 20th January 2011. Equity Capital The Bank has authorised share capital of `850.00 crores comprising 850,000,000 equity shares of `10/- each. As on 31st March 2013 the Bank has issued, subscribed and paid-up equity capital of `467.95 crores, constituting 467,954,468 number of shares of `10/- each. The Bank’s shares are listed on the National Stock Exchange and the Bombay Stock Exchange. The GDRs issued by the Bank are listed on the London Stock Exchange (LSE). During the year under review, the Bank raised capital in the form of equity and debt to support future growth. It raised Tier-1 capital in the form of equity capital through a Qualiﬁ ed Institutional Placement (QIP) and a preferential allotment of equity shares to the promoters of the Bank. The Bank mobilised an aggregate of `5,537.47 crores through these offerings, by issuing 34,000,000 equity shares through the QIP and 5,837,945 shares to promoters (Life Insurance Corporation of India, General Insurance Corporation of India, New India Assurance Company Limited, National Insurance Company Limited and United India Insurance Company Limited) to maintain their percentage shareholding of the Bank’s promoters at the pre-QIP offering levels. The equity shares offered under the QIP and preferential allotment were both priced at `1,390 per share. During the year, the Bank has also allotted equity shares to employees under its Employee Stock Option Plan. 168 The provisions of the Companies Act, 1956 and other applicable laws and regulations govern the rights and obligations of the equity share capital of the Bank. Debt Capital Instruments The Bank has raised capital through Innovative Perpetual Debt Instrument (IPDI) eligible as Tier-1 Capital and Tier-2 Capital in the form of Upper Tier-2 and Subordinated bonds (unsecured redeemable non-convertible debentures), details of which are given below: Perpetual Debt Instrument The Bank has raised Perpetual Debt Instruments eligible as Tier-1 Capital, the aggregate value of which as on 31st March 2013 was `463.71crores as stated below: Date of Allotment 30th September 2006 15th November 2006 Rate of Interest 10.05% 7.167% Period Perpetual Perpetual Total Perpetual Debt Amount `214.00 crores USD 46 million* (`249.71 crores) `463.71 crores *Converted to INR @ `54.285 to a US Dollar (prevailing exchange rate as on 28th March 2013) Upper Tier-2 Capital The Bank has also raised Upper Tier-2 Capital, the aggregate value of which as on 31st March 2013 was `1,446.53 crores as per the table below: Date of Allotment 11th August 2006 Date of Redemption 12th August 2021 Rate of Interest 7.25% 24th November 2006 6th February 2007 28th June 2007 24th November 2021 6th February 2022 28th June 2022 9.35% 9.50% 7.125% Total Upper Tier-2 Capital Amount USD 149.91million* (`813.79 crores) `200.00 crores `107.50 crores USD 59.91 million* (`325.24 crores) `1,446.53 crores *Converted to INR @ `54.285 to a US Dollar (prevailing exchange rate as on 28th March 2013) Subordinated Debt As on 31st March 2013, the Bank had an outstanding Subordinated debt (unsecured redeemable non-convertible debentures) aggregating `10,629.30 crores. Of this, `10,036.66 crores qualiﬁ ed as Lower Tier-2 capital, the details of which are stated below: Date of Allotment Date of Redemption Rate of Interest 26th July 2003 15th January 2004 22nd March 2006 22nd March 2006 22nd March 2006 22nd March 2006 28th June 2006 28th June 2006 30th March 2007 26th April 2013 15th October 2013 22nd June 2013 22nd June 2013 22nd March 2016 22nd March 2016 28th September 2013 28th June 2016 30th March 2017 7.00% 6.50% 8.50% 8.32% 8.75% 8.56% 8.95% 9.10% 10.10% ( ` in crores) Amount 65.00 50.00 125.00 5.00 360.00 10.00 33.50 104.90 250.90 169 Date of Allotment Date of Redemption Rate of Interest 7th November 2008 7th November 2018 28th March 2009 16th June 2009 1st December 2011 20th March 2012 28th March 2019 16th June 2019 1st December 2021 20th March 2022 31st December 2012 31st December 2022 Total 11.75% 9.95% 9.15% 9.73% 9.30% 9.15% Amount 1,500.00 200.00 2,000.00 1,500.00 1,925.00 2,500.00 10,629.30 During the year, subordinated debts (unsecured redeemable non-convertible subordinated debentures) of `2,500 crores were raised. Capital Funds Position as on 31st March 2013 A Tier-1 Capital Of which - Paid-up Share Capital - Reserves and surplus (Excluding Foreign Currency Translation Reserve and Investment Reserve) - Innovative Perpetual Debt Instruments - Amount deducted from Tier-1 capital - Investments in subsidiaries - Deferred Tax Assets B Tier-2 Capital (net of deductions) (B.1+B.2+B.3-B.4) Out of above B.1 Debt Capital Instruments eligible for inclusion as Upper Tier-2 Capital - Total amount outstanding - Of which amount raised during the current year - Amount eligible as capital funds B.2 Subordinated debt eligible for inclusion in Lower Tier-2 Capital - Total amount outstanding - Of which amount raised during the current year - Amount eligible as capital funds Other Tier-2 Capital - General provisions and loss reserves Deductions from Tier-2 Capital - Investments in Subsidiaries B.3 B.4 C Total Eligible Capital III. CAPITAL ADEQUACY ( ` in crores) Amount 31,596.80 467.95 32,231.13 463.71 (191.22) (1,374.77) 12,334.32 1,446.53 - 1,446.53 10,629.30 2,500.00 10,036.66 1,042.35 (191.22) 43,931.12 The Bank is subject to the capital adequacy guidelines stipulated by RBI, which are based on the framework of the Basel Committee on Banking Supervision. As per the capital adequacy guidelines under Basel I, the Bank is required to maintain a minimum ratio of total capital to risk weighted assets (CRAR) of 9.0%, at least half of which is required to be Tier-1 Capital. As per Basel II guidelines, the Bank is required to maintain a minimum CRAR of 9.0%, with minimum Tier-1 Capital ratio of 6.0%. In terms of RBI guidelines for implementation of Basel II, capital charge for credit and market risk 170 for the ﬁ nancial year ended 31st March 2013 will be required to be maintained at the higher levels implied by Basel II or 80% of the minimum capital requirement computed as per the Basel I framework. For the year ended 31st March 2013, the minimum capital required to be maintained by the Bank as per Basel II guidelines is higher than that required at 80% of the capital requirements under Basel I guidelines. During the year, the Reserve Bank of India had issued guidelines on implementation of Basel III capital regulation in India. These guidelines are to be implemented beginning 1st April 2013 in a phased manner and are to be fully implemented as on 31st March 2018. These guidelines cover the new capital regulations and liquidity risk management framework. The Bank has taken appropriate steps to ensure adoption of these guidelines within the timeframe stipulated by RBI. An assessment of capital requirements under Basel III has been conducted. The liquidity guidelines have been integrated into the asset liability management framework of the Bank through suitable amendments in order to ensure adherence to RBI guidelines on monitoring and management of liquidity including liquidity ratios. An assessment of the capital requirement of the Bank is carried out through a comprehensive projection of future businesses that takes cognizance of the strategic intent of the Bank, proﬁ tability of particular businesses and opportunities for growth. The proper mapping of credit, operational and market risks to this projected business growth enables assignment of capital that not only adequately covers the minimum regulatory capital requirement but also provides headroom for growth. The calibration of risk to business is enabled by a strong risk culture in the Bank aided by appropriate, technology-based risk management systems. As part of the Internal Capital Adequacy Assessment Process (ICAAP), the Bank also assesses the adequacy of capital under stress. A summary of the Bank’s capital requirement for credit, market and operational risk and the capital adequacy ratio as on 31st March 2013 is presented below: Capital Requirements for various Risks CREDIT RISK Capital requirements for Credit Risk - Portfolios subject to standardised approach - Securitisation exposures MARKET RISK Capital requirements for Market Risk - Standardised duration approach - Interest rate risk - Foreign exchange risk (including gold) - Equity risk OPERATIONAL RISK Capital requirements for Operational risk - Basic indicator approach Capital Adequacy Ratio of the Bank (%) Tier-1 CRAR (%) Consolidated Capital Adequacy Ratio (%) Consolidated Tier-1 CRAR (%) ( ` in crores) Amount 19,785.25 - 1,841.51 1,687.38 30.11 124.02 1,625.23 17.00% 12.23% 17.15% 12.31% IV. RISK MANAGEMENT: OBJECTIVES AND ORGANIZATION STRUCTURE The wide variety of businesses undertaken by the Bank requires it to identify, measure, control, monitor and report risks effectively. The key components of the Bank’s risk management rely on the risk governance architecture, comprehensive processes and internal control mechanism. The Bank’s risk governance architecture focuses attention on key areas of risk such as credit, market and operational risk and quantiﬁ cation of these risks wherever possible for effective and continuous monitoring. 171 Objectives and Policies The Bank’s risk management processes are guided by well-deﬁ ned policies appropriate for various risk categories, independent risk oversight and periodic monitoring through the sub-committees of the Board of Directors. The Board sets the overall risk appetite and philosophy for the Bank. The Committee of Directors, the Risk Management Committee and the Audit Committee of the Board, which are sub-committees of the Board, review various aspects of risk arising from the businesses of the Bank. Various senior management committees operate within the broad policy framework as illustrated below: The Bank has put in place policies relating to management of credit risk, market risk, operational risk and asset-liability both for the domestic as well as overseas operations. The overseas policies are drawn based on the risk perceptions of these economies and the Bank’s risk appetite. The Bank has formulated a comprehensive Stress Testing policy to measure impact of adverse stress scenarios on the adequacy of capital. Structure and Organization The Risk Department reports to the Executive Director and Head (Corporate Centre) and the Risk Management Committee of the Board oversees the functioning of the Department. The Department has four separate teams for Credit Risk, Market Risk, Operational Risk and Financial Crime Management Unit (FCMU) and the head of each team reports to the Chief Risk Ofﬁ cer. Chief Risk Officer Credit Risk Market Risk Operational Risk Financial Crime Management Treasury Mid Office V. CREDIT RISK Credit risk refers to the deterioration in the credit quality of the borrower or the counter-party adversely impacting the ﬁ nancial performance of the Bank. The losses incurred by the Bank in a credit transaction could be due to inability or wilful default of the borrower in honouring the ﬁ nancial commitments to the Bank. The Bank is exposed to credit risk through lending and capital market activities. Credit Risk Management Policy The Board of Directors establishes parameters for risk appetite which are deﬁ ned through strategic businesses plan as well as the Corporate Credit Policy. Credit Risk Management Policy lays down the roles and responsibilities, risk appetite, key processes and reporting framework. Corporate credit is managed through rating of borrowers and the transaction and thorough risk vetting of individual exposures at origination and thorough periodic review after sanctioning. Retail credit to individuals and small business is managed through deﬁ nition of product criteria, appropriate credit ﬁ lters and subsequent portfolio monitoring. 172 Credit Rating System The foundation of credit risk management rests on the internal rating system. Rating linked single borrower exposure norms, delegation of powers and review frequency have been adopted by the Bank. The Bank has developed rating tools speciﬁ c to market segments such as large and mid-corporates, SME, ﬁ nancial companies, microﬁ nance companies and project ﬁ nance to objectively assess underlying risk associated with such exposures. The credit rating model uses a combination of quantitative inputs and qualitative inputs to arrive at a ‘point-in-time’ view of the risk proﬁ le of counterparty. Each internal rating grade corresponds to a distinct probability of default over one year. Expert scorecards are used for various SME schematic products and retail agriculture schemes. Statistical application and behavioural scorecards have been developed for all major retail portfolios. The Bank recognises cash margin, central/state government, bank and corporate guarantees, exclusive mortgage of properties and lease rental securitisation for the purpose of credit enhancement to arrive at a facility rating. Model validation is carried out annually by objectively assessing the discriminatory power, calibration accuracy and stability of ratings. The Bank has completed the estimation and validation of PD, LGD and CCF models for corporate and retail portfolios. Credit Sanction and Related Processes The guiding principles behind the credit sanction process are as under: • ‘Know your Customer’ is a leading principle for all activities. • The acceptability of credit exposure is primarily based on the sustainability and adequacy of borrower’s normal business operations and not based solely on the availability of security. Delegation of sanctioning powers is based on the size and rating of the exposures. The Bank has put in place the following hierarchical committee structure for credit sanction and review: • Retail Agriculture Credit Committee (RACC) • Central Agriculture Business Credit Committee (CABCC) • Regional Credit Committee (RCC) • Central Ofﬁ ce Credit Committee (COCC) • Committee of Executives (COE) • Senior Management Committee (SMC) • Committee of Directors (COD), a sub-committee of the Board. All management level sanctioning committees require mandatory presence of a representative from Risk Department for quorum. Review and Monitoring • All credit exposures, once approved, are monitored and reviewed periodically against the approved limits. Borrowers with lower credit rating are subject to more frequent reviews. • Credit audit involves independent review of credit risk assessment, compliance with internal policies of the Bank and with the regulatory framework, compliance of sanction terms and conditions and effectiveness of loan administration. • Customers with emerging credit problems are identiﬁ ed early and classiﬁ ed accordingly. Remedial action is initiated promptly to minimize the potential loss to the Bank. Concentration Risk The Bank manages concentration risk by means of appropriate structural limits and borrower-wise limits based on credit- worthiness. Credit concentration in the Bank’s portfolios is monitored for the following: • Large exposures to the individual clients or group: The Bank has individual borrower-wise exposure ceilings based on the internal rating of the borrower as well as group-wise borrowing limits which are continuously tracked and monitored. 173 • Geographic concentration for real estate exposures. • Concentration of unsecured loans to total loans and advances. • Concentration by Industry: Industry analysis plays an important part in assessing the concentration risk within the loan portfolio. Industries are classiﬁ ed into various categories based on factors such as demand-supply, input related risks, government policy stance towards the sector and ﬁ nancial strength of the sector in general. Such categorisation is used in determining the expansion strategy for the particular industry. Portfolio Management Portfolio level risk analytics and reporting to senior management examines optimal spread of risk across various rating classes, undue risk concentration across any particular industry segments and delinquencies. The Bank periodically monitors its portfolios for any lead indicators of stress which includes potential delinquencies, external rating downgrades and credit concentration. Borrowers or portfolios are marked for early warning when signs of weakness or ﬁ nancial deterioration are envisaged in order that timely remedial actions may be initiated. In-depth sector speciﬁ c studies are undertaken on portfolios vulnerable to extraneous shocks and the results are shared with the business departments. The Bank has a well-deﬁ ned stress testing policy in place and at least on a quarterly basis, stress testing is undertaken on various portfolios to gauge the impact of stress situations on the health of portfolio, proﬁ tability and capital adequacy. As regards retail lending, the focus has been on increasing lending to secured portfolios (mortgage, auto), while maintaining a cautious approach to unsecured lending (personal loans and credit card business). The Bank is continuously endeavoring to improve the quality of incremental origination through better credit underwriting standards using improved scorecards. Portfolio delinquency trends are monitored periodically. Deﬁ nition of Non-Performing Assets Advances are classiﬁ ed into performing and non-performing asset (NPAs) as per RBI guidelines. A non-performing asset (NPA) is a loan or an advance where; 1. 2. interest and/or instalment of principal remains overdue for a period of more than 90 days in respect of a term loan, the account remains “out-of-order’’ for a period of more than 90 days in respect of an Overdraft or Cash Credit (OD/CC), 3. the bill remains overdue for a period of more than 90 days in case of bills purchased and discounted, 4. a loan granted for short duration crops will be treated as NPA if the installments of principal or interest thereon remain overdue for two crop seasons, and 5. a loan granted for long duration crops will be treated as NPA if the installments of principal or interest thereon remain overdue for one crop season. 6. 7. in respect of derivative transactions, the overdue receivables representing positive mark-to-market value of a derivative contract, if these remain unpaid for a period of 90 days from the speciﬁ ed due date for payment. the amount of liquidity facility remains outstanding for more than 90 days, in respect of a securitisation transaction undertaken in terms of guidelines on securitisation dated February 1, 2006. NPAs are further classiﬁ ed into sub-standard, doubtful and loss assets based on the criteria stipulated by RBI. A sub- standard asset is one, which has remained a NPA for a period less than or equal to 12 months. An asset is classiﬁ ed as doubtful if it has remained in the sub-standard category for more than 12 months. A loss asset is one where loss has been identiﬁ ed by the Bank or internal or external auditors or during RBI inspection but the amount has not been written-off fully. Deﬁ nition of Impairment At each balance sheet date, the Bank ascertains if there is any impairment in its assets. If such impairment is detected, the Bank estimates the recoverable amount of the asset. If the recoverable amount of the asset or the cash-generating unit to which the asset belongs is less than its carrying amount, the carrying amount is reduced to its recoverable amount. The reduction is treated as an impairment loss and is recognised in the proﬁ t and loss account. 174 CREDIT RISK EXPOSURES Total Gross Credit Risk Exposure Including Geographic Distribution of Exposure – Position as on 31st March 2013 (` in crores) Fund Based Non Fund Based * Total Domestic (Outstanding) Overseas (Outstanding) 252,735.98 76,112.37 328,848.35 33,650.47 10,743.51 44,393.98 Total 286,386.45 86,855.88 373,242.33 * Non-fund based exposures are bank guarantees issued on behalf of constituents and acceptances and endorsements. Distribution of Credit Risk Exposure by Industry Sector – Position as on 31st March 2013 Industry Classiﬁ cation Sr. No. 1. 2. 3. 4. 5. Infrastructure (excluding Power) - of which Roads and ports - of which Telecommunications Power Generation & Distribution All Engineering - of which Electronics Trade Chemicals and chemical products - of which Petro Chemicals - of which Drugs and Pharmaceuticals Iron and Steel Food Processing NBFCs Petroleum, coal products and Nuclear fuels 6. 7. 8. 9. 10. Computer Software 11. Edible Oils and Vanaspati 12. Other metal and metal products 13. 14. Cotton Textiles 15. Gems and Jewellery 16. Cement and Cement Products 17. Construction 18. Other Textiles 19. Paper and Paper Products 20. Mining and quarrying (incl. coal) Rubber Plastic and their products 21. 22. Sugar 23. Glass and Glass ware 24. Wood and wood products Beverage and Tobacco 25. Tea 26. Leather and Leather Products 27. Vehicles, vehicle parts and transport equipments (` in crores) Amount Fund Based (Outstanding) 16,770.08 5,865.81 2,458.51 9,737.06 5,949.04 603.62 9,575.21 7,477.29 802.81 3,498.47 6,300.86 6,538.04 5,072.99 2,479.42 2,805.04 1,079.61 2,633.90 3,106.13 2,962.18 2,386.19 1,807.03 1,159.65 1,568.84 1,089.32 1,073.05 801.45 498.74 533.19 485.73 620.82 191.01 118.48 Non-Fund Based (Outstanding) 11,870.95 1,841.61 1,395.08 15,659.43 9,319.28 65.47 4,627.38 4,419.40 641.28 578.23 4,946.91 138.95 1,339.61 2,542.48 1,640.01 3,082.23 1,280.39 551.68 498.70 639.44 989.37 1,328.30 466.69 262.42 249.96 106.10 385.61 225.53 237.85 31.74 65.35 14.56 175 Sr. No. 28. Jute Textiles 29. Other Industries Industry Classiﬁ cation - of which Banking and Finance - of which Commercial real estate - of which Shipping, Transportation & Logistics - of which Professional services - of which Entertainment & Media Residual exposures to balance the total exposure Total 30. (` in crores) Amount Fund Based (Outstanding) 33.96 47,129.18 17,616.25 6,752.16 3,236.86 4,508.53 1,620.52 144,402.96 286,386.45 Non-Fund Based (Outstanding) 3.32 18,043.11 6,326.46 1,125.55 1,675.72 1,096.34 1,472.47 1,889.13 86,855.88 As on 31st March 2013, the Bank’s exposure to the industries stated below was more than 5% of the total gross credit exposure: Sr. No. Industry Classiﬁ cation Percentage of the total gross credit exposure 1. 2. 3. Infrastructure Power Generation & Distribution Banking & Finance 8% 7% 6% Residual Contractual Maturity breakdown of Assets – Position as on 31st March 2013 Maturity Bucket 1day 2 to 7 days 8 to 14 days 15 to 28 days 29 days to 3 months Over 3 months and upto 6 months Over 6 months and upto 12 months Over 1 year and upto 3 years Over 3 years and upto 5 years Over 5 years Total * including money at call and short notice. Cash, balances with RBI 7,797.24 74.53 277.17 218.10 651.57 745.30 884.40 1,028.34 617.24 2,498.20 14,792.09 Balances with other banks* 1,621.45 1,978.81 156.66 285.80 489.57 309.50 494.74 0.25 270.22 35.87 5,642.87 Investments Advances (` in crores) Fixed Assets Other assets 6,816.23 9,369.90 2,850.59 2,496.50 8,249.24 9,327.98 11,780.01 20,263.99 9,049.77 33,533.33 - 2,317.44 - 1,959.35 - 1,777.23 - 2,438.04 - 10,197.27 - 11,220.30 - 12,348.87 - 45,312.01 26,146.22 - 83,249.23 2,355.64 113,737.54 196,965.96 2,355.64 199.39 914.47 903.94 1,805.60 23.87 371.26 429.99 128.46 - 2,289.58 7,066.56 Movement of NPAs and Provision for NPAs (including NPIs) – Position as on 31st March, 2013 Amount of NPAs (Gross)* - Substandard - Doubtful 1 - Doubtful 2 - Doubtful 3 - Loss A. 176 (` in crores) Amount 2,393.42 694.31 454.47 106.01 67.69 1,070.94 B. C. D. E. A. B. C. Net NPAs NPA Ratios - Gross NPAs (including NPIs) to gross advances (%) - Net NPAs (including NPIs) to net advances (%) Movement of NPAs (Gross) - Opening balance as on 1st April 2012 - Additions - Reductions - Closing balance as on 31st March 2013 Movement of Provision for NPAs - Opening balance as on 1st April 2012 - Provision made in 2012-13 - Transfer of restructuring provision - Write-offs / Write-back of excess provision - Closing balance as on 31st March 2013 * includes `11.72 crores outstanding under Application Money classiﬁ ed as non-performing asset. NPIs and Movement of Provision for Depreciation on NPIs – Position as on 31st March 2013 Amount of Non-Performing Investments Amount of Non-Performing Investments - Others* Amount of Provision held for Non-performing investments Amount of Provision held for Non-performing investments - Others* Movement of provision for depreciation on investments - Opening balance as on 1st April 2012 - Provision made in 2012-13 - Write-offs - Write-back of excess provision - Closing balance as on 31st March 2013 (` in crores) Amount 704.13 1.20% 0.36% 1,806.30 2,023.36 (1,436.24) 2,393.42 1,323.92 1,192.20 13.89 (873.99) 1,656.02 (` in crores) Amount 10.29 11.72 7.22 11.72 327.55 - - (103.94) 223.61 * represents amount outstanding under Application Money classiﬁ ed as non-performing asset. Credit Risk: Use of Rating Agency under the Standardised Approach The RBI guidelines on Basel II require banks to use ratings assigned by speciﬁ ed External Credit Assessment Agencies (ECAIs) namely Brickworks, CARE, CRISIL, ICRA, India Ratings and SMERA for domestic counterparties and Standard & Poor’s, Moody’s and Fitch for foreign counterparties. The Bank is using issuer ratings and short-term and long-term instrument/bank facilities’ ratings which are assigned by the accredited rating agencies viz. Brickworks, CARE, CRISIL, ICRA, India Ratings and SMERA and published in the public domain to assign risk-weights in terms of RBI guidelines. In respect of claims on non-resident corporates and foreign banks, ratings assigned by international rating agencies i.e. Standard & Poor’s, Moody’s and Fitch is used. For exposures with contractual maturity of less than one year, a short-term rating is used. For cash credit facilities and exposures with contractual maturity of more than one year, long-term rating is used. Issue ratings would be used if the Bank has an exposure in the rated issue and this would include fund-based and non- fund based working capital facilities as well as loans and investments. In case the Bank does not have exposure in a rated issue, the Bank would use the issue rating for its comparable unrated exposures to the same borrower, provided that 177 the Bank’s exposures are pari-passu or senior and of similar or lesser maturity as compared to the rated issue. Structured Obligation (SO) ratings are not used unless the Bank has a direct exposure in the ‘SO’ rated issue. If an issuer has a long- term or short-term exposure with an external rating that warrants a risk weight of 150%, all unrated claims on the same counterparty, whether short-term or long-term, also receive 150% risk weight, unless the Bank uses recognised credit risk mitigation techniques for such claims. Issuer ratings provide an opinion on the general credit worthiness of the rated entities in relation to their senior unsecured obligations. Therefore, issuer ratings would be directly used to assign risk-weight to unrated exposures of the same borrower. Details of Gross Credit Risk Exposure (Fund based and Non-fund based) based on Risk-Weight – Position as on 31st March 2013 Below 100% risk weight 100% risk weight More than 100% risk weight Deduction from capital funds - Investments in subsidiaries VI. CREDIT RISK MITIGATION (` in crores) Amount 207,630.76 130,204.73 35,406.84 382.44 The Bank uses various collaterals both ﬁ nancial as well as non-ﬁ nancial, guarantees and credit insurance as credit risk mitigants. The main ﬁ nancial collaterals include bank deposits, NSC/KVP/LIP and gold, while main non-ﬁ nancial collaterals include land and building, plant and machinery, residential and commercial mortgages. The guarantees include guarantees given by corporate, bank and personal guarantees. This also includes loans and advances guaranteed by Export Credit & Guarantee Corporation Limited (ECGC), Credit Guarantee Fund Trust for Small Industries (CGTSI), Central Government and State Government. The Bank has in place a collateral management policy, which underlines the eligibility requirements for credit risk mitigants (CRM) for capital computation as per Basel II guidelines. The Bank reduces its credit exposure to counterparty with the value of eligible ﬁ nancial collateral to take account of the risk mitigating effect of the collateral. To account for the volatility in the value of collateral, haircut is applied based on the type, issuer, maturity, rating and re-margining/revaluation frequency of the collateral. The Bank revalues various ﬁ nancial collaterals at varied frequency depending on the type of collateral. The Bank has a valuation policy that covers processes for collateral valuation and empanelment of valuers. Details of Total Credit Exposure (after on or off Balance Sheet Netting) as on 31st March 2013 Covered by : - Eligible ﬁ nancial collaterals after application of haircuts - Guarantees/credit derivatives VII. SECURITISATION (` in crores) Amount 16,244.47 9,000.15 The primary objectives for undertaking securitisation activity by the Bank are enhancing liquidity, optimisation of usage of capital and churning of the assets as part of risk management strategy. The securitisation of assets generally being undertaken by the Bank is on the basis of ‘True Sale’, which provides 100% protection to the Bank from default. All risks in the securitised portfolio are transferred to a Special Purpose Vehicle (SPV), except where the Bank provides sub-ordination of cash ﬂ ows to Senior Pass-Through Certiﬁ cate (PTC) holders by retaining the junior tranche of the securitised pool. The Bank has not sponsored any special purpose vehicle which is required to be consolidated in the consolidated ﬁ nancial statements as per accounting norms. 178 The Bank may also invest in securitised instruments which offer attractive risk adjusted returns. The Bank enters into purchase/sale of corporate and retail loans through direct assignment/SPV. In most cases, post securitisation, the Bank continues to service the loans transferred to the assignee/SPV. The Bank however does not follow the originate to distribute model and pipeline and warehousing risk is not material to the Bank. Valuation of securitised exposures is carried out in accordance with FIMMDA/RBI guidelines. Gain on securitisation is recognised over the period of the underlying securities issued by the SPV. Loss on securitisation is immediately debited to proﬁ t and loss account. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision/disclosure is made at the time of sale in accordance with AS-29 ‘Provisions, contingent liabilities and contingent assets’. The Bank follows the standardised approach prescribed by the RBI for the securitisation activities. The Bank uses the ratings assigned by various external credit rating agencies viz. Brickworks, CARE, CRISIL, ICRA, India Ratings and SMERA for its securitisation exposures. All transfers of assets under securitisation were effected on true sale basis. However, in the ﬁ nancial year ended 31st March 2013, the Bank has not securitised any asset. A. Banking Book Details of Exposure Securitised by the Bank and subject to Securitisation Framework Sr. No. 1. 2. 3. 4. 5. Type of Securitisation Total amount of exposures securitised Losses recognised by the Bank during the current period Amount of assets intended to be securitised within a year Of which - Amount of assets originated within a year before securitisation Amount of exposures securitised - Corporate Loans Unrecognised gain or losses on sale - Corporate Loans (` in crores) Amount - - - NA - - Aggregate amount of Securitisation Exposures Retained or Purchased as on 31st March 2013 is given below Sr. No. 1. 2. 3. 4. 5. Type of Securitisation Retained Securities purchased Liquidity facility Credit enhancement (cash collateral) Other commitments On Balance Sheet (Amount) - - - - - (` in crores) Off Balance Sheet (Amount) - - - - - Risk-weight wise Bucket Details of the Securitisation Exposures on the Basis of Book-Value Below 100% risk weight 100% risk weight More than 100% risk weight Deductions - Entirely from Tier I capital - Credit enhancing I/Os deducted from Total Capital - Credit enhancement (cash collateral) Amount - - - - - - (` in crores) Capital Charge - - - - - - 179 B. Trading Book Details of Exposure Securitised by the Bank and subject to Securitisation Framework Sr. No. Type of Securitisation 1. Aggregate amount of exposures securitised by the Bank for which the Bank has retained some exposures and which is subject to the market risk approach (` in crores) Amount - Aggregate amount of Securitisation Exposures Retained or Purchased as on 31st March 2013 is given below Sr. No. Type of Securitisation (` in crores) On Balance Sheet (Amount)* Off Balance Sheet (Amount) 1. 2. 3. 4. 5. Retained Securities purchased - Corporate Loans - Lease Rental - Priority Sector (auto pool & micro ﬁ nance) Liquidity facility Credit enhancement (cash collateral) Other commitments - 8.93 197.91 1,264.18 - - - * includes outstanding balance of PTCs purchased in earlier years also Risk-weight wise Bucket Details of the Securitisation Exposures on the Basis of Book-Value - - - - - - - 1. 2. 3. Exposures subject to Comprehensive Risk Measure for speciﬁ c risk - Retained - Securities purchased Exposures subject to the securitisation framework for speciﬁ c risk Below 100% risk weight 100% risk weight More than 100% risk weight Deductions - Entirely from Tier I capital - Credit enhancing I/Os deducted from Total Capital - Credit enhancement (cash collateral) Amount (` in crores) Capital charge - - 1,471.02 - - - - - - - 59.60 - - - - - VIII. MARKET RISK IN TRADING BOOK Market risk is the risk of loss to the Bank’s earnings and capital due to changes in the market level of interest rates, price of securities, foreign exchange rates and equities, as well as the volatilities of those changes. The Bank is exposed to market risk through its investment activities and also trading activities, which are undertaken for customers as well as on a proprietary basis. The Bank adopts a comprehensive approach to market risk management for its trading, investment and asset/liability portfolios. For market risk management, the Bank has: • Board approved market risk policies and guidelines which are aligned to the regulatory norms and based on experiences gained over the years. The policies are reviewed periodically keeping in view regulatory changes, business requirements and market developments. • Process manual which are updated regularly to incorporate best practices. 180 • Market risk identiﬁ cation through elaborate mapping of the Bank’s main businesses for various market risks. • Statistical measures like Value at Risk (VaR), supplemented by stress tests, back tests and scenario analysis. • Non-statistical measures like position limits, marked-to-market (MTM), gaps and sensitivities (mark-to-market, position limits, duration, PVBP, option Greeks). • Management Information System (MIS) for timely market risk reporting to senior management functionaries. Risk limits such as position limits, stop-loss limits, alarm limits, gaps and sensitivities (duration, PVBP, option greeks) are set up and reviewed periodically, based on a number of criteria including regulatory guidelines, relevant market analysis, business strategy, management experience and the Bank’s risk appetite. These limits are monitored on a daily basis by the Treasury Mid-ofﬁ ce and the exceptions are put up to ALCO and Risk Management Committee of the Board. The Bank uses Historical Simulation and its variants for computing VaR for its trading portfolio. VaR is calculated and reported on a daily basis for the trading portfolios at a 99% conﬁ dence level for a one-day holding period, using 250 days of historical data or one year of relative changes in historical rates and prices. The model assumes that the risk factor changes observed in the past are a good estimate of those likely to occur in the future and is, therefore, limited by the relevance of the historical data used. The method, however, does not make any assumption about the nature or type of the loss distribution. The VaR models for different portfolios are back-tested at regular intervals and the results are used to maintain and improve the efﬁ cacy of the model. The VaR measure is supplemented by a series of stress tests and sensitivity analysis that estimates the likely behaviour of a portfolio under extreme but plausible conditions and its impact on earnings and capital. The Bank undertakes stress tests for market risks for its trading book, IRS, forex open position and forex gaps on a monthly basis as well as for liquidity risk at the end of each quarter. The Bank is in the ﬁ nal stages of building its capabilities to migrate to advanced approach i.e. Internal Models Approach for assessment of market risk capital. Concentration Risk The Bank has allocated the internal risk limits in order to avoid concentrations, wherever relevant. For example, the Aggregate Gap Limit is allocated to various currencies and maturities as Individual Gap Limits to monitor concentrations. Similarly, stop-loss limits and duration limits have been set up for different categories within a portfolio. Within the overall PV01 limit, a sub limit is set up which is not expected to be breached by trades linked to any individual benchmark. Liquidity Risk Liquidity Risk is the current and prospective risk to earnings or capital arising from a bank’s inability to meet its current or future obligations on the due date. Liquidity risk is two-dimensional viz., risk of being unable to fund portfolio of assets at appropriate maturity and rates (liability dimension) and the risk of being unable to liquidate an asset in a timely manner at a reasonable price (asset dimension). The goal of Liquidity Risk Management is to meet all commitments on the due date and also be able to fund new investment opportunities by raising sufﬁ cient funds in the form of increasing fresh liabilities or by expeditious asset sell-off without incurring unacceptable losses, both under normal and adverse conditions. These objectives are ensured by setting up policies, operational level committees, measurement tools and monitoring and reporting mechanism using effective use of IT systems for availability of quality data. The Bank manages its liquidity on a static as well as dynamic basis using various tools such as gap analysis, ratio analysis, dynamic liquidity statements and scenario analysis. The Bank’s ALM policy deﬁ nes the tolerance limits for its structural liquidity position. The Liquidity Policy for the domestic operations as well as for the overseas branches lay down the operational framework for prudent risk management in the Bank. The liquidity proﬁ le of the Bank is analysed on a static basis by tracking all cash inﬂ ows and outﬂ ows in the maturity ladder based on the actual maturity and expected occurrence (for non-maturity items) of cash ﬂ ows. The liquidity proﬁ le of the Bank is also estimated on a dynamic basis by considering the growth in deposits and loans, investment obligations, etc. for a short-term period of three months. The Bank undertakes behavioral analysis of the non-maturity products viz. savings and current deposits and cash credit /overdraft accounts on a periodic basis, to ascertain the volatility of residual balances in those accounts. The renewal pattern and premature withdrawals of term deposits and drawdown of unavailed credit limits are also captured through behavioral studies. The concentration of large deposits is monitored on a periodic basis. 181 The Bank’s ability to meet its obligations and fund itself in a crisis scenario is critical and accordingly, liquidity stress tests are conducted under different scenarios at periodical intervals to assess the impact on liquidity to withstand stressed conditions. The liquidity positions of overseas branches are managed in line with the Bank’s internal policies and host country regulations. Such positions are also reviewed centrally by the Bank’s ALCO along with domestic positions. Counterparty Risk The Bank has a Counterparty Risk Management Policy incorporating well laid-down guidelines, processes and measures for counterparty risk management. The policy includes separate counterparty rating models for commercial banks, foreign banks and co-operative banks for determining maximum permissible limits for counterparties. Counterparty limits are monitored daily and internal triggers are put in place to guard against breach in limits. Credit exposures to issuer of bonds, advances, etc. are monitored separately under the prudential norms for exposure to a single borrower as per the Bank’s Corporate Credit Risk Policy or Investment Policy, as applicable. The counterparty exposure limits are reviewed at periodic intervals based on ﬁ nancials of the counterparties, business need, past transaction experiences and market conditions. The Bank has also put in place the ‘Suitability & Appropriateness Policy’ and Loan Equivalent Risk (LER) Policy to evaluate counterparty risk arising out of all customer derivatives contracts. Country Risk The Bank has a country risk management policy containing the guidelines, systems and processes to effectively identify, assess, monitor and control its country risk exposures. Based on the risk proﬁ ling, countries are classiﬁ ed under seven- categories i.e. insigniﬁ cant, low, moderate, high, very high, restricted and off-credit. Risk proﬁ ling is based on the ratings provided by Export Credit Guarantee Corporation of India Ltd. (ECGC), Dun & Bradstreet, inputs received from overseas branches/business departments, reports published by various agencies viz. Moody’s, Standard & Poor’s, Fitch and other publications of repute. The categorisation of countries is reviewed at quarterly intervals or at more frequent intervals if situations so warrant. An exposure to a country comprises all assets, both funded and non-funded, that represents claims on residents of another country. The Bank has in place both category wise and country wise exposure limits. The Bank monitors country risk exposures through a process of trigger limits as well as prior approval system for select categories viz. high, very high, restricted and off-credit to ensure effective monitoring of exposures. As a proactive measure of country risk management, Risk department issues ‘Rating Watch’ from time to time. Further, based on country-speciﬁ c developments, the concerned business departments are provided updates on countries which have high probability of a rating downgrade. Risk Management Framework for Overseas Operations The Bank has put in place separate risk management policies for its overseas branches in Singapore, Hong Kong, Dubai and Colombo. These country-speciﬁ c risk policies are based on the host country regulators’ guidelines and in line with the practices followed for the Indian operations. The Asset Liability Management and all the risk exposures for the overseas operations are monitored centrally at the Central Ofﬁ ce. Capital Requirement for Market Risk – Position as on 31st March 2013 - Interest rate risk - Equity position risk - Foreign exchange risk (including gold) IX. OPERATIONAL RISK Strategies and Processes (` in crores) Amount of Capital Required 1,687.38 124.02 30.11 Operational risk is the risk of loss resulting from inadequate or failed internal processes, people or systems, or from external events. The operational risk management policy documents the Bank’s approach towards management of operational risk and deﬁ nes the roles and responsibilities of the various stakeholders within the Bank. The policy also comprises the detailed framework for operational risk loss data collection, risk and control self-assessment and key risk indicator framework. 182 Based on the above policy the Bank has initiated several measures to manage operational risk. The Bank has put in place a hierarchical structure to effectively manage operational risk through the formation of several internal committees viz., Operational Risk Management Committee, Product Management Committee, Change Management Committee, Outsourcing Committee, Software Evaluation Committee and IT Security Committee. The functioning of these committees has stabilised. Structure and Organisation The Risk Management Committee (RMC) of the Board at the apex level is the policy making body. The RMC is supported by the Operational Risk Management Committee (ORMC), consisting of Senior Management personnel, which is responsible for implementation of the Operational Risk policies of the Bank. This internal committee oversees the implementation of the OR framework and oversees the management of operational risks across the Bank. A sub-committee of ORMC (Sub- ORMC) has been constituted to assist the ORMC in discharging its functions by deliberating the operational risk issues in detail and escalating the critical issues to ORMC. The Operational Risk function, a distinct unit reporting to the Chief Risk Ofﬁ cer of the Bank, ensures implementation of the procedures for management of operational risk. A representative of the Risk department is also a permanent member of control committees on product management covering approval of new products, change management of processes, outsourcing, software evaluation and IT Security. Scope and Nature of Operational Risk Reporting and Measurement Systems A systematic process for reporting risks, losses and non-compliance issues relating to operational risks has been developed and implemented. The information gathered is being used to develop triggers to initiate corrective actions to improve controls. All critical risks and potential loss events are reported to the Senior Management/ORMC. The Bank has further enhanced its capability for effective management of operational risk with the implementation of an Enterprise Risk Governance and Compliance platform (SAS EGRC). The IT platform would act as the single repository of processes and operational, compliance and ﬁ nancial reporting risks. It facilitates capturing of individual risks and the effectiveness of their controls, tagging of identiﬁ ed risks to processes and products, originates action plans and acts as a repository of all operational risk events. A management dashboard template is also being designed as an output. The Bank has captured 5,127 processes in the EGRC system and their related risks and controls. In the initial phase, 66 KRIs have been identiﬁ ed and thresholds have been ﬁ xed for the various units of the Bank. These are being monitored through the system on an ongoing basis. The roll-out of the system has commenced in a phased manner and is stated to be completed by September 2013. Policies for Hedging and Mitigating Operational risk An Operational Risk Management Policy approved by the Risk Management Committee of the Board details the framework for managing and monitoring operational risk in the Bank. Business units put in place basic internal controls as approved by the Product Management Committee to ensure appropriate controls in the operating environment throughout the Bank. As per the policy, all new products are being vetted by the Product Management Committee to identify and assess potential operational risks involved and suggest control measures to mitigate the risks. Each new product or service introduced is subject to a risk review and signoff process. Similarly, any changes to the existing products/processes are being vetted by the Change Management Committee. The Bank has adopted speciﬁ c policies on Business Continuity Management and IT Disaster Recovery. The Bank has framed processes for identiﬁ cation of non-IT BCP teams, conducting training and awareness sessions, handling loss or inaccessibility of staff, identifying backup personnel for critical positions, identifying alternative premises, and coordination of contingency plans at the Bank level. Approach for Operational Risk Capital Assessment As per the RBI guidelines, the Bank has followed the Basic Indicator Approach for computing the capital for operational risk for the year ending 31st March 2013. Based on the measures outlined above, the Bank is preparing itself for migration to the Advanced Measurement Approach of capital computation for operational risk under Basel II. 183 X. INTEREST RATE RISK IN THE BANKING BOOK (IRRBB) The IRRBB is managed according to the guidelines of the Bank’s ALM Policy. The Bank assesses its exposure to interest rate risk in the banking book at the end of each quarter considering a drop in the market value of investments due to 50 bps change in interest rates. Calculation of interest rate risk in the banking book (IRRBB) is based on a present value perspective with cash ﬂ ows discounted at zero coupon yields published by National Stock Exchange (NSE) for domestic balance sheet and USD LIBOR for overseas balance sheet. Other currencies are taken in equivalent base currencies (INR for domestic books and USD for overseas branches) as the Bank does not have material exposures to other currencies as a percentage of the balance sheet. Cash ﬂ ows are assumed to occur at the middle of the regulatory buckets. Non-interest sensitive products like cash, current account, capital, volatile portion of savings bank deposits, etc. are excluded from the computation. The Bank does not run a position on interest rate options that might result in non-linear pay-off. Future interest cash ﬂ ows from outstanding balances are included in the analysis. The Bank employs Earnings at Risk (EaR) measures to assess the sensitivity of its net interest income to parallel movement in interest rates on the entire balance sheet. The results of EaR measures as against the limits are reported to the senior management on a weekly basis. The Bank measures the level of its exposure to interest rate risk in terms of sensitivity of Market Value of its Equity (MVE) to interest rate movements as stipulated in the relevant RBI guidelines. The Duration Gap Analysis (DGA) involves bucketing of all on and off- balance sheet Risk Sensitive Assets (RSA) and Risk Sensitive Liabilities (RSL) as per their residual maturity/ re-pricing dates in various time bands and computing the Modiﬁ ed Duration Gap (MDG). MDG is used to evaluate the impact on the MVE of the Bank under different interest rate scenarios. The Bank applies a standardised 200 bps parallel rate shock by applying sensitivity weights to each time band (based on estimates of duration of the assets and liabilities that fall into each time band) to measure the economic impact of the shock. The shock of 200 basis points is applied to the entire balance sheet including the trading book as per RBI guidelines. The ﬁ ndings of the various IRRBB measures are submitted to the ALCO, which is the apex committee for providing strategic guidance and direction for the ALM measures. Details of increase/(decrease) in earnings and economic value for upward and downward rate shocks based on balance sheet as on 31st March 2013 are given below: Earnings Perspective Currency INR USD Residual Total Economic Value Perspective Currency INR USD Residual Total 184 (` in crores) Interest Rate Shock +200bps (521.10) 39.58 11.99 (469.53) -200bps 521.10 (39.58) (11.99) 469.53 (` in crores) Interest Rate Shock +200bps 3,267.92 146.04 41.83 -200bps (3,267.92) (146.04) (41.83) 3,455.79 (3,455.79) BANK’S NETWORK : LIST OF CENTRES AS ON 31 MARCH, 2013 State/ UT State/ UT Andaman & Nicobar UT Andhra Pradesh Centre Bathu Basti Diglipur Port Blair Adilabad Adoni Alamuru Alwal Anakapalle Anantapur Bapatla Bibinagar Bobilli Chevella Chillakallu Chinnamiram Chirala Chittoor Dharmavaram Edarapalli Eluru Gachibowli Gajuwaka Gollamandala Gopalapatnam Gudivada Guntakal Guntur Hindupur Hyderabad (Hyderabad) Hyderabad (Rangareddy) Jangareddigudem Jayanthi Kadapa Kadiri Kaikaluru Kakinada Kamareddy Kandanathi Kandukur Karimnagar Kasibugga Kavali Khammam Kompally Kothagudem Kothbaspalle Kukatpally Kurnool L B Nagar Centre Machilipatnam Madanpalle Mahabubabad Mahbubnagar Malkajgiri Mancherial Miryalguda Mumbapur Muthukur Nalgonda Nandyal Narasaraopet Nellore Nizamabad Nuzvid Ongole P L Puram Paidiparru Paritala Patancheru Peddahottur Peddapalli Poolapalle Proddatur Pulluru Quthbullapur Rajahmundry Rajam Rajampet Ramagundam Repalle Sangareddy Sathupally Serilingampally Shamshabad Siddipeta Srikakulam Suryapet Tadepalligudem Tadpatri Tenali Tirupati Uppal Kalan Vemugodu Verrupapuram Vijayawada Vinukonda Visakhapatnam Vizianagaram State/ UT Centre Warangal Yemmiganur Zahirabad Arunachal Pradesh Itanagar Assam Bihar Barpeta Road Biswanath Chariali Bongaigaon Dhubri Dibrugarh Duliajan Goalpara Golaghat Guwahati (Kamrup Metro) Guwahati (Kamrup) Hailakandi Hojai Jorhat Karimganj Kokrajhar Mangaldoi Margherita Morigaon Nagaon Nalbari Noonmati North Lakhimpur Sibsagar Silchar Tezpur Tinsukia Udalguri Abul Hasanpur Arrah Aurangabad Barh Basudevpur Chaputa Begusarai Bettiah Bhabhua Bhagalpur Biharsharif Buxar Chapra Danapur Darbhanga Darveshpur Daulatpur Dewaria Devkuli Gaya 185 Centre Gopalganj Gopinathpur Dokra Hajipur Jehanabad Kanchanpur Katihar Kishanganj Kuari Buzurg Madhepura Madhubani Majithi Motihari Munger Muzaffarpur Naugachhia Patna Purnia Saharsa Samastipur Sasaram Sitamarhi Siwan Chandigarh Manimajra Abhanpur Akaltara Ambikapur Basin Bhatapara Bhilai Bilaspur Champa Chandkuri Dalli Rajhara Dhamtari Dongargarh Dunda Durg Hatmudi Jagdalpur Jairam Nagar Jashpurnagar Jhilmila Kanker Kawardha Kharsia Korba Mahasamund Manendragarh Raigarh Raipur Rajim Rajnandgaon Sakti State/ UT Chandigarh UT Chattisgarh 186 State/ UT Centre Tulsi Urla Dadra & Nagar UT Silvassa Daman & Diu UT Daman State/ UT Delhi Goa Gujarat Diu Delhi Agaciam Candolim Mapusa Margao Panaji Ponda Vasco Ahmedabad Alipura Amreli Anand Anjar Ankleshwar Asura Atul Bagasara Bardoli Bharuch Bhavnagar Bhuj Bopal Borsad Botad Chandlodiya Changodar Chhatral Chikhli Dahej Dahod Deesa Devgad Baria Dhoraji Dhrangadhra Dhrol Dwarka Gadhada Gandhidham Gandhinagar Gariadhar Godhra Gondal Halol Harij Himatnagar Ichchapore Idar Jambusar Jamjodhpur Centre Jamnagar Jasdan Jetpur-Navagadh Junagadh Kalavad Kalol Keshod Khadat Khambalia Kodinar Lathi Madhapar Mahuva Manavadar Mandvi Mehsana Metoda Modasa Morbi Moti Bhoyan Mundra Nadiad Naranpar Navagam Navsari Paddhari Padra Palanpur Patan Pipavav Porbandar Radhanpur Rajkot Rajpipla Rajula Rapar Sanand Sihor Sokhda Surat Surendranagar Talaja Tarasadi Tathithaiya Udalpur Udhna Umbergaon Unjha Upleta Vadodara Vallabh Vidyanagar Valsad Vansda Vapi State/ UT Haryana Centre Vastrapur Vega Vejalpur Veraval Viramgam Visavadar Visnagar Vyara Wada Wankaner Ambala Bahadurgarh Baiyanpur Basdhara Bastali Batour Bhiwani Bhiwani Khera Bhurewala Cheeka Chhapra Dahar Dinarpur Faridabad Fatehabad Garhi Sampla Garhi Sarai Namdarkalan Garnala Ghespur Gillan Khera Gurgaon Hissar Jai Singh Pura Jakhal Jhajjar Jind Kaithal Kakrali Kalka Kalpi Kanwala Karnal Kumharia Kundli Kurukshetra Magharpura Makrauli Khurd Manesar Mirzapur Nanaud Narnaul Narwana Palri Kalan Palwal State/ UT Centre Panchkula Panipat Panjlasha Ram Saran Majra Ratia Rawaldhi Rewari Rohtak Sadaura Saﬁ don Saraswati Khera Sherpur Sirsa Sonipat Taranwali Teha Tibbi Majra Todarpur Tohana Yamunanagar Himachal Pradesh Baddi Mandi Shimla Solan Una Jammu & Kashmir Anantnag Jharkhand Karnataka Jammu Leh Srinagar Udhampur Bokaro Chaibasa Chas Chirkunda Daltonganj Deoghar Dhanbad Dumka Gamaria Ghatshila Giridih Gumia Hazaribagh Jamshedpur Kodarma Mango Patratu Ramgarh Ranchi Arsikere Athni Bagalkot Bailhongal Bangalore State/ UT Centre Basavakalyan Belgaum Bellary Bhadravati Bidadi Bidar Bijapur Chamarajanagar Channarayapatna Chickmagalur Chikballapur Chikodi Chintamani Chitradurga Davangere Devadurga Devanahalli Dod Ballapur Gadag Gangawati Gokak Gottagodi Gulbarga Hassan Haveri Hoskote Hospet Hubli-Dharwad Jamkhandi Jinnur Karwar Kolar Kollegal Koppal Kundapura Kushalnagar Kushtagi Mandya Mangalore Manipal Manvi Marlanhalli Moodbidri Mudhol Mysore Nelamangala Nipani Puttur Raichur Ramanagara Ranibennur Sagar Saidapur Sandur 187 Centre Sedam Shahpur Shimoga Sindhnur Sirsi Siruguppa Tavargeri Tiptur Tumkur Udupi Yadgir Adoor Alappuzha Aluva Angamaly Attingal Changanasseri Irinjalakuda Kalamaserry Kanhangad Kannur Kasargod Kazhakuttam Kochi Kollam Kothamangalam Kottakkal Kottarakkara Kottayam Kozhikode Malappuram Manjeri Mavelikkara Nedumangad Nilambur North Paravur Palai Palakkad Pathanamthitta Payyannur Perinthalmanna Perumbavoor Sulthanbathery Taliparamba Thalassery Thiruvananthapuram Thodupuzha Thrikkakara Thrippunithura Thrissur Tirur Tiruvalla State/ UT Kerala 188 State/ UT Centre Vadakara Madhya Pradesh Alirajpur State/ UT Maharashtra Ashok Nagar Balaghat Barwani Beetul Bhind Bhopal Bicholi Hapsi Bina Burhanpur Chhatarpur Chhindwara Dabra Damoh Datia Dewas Dhar Gawli Palasia Guna Gwalior Harda Hoshangabad Indore Itarsi Jabalpur Jhabua Kalapipal Katara Katni Khandwa Khargone Lasudia Mori Maihar Majhuali Mandla Mandsaur Morena Nagda Narsimhapur Neemuch Pipariya Pithampur Raisen Rajgarh Ratlam Rau Rewa Sagar Satna Sehore Sendhwa Seoni Shahdol Centre Shahpura Shajapur Sheopur Shivpuri Sidhi Singrauli Tikamgarh Ujjain Vidisha Waidhan Ahmednagar Akluj Akola Alibag Ambernath Amravati Aurangabad Badlapur Ballarpur Baramati Barshi Beed Bhandara Bhigwan Bhiwandi Bhusawal Boisar Buldhana Chakan Chalisgaon Chandrapur Chiplun Daund Devalali Dhule Dindori Dombivali Ghoti Gondia Hinghanghat Hingna Hingoli Hinjewadi Ichalkaranji Islampur Jalgaon Jalna Kagal Kalyan Karad Khamgaon Khed-Shivapur Kolhapur Lasalgaon State/ UT Manipur Centre Latur Malegaon Malkapur Mira-Bhayander Miraj Mumbai Murbad Nagpur Nalasopara Nanded Nandurbar Nashik Navi Mumbai (Thane) Navi Mumbai (Raigad) Osmanabad Pandharpur Panvel Paratwada Parbhani Pen Phaltan Pimpalgaon Pimpri Chinchwad Pune Rahuri-Khurd Ratnagiri Sangamner Sangli Satara Shikrapur Shirdi Shirur Shrirampur Sinnar Solapur Tasgaon Thane Tuljapur Udgir Ulhasnagar Vasai Virar Wadi Wai Waluj Wani Wardha Washim Yavatmal Yevla Yewat Churachandpur Imphal (East) Imphal (West) State/ UT Meghalaya Mizoram Nagaland Orissa Centre Jowai Shillong Tura Aizawl Dimapur Kohima Mokokchung Wokha Angul Balasore Barbil Bargarh Baripada Basuaghai Berhampur Bhadrak Bhanjanagar Bhawanipatna Bhubaneswar Bolangir Boudhgarh Chandanpur Chandikhole Cuttack Deogarh Dhamraport Dharamgarh Dhenkanal Dumuduma Gopalpur Gunupur Jagatpur Jagatsinghpur Jajpur Jaleswar Jatni Jeypore Jharsuguda Kalarhanga Kantabanji Kendrapara Keonjhar Khordha Koraput Kundra Lunahar Malkangiri Mancheswar Nabrangpur Nawapara (Nuapada) Nayagarh Nimapara Paradip Parlakhemundi State/ UT Pondicherry UT Punjab Centre Phulbani Puri Rairangpur Rajgangpur Rayagada Rourkela Sambalpur Sonepur Sundargarh Talcher Titlagarh Umerkote Karaikal Pondicherry Abohar Adampur Adamwal Adda Dhaka Ajnala Amloh Amritsar Bagha Purana Ballo Majra Ballopur Banga Baran Hara Barnala Batala Bathinda Begowal Bhatta Dhua Bhogpur Bikhiwind Budhlada Changal Chatt Chau Majra Cheeda Chogawan Dalamwal Dasuya Dera Baba Nanak Derabassi Devigarh Dhariwal Dhilwan Dhuri Dinanagar Dohlron Faridkot Fatehgarh Churian Fatehgarh Sahib Fazilka Ferozepur 189 Centre Gardhiwala Garhshankar Gehri Mandi Gill Patti Gobindgarh Goraya Gurdaspur Gureh Hoshiarpur Hukumat Singh Wala Jagraon Jalandhar Jassian Jeeda Jhabal Kalan Jian Kangniwal Kapurthala Kartarpur Katar Singhwala Khadaur Sahib Khanna Kheri Jattan Kotkapura Kukkar Majra Kurarhi Lakhnaur Lambra Landran Ludhiana Majitha Malerkotla Malout Manakwal Mangli Nichhi Mansa Mavi Kalan Mehron Miani Khas Moga Mohali Mowai Mukerian Muktsar Multania Mundian Kalan Nabha Nagra Nakodar Nawan Purba Nawanshahr Pathankot Patiala Patti State/ UT 190 State/ UT Rajasthan Centre Phagwara Phillaur Phuglana Phullanwala Qadian Raikot Raipur Kalan Rajpura Ramasara Ramnagar Ranian Rayya Rupnagar Rurki Kalan Sahnewal Sailkiana Samana Samrala Sangal Sohal Sangrur Sarsini Shahkot Sher Khan Wala Sri Hargobindpur Sudhar Sultanpur Lodhi Sunam Tarn Taran Theri Threeke Tung Urmar Tanda Abu Road Ajmer Alwar Balotra Bandikui Banswara Baran Barmer Bayana Beawar Behror Bhadra Bharatpur Bhilwara Bhiwadi Bikaner Bilara Bundi Chirawa Chittaurgarh Churu Dausa State/ UT Sikkim Tamil Nadu Centre Deeg Didwana Dungarpur Ganganagar Hanumangarh Jaipur Jalore Jhalawar Jhunjhunu Jodhpur Khairthal Khandela Khatoo Shyamji Kherli Kishangarh Bas Kota Lachhmangarh Lalsot Losal Mahwa Mandawa Merta City Mukandgarh Nadbai Nagar Nagaur Nathdwara Neem-Ka-Thana Nohar Pali Phalodi Pilani Pilibanga Pipar City Rajgarh Ramgarh Rawatbhata Rawatsar Reengus Sagwara Sangaria Sardarshahar Sawai Madhopur Sikar Sri Madhopur Tijara Tonk Udaipur Gangtok Namchi Rangpo Ranipool Alandur Ambattur State/ UT Centre Ammapettai Anaikudam Anthiyur Appakudal Aranthangi Arni Aruppukottai Attur Avadi Ayothiapatinam Bodhupatty Chengalpattu Chennai Chidambaram Coimbatore Cuddalore Cumbum Dharapuram Dharmapuri Dindigul Edanganasalai Edappadi Eraiyur Erode Gudiyatham Hosur Ilanji Irungattukottai Kallakkurichi Kancheepuram Kandeertheertham Kangeyam Karaikudi Karamadai Karumathampatti Karur Kelambakkam Kethaiurambu Korattur Kottur Krishnagiri Kulumur Kumbakonam Labbaikudikadu Lalgudi Madurai Maduranthakam Mallasamudram Manachanallur Manapparai Mannargudi Mayiladuthurai Mecheri Medavakkam State/ UT Centre Merpanaikadu Mettunasuvampalayam Mettupalayam Mettur Mullipuram Musiri Muthuservamadam Nagapattinam Nagercoil Nallikaundanpalayam Nasiyanur Omalur Ooty Oriyur Palayamkottai Palladam Pallavaram Paramkudi Pattukottai Perambalur Periasemur Perungudi Pollachi Poonamallee Porur Pudukkottai Rajapalayam Ramanathapuram Rasipuram Salem Sankari Sarkarsamakulam Sathyamangalam Sembakkam Sevugampatti Sirugamani Sivakasi Srirangam Taramangalam Thanjavur Theni Thirukalambur Thirukarungudi Thiruvallur Thiruvarur Thiruvottiyur Thondamuthur Thoraipakkam Thuraiyur Tiruchengode Tiruchirapalli Tirunelveli Tirupur Tiruttani State/ UT Tripura Uttar Pradesh Centre Tiruvannamalai Tuticorin Varanavasi Vazhapadi Veerapatti Vellakoil Vellore Vembarpatti Villupuram Virudhunagar Agartala Bishalgarh Dharmanagar Udaipur Agra Aligarh Allahabad Amroha Aonla Atrauli Azamgarh Badaun Baghpat Baheri Bahraich Ballia Balrampur Banda Bansi Barabanki Bareilly Basti Bhadohi Bhaisana Bijnor Bilaspur Bulandshahr Chandausi Deoria Dhampur Etah Etawah Faizabad Farrukhabad Fatehpur Firozabad Gajraula Ghaziabad Ghazipur Gonda Gorakhpur Hapur Hardoi Hathras 191 State/ UT West Bengal Centre Jaunpur Jhansi Kannauj Kanpur Khalilabad Khatauli Khurja Kosikalan Lakhimpur-Kheri Lalitpur Lucknow Maharajganj Mahoba Mainpuri Mathura Maunath Bhanjan Meerut Mirzapur Moradabad Muzaffarnagar Najibabad Noida Padrauna Palia Kalan Pilibhit Pratapgarh Puranpur Rae Bareli Rampur Renukoot Saharanpur Sambhal Shahjahanpur Shikhohabad Sirsaganj Sitapur Sultanpur Unnao Varanasi Vrindavan Bazpur Bhaisia Dehradun Gangoowala Haridwar Kashipur Kichha Makanpur Mahmood Alampur Mussoorie Pandri Rishikesh State/ UT Uttarakhand 192 Centre Roorkee Rudrapur Talli Haldwani Alipurduar Amtala Andul Arambagh Asansol Bagnan Baharampur Baidyabati Bally Balurghat Bankura Baranagar Barasat Barddhaman Barrackpore Baruipur Basirhat Belghoria Binnaguri Bolpur Bongaon Boral Chandernagore Chinsurah Contai Dakshineswar Dalkhola Dankuni Dareeiling Dhupguri Diamond Harbour Domjur Dum Dum Durgapur Farakka Fulia Guskara Habra Haldia Howrah Islampur Jaigaon Jalpaiguri Jangipur Jaynagar Mazilpur Kalimpong Kalna Kalyani State/ UT Grand Total Overseas Centre Kanchrapara Kandi Katwa Kharagpur Khardaha Koch Bihar Kolkata Konnagar Krishnanagar Madhyamgram Mahestala Malda Maslandpur Medinipur Memari Nabadwip Nabapally Naihati Narendrapur New Barrackpore New Garia Nimta Panagarh Pandua Panihati Panskura Puruliya Raiganj Rajarhat Rajpur-Sonarpur Rampurhat Ranaghat Raniganj Rishra Sainthia Salt Lake Serampore Shyamnagar Siliguri Singur Suri Tamluk Tarakeswar Uttarpara 1263 Singapore Hong Kong Dubai Shanghai Abu Dhabi Colombo Nineteenth Annual Report 2012-13 AXIS BANK LIMITED NOTICE NOTICE is hereby given that the Nineteenth Annual General Meeting of the members of Axis Bank Limited will be held on Friday, the 19th July, 2013 at 10.00 A.M. at J. B. Auditorium, Ahmedabad Management Association, AMA Complex, ATIRA, Dr. Vikram Sarabhai Marg, Ahmedabad - 380 015 to transact the following business: ORDINARY BUSINESS: 1. To receive, consider and adopt the Balance Sheet as at 31st March, 2013, Proﬁ t & Loss Account and Cash ﬂ ow statement for the year ended 31st March, 2013 and the reports of Directors and Auditors thereon. 2. To appoint a Director in place of Shri S. B. Mathur, who retires by rotation and, being eligible, offers himself for re-appointment as a Director. 3. To appoint a Director in place of Shri Prasad R. Menon, who retires by rotation and, being eligible, offers himself for re-appointment as a Director. 4. To appoint a Director in place of Shri R. N. Bhattacharyya, who retires by rotation and, being eligible, offers himself for re-appointment as a Director. 5. To declare a dividend on the Equity Shares of the Bank. 6. To consider and pass with or without modiﬁ cation(s), the following resolution as a Special Resolution: “RESOLVED THAT pursuant to the provisions of Section 224A and other applicable provisions, if any, of the Companies Act, 1956 and the Banking Regulation Act, 1949, M/s. Deloitte Haskins & Sells, Chartered Accountants, Ahmedabad, ICAI Registration Number 117365W, be and are hereby appointed as the Statutory Auditors of the Bank to hold ofﬁ ce from the conclusion of the Nineteenth Annual General Meeting until the conclusion of the Twentieth Annual General Meeting, on such remuneration as may be approved by the Audit Committee of the Board.” SPECIAL BUSINESS: 7. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT Smt. Ireena Vittal, who was appointed as an Additional Director at the meeting of the Board of Directors held on 3rd November, 2012 and who holds ofﬁ ce as such upto the date of this Annual General Meeting and in respect of whom notice under Section 257 of the Companies Act, 1956 has been received from a member signifying his intention to propose Smt. Ireena Vittal as a candidate for the ofﬁ ce of Director of the Bank is hereby appointed as a Director of the Bank, liable to retire by rotation.” 8. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT Shri Rohit Bhagat, who was appointed as an Additional Director at the meeting of the Board of Directors held on 16th January, 2013 and who holds ofﬁ ce as such upto the date of this Annual General Meeting and in respect of whom notice under Section 257 of the Companies Act, 1956 has been received from a member signifying his intention to propose Shri Rohit Bhagat as a candidate for the ofﬁ ce of Director of the Bank is hereby appointed as a Director of the Bank, liable to retire by rotation.” 9. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT Dr. Sanjiv Misra, who was appointed as an Additional Director with effect from 8th March, 2013 (Date of RBI approval) and who holds ofﬁ ce as such upto the date of this Annual General Meeting and in respect of whom notice under Section 257 of the Companies Act, 1956 has been received from a member signifying his intention to propose Dr. Sanjiv Misra as a candidate for the ofﬁ ce of Director of the Bank is hereby appointed as a Director of the Bank, not liable to retire by rotation.” 11_Notice_2013.indd 1 11_Notice_2013.indd 1 6/8/2013 11:22:41 AM 6/8/2013 11:22:41 AM 1 Nineteenth Annual Report 2012-13 10. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT pursuant to the provisions of the Companies Act, 1956, Banking Regulation Act, 1949 and Articles of Association of the Bank, Dr. Sanjiv Misra is appointed as the Non-Executive Chairman of the Bank for a period of three years, effective 8th March, 2013 upto 7th March, 2016 and he be paid remuneration as a Non-Executive Chairman of the Bank as per the following terms and conditions: Particulars 1. Remuneration Perquisites 1. Staff Car 2. Touring 3. Driver, Ofﬁ ce, Ofﬁ ce Staff : `15 lacs per annum. : Car to be provided by the Bank. : : Traveling expenses to be borne by the Bank for Board functions as a Chairman. Furnishing of ofﬁ ce including all equipments – upto a total cost of `7.5 lacs (one time expenses). Expenses for ofﬁ ce maintenance – `1,25,000/- per month as a reimbursement on the basis of self declaration. 4. Sitting Fees : As payable to other Non-Executive Directors”. “RESOLVED FURTHER THAT the Board of Directors of the Bank is authorised to do all such acts, deeds and things and to execute any document or instruction etc. as may be required to give effect to this Resolution.” 11. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT subject to approval by the Reserve Bank of India, approval of the members of the Bank is hereby given for revising the remuneration by way of salary and perquisites payable to Smt. Shikha Sharma, Managing Director & CEO of the Bank, with effect from 1st June, 2013, as under : a. Basic Salary: `1,96,02,000 per annum. b. House Rent Allowance in lieu of Bank’s owned / leased accommodation be paid at `65,47,200 per annum. c. Utility Bills be reimbursed at actual upto a limit of `3,30,000 per annum. d. Leave Fare Concession facility be paid at `12,26,500 per annum. e. Variable Pay to be paid as decided by the Board. f. All other terms and conditions of her employment to remain unchanged.” 12. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT subject to approval by the Reserve Bank of India, approval of the members of the Bank is hereby given for revising the remuneration by way of salary and perquisites payable to Shri Somnath Sengupta, Executive Director & Head (Corporate Centre) of the Bank, with effect from 1st April, 2013 or such other date as may be approved by RBI, as under : a. Basic Salary: `1,27,08,720 per annum. b. House Rent Allowance in lieu of Bank’s owned/leased accommodation be paid at `30,89,120 per annum. c. Utility Bills be reimbursed at actual upto a limit of `1,32,000 per annum. d. Leave Fare Concession facility be paid at `5,50,000 per annum. e. Variable Pay to be paid as decided by the Board. f. All other terms and conditions of his employment to remain unchanged.” 2 11_Notice_2013.indd 2 11_Notice_2013.indd 2 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Nineteenth Annual Report 2012-13 13. To consider and pass with or without modiﬁ cation(s), the following resolution, as an Ordinary Resolution: “RESOLVED THAT subject to approval by the Reserve Bank of India, approval of the members of the Bank is hereby given for revising the remuneration by way of salary and perquisites payable to Shri V. Srinivasan, Executive Director & Head (Corporate Banking) of the Bank, with effect from 1st April, 2013 or such other date as may be approved by RBI, as under: a. Basic Salary: `1,37,26,136 per annum. b. House Rent Allowance in lieu of Bank’s owned / leased accommodation be paid at `30,89,120 per annum. c. Utility Bills be reimbursed at actual upto a limit of `1,32,000 per annum d. Leave Fare Concession facility be paid at `5,50,000 per annum. e. Variable Pay to be paid as decided by the Board. f. All other terms and conditions of his employment to remain unchanged.” 14. To consider and pass with or without modiﬁ cation(s), the following resolution, as a Special Resolution: “RESOLVED THAT pursuant to the provisions of section 81 and all other applicable provisions, if any, of the Companies Act, 1956, and in accordance with other regulatory laws and the provisions of the Memorandum and Articles of Association of the Bank, the Board of Directors is authorised to issue, offer and allot additional equity stock options convertible into Equity Shares of the aggregate nominal face value not exceeding `7,50,00,000 (75,00,000 equity shares of `10/- each paid up) in addition to the approvals already granted by shareholders at their General Meetings, to the present and future employees and Whole-time Directors of the Bank under an Employee Stock Option Scheme (ESOS), on the terms and conditions as set out in the Explanatory Statement to this resolution and on such other terms and conditions and in such tranche/s as may be decided by the Board in its absolute discretion.” “RESOLVED FURTHER THAT without prejudice to the generality of the above, but subject to the terms, as approved by the members, the Board / HR and Remuneration Committee, is authorised to implement the scheme (with or without modiﬁ cations and variations) in one or more tranches in such manner as the Board/HR and Remuneration Committee may determine.” “RESOLVED FURTHER THAT the Board is authorised to delegate all or any of the powers herein conferred to the HR and Remuneration Committee constituted for this purpose or to the Managing Director & CEO of the Bank.” “RESOLVED FURTHER THAT the Equity Shares to be issued as stated aforesaid shall rank pari-passu with all existing Equity Shares of the Bank, including for the purpose of payment of dividend.” Place : Mumbai Date : 25th April, 2013 By order of the Board P. J. Oza Company Secretary 11_Notice_2013.indd 3 11_Notice_2013.indd 3 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM 3 Notes: Nineteenth Annual Report 2012-13 1. A MEMBER ENTITLED TO ATTEND AND VOTE AT THE MEETING IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF AND A PROXY NEED NOT BE A MEMBER. PROXIES IN ORDER TO BE VALID AND EFFECTIVE MUST BE DELIVERED AT THE REGISTERED OFFICE OF THE BANK NOT LATER THAN FORTY-EIGHT HOURS BEFORE THE COMMENCEMENT OF THE MEETING. 2. The relevant explanatory statement pursuant to the provisions of Section 173(2) of the Companies Act, 1956 in respect of item Nos. 6 to 14, is annexed hereto. 3. The Register of Members and the Share Transfer Books of the Bank will remain closed from Tuesday, the 9th day of July, 2013 to Friday, the 19th day of July, 2013 (both days inclusive). 4. The Dividend would be paid to the shareholders whose names stand on the Register of Members on the close of business hours of 8th July, 2013. ECS credit / dispatch of the dividend warrants would commence on 20th July, 2013 and is expected to be completed on or before 26th July, 2013. 5. Shareholders holding shares in physical form are requested to immediately notify change in their address, if any, to the Registrar and Share Transfer Agents, M/s. Karvy Computershare Private Limited, Hyderabad or to the Registered Ofﬁ ce of the Bank, quoting their Folio number(s). In order to avoid fraudulent encashment of dividend warrants, the details of your Bank Account will be printed on the dividend warrants. We, therefore, request you to send to our Registrar and Share Transfer Agents, M/s. Karvy Computershare Private Limited, Hyderabad or to the Registered Ofﬁ ce of the Bank, on or before 8th July, 2013, a Bank Mandate (providing details of name of the Bank, branch and place with PIN code No.,where the account is maintained and the Bank Account No) or changes therein, if not provided earlier, under the signature of the Sole / First holder quoting their Folio number. The Bank is offering the facility of ECS/NECS in centres wherever available. The ECS Mandate Form is annexed. This facility could also be used by the shareholders instead of the Bank Mandate System, for receiving the credit of dividends. 6. Shareholders holding shares in dematerialised mode are requested to intimate all changes pertaining to their bank details, ECS mandates, email addresses, nominations, power of attorney, change of address/name etc. to their Depository Participant (DP) only and not to the Bank or its Registrar and Share Transfer Agents. Any such changes effected by the DPs will be automatically reﬂ ected in the records of the Bank subsequently. 7. Shareholders may avail of the Nomination Facility under Section 109A of the Companies Act, 1956. The relevant Nomination Form is annexed. 8. Shareholders seeking any information with regard to accounts are requested to write to the Bank at an early date to enable the Management to keep the information ready. 9. SEBI has made it mandatory for every participant in the securities/capital market to furnish the details of Income tax Permanent Account Number (PAN). Accordingly, all the shareholders holding shares in physical form are requested to submit their details of PAN along with a photocopy of both sides of the PAN card, duly attested, to the Registrar and Share Transfer Agents of the Bank. 10. The Ministry of Corporate Affairs (MCA) has launched “Green Initiatives in the Corporate Governance” by allowing paperless compliances by the companies. MCA has issued circulars stating that the service of a notice/document by a company to its shareholders can now be made through electronic mode. In view of the above, the Annual Report (Audited Financial Statements, Directors Report, Auditors Report etc.) is being sent to the shareholders in electronic form to the email address registered with their Depository Participant (in case of electronic shareholding)/the Bank’s Registrar and Share Transfer Agents (in case of physical shareholding). 4 11_Notice_2013.indd 4 11_Notice_2013.indd 4 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Nineteenth Annual Report 2012-13 We, therefore, request and encourage you to register your email ID in the records of your Depository Participant (in case of electronic holding)/the Bank’s Registrar and Share Transfer Agents (in case of physical shareholding) mentioning your folio no./demat account details. However, in case you wish to receive the above shareholder communication in paper form, you may write to the Bank’s Registrar and Share Transfer Agents, M/s. Karvy Computershare Private Limited, Unit: Axis Bank Limited, Plot No. 17 to 24, Vittalrao Nagar, Madhapur, Hyderabad – 500081, or send an email at einward.ris@karvy.com mentioning your folio no./demat account details. The Shareholders are requested to write to the Company Secretary or to the Registrar and Share Transfer Agents regarding transfer of shares and for resolving grievances at the below address. The Company Secretary Axis Bank Limited Registered Ofﬁ ce ‘Trishul’, 3rd Floor, Opp. Samartheshwar Temple, Law Garden, Ellisbridge, Ahmedabad – 380 006. Email: p.oza@axisbank.com or sanjeev.kapoor@axisbank.com or rajendra.swaminarayan@axisbank.com M/s. Karvy Computershare Private Limited Unit: Axis Bank Limited Plot No. 17 to 24, Vittalrao Nagar, Madhapur, Hyderabad – 500 081. Phone No. 040-23420815 to 23420824 Fax No. 040-23420814 Email: einward.ris@karvy.com Contact Persons: Shri V. K. Jayaraman, GM (RIS) / Ms.Varalakshmi, Sr. Manager (RIS) 11. Information regarding Directors retiring by rotation: i) Shri S. B. Mathur is a Chartered Accountant, registered with the Institute of Chartered Accountants of India. He has also qualiﬁ ed in Parts I and II of Institute of Costs and Works Accountants, London. Shri Mathur is director of NSE and a former chairman of LIC. Prior to serving as chairman of LIC, Shri Mathur was Executive Director of marketing and international operations at LIC. He has also held various senior positions at LIC and attended several seminars at national and international forums. He was appointed by the Government of India to serve as the Administrator of SUUTI from December 2004 to November 2007. As on 31st March 2013, he is the Chairman of the Audit Committee and Nomination Committee and member of Committee of Directors, Shareholders / Investors Grievance Committee and Acquisitions, Divestments and Mergers Committee of the Bank’s Board. He does not hold any equity share of the Bank. ii) Shri Prasad R. Menon is a Chemical Engineer from the Indian Institute of Technology, Kharagpur. He has over 40 years of diverse experience in premier multinational and Indian companies in the chemical and power industry. In October 2000, Shri Menon took over as the Managing Director of Tata Chemicals Limited where he helped complete the successful acquisition and integration of Brunner Mond (U.K.) Limited, Magadi Soda Company (Kenya) and Indo MarocPhosphore S.A. (Morocco). In October 2006, he took over as the Managing Director of The Tata Power Company Limited. He has championed sustainability as a key strategic initiative in the organization. Shri Menon serves on the Board of Directors of several major Tata Group companies, as well as on the supervisory board of Sanmar Group in Chennai and SKF India Limited. He is the Chairman of the Tata Group Safety Committee as well as Group Sustainability Committee. Shri Menon is the member of the Advisory Council of IITB-Monash Research Academy. He is also a Member of the Governing Council of Centre for Environment Education, Nehru Foundation for Development; Member of the Advisory Board of the Grantham Institute in London; Member of the Advisory Committee of National Stock Exchange Centre for Excellence in Corporate Governance; on the Advisory Board of The Energy & Resources Institute (TERI); and he is on the Advisory Council of CII-ITC Centre of Excellence for Sustainable 5 11_Notice_2013.indd 5 11_Notice_2013.indd 5 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Nineteenth Annual Report 2012-13 Development. As on 31st March 2013, he is the Chairman of HR and Remuneration Committee and Acquisitions, Divestments and Mergers Committee and member of Committee of Directors and IT Strategy Committee of the Bank’s Board. He does not hold any equity share of the Bank. iii) Shri R. N. Bhattacharyya has a Masters degree in Economics from Calcutta University and has worked for two years as a lecturer at WB educational services. Shri Bhattacharyya was a member of the local board of the State Bank of India at the Kolkata region from June 2010 to January 2011 and is a 36-year veteran of the Indian Police Service. From July 2006 to July 2009, Shri Bhattacharyya served as a part time non-ofﬁ cial director on the Board of Directors of Hindustan Aeronautics Limited, Bangalore. He was also the Director of insurance in the Department of Economic Affairs, Ministry of Finance, from 1984 to 1986 and the Director of the Department of Steel, Ministry of Steel and Mines, from1981 to 1984. In addition, Shri Bhattacharyya has served as government director on the boards of Oriental Insurance Company in Delhi, United India Insurance Company in Chennai and New India Assurance Company in Mumbai from 1984 to 1986. As on 31st March 2013, he is the member of Committee of Directors, Shareholders / Investors Grievance Committee and Special Committee of the Board of Directors for Monitoring of Large Value Frauds of the Bank’s Board. He does not hold any equity share of the Bank. Place : Mumbai Date : 25th April, 2013 By order of the Board P. J. Oza Company Secretary 6 11_Notice_2013.indd 6 11_Notice_2013.indd 6 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Nineteenth Annual Report 2012-13 ANNEXURE TO NOTICE EXPLANATORY STATEMENT U/S 173(2) OF THE COMPANIES ACT, 1956 Item No. 6: Section 224A of the Companies Act, 1956 provides that in case of companies in which not less than 25 percent of the subscribed share capital is held, whether singly or in combination, by public ﬁ nancial institutions, banks, insurance companies, Government companies, Central Government or State Government(s), the appointment of an Auditor of the Company shall be made by a Special Resolution. The Administrator of the Speciﬁ ed Undertaking of the Unit Trust of India (erstwhile Unit Trust of India), Life Insurance Corporation of India, General Insurance Corporation and its erstwhile subsidiaries, constitute public ﬁ nancial institutions in terms of Section 4A of the Companies Act, 1956, and hold more than 25 percent of the subscribed equity share capital of the Bank. Hence, a Special Resolution is proposed for the appointment of M/s. Deloitte Haskins & Sells, Chartered Accountants, as the Bank’s Statutory Auditors to hold ofﬁ ce from the conclusion of this meeting upto the conclusion of the next Annual General Meeting. As required, M/s. Deloitte Haskins & Sells have forwarded a certiﬁ cate to the Bank stating that their appointment, if made, will be within the limit speciﬁ ed in Sub-Section (1B) of Section 224 of the Companies Act, 1956. The Directors recommend the appointment of M/s. Deloitte Haskins & Sells, Chartered Accountants, as the Statutory Auditors of the Bank. None of the Directors is in any way concerned with or interested in the resolution at Item No. 6 of the Notice. Item No. 7: Smt. Ireena Vittal was appointed as an Additional Director of the Bank w.e.f. 3rd November, 2012. Under Section 260 of the Companies Act, 1956, read with Article 91 of the Articles of Association of the Bank, she continues to hold ofﬁ ce as a Director until the conclusion of the ensuing Annual General Meeting. However, as required under Section 257 of the Companies Act, 1956, the Bank has received notice from a member signifying his intention to propose Smt.Vittal as a candidate for the ofﬁ ce of Director of the Bank and the requisite deposit of `500 has also been received by the Bank along with such notice. It is proposed that Smt. Vittal will be liable to retire by rotation. She does not hold any equity share of the Bank. Smt. Ireena Vittal has a B.Sc. in Electronics from Osmania University and a PGDM from IIM, Calcutta. She is an independent strategic advisor, with signiﬁ cant knowledge in agriculture and urban development in India and emerging markets. She has worked at McKinsey & Company for 16 years, where she assisted local and multinational companies in driving proﬁ table growth. Smt. Vittal has also co-authored several studies relating to agriculture and urbanization. As on 31st March, 2013, Smt.Vittal is a member of Risk Management Committee, Customer Service Committee and Acquisitions, Divestments and Mergers Committee. The Directors recommend approval of the resolution. Except for Smt. Ireena Vittal, no other Director of the Bank is in any way concerned with or interested in the resolution at Item No. 7 of the Notice. Item No. 8: Shri Rohit Bhagat was appointed as an Additional Director of the Bank w.e.f. 16th January, 2013. Under Section 260 of the Companies Act, 1956, read with Article 91 of the Articles of Association of the Bank, he continues to hold ofﬁ ce as a Director until the conclusion of the ensuing Annual General Meeting. However, as required under Section 257 of the Companies Act, 1956, the Bank has received notice from a member signifying his intention to propose Shri Bhagat as a candidate for the ofﬁ ce of Director of the Bank and the requisite deposit of `500 has also been received by the Bank along with such notice. It is proposed that Shri Bhagat will be liable to retire by rotation. He does not hold any equity share of the Bank. Shri Rohit Bhagat has served as Chairman, Asia Paciﬁ c, of BlackRock (the world’s largest investment manager) and was a member of the Global Executive Committee. Prior to that he served as the Global Chief Operating Ofﬁ cer of Barclays 7 11_Notice_2013.indd 7 11_Notice_2013.indd 7 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Nineteenth Annual Report 2012-13 Global Investors and was a member of the Global Executive Committee. Previously, he was a Senior Partner at The Boston Consulting Group where his responsibilities over time included Managing Director of the Indian practice and co-head of the US ﬁ nancial services practice. He has over 20 years of experience in ﬁ nancial services and related advisory work, and has lived and worked in San Francisco, Hong Kong, Mumbai, London, Chicago and Delhi. He has an MBA from the Kellogg School at Northwestern University, an M.S. Engg. from the University of Texas at Austin, and a B.Tech. from the Indian Institute of Technology (Delhi). He has been a member of both TiE (The Indus Entrepreneur) and YPO (Young Presidents Organization) and has served on the SEBI sub-committee for corporate governance. As on 31st March, 2013, Shri Rohit Bhagat was not a member of any Committee of the Board. The Directors recommend approval of the resolution. Except for Shri Rohit Bhagat, no other Director of the Bank is in any way concerned with or interested in the resolution at Item No. 8 of the Notice. Item Nos. 9 and 10: The Speciﬁ ed Undertaking of the Unit Trust of India had vide letter dated 10th January, 2013 nominated Dr. Sanjiv Misra, as the Non-Executive Chairman of the Bank. The Board of Directors of the Bank has at its meeting held on 16th January, 2013, appointed him as an Additional Director and also subject to approval of Reserve Bank of India, Government of India, the shareholders and such other approvals to the extent required, appointed Dr. Sanjiv Misra as the Non-Executive Chairman of the Bank for a period of 3 years effective 8th March, 2013 or any date as may be approved by RBI on the remuneration as set out in the resolution. RBI vide its letter dated 6th March, 2013 approved the appointment of Dr. Sanjiv Misra as the Non-Executive Chairman of the Bank as also the payment of remuneration to him with effect from 8th March, 2013. Dr. Sanjiv Misra graduated in Economics from St. Stephen’s College, Delhi. He has a Master’s degree in Economics from the Delhi School of Economics, a Master’s degree in Public Administration from the Harvard Kennedy School, USA and a Ph.D from the Jawaharlal Nehru University, New Delhi. At Harvard University, he was designated Lucius N. Littauer Fellow of 1987 in recognition of exceptional academic strengths and leadership qualities. Dr. Misra was a member of the Indian Administrative Service for over 35 years during which period he held a wide range of key positions in the Federal and state governments, including as Managing Director of the Gujarat Industrial Development Corporation and stints at senior levels in the Government of India in the Cabinet Ofﬁ ce, the Ministry of Petroleum and the Ministry of Finance. He was a Secretary in the Ministry of Finance till his superannuation in 2008. Subsequently, he served as a Member of the 13th Finance Commission, a constitutional position with the rank of a Minister of State. Till recently Dr. Misra was a member of the Advisory Council of the Asian Development Bank Institute, Tokyo. He was also a member of the Committee on Fiscal Consolidation (Kelkar Committee) set up by the Finance Minister in August 2012 to chart out a road map for ﬁ scal consolidation for the Indian economy. He has a number of publications on policy issues to his credit. Under Section 260 of the Companies Act, 1956, read with Article 91(1) of the Articles of Association of the Bank, Dr. Sanjiv Misra continues to hold ofﬁ ce as a Director until the conclusion of the ensuing Annual General Meeting. However, as required under Section 257, the Bank has received notice from a member signifying his intention to propose Dr. Sanjiv Misra as a candidate for the ofﬁ ce of Director of the Bank and the requisite deposit of `500 has also been received by the Bank along with such notice. In terms of article no. 89 of the Articles of Association of the Bank, he is not liable to retire by rotation. Dr. Sanjiv Misra does not hold any equity share of the Bank. As on 31st March, 2013, Dr. Sanjiv Misra was not a member of any Committee of the Board. The Directors recommend approval of the resolutions at Item Nos. 9 and 10 of the Notice. Except for Dr. Sanjiv Misra, no other Director of the Bank is in any way concerned with or interested in the Resolutions at Item Nos. 9 and 10 of the Notice. Item No. 11: The members of the Bank at the 18th Annual General Meeting held on 22nd June, 2012 had re-appointed Smt. Shikha Sharma as the Managing Director & CEO of the Bank for a period of three years effective 1st June, 2012 and had also approved payment of remuneration to her. 8 11_Notice_2013.indd 8 11_Notice_2013.indd 8 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Nineteenth Annual Report 2012-13 During the year ended 31st March, 2013, under leadership of Smt. Shikha Sharma,the Bank has shown all round progress in terms of high quality proﬁ t growth, branch expansion, ATM network expansion and improved brand equity. The Bank was able to sustain performance in Retail and Corporate Banking despite challenging external environment. She has been instrumental in driving the progress on people front and setting the foundation for risk management for the Bank. In view of this, the HR and Remuneration Committee of the Board, which met on 22nd April, 2013, examined the remuneration of Smt. Shikha Sharma, the Managing Director & CEO, in comparison with the remuneration of the Managing Directors of the peer group banks and recommended a revision in the emoluments to be paid to Smt. Shikha Sharma. The Board of Directors of the Bank at its meeting held on 25th April, 2013 has approved the revision in remuneration by way of salary and perquisites payable to Smt. Shikha Sharma with effect from 1st June, 2013. The Directors recommend approval of the resolution. No Director is in any way concerned with or interested in the Resolution at item No. 11 except Smt. Shikha Sharma to the extent of revision in her remuneration. Item No. 12: The members of the Bank at the 18th Annual General Meeting held on 22nd June, 2012 had appointed Shri Somnath Sengupta as the Wholetime Director of the Bank. He has taken charge as the Executive Director with effect from 15th October, 2012. The members had also approved remuneration to be paid to him. During the year ended 31st March, 2013, Shri Somnath Sengupta took on a broader role of the Corporate Center Head and has managed the set of diverse portfolios very well which include Audit and Compliance in addition to Risk, IT Operations and Finance. He has been instrumental in developing the Residual Risk assessment framework for Retail Assets, Agri, Information Systems & Forex. He has engaged himself extensively on HR issues. He has navigated transition of IT on both, execution and leadership changes as needed. Under his guidance lot of building blocks have been put in place to create a strong foundation of the Bank which will augment well in future for the Bank. In view of this, the HR and Remuneration Committee of the Board, which met on 22nd April, 2013, reviewed the remuneration being paid to Shri Somnath Sengupta in comparison with the remuneration of Executive Directors of peer group banks and recommended a revision in the emoluments to be paid to him. The Board of Directors of the Bank at its meeting held on 25th April, 2013 has approved the revision in remuneration by way of salary and perquisites payable to Shri Somnath Sengupta with effect from 1st April, 2013 or such other date as may be approved by RBI. The Directors recommend approval of the resolution. No Director is in any way concerned with or interested in the Resolution at item No. 12 except Shri Somnath Sengupta to the extent of revision in his remuneration. Item No. 13: The members of the Bank at the 18th Annual General Meeting held on 22nd June, 2012 had appointed Shri V. Srinivasan as the Whole time Director of the Bank. He has taken charge as the Executive Director with effect from 15th October, 2012. The members had also approved remuneration to be paid to him. During the year ended 31st March, 2013, in a slowing economic environment, Shri V. Srinivasan has done a good job of protecting and growing the proﬁ t pool of the Bank. There has been considerable progress in integrating the Investment Bank with Corporate Bank. Under his leadership, synergies between Retail and Corporate Bank gained momentum. He has led the integration of erstwhile Enam with Axis Bank. He has spent considerable time in building investor conﬁ dence. Key initiative on the Enterprise Payment Hub was launched in the year. In view of this, the HR and Remuneration Committee of the Board, which met on 22nd April, 2013, reviewed the remuneration being paid to Shri V. Srinivasan in comparison with the remuneration of Executive Directors of peer group banks and recommended a revision in the emoluments to be paid to him. 11_Notice_2013.indd 9 11_Notice_2013.indd 9 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM 9 Nineteenth Annual Report 2012-13 The Board of Directors of the Bank at its meeting held on 25th April, 2013 has approved the revision in remuneration by way of salary and perquisites payable to Shri V. Srinivasan with effect from 1st April, 2013 or such other date as may be approved by RBI. The Directors recommend approval of the resolution. No Director is in any way concerned with or interested in the Resolution at item No. 13 except Shri V. Srinivasan to the extent of revision in his remuneration. Item No. 14: The shareholders of the Bank had given their approval at an Extraordinary General meeting held on 24th February, 2001 for implementation of an Employee Stock Option Plan which was designed to foster a sense of ownership and belonging among employees / Directors. The total number of shares / options to be issued, allocated or allotted under this plan to the Bank’s present and future employees / Directors was not to exceed 1,30,00,000 equity shares / options. The shareholders had further given approval for issue, offer and allotment of 1,00,00,000, 48,00,000, 79,70,000 and 47,47,400 equity stock options convertible into Equity Shares in the Annual General Meetings held on 18th June, 2004, 2nd June, 2006, 6th June, 2008 and 8th June, 2010 respectively. The Bank has granted on an average, 28,99,967 options (0.62% of current paid up capital) during the last three years to its senior ofﬁ cers. As on 31st March, 2013, the Bank had a pool of 24,61,717 options available for grant to its employees / Whole-time Directors. Further the Bank has granted upto 23,50,000 stock options at its Board meeting held on 25th April, 2013. This has left the Bank with negligible number of options available in the pool for grant in future. Employee Stock options are a critical talent retention tool in the emerging competitive environment. With a view to continue the practice of rewarding employees and utilise ESOP as a retention tool, the Board of Directors at its meeting held on 25th April, 2013, based on the recommendation of the HR & Remuneration Committee, proposed grant of additional 75,00,000 stock options. These additional options are expected to be utilised in the next three years by the Bank for annual grant of stock options to its employees in such a manner that the total number of options granted to employees in future in a year will not exceed 0.60% of the outstanding paid up capital. The terms and conditions for which shareholders’ approval is being requested are broadly similar to the existing employee stock option scheme approved by the shareholders on 24th February, 2001. The proposed resolution is designed to achieve the objective of incentivising employees towards attaining the periodic objectives set for them, and thereby improving the proﬁ tability of the Bank. The following would be the broad terms and conditions of the ESOP: Total number of options/shares to be issued under the ESOP: It is proposed to grant options for a total of 75,00,000 Equity Shares of the face value of `10 each [in addition to the approvals granted by shareholders at an Extraordinary General Meeting held on 24/02/2001 and at Annual General Meetings held on 18/06/2004, 02/06/2006, 06/06/2008 and 08/06/2010]. Identiﬁ cation of classes of employees entitled to participate in the ESOP: All permanent and conﬁ rmed employees of the Bank, present as well as future, including the Managing Director & CEO, and other Directors of the Bank subject to RBI approval will be entitled to participate in the ESOP, subject to the applicable regulatory requirements and guidelines issued by the Securities and Exchange Board of India (SEBI). All eligible employees and Directors of the Subsidiaries of the Bank present as well as future shall also be entitled to participate in ESOP. Date of Grant: The date of grant would be such date as would be decided by the Board / HR and Remuneration Committee for the purpose of grant of options. 10 11_Notice_2013.indd 10 11_Notice_2013.indd 10 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM Requirements of Vesting and period of vesting: Nineteenth Annual Report 2012-13 In the event of the stock options being offered to an employee, the employee should continue to remain in the employment of the Bank from the date of grant till the vesting of the stock options. In the case of an employee, who retires by way of superannuation or otherwise and who has been granted options, the entire options so granted would vest on the earliest date of vesting after retirement. In the case of the Managing Director & CEO and Whole-time Director/s, the date of cessation of his/her service will be deemed to be his/her date of retirement. The vesting period shall commence on the expiry of one year from the date of grant of the options to the employees/ Directors and could extend up to four years from the date of grant of options. The options could be granted in tranches and could vest in tranches. The number of stock options made available to employees could vary at the discretion of the HR and Remuneration Committee. Maximum period within which the options shall be vested: From the date of grant of the options, the options shall vest in the employees/Directors within such period as may be prescribed by the HR and Remuneration Committee, which period shall, as mentioned above, be not less than one year and not more than four years from the date of grant of the options. Exercise Price/Pricing Formula: The Equity shares would be issued to eligible employees and Directors at a price (Exercise Price) being the closing price on the last working day prior to the date of grant at that Stock Exchange which has had the maximum trading volume of the Bank’s shares on that day. Exercise Period and the process of exercise: From the date of vesting of the options, the employees/Directors shall be entitled to exercise the options within a period of three years from the date of the respective vesting of the options. The options would be exercisable by the said employees/Directors by payment of the consideration amount in cash and submitting the requisite application form after which the shares would be allotted. Appraisal process for determining the eligibility of employees to the ESOP: The Bank conducts an annual performance appraisal for all its employees while deciding upon the number of options to be granted to the employees under the ESOP, the grade and performance of the employee, and any other relevant contributory factor as deemed ﬁ t will be taken into consideration. Maximum Number of Options to be issued per employee and in the aggregate: The options will be granted to the employees in a manner such that no single employee/Director shall be granted options under the Plan entitling such employee/Director to Equity Shares in the Bank which would represent more than 10% of the total number of options granted under the Scheme. Accounting Policies: The Bank shall comply with the disclosure and accounting policies prescribed by SEBI and any other appropriate authority. 1. Method of Valuation: The Bank proposes to use the intrinsic value method for calculating the employee compensation cost. 2. The Statement: As the Bank has proposed to calculate the employee compensation cost using the intrinsic value of the stock options, the difference between the employee compensation cost so computed and the employee compensation cost that shall have been recognised if it had used the fair value of the options, shall be disclosed in the Directors’ Report and the impact of this difference on proﬁ ts and on EPS of the Bank shall also be disclosed in the Directors’ Report. 11_Notice_2013.indd 11 11_Notice_2013.indd 11 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM 11 The Directors recommend the resolution for approval of the members. Nineteenth Annual Report 2012-13 Approval of the members by way of a special resolution is sought in terms of Section 81 and all other applicable provisions, if any, of the Companies Act, 1956 for the issue of Equity shares of the Bank to the persons mentioned above under ESOP. The Board/ HR and Remuneration Committee shall have the absolute authority to vary or modify the terms hereinabove in accordance with and subject to all applicable guidelines which may be stipulated by SEBI or otherwise. The Whole-time Directors of the Bank who would be eligible/qualiﬁ ed to avail beneﬁ ts of ESOP may be deemed to be concerned with or interested in the resolution at item No. 14 of the Notice, to the extent of offer of options which may be made to them. The members’ approval in accordance with this resolution is inter-alia also being sought for authorising the Board of Directors and the HR and Remuneration Committee to do acts stated in the resolution hereinabove where they would be the beneﬁ ciaries. Place : Mumbai Date : 25th April, 2013 By order of the Board P. J. Oza Company Secretary 12 m o c . s t n i r p p a s . w w w 11_Notice_2013.indd 12 11_Notice_2013.indd 12 6/8/2013 11:22:42 AM 6/8/2013 11:22:42 AM NOMINATION FORM FORM 2B (See rules 4CCC and 5D) (To be ﬁ lled in by individual(s) applying singly or jointly) I/We ____________________________________________________________________________________________________________ and _________________________________________________________________________________________________________________ and __________________________________________________________________________________________________ the holders of shares bearing numbers ______________________________________________ of Axis Bank Limited wish to make a nomination and do hereby nominate the following person(s) in whom all rights of transfer and/or amount payable in respect of shares shall vest in the event of my or our death. Name(s) and Address(s) of Nominee(s) : ____________________________________________________________________ Folio No. Address : ____________________________________________________________________ : ____________________________________________________________________ ____________________________________________________________________ ____________________________________________________________________ Date of Birth* : ____________________________________________________________________ *(To be furnished in case the nominee is a minor) **The Nominee is minor whose guardian is Name : ________________________________________________________________________________________________________ Address : ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ (**To be deleted if not applicable) Signature : 1. _________________________________ 2. _________________________________ 3. _______________________________ Name : 1. _________________________________ 2. _________________________________ 3. _______________________________ Address : ________________________________________________________________________________________________________ ________________________________________________________________________________________________________ Date : _________ / ________ /2013 Address, Name and Signature of witness : ___________________________________________________________ _____________________________________________________ (Name and Address) Signature with Date 1. ___________________________________________________________ 1. ___________________________________________________ 2. ___________________________________________________________ 2. ___________________________________________________ Instructions : 1. 2. 3. 4. 5. 6. The Nomination can be made by individuals only applying/holding shares on their own behalf singly or jointly. Non-individual including society, trust, body corporate, partnership ﬁ rm, Karta of HUF, holder of power of attorney cannot nominate. If the shares are held jointly, all joint holders will sign the nomination form. Space is provided as a specimen, if there are more joint holders more sheets can be added for signatures of holders of shares and witness. A minor can be nominated by a holder of shares and in that event the name and address of the Guardian shall be given by the holder. The nominee shall not be a trust, society, body corporate, partnership ﬁ rm, Karta of HUF, or a power of attorney holder. A non-resident Indian can be a nominee on re-patriable basis. Nomination stands rescinded upon transfer of shares. Transfer of shares in favour of a nominee shall be a valid discharge by a Company against the legal heir. The intimation regarding Nomination/Nomination form shall be ﬁ led in duplicate with Company/Registrar and Share Transfer Agents of the Company who will return one copy thereof to the shareholder. 10_Nomination_ECS_2013.indd 1 10_Nomination_ECS_2013.indd 1 6/8/2013 11:24:34 AM 6/8/2013 11:24:34 AM Nineteenth Annual Report 2012-13 ECS MANDATE FORM To M/s. Karvy Computershare Private Limited Unit : Axis Bank Limited Plot No. 17 to 24, Vittalrao Nagar Madhapur, Hyderabad - 500 081 FOR SHARES HELD IN PHYSICAL MODE Please complete this form and send it to M/s. Karvy Computershare Private Limited, Hyderabad FOR SHARES HELD IN DEMAT MODE Shareholders should inform their DPs directly I hereby consent to have the amount of dividend on my equity shares credited through the National Electronic Clearing Service (Credit Clearing) - (NECS). The particulars are: 1. Folio No. ________________________________________________________________________________ 2. Name of 1st Registered holder ________________________________________________________________________________ 3. Bank Details : ________________________________________________________________________________ • Name of Bank ________________________________________________________________________________ • Full address of the Branch ________________________________________________________________________________ • Account Number ________________________________________________________________________________ • Bank Ledger No. ________________________________________________________________________________ • Account Type : (Please tick the relevant box for Savings Bank Account, Current Account or Cash Credit A/c) 10 - Savings 11 - Current 12 - Cash Credit • 9 Digit Code number of the Bank and branch appearing on the MICR cheque issued by the Bank (Please attach a photocopy of a cheque for verifying the accuracy of the code number): I hereby declare that the particulars given above are correct and complete. If the transaction is delayed because of incomplete or incorrect information, I will not hold the Company responsible. (Signature of the 1st Registered holder as per the specimen signature with the Company) Name : _________________________________________ Address : _________________________________________ _________________________________________ Date : _______ / _______ /2013 _________________________________________ 10_Nomination_ECS_2013.indd 2 10_Nomination_ECS_2013.indd 2 6/8/2013 11:24:34 AM 6/8/2013 11:24:34 AM AXIS BANK LIMITED Registered Ofﬁ ce: Trishul, 3rd Floor, Opp. Samartheshwar Temple, Law Garden, Ellisbridge, Ahmedabad – 380 006 Nineteenth Annual Report 2012-13 PROXY FORM I/We, ____________________________________________________________________________________, of ___________________ in the district of ___________________________________ being a member/members of Axis Bank Limited hereby appoint Shri/Smt. _________________________________________________________________________________ of _____________________ in the district of __________________________ or failing him Shri/Smt. _____________________________________________________ of ___________________________ in the district of __________________________________________ as my/our proxy to attend and vote for me/us/our behalf at the 19th Annual General Meeting of the Bank to be held on Friday, the 19th July, 2013 at 10.00 a.m. at J. B. Auditorium, Ahmedabad Management Association, AMA Complex, ATIRA, Dr. Vikram Sarabhai Marg, Ahmedabad - 380 015 and at any adjournment thereof. Signed this ______ day of ____________, 2013 Signature Address : __________________________________________________________________ : __________________________________________________________________ : __________________________________________________________________ Afﬁ x 15 Paise Revenue Stamp Folio No./CL ID/DP ID No. : ____________________________________ No. of Shares held : _____________________________ N.B. : 1. The Proxy need not be a member. 2. The Proxy Form duly signed and stamped should reach the Bank’s Registered Ofﬁ ce at least 48 hours before the time of Meeting. PLEASE BRING THIS ATTENDANCE SLIP TO THE MEETING HALL AND HAND IT OVER AT THE ENTRANCE ATTENDANCE SLIP I/We hereby record my/our presence at the 19th Annual General Meeting of Axis Bank Limited held at J. B. Auditorium, Ahmedabad Management Association, AMA Complex, ATIRA, Dr. Vikram Sarabhai Marg, Ahmedabad - 380 015 on Friday, the 19th July, 2013 at 10.00 a.m. Name of the Shareholder : _________________________________________________________________ Ledger Folio No./CL ID/DP ID No. : _________________________________________________________________ Number of shares held : _________________________________________________________________ Name of the Proxy/Representative, if any : _________________________________________________________________ Signature of the Member/s/Proxy : _________________________________________________________________ Signature of the Representative : _________________________________________________________________ Registered Ofﬁ ce: Trishul, 3rd Floor, Opp. Samartheshwar Temple, Law Garden, Ellisbridge, Ahmedabad – 380 006. AXIS BANK LIMITED 9_Proxy_Attendance Slip_2013.indd 1 9_Proxy_Attendance Slip_2013.indd 1 6/8/2013 11:23:15 AM 6/8/2013 11:23:15 AM

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