76373332 indusind-bank-annual-report-2008-2009


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76373332 indusind-bank-annual-report-2008-2009

  1. 1. The Core Executive Team(Standing from L to R): S. V. Parthasarathy (Head - Consumer Finance),Zubin Mody (Head - Human Resources), Paul Abraham (Chief Operating Officer),Suhail Chander (Head - Corporate & Commercial Banking),Moses Harding (Head - Global Markets Group), K. Sridhar (Chief Risk Officer).(Seated from L to R): Ramesh Ganesan (Head - Transaction Banking),Sumant Kathpalia (Head - Consumer Banking), Romesh Sobti (Managing Director & CEO),Suresh Pai (Head - Corporate Services & Communication),S. V. Zaregaonkar (CFO & Investor Relations).
  2. 2. Board of Directors (As on March 31, 2009)Mr. R. Seshasayee, ChairmanMr. R. SundararamanMr. T. Anantha NarayananDr. T. T. Ram Mohan Contents PageMrs. Pallavi Shroff Notice ……………………………… 4Mr. Premchand GodhaMr. Ajay Hinduja Directors Report …………………. 8Mr. S. C. TripathiMr. Ashok Kini Management Discussion & Analysis 13Mr. Romesh Sobti, Managing Director & CEO Corporate Governance …………….. 26Mr. Y. M. Kale (Alternate Director to Mr. Ajay Hinduja) Auditors Report …………………… 38Company SecretaryMr. Haresh Gajwani Balance Sheet ……………………… 40Auditors Profit & Loss Account ……………... 41M/s. M. P. Chitale & Co.Hamam House, 1st Floor Schedules ………………………….. 42Ambalal Doshi Marg Principal Accounting Policies ……… 47Fort, Mumbai 400001 Notes on Accounts …………………. 51SolicitorsM/s. Crawford Bayley & Co. Cash Flow Statement ………………. 67Solicitors & AdvocatesState Bank Building Balance Sheet in US Dollars ………. 84NGN Vaidya Marg Subsidiary - Directors Report,Mumbai - 400023 Auditors Report and Accounts…….. 85Registrar & Share Transfer Agent Branch Network …………………… 88Link Intime India Pvt. Ltd.C-13, Pannalal Silk Mills CompoundL.B.S. Marg, Bhandup (West)Mumbai - 400078Tel: 022 25963838 / 25946980Fax: 022 25946969Registered Office Corporate Office Consumer Finance Division (Chennai)2401, Gen. Thimmayya Road 701 Solitaire Corporate Park 115, 116, G. N. Chetty Road(Cantonment) 167 Guru Hargovindji Marg T. Nagar, Chennai - 600017Pune - 411001 Chakala, Andheri (East) Mumbai - 400093 The inner pages of this Annual Report are made from eco-friendly paper. Save Paper. Save the Environment. Spread the message.
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  4. 4. NOTICE is hereby given that the Fifteenth Annual General Meeting of the Members of IndusInd Bank Limited will be held at Hotel Sun-n-Sand, 262, Bund Garden Road, Pune – 411001, India, on Friday, July 3, 2009, at 2.00 p.m. to transact the following business: Ordinary Business 1. To consider and adopt the Balance Sheet as at March 31, 2009 and the Profit and Loss Account for the year ended March 31, 2009 together with the Reports of the Directors and Auditors thereon. 2. To declare Dividend for the year. 3. To appoint a Director in place of Mr. T. Anantha Narayanan, who retires by rotation and, being eligible, offers himself for re- appointment. 4. To appoint a Director in place of Mr. Premchand Godha, who retires by rotation and, being eligible, offers himself for re- appointment. 5. To appoint a Director in place of Mr. Ajay Hinduja, who retires by rotation and, being eligible, offers himself for re- appointment. 6. To appoint M/s. M. P. Chitale & Co., Chartered Accountants, as Statutory Central Auditors for the Bank to hold office from the conclusion of this Annual General Meeting until the conclusion of the next Annual General Meeting, and to authorise the Board of Directors to fix the remuneration of the Statutory Auditors, and to appoint branch auditors, if any, in consultation with the Statutory Auditors and to fix their remuneration. Special Business 7. Authority for further issue / placement of securities including American Depository Receipts / Global Depository Receipts / Qualified Institutions Placement, etc. To consider and, if thought fit, to pass with or without modification(s) the following resolution as a Special Resolution: “RESOLVED THAT pursuant to the provisions of Section 81 and other applicable provisions, if any, of the Companies Act, 1956 [including any amendment thereto or modification(s) or re-enactment(s) thereof] and in accordance with the provisions of the Memorandum and Articles of Association of the Bank, the Listing Agreements entered into by the Bank with the respective Stock Exchanges where the equity shares of the Bank are listed, and subject to the Regulations / Guidelines, if any, prescribed by Reserve Bank of India (RBI), Securities and Exchange Board of India (SEBI), financial institutions and all other concerned and relevant authorities from time to time, to the extent applicable and subject to such approvals, consents, permissions and sanctions of the Government of India, SEBI, RBI and all other appropriate authorities, institutions or bodies and subject to such conditions and modifications as may be prescribed by any of them while granting such approvals, consents, permissions and sanctions, and agreed to by the Board of Directors of the Bank (hereinafter referred to as ‘the Board’, which term shall be deemed to include any Committee(s) constituted / to be constituted by the Board to exercise its powers including the powers conferred by this Resolution) which the Board be and is hereby authorised to accept, if it thinks fit in the interest of the Bank, to create, issue, offer and / or allot, in the course of one or more public or private offerings by way of public issue, rights issue, preferential allotment including Qualified Institutional Placement pursuant to Chapter XIII-A of the SEBI (Disclosure and Investor Protection) Guidelines, 2000 as amended from time to time, or otherwise, in the domestic or one or more international markets, equity shares and / or equity shares through depository receipts and / or convertible bonds and / or securities convertible into equity shares at the option of the Bank and / or the holder(s) of such securities, American Depository Receipts (ADRs) / Global Depository Receipts (GDRs) representing equity shares or convertible securities and / or securities with or without detachable / non-detachable warrants with a right exercisable by the warrant-holder to subscribe for the equity shares and / or warrants with an option exercisable by the warrant-holder to subscribe for equity shares, and / or any instrument or securities representing either equity shares and / or convertible securities linked to equity shares (all of which are hereinafter collectively referred to as ‘securities’) subscribed in Indian / foreign currency(ies) to investors (whether resident and / or non-resident and / or strategic investors and / or institutions or banks and / or incorporated bodies and / or trustees or otherwise, and whether or not such investors are Members of the Bank) / Foreign Institutional Investors (FIIs) / Mutual Funds / Pension Funds / Venture Capital Funds / Banks and such other persons or entities excluding promoters in case of preferential allotment, whether or not such investors are members of the Bank, to all or any of them jointly or severally, through prospectus(es) and / or placement documents(s) or offer letter(s) or circular(s) and / or on private placement basis for, (or which upon conversion of all securities so created, issued, offered and / or allotted could give rise to the issue of) an aggregate face value of equity shares not exceeding 25 per cent of the Authorised Equity Share Capital of the Bank at such time or times with or without voting rights in general meetings / class4
  5. 5. meetings, at such price or prices, at such interest or additional interest, at a discount or at the premium to market price orprices and in such form and manner and on such terms and conditions or such modifications thereto, including the numberof securities to be issued, face value, rate of interest, redemption period, manner of redemption, amount of premium onredemption / prepayment, number of equity shares, to be allotted on conversion / redemption / extinguishments of debt(s),exercise of rights attached to the warrants and / or any other financial instrument, period of conversion, fixing of recorddate or book closure and all other related or incidental matters as the Board may in its absolute discretion think fit anddecide according to the directives / guidelines issued by the appropriate authority(ies) and in consultation with the MerchantBanker(s) and / or Lead Manager(s) and / or Underwriter(s) and / or Advisor(s) and / or such other person(s), but withoutrequiring any further approval or consent from the shareholders and also subject to the applicable guidelines for the timebeing in force;RESOLVED FURTHER THAT, without prejudice to the generality of the above, the aforesaid issue of the securities may haveall or any terms or combinations of terms in accordance with prevalent market practice including but not limited to termsand conditions relating to payment of interest, dividend, premium on redemption at the option of the Bank and / or holdersof any securities, including terms for issue of additional equity shares or variations of the price or period of conversion ofsecurities into equity shares or issue of equity shares during the period of the securities or terms pertaining to voting rightsor option(s) for early redemption of securities;RESOLVED FURTHER THAT, without prejudice to the generality of the above, the preferential allotment of such securities,the relevant date on the basis of which the price of the resultant shares shall be determined, shall be the date of the meetingin which the Board of the company or the Committee of Directors duly authorised by the Board of the company decidesto open the proposed issue and that the allotment of such securities shall be made in the form of Qualified InstitutionalPlacement to Qualified Institutional Buyers, in accordance with the provisions of Chapter XIII-A of the SEBI (Disclosure andInvestor Protection) Guidelines, 2000 as amended from time to time;RESOLVED FURTHER THAT the Board be and is hereby authorised to enter into and execute all such agreements andarrangements with any Lead Manager(s), Co-Lead Manager(s), Manager(s), Advisor(s), Underwriter(s), Guarantor(s),Depository(ies), Custodian(s) and all such agencies as may be involved or concerned in such offerings of securities andto remunerate all such agencies by way of commission, brokerage, fees or the like, and also to seek the listing of suchSecurities in one or more Indian / International Stock Exchanges;RESOLVED FURTHER THAT the Bank and / or any agencies or bodies authorised by the Board may issue depositoryreceipts or certificates representing the underlying equity shares in the capital of the Bank or such other securities in bearer,negotiable, or registered form with such features and attributes as may be required and are prevalent in the Indian and / orInternational Capital Markets for the instruments of this nature and to provide for the tradability and free transferability thereofas per market practices and regulations (including listing on one or more stock exchanges in or outside India);RESOLVED FURTHER THAT the Board be and is hereby authorised to create, issue, offer and allot such number of equityshares as may be required to be issued and allotted upon conversion of any securities referred to above or as may benecessary in accordance with the terms of the offer, all such shares ranking in all respects pari passu inter se and with thethen existing equity shares of the Bank in all respects, save and except that such equity shares or securities or instrumentsrepresenting the same may be without voting rights, if permitted by law and / or, shall carry the right to receive pro ratadividend from the date of allotment, as may be decided by the Board, declared for the financial year in which the allotmentof shares shall become effective;RESOLVED FURTHER THAT the Board be and is hereby authorised to create such mortgage and / or charge on theimmovable and movable assets of the Company or on the whole or any part of the undertaking/s of the Company underSection 293(1)(a) of the Companies Act, 1956, in respect of any Security(ies) issued by the Bank pursuant to this Resolutionand in the event such security(ies) is / are required to be secured and for that purpose to accept such terms and conditionsand to execute such documents and writings as the Board may consider necessary or proper;RESOLVED FURTHER THAT, for the purpose of giving effect to any creation, issue, offer or allotment of equity shares orsecurities or instruments representing the same, as described above, the Board be and is hereby authorised, on behalf ofthe Bank, to do all such acts, deeds, matters and things as it may, in its absolute discretion, deem necessary or desirable forsuch purpose, including without limitation, entering into arrangements for managing, underwriting, marketing, listing, trading,acting as depository, custodian, registrar, paying and conversion agent, trustee and to issue any offer document(s) and signall applications, filings, deeds, documents and writings and to pay any fees, commissions, remuneration, expenses relatingthereto and with power on behalf of the Bank to settle all questions, difficulties or doubts, that may arise in regard to such 5
  6. 6. issue(s) or allotment(s) as it may, in its absolute discretion deem fit; RESOLVED FURTHER THAT the Board be and is hereby authorised to delegate all or any of the powers herein conferred to any Committee or any one or more whole-time directors of the Bank; RESOLVED FURTHER THAT this resolution shall be in vogue for a period of 12 months from the date passing by the members or till the next Annual General Meeting, whichever is less.” Notes: 1. A MEMBER ENTITLED TO ATTEND AND VOTE IS ENTITLED TO APPOINT A PROXY TO ATTEND AND VOTE INSTEAD OF HIMSELF / HERSELF AND THE PROXY NEED NOT BE A MEMBER OF THE BANK. The proxy form should be lodged with the Bank at its Registered Office at least 48 hours before the time of the meeting. 2. The relative Explanatory Statement pursuant to Section 173(2) of the Companies Act, 1956, in respect of the Special Businesses is annexed hereto. 3. All documents referred to in the Notice and Explanatory Statement are open for inspection at the Registered Office of the Bank during office hours on all working days except public holidays between 11.00 a.m. and 1.00 p.m. upto the date of the Annual General Meeting (AGM). 4. The Register of Members and Share Transfer Books of the Bank will remain closed from Wednesday, June 24, 2009 to Friday, July 3, 2009 (both days inclusive). 5. The Dividend would be made payable on or after Monday, July 6, 2009 to the shareholders whose names stand in the Register of Members on Tuesday, June 23, 2009. 6. Shareholders are requested to furnish contact details such as e-mail IDs, cell phone numbers and telephone numbers to the Company Secretary or to the Registrars to enable the Bank to communicate to shareholders more frequently the information about developments in the Bank. 7. Members / proxies should bring the attendance slip duly filled in for attending the AGM. 8. A brief profile of the Directors retiring by rotation and eligible for re-appointment is furnished in the Report on Corporate Governance. 9. Members are requested to kindly bring their copies of the Annual Report to the AGM. EXPLANATORY STATEMENT UNDER SECTION 173(2) OF THE COMPANIES ACT, 1956 Item No. 7 Resolution set out in Item No.7 is an enabling Resolution conferring authority on the Board to cover all corporate requirements and contingencies to issue securities of appropriate nature at opportune time, including the size, structure, price and timing of the issue(s) at the appropriate time(s). The Board will fix the detailed terms of the final size of the offering, exact timing, and other related aspects after careful analysis and discussions with lead managers, prevailing market conditions and in line with the extant guidelines issued by SEBI, RBI or any other statutory and / or other regulatory authorities either in India or overseas, in this regard. The Resolution also enables the Bank to place equity capital with Qualified Institutional Buyers in accordance with ‘Guidelines for Qualified Institutions Placement’ forming part of SEBI (Disclosure and Investor Protection) Guidelines 2000 as amended from time to time. Section 81 of the Companies Act, 1956 provides, inter alia, that whenever it is proposed to increase the subscribed capital of a company by a further issue and allotment of shares, such shares shall be offered to the existing shareholders of the company in the manner laid down in the said Section, unless the shareholders decide otherwise in a general meeting. The listing agreement/s with the stock exchanges provide, inter alia, that a listed company in the first instance should offer all the shares and debentures to be further issued for subscription pro rata to the equity shareholders unless the shareholders decide otherwise in a general meeting. Members are requested to pass the resolution under Item No. 7 as a special resolution. None of the Directors of the Bank is in any way concerned or interested in the passing of the Resolution. By Order of the Board Company Secretary Mumbai, May 28, 20096
  7. 7. DIRECTORS’ REPORT: 2008-09 To all Members, Your Bank’s Directors have pleasure in presenting the Fifteenth Annual Report covering business and operations of your Bank, together with the audited accounts for the year ended March 31, 2009. The financial performance for the year ended March 31, 2009 is summarized as under: (Rs. in crores) As on As on March 31, 2009 March 31, 2008 Deposits 22110.25 19037.42 Advances 15770.64 12795.31 Operating Profit (before depreciation and provisions and contingencies) 412.42 236.35 Net Profit 148.34 75.05 Your Bank’s deposits grew by 16.14% and advances rose by 23.25%, despite the unsettled situation in the international financial markets coupled with slowdown in economic growth in India. The focus during the year continued to be on earnings from core banking business and to augment the fee-based income. The Operating Profit (before depreciation and provisions and contingencies) during the year under review improved to Rs.412.42 crores as against Rs.236.35 crores in the previous year, a rise of 74.50%. Your Bank’s Net Profit, after considering necessary provisions and contingencies and all expenses, was higher by 97.65% at Rs.148.34 crores as against Rs.75.05 crores in the previous year. Appropriations Your Directors recommend appropriation of profit as under: (Rs. in crores) Operating Profit before Depreciation and Provisions and Contingencies 412.42 Less: Depreciation on Fixed Assets 44.17 Less: Provisions and Contingencies 219.91 Net Profit 148.34 Profit Brought Forward 242.99 Amount available for Appropriation 391.33 Transfer to Statutory Reserve 37.09 Transfer to Capital Reserve 53.40 Transfer to Investment Reserve Account 1.53 Proposed Dividend 44.71 Tax on Dividend 7.60 Balance carried over to Balance Sheet 247.00 Total Appropriations 391.33 Dividend The Earning Per Share (EPS) of your Bank has risen to Rs.4.28 during the year 2008-09 from Rs.2.35 in the previous year. Looking to the overall improvement in performance and the growth outlook for the current year, your Directors recommend a dividend of Rs.1.20 per equity share of Rs.10/- each for the year ended March 31, 2009. (Dividend for the year 2007-08 was Re.0.60 per equity share of Rs.10 each). The Bank shall pay tax on the amount of dividend paid, which will be tax-free in the hands of the shareholders. The ‘Proposed Dividend’ amount of Rs.44.71 crores includes the amount of Rs.2.11 crores, being the dividend paid, as per applicable guidelines, for the year 2007-08 on 3,51,92,064 shares issued in June 2008. Financial Performance During the year 2008-09, your Bank leveraged its business on the three planks of Productivity, Profitability and Efficiency, which brought about a sea change in the year-on-year performance. There has been substantial and all-round improvement in various financial parameters during the year.8
  8. 8. Your Bank’s Total Income grew by 26.97% to Rs.2765.73 crores from Rs.2178.24 crores. The sharp rise in profitability arose froma healthy increase in core interest streams. Net Interest Income improved by 52.60% to Rs.459.03 crores from Rs.300.80 crores.Non-Interest Income rose to Rs.456.25 crores from Rs.297.58 crores, a rise of 53.32%.Yield on advances rose during the year to 13.23%, as against the yield of 11.76% in 2007-08. Cost of deposits for the year2008-09 was 8.22% as against 7.84% last year. Net Interest Margin (NIM) pre-amortisation improved substantially, to 1.96% in2008-09 compared with 1.53% last year.Higher revenue growth and better cost management resulted in Cost / Income Ratio improving to 59.77% in 2008-09 as against67.21% last year. Revenue per employee during the year improved to Rs.21.53 lakhs from Rs.20.86 lakhs last year.Quality of your Bank’s assets also witnessed rapid improvement, with Non-Performing Assets falling to 1.14% as at March 31,2009 from 2.27% last year.On the liabilities side, the emphasis was on retailising the deposit franchise and reduction in the overall cost of deposits. Thistask was accomplished by leveraging on the expanded branch network, the pan-India marketing set-up and through alternatechannels like ATMs, Internet Banking, etc. The strengthened infrastructure was extensively used for maximizing cross-selling ofproducts.Your Bank introduced several new products and services in various segments, including in the newly set up Transaction Bankingsegment, which gave impetus to Trade and Cash Management products as well as electronic financial services.Your Bank’s focus on fee-based income has paid rich dividends. Moving forward, your Bank plans to upscale Non-Interest Incomethrough lucrative revenue streams like foreign exchange business, investment banking, high-end treasury products, distributionof third-party products like mutual funds and insurance, international remittances, bullion operations and transaction bankingactivities, including depository business, commodity market business, etc.Share CapitalOn June 24, 2008, your Bank issued 3,51,92,064 equity shares of Rs.10/- each in the form of Global Depository Receipts (GDR),each representing one equity share, at a price of US$ 1.47 per GDR. Accordingly, the Paid-up Share Capital and Share PremiumAccount stand increased by Rs.35.19 crores and Rs.187.00 crores respectively. As at March 31, 2009, the Paid-up Equity Capitalof the Bank consisted of 35,50,00,000 shares of Rs.10 each, apart from the value of forfeited shares.Tier II CapitalOn March 31, 2009, your Bank issued 1000 Unsecured, Non-Convertible, Redeemable, Subordinated bonds (Tier II Bonds) ofRs.10,00,000 each aggregating to Rs.100 crores for a tenure of 63 months at a coupon of 10.50% p.a. payable annually, toaugment the capital base.Capital AdequacyIn terms of its guidelines for implementation of new Capital Adequacy Framework issued on 27th April 2007, RBI has directedbanks not having operational presence outside India to migrate to the Revised Framework for Capital Computation (under BaselII) with effect from March 31, 2009.The migration is proposed in a phased manner over a three-year period, during which banks are required to compute theircapital requirements in terms of both Basel I and Basel II. The minimum capital to be maintained by your Bank under the revisedFramework is subject to a prudential floor of 100%, 90% and 80% of the capital requirement under Basel I over the year March2009, 2010 and 2011 respectively.The capital adequacy ratio of the Bank, calculated as per RBI guidelines, is set out below:Items March 31, 2009 March 31, 2009 (Basel I) (Basel II)i) Capital Adequacy Ratio (CRAR) 12.33% 12.55%ii) CRAR – Tier I Capital (%) 7.52% 7.65%iii) CRAR – Tier II Capital (%) 4.81% 4.90%RatingYour Bank has received the highest rating “A1+” for Certificate of Deposits from ICRA Ltd., while CRISIL Ltd. has assigned thehighest rating of “P1+” for Certificate of Deposits as well as for Fixed Deposits (upto 1 year contracted maturity). Your Bank’sLower Tier II bonds have also been rated “LA+” and Upper Tier II bonds as “LA” by ICRA Ltd., while Fitch Ratings India Pvt. Ltd.has rated the said instruments as “A (ind)” and “BBB+ (ind)” respectively. 9
  9. 9. Directors Mr. T. Anantha Narayanan, Mr. Premchand Godha and Mr. Ajay Hinduja, Directors, retire by rotation, and being eligible, have offered themselves for re-appointment. Mr. Y. M. Kale was appointed as ‘Alternate Director’ to Mr. Ajay Hinduja by the Board at its meeting held on January 15, 2009. Auditors M/s. M. P. Chitale & Co., Chartered Accountants, the Statutory Central Auditors of the Bank, who have audited the accounts of the Bank for the year 2008-09, will retire at the ensuing Annual General Meeting and are eligible for re-appointment. Members are requested to consider their re-appointment and authorise the Board to fix their remuneration. The appointment of the Statutory Auditors will be subject to the approval of Reserve Bank of India. The members are further requested to authorise the Board to appoint branch auditors, if any, in consultation with the Statutory Auditors and to fix their remuneration. Auditors’ Report M/s. M. P. Chitale & Co., Chartered Accountants, the Statutory Central Auditors of the Bank, have audited the accounts of the Bank for the year 2008-09 and their Report is annexed. There are no qualifications in the Auditors’ Report. Statutory Disclosures Information, wherever required under the Banking Regulation Act, 1949 or the Companies Act, 1956 as applicable to a banking company, has been laid out in the schedules attached and forms part of the Balance Sheet and Profit and Loss Account. There are no material changes and commitments affecting the financial position of your Bank, which have occurred between the end of the financial year 2008-09 to which the Balance Sheet relates and the date of this Report. Considering the nature of activities as an entity in the financial services sector, the provisions of Section 217(1)(e) of the Companies Act, 1956 relating to conservation of energy and technology absorption do not apply to your Bank. Your Bank has, however, made optimum use of information technology in its operations. Your Bank had 4251 employees on its rolls as on March 31, 2009. The information required under Section 217(2A) of the Companies Act, 1956 and the rules made thereunder is given in the annexure appended hereto and forms part of this Report. In terms of section 219(1)(b)(iv) of the Companies Act, this Report and the Accounts are being sent to the shareholders excluding the aforesaid annexure. Any shareholder interested in obtaining a copy of the said annexure may write to the Company Secretary at the Registered Office of the Bank. Employee Stock Option Scheme Your Bank had instituted an Employee Stock Option Scheme to enable its employees, including Whole-time Directors, to participate in the future growth of the Bank. Under the Scheme, options which upon exercise or conversion could give rise to the issue of a number of shares not exceeding in the aggregate 7% of the issued equity capital of your Bank from time to time can be granted. The Employee Stock Option Scheme is in accordance with the Securities and Exchange Board of India (Employee Stock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The eligibility and number of options to be granted to an employee are determined on the basis of criteria laid down in the Scheme and is approved by the Compensation Committee of the Board of Directors. An aggregate of 1,56,21,000 options have been granted under the Scheme. Statutory disclosures as required by the revised SEBI Guidelines on ESOS are given in the Annexure to this Report. Corporate Governance Your Bank continues its endeavour to adopt the best prevalent Corporate Governance practices. A separate report on the status of implementation of Corporate Governance guidelines, as required under Clause 49 (as applicable from January 1, 2006) of the Listing Agreements with the relevant Stock Exchanges, is included in the section on ‘Corporate Governance’ which forms part of this Report. M/s. Bhandari & Associates, Company Secretaries, have certified that the conditions of Corporate Governance as stipulated in Clause 49 of the Listing Agreements with the Stock Exchanges have been complied with by the Bank. A copy of their Certificate is also attached to the Section on ‘Corporate Governance’. Directors’ Responsibility Statement Pursuant to the provisions of section 217(2AA) of the Companies Act, 1956, your Directors hereby certify and confirm that: (i) in the preparation of the Annual Accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures;10
  10. 10. (ii) the Directors have selected such accounting policies and applied them consistently and made judgements and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at March 31, 2009 and of the profit of the Bank for the year ended on that date;(iii) the Directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 1956 and Banking Regulation Act, 1949 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; and(iv) the Annual Accounts have been prepared on a ‘going concern’ basis.AcknowledgementYour Directors place on record their appreciation for the contribution made by the employees during the year towards the growthof your Bank.The Directors are grateful to the shareholders of the Bank for their continued trust and confidence reposed in the Bank. TheDirectors are also grateful to the Reserve Bank of India, the Ministry of Corporate Affairs, the Securities and Exchange Board ofIndia and the Stock Exchanges for their guidance and support extended to the Bank.The Board thanks its valued customers for their support and confidence, and looks forward to the continuance of this mutuallysupportive relationship in future. For and on behalf of the Board of Directors R. SeshasayeeMumbai, May 28, 2009 Chairman 11
  11. 11. ANNEXURE TO THE DIRECTORS’ REPORT STATUTORY DISCLOSURES REGARDING ESOPs (FORMING PART OF THE DIRECTORS’ REPORT FOR THE YEAR ENDED MARCH 31, 2009) Sr. Particulars ESOP 2007 ESOP 2007 ESOP 2007 ESOP 2007 No. (Granted to (Granted (Granted Key Managerial to other to other Personnel on employees on employees on 18/07/2008) 18/07/2008) 17/12/2008) 1) No. of Options granted during the year 1,00,00,000 1,00,00,000 21,65,000 34,56,000 2) No. of Options issued during the year 1,00,00,000 1,00,00,000 21,65,000 34,56,000 2A) No of options surrendered during the year 1,00,00,000 NIL NIL NIL (Refer note no. 1 & 2 below) 3) Pricing Formula INTRINSIC INTRINSIC INTRINSIC INTRINSIC VALUE VALUE VALUE VALUE 4) No. of Options vested NIL NIL NIL NIL 5) No. of Options exercised NIL NIL NIL NIL 6) No. of shares arising as a result of exercise NIL 1,00,00,000 21,65,000 34,56,000 of options 7) Options lapsed NIL NIL NIL NIL 8) Variation in terms of Option NIL NIL NIL NIL 9) Money realised by exercise of option N.A. N.A. N.A. N.A. 10) Total number of options in force NIL 1,00,00,000 21,65,000 34,56,000 11) Employeewise details of options granted to: a) Key Managerial Personnel (Refer Table A as mentioned below) 1,00,00,000 1,00,00,000 NIL NIL b) Any other employee who receives a grant in any one year of option amounting None None None None to 5% or more of options granted during the year. c) Identified employees who were granted Options, during any one year, equal None None None None or exceeding 1% of the issued Capital (excluding outstanding warrants and conversions) of the company at the time of the grant. 12) Diluted Earnings per share (EPS) pursuant to issue of shares on exercise of option, Not applicable Not applicable Not applicable Not applicable calculated as per Accounting Standard (AS) 20- “Earning Per Share” 13) FAIR VALUE RELATED DISCLOSURE Increase in the employee compensation cost computed at fair value over the cost 0.16 0.34 0.34 0.53 computed using intrinsic cost method. (Rs in crore) Net Profit, if the employee compensation cost has been computed at fair value 74.89 147.47 147.47 147.47 (Rs. in crore) Basic EPS if the employee compensation cost had been computed at fair value (Rs.) 2.34 4.28 4.28 4.28 Diluted EPS if the employee compensation cost had been computed at fair value (Rs.) 2.34 4.25 4.25 4.25 SIGNIFICANT ASSUMPTIONS USED TO ESTIMATE FAIR VALUE Risk Free Interest Rate 7.48% to 7.60% 5.12% to 6.39% 5.12% to 6.39% 5.12% to 6.39% Expected Life 1 year to 3 years 1 year to 3 years 1 year to 3 years 1 year to 3 years Expected Volatility 7.80% 10.49% 10.49% 11.01% Dividend Yield 14.30% 13.70% 13.70% 13.70% Price of the underlying share in the market at the time of option grant. 71.55 50.60 50.60 38.95 Table “A” Options to Key Managerial Personnel who were granted options in excess of 5% of the total options granted during the year. Name No. of Options 1) Mr. Romesh Sobti, Managing Director NIL 20,00,000 NIL NIL 2) Mr. Paul Abraham, Chief Operating Officer NIL 20,00,000 NIL NIL 3) Mr. Sumant Kathpalia, Head (Consumer Banking) NIL 20,00,000 NIL NIL 4) Mr. Suhail Chander, Head (Corporate & Commercial Banking) NIL 20,00,000 NIL NIL 5) Mr. K. S. Sridhar, Chief Risk Officer NIL 20,00,000 NIL NIL Notes to Table A 1) 33% of these options will vest on Not applicable 18-07-2009 18-07-2009 17-12-2009 33% of these options will vest on 18-07-2010 18-07-2010 17-12-2010 34% of these options will vest on 31-01-2011 18-07-2011 17-12-2011 Note (1) - Pursuant to the Special Resolution passed by the shareholders in the Annual General Meeting held on September 22, 2008, fresh Options were granted under the Employee Stock Options Scheme 2007 to such of those employees, who had surrendered the options granted earlier. Note (2) - Accordingly, stock-based compensation expense of Rs.051 crore accounted for in earlier year is reversed.12
  12. 12. MANAGEMENT DISCUSSION & ANALYSISMacro Economic Scenario and Banking EnvironmentThe year 2008-09 was characterized by the global financial crisis that originated in the US sub-prime sector and broader financialmarkets and spread throughout the world, turning into a full-blown global economic crisis of a proportion not seen in the recent past.The global financial environment has been in a crisis phase since mid-September 2008, following the growing distress amonggiant international financial institutions. As a result of the sharp slowdown, exports fell, liquidity dried down in the global marketsand investment plans were put on hold. Notwithstanding several challenges, particularly from the global economy, the Indianeconomy remained relatively resilient, and its financial institutions have remained sound and solvent.The forecasts of the various international agencies point to recessionary conditions during the remainder of 2009 as well.Reflecting the impact of global developments on the Indian economy as well as the domestic cyclical factors, various surveys ofeconomic activity point towards moderation in economic activity in the current year. The estimates of India’s GDP growth duringfiscal 2009-10 have been lowered to between 6.5% to 7%.With the increasing integration of the Indian economy with the global economy, the slump in exports has hit domestic demand,particularly since several export segments are employment-intensive. The demand slowdown, which has led to inventory build-ups and strained cash flows, has led to concerns about potential defaults on bank loans and consequently the need for debtrestructuring.Although the economic condition of major developed economies is not expected to improve in 2009, there is a belief in somequarters that the worst may be over. In India, there is a distinct improvement in sentiment due to the decisive results in therecently concluded parliamentary elections. Your Bank shall continue its pursuit of building its business upon strong customerfranchises supported by technology-backed banking products. The outlook for your Bank’s performance during the current yearremains strong.Bank’s Performance during 2008-09Business PerformanceThe salient features of your Bank’s operating performance during the year 2008-09 are summarized in the table below: (Rs. in crores) 2008-09 2007-08 YOY Growth Interest Earned 2309.47 1880.66 22.80% Interest Expended 1850.44 1579.86 17.13% Net Interest Income 459.03 300.80 52.60% Other income: 456.25 297.58 53.32% Fee & Misc. Income 427.36 255.28 67.41% Bad Debts Recovery 28.89 42.30 -31.70% Total Operating Income 915.28 598.38 52.96% Operating Expenses excluding Depreciation 502.86 362.03 38.90% Operating Profit before depreciation and provisions 412.42 236.35 74.50% Less: Provisions & Contingencies 219.91 121.13 81.55% Net Profit 148.34 75.05 97.65%In spite of a turbulent market environment, your Bank’s Net Profit, after considering necessary provisions and contingencies andall expenses, rose by 97.65% to Rs.148.34 crores, as against Rs.75.05 crores in the previous year. The Operating Profit (beforedepreciation and provisions and contingencies) was higher at Rs.412.42 crores as against Rs.236.35 crores in the previous year,a rise of 74.50%.The core earnings of your Bank through Net Interest Income improved by 52.60% to Rs.459.03 crores from Rs.300.80 crores.Yield on advances rose during the year to 13.23%, as against the yield of 11.76% in 2007-08. Cost of deposits for the year 2008-09 was 8.22% as against 7.84% last year. Net Interest Margin (NIM) improved, pre-amortisation, to 1.96% in 2008-09 comparedwith 1.53% last year.Non-Interest Income rose to Rs.456.25 crores from Rs.297.58 crores, recording a y-o-y rise of 53.33%.Higher revenue growth and better cost management resulted in Cost / Income Ratio improving to 59.76% in 2008-09 as against67.2% last year. Revenue per employee during the year improved to Rs.21.53 lakhs from Rs.20.86 lakhs last year. 13
  13. 13. Quality of your Bank’s assets also witnessed rapid improvement, with Non-Performing Assets falling to 1.14% as at March 31, 2009 from 2.27% last year. Your Bank had opened for subscription on June 17, 2008, the issue of 3,51,92,064 Global Depository Receipts (GDRs) to be listed in the Luxembourg Stock Exchange, each GDR representing one equity share of the Bank of the face value of Rs.10/-, fully paid. On the successful conclusion of the issue, your Bank’s Paid-up Capital has risen to Rs.355.19 crores. During the year, your Bank has issued on private placement basis 1000 Unsecured, Redeemable, Non-convertible, Subordinated bonds of Rupees Ten lakhs each aggregating to Rs.100 crores. These bonds qualify for classification as Tier II Capital. Operational / Product Performance Retail / Consumer Banking During 2008-09, your Bank’s Retail (Consumer) Banking business showed a healthy growth in revenue. Savings book grew at 9%, Fixed Deposits grew at 20% and Current Account book grew at over 24% on y-o-y basis. Your Bank launched various new products and services which were targeted at building wealth management capabilities as well as enhancing the existing banking channels. Your Bank launched the Gold and Investment verticals, which contributed in excess of Rs.5 crores of revenue in the first year of operations. Your Bank also launched two new channels – Wealth Relationship Managers and the Central Acquisition Team (CAT). The new CAT introduced more than 1,50,000 clients and mobilised Rs.250 crores of retail CASA balance in FY 2008-09. With constant technology upgradation and launch of customized products and services, your Bank was able to retain and deepen the profitable client base. The tie-ups with Aviva and Cholamandalam MS help your Bank offer a wider array of Life Insurance and General Insurance products to the customers. Your Bank launched innovative products like ‘Indus Money’ and ‘Indus Young Saver’ along with several service enhancements. The ‘Sales through Service’ model was implemented across all branches. In the Current Accounts space, your Bank launched products and services like ‘Indus Edge’, ‘Indus Prestige’, ‘Indus Escrow’ and ‘Indus Collect’ to enhance the business banking experience. With RBI releasing to your Bank licences for 30 new branches, 50 ATMs and 6 mobile ATMs, your Bank’s strategy of expanding banking operations to different locations in the country and into new growth markets will gain further momentum during the current year. Your Bank has since launched 5 ‘new look’ model branches across the country. The Branch governance model implemented has tighter controls on processes and compliance. Your Bank focused on key initiatives like client engagement, compliance and operating process management to enhance the quality of delivery of banking products and services. Consumer Finance Consumer Finance Division (CFD) of your Bank extends asset-backed financing for a wide range of vehicles spanning across heavy commercial vehicles, three-wheelers, cars, two-wheelers, etc. Besides, speciality Construction Equipments like Tippers, Cranes, Excavators, and Loaders are also financed. The thrust product during the year was three-wheelers, as this product line yielded high returns. Disbursements during the current year were, however, affected by the general industry slowdown and lower offtake of vehicles and sales recorded by the automobile sector. The total disbursements made during the year 2008-09 was Rs.4269 crores (2007-08: Rs.4358 crores) to new loan accounts numbering 3.77 lakhs (2007-08: 3.38 lakhs). The focus during the year was to optimize the product mix to maximize yields and at the same time maintain portfolio quality. Disbursements for Commercial Vehicles were of the order of Rs. 2608 crores as against Rs.2521 crores in 2007-08. Disbursements for construction equipment loans were at Rs.617 crores, as against Rs.798 crores in the previous year. The disbursements for two-wheeler loans were Rs.767 crores, as against Rs.770 crores in 2007-08. Disbursement for car loans was Rs.241 crores as compared to Rs.269 crores in the previous year. Disbursements in the three-wheeler segment grew by Rs.166 crores to Rs.522 crores from Rs.356 crores. Your Bank’s CFD is the lead financier in this segment and holds a market share of 12% in the three-wheeler segment, apart from 10% market share in the passenger segment and 16% in the goods segment. CFD also earned a fee-based income of about Rs.26.91 crore, primarily through distribution of various third-party insurance products, including ‘Credit Shield’, which is a personal accident cover offered to your Bank’s customers through Cholamandam MS General Insurance, being the strategic partner of your Bank for bancassurance in the General Insurance segment. Cross selling to the existing customer base and offering them value-added products resulted in the launch of ‘Top-up loans’.14
  14. 14. ‘Top-up loans’ is a finance product offered to existing prompt-paying customers on the unencumbered portion of their mother loancontract. The product was launched during the second quarter and the disbursement was Rs.36 crores.CFD operations are efficiently supported by state-of-the-art document storage and retrieval facility at your Bank’s Karapakkamunit (near Chennai) that handles loan document processing and record maintenance.CFD’s data centre, also located at Karapakkam, has state-of-the-art facilities in terms of data / equipment protection mechanismsand access rights with sensors to monitor movement within the data centre.Corporate & Commercial BankingKeeping in view the objective of creating a client-centric organization, the Corporate and Commercial Banking Group (CCBG)moved from a branch-based banking model to a business unit model during the year.In its new form, CCBG comprises four Strategic Business Units, viz., Corporate & Investment Banking, Commercial Banking,Business Banking and Financial Institutions & Public Sector. CCBG has also rationalized its geographic coverage by movingpeople to centres where its clients are located. Each strategic business unit is tasked with maximizing revenue from its clientsby deepening relationships and acquiring additional quality relationships from its focus area.Corporate & Investment Banking GroupThis segment covers large corporate clients, i.e., generally corporates with a turnover in excess of Rs.1000 crores. This Groupalso houses the Investment Banking Team that executes Investment Banking mandates for your Bank’s clients. This businessunderwent a substantial change in 2009, with the hiring of a new Relationship Management Team and changes in your Bank’sclient profile.During the year, a client-focused 40-member strong Relationship Team was built and it brought about 50 large new clients fromIndia’s leading business houses to your Bank, achieving an aggressive asset growth of more than 100% during the year.Highlights of the year:• Upgraded the overall credit quality of your Bank’s asset portfolio by a gradual phasing out of weaker credits and replacing this portfolio with better credits;• Enhanced the overall client profitability by targeting better-structured deals and active cross-sell of trade and global market products such as Interest Rate Swaps and Option Contracts;• Concluded a complex and structured international trade transaction worth about USD 600 mln with large reputed corporates, giving your Bank the necessary fillip in terms of fees and market profile;• The Investment Banking product team in the C&I business, with delivery capability in Corporate Debt Restructuring, Rupee Debt Syndication and Structured Acquisition Financing / Corporate Finance transactions with special focus on high growth mid-cap companies, successfully concluded relationship-led Rupee and foreign currency debt syndication deals and structured corporate finance mandates in a short span of six months from launch. This group acquired 62 new connections during the year.Commercial Banking GroupSet up with a view to target the sweet spot of the Indian corporate space, Commercial Banking Group focuses on companieswith turnover ranging from Rs.25 crores to Rs.1000 crores. These would typically be companies in the fast growing SME andmid-market segment. The Group today operates out of 26 cities, in four zones.The broad business theme of the Group is centred around the following:• Increased cross-sell through better alignment of Relationship Managers (RMs) with the product groups in Transaction Banking and Global Markets Groups;• Developing a strong risk management culture by proactive account monitoring and client-call programmes;• Emphasis on improvements in RM productivity by measuring revenue and relationship per RM. The non-productive relationships were exited & RM productivity on relationship had been increased at 19 clients per RM, with their revenue productivity at Rs.8 crores each.• This group acquired 139 new relationships during the year.Business Banking GroupThe Business Banking Group (BBG) covers small business with turnover below Rs.25 crores. The entire country has beendivided into 5 Zones, each being headed by a Zonal Head. The zones are further divided in 19 Regions which cover 79 citiesacross the country. 15
  15. 15. The core product range includes working capital facilities (cash credit, export finance, WCDL etc.) contributing to 60% of book size. Besides this, the BBG team also focuses on various allied products viz., warehousing finance, inventory finance, etc. Business Banking has now increased focus on Fee Income by way of higher processing fee, fee on non-funded facilities and forex business (remittances, derivatives, etc.) Business Banking is targeting higher productivity and profitability at employee and client level, by way of aggressive new client acquisitions and regular portfolio monitoring. Proactive management of existing portfolio includes timely renewals, regular follow up in sensitive cases, exit strategy, etc. The highlights of the year are: • Repricing of the loan book, which is now benchmarked to the market; • Warehouse financing portfolio was quickly ramped up to Rs.250 crores in the segment of Priority Sector Lending; • Aggressive acquisition of priority sector assets, primarily through Warehouse Receipt financing; • This group acquired about 1100 clients during the year, and the book grew by 67%. Financial Institutions & Public Sector Group The Financial Institutions & Public Sector (FIPS) Group was created to provide customized solutions to the banking needs of Public Sector Undertakings (PSUs), both Central and State, as well as to Government Bodies and Financial Institutions like banks, insurance companies and mutual funds. The Group is structured as under: • The ‘Public Sector Group’, which manages the PSU and Government relationships and caters to the banking needs of PSUs and Government Bodies; • The ‘FI Group’, which manages correspondent banking relationships with domestic and international banks and provides banking solutions for cooperative banks and domestic commercial banks. The relationships of both the Groups are managed through 4 Zonal Heads along with a team of 30 Relationship Managers (RMs). Presently, the team is based at 18 locations. The highlights of the year are: • A large part of your Bank’s deposits are managed by this group. Their strategy substantially improved your Bank’s liquidity, despite adverse market conditions. • Implementation of a focused product strategy for cooperative banks resulted in acquiring several new relationships in this segment. • The FIPS Group acquired 56 new relationships during 2008-09. Global Markets Group The Global Markets Group (GMG) is a multi-task unit of your Bank comprising functions such as: • Support to all Business Units in sale of international business products including derivatives, bullion import, etc; • Conduct proprietary trading in fixed income, currencies, equity markets within the set policy framework; and • Management of Balance Sheet and ALM, including maintenance of SLR / CRR as well as resources of your bank with the objective of achieving cost reduction and yield maximization with effective control over the market and interest rate risks. Thus, the GMG functions primarily pertain to Corporate Forex, Proprietary Trading and Money and Capital Market activities. The contribution of GMG includes income from forex operations and trading activity, which grew to Rs.206.56 crores from Rs.99.17 crores in 2007-08, a year-on-year growth of 137%. Exchange income from forex operations grew by over 170% to Rs.73.20 crores from Rs.27 crores. As part of the corporate forex activity, your Bank rolled out GMG sales infrastructure on pan-India basis, divided into three zones, with Product Managers located at major centers, thereby giving geographical reach to GMG for better customer engagement. Further, a dedicated ‘Structured Products Desk’ has been created in the Dealing Room in Mumbai to offer various risk management / derivative products. GMG provides market information and advisory services through SMS alerts, daily newsletters and direct one-on-one interaction with customers. Your Bank took full advantage of the prevailing volatility in the market and capitalized on the proprietary trading opportunities.16
  16. 16. The Forex Proprietary Desk contributed Rs.40.56 crores and emerged as one of the important players in the Currency FuturesMarket. Your Bank has commenced dealing on all major Currency Future Exchanges in India.The investment portfolio of your Bank mainly comprises core SLR investments as prescribed by the Reserve Bank of India.Investment in Non-SLR instruments and RIDF bonds amounting to Rs.8088.34 crores gave an overall yield of 6.88% p.a., whileyield from core SLR investments was 7.50% p.a.In view of the then prevailing market conditions, your Bank resorted to running a near-zero Bond Trading book in the wake ofthe rising yields in the first half of FY 2008-09. However, in the second half, with policy rate cuts, your Bank focused on tradingactivity. Money and Capital Markets Desk undertakes proprietary trading activity that covers Fixed Income Bonds, Equity andInterest Rate Swaps. This activity contributed Rs.121.55 crores for the year.Your Bank has reduced its cost of funds through accessing the Call Money Market with an average borrowing of Rs.660.14crores. Overall, the liquidity management of your Bank was well under control. The Money & Capital Markets Desk effectivelymanaged the ALM and Balance Sheet and deployed surplus funds at profitable yields.Transaction Banking GroupThe Transaction Banking Group was set up in your Bank in 2008-09, with a vision to provide new innovative product offeringsacross the client segments of Corporate as well as Consumer Banking. This Group was broadly aligned under the product linesof Cash Management Services, Trade Services & Financing, Supply Chain Financing, Global Remittances, Commodity Financing,Electronic Banking and Capital & Commodity Markets, so as to have a highly focused approach to each of these businesses.During the year under review, your Bank rolled out its complete suite of Cash Management products. These products weredesigned to leverage your Bank’s wide reach and the extensive distribution network. The collection and payments productslaunched by your Bank are best in class, supported by robust electronic banking delivery capabilities. Your Bank has receivednotable mandates, including the function of ‘settlement banking’ for the Tea trade at four auction centers in India. Going forward,your Bank proposes to launch a new state-of-the-art electronic banking portal that would enable corporate customers toseamlessly interact with your Bank for a wide range of their banking requirements.Your Bank is introducing an integrated Electronic Banking platform through which next-generation banking innovations shallbe made available to its customers. The thrust is on enhancing the customer’s banking experience by shifting controls into hishands, enabling the participation of all stakeholders, setting up an environment of transparency and easy access to informationand resources, and creating an online platform that is responsive enough to meet the ever changing customer needs. YourBank’s ‘Corporate Internet Banking’ platform is the first of these offerings, planned to be rolled out shortly. It will enable yourBank’s customers to conduct transactions in a secure and efficient environment and facilitate business by offering host-to-hostconvenience and flexibility to meet the entire range of banking requirements under Cash Management, Trade Services andSupply Chain Financing.The Global Remittances business at the Bank saw a significant thrust during the year, with the addition of seven new ExchangeHouse partners across GCC countries. In addition to this, your Bank also launched the new “Indus Fast Remit” platform for capturingonline remittances from the US to India. This facility is being offered in association with The Bank of New York Mellon, who are theclearing partners. Going forward, it is proposed to extend the online offering to countries in Europe and South East Asia.Over 7 lakh global remittance transactions were handled during the year 2008-09, a volume increase of about 125% over theprevious year. The value of remittances processed in 2008-09 was higher by 163% over the value of transactions processed in2007-08.The Capital and Commodity Markets Division of your Bank focuses on serving Capital and Commodity Exchanges and brokers.Your Bank has the unique distinction of being a Clearing-cum-Settlement Banker to all the major Exchanges viz., NSE, BSE,NCDEX, MCX and NMCE. During the year under review, your Bank enlarged its empanelment with the addition of the CurrencyDerivatives Segment of NSE, BSE and MCXSX.Your Bank has also acquired Trading-cum-Clearing membership on these Exchanges. Your Bank became Clearing Bank to thefirst Energy Exchange of India, the Indian Energy Exchange to cover participants in the Energy Segment. Your Bank’s FortBranch is the all-India nodal branch for this purpose and offers ‘12 hours a day’ banking services to capital and commoditiesmarket participants. Your Bank has also been empanelled with major Bond Issuers like REC, NHAI (for Capital Gain Bonds) andwith NABARD (for Bhavishya Nirman Bonds) to enlarge its bouquet of third-party products offerings.While the year under review was a challenging one for the capital markets which witnessed high volatility and saw indicesfalling up to 40% off the peak, your Bank managed not only to protect its exposure but also selectively expand its portfolio whileensuring that there were no NPAs in this business during the year. 17
  17. 17. Your Bank’s Capital Market Exposure which as at March 31, 2008 constituted 33.20% of your Bank’s net worth stood at 26.27% of the net worth as at March 31, 2009, well in compliance with the revised RBI guidelines. The Commodity Financing business of the Bank was extended to 10 states and marked the addition of a number of new commodities, leading to a significant growth in the asset book. Your Bank has become one of the leading players in this business today. Your Bank has managed to spread its counterparty risk in this business by enlisting new Collateral Managers as well, apart from following a prudent process of due diligence. The outstandings under this head as at March 31, 2009 stood at about Rs.260 crores, higher by 67% over the previous year. The Trade Services and Supply Chain Groups focus on providing end-to-end trade solutions to customers, across their value chain. Besides providing all the vanilla trade solutions such as LCs, Guarantees as well as export and domestic trade credits, your Bank aims at helping clients enhance their cash flow and balance sheet management and improve working capital flows by unlocking funds in the working capital cycle, apart from supporting sales efforts and generating strong customer-supplier loyalty. The supply side financing solutions that have been launched recently are highly effective tools for negotiating preferential purchase terms and strengthening relationships with strategic partners and core suppliers. For suppliers, the solutions provide assured and cost-effective financing of trade receivables, thereby improving Days’ Sales Outstanding (DSO) and in some cases potential balance sheet advantages from converting accounts receivable to cash. On the receivables side, your Bank has structured unique solutions providing competitive source of funding and working capital advantages. Taking its supply chain capabilities a step further, your Bank is also looking at establishing a financing solution for suppliers of select corporates offering competitively priced pre-shipment loans. Your Bank is developing a supply chain portal enabling further efficiencies and cost saving through process automation and electronic document management. Financial Restructuring and Reconstruction Group All activities related to recovery of non-performing loans and restructuring of stressed assets are handled by the Financial Restructuring and Reconstruction Group (FRRG). The role of FRRG has become crucial given the challenging credit environment faced by banks in India. Your Bank has actively utilized the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interests Act (SARFAESI) for enforcing securities charged to the Bank in the case of defaulting borrowers as well as to take appropriate portfolio intervention like sale of non-performing loans to specialized asset reconstruction companies. Wherever considered necessary, the Bank has restructured the loans given to otherwise viable businesses which have faced cash flow problems causing them to delay or default in servicing their loan obligations. Your Bank has recovered an amount of Rs.28.90 crores (previous year Rs.42.30 crores) in written off accounts. Net NPAs of your Bank stood at 1.14% (Previous year 2.27%). The figures for NPAs include accounts aggregating Rs.27.35 crores for which applications for restructuring have been received during the year. Such accounts, if restructured, may get upgraded as standard assets. Priority Sector Lending Your Bank has earned the distinction of achieving the RBI-prescribed target as well as sub-targets for Priority Sector Advances. Priority Sector Advances aggregated Rs.6298.79 crores at the end of March 2009 and represented 49.23% of your Bank’s Net Bank Credit (NBC), compared with 52.75% at the end of March 2008. During the year, your Bank financed over 2,67,668 agriculturists and the aggregate Direct Agricultural Advances stood at Rs.2039.44 crores representing 15.94% of your Bank’s NBC at the end of March 2009 compared with 9.70% at the end of March 2008. During the year, your Bank’s finance to ‘Weaker Sections’ stood at Rs.1274.86 crores representing 9.96% of your Bank’s NBC at the end of March 2009 compared to 0.31% at the end of March 2008. Other priority sector advances such as finance to small enterprises represented 25.38% of your Bank’s NBC at the end of March 2009, compared with 35.56% at the end of March 2008. Enterprise-wide Risk Management Banking business is exposed to a wide spectrum of risks, and it is imperative that the various risks faced by the Bank are effectively monitored, measured and managed. A strong Enterprise-wide Risk Management (ERM) framework, a cornerstone of prudent banking, enables effective and pro-active management of various risks while supporting rapid business growth, helps reduce volatility in earnings and enhances shareholder value. The ERM framework provides a single-window view of the risks faced by the Bank and facilitates integration and coordination in management and monitoring of risks. Your Bank has set up an integrated Risk Management Department, independent of business functions, covering Credit Risk, Market Risk, Operational Risk and Asset-Liability Management (ALM) functions. The risk management practices adopted by your Bank are akin to the best in the industry and are adaptable to a dynamic operating environment.18
  18. 18. Basel II – Reinforcement of Risk ManagementYour Bank has adopted New Capital Adequacy framework under Basel-II w.e.f. 31.03.2009 for measurement and maintenanceof capital adequacy. The New Capital Adequacy framework has enabled the Bank in moving towards allocation of capital basedon risk sensitivity. As a prudent measure, your Bank has been undertaking computation of capital requirement under Basel-IIsince June 2006 under a parallel run.Your Bank has implemented a highly sophisticated system to enable automated computation of capital requirements underBasel-II. The system also supports adoption of advanced approaches under New Capital Adequacy framework for computationof capital charge towards Credit Risk, Market Risk and Operational Risk.Your Bank, in addition to compliance with Pillar-I requirements under Basel-II, has also adopted and implemented the Policy onInternal Capital Adequacy Assessment Process (ICAAP), which facilitates identification and measurement of other material risks(other than the risks covered under Pillar-I).Credit RiskCredit risk is managed both at the Transaction level and Portfolio level. The key objective of credit risk management is to achieveappropriate reward in relation to risks assumed whilst maintaining the credit quality within the defined risk appetite.The various measures adopted by your Bank for managing credit risk are outlined hereunder:• Gauging credit risk at the time of credit approval by means of risk rating models designed and implemented for different segments of obligors.• Credit Portfolio Management analysis to manage composition of portfolio, its quality and concentration risk.• Stress testing of portfolios to measure its shock absorbing capacity and its impact on profitability and capital adequacy.• Measurement and monitoring of credit quality regularly by means of Weighted Average Credit Rating (WACR) of the Portfolios.• Prudential internal limits for assuming exposures on counterparty.• Monitoring of prescribed portfolio level limits.• Management of Bank Risk and Country Risk by setting structural limits on the basis of risk profile.Market RiskMarket risk arises from changes in interest rates, exchange rates, equity prices and risk related factors such as marketvolatilities.Market risk is actively managed and aligned with the Bank’s risk appetite. The Bank manages market risk in the trading portfoliosusing a robust market risk management framework prescribed in its Market Risk Management policy. The framework includesValue-at-Risk (VaR) limits (for foreign exchange portfolio) and sensitivity limits (for Investments and Derivatives Portfolios) besidesvarious operational limits such as Stop-Loss limits, Exposure limits, Deal-size limits, etc.The market risk management function is independent of the Bank’s Treasury business and is responsible for:• Ensuring compliance with Bank’s Market Risk Management Policy and monitoring market risk exposures to be in line with the risk limits set by the Board of Directors;• Identification, measurement, monitoring, analysis and reporting of the market risks arising out of various trading portfolios; and• Determination of appropriate policies and methodologies for measurement and controlling the market risks.The prime objective of the Bank’s trading activities is client facilitation and providing products to Bank’s client base at competitiveprices. Further, the Bank also takes positions for proprietary activities. Financial instruments held in the Bank’s trading portfolioinclude debt securities, equities, foreign exchange currencies and derivative financial instruments (forwards, swaps and optionsetc).Interest Rate Risk in the Banking Book (IRRBB)Interest rate risk in the Banking Book arises from the Bank’s non-trading activities in four principal forms:• Repricing Risk - Arises from differences in the repricing terms of the Bank’s assets and liabilities.• Optionality - Arises where a customer has an option to exit a deal early.• Basis Risk - Arises where offsetting investments do not experience price changes in entirely opposite directions from each other.• Yield Curve Risk - Arises as a result of non-parallel changes in the yield curve. 19
  19. 19. From an economic perspective, it is the Bank’s policy to minimise the sensitivity to changes in interest rates on assets and liabilities. Interest rate risk is calculated on the basis of its repricing behaviour of each asset, liability and off-Balance Sheet product. Bank’s ‘Assets and Liabilities Management Policy’ has laid down limits as per the Bank’s risk appetite on the impact on NII for a change in the interest rate. Liquidity Risk and Asset Liability Management (ALM) Liquidity management within the Bank addresses the risk arising from mismatches in maturities across the balance sheet. The Asset and Liability Management Committee (ALCO) of your Bank is chaired by the Managing Director and includes Chief Operating Officer, Chief Risk Officer, CFO, Heads of Business Units and Functional Heads. ALCO meetings were convened frequently during the year, wherein analytical presentations were made providing detailed analysis of liquidity position, interest rate risks, product mix, business growth versus budgets and interest rate outlook, which helped to review the business strategies regularly and undertake new initiatives. In order to adopt more advanced and sophisticated techniques of assets-liabilities management, your Bank has acquired a state- of-the-art ALM system. The Bank’s ALM system supports effective management of liquidity risk and interest rate risk, covering 100% of its assets and liabilities. • Liquidity Risk is monitored through Structural Liquidity Gaps, Dynamic Liquidity position, Liquidity Ratios analysis and Behavioral analysis, with prudential limits for negative gaps in various time buckets. • Interest Rate Sensitivity is monitored through prudential limits for Rate Sensitive Gaps and other risk parameters. • Interest Rate Risk on the Investment portfolio is monitored through Modified Duration on a daily basis. Optimum risk is assumed through duration to balance between risk containment and profit generation from market movements. Your Bank is also in the process of implementing an advanced system for Funds Transfer Pricing (FTP), which shall reinforce the pricing mechanism and enhance performance management framework. Stress Testing Your Bank performs stress tests regularly to simulate as to how the stressed events may impact its funding and liquidity position. The stress tests help the Bank to be better equipped to meet the stressed situations, if they arise, and also to overcome them and prevent them from becoming a serious threat. Contingency Planning Contingency funding plans have been developed to anticipate and respond to approaching or actual material deterioration in market conditions. Your Bank reviews its contingency plans in the light of evolving market conditions. The contingency funding plan covers the available sources for contingent funding to supplement cash flow shortages, the roles and responsibilities of those involved in the contingency plans and the Contingency Triggers. Operational Risk Operational risk is the potential for incurring loss due to failure of employees, technology, systems or processes, projects, disasters, external factors, frauds, etc., including legal and regulatory risks. Your Bank seeks to ensure that key operational risks are managed in a timely and effective manner through a framework of policies, procedures and tools to identify, assess, monitor, control and report such inherent risks in its business. Operational risk occurs on account of fraud, human error, failed processes, inadequate systems, damage to physical assets, improper behavior or external events, etc. Your Bank’s Risk Management Department provides necessary direction and undertakes meaningful initiatives for implementation of Operational Risk Management framework within the Bank. The Operational Risk Framework comprises Policy guidelines, KRIs, Loss Data collection, Risk & Control Self Assessment (RCSA) and risk profiling of branches. The various products launched by your Bank are approved by Operational Risk Management Committee (ORMC), which identifies the risks inherent in the product and prescribes controls to mitigate the risks. Systems Risk Your Bank has taken various initiatives such as establishment of Disaster Recovery Site, IT Security framework, In-house Data Centre, Business Continuity Plan, etc. towards mitigation of systems risks.20
  20. 20. Branch NetworkAs at the end of the financial year 2008-09, your Bank had a total of 180 branches and 184 off-site ATMs spread across 147geographical locations. Your Bank has received authorization from Reserve Bank of India for opening of 30 new branches and56 off-site ATMs.Your Bank has presence in 28 States and Union Territories. In addition, your Bank also has representative offices in London andDubai.InfrastructureYour Bank has commenced the process of opening “new look branches” to enhance the banking experience of customers andto provide personal attention to their needs. Five branches with the new look have already been opened at Bandra, Kolkata,Ludhiana, Vadodara and Lucknow.During the year, Consumer Banking opened its new Administrative Office in Gurgaon. Your Bank’s Consumer Finance Divisionmoved into its own four-storey building at G. N. Chetty Road in Chennai.Your Bank has installed Close Circuit TVs (CCTVs) at select branches and ATMs as a security measure during the year. Thisexercise will be continued in the year 2009-10 so as to cover other select branches and all off-site ATMs.Banking OperationsYour Bank has strengthened the policy framework on “Know Your Customer” (KYC) norms and “Anti Money Laundering” (AML)measures from time to time, in line with the policies of Reserve Bank of India. Your Bank has implemented a simplified procedureof “Know Your Customer” which will benefit lower income group persons to open accounts with minimal documentation.In compliance with RBI directives, your Bank has undertaken review of risk categorization of all customers’ accounts.Your Bank is a member of Banking Codes and Standards Board of India (BCSBI), which was set up to ensure that banks inIndia adhere to a voluntary Code, which suggests minimum standards for fair treatment to customers availing bank services. YourBank has made a commitment to adhere to all the provisions of the Code prescribed by BCSBI. Your Bank has implementedalmost all provisions of the Code. The Code is displayed at all branches of your Bank and is also hosted on your Bank’s websitein thirteen languages.In June 2008, the Hon’ble Finance Minister released the “Code of Commitment to Micro and Small Enterprises” (MSE Code).MSE Code is a voluntary Code, which sets minimum standards of banking practices for banks to follow when they are dealingwith micro and small enterprises as defined in the Micro, Small and Medium Enterprises Development (MSMED) Act, 2006. Itprovides protection to MSE customers and explains how banks are expected to deal with customers in day-to-day operations andin times of financial difficulty. As a member of BCSBI, your Bank has adopted the MSE Code in full.More metro centres were brought under centralized clearing for quicker and efficient process. Accordingly, clearing wascentralized at Kolkata, Chennai, Bangalore, Chandigarh and Ludhiana. It will be your Bank’s endeavour to bring more centresunder centralized clearing in the near future. Automated ECS has been implemented at major centres.Cheque Truncation System (CTS), which was implemented in New Delhi by RBI, was operationalised in March 2008 and hasfully stabilized. Your Bank is participating in clearing through CTS.Your Bank has implemented various system upgrades which include the Teller Module, Expenses Management, etc. Your Bankhas strengthened its branch processes and monitoring capability to ensure smooth functioning of day-to-day activities.Your Bank has improved internal controls and compliance through the following:• Separate and independent Compliance function has been set up for Bank-wide compliance;• Vigilance function has also been set up;• Expense management software has been deployed at all branches for facilitating cost control;• Branch Monitoring Unit is operative for regular monitoring of branch operations;• Voucher verification process has also been operationalised during the year for checking all the entries posted by the branches; and• Process adherence and Quality function has been operationalised for attaining uniformity in processes followed by branches, to minimize operational risk.Your Bank has revised and adopted a comprehensive policy, in pursuance of RBI advices, on settlement of claims in respect ofdeceased depositors. The Policy covers all types of deposits, and has simplified the procedure for settlement. 21
  21. 21. Your Bank has adopted the “Best Practice Code”, relating to transaction processing, with the objective of documenting the procedures in line with national and international best practices. Your Bank has also put in place a “Deposit Policy” and a “Fair Practice Code”. While the former outlines the guiding principles in respect of various deposit products of the Bank, terms and conditions governing the operations of these accounts and the rights of depositors, the Fair Practice Code is a voluntary code establishing standards to be followed by all our branches in their dealings with the customers. Your Bank has also framed “Citizen’s Charter” to promote fair banking practices and to give information in respect of various activities relating to customer service. Your Bank has put in place the “Compensation Policy” as a part of commitment to its customers to compensate them in case of your Bank being unable to meet the service levels committed to the customers. The main objective of the Policy is to establish a system whereby Bank shall compensate the customer for any direct and actual loss by way of internal loss / payment of charges by customer due to deficiency in service of the Bank, to the extent mentioned in the policy. The Policy is based on the principle of transparency and fairness in the treatment of customers. Prompt, efficient and courteous service is a key to success for any service organization and your Bank has recognized it and has formulated the “Grievance Redressal Policy”. The Policy aims to minimize the instances of customer complaints through effective service delivery, a review mechanism and prompt redressal of customer grievances. Internal Control Systems and their adequacy Operational Controls Your Bank has laid down the policy framework related to “Know Your Customer” (KYC) norms and “Anti Money Laundering Measures” (AML). The policy has been framed on the basis of recommendations of the Financial Action Task Force and the paper on Customer Due Diligence for Banks issued by the Basel Committee on Banking Supervision. The AML software that has been implemented has effectively brought the operational risk under control. In accordance with RBI’s recommendations, a Committee on Procedures and Performance Audit on Public Service in Banks (CPPAPS), comprising senior functional heads of the Bank and a few customers, has been established. The performance of the CPPAPS is also reviewed by the Customer Service Committee of the Board of Directors. Customer Service Your Bank has constituted a Branch Level Customer Service Committee (CSC) at all branches comprising employees and customers of the Branch. CSC meetings are convened every month to examine complaints / suggestions, cases of delay, difficulties faced / reported by customers/ members of the Committee. Feedbacks and suggestions are submitted to CPPAPS. CPPAPS examines and provides relevant feedback to the Customer Service Committee of the Board for necessary policy / procedural action. Grievance Redressal Mechanism Your Bank has designed an escalation process for all customer complaints received at branches and Corporate Office. A quarterly report related to complaints received and redressed is placed before the Board of Directors. Based on the recurrence of complaints in specific area, causative factors are identified and necessary remedial measures are initiated. Your Bank maintains a dedicated page for lodging of complaints and complaint redressal mechanism on its website www.indusind.com where information on the escalation process and the details of the nodal officer to receive complaints has been furnished. These details are also displayed at the Bank’s Branches. Details of the Banking Ombudsman Scheme 2006 are also displayed at branches and provided on the website. Your Bank has also created a link on its website for a “Complaint Form”, which gives opportunity to all our customers to air their grievances in a simplified way and get their complaints redressed without delay. With a view to enhance customer interface your Bank has initiated specific measures such as: • Upgradation of Contact Centre and bringing more functions under the ambit of the same; • Deployment of special software at all branches for logging in customer complaints as also requests, mainly to track their status at any point of time with the ultimate objective of ensuring that the customers’ requirements are met on priority. This software will also equip your Bank to get a complete view of the issues raised by every customer over a period of time, and facilitate identification of repeat instances so as to take corrective action to improve service quality; • Evaluation of software for Relationship Management to ensure that all customer contacts are recorded and tracked for final closure as also to ensure that the customers’ requirements are evaluated and factored in new product lines.22
  22. 22. Inspection and AuditYour Bank’s Internal Audit function is sufficiently geared to make an independent and objective evaluation of the adequacy andeffectiveness of internal controls on an ongoing basis to ensure that business units adhere to compliance requirements andinternal guidelines. To achieve this end, comprehensive processes have been established for the internal auditors to ensure thatall facets of your Bank’s operations are subjected to scrutiny.Your Bank’s Internal Audit function undertakes a comprehensive risk based audit of all its business units. An Audit Plan is drawnup on the basis of a risk profiling of auditee units. Accordingly, your Bank undertakes internal audit of its business units at afrequency synchronized to the risk profile of each unit in line with the spirit of Risk-Based Internal Audit. The scope of risk-basedinternal audit besides examining the adequacy and effectiveness of Internal Control Systems and external compliance alsoevaluates the risk residing at the auditee units. Credit quality assurance audit is also undertaken.To complement the Bank’s Internal Audit function, we have strong concurrent audit system in place. Further, in order to effectivelyaddress business concerns and to react with speed, your Bank’s Internal Audit function is decentralized, and has been functioningas an integrated unit to cover all its operational activities. Regional Auditors at different locations are equipped to evaluate allaspects of the Bank’s business.Your Bank has developed an effective online surveillance system by using its fully networked Core Banking Software, well-defined and strong internal controls, need-based access to computer systems and clear audit trails which have helped to mitigateoperational risks.To facilitate ownership of the quality control mindset, all exception reports are now available on the system, for viewing and useby business units. There is a constant push to automate audit activities in order to enhance transparency and standardization,as well as to speed up the availability of MIS to Top Management.To ensure independence of the audit function and in line with best corporate governance practices, the Internal Audit function hasa reporting line to the Audit Committee of the Board, which oversees the performance and reviews the effectiveness of controlslaid down by the Bank and compliance with regulatory guidelines, besides rendering effective guidance to ensure conformity withbest practices in the area of Internal Audit.Human Resources / Industrial RelationsHuman capital is the key resource that the company creates, develops and nurtures. Human Resource function’s focus is toensure employee satisfaction and retention by creating a performance enabling work culture within the organization.In the year 2008-09, the manpower strength of your Bank grew from 2,869 employees in 2007-08 to 4,251 employees. Despitethe prevailing economic slowdown and recessionary market trends, your Bank hired aggressively to match its business expansioninitiatives. This year witnessed higher intake of quality professionals from peer banks and other reputed corporates, reinforcingthe belief that your Bank has become a preferred employer.In order to improve the knowledge base and skills of employees, your Bank intensified focus on learning and developmentactivities. During the year, the Bank conducted more than 60,000 learning man-hours covering 5,500 participants in areas ofProduct, Process, soft skills and specialized domain-based training programs. E-learning initiatives comprising online coursemodules and online assessment tests were launched across the Bank to provide scalability of learning and to reduce turnaroundtime of disseminating learning.With a view to nourishing a performance-oriented culture, the concept of ‘SMART Goals’, comprising defined goals and targetswas launched across your Bank. Performance reviews on SMARTs were conducted periodically to track progress on goalachievements. ESOP scheme was launched for critical employees to make them key stakeholders in the growth of the Bank. Newmarket-aligned designations in synchronization with business realities were launched for employees across your Bank. In order toimprove end-user satisfaction, there is a concerted effort to automate all HR processes and launch of Online Leave ApplicationProcessing System, Learning Management System and HRIS Implementation in progress are steps in that direction.During the year, creating of avenues for employee recreation was focused upon by organizing get-togethers and participation invarious sports tournaments to make workplace a fun place and improve employee productivity and commitment.Employee Stock Option SchemeYour Bank had instituted an Employee Stock Option Scheme to enable its employees, including Whole-time Directors, toparticipate in the future growth of the Bank. Under the Scheme, options which upon exercise or conversion could give rise to theissue of a number of shares not exceeding in the aggregate 7% of the issued equity capital of your Bank from time to time canbe granted. The Employee Stock Option Scheme is in accordance with the Securities and Exchange Board of India (EmployeeStock Option Scheme and Employee Stock Purchase Scheme) Guidelines, 1999. The eligibility and number of options to begranted to an employee is determined on the basis of criteria laid down in the Scheme and is approved by the CompensationCommittee of the Board of Directors.An aggregate of 1,56,21,000 options have been granted under the Scheme. Statutory disclosures as required by the revisedSEBI Guidelines on ESOS are given in the Annexure to the Directors’ Report. 23