Preliminary Placement Document Not for circulation Private and confidential Subject to completion Serial No. ___
SYNDICATE BANK Syndicate Bank (“Bank”) was originally incorporated in 1925 as Canara Industrial & Banking Syndicate Limited and renamed as Syndicate Bank Limited with effect from January 1, 1964. Subsequently, in 1969, our Bank was nationalized under The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance dated July 19, 1969. For further details with respect to constitution of our Bank, please see section “General Information” on page 228
Head Office: Door No. 16/355 and 16/365A, Manipal – 576 104, Udupi, Karnataka, India. Telephone: +91 820 2571181; Fax: +91 820 2570266; Website: www.syndicatebank.in, Email: [email protected]. | Corporate Office: II Cross, Gandhi Nagar, Bengaluru 560 009, Karnataka, India. Telephone: +91 80 22267545; Fax: +91 80 2228 7580;
Our Bank is issuing [●] equity shares of face value ₹10 each (the “Equity Shares”) at a price of [●] per Equity Share, including a premium of ₹ [●] per Equity Share, aggregating up to ₹ [●] million (the “Issue”) to Qualified Institutional Buyers, as defined under the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended. For further details, please see “Summary of the Issue” on page 24.
THE ISSUE IS IN ACCORDANCE WITH CHAPTER VIII OF THE SECURITIES AND EXCHANGE BOARD OF INDIA (ISSUE OF CAPITAL AND DISCLOSURE REQUIREMENTS) REGULATIONS, 2009, AS AMENDED (THE “ICDR REGULATIONS”)
THIS ISSUE AND THE DISTRIBUTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IS BEING MADE TO QUALIFIED INSTITUTIONAL BUYERS AS DEFINED UNDER REGULATION 2(1)(zd) OF THE ICDR REGULATIONS (“QIBs”) IN RELIANCE UPON CHAPTER VIII OF THE ICDR REGULATIONS. THIS PRELIMINARY PLACEMENT DOCUMENT IS PERSONAL TO EACH PROSPECTIVE INVESTOR AND DOES NOT CONSTITUTE AN OFFER OR INVITATION OR SOLICITATION OF AN OFFER TO THE PUBLIC OR TO ANY OTHER PERSON OR CLASS OF INVESTORS WITHIN
le QIBs on a private placement basis and is not anoffernot is and placementbasis private a on QIBs le OR OUTSIDE INDIA OTHER THAN TO QIBs. THIS PRELIMINARY PLACEMENT DOCUMENT WILL BE CIRCULATED ONLY TO SUCH QIBs WHOSE NAMES ARE RECORDED BY OUR BANK PRIOR TO MAKING AN INVITATION TO SUBSCRIBE TO EQUITY SHARES OFFERED IN THE ISSUE. issued for the sole purpose of information or discussion discussion or information of purpose sole the for issued
YOU ARE NOT AUTHORISED TO (1) DELIVER THIS PRELIMINARY PLACEMENT DOCUMENT TO ANY OTHER PERSON; (2) REPRODUCE THIS PRELIMINARY PLACEMENT DOCUMENT IN ANY MANNER WHATSOEVER; OR (3) RELEASE ANY PUBLIC ADVERTISEMENT OR UTILIZE ANY MEDIA, MARKETING OR DISTRIBUTION CHANNELS OR AGENTS TO INFORM THE PUBLIC AT LARGE ABOUT THE ISSUE. ANY DISTRIBUTION It is being OR REPRODUCTION OF THIS PRELIMINARY PLACEMENT DOCUMENT IN WHOLE OR IN PART IS UNAUTHORISED. FAILURE TO COMPLY WITH THESE INSTRUCTION MAY RESULT IN A VIOLATION OF THE ICDR REGULATIONS OR OTHER APPLICABLE LAWS OF INDIA AND OTHER JURISDICTIONS.
INVESTMENTS IN EQUITY SHARES INVOLVE A DEGREE OF RISK AND PROSPECTIVE INVESTORS SHOULD NOT INVEST IN THIS ISSUE UNLESS THEY ARE PREPARED TO TAKE THE RISK OF LOSING ALL OR PART OF THEIR INVESTMENT. PROSPECTIVE INVESTORS ARE ADVISED TO CAREFULLY READ THE SECTION “RISK FACTORS” ON PAGE 43 BEFORE MAKING AN INVESTMENT DECISION IN THIS ISSUE. EACH PROSPECTIVE INVESTOR IS ADVISED TO CONSULT ITS OWN ADVISORS ABOUT THE PARTICULAR CONSEQUENCES TO IT OF AN INVESTMENT
IN THE EQUITY SHARES PROPOSED TO BE ISSUED PURSUANT TO THIS PRELIMINARY PLACEMENT DOCUMENT.
Invitations, offers and sale of the Equity Shares shall only be made pursuant to this Preliminary Placement Document, the Application Form (as defined hereinafter), the Placement Document and the Confirmation of Allocation Note (as defined hereinafter). See the section “Issue Procedure” on page 187. The distribution of this Preliminary Placement Document or the disclosure of its contents without the Bank’s consent to any person other than QIBs (as defined in the ICDR Regulations) and persons retained by QIBs to advise them with respect to their purchase of the Equity Shares is unauthorized and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and to make no copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document. Information contained in this Preliminary Placement Document is not complete and may be changed. The information on our Bank’s website or any website directly or indirectly linked to our Bank’s website does not form part of this Preliminary Placement Document and prospective investors should not rely on such information contained in, or available through, such websites. Equity Shares. ThisPreliminaryPlacement SharesanyEquitysellanoffertonotanoffer Documentnot solicitingandis is
The Equity Shares of our Bank are listed on BSE Limited (the “BSE”) and the National Stock Exchange of India Limited (the “NSE”) (BSE and the NSE collectively referred as the “Stock Exchanges”). The closing price of the outstanding Equity Shares on BSE and NSE on December 12, 2017 was ₹84.45 and ₹ 84.40 per Equity Share, respectively. In-principle approvals under regulation 28(1) of the Listing Regulations, (as defined hereinafter) amended for listing of the Equity Shares have been received from BSE and NSE on December 12, 2017. Applications to the Stock Exchanges will be made for the listing of the Equity Shares offered through this Preliminary Placement Document. The Stock Exchanges assume no responsibility for the correctness of any statements made, opinions expressed or reports contained herein. Admission of the Equity Shares to trading on the Stock Exchanges should not be taken as an indication of the merits of the business of our Bank or the Equity Shares.
OUR BANK HAS PREPARED THIS PRELIMINARY PLACEMENT DOCUMENT SOLELY FOR PROVIDING INFORMATION IN CONNECTION WITH THE PROPOSED ISSUE.
This Preliminary Placement Document has not been reviewed by Securities and Exchange Board of India (“SEBI”), the Reserve Bank of India (the “RBI”), the Stock Exchanges, or any other regulatory or listing authority. The Equity Shares offered in the Issue have not been recommended or approved by SEBI, nor does SEBI guarantee the accuracy or adequacy of this Preliminary Placement Document. This Preliminary Placement Document has not been and will not be registered as a prospectus with the Registrar of Companies, Karnataka (“RoC”) in India, and will not be circulated or distributed to the public in India or any other jurisdiction and will not constitute a public offer in India or any other jurisdiction.
The Equity Shares have not been and will not be registered under the U.S. Securities Act of 1933, as amended (the “U.S. Securities Act”), or any state securities laws of the United States and may not be offered, sold or delivered within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold outside the United States in “offshore transactions” (as defined in Regulation S under the U.S. Securities Act (“Regulation S”)) in accordance with Regulation S and the applicable laws of the jurisdictions where
The information in this Preliminary Placement Document is not complete and may be changed. The Issue is meant only for Eligib for only is meant changed.Issue be The may and completenot is Preliminary PlacementDocument this in information The classofinvestorspurchaseany other theorto publicthe to to to subscribe to or buy the Equity Shares in any jurisdiction where such offer, sale or subscription is not permitted. Document. Placement the through issued be may that Shares Equity the to relating those offers and sales are made. For further details, see “Selling Restrictions” and “Transfer Restrictions” on pages 199 and 205, respectively.
This Preliminary Placement Document is dated December 12, 2017.
BOOK RUNNING LEAD MANAGERS
EQUIRUS CAPITAL PRIVATE LIMITED BNP PARIBAS BOB CAPITAL MARKETS LIMITED
CENTRUM CAPITAL LIMITED ELARA CAPITAL (INDIA) PRIVATE LIMITED IDBI CAPITAL MARKETS & SECURITIES LIMITED
TABLE OF CONTENTS NOTICE TO INVESTORS ...... 2 REPRESENTATIONS BY INVESTORS ...... 4 DISCLAIMER CLAUSE OF STOCK EXCHANGES ...... 10 CERTAIN CONVENTIONS, CURRENCY OF PRESENTATION AND FINANCIAL DATA ...... 11 INDUSTRY AND MARKET DATA ...... 13 FORWARD – LOOKING STATEMENTS ...... 14 ENFORCEMENT OF CIVIL LIABILITIES ...... 15 EXCHANGE RATES ...... 16 DEFINITIONS AND ABBREVIATIONS ...... 17 SUMMARY OF THE ISSUE ...... 24 SUMMARY OF BUSINESS ...... 26 SUMMARY OF FINANCIAL INFORMATION ...... 33 MARKET PRICE INFORMATION ...... 38 RISK FACTORS ...... 43 USE OF PROCEEDS ...... 67 CAPITALISATION STATEMENT ...... 68 DIVIDEND POLICY ...... 69 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION ...... 70 SELECTED STATISTICAL INFORMATION ...... 98 INDUSTRY OVERVIEW ...... 124 BUSINESS ...... 138 BOARD OF DIRECTORS AND SENIOR MANAGEMENT ...... 160 PRINCIPAL SHAREOLDERS ...... 172 REGULATIONS AND POLICIES ...... 174 ISSUE PROCEDURE ...... 187 PLACEMENT AND LOCK – UP ...... 197 SELLING RESTRICTIONS ...... 199 TRANSFER RESTRICTIONS ...... 205 THE SECURITIES MARKET OF INDIA ...... 207 DESCRIPTION OF EQUITY SHARES ...... 211 TAXATION ...... 214 LEGAL PROCEEDINGS ...... 221 INDEPENDENT ACCOUNTANTS ...... 227 GENERAL INFORMATION ...... 228 FINANCIAL STATEMENTS ...... 229 DECLARATION ...... 230
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NOTICE TO INVESTORS
Our Bank has furnished and accepts full responsibility for all of the information contained in this Preliminary Placement Document and confirms that to its best of knowledge and belief, having made all reasonable enquiries, this Preliminary Placement Document contains all information with respect to our Bank and the Equity Shares that is material in the context of the Issue. The statements contained in this Preliminary Placement Document relating to our Bank and the Equity Shares are, in all material respects, true, accurate and not misleading. The opinions and intentions expressed in this Preliminary Placement Document with regard to our Bank and the Equity Shares are honestly held, have been reached after considering all relevant circumstances and are based on reasonable assumptions and information presently available to our Bank. There are no other facts in relation to our Bank and the Equity Shares, the omission of which would, in the context of the Issue, make any statement in this Preliminary Placement Document misleading in any material respect. Further, our Bank has made all reasonable enquiries to ascertain such facts and to verify the accuracy of all such information and statements.
The Book Running Lead Managers (“BRLMs”) have not separately verified the information contained in this Preliminary Placement Document (financial, legal or otherwise). Accordingly, neither the BRLMs, nor any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates make any express or implied representation, warranty or undertaking, and no responsibility or liability is accepted by the BRLMs or any of their respective shareholders, employees, counsels, officers, directors, representatives, agents or affiliates, as to the accuracy or completeness of the information contained in this Preliminary Placement Document or any other information supplied in connection with the Equity Shares or their distribution. Each person receiving this Preliminary Placement Document acknowledges that such person has not relied either on the BRLMs or on any of their respective shareholders, employees, counsel, officers, directors, representatives, agents or affiliates in connection with its investigation of the accuracy of such information or its investment decision, and each such person must rely on its own examination of our Bank and the merits and risks involved in investing in the Equity Shares. Prospective investors should not construe the contents of this Preliminary Placement Document as legal, tax, accounting or investment advice.
No person is authorized to give any information or to make any representation not contained in this Preliminary Placement Document and any information or representation not so contained must not be relied upon as having been authorized by or on behalf of our Bank or by or on behalf of the BRLMs. The delivery of this Preliminary Placement Document at any time does not imply that the information contained in it is correct as of any time subsequent to its date.
The Equity Shares have not been approved, disapproved or recommended by any other regulatory authority in any jurisdiction including the United States Securities and Exchange Commission, any other federal or state authorities in the United States or the securities authorities of any non-United States jurisdiction or any other United States or non-United States regulatory authority. No authority has passed on or endorsed the merits of the Issue or the accuracy or adequacy of this Preliminary Placement Document. Any representation to the contrary is a criminal offense in the United States and may be a criminal offense in other jurisdictions.
The Equity Shares have not been and will not be registered under the U.S. Securities Act, or any state securities laws of the United States and unless so registered may not be offered, sold or delivered within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable U.S. state securities laws. Accordingly, the Equity Shares are being offered and sold outside the United States in offshore transactions in reliance on Regulation S and the applicable laws of the jurisdictions where those offers and sales are made. For a description of these and certain further restrictions on offers, sales and transfers of the Equity Shares and distribution of this Preliminary Placement Document, see “Selling Restrictions” and “Transfer Restrictions” on page 199 and 205, respectively. Purchaser of the Equity Shares will be deemed to make the representations, warranties, acknowledgments and agreements set forth in the sections “Representations by Investors”, “Selling Restrictions” and “Transfer Restrictions”.
The distribution of this Preliminary Placement Document and the issuance of Equity Shares pursuant to this Issue may be restricted by law in certain jurisdictions. As such, this Preliminary Placement Document does not constitute, and may not be used for or in connection with, an offer or solicitation by any one in any jurisdiction in which such offer or solicitation is not authorised or to any person to whom it is unlawful to make such offer or solicitation. In particular, no action has been taken by our Bank and the BRLMs which would permit an issue of the Equity Shares or distribution of this Preliminary Placement Document in any jurisdiction, other than India, where action for that purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or
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indirectly, and neither this Preliminary Placement Document nor any other Issue-related materials in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction, except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction.
The distribution of this Preliminary Placement Document or the disclosure of its contents without the prior consent of our Bank to any person, other than QIBs whose names are recorded by our Bank prior to the invitation to subscribe to the Issue, in consultation with the BRLMs or its representatives, and those retained by QIBs to advise them with respect to their purchase of the Equity Shares is unauthorised and prohibited. Each prospective investor, by accepting delivery of this Preliminary Placement Document, agrees to observe the foregoing restrictions and to make no copies of this Preliminary Placement Document or any documents referred to in this Preliminary Placement Document.
In making an investment decision, prospective investors must rely on their own examination of our Bank, and the terms of the Issue, including the merits and risks involved. Investors should not construe the contents of this Preliminary Placement Document as legal, tax, accounting or investment advice. Investors should consult their own counsel and advisors as to business, legal, tax, accounting and related matters concerning this Issue. In addition, neither our Bank nor the BRLMs is making any representation to any offeree or purchaser of the Equity Shares regarding the legality of an investment in the Equity Shares by such offeree or purchaser under applicable legal, investment or similar laws or regulations.
Each subscriber of the Equity Shares in the Issue is deemed to have acknowledged, represented and agreed that it is eligible to invest in India and in our Bank under Indian law, including Chapter VIII of the ICDR Regulations, and that it is not prohibited by SEBI or any other statutory authority from buying, selling or dealing in the securities including the Equity Shares. Each subscriber of the Equity Shares in the Issue also acknowledges that it has been afforded an opportunity to request from our Bank and review information relating to our Bank and the Equity Shares.
This Preliminary Placement Document contains a summary of some terms of certain documents, which are qualified in their entirety by the terms and conditions of such documents.
The information on our Bank’s website, www.syndicatebank.in, or any website directly or indirectly linked to our Bank’s website or the website of the BRLMs, does not constitute or form part of this Preliminary Placement Document. Prospective investors should not rely on the information contained in, or available through such websites.
NOTICE TO INVESTORS IN CERTAIN OTHER JURISDICTIONS
For information for investors in certain other jurisdictions, please see sections “Selling Restrictions” and “Transfer Restrictions” on pages 199 and 205, respectively.
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REPRESENTATIONS BY INVESTORS
All references herein to “you” or “your” is to the prospective investors/ Bidders in the Issue. By subscribing to any Equity Shares in the Issue, you are deemed to have represented, warranted, acknowledged and agreed to our Bank and the BRLMs, as follows:
you (i) are a QIB as defined in Regulation 2(1)(zd) of the ICDR Regulations and are not excluded pursuant to Regulation 86(1)(b) of the ICDR Regulations except public sector undertakings; (ii) have a valid and existing registration under applicable laws and regulations of India (as applicable); and (iii) undertake to acquire, hold, manage or dispose of any Equity Shares that are Allocated to you in accordance with Chapter VIII of the ICDR Regulations and undertake to comply with the ICDR Regulations and all other applicable laws, including any reporting obligations;
if you are not a resident of India, but a QIB, (i) you are an Eligible FPI as defined in this Preliminary Placement Document including a FII (including a sub-account other than a sub-account which is a foreign corporate or a foreign individual) and have a valid and existing registration with SEBI under the applicable laws in India; or (ii) a multilateral or bilateral development financial institution; or (iii) an FVCI and have a valid and existing registration with SEBI under applicable laws in India. Further, you are aware and understand that non-resident QIBs may only invest in the Issue under the portfolio investment scheme pursuant to FEMA 20(R)/2017. You will make all necessary filings with appropriate regulatory authorities, including the RBI, as required pursuant to applicable laws. Further, if you are a non-resident QIB, then the investment amount will be paid out of inward remittance of foreign exchange received through normal banking channels and as per RBI’s notification no. FEMA 20(R)/2017 - RB dated November 7, 2017, as amended from time to time;
you are eligible to invest in India under applicable laws, including the Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2000, as amended and any notification, circulars or clarification issued thereunder, and have not been prohibited by SEBI or any other regulatory authority from buying, selling or dealing in securities;
if you are Allotted Equity Shares pursuant to this Issue, you shall not, for a period of one year from the date of Allotment, sell the Equity Shares so acquired except on floor of the Stock Exchanges;
you are aware that this Preliminary Placement Document has not been, and will not be, registered as a prospectus under the Companies Act, 2013 and the ICDR Regulations or under any other law in force in India. You are aware that this Preliminary Placement Document has not been reviewed, verified or affirmed by SEBI, RBI or the Stock Exchanges or any other regulatory or listing authority and is intended for use only by QIBs. This Preliminary Placement Document has been filed with the Stock Exchanges for record purposes only and the Placement Document will be displayed on the websites of our Bank and the Stock Exchanges;
you are entitled and have necessary capacity to subscribe for, and acquire the Equity Shares under the laws of all relevant jurisdictions which apply to you and that you have fully observed such laws and obtained all such governmental and other consents in each case which may be required there under and complied with all necessary formalities and have obtained all necessary consents and authorities to enable you to commit to participation in this Issue and to perform your obligations in relation thereto (including, in the case of any person on whose behalf you are acting, all necessary consents and authorisations to agree to the terms set out or referred to in this Preliminary Placement Document) and will honour such obligations;
neither our Bank nor the BRLMs nor any of their respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates is making any recommendation to you or, advising you regarding the suitability of any transactions it may enter into in connection with this Issue; your participation in this Issue is on the basis that you are not, and will not, up to Allotment, be a client of the BRLMs and that neither the BRLMs nor its respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates have any duty or responsibilities to you for providing the protection afforded to their clients or customers for providing advice in relation to this Issue and are not in any way acting in any fiduciary capacity;
you are aware that additional requirements would be applicable if you are in jurisdictions other than India, as set forth under sections “Selling Restrictions” and “Transfer Restrictions” of Preliminary Placement Document and you are entitled to acquire the Equity Shares under the laws of all relevant jurisdictions and that you have all necessary capacity and have obtained all necessary consents and authorities to enable you to commit to this
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participation in this Issue and to perform your obligations in relation thereto (including, without limitation, in the case of any person on whose behalf you are acting, all necessary consents and authorities to agree to the terms set out or referred to in this Preliminary Placement Document) and will honour such obligations;
you confirm that, either: (i) you have not participated in or attended any investor meetings or presentations by us or our agents (“Bank Presentations”) with regard to us or this Issue; or (ii) if you have participated in or attended any Bank Presentations: (a) you understand and acknowledge that the BRLMs may not have knowledge of the statements that we or its agents may have made at such Bank Presentations and are therefore unable to determine whether the information provided to you at such Bank Presentations may have included any material misstatements or omissions, and, accordingly you acknowledge that the BRLMs have advised you not to rely in any way on any information that was provided to you at such Bank Presentations, and (b) confirm that you have not been provided any material information relating to our Bank and this Issue that was not publicly available;
all statements, other than statements of historical fact included in this Preliminary Placement Document, including, without limitation, those regarding our financial position, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to our products), are forward-looking statements. Such forward-looking statements involve known and unknown risks, uncertainties and other important factors that could cause actual results to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. Such forward- looking statements are based on numerous assumptions regarding our present and future business strategies and environment in which we will operate in the future. You should not place reliance on forward looking statements, which speak only as at the date of this Preliminary Placement Document. We assume no responsibility to update any of the forward-looking statements contained in this Preliminary Placement Document;
you are aware and understand that the Equity Shares are being offered only to QIBs and are not being offered to the general public, and the Allotment of the same shall be on a discretionary basis at the discretion of our Bank and the BRLMs;
you are aware that if you are Allotted more than 5.00% of the Equity Shares in this Issue, our Bank shall be required to disclose your name and the number of the Equity Shares Allotted to you to the Stock Exchanges and the Stock Exchanges will make the same available on their websites and you consent to such disclosures;
you are aware that in accordance with Section 12B of the Banking Regulation Act read with the Reserve Bank of India (Prior approval for acquisition of shares or voting rights in private sector banks) Directions, 2015, dated November 19, 2015, (“RBI Acquisition Circular”), no person can make an acquisition which will/is likely to take the aggregate holding of such person (as defined in the RBI Acquisition Circular), together with shares, voting rights, compulsorily convertible debentures or bonds held by him or his relatives, associate enterprise (as defined in the Banking Regulations Act) and persons acting in concert with him to 5.00% or more of the total paid – up share capital of our Bank, or be entitled to exercise 5% or more of the total voting rights of our Bank, without prior approval of the RBI.
you have been provided a serially numbered copy of this Preliminary Placement Document and the Placement Document and have read in its entirety, including “Risk Factors” on page 43;
in making your investment decision (i) you have relied on your own examination of our Bank and the terms of this Issue, including the merits and risks involved; (ii) you have made your own assessment of our Bank, the Equity Shares and the terms of this Issue based solely on the information contained in this Preliminary Placement Document and no other disclosure or representation by us or any other party; (iii) you have consulted your own independent advisors (including tax advisors) or otherwise have satisfied yourself concerning, without limitation, the effects of local laws and taxation matters; (iv) you have relied solely on the information contained in this Preliminary Placement Document and no other disclosure or representation by us or the BRLMs or any other party; (v) you have received all information that you believe is necessary or appropriate in order to make an investment decision in respect of us and the Equity Shares; and (vi) relied upon your investigation and resources in deciding to invest in this Issue. You are seeking to subscribe to/acquire the Equity shares in this Issue for your own investment and not with a view to resale or distribution;
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neither the BRLMs nor any of its respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates has provided you with any tax advice or otherwise made any representations regarding the tax consequences of purchase, ownership and disposal of the Equity Shares (including but not limited to the Issue and the use of the proceeds from the Equity Shares). You will obtain your own independent tax advice from a reputable service provider and will not rely on the BRLMs or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates when evaluating the tax consequences in relation to the Equity Shares (including but not limited to the Issue and the use of the proceeds from the Equity Shares). You waive, and agree not to assert any claim against our Bank or the BRLMs or any of their respective shareholders, directors, officers, employees, counsels, advisors, representatives, agents or affiliates with respect to the tax aspects of the Equity Shares or as a result of any tax audits by tax authorities, wherever situated;
you are a sophisticated investor and have such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of the investment in the Equity Shares and you and any accounts for which you are subscribing to the Equity Shares: (i) are each able to bear the economic risk of the investment in the Equity Shares; (ii) will not look to us, the BRLMs or its respective shareholders, directors, officers, employees, counsel, representatives, agents or affiliates for all or part of any such loss or losses that may be suffered including losses arising out of non – performance by our Bank of any of its respective obligations or any breach of any representations and warranties by our Bank, whether to you or otherwise; (iii) are able to sustain a complete loss on the investment in the Equity Shares; (iv) have no need for liquidity with respect to the investment in the Equity Shares; and (v) have no reason to anticipate any change in your or their circumstances, financial or otherwise, which may cause or require any sale or distribution by you or them of all or any part of the Equity Shares. You acknowledge that an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment. You are seeking to subscribe to the Equity Shares in the Issue for your own investment and not with a view to resell or distribute;
where you are acquiring the Equity Shares for one or more managed accounts, you represent and warrant that you are authorised in writing, by each such managed account to acquire the Equity Shares for each managed account and to make (and you hereby make) the representations, warranties, acknowledgements and agreements herein for and on behalf of each such account, reading the reference to “you” to include such accounts;
you are not a promoter (as defined under ICDR Regulations) and you are not related to the Promoter, except for public sector undertaking, either directly or indirectly and your Bid does not directly or indirectly represent the promoter or a person related to any of the Promoter of our Bank;
you have no rights under a shareholders’ agreement or voting agreement with the promoter or persons related to the promoter, no veto rights or right to appoint any nominee director on the Board of Directors of our Bank other than such rights acquired, if any, in the capacity of a lender not holding any Equity Shares of our Bank, the acquisition of which shall not deem you to be a promoter, a person related to the promoter;
you have no right to withdraw your Bid after the Issue Closing Date (as defined hereinafter);
you are eligible to Bid and hold the Equity Shares so Allotted together with any Equity Shares held by you prior to this Issue. You further confirm that your aggregate holding upon Allotment under this Issue shall not exceed the level permissible as per any applicable regulations including but not limited to the Banking Regulation Act, 1949, Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970 and in the event of your holding of our Equity Shares reaches any applicable limits may be prescribed you will make the appropriate disclosures and obtain the necessary permissions in this regard from the relevant authorities / RBI;
the Bid submitted by you would not eventually result in triggering a tender offer under the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended (“Takeover Code”);
your aggregate holding, together with other QIBs participating in this Issue that belong to the same group or are under common control as you, pursuant to the Allotment under the present Issue, shall not exceed 50% of this Issue. For the purposes of this representation:
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(a) the expression “belongs to the same group” shall be interpreted by applying the concept of “companies under the same group” as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and
(b) “Control” shall have the same meaning as is assigned to it under Regulation 2 (i)(e) of the Takeover Code;
you shall not undertake any trade in the Equity Shares credited to your beneficiary account until such time that the final listing and trading approval for the Equity Shares is issued by the Stock Exchanges;
you are aware that (i) applications for in-principle approval, in terms of Regulation 28(1) of the Listing Regulations, for listing and admission of the Equity Shares and for trading on the Stock Exchanges, were made and an approval has been received from each of the Stock Exchanges, and (ii) the application for the listing and trading approval will be made only after Allotment. There can be no assurance that the approvals for listing and trading in the Equity Shares will be obtained in time or at all. We shall not be responsible for any delay or non-receipt of such approvals for listing and trading or any loss arising from such delay or non-receipt;
you are aware and understand that the BRLMs have entered into a placement agreement with our Bank (the “Placement Agreement”) whereby the BRLMs have, subject to the satisfaction of certain conditions set out therein, agreed to manage the Issue and use their reasonable endeavours to seek to procure subscriptions for the Equity Shares on the terms and conditions set forth herein;
the contents of this Preliminary Placement Document are our exclusive responsibility and neither the BRLMs nor any person acting on their behalf, nor any of its respective shareholders, directors, officers, employees, counsel, advisors, representatives, agents or affiliates has, or shall have, any liability for any information, representation or statement contained in this Preliminary Placement Document or any information previously published by or on behalf of us and will not be liable for your decision to participate in this Issue based on any information, representation or statement contained in this Preliminary Placement Document or otherwise. By accepting a participation in this Issue, you agree and confirm that you have neither received nor relied on any other information, representation, warranty or statement made by or on behalf of either of the BRLMs or us or any other person and neither the BRLMs, nor we or our respective directors, officers, employees, counsel, advisors, representatives, agents or affiliates or any other person will be liable for your decision to participate in this Issue based on any other information, representation, warranty or statement that you may have obtained or received;
the only information you are entitled to rely on, and on which you have relied in committing yourself to acquire the Equity Shares, is contained in this Preliminary Placement Document, such information being all that you deem necessary to make an investment decision in respect of the Equity Shares issued in pursuance of this Issue and that you have neither received nor relied on any other information given or representations, warranties or statements made by BRLMs (including any view, statement, opinion or representation expressed in any research published or distributed by the BRLMs or its respective affiliates or any view, statement, opinion or representation expressed by any staff (including research staff) of the BRLMs or its respective affiliates) or our Bank or any of their respective shareholders, directors, officers, employees, counsel, advisors, representatives, agents or affiliates and neither the BRLMs nor our Bank or any of their respective shareholders, directors, officers, employees, counsel, advisors, representatives, agents or affiliates will be liable for your decision to accept an invitation to participate in the Issue based on any other information, representation, warranty, statement or opinion;
you understand that neither the BRLMs nor its respective affiliates have any obligation to purchase or acquire all or any part of the Equity Shares purchased by you in this Issue or to support any losses directly or indirectly sustained or incurred by you for any reason whatsoever in connection with this Issue, including non- performance by us of any of our obligations or any breach of any representations or warranties by us, whether to you or otherwise;
you agree to indemnify and hold us and the BRLMs and its respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of the representations, warranties, acknowledgements and agreements made by you in this Preliminary Placement Document. You agree that the indemnity set forth in this section shall survive the resale of the Equity Shares by, or on behalf of, the managed accounts;
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you agree that any dispute arising in connection with this Issue will be governed by and construed in accordance with the laws of India, and the courts in Bengaluru, Karnataka, India shall have exclusive jurisdiction to settle any disputes which may arise out of or in connection with this Preliminary Placement Document and the Placement Document;
each of the representations, warranties, acknowledgements and agreements set out above shall continue to be true and accurate at all times up to and including the Allotment, listing and trading of the Equity Shares in the Issue;
you understand that the Equity Shares will, when issued, be credited as fully paid and will rank pari-passu in all respects with the Equity Shares including the right to receive all dividend and other distributions declared, made or paid in respect of the Equity Shares after the date of issue of the Equity Shares;
our Bank, the BRLMs, their respective affiliates and others will rely on the truth and accuracy of the foregoing representations, warranties, acknowledgements, undertakings and agreements which are given to the BRLMs on its own behalf and on behalf of us and are irrevocable and it is agreed that if any of such representations, warranties, acknowledgements, undertakings and agreements are no longer accurate, you will promptly notify to the BRLMs;
you are a sophisticated investor who is seeking to purchase the Equity Shares for your own investment and not with a view to distribution. In particular, you acknowledge that (i) an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment, (ii) you have sufficient knowledge, sophistication and experience in financial and business matters so as to be capable of evaluating the merits and risk of the purchase of the Equity Shares, and (iii) you are experienced in investing in private placement transactions of securities of companies in a similar stage of development and in similar jurisdictions and have such knowledge and experience in financial, business and investment matters that you are capable of evaluating the merits and risks of your investment in the Equity Shares;
you understand that the Equity Shares have not been and will not be registered under the U.S. Securities Act or with any securities regulatory authority of any state of the United States, and accordingly, may not be offered, sold or delivered within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act, and that the Equity Shares are only being offered and sold outside the United States in offshore transactions in reliance on Regulation S of the U.S. Securities Act; and
you have made, or been deemed to have made, as applicable, the representations, warranties, acknowledgments and agreements set forth in this section and in “Selling Restrictions” and “Transfer Restrictions” on pages 199 and 205, respectively.
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OFFSHORE DERIVATIVE INSTRUMENTS
Subject to compliance with all applicable Indian laws, rules, regulations, guidelines and approvals in terms of Regulation 22 of the SEBI FPI Regulations (as defined hereinafter), a FPI (other than a Category III foreign portfolio investors and unregulated broad based funds which are classified as Category II FPI by virtue of their investment manager being appropriately regulated), including the affiliates of the Book Running Lead Managers, may issue, subscribe or otherwise deal in offshore derivative instruments as defined under the SEBI FPI Regulations as any instrument, by whatever name called, which is issued overseas by a FPI against securities held by it that are listed or proposed to be listed on any recognised stock exchange in India, as its underlying and all such offshore derivative instruments are referred to herein as “P-Notes” for which they may receive compensation from the purchasers of such P-Notes. These P-Notes may be issued only in favour of those entities which are regulated by any appropriate foreign regulatory authorities in the countries of their incorporation or establishment subject to compliance with “know your client” requirements. An FPI must ensure that the P-Notes are issued in compliance with all applicable laws including Regulation 4 and Regulation 22 of the SEBI FPI Regulations and circular no. CIR/IMD/FIIC/20/2014 dated November 24, 2014 issued by SEBI. P-Notes have not been and are not being offered or sold pursuant to this Preliminary Placement Document. This Preliminary Placement Document does not contain any information concerning P-Notes, including, without limitation, any information regarding any risk factors relating thereto.
Any P-Notes that may be issued are not securities of the Bank and do not constitute any obligations of, claim on, or interests in the Bank. The Bank has not participated in any offer of any P-Notes, or in the establishment of the terms of any P-Notes, or in the preparation of any disclosure related to any P-Notes. Any P-Notes that may be offered are issued by, and are solely the obligations of, third parties that are unrelated to the Bank. The Bank and the Book Running Lead Managers do not make any recommendation as to any investment in P-Notes and do not accept any responsibility whatsoever in connection with any P-Notes. Any P-Notes that may be issued are not securities of the Book Running Lead Managers and do not constitute any obligations of, or claims on, the Book Running Lead Managers. FPI affiliates (other than Category III FPIs and unregulated broad based funds which are classified as FPI by virtue of their investment manager being appropriately regulated) of the Book Running Lead Managers may purchase, to the extent permissible under law, Equity Shares in the Issue, and may issue P- Notes in respect thereof. Prospective investors interested in purchasing any P-Notes have the responsibility to obtain adequate disclosure as to the issuer(s) of such P-Notes and the terms and conditions of any such P-Notes from the issuer(s) of such P-Notes. Neither SEBI nor any other regulatory authority has reviewed or approved any P-Notes or any disclosure related thereto. Prospective investors are urged to consult with their own financial, legal, accounting and tax advisors regarding any contemplated investment in P-Notes, including whether P-Notes are issued in compliance with applicable laws and regulations.
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DISCLAIMER CLAUSE OF STOCK EXCHANGES
As required, a copy of this Preliminary Placement Document has been submitted to each of the Stock Exchanges and a copy of the Placement Document will be filed with the Stock Exchanges. The Stock Exchanges do not in any manner:
(1) warrant, certify or endorse the correctness or completeness of any the contents of this Preliminary Placement Document;
(2) warrant that our Bank’s Equity Shares pursuant to this Issue will be listed or will continue to be listed on the Stock Exchanges; or
(3) take any responsibility for the financial or other soundness of our Bank, its Promoter, its management or any scheme or project of our Bank,
The filing of this Preliminary Placement Document should not for any reason be deemed or construed to mean that this Preliminary Placement Document has been cleared or approved by the Stock Exchanges. Every person who desires to apply for or otherwise acquires any Equity Shares of our Bank may do so pursuant to an independent inquiry, investigation and analysis and shall not have any claim against the Stock Exchanges whatsoever, by reason of any loss which may be suffered by such person consequent to or in connection with, such subscription or acquisition, whether by reason of anything stated or omitted to be stated herein, or for any other reason whatsoever.
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CERTAIN CONVENTIONS, CURRENCY OF PRESENTATION AND FINANCIAL DATA
Certain Conventions
In this Preliminary Placement Document, unless otherwise specified or the context otherwise indicates or implies, references to “you”, “your”, “offeree”, “purchaser”, “subscriber”, “bidder”, “recipient”, “investors”, “prospective investors” and “potential investors” are to the prospective investors of Equity Shares to be issued pursuant to this Issue and references to the “Issuer”, “Bank”, “our Bank”, “we”, “us”, or “our” are to Syndicate Bank.
References in this Preliminary Placement Document to “India” are to the Republic of India and its territories and possessions and the “Government” or the “Central Government” are to the Government of India and to any “State Government” are to the relevant state government in India.
All references herein to the “U.S.”, “USA” or the ‘United States” are to the United States of America and its territories and possessions.
Currency and Units of Presentation
All references in this Preliminary Placement Document to “₹”, “Rupees”, “Rs.”, “Indian Rupees” and “INR” are to Indian Rupees, the official currency of India. All references to “US$”, “U.S. Dollars”, “U.S. Dollar”, “dollars”, “US Dollars”, “USD” or “$” are to United States Dollars, the official currency of the United States of America. All references to “euro”, “EUR” or “€” are to the single currency of the participating Member States in the Third Stage of European Economic and Monetary Union of the Treaty Establishing the European Community, as amended from time to time. All references to “British pounds” or “£” are to the lawful currency of the United Kingdom.
Financial Data and other Information
The audited standalone and consolidated financial statements of our Bank for Fiscals 2017, 2016 and 2015 together with the respective reports thereon (together referred to as the “Audited Financial Statements”) included in this Preliminary Placement Document have been prepared in accordance with Indian Generally Accepted Accounting Principles (“Indian GAAP”) and the provisions of Banking Regulation Act, read with relevant guidelines and directions issued by the RBI, while the unaudited standalone financial results for the six months ended September 30, 2017 and selected explanatory notes together with the limited review report (“Unaudited Financial Statements”) have been prepared and presented in accordance with Standard on Review Managements (SRE) 2410 and the requirements under the Listing Regulations with the Stock Exchanges.
Our Bank publishes its financial statements in Indian Rupees. Our Bank prepares its financial statements in accordance with Indian GAAP. Indian GAAP differs in certain significant respects from International Financial Reporting Standards (“IFRS”) and United States Generally Accepted Accounting Principles (“U.S. GAAP”). We do not provide a reconciliation of our financial statements to IFRS or U.S. GAAP. We also do not provide a summary of differences between Indian GAAP, IFRS and U.S. GAAP. Accordingly, the degree to which the financial statements prepared in accordance with Indian GAAP included in this Preliminary Placement Document will provide meaningful information is entirely dependent on the reader’s level of familiarity with the respective accounting practices. Any reliance by persons not familiar with Indian accounting practices on the financial disclosures presented in this Preliminary Placement Document should accordingly be limited and we urge you to consult your own advisors regarding such differences and their impact on the financial data.
Accounting policies and principles under Ind-AS differ in certain material respects from Indian GAAP. In addition, Indian GAAP and Ind-AS also differ in certain material respects from U.S. GAAP and IFRS. In pursuance to the budget announcement by the Union Finance Minister, after consultation with the Reserve Bank of India (“RBI”), Insurance Regulatory and Development Authority (“IRDA”) and Pension Fund Regulatory and Development Authority (“PFRDA”), the Ministry of Corporate Affairs (“MCA”) issued a press release on January 18, 2016, announcing the Ind-AS roadmap for scheduled commercial banks (excluding regional rural banks (“RRBs”)), insurers / insurance companies and non-banking financial companies (“NBFCs”). Ind-AS implementation has been made mandatory for accounting periods beginning from April 1, 2018 onwards for Scheduled commercial banks (excluding RRBs). Investors are advised to avail independent financial and accounting advice to analyse the impact of the application of Ind-AS to the preparation and presentation of our financial statements. We cannot assure you that we have completed a comprehensive analysis of the effect of Ind- AS on our future financial information or that the application of Ind-AS will not result in a materially adverse
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effect on our future financial statements. For further details see “Risk Factors – “We will be required to prepare financial statements under IND-AS from April 1, 2018 onwards.” on page 43.
In this Preliminary Placement Document, the terms “loans”, “advances” and “loans and advances” have been used interchangeably and unless otherwise stated, “loans”, “advances” or “loans and advances” represent the amount of loans outstanding net of provisions for non-performing assets. “Gross loans”, “gross advances” or “gross loans and advances” represent the amount of loans outstanding before deducting the provisions held for non-performing assets. Further, the stand-alone expressions “profit” and “net profit” have been used interchangeably to represent the profit earned for the period net of all provisions including provision for taxes.
In this Preliminary Placement Document, certain monetary thresholds have been subjected to rounding adjustments; accordingly, figures shown as totals in certain tables may not be an arithmetic aggregation of the figures which precede them. The financial/fiscal year of our Bank commences on April 1 of each calendar year and ends on March 31 of the succeeding calendar year, so, unless otherwise specified or if the context requires otherwise, all references to a particular ‘Financial Year’, ‘fiscal year’ or ‘Fiscal’ or ‘FY’ are to the twelve month period ended on March 31 of that year.
References to the singular also refer to the plural and one gender also refers to any other gender, wherever applicable. Our Bank has presented certain numerical information in this Preliminary Placement Document in the denomination of “million” units. One million represents 1,000,000 and one billion represents 1,000,000,000.
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INDUSTRY AND MARKET DATA
Information regarding markets, market size, market share, market position, growth rates and other industry data pertaining to our Bank's business contained in this Preliminary Placement Document consists of estimates/forecasts based on data reports compiled by governmental bodies, professional organisations and analysts, on data from other external sources, and knowledge of the markets in which our Bank competes. In certain cases, there is no readily available external information (whether from trade associations, government bodies or other organisations) to validate market-related analyses and estimates, requiring us to rely on internally developed estimates.
The statistical information included in this Preliminary Placement Document relating to the business of a bank has been reproduced from various trade, industry and government publications and websites. This data is subject to change and cannot be verified with complete certainty due to limits on the availability and reliability of the raw data and other limitations and uncertainties inherent in any statistical survey.
Neither our Bank nor the Book Running Lead Managers or any of their respective affiliates and advisors or any other person connected with the Issue has independently verified this information. Industry sources and publications generally state that the information contained therein has been obtained from sources believed to be reliable, but their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured and accordingly, investment decisions should not be based on such information. Industry sources and publications are also prepared based on information as of specific dates and may no longer be current or reflect current trends. Accordingly, the Book Running Lead Managers and we do not take any responsibility for the data, projections, forecasts, conclusions or any other information contained in this section. Certain information contained herein pertaining to prior years is presented in the form of estimates as they appear in the respective reports/ source documents. The actual data for those years may vary significantly and materially from the estimates so contained.
The extent to which the market and industry data used in this Preliminary Placement Document is meaningful depends on the reader’s familiarity with and understanding of the methodologies used in compiling such data.
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FORWARD – LOOKING STATEMENTS
Certain statements contained in this Preliminary Placement Document that are not statements of historical fact constitute ‘forward looking statements’. Investors can generally identify forward-looking statements by terminology such as ‘aim’, ‘anticipate’, ‘believe’, ‘continue’, ‘can’, ‘could’, ‘estimate’, ‘expect’, ‘intend’, ‘may’, ‘objective’, ‘plan’, ‘potential’, ‘project’, ‘pursue’, ‘shall’, ‘should’, ‘will’, ‘would’, or other words or phrases of similar import. Similarly, statements that describe the strategies, objectives, plans or goals of our Bank are also forward-looking statements. However, these are not the exclusive means of identifying forward-looking statements.
All statements regarding our Bank’s expected financial conditions, results of operations, business plans and prospects are forward – looking statements. These forward-looking statements include statements as to the Bank’s business strategy, planned projects, revenue and profitability (including, without limitation, any financial or operating projections or forecasts), new business and other matters discussed in this Preliminary Placement Document that are not historical facts.
Actual results may differ materially from those suggested by the forward looking statements due to risks or uncertainties associated with our expectations with respect to, but not limited to, regulatory changes pertaining to the industries in India in which we have our businesses and our ability to respond to them, our ability to successfully implement our strategy, our growth and expansion, technological changes, our exposure to market risks, general economic and political conditions in India which have an impact on our business activities or investments, the monetary and fiscal policies of India, inflation, deflation, unanticipated turbulence in interest rates, foreign exchange rates, equity prices or other rates or prices, the performance of the financial markets in India and globally, changes in domestic laws, regulations and taxes and changes in competition in our industry. Important factors that could cause actual results, performance or achievements to differ materially from any of our Bank’s forward-looking statements include, among others:
Volatility in interest rates and other market conditions; Our ability to maintain or reduce the level of our non – performing assets and the levels of stressed assets; Our ability to maintain our income from treasury operations; Our ability to sustain the growth of our retail banking business; Performance of the agricultural and MSME sectors in India; Rate of growth of our deposits, advances and investments; Our ability to successfully implement our strategy, growth and expansion plans; Significant change in the Government's economic liberalization and deregulation policies; The ability of the borrowers of our structured loans to perform as expected; Competition in the Indian and global banking industry; Our ability to successfully diversify our products and services; and General economic and business conditions in India.
Additional factors that could cause actual results, performance or achievements to differ materially include, but are not limited to, those discussed under the sections titled “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, “Industry Overview” and “Business” on pages 70, 124 and 138 respectively. The forward-looking statements contained in this Preliminary Placement Document are based on the beliefs of management, as well as the assumptions made by, and information currently available to, the management. Although our Bank believes that the expectations reflected in such forward-looking statements are reasonable at this time, it cannot assure investors that such expectations will prove to be correct. Given these uncertainties, investors are cautioned not to place undue reliance on such forward-looking statements. If any of these risks and uncertainties materialize, or if any of our Bank’s underlying assumptions prove to be incorrect, our Bank’s actual results of operations or financial condition could differ materially from that described herein as anticipated, believed, estimated or expected. All subsequent written and oral forward-looking statements attributable to us are expressly qualified in their entirety by reference to these cautionary statements.
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ENFORCEMENT OF CIVIL LIABILITIES
Our Bank was originally incorporated in 1925 as Canara Industrial & Banking Syndicate Limited and renamed as Syndicate Bank Limited with effect from January 1, 1964. Subsequently, in 1969, our Bank was nationalized under The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance dated July 19, 1969. All of our Directors, key managerial personnel and senior management are residents of India. Further, substantially a large percentage of the assets of our Bank are located in India. As a result, it may be difficult for investors outside India to effect service of process upon us or such persons outside India, or to enforce judgments obtained against such parties outside India.
Recognition and enforcement of foreign judgments is provided for under Sections 13 and 44A of the Code of Civil Procedure, 1908, as amended (the “Civil Procedure Code”). Section 13 of the Civil Procedure Code provides that foreign judgments shall be conclusive regarding any matter directly adjudicated upon, except:
where the judgment has not been pronounced by a court of competent jurisdiction;
where the judgment has not been given on the merits of the case;
where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases to which such law is applicable;
where the proceedings in which the judgment was obtained were opposed to natural justice;
where the judgment has been obtained by fraud; or
where the judgment sustains a claim founded on a breach of any law then in force in India.
Under the Civil Code, a court in India shall presume, upon the production of any document purporting to be a certified copy of a foreign judgment, that such judgment was pronounced by a court of competent jurisdiction, unless the contrary appears on the record; but such presumption may be displaced by proving want of jurisdiction.
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. However, Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a superior court, within the meaning of such section, in any country or territory outside India which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by an appropriate court in India. Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of amounts payable in respect of taxes, other charges of a similar nature or fines or other penalties and does not apply to arbitration awards, even if such an award is enforceable as a decree of judgment.
A few countries like the United Kingdom of Great Britain and Northern Ireland, Republic of Singapore and Hong Kong have been declared by the Government to be reciprocating territories for the purposes of Section 44A of the Civil Procedure Code, but the United States has not been so declared. A judgment of a court of a country which is not a reciprocating territory may be enforced only by a suit upon the judgment and not by proceedings in execution. The suit is required to be filed in India within three years from the date of such foreign judgment in the same manner as any other suit filed to enforce a civil liability in India.
A judgment of a court of a country which is not a reciprocating territory may be enforced only by a suit upon the judgment and not by proceedings in execution. Such a suit has to be filed in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action was brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with Indian public policy. A party seeking to enforce a foreign judgment in India is required to obtain the prior approval of the RBI to repatriate outside India any amount recovered pursuant to the execution of such a judgment, and such amount may also be subject to tax in accordance with applicable law. It is uncertain as to whether an Indian court would enforce foreign judgments that would contravene or violate Indian law. In addition, any judgment denominated in a foreign currency would be converted into Indian rupees on the date of the judgment and not on the date of payment.
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EXCHANGE RATES
Fluctuations in the exchange rate between the Rupee and the U.S. dollar will affect the U.S. Dollar equivalent of the Rupee price of the Equity Shares on the Stock Exchanges. These fluctuations will also affect the conversion into U.S. Dollars of any cash dividends paid in Rupees on the Equity Shares. The exchange rate between the Rupee and the U.S. Dollar has been volatile over the past year.
The following table sets forth information concerning exchange rates between the Rupee and the U.S. dollar for the periods indicated. Exchange rates are based on the reference rates released by the RBI. No representation is made that any Rupee amounts could have been, or could be, converted into U.S. dollars at any particular rate, the rates stated below or at all. On December 11, 2017 the exchange rate (RBI reference rate) was ₹64.36 to US$.
Period End Average(1) High(1) Low(1) Fiscal Year Ended: March 31, 2017 64.84 67.09 68.72 64.84 March 31, 2016 66.33 65.46 68.78 62.16 March 31, 2015 62.59 61.15 63.75 58.43 Source: www.rbi.org.in
Period End Average(1) High(1) Low(1) Month ended: November 30, 2017 64.43 64.86 65.51 64.40 October 31, 2017 64.77 65.08 65.55 64.76 September 30, 2017 65.36 64.44 65.76 63.87 August 31, 2017 64.02 63.97 64.24 63.63 July 31, 2017 64.08 64.46 64.82 64.08 June 30, 2017 64.74 64.44 64.74 64.26 Source: www.rbi.org.in (1) Represents the high, low and average of the reference rates released by the RBI on every working day of the relevant period and rounded off to two decimal places If the RBI reference rate is not available on a particular date due to a public holiday, exchange rates of the previous working day has been disclosed.
Note:
Although the Bank has translated selected Indian rupee amounts in this Preliminary Placement Document into USD for convenience, this does not mean that the Indian rupee amounts referred to could have been, or could be, converted to USD at any particular rate or, the rates stated above, or at all. There are certain restrictions on the conversion of Indian rupees into USD.
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DEFINITIONS AND ABBREVIATIONS
This Preliminary Placement Document uses the definitions and abbreviations set forth below, which you should consider when reading the information contained herein. The following list of certain capitalised terms used in this Preliminary Placement Document is intended for the convenience of the reader/prospective investor only and is not exhaustive
Unless otherwise defined or the context otherwise indicates or requires, certain capitalized terms used in this Preliminary Placement Document have the meanings set forth below. Further any references to any statute or regulations or policies shall include amendments thereto, from time to time:
Bank Related Terms
Term Description “Syndicate”, the “Bank”, Syndicate Bank, constituted under the Banking Companies (Acquisition and “we”, “us” and “our” Transfer of Undertakings) Act, 1970 and nationalized on July 19, 1969, having its Head Office at Door No. 16/355 and 16/365A, Manipal – 576 104, Udupi, Karnataka, India Associates Prathama Bank, Karnataka Vikas Grameena Bank and Andhra Pragathi Grameena Bank Auditors to the Issue (i) M/s. Manian & Rao, Chartered Accountants; (ii) M/s. P G Bhagwat, Chartered Accountants; (iii) M/s. S N Kapur & Associates, Chartered Accountants; and (iv) M/s. Agasti & Associates, Chartered Accountants Audited Consolidated The audited consolidated financial statements for Fiscals 2017, 2016 and 2015 Financial Statements prepared in accordance with the provisions of Banking Regulation Act, 1949, read with relevant guidelines and directions issued by the RBI and Indian GAAP Audited Financial The audited consolidated and standalone financial statements for Fiscals 2017, Statements 2016 and 2015 prepared in accordance with the provisions of Banking Regulation Act, 1949 read with relevant guidelines and directions issued by the RBI and Indian GAAP Audited Standalone The Audited Standalone Financial Statements for Fiscals 2017, 2016 and 2015 Financial Statements prepared in accordance with the provisions of Banking Regulation Act, 1949 read with relevant guidelines and directions issued by the RBI and Indian GAAP Corporate Office The corporate office of our Bank is located at II Cross, Gandhi Nagar, Bengaluru 560 009, Karnataka, India Statutory Auditors (i) M/s. Ganesan and Company, Chartered Accountants; (ii) M/s. Manian & Rao, Chartered Accountants; (iii) M/s. P G Bhagwat, Chartered Accountants; (iv) M/s. S N Kapur & Associates, Chartered Accountants; and (v) M/s. Agasti & Associates, Chartered Accountants; Board of Directors or Board of Directors of our Bank and any Committee constituted thereof Board Chairman The Non – Executive Chairman and Part – time (Non – official) Director of our Bank. Director(s) The Director(s) of our Bank. EDs Executive Directors of our Bank. Equity Shares or Shares The equity shares of our Bank of face of value ₹ 10 each. Equity Shareholder(s) Equity Shareholders of our Bank. Head Office The head office of our Bank is located at Door No. 16/355 and 16/365A, Manipal – 576 104, Udupi, Karnataka, India. MD & CEO The Managing Director and Chief Executive Officer of our Bank. Promoter The President of India, acting through the Ministry of Finance, Government of India. Subsidiary Syndbank Services Limited. Stock Exchanges BSE Limited and National Stock Exchange of India Limited. Unaudited Financial Un-audited standalone financial results for the six months ended September 30, Statements 2017 and selected explanatory notes together with the limited review report prepared and presented in accordance with Standard on Review Managements
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Term Description (SRE) 2410 and the requirements under the Listing Regulations with the Stock Exchanges.
Issue Related Terms
Term Description Allocated or Allocation The allocation of Equity Shares following the determination of the Issue Price to QIBs on the basis of Application Forms submitted by such QIBs, in consultation with the Book Running Lead Managers and in compliance with Chapter VIII of the ICDR Regulations Allottees Successful Bidders to whom Equity Shares are issued and allotted pursuant to the Issue Allot/ Allotment / Allotted The issue and allotment of Equity Shares pursuant to this Issue Application Form or Bid The form, including all revisions and modifications thereto, pursuant to which a cum Application Form QIB submits an Application Bid Indication of interest from a QIB to subscribe for a specified number of Equity Shares in this Issue on the terms set out in the Application Form/ Bid cum Application Form to our Bank Bidder Any prospective investor, being a QIB, who makes a Bid pursuant to the terms of this Preliminary Placement Document and the Application Form Bidding / Issue Period The period between the Bid / Issue Opening Date and Bid/Issue Closing Date, inclusive of both dates, during which prospective Bidders can submit Bids BOBCAPS BOB Capital Markets Limited Book Running Lead Equirus Capital Private Limited, BOB Capital Markets Limited, BNP Paribas, Managers / BRLMs Centrum Capital Limited, Elara Capital (India) Private Limited and IDBI Capital Markets & Securities Limited BNP BNP Paribas CAN or Confirmation of Note or advice or intimation to successful Bidders confirming Allocation of Allocation Note Equity Shares to such successful Bidders after determination of the Issue Price and requesting payment for the entire applicable Issue Price for all Equity Shares Allocated to such successful Bidders Category III foreign FPIs who are registered as “Category III foreign portfolio investors” under the portfolio investor(s) SEBI (FPI) Regulations Centrum Centrum Capital Limited Closing Date On or about December [●], 2017 the date on which the Allotment is expected to be made Cut-off Price The Issue Price of the Equity Shares, which shall be determined by our Bank, in consultation with the Book Running Lead Managers Designated Date The date of credit of Equity Shares to the eligible QIB’s demat account as applicable to the respective eligible QIBS Elara / Elara Capital Elara Capital (India) Private Limited Eligible FPI FPIs that are eligible to participate in this Issue and do not include Category III foreign portfolio investors (who are not eligible to participate in the Issue) Escrow Bank/ Escrow Syndicate Bank, F wing , II floor, Cuffe Parade Branch, Mumbai -400005, Agent Maharashtra, India Escrow Account The bank account entitled ‘Syndicate Bank – QIP Escrow Account’ which is non- interest bearing, no-lien, escrow bank account without any cheque or overdraft facilities opened by our Bank with the Escrow Bank under the arrangement between our Bank, the Escrow Bank and the Book Running Lead Managers Escrow Agreement Agreement dated December 08, 2017, entered into amongst our Bank, the Escrow Bank and the Book Running Lead Managers for collection of the Bid amounts and for remitting refunds, if any, of the amounts collected, to the Bidders Equirus Equirus Capital Private Limited Floor Price The floor price of ₹88.57 per Equity Share, calculated in accordance with Regulation 85 of the ICDR Regulations. Our Bank may offer a discount of not more than 5.00% on the Floor Price in terms of Regulation 85(1) of the ICDR Regulations ICDR Regulations The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2009, as amended
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Term Description IDBI Capital IDBI Capital Markets and Securities Limited (Formerly known as IDBI Capital Market Services Limited) Issue The offer and sale of up to [●] Equity Shares to QIBs, pursuant to Chapter VIII of the ICDR Regulations Issue Closing Date or Bid December [●], 2017, the date on which our Bank (or the Book Running Lead Closing Date Managers on behalf of our Bank) shall cease acceptance of Application Forms Issue Opening Date or Bid December 12, 2017 the date on which our Bank (or the Book Running Lead Opening Date Managers on behalf of our Bank) shall commence acceptance of Application Forms Issue Price The price per Equity Share of ₹[●] including a premium of ₹[●] per Equity Share Issue Size The issue of [●] Equity Shares at an Issue Price of ₹ [●] per Equity Share aggregating ₹ [●] million Listing Agreement The agreement entered into between our Bank and each of the Stock Exchanges in relation to listing of the Equity Shares on each of the Stock Exchanges pursuant to requirements of Regulation 109 of the Listing Regulations Listing Regulations The Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended Pay-in Date The last date specified in the CAN for payment of application monies by the QIBs Placement Agreement The placement agreement, dated December 12, 2017, among our Bank and the Book Running Lead Managers Placement Document The placement document to be issued by our Bank in accordance with Chapter VIII of the ICDR Regulations Preliminary Placement This preliminary placement document dated December 12, 2017 issued in Document accordance with Chapter VIII of the ICDR Regulations QIBs/ or Qualified Qualified institutional buyers as defined under Regulation 2(1)(zd) of the SEBI Institutional Buyers ICDR Regulations QIP Private placement to QIBs under Chapter VIII of the ICDR Regulations Relevant Date December 12, 2017 which is the date of the meeting of the Board of Directors or any committee duly authorised by the Board of Directors deciding to open the Issue
Industry Related Terms
Term Description Additional Tier I capital Comprises of innovative perpetual debt instruments and perpetual non-cumulative preference shares eligible for inclusion in Tier I Capital which comply with the specified current regulations as reduced by equity investments in subsidiaries, (under transition provisions) reciprocal investments capital of banking, financial and insurance entities, deferred tax assets (under transition provisions), intangible assets (under transition provisions) Adjusted Net Bank Credit Net bank credit plus bonds/debentures in Non-SLR categories under HTM category / ANBC including other investments eligible to be treated as priority sector, outstanding deposits under RIDF and other eligible funds with NABARD, NHB, SIDBI and MUDRA Limited on account of priority sector shortfall, outstanding PSLCs. It will not include eligible amount for exemptions on issuance of long-term bonds for infrastructure and affordable housing and eligible advances extended in India against the incremental FCNR (B)/NRE deposits, qualifying for exemption from CRR/SLR requirements AFS Available for Sale ALCO Asset and Liability Management Committee APY Atal Pension Yojana AML Anti – money laundering ANBC Adjusted Net Bank Credit ATM Automated Teller Machines AUM Assets under management Base Rate Minimum lending rate set by our Bank in accordance with applicable laws and regulations Basel Committee Basel Committee on Banking Supervision Basel II Revised framework on “International Convergence of Capital Measurement and Capital Standards” by RBI for International Settlements
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Term Description Basel III A global regulatory framework for more resilient banks and banking systems (December 2010 (rev. June 2011)) for International Settlements. RBI issued guidelines on the implementation of Basel III capital regulations in India on May 2, 2012 and revised as per notification issued by the RBI on March 27, 2014 BIA Basic Indicator Approach BPLR Benchmark Prime Lending Rate BRDS Average balances of bills rediscounted Bps Basis points CAR Capital adequacy ratio CAGR Compounded annual growth rate (calculated by taking the nth root of the total percentage growth rate, where n is the number of years in the period being considered) CASA Current Accounts (Demand Deposits) and Saving Accounts CBLO Collateralized borrowing and lending obligation CBRM Community Based Recovery Mechanism CBS Core Banking Solutions CGTMSE Credit Guarantee Fund Trust of Micro and Small Enterprises CMS Cash Management Services CTS Cheque Truncation System CRESS Credit Retail Scoring System CRMC Credit Risk Management Committee DFSA Dubai Financial Services Authority DRC Disaster Recovery Centre DRT Debt Recovery Tribunal EAD Encoded Archival Description ECS Electronic Clearing Services FEDAI Foreign Exchange Dealers’ Association of India Gross NPA /GNPA Gross non-performing asset GSDP Gross State Domestic Product HFT The securities acquired by our Bank with the intention to trade by taking advantage of the short term price/ interest rate movements will be classified under Held for Trading HQLA High Quality Liquid Assets HTM The securities acquired by our Bank with the intention to hold them up to maturity will be classified as Held to Maturity IBA Indian Banks’ Association IBPC Inter Bank Participation Certificate ICAI Institute of Chartered Accountants of India ICAAP Internal Capital Adequacy Assessment Process IRDAI Insurance Regulatory And Development Authority of India KYC Norms Know Your Customer norms stipulated by the RBI LFAR Long Form Audit Report LCR Liquidity Coverage Ratio MCLR Marginal cost of funds based lending rate MPLS Multiprotocol Label Switching MRMC Market Risk Management Committee NCLT National Company Law Tribunal NPA Non-Performing Asset NPCI National Payment Corporation of India Net NPA / NNPA Net NPA means Gross NPAs less loan loss provision, Deposit Insurance and Credit Guarantee Corporation/Export Credit Guarantee Corporation claims received and held and any partial payments received and held NABARD National Bank for Agricultural and Rural Development NSFR Net Stable Funding Ratio ORMC Operational Risk Management Committee PCR Public Credit Register PRFDA Pension Fund Regulatory Development Authority
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Term Description PMEGP Prime Minister Employment Generation Yojana PMJDY Pradhan Mantri Jan Dhan Yojana POS Point of Sales RBIA Risk Based Internal Audit RRB Regional Rural Bank RSETI Rural Self Employment Training Institutes SARFAESI Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, as amended SIDBI Small Industries Development Bank of India SLR Statutory Liquidity Ratio SMA Special Mention Accounts Tier II Bonds Unsecured subordinated non – convertible bonds issued for Tier II capital adequacy purposes Tier I capital The core capital of a bank that provides the most permanent and readily available support against unexpected losses. It comprises paid up capital and reserves consisting of statutory reserves, free reserves and capital reserves (representing surplus gains arising out of sale of held-to-maturity assets) (revaluation reserves at a discount of 55.00%), innovative perpetual debt instruments and perpetual non- cumulative preference shares eligible for inclusion in Tier I Capital which comply with the specified current regulations as reduced by equity investments in subsidiaries, reciprocal investments capital of banking, financial and insurance entities, deferred tax assets, intangible assets, and losses in the current period and those brought forward from the previous period Tier II capital The undisclosed reserves and cumulative perpetual preference shares, general provisions and loss reserves, hybrid debt capital instruments (which combine certain features of both equity and debt securities), investment fluctuation reserves and subordinated debts Total Gross Credit Gross advances outstanding Exposure
General Terms / Abbreviations
Term Description AGM Annual general meeting AIF(s) Alternative investment funds, as defined and registered with SEBI under the Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, as amended AMC Asset management company AS Accounting Standards issued by ICAI AY Assessment year Bank Acquisition Act Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970, as amended Banking Regulation Act The Banking Regulation Act, 1949, as amended Banking Division Government of India, Ministry of Finance, Department of Banking Services (Banking Division) Banking Ombudsman The Banking Ombudsman Scheme, 2006 Scheme BSE BSE Limited CARE Care Ratings Limited CCIL Clearing Corporation of India Limited CDR Corporate Debt Restructuring CDR System A joint forum of banks and financial institutions in India established in 2001 as an institutional mechanism for corporate debt restructuring CDSL Central Depository Services (India) Limited CPIs Consumer price indices CESTAT Central Excise and Service Tax Appellate Tribunal CRISIL Credit Rating Information Services of India Limited
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Term Description Consolidated FDI Policy Consolidated Foreign Direct Investment Policy notified by DIPP under D/o IPP F. No. 5(1)/2017-FC-1 dated August 28, 2017, effective from August 28, 2017 Depositories Act The Depositories Act, 1996, as amended Depository A depository registered with SEBI under the Securities and Exchange Board of India (Depositories and Participant) Regulations, 1996, as amended Depository Participant A depository participant as defined under the Depositories Act DICGC Deposit Insurance and Credit Guarantee Corporation of India EaR Earnings at Risk ECB External commercial borrowing ECS Electronic clearing service EGM Extraordinary general meeting EPS Earnings per share FCCBs Foreign currency convertible bonds FCNR(B) Foreign currency non-resident (bank) FEDAI Foreign Exchange Dealers’ Association of India FEMA The Foreign Exchange Management Act, 1999 read with rules and regulations promulgated there under and any amendments thereto FEMA 20(R)/2017 The Foreign Exchange Management (Transfer or Issue of Security by a Person Resident Outside India) Regulations, 2017 FIIs Foreign institutional investors as defined under the SEBI FPI Regulations Financial Year / Fiscal / Any period of twelve months ended March 31 of that particular year, unless Fiscal Year / FY otherwise stated FPI Foreign portfolio investors as defined under the SEBI FPI Regulations and includes person who has been registered under the SEBI FPI Regulations. Any foreign institutional investor or qualified foreign investor who holds a valid certificate of registration is deemed to be a foreign portfolio investor till the expiry of the block of three years for which fees have been paid as per the Securities and Exchange Board of India (Foreign Institutional Investors) Regulations, 1995 FVCI Foreign venture capital investors as defined and registered with SEBI under the Securities and Exchange Board of India (Foreign Venture Capital Investors) Regulations, 2000, as amended GAAP Generally accepted accounting principles GAAR General Anti-Avoidance Rules GDP Gross domestic product GIR General index registrar GoI/Government Government of India, unless otherwise specified GST Goods and services tax HFCs Housing finance companies HFT Held for trading, the category of securities that are held principally for resale within a short period HTM Held to Maturity HLAC High Level Advisory Committee of the RBI HNIs High net worth individuals HUF Hindu undivided family ICRA ICRA Limited IFRS International Financial Reporting Standards of the International Accounting Ind-AS Indian accounting standards converged with IFRS, as per the roadmap issued by the Ministry of Corporate Affairs, Government of India Indian GAAP Indian GAAP Generally accepted accounting principles in India as applicable to Banks Insolvency Code The Bankruptcy and Insolvency Code, 2016 IPC Indian Penal Code, 1860 ISE Inspection for Supervisory Evaluation MAT Minimum alternate tax MSEs Micro and small enterprises NEAT National Exchange for Automated Trading NEFT National electronic fund transfer
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Term Description NCAF New Capital Adequacy Framework NPS National Pension System NRE Non – resident (external) NRI Non – resident Indian NRO Non – resident Ordinary NSDL National Securities Depository Limited NSE National Stock Exchange of India Limited NABARD National Bank for Agriculture and Rural Development Nationalised Bank The Nationalised Banks (Management and Miscellaneous Provisions) Scheme, Scheme 1970 notified under section 9 of the Bank Acquisition Act OFAC Office of Foreign Assets Control of the U.S. Treasury Department PAN Permanent account number PFRDA Pension Fund Regulatory and Development Authority PMLA The Prevention of Money Laundering Act, 2002, as amended Prudential Norms Prudential norms on income recognition, asset classification and provisioning issued by the RBI on July 1, 2015 PTC Pass through certificate RBI Reserve Bank of India RBI Dividend Circular RBI Circular (RBI/2004-05/451DBOD.NO.BP.BC.88/21.02.067/2004-05) dated May 4, 2005 on declaration of dividends by banks RBS Risk Based Supervision Regulation S Regulation S under the U.S. Securities Act Reserve Bank of India The Reserve Bank of India Act, 1943, as amended Act/ RBI Act ROA Return on assets RONW Return on Net Worth RWA Risk weighted assets SCBs Scheduled commercial banks SCR (SECC) Rules Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012, as amended SCRA The Securities Contracts (Regulation) Act, 1956, as amended SCRR The Securities Contracts (Regulation) Rules, 1957, as amended SEBI Securities and Exchange Board of India SEBI Act Securities and Exchange Board of India Act, 1992, as amended SEBI AIF Regulations Securities and Exchange Board of India (Alternative Investment Funds) Regulations, 2012, as amended SEBI FPI Regulations Securities and Exchange Board of India (Foreign Portfolio Investors) Regulations, 2014, as amended SENSEX An index of 30 constituent stocks traded on BSE representing a sample of large, liquid and representative companies SPARC Supervisory Programme for Assessment of Risk and Capital Stock Exchanges BSE and NSE STT Securities Transaction Tax Takeover Code Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 2011, as amended TDS Tax Deducted at Source U.K. United Kingdom U.S. or U.S.A. United States of America, its territories and its possessions and the District of Columbia USD or US Dollar or United States Dollar U.S. Dollar U.S. GAAP Generally accepted accounting principles followed in the United States U.S. Securities Act The U.S. Securities Act of 1933, as amended VAT Value Added Tax VCF A venture capital fund as defined under the erstwhile Securities and Exchange Board of India (Venture Capital Funds) Regulations, 1996
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SUMMARY OF THE ISSUE
The following is a general summary of the terms of the Issue. This summary should be read in conjunction with, and is qualified in its entirety by, the more detailed information appearing elsewhere in this Preliminary Placement Document, including under the sections “Risk Factors”, “Use of Proceeds”, “Placement and Lock Up”, “Issue Procedure” and “Description of Equity Shares”.
Issuer Syndicate Bank Face value ₹ 10 per Equity Share Issue Price per Equity Share ₹ [●] Minimum Application Size Minimum value of issue or invitation to subscribe to each QIB is ₹ 20,000 calculated at the face value of the Equity Shares Issue Size The issue of up to [●] Equity Shares at a price of ₹ [●] per Equity Share, aggregating up to ₹[●] million.
A minimum of 10 % of the Issue Size i.e. at least [●] Equity Shares shall be available for Allocation to Mutual Funds only, and the balance [●] Equity Shares shall be available for Allocation to all QIBs, including Mutual Funds. In case of under-subscription in the portion available for Allocation only to Mutual Funds, such portion or part thereof may be Allocated to other eligible QIBs. Authority for the Issue The Issue was authorized and approved by our Board of Directors by resolutions dated May 29, 2017 and approved by our shareholders, pursuant to a resolution passed at the AGM held on June 23, 2017. The Bank has also obtained all consents, approvals and authorizations required in connection with this Issue, including RBI recommendation dated July 20, 2017 and the approval from the GoI pursuant to a letter dated July 31, 2017. Equity Shares issued and 904,539,438 Equity Shares at a face value of ₹10 per share. outstanding immediately prior to the Issue Equity Shares issued and [●] Equity Shares at a face value of ₹10 per share. outstanding immediately after the Issue Eligible Investors QIBs as defined in Regulation 2(1)(zd) of the ICDR Regulations to whom the Preliminary Placement Document and the Application Form is circulated and who are eligible to bid and participate in the Issue and QIBs not excluded pursuant to Regulation 86(1)(b) of the ICDR Regulations, except for such eligible QIBs who are public sector enterprises. See the sections “Issue Procedure”, “Selling Restrictions” and “Transfer Restrictions” beginning on pages 187, 199 and 205, respectively. Floor Price The floor price has been calculated in accordance with Chapter VIII Regulation 85(1) of the ICDR Regulations is ₹ 88.57 per Equity Share with reference to December 12, 2007 as the Relevant Date. Under the ICDR Regulations, the Issue Price cannot be lower than the Floor Price. The Bank may offer a discount of not more than 5.00% on the Floor Price in terms of Regulation 85 of the ICDR Regulations Dividend For more information see “Description of Equity Shares”, “Dividend Policy” and “Taxation” on page 211, 69 and 214. Indian Taxation For more information, see “Taxation” on page 214. Listing Our Bank has obtained in – principle approvals each dated December 12, 2017 for the listing of Equity Shares in terms of Regulation 28(1) of the Listing Regulations from the Stock Exchanges. The Bank shall apply to BSE and NSE for the final listing and trading approval, only after Allotment of the Equity Shares in the Issue. Transferability Restrictions The Equity Shares being Allotted pursuant to this Issue cannot be sold for a period of one year from the date of Allotment, except if sold on the floor of the Stock Exchanges. For further details, see the section “Selling Restrictions” and “Transfer Restrictions” on pages 199 and 205, respectively.
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Closing Date The Allotment of the Equity Shares offered pursuant to the Issue is expected to be made on or about December [●], 2017 (the “Closing Date”). Use of Proceeds The gross proceeds of the Issue are expected to be approximately ₹ [●] million. The net proceeds from the Issue, after deducting fees, commissions and expenses of the Issue, will be approximately ₹ [●] million.
For further details, please see the section “Use of Proceeds” on page 67 Pay – in Date Last date specified in the CAN sent to the successful Bidders for payment of application money. Lock - up Please see the sub-section titled “Placement and Lock up” on page 197 for a description of restrictions on our Bank in relation to Equity Shares. Risk Factors For a discussion of certain risks in connection with an investment in the Equity Shares, please see the section “Risk Factors” on page 43. Ranking of equity shares The Equity Shares being issued shall rank pari passu in all respects with the existing Equity Shares including rights in respect of dividends. The shareholders will be entitled to participate in dividends and other corporate benefits, if any, declared by our Bank after the date of Issue. For details, see “Description of the Equity Shares” on page 211. Security codes for the Equity ISIN: INE667A01018 Shares BSE Code: 532276 NSE Symbol: SYNDIBANK
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SUMMARY OF BUSINESS
Some of the information in the following discussion, including information with respect to our plans and strategies, contain forward-looking statements that involve risks and uncertainties. Please see section “Forward- Looking Statements” for a discussion of the risks and uncertainties related to those statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. Also please see section “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of certain factors that may affect our business, financial condition or results of operations.
Unless otherwise indicated, the financial information included herein is based on our Audited Consolidated Financial Statements and our Unaudited Financial Statements, included in this Preliminary Placement Document. For further information, see “Financial Statements”.
Unless otherwise indicated, industry and market data used in this section has been derived from industry publications and other publicly available information.
Unless otherwise stated, references to “the Bank”, are to Syndicate Bank on a standalone basis and references to “we”, “us”, “our”, are to Syndicate Bank and its Subsidiary on a consolidated basis.
Overview
We are a scheduled public sector commercial bank in India offering a wide range of banking and financial products and services to both large and mid-corporates, micro, small and medium enterprises (“MSME”), retail and agricultural customers.
Our Bank was established in 1925 at Udupi, Karnataka State as Canara Industrial and Banking Syndicate Limited, mainly to provide financial assistance to local weavers and expanded the scale of operations to a wide range of banking products off catering to large, MSME, retail and agri customers. In 1964, the Bank changed its name from Canara Industrial and Banking Syndicate Limited to Syndicate Bank Limited. We are one of the 14 banks which were nationalized on July 19, 1969. Our business is principally divided into Retail banking, Agricultural banking, Corporate / wholesale banking, International banking, MSME banking and other banking services.
As on October 31, 2017, we had 4,005 branches spread across all States and Union Territories in India and one branch at London (all of them under Core Banking Solution “CBS” platform) including 9 Large Corporate branches, 26 Mid Corporate branches, 1 Capital Market Service branch and 77 MSME specialized branches catering to the specific clientele segment. Bank has 25 Retail/MSME loan processing centres, 4 specialised women branches. As of October 31, 2017, we had 4,100 ATMs, 30 Synd Lounges, 8 Zonal Office, 8 Zonal Inspection Centres, 60 regional offices, 37 Satellite Offices and 11 extension counters. As of October 31, 2017, we had a customer base of approximately 5.45 crore.
Our business is principally divided into retail banking, agricultural banking, corporate / wholesale banking, international banking, MSME banking and other banking services.
Our retail banking business offers financial products and services including consumer lending and deposit services to our retail customers. We offer a wide range of consumer credit products, including loans and advances for housing, trade, automobiles, consumer durables, education, personal loans, mortgage loans and other retail products. We have various deposit products, such as current, savings and term deposits for our customers. We offer our customers a suite of technological products, including global debit and credit cards, mobile banking, and internet banking. We also distribute third party financial products, such as insurance (life and non - life) and mutual fund products. In addition, we provide depository services and are a depository participant for CDSL. Our retail advances accounted for 13.48%, 15.78%, 16.14% and 16.70% of gross domestic advances as of March 31, 2015, 2016 and March 31, 2017 and September 30, 2017 respectively.
Our corporate/wholesale banking business caters to corporate customers, including large, mid-sized and small businesses and government entities. Our loan products include term loans to finance capital expenditure of assets across various industries as well as short-term loans, cash credit, export credit and other working capital financing and bill discounting facilities. We also provide credit substitutes, such as letter of credit and letter of guarantee. We also offer infrastructure/ project finance, trade loans, bridge financing and foreign currency loans. We also provide finance to corporates through the syndication of loans. As on October 31, 2017, we have established 35
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specialized branches which consist of 26 MCB (Mid Corporate Branch) and 9 LCB (Large Corporate Branch) that exclusively cater to the credit requirements of mid as well as large corporate clients. These branches play a key role in developing our corporate and wholesale lending business. As a percentage of our total advances, corporate/wholesale banking advances accounted for (Excluding Retail, Agriculture, MSME and overseas operations) banking advances accounted for 44.72%, 40.71%, 40.98% and 37.99% as on March 31, 2015, March 31, 2016 and March 31, 2017, and September 30, 2017 respectively.
Our international banking services includes forex services, international trade finance and NRI services comprising foreign exchange operations, remittance facilities for resident Indian, foreign currency loans, lending and deposit services to non-resident Indians. We have an international branch office in London. Our Bank is a member of Clearing Corporation of India Limited (“CCIL”), for settlement of inter-bank forex deals in USD/ INR segment and settles cross-currency deals through CCIL with continuous linked settlement. We are also managing one exchange house and have rupee drawing arrangements for cost-effective funds transfer. Our Bank maintains correspondent Relationship Management with 959 banks spread across 100 countries. We have 23 Nostro Accounts with Correspondent banks and 3 with our London branch. As a percentage of our total advances, international banking advances accounted for 19.75%, 18.55%, 17.23%, and 20.18% as on March 31, 2015, March 31, 2016, March 31, 2017 and September 30, 2017, respectively.
The Bank also caters to agriculture, micro-finance and rural customers. We offer direct financing to farmers for production and investment, as well as indirect financing for infrastructure development and credit to suppliers of agricultural inputs. We offer various products in the rural and semi-urban areas which would also help our Bank to meet its financial inclusion targets mandated by RBI. Our agricultural and micro small medium banking advances accounted for 30.80%, 34.24%, 34.35%, and 35.70% of gross domestic advances as on March 31, 2015, March 31, 2016 and March 31, 2017, and September 30, 2017respectively.
Our treasury operations being the interface with the financial markets, consist primarily of statutory reserves management, liquidity management, investment and trading activities, money market and foreign exchange related activities. Our treasury operations are aimed at maintaining an optimum level of liquidity, while complying with the RBI mandated cash reserve ratio and the statutory liquidity ratio. We maintain SLR through a portfolio of central Government, state Government, corporate debt and trustee securities that we actively manage to optimize yield and benefit from price movements. We are also involved in the trading of securities and foreign exchange, and invest in sovereign debt instruments, commercial papers, mutual funds, certificates of deposits, floating rate instruments, bonds and debentures to manage short-term surplus liquidity and further optimize yield and to generate profits thereon. We are also a trading-cum-clearing member on three exchanges, i.e., MCX-SX, NSE and BSE for undertaking proprietary based position in currency futures.
We also offer a wide range of general banking services to our customers including debit cards, cash management, remittance services and collection services. We market third-party products, such as mutual funds and general and life insurance policies, and also offer fee-based services including merchant banking and depository services. In addition, we have agency function for collection of Central Government Revenue viz. direct and indirect taxes through physical mode by authorized branches and through e-mode by all branches of our Bank. We also act for various state governments and the Government of India on numerous matters including the collection of state revenue and taxes, mobilization of Government deposits under PMJDY, and payment of school teacher’s salary and pension of Central Government, State Government and different autonomous organizations. Further, our Bank has been assigned with lead bank responsibilities in 29 districts inclusive of Union Territory of Lakshadweep across the country. Our Bank is also the convener of State Level Bankers’ Committee (SLBC) in Karnataka and the Union Territory of Lakshadweep and satisfactorily discharged the responsibilities cast on it as the convener of State Level Bankers’ Committee. We have sponsored three Regional Rural Banks covering 18 districts in 3 states with network of 1574 branches. As on March 31, 2017 and September 30, 2017, total business of RRBs sponsored by the Bank stood at ₹ 565,130 million and ₹ 562,000 million respectively. As of October 31, 2017, all our branches are networked to facilitate Core Banking Solution (“CBS”). In addition, we have digital banking channels such as mobile banking and internet banking. We have developed micro-payment and branchless banking solutions as well as a business correspondent network to expand our customer reach beyond the traditional branch service area. We deliver our products and services through our branches, extension counters, ATMs, internet banking and mobile banking. We have opened national processing center at Manipal, Karnataka a digitally enabled processing center to cater to the back office operations, centrally facilitating the Branches in instant account opening.
Our deposits increased from ₹ 2,553,881 million as of March 31, 2015 to ₹ 2,605,609 million as of March 31, 2017, and were ₹ 2,826,005 million as of September 30, 2017. Our aggregate CASA deposits increased at a CAGR
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of 9.11% from ₹ 637,132 million as of March 31, 2015 to ₹ 758,647 million as of March 31, 2017, and were ₹ 756,387 million as of September 30, 2017. Our CASA ratio, comprised primarily of retail demand and savings deposits, was at 25.97% as of March 31, 2016, 29.12% as of March 31, 2017 and was at 26.77% as of September 30, 2017. In addition, our gross advances increased from ₹ 2,058,039.00 million as of March 31, 2015 to ₹ 2,070,648.00 million as of March 31, 2017, and were ₹ 2,148,873.00 million as of September 30, 2 017. Our net interest income increased at a CAGR of 6.62% from ₹ 55,209.00 million in Fiscal 2015 to ₹ 62,767.00 million in Fiscal 2017, and was ₹ 32,501 million in the Six months ended September 30, 2017. Further, our operating profit increased at a CAGR of 2.78% from ₹ 40,073 million in Fiscal 2015 to ₹ 42,332 million in Fiscal 2017, and was ₹ 21,539 million in the Six months ended September 30, 2017.
Our capital adequacy ratio as of March 31, 2015, March 31, 2016 and March 31, 2017, in accordance with Basel III norms, was at 10.54%, 11.16% and 12.03%, respectively. Our CRAR as on September 30, 2017 was 12.17% constituting CET 1 Ratio of 7.23%, Tier I Ratio of 9.20% and Tier II Ratio of 2.97% well above the regulatory requirement of 10.25%.
As of March 31, 2017, gross NPAs were ₹176093.13 million or 8.50% of our gross advances, and net NPAs were ₹ 104109.83 million, or 5.21% of our net advances. As of September 30, 2017, our gross NPAs represented 9.39% of our gross advances and net NPAs represented 5.76% of our net advances. Our provision coverage ratio was 56.37% and 56.21% as of March 31, 2017 and September 30, 2017, respectively.
We have received several awards in recognition of our operations including the Skoch Financial Inclusion Award- 2017 for various IT initiatives, received third prize for the overall performance under SHG-Bank Linkage and JLG-Bank Linkage programme for Fiscal 2017 among commercial Banks operating in Karnataka from NABARD, received ‘Award of Excellence’ from Ministry of Rural Development, Government of India, for Fiscal 2015 and 2016, in recognition of exemplary leadership given to SyndRSETIs sponsored by the Bank, Certificate of Commendation from Ministry of New and Renewable Energy, Government of India for Collateral Free Farmers Friendly Initiatives for financing of Renewable Energy Projects (during February 2015 to March 2016) and our Bank has also been awarded “the 7th PSU Award 2015” by Dalal Street – Investment Journal for lowest Net NPA to Net Advances ratio. NPCI- National Payments Excellence Award 2016 for excellent performance in select parameters of various NPCI products, Bank has received SKOCH Award for employment generation under Pradhan Mantri Mudra Yojana (PMMY), Bank has received SKOCH Annual Cyber Security Awards 2017 for implementing Distributed Denial Service Solution (DDoS), Security Information and Events Management (SIEM) and Security Operation Centre (SOC), Bank has received first prize in Rajbhasha Kirti Puraskar (President Award) in “C” region for our in-house Hindi journal “Jagriti” for the year 2016-17.
COMPETITIVE STRENGTHS
We believe that our success can be attributed to a combination of the following competitive strengths:
Wide distribution network and multiple delivery channels
As at October 31, 2017, our extensive multi-channel distribution network comprised over 54 million customer base, and our operations covered all States and Union Territories, with 4,006 branches (including a branch at London), 4,100 ATMs, 11 extension counters and 37 satellite offices. Multiple delivery channels and large distribution infrastructure has resulted in giving us access to a large customer base spread across the country. The Bank has an international branch office in London which is active in wholesale banking operations / Loans to corporate, money market operations, investments, and treasury operations. As of October 31, 2017, we had a customer base of over 54 million compared to over 52 million customers as of March 31, 2017 and over 49 million customers as of March 31, 2016. Our branches are spread across metropolitan cities as well as rural, semi urban and urban areas, with 847, 1224, 1116 and 818 branches respectively. In Fiscal 2017, we have added 169 new branches and 244 new ATMs to our network. Further, In Fiscal 2018, up to October 31, 2017 we have added 73 new branches and 126 new ATMs. We offer a user-friendly internet banking facility that allows our customers to conduct a comprehensive range of banking transactions online without visiting our branches or ATMs. We also offer debit and credit cards to our customers in association with Visa, MasterCard and RuPay. These debit cards provide customers with 24-hour access to their funds through our ATMs as well as any Visa, MasterCard and RuPay-enabled ATMs and merchant establishments in India, as well as outside India.
In order to complement our existing core banking solution platform of branches and ATMs, we have also developed a multi¬channel electronic banking system that we believe enables us to acquire new customers and strengthen our relationship with existing customers. Our electronic banking system includes internet banking,
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phone banking, mobile applications, Unified Payment Interface (SyndUPI). Our internet banking system is functional across various platforms and ensures seamless connectivity across devices. As of October 31, 2017, we had 1,239,730 registered users, providing various services such as balance enquiry, account statement, intra-bank and inter-bank fund transfers, payment of indirect / direct taxes, commercial taxes, utility bill payments and online donations. As of October 31, 2017, we had 1,206,429 registered mobile banking users. Our multi-channel network is diversified and so reduces dependence on any single distribution channel, and also enables us to access a broad range of customers across industries, geographic locations, income groups and customer demographics.
Robust credit portfolio
We offer wide range of products that generate both interest and non-interest income. We provide diversified solutions to the financial and banking needs of our customers. In particular, our retail credit portfolio consists of a variety of financial products including housing loans, personal loans and education loans. We provide funding to sectors identified by the GoI as priority sectors with specific focus on products to the MSME sector. We cater to our corporate customers by offering infrastructure/ project finance in the form of working capital, short term credit, import-export credit, and letters of credit facilities. We believe that our combination of diverse product offerings and a relationship-driven approach has enabled us to structure solutions to meet our customers’ needs, resulting in sustained revenue generation. As of September 30, 2017, retail and MSME represented 16.70% and 16.08% respectively, of our gross domestic advances.
We believe that retail credit has significant advantages including a better risk spread, higher yield and cross-selling opportunities. While our gross advances increased at a CAGR of 0.31% between Fiscal 2015 and Fiscal 2017, advances in the retail segment increased at a CAGR of 11.49% between Fiscal 2015 and Fiscal 2017. In Fiscal 2015, 2016 and 2017, advances in the retail segment were₹ 222,564 million, ₹ 265,292 million and ₹ 276,645 million, respectively, accounting for 10.81%, 12.85% and 13.36% of gross credit. Within our retail credit portfolio, our housing loan and vehicle segments recorded significant growth with CAGR of 11.83% and 21.65%, respectively, from Fiscal 2015 to Fiscal 2017. Further, our corporate lending profile primarily consists of commercial banking products and services to corporate customers comprising private and public companies. We believe our corporate / wholesale banking activities benefit us through improved yield and also provide us with opportunities to build our fee-income based products such as cash management services and depository services. Our agriculture loan portfolio represented 18.79 % of our adjusted net bank credit in Fiscal 2017 and total advances in this segment increased at a CAGR of 10.29% between Fiscal 2015 and Fiscal 2017, with advances in Fiscal 2017 amounting to ₹318,782 million. Our agriculture loan portfolio has grown over the years and amounted to ₹336,524 million as of September 30, 2017. Our non-interest income has also increased and accounted for 52.62%, 77.11% and 81.60% of our net operating income for Fiscal 2015, 2016 and 2017, respectively, and 71.85% in the six months ended September 30, 2017.
Robust risk management framework and healthy asset quality
We have an independent risk management function covering enterprise risk management, credit risk, market risk and operational risk that contribute to preserving our asset quality amongst other risk objectives. Our risk management function is overseen by the Risk Management Committee, an independent board-level subcommittee that strives to put in place specific policies, frameworks and systems for effectively managing the various risks. We have implemented a defined internal capital adequacy assessment process (“ICAAP”). The ICAAP process captures both Pillar I and Pillar II risks as part of its comprehensive assessment process. We maintained a CRAR ratio of 12.03% (Tier I – 9.26% and Tier II - 2.77%) as of March 31, 2017 and 12.17% (Tier I – 9.20% and Tier II – 2.97%) as of September 30, 2017, which is above the regulatory minimum of 10.25%. We have implemented a stringent credit risk rating model to assess borrowers.
Our prudent credit evaluation processes, together with effective monitoring systems, have enabled us to contain our NPA levels, restructured standard asset and special mention account (“SMA”) levels. As of September 30, 2017, our gross NPAs were ₹201,766.40 million, or 9.39 % of our gross advances, and net NPAs were ₹ 118,943.00 million, or 5.76% of our net advances. In Fiscal 2017, we implemented an aggregate cash recovery of ₹27,093.90 million (including interest) and upgraded NPAs aggregating ₹ 12,553.50 million (excluding decrease due to operations and decrease due to foreign exchange). Consequently, while NPA slippages were ₹120,282.70 million in Fiscal 2016, there was a significant decrease in NPA slippages in Fiscal 2017 of ₹ 73,702.50 million. Our risk management function is described in further detail under “Business—Risk Management”. Further, we have opened a National Processing Centre (South) established at Manipal catering to the instant account opening services for 1029 branches of the Bank and we intend to extend it to 2000 branches by the financial year 2018.
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Technology infrastructure
We have implemented several RBI-led technology projects designated to facilitate greater inter-bank connectivity and faster clearing and settlement. We have implemented Real Time Gross Settlement (“RTG”) and National Electronic Funds Transfer (“NEFT”) in all our branches. We have also implemented image based Cheque Truncation System (“CTS”) in all the three grids, namely, Delhi, Chennai and Mumbai.
In an effort to increase our operational efficiencies, we have established a lending automation processing system (LAPS) in the form of a software that is used for processing our retail loan portfolio. Borrower eligibility is automatically processed by the software based on the income/ repayment capacity in accordance with extant scheme guidelines. The software also monitors the entire life cycle of loan processing, significantly reducing the time taken to process loans, thereby improving our operational efficiencies. Our treasury operations are executed through an integrated treasury management system (ITMS) that supports direct transaction processing in fixed income securities as well as foreign exchange transactions. The software carries out mark to market evaluations of the various portfolios of our treasury and records interest and other income of our treasury, which allows us to efficiently prepare our financial statements while maintaining updated financial records on a regular basis. The ITMS software is also linked to dealing platforms to readily capture transactions and simultaneously update our core banking solution platform.
Professional and highly experienced board of directors and senior management team
We have a professional and experienced management team with extensive experience in the banking and other industries. Our Managing Director and CEO, Mr. Melwyn Rego an MBA rank holder in Finance from SIBM Pune has held assignments in arears of Corporate Banking, Rehabilitation Finance, Treasury, International & Domestic Resources, Infrastructure Corporate Group, Project Appraisal Department, Sourcing, Syndication and Advisory Department, Priority Sector and Retail Banking Group in various capacities. He has over 33 years of work experience in the Banking Sector and currently nominated as Deputy Chairman of Indian Bank Association. We also benefit from strategic guidance from our executive directors Mr. CH S.S. Mallikarjuna Rao and Mr. S. Krishnan who have experience in banking and finance sector. In addition, we are supported by representatives of the GoI on our Board.
Our Board is also supported by a team of senior management professionals with significant knowledge of banking operations, including credit management, risk management and treasury operations. We believe that the experience of our Board and senior management team has enabled us to develop a strong understanding of industry-specific aspects of our business and operations. We continue to be supported by an experienced employee base. We believe that our management’s capabilities, strong reputation, extensive network of industry relationships and wide-ranging experience in the finance and banking industry will continue to help us to grow, modernize and develop further. For additional details see section titled “Board of Directors and Senior Management” beginning on page 160.
Our Strategies
We intend to grow our market share, including our retail and MSME advance base, and to continue to achieve balanced growth in our balance sheet, profitability (improving our return on assets and our return on equity) and efficiency (improving our cost to income ratio) across all segments of our operations. Our key strategies to achieve these goals are set out below:
Sustained credit growth with focus on retail lending
Our retail Loans portfolio amounted to ₹ 276,645 million or approximately 13.36% of our total advances, as of March 31, 2017. The Bank aims to focus on increasing its share of retail loans in total advances by leveraging its branch network for sourcing retail loans, expanding the distribution network for retail assets and diversifying its retail loan product portfolio.
As part of our overall retail strategy, we intend to invest in further strengthening our brand, which may include changes to our brand identity, augmenting our technology capabilities, selectively upgrading our branch infrastructure, enhancing capabilities across alternate delivery channels, and by migrating certain operational activities from the branches to a central unit. We intend to increase marketing and sales resources at our branches, launch new products, invest in technology for speedier credit processing and improved monitoring, and cross sell products like life insurance to our existing customers.
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We have identified the retail loan segment as a key area for increasing our credit portfolio. In our retail business, we intend to increase our retail lending profile by increasing focus on products such as loans against property, personal loans and gold loans, by simplifying our current processes, launching new products and services and developing our distribution channels. We believe this will help us spread risk, increase our interest income and better efficiency in capital utilization. Further, this will enhance our customer base and provide us business opportunities through relationship banking and cross selling.
Reduction in cost of deposits by augmentation of CASA
CASA is the prime source of low cost funds for our Bank. We seek to augment our CASA deposits and reduce our dependence on bulk deposits in order to reduce cost of funds and improve our core capital. Our aggregate CASA deposits increased at a CAGR of 9.11% from ₹637,132.96 million as of March 31, 2015 to ₹ 758,646.87 million as of March 31, 2017, and were at ₹ 756,386.80 million as of September 30, 2017. In order to increase our CASA deposits, we intend to introduce new products through marketing efforts at our branches. In addition, we also regularly review and continuously monitor our CASA growth. We propose to increase our CASA by launching deposit products across business, enhancing our brand presence, attracting new retail customers, appointing relationship managers for high net worth customers, acquisition of salary accounts from corporate customers, growing our multi-channel distribution network (including by adding more branches subject to the conditions laid down by RBI), improving our business mix, introducing new products and improving the service quality and efficiency of our non-branch delivery channels.
Increase focus on improving asset quality and containing NPA levels by building effective risk management systems
We have constantly focused on reducing our impaired assets and improving the quality of our assets. We intend to continue to focus on this with the objective of reducing our NPA levels while upgrading the quality of our assets. The share of gross NPAs as a percentage of gross advances increased from 3.13% as of March 31, 2015 to 9.39% as of September 30, 2017. Our gross NPA was ₹176,093.13 million and net NPA was ₹ 104,109.84 million as of March 31, 2017. We intend to contain our NPA levels by improving the quality of credit. We propose to achieve this by ensuring that our documented loan sanction policies and procedures are complied with and by actively monitoring our loan accounts (particularly Special Mention Accounts (SMA) and evaluating their credit ratings on a frequent basis. In order improve the asset quality and to check the NPA level, the Bank has taken various step to standardise the loan assessment and processing. The Bank has set-up a central processing centre in Manipal, Karnataka, and the Bank proposes to set-up more such centres across India.
We are committed to efficiently managing and reducing our NPAs, as well as the stressed assets, and are implementing measures to manage and reduce our NPAs. In relation to origination and appraisal of our loans, we propose to continuously review and upgrade our rating models, scorecards and credit approval process, including training and enhancing our resources. We also intend to implement latest technology/ analytical tools for effective operational and process controls, credit evaluation and implementation of advanced approaches of Basel III guidelines. Further, we have taken several initiatives to contain slippages and continue to proactively address recoveries from overdue loan accounts including identification of stressed accounts for restructuring, revising need based credit limits, carrying out regular follow-up of over dues in loan accounts, conducting auctions for the sale of seized assets to asset reconstruction companies and initiation of stringent recovery measures against wilful defaulters. We have introduced special OTS scheme for agricultural and micro and small enterprises borrowers and set up Synd Adalat for speedy disposal and to settle the dues and manage the NPAs. In addition, we intend to formulate methods for enforcing the SARFAESI, the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 and the RBI’s corporate debt restructuring (“CDR”) mechanism and Bankruptcy Code more strictly and stringently.
Focus on developing fee based income including treasury operations
Our integrated branch and electronic banking network and our increasingly diversified product and service portfolio have enabled us to develop our fee and commission-based business. We intend to focus on increasing our fee-based income by expanding our third-party product offerings like cross selling of mutual funds and insurance products. We intend to achieve this by increasing our fee-based services and alliances and by cross- selling our offerings to our existing as well as new customers. Our Bank has also tied up with various insurance companies for distribution of life insurance and general insurance products to our customers.
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We believe that our increased focus on retail and SME customers, integrated branch network, technology led channels and increasingly diversified product mix will enable us to increase our fee and non-fund based revenues. To our existing SME customers, we aim to market fee and non-fund based products such as letters of credit, bank guarantees, foreign exchange services and insurance products. We also intend to acquire new SME customers who specifically require such fee and non-fund based products. For our retail customers, we intend to follow a relationship based approach by providing and expanding our third party product offerings including mutual fund and insurance products, wealth management services, money transfer and foreign exchange services.
Increase customer penetration through expansion of branch and ATM network and strengthening alternate delivery channels
The Bank intends to increase revenues generated from its banking business by expanding its distribution network, growing its customer base and diversifying its banking product mix. We intend to increase our branch network and infrastructure across India, through a growing network of branches, ATMs, BC agents and cross sell our products at competitive costs to gain a larger pan-India market share in terms of advances and deposits. Working towards this goal, we plan to open 160 branches in the fiscal year 2017 – 2018, our Bank also intends to strengthen its alternate delivery channels by encouraging customers from less cash to cash less environment. Our branch network strategy is to cater to each geographical region of India instead of treating India as one market. As part of this approach, we are focused on emerging as a bank with a leading branch presence in other region, in part, building a higher density of branches. We believe this will enable us to address more customer segments per branch and thereby increase our CASA percentage and fee income per branch in such markets.
While we typically have onsite ATMs at majority of the branches, we intend to increase the number of offsite ATMs at strategic locations and intend to install in relatively under-penetrated markets in India. We also intend to increase the number of cash deposit machines and passbook kiosks in order to increase accessibility of these services to our customers. As part of our efforts to enhance our non-branch delivery channels to encourage cash- less transactions, we intend to improve our existing internet banking system, mobile banking and Unified Payment Interface platforms. We are providing instant fund transfer facilities through IMPS, utility bill payment and QR code based transactions and installed POS machines for merchants. Our Bank will also empower its business correspondence to provide entire gamut of its services and products to the rural and unbanked population.
The Bank plans to increase its efforts to cross-sell a wide variety of banking products across its business groups and through numerous distribution channels, while also expanding its banking product offerings. The Bank is also pursuing strategic relationships with corporate entities and government departments to provide financing products to their employees and customers. In addition, the Bank is expanding into the more rural and semi urban areas of India where growth potential is significant. The Bank also intends to grow its business through further overseas expansion, to meet the growing needs of Indian corporations operating overseas and non-resident Indians living abroad.
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SUMMARY OF FINANCIAL INFORMATION
The following summary of financial information has been extracted from our Audited Financial Statements as of and for Fiscals 2015, 2016 and 2017 and should be read together with “Management's Discussion and Analysis of Financial Condition and Results of Operations” on page 70 and our financial statements, including the notes thereto and the reports thereon, which appear in the section “Financial Statements” on page 229. The historical results do not necessarily indicate results expected for any future period. Indian GAAP differs in certain material respects from US GAAP and IFRS.
Neither the information set forth below nor the format in which it is presented should be viewed as comparable to information presented in accordance with Indian GAAP, IFRS or other accounting principles.
SUMMARY OF STANDALONE BALANCE SHEET (₹ in million) As on March As on March As on March 31, 2015 31, 2016 31, 2017 CAPITAL AND LIABILITIES Capital 6,620.59 7,033.72 9,045.39 Reserves & Surplus 123,967.17 123,746.09 132,796.42 Deposits 2,553,880.97 2,617,353.44 2,605,608.64 Borrowings 265,029.85 255,012.01 174,755.24 Other Liabilities & Provisions 81,853.94 76,529.19 68,527.67 TOTAL 3,031,352.52 3,079,674.45 2,990,733.36
ASSETS Cash and Balances with Reserve Bank of India 119,745.38 133,385.57 131,089.48 Balances with Banks Money at call & short notice 118,568.10 158,768.27 121,232.26 Investments 693,396.67 686,218.67 654,654.00 Advances 2,027,198.17 2,013,684.90 1,996,693.53 Fixed Assets 16,083.59 24,069.08 24,540.70 Other Assets 56,360.61 63,547.96 62,523.39 TOTAL 3,031,352.52 3,079,674.45 2,990,733.36
SUMMARY OF STANDALONE PROFIT AND LOSS STATEMENT (₹ in millions) As on March 31, As on March As on March 31, 2015 31, 2016 2017 INCOME Interest earned 216,151.62 231,977.80 230,037.87 Other Income 21,095.94 25,087.33 34,573.94 TOTAL 237,247.56 257,065.13 264,611.81 EXPENDITURE Interest expended 160,948.72 172,130.78 167,278.17 Operating Expenses 36,225.95 52,421.22 55,001.33 Provisions & contingencies 24,843.58 48,947.98 38,742.81 TOTAL 222,018.25 273,499.98 261,022.32 PROFIT/LOSS Net Profit for the Year 15,229.31 (16,434.86) 3,589.49 Add: Profit Brought forward from previous Year Add: Drawings from Investment Reserve TOTAL APPROPRIATIONS Transfer to Statutory Reserve 3,807.33 - 897.37 Transfer to Capital Reserve 20.00 481.53 963.70 Transfer to Revenue Reserve 5,003.18 (16,916.38) -
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As on March 31, As on March As on March 31, 2015 31, 2016 2017 Transfer to Special Reserve 2,650.00 - 1,728.42 Transfer to Investment Reserve - - - Proposed dividend (PNCPS) - - - Proposed dividend (Equity) 3,111.70 - - Tax on Dividend 637.11 - - Interim Dividend & Tax on Interim Dividend - - - Addl Dividend Distribution Tax (FY 2014-15) - - - Balance carried over to Balance Sheet - - - TOTAL 15,229.31 (16,434.86) 3,589.49
SUMMARY OF STANDALONE CASH FLOW STATEMENT (₹ in millions) As of March 31, As of March 31, As of March 31, PARTICULARS 2015 2016 2017 A: CASH FLOW FROM OPERATING ACTIVITIES: Net Profit/(loss) 15,229.31 (16,434.86) 3,589.49 Add: Tax provision 4,730.31 6,219.36 2,930.10 Profit/(Loss) before taxes 19,959.62 (10,215.50) 6,519.59 Adjustments for: - - Depreciation on fixed assets 1,865.69 1,992.86 1,373.01 Depreciation on investments (including on Matured debentures) (161.01) 2,246.84 1,756.96 Bad debts written-off/Provision in respect of NPA/ Restructured assets* 16,638.12 33,808.41 35,151.03 Provision for Standard Assets* 536.35 4,098.02 (1,900.44) Provision for Other items (Net) 3,099.80 2,575.37 805.17 (Profit)/loss on sale of fixed assets (Net) 1.07 8.26 0.26 Payment/provision for interest on subordinated debt (treated separately) 3,881.76 4,515.49 7,086.63 Adjustment for Unrealised Foreign Exchange Fluctuation Reserve (491.42) 115.13 (307.32) Dividend received from subsidiaries/others (treated separately) - - - Sub Total 45,329.99 39,144.86 50,484.89
Adjustments for: (Increase)/Decrease in investments (1,37,841.86) 4,931.16 29,807.72 (Increase)/Decrease in advances (3,05,248.56) (20,295.13) (18,159.65) (increase)/Decrease in other assets (3,285.56) (5,995.59) 6,882.27 Increase/(Decrease)in borrowings 64,284.72 (26,217.84) (91,359.77) Increase/(Decrease) in deposits 4,30,447.93 63,472.47 (11,744.81) Increase/(Decrease) in other liabilities and provisions (1,617.58) (8,413.32) (7,511.86) Direct taxes paid (Net of Refund) (7,310.00) (7,247.12) (8,182.20) Net cash from operating activities (A) 84,759.07 39,379.49 (49,783.41) - - B. CASH FLOW FROM INVESTING ACTIVITIES - - Purchase/ Transfer in of fixed assets (3,542.89) (3,047.80) (1,825.06) Sales/ Transfer out of fixed assets - - - Changes in Trade related investments (Subsidiaries & others) - - - Dividend received from subsidiaries/others - - - Net cash used in investing activities (B) (3,542.89) (3,047.80) (1,825.06)
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As of March 31, As of March 31, As of March 31, PARTICULARS 2015 2016 2017
C: CASH FLOW FROM FINANCING ACTIVITIES: Share Capital 374.75 413.12 2,011.68 Share Application Money Pending Allottment - 7,400.00 (7,400.00) Share premium 4,225.26 1,756.19 13,148.32 Unsecured Subordinated Bonds 8,500.00 16,200.00 11,103.00 Dividend paid including dividend tax (2,192.20) (3,745.15) - Interest paid / payable on unsecured subordinated bonds (3,881.76) (4,515.49) (7,086.63) Net cash from financing activities (C) 7,026.04 17,508.68 11,776.37 - -
Net increase in cash & cash equivalents (A)+(B)+(C) 88,242.22 53,840.36 (39,832.10)
I. Balances at the Beginning of the Year: Cash and Balances with R.B.I 127,119.92 119,745.38 133,385.57 Balances with Banks and Money at Call 22,951.34 118,568.10 158,768.27 150,071.26 238,313.48 292,153.84 II. Balances at the end of the Year: Cash and Balances with R.B.I 119,745.38 133,385.57 131,089.48 Balances with Banks and Money at Call 118,568.10 158,768.27 121,232.26 238,313.48 292,153.84 252,321.74 III. TOTAL CASH FLOW DURING THE YEAR 88,242.22 53,840.36 (39,832.10)
*For the FY 2014-15 Provision for Restructured Advances is grouped under Provision for Standard advances.
SUMMARY OF CONSOLIDATED BALANCE SHEET STATEMENT (₹ in million) March 31, 2015 March 31, 2016 March 31, 2017 CAPITAL AND LIABILITIES Capital 6,620.59 7,033.72 9,045.39 Reserves & Surplus 136,441.77 137,503.12 148,096.20 Deposits 2,553,800.60 2,617,262.37 2,605,479.49 Borrowings 265,029.85 255,012.01 174,755.24 Other Liabilities & Provisions 81,853.47 76,522.28 68,527.43 TOTAL 3,043,746.28 3,093,333.49 3,005,903.76
ASSETS Cash and Balances with Reserve Bank of India 119,745.38 133,385.57 131,089.48 Balances with Banks Money at call & short notice 118,568.10 158,768.27 121,232.26 Investments 705,790.75 699,875.36 669,824.32 Advances 2,027,198.17 2,013,684.90 1,996,693.53 Fixed Assets 16,084.20 24,069.65 24,541.01 Other Assets 56,359.68 63,549.74 62,523.17 TOTAL 3,043,746.283 3,093,333.49 3,005,903.76
SUMMARY OF CONSOLIDATED PROFIT AND LOSS STATEMENT (₹ in million) March 31, 2015 March 31, 2016 March 31, 2017 INCOME Interest earned 216,151.62 231,977.80 230,037.87 Share of Earnings/loss in Associates 1,395.62 1,242.61 1,555.90
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March 31, 2015 March 31, 2016 March 31, 2017 Other Income 21,098.49 25,093.66 34,578.61 TOTAL 238,645.73 258,314.07 266,172.38 EXPENDITURE Interest expended 160,942.46 172,124.04 167,270.69 Operating Expenses 36,211.34 52,404.67 54,970.35 Provisions & contingencies 24,851.17 48,957.79 38,756.82 TOTAL 222,004.97 273,486.50 260,997.86 PROFIT/LOSS 16,640.76 (15,172.43) 5,174.52 Net Profit for the Year Add: Profit Brought forward from previous Year - - Add: Drawings from Investment Reserve - - TOTAL APPROPRIATIONS Transfer to Statutory Reserve 3,807.33 - 897.37 Transfer to Capital Reserve 20.00 481.53 963.70 Transfer to Revenue Reserve 6,414.62 (15,653.96) 1,585.03 Transfer to Special Reserve 2,650.00 - 1,728.42 Transfer to Investment Reserve - - - Proposed dividend (PNCPS) - - - Proposed dividend (Equity) 3,111.70 - - Tax on Dividend 637.11 - - Interim Dividend & Tax on Interim Dividend Addl Dividend Distribution Tax (FY 2014-15) Balance carried over to Balance Sheet TOTAL
SUMMARY OF CONSOLIDATED CASH FLOW STATEMENT (₹ in million)
PARTICULARS As of March 31, As of March 31, As of March 31, 2015 2016 2017 A: CASH FLOW FROM OPERATING ACTIVITIES: Net Profit/(loss) excluding Share of earnings from Associates (RRBs) 15,245.14 (16,415.04) 3,618.62 Add: Tax provision 4,737.92 6,229.17 2,944.11 Profit/(Loss) before taxes 19,983.06 (10,185.87) 6,562.72 Adjustments for: Depreciation on fixed assets 1,865.86 1,993.03 1,373.27 Change in the Share of Earnings from Associates (RRBs) - - 1,262.61 1,513.63 Depreciation on investments (including on Matured debentures) (161.01) 2,246.84 1,756.96 Bad debts written-off/Provision in respect of NPA/ Restructured assets* 16,638.12 33,808.41 35,151.03 Provision for Standard Assets* 536.35 4,098.02 (1,900.44) Provision for Other items (Net) 3,099.80 2,575.37 805.17 (Profit)/loss on sale of fixed assets (Net) 1.07 8.26 0.26 Payment/provision for interest on subordinated debt (treated separately) 3,881.76 4,515.49 7,086.63 Adjustment for Unrealised Foreign Exchange Fluctuation Reserve (491.42) 115.13 (307.32)
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PARTICULARS As of March 31, As of March 31, As of March 31, 2015 2016 2017 Dividend received from subsidiaries/others (treated separately) - - - Sub Total 45,353.59 40,437.26 52,041.91
Adjustments for: (Increase)/Decrease in investments (1,37,841.86) 3,668.56 28,294.09 (Increase)/Decrease in advances (3,05,248.56) (20,295.13) (18,159.65) (increase)/Decrease in other assets (3,285.11) (5,998.31) 6,884.28
Increase/(Decrease)in borrowings 64,284.72 (26,217.84) (91,359.77) Increase/(Decrease) in deposits 430,431.05 63,461.77 (11,782.87) Increase/(Decrease) in other liabilities and provisions (1,624.76) (8,429.56) (7,519.19) Direct taxes paid (Net of Refund) (7,310.00) (7,247.12) (8,182.20) Net cash from operating activities (A) 84,759.08 39,379.61 (49,783.41) - - B. CASH FLOW FROM INVESTING ACTIVITIES - - Purchase/ Transfer in of fixed assets (3,542.90) (3,047.93) (1,825.06) Sales/ Transfer out of fixed assets - - - Changes in Trade related investments (Subsidiaries & others) - - - Dividend received from subsidiaries/others - - - Net cash used in investing activities (B) (3,542.90) (3,047.93) (1,825.06)
C: CASH FLOW FROM FINANCING ACTIVITIES: Share Capital 374.75 413.12 2,011.68 Share Application Money Pending Allottment - 7,400.00 (7,400.00) Share premium 4,225.25 1,756.19 13,148.32 Unsecured Subordinated Bonds 8,500.00 16,200.00 11,103.00 Dividend paid including dividend tax (2,192.20) (3,745.15) - Interest paid / payable on unsecured subordinated bonds (3,881.76) (4,515.49) (7,086.63) Net cash from financing activities (C) 7,026.04 17,508.68 11,776.37 - - Net increase in cash & cash equivalents (A)+(B)+(C) 88,242.22 53,840.36 (39,832.10)
I. Balances at the Beginning of the Year: Cash and Balances with R.B.I 127,119.92 119,745.38 133,385.57 Balances with Banks and Money at Call 22,951.34 118,568.10 158,768.27 150,071.26 238,313.48 292,153.84 II. Balances at the end of the Year: Cash and Balances with R.B.I 119,745.38 133,385.57 131,089.48 Balances with Banks and Money at Call 118,568.10 158,768.27 121,232.26 238,313.48 292,153.84 252,321.74
III. TOTAL CASH FLOW DURING THE YEAR 88,242.22 53,840.36 (39,832.10) *For the FY 2014-15 Provision for Restructured Advances is grouped under Provision for Standard advances.
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MARKET PRICE INFORMATION
As of the date of this Preliminary Placement Document, 90,45,39,438 Equity Shares of our Bank are issued, subscribed and fully paid up.
The Equity Shares are listed on the Stock Exchanges. The closing price of the Equity Shares on BSE and NSE on December 11, 2017 was 86.15 and 86.10 per Equity Share, respectively.
As the Equity Shares are traded on NSE and BSE, the stock market data has been given separately for each of these stock exchanges. The following tables set forth, for the period indicated, the reported high, low and average of closing market prices of the Equity Shares on NSE and BSE and the number of Equity Shares traded on the days such high and low prices were recorded, for the Fiscal Years 2017, 2016 and 2015.
NSE
Fiscal High Date No of Volu Low Date No of Volu Average Total Total Year/ (1) of Equit me (1) of Equit me price Numbe Volume Period (Rs) high y on (Rs) low y on for the r of Share date Share date year/per of Equity s of s of iod* Equity Shares trade high trade low (Rs) Shares traded d on (Rs d on (Rs traded in the date in date in in year/pe of milli of milli the riod high on) low on) year/pe (Rs riod in million) 20 Oct 77.60 Octo 6,206, 483.0 59.8 Decem 881,44 53.10 67.73 270,839, 18,758. 17 17, ber 698 2 0 ber 26, 1 527 93 2016( 24, 2016 2) - 2016 Marc h 31, 2017 May 80.75 July 5,527, 448.5 60.1 May 2,660, 160.4 72.89 377,531, 27,446. 13, 15, 733 2 0 24, 043 5 693 47 2016 2016 2016 (3) - Oct 16, 2016( 2) April 71.30 May 1,603, 113.7 65.8 May 5, 2,374, 157.1 69.41 40,458,6 2,814.8 21, 10, 472 2 0 2016 413 2 23 0 2016( 2016 4) - May 12, 2016( 3) April 71.25 April 3,449, 240.1 65.9 April 2,233, 148.5 68.00 25,808,5 1,763.3 01, 1, 068 2 5 7, 911 2 17 0 2016 2016 2016 - April 20, 2016( 4) 20 April 116.8 June 779,84 91.32 50.0 Februa 2,855, 144.7 88.20 529,523, 45,091. 16 10, 5 1, 3 0 ry 25, 446 4 477 94 2015( 2015 2016 5)- Marc h 31, 2016
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April 105.8 April 2,246, 236.1 101. April 1,116, 114.0 103.24 7,685,95 794.59 1, 0 9, 126 7 95 6, 660 9 3 2015- 2015 2015 April 9, 2015( 5) 20 April 176.1 July 4,841, 851.2 94.4 April 1,609, 152.6 126.85 718,976, 94,356. 15 1, 5 3, 028 0 0 1, 018 8 771 19 2014- 2014 2014 Marc h 31, 2015 (Source: www.nseindia.com)
Notes: * Average of the daily closing price (1) High and low prices in the above table are of the daily closing prices. (2) Allotment of 106,039,901Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from October 17, 2016 (3) Allotment of 95,127,908 Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from May 13, 2016 (4) ) Allotment of 41,312,457Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from April 21, 2016 (5) Allotment of 37,474,541 Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from April 10, 2015
BSE
Fiscal Hig Dat No Volu Lo Date No Volu Average Total Total Year/ h e of of me w of of me price Numbe Volume Period (1) high Equi on (1) low Equi on for the r of (Rs) ty date (Rs ty date year/per of Equity Shar of ) Shar of iod* Equity Shares es high es low (Rs) Shares traded trad (Rs trad (Rs traded in the ed in ed in in year/pe on milli on milli the riod date on) date on) year/pe (Rs of of riod in high low million) 20 Oct 77.7 Octo 287,1 22.40 59.8 Dece 77,02 4.65 67.76 24,838,9 1,772.50 17 14, 0 ber 31 0 mber 9 97 2016 24, 26, (2)- 2016 2016 Marc h 31, 2017 May July 509,9 41.37 60.0 May 260,0 15.67 72.97 37,647,4 2,728.20 16, 15, 43 5 24, 93 78 2016 2016 2016 (3)- 80.6 Oct 5 13, 2016( 2) April May 105,3 7.47 65.8 May 160,3 10.63 69.16 4,040,46 280.32 20, 10, 01 5 5, 14 2 2016 2016 2016 (4)- 71.2 May 5 15, 2016( 3)
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April 71.2 April 340,9 23.77 66.0 April 281,5 18.73 67.98 2,535,26 173.35 01, 5 1, 84 0 7, 85 1 2016 2016 2016 - April 19, 2016( 3) 20 April 116. May 437,4 51.16 50.0 Februa 270,2 13.72 88.20 68,509,0 5,903.42 16 10, 75 29, 96 5 ry 25, 95 44 2015( 2015 2016 5)- Marc h 31, 2016 April 105. April 278,5 29.32 102. April 146,8 15.01 103.27 1,022,46 105.75 1, 85 9, 66 05 6, 74 5 2015- 2015 2015 April 9, 2015( 5) 20 April 175. July 133, 23.42 94. April 230, 21.86 126.84 87,086, 11,395. 15 1, 80 3, 691 25 1, 037 025 04 2014- 201 2014 Marc 4 h 31, 2015 (Source: www.bseindia.com)
Notes: * Average of the daily closing price (1) High and low prices in the above table are of the daily closing prices. (2) Allotment of 106,039,901Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from October 14, 2016 (3) Allotment of 95,127,908 Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from May 16, 2016 (4) ) Allotment of 41,312,457Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from April 20, 2016 (5) Allotment of 37,474,541 Equity Shares as Preferential Allotment; which commenced trading on Stock Exchange from April 10, 2015
The following tables set forth, for the period indicated, the reported high, low and average market prices of the Equity Shares traded and the total trading volume on the dates on which such high and low prices were recorded and the average closing prices of the Equity Shares, on the NSE and the BSE during the last six months preceding the date of filing of this Preliminary Placement Document:
NSE
Month, High Date of No of Total Low Date of No of Total Averag year (Rs) high Equity volume (Rs) low Equity volume e Shares traded Shares traded price traded on on traded on date for the date of date of on of low month* high high date of (Rs in (Rs) (Rs in low million million ) ) November 94.5 Novembe 12,457,21 1174.78 83.9 Novembe 2,734,21 231.90 88.78 , 2017 0 r 24, 1 5 r 15, 6 2017 2017 October, 84.9 October 32,392,70 2,699.8 62.4 October 1,067,23 66.80 70.33 2017 0 25, 2017 7 9 0 3, 2017 6
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Septembe 70.3 Septembe 2,542,497 178.48 62.3 Septembe 1,078,76 67.59 65.57 r, 5 r 20, 0 r 29, 6 2017 2017 2017 August, 73.0 August 1, 2,272,650 166.73 62.4 August 2,720,05 169.91 66.38 2017 5 2017 0 11, 2017 6 July, 2017 78.7 July 10, 842,724 66.27 72.9 July 4, 1,937,74 141.87 76.39 0 2017 5 2017 6 June, 81.3 June 6, 5,754,543 469.46 72.5 June 28, 4,153,40 300.24 77.88 2017 5 2017 0 2017 0 (Source: www.nseindia.com)
Notes: * Average of the daily closing price
BSE
Month, High Date of No of Total Low Date of No of Total Averag year (Rs) high Equity volume (Rs) low Equity volume e Shares traded Shares traded price traded on traded on date for the on date of on of low month* date of high date of (Rs in (Rs) high (Rs in low million million ) ) November 94.5 Novembe 1,210,42 114.11 84.0 Novembe 252,15 21.32 88.72 , 2017 0 r 24, 2017 7 0 r 15, 2017 0 October, 84.8 October 3,862,85 322.86 62.6 October 80,270 5.02 70.34 2017 0 25, 2017 0 0 3, 2017 September 70.4 Septembe 224,681 15.77 62.5 Septembe 179,26 11.25 65.64 , 5 r 20, 2017 5 r 29, 2017 0 2017 August, 73.0 August 1, 227,534 16.70 62.6 August 282,12 17.64 66.44 2017 0 2017 0 11, 2017 2 July, 2017 78.8 July 10, 511,893 40.14 72.9 July 4, 200,36 14.69 76.35 0 2017 0 2017 4 June, 2017 81.4 June 6, 574,518 46.88 72.5 June 28, 266,50 19.27 77.87 5 2017 5 2017 0 (Source: www.bseindia.com) Notes: * Average of the daily closing price
The following table set forth the details of the number of Equity Shares traded and the turnover during the last six months and the Financial Years ended March 31, 2017, 2016 and 2015 on the Stock Exchanges:
Period Number of Equity Shares Traded Turnover (In Rs million) BSE NSE BSE NSE Year ended March 69,062,198 714,638,360 4,904.37 50,783.51 31, 2017 Year ended March 69,531,509 537,209,430 6,009.18 45,886.53 31, 2016 Year ended March 87,086,025 718,976,771 11,395.04 94,356.19 31, 2015 November, 2017 14,856,702 138,722,577 1334.60 12,464.24 October, 2017 11,311,341 116,120,877 887.39 8967.24 September, 2017 3,495,405 36,850,085 232.37 2454.95 August, 2017 4,445,325 50,365,089 301.42 3403.35 July, 2017 7,544,033 65,467,906 578.53 5011.23 June, 2017 7,621,686 85,971,190 599.59 6,740.18 (Source: www.bseindia.com and www.nseindia.com)
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The following table sets forth the market price on the Stock Exchanges on May 30, 2017, the first working day following the approval of our Board:
Date NSE BSE Open High Low Close Open High Low Close Price of the Equity Shares (Rs) 75.90 78.80 74.45 77.85 75.85 78.80 74.50 77.85 Number of Equity Shares Traded 3,629,695 336,908 Volume (Rs in million) 281.26 26.16 Source: www.nseindia.com, www.bseindia.com
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RISK FACTORS
An investment in Equity Shares involves a high degree of risk. You should carefully consider all the information contained in this Preliminary Placement Document, including the risks and uncertainties described below, before making an investment decision. If any of the following risks or any of the other risks and uncertainties discussed in this Preliminary Placement Document actually occur, our business, financial condition and results of operations could suffer, the price of our Equity Shares could decline, and you may lose all or part of your investment. These risks and uncertainties are not the only risks that we face. Additional risks and uncertainties not presently known to us or that we currently believe to be immaterial may also have an adverse effect on our business, results of operations and financial condition.
The financial and other related implications of risks concerned, wherever quantifiable, have been disclosed in the risk factors below. However, there are risk factors the potential effect of which are not quantifiable and therefore no quantification has been provided with respect to such risk factors. In making an investment decision, prospective investors must rely on their own examination of our Bank and the terms of the Issue, including the merits and risks involved.
This Preliminary Placement Document also contains forward-looking statements that involve risks and uncertainties. Our results could differ materially from such forward-looking statements as a result of certain factors including the considerations described below and elsewhere in this Preliminary Placement Document.
Our fiscal year ends on March 31 of each year, and references to a particular fiscal are to the twelve months ended March 31 of that year. Unless otherwise indicated, the financial information included in this section is derived from our audited standalone and consolidated financial statements for Fiscal 2017, 2016 and 2015 and our reviewed standalone financial statements for the six months ended September 30, 2017.
Unless otherwise stated, references to “the Bank” or “our Bank”, are to Syndicate Bank on a standalone basis and references to “we”, “us”, “our”, are to Syndicate Bank and its Subsidiary on a consolidated basis.
Risks Relating to our Business
Inability to effectively manage our asset portfolio or an increase in level our NPAs or provisioning requirements required under applicable RBI regulations could adversely affect our business, financial condition and results of operations.
Due to the present economic conditions in India, financial institutions, including ours, have been experiencing an increase in NPAs. Our Gross NPAs have increased from ₹ 64,423.78 million as of March 31, 2015, representing 3.13% of our gross advances to ₹ 176,093.13 million as of March 31, 2017, representing 8.50% of our gross advances. Further, our net NPAs have increased from₹ 38,436.50 million March 31, 2015, representing 1.90%, of our net advances to ₹ 104,109.83 million as of March 31, 2017, representing 5.21%, of our net advances. As of September 30, 2017, gross NPAs were ₹ 201,766.40 million, representing 9.39% of gross advances as of such date, while net NPAs were ₹ 118,943 million, representing 5.76% of net advances as of such date. The level of NPAs has been increased in recent past and may continue to increase in the future. This increase in our NPAs can be attributed to several factors, including macroeconomic conditions, increased competition, high levels of debt involved in financing of projects, inadequate money supply and significant borrowings by companies in India at relatively high interest rates. Although, our Bank is increasing the efforts to improve collections and to foreclose on existing impaired loans in a timely manner, there cannot be any assurance that we will be successful in our efforts or that the overall quality of our Bank’s loan portfolio will not deteriorate in the future.
While we had already made provisions with respect to 56.37% of our gross NPAs as of March 31, 2017 and 56.21 % of our gross NPAs, as of September 30, 2017, we may need to make further provisions if recoveries with respect to such NPAs do not materialize in time or at all, or if NPA classification or provision requirements change. Our provision coverage ratio for Fiscal 2015, 2016 and 2017, was 66.61%, 53.73% and 56.37%, respectively. The surplus from provisioning under the provision coverage ratio as against the provisioning required under the prudential provisioning norms is required to be segregated into an account termed counter cyclical provisioning buffer. Any significant increase in provisions would materially and adversely impact our Bank’s financial performance.
Any increase in NPAs will reduce the net asset base and increase provisioning requirements as per the directed lending norms of the RBI, thereby adversely affecting our financial condition and results of operations. Stress in
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certain sectors of the economy, which could impact our commercial, corporate and institutional banking customers and result in higher levels of NPAs and restructured assets in the future. In addition, we are required by applicable RBI regulations to extend 40% of our adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher, to certain “priority sectors,” including the agriculture sector, and economic difficulties may affect borrowers in such priority sectors more severely. Such economic downturns experienced in priority sectors would likely have a material and direct adverse effect on our NPA levels.
RBI also issued guidelines to facilitate the resolution of large stressed accounts in June 2016 through the “Scheme for Sustainable Structuring of Stressed Assets” (“S4A”), with the objective of segregating the sustainable debt of the borrower to improve viability and resolve the remaining portion of the debt through conversion into equity/ redeemable cumulative optionally convertible preference shares. This may result in classification of certain of our accounts as S4A thus increasing our provisioning requirements, which could adversely impact our financial performance. Recently, the GoI enacted the Insolvency and Bankruptcy Code, 2016 to address the concerns of lenders and which provides corporate debtors with an exit mechanism. In addition, the Banking Regulation (Amendment) Act, 2017, provides that the Central Government may by order authorize the RBI to issue directions to banking companies to initiate insolvency proceedings under the IBC. See, “Regulations and Policies” on page 174. Further, the RBI may issue directions to banking companies for the resolution of stressed assets. However, there can be no assurance that these regulatory measures implemented by the GoI and the RBI will have an encouraging impact on our efforts to recover NPAs. Any failure to recover the expected value of collateral would expose us to potential loss.
There can be no assurance that the proportion of NPAs that we will be able to recover will be similar to our past experience of recoveries of NPAs. Our retail loan portfolio has grown over the years, but there is limited data on historical loss ratios in retail loans, especially in the event of adverse macroeconomic factors. Furthermore, the impact of global and Indian economic conditions on equity and debt markets may also lead to an increase in the level of NPAs in our corporate loan portfolio and may require increased provisioning. If we are not able to adequately control or reduce the level of non-performing assets and in event of any future increases in provisions mandated by the RBI or other regulatory changes could lead to an adverse impact on our business, future financial performance and the trading price of the Equity Shares.
We may be unable to foreclose on collateral in a timely manner when borrowers default on their obligations to us or the value of collateral may decrease, which may result in failure to recover the expected value of collateral security
Majority of our loans are secured by collateral, which consists of liens on inventory, receivables and other current assets, and in some cases, charges on fixed assets, such as property, movable assets (such as vehicles) and financial assets (such as marketable securities). Our loans to corporate customers also include working capital credit facilities that are typically secured by a first charge on inventory, receivables and other current assets. In some cases, we may have taken further security of a first or second charge on fixed assets and a pledge of financial assets including marketable securities, corporate guarantees and personal guarantees. Although our loans are typically adequately collateralized, an economic downturn could result in a fall in the values of relevant collateral. If we are unable to foreclose on our collateral or realize adequate value, our losses will increase and our net profits will decline.
The RBI has set forth guidelines on Corporate Debt Restructuring (CDR) via the corporate debt restructuring cell. The guidelines envisage that for debt amounts of ₹ 100 million and above, 50% of the creditors by number, in addition to 60% of creditors by value, can decide to restructure the debt and such a decision would be binding on the remaining creditors. In situations where we own 25% or less of the debt of a borrower, we could be forced to agree to an extended restructuring of debt, instead of foreclosure of security or a one-time settlement, which has generally been our practice.
The SARFAESI Act, the Debt-Recovery Tribunal Act, 1993, Insolvency and Bankruptcy Code, 2016, RBI’s corporate debt restructuring together with the Banking Regulation (Amendment) Ordinance, 2017 and the guidelines set forth by the RBI on corporate debt restructuring have strengthened the ability of lenders to recover NPAs by granting them greater rights to enforce security and recover amounts owed from secured borrowers. Although the legislation has strengthened the rights of creditors, which may lead to faster realisation of secured assets in the event of default, there can be no assurance that such legislation will have a favourable impact on our efforts to reduce our levels of NPAs and we may not be able to realize the full value of our secured assets, due to, among other things, delays in foreclosure proceedings, defects in the perfection of secured assets, fraudulent transfers by borrowers and decreases in the values of secured assets.
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Significant fraud, system failure or calamities are difficult to detect and deter and could harm our brand and our reputation, or lead to regulatory sanctions or litigation against us.
Our business is highly dependent on our ability to efficiently and reliably process a high volume of transactions across numerous locations and delivery channels. We are therefore dependent on our technology infrastructure for processing such data. Ensuring the security and continuity of our operating systems is of paramount importance. Our systemic and operational controls may not be adequate to prevent adverse impact from frauds, errors, hacking and system failures. A significant system breakdown or failure caused due to intentional or unintentional acts could have an adverse impact on our revenue- generating activities and lead to financial loss. There have been instances of system failures in the past where our branches have been unable to access core banking application and internet banking owing to network issues for significant periods. While we believe we have developed systems and controls in accordance with our business continuity policy including a geographically remote disaster recovery sites at Bengaluru and Mumbai to support critical applications, there can be no assurance that such disaster recovery sites will operate as intended or in a timely manner. In such circumstances, there may be significant disruption to our operations, which could materially and adversely affect our business, financial performance and reputation. Our Bank reports on an individual basis all frauds to RBI. While we have implemented, and continue to implement, measures aimed at detecting and preventing fraud and other misconduct, we may not be able to detect or prevent such fraud or misconduct in a timely fashion, which may harm our reputation and adversely affect our business, results of operations and financial condition.
We have a high concentration of loans to certain customers and sectors and if such sectors experience any sustained difficulties, the quality of our portfolio could be adversely affected and may impact our business and results of operations.
As of March 31, 2015, 2016 and 2017 our total credit exposure (fund and non-fund based) was ₹ 2,750,220.90 million, ₹ 2,779,380.88 million and ₹ 2,700,525.29 million respectively. Our 10 largest borrowers together accounted for 7.07%, 6.06% and 5.98% of our total credit exposure as of those dates, respectively, and our 10 largest borrower groups together accounted for 12.43%, 10.94% and 10.27% of our total credit exposure as of those dates, respectively. As of March 31, 2015, 2016 and 2017, the largest individual borrower accounted for 16.61%, 9.66% and 9.24%, respectively, of our total capital funds. As of March 31, 2015, 2016 and 2017, the largest borrower group accounted for 41.02%, 29.79% and 18.50%, respectively, of our total capital funds.
As of September 30, 2017, our total credit exposure was ₹ 2,851,931.84 million of which the 10 largest borrowers together accounted for 6.45% and the 10 largest borrower groups accounted for 10.59%. The largest individual borrower and largest borrower group accounted for 11.40% and 19%, respectively of our total capital as of September 30, 2017, respectively. As of September 30, 2017, our largest industry concentrations were as follows: infrastructure 13.68%, NBFCs 8.88%, Iron & Steel 3.14%, all engineering 3.12%, construction 2.76% and Petroleum, Coal products and Nuclear Fuels 2.70% of the total advances. Credit losses on these large single borrower and group exposures and any significant difficulty in a particular sector or industry exposes us to increased credit risk and may lead to an increase in the level of our NPAs, which could in turn adversely affect our financial performance and the trading price of the Equity Shares.
We have a large portfolio of government securities that may limit our ability to deploy funds in higher yield investments.
As a result of reserve requirements under applicable laws in India, we are more structurally exposed to Interest Rate Risk than banks in many other jurisdictions. Under applicable RBI regulations, our liabilities are subject to the SLR requirement, which requires that a minimum specified percentage of a Bank’s Net Demand and Term liabilities be invested in approved securities. The SLR requirements are subject to increase by the RBI in order to curb inflation or absorb excess liquidity. The SLR requirement is at 19.50% of the applicable Net Demand and Time liabilities since October 14, 2017.
As of March 31, 2015, 2016 and 2017, SLR Government Securities represented 89.83%, 87.91% and 88.48% of our Domestic Investment Portfolio, respectively and comprised 26.26%, 23.48% and 25.01% of our Demand and Term Liabilities, respectively. We earn interest on such government securities at rates which are far less favorable than those which we typically receive in respect of our retail and corporate loan portfolio, and this adversely impacts our Net Interest Income and net interest margin. In addition, as of March 31, 2017, we had ₹5,705.89 Million Non-performing Non-SLR investments and we had made provision of ₹3,705.52 Million in connection
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therewith. In the event there is a further increase of our Non-¬performing Non-SLR investments along with increased provisioning, our Net Interest Income and net interest margin could be adversely affected.
Our unsecured loan portfolio is not supported by any collateral to ensure repayment of the loan, and any such non-payment these loans increase our provision for credit losses, which would decrease our earnings and adversely affect our financial condition.
Our loan products include unsecured personal loans and credit cards to the retail customer segment, including salaried individuals and self-employed professionals, as well as unsecured loans to small businesses, public sector undertakings individual business proprietors as well as certain corporate groups. In Fiscal 2015, 2016 and 2017, our unsecured advances outstanding were ₹ 238,709.22 million, ₹ 234,623.14 million and ₹ 308,482.81 million, respectively, which represented 11.78%, 11.65% and 15.45% of our net advances in those periods, respectively. Our unsecured loans are subject to greater credit risk than our secured loan portfolio because they may not be supported by realizable collateral. Although we typically obtain direct debit instructions or post-dated cheques from our customers for our unsecured loan products, we may be unable to collect in part or at all in the event of non-payment by a borrower. Further, any expansion in our unsecured loan portfolio could require us to increase our provision for credit losses, which would decrease our earnings and adversely affect our financial condition.
Our inability to maintain or grow our CASA ratio in accordance with our strategy could have an adverse effect on our business, results of operations and financial condition.
Our aggregate CASA deposits increased at a CAGR of 9.11% from ₹ 637,132.96 million as of March 31, 2015 to ₹ 758,646.87 million as of March 31, 2017, and were at ₹ 756,386.80 million as of September 30, 2017. As of March 31, 2017 and September 30, 2017, the share of CASA deposits was at 29.11% and 26.77%, respectively of the Bank’s total deposits. We intend to grow our CASA ratio, in order to reduce cost of funds and improve our core deposits. We believe that growth can be achieved in our CASA ratio by expanding our client relationships specially with high net worth customers acquisition of salary accounts from corporate customers, growing our multi-channel distribution network (including by adding more branches subject to the conditions laid down by RBI), improving our business mix, introducing new products and improving the service quality and efficiency of our non-branch delivery channels. However, attracting customer deposits in the Indian market is competitive. The interest rates that we must pay to attract customer deposits are determined by numerous factors such as the prevailing interest rate structure, competitive landscape, Indian monetary policy and inflation. We have taken advantage of the recent liberalization of interest rates by the RBI by offering attractive interest rates on our savings products. However, there is no assurance that we can successfully sustain these attractive interest rates, and that we will be successful in growing our CASA base. If we fail to maintain or grow our CASA ratio, our Bank’s liquidity position, financial condition, results of operations and cash flows may be materially and adversely affected.
Any adverse decisions in any of the legal and regulatory proceedings in which we are involved could adversely affect our reputation and financial condition.
There are outstanding legal proceedings involving our Bank which are primarily incidental to our business and operations pending at different levels of adjudication before various courts, tribunals, quasi-judicial authorities and appellate tribunals. Any adverse decision in any of these cases may adversely affect our reputation and financial condition. No assurance can be given as to whether these proceedings will be settled in our favour or against us. If any new developments arise, for example, rulings against us by the appellate courts or tribunals, we may face losses and may have to make provisions in our financial statements, which could increase our expenses and our liabilities. If a claim is determined against us and we are required to pay all or a portion of the disputed amount, it could have an adverse effect on our results of operations and cash flows. Further, there have been certain instances of defaults in payment of statutory dues in the past. Further, we may incur significant expenses and management time in such proceedings and may have to make provisions in our financial statements, which could increase our expenses and liabilities. For further details of these legal proceedings, please refer to chapter titled “Legal Proceedings” on page 221.
Any increase in the level of restructured advance in our portfolio could affect our business and financial performance.
Our standard assets include restructured standard loans. Our gross restructured assets as a proportion of gross advances as of March 31, 2015, 2016 and 2017, were 5.23%, 4.06% and 3.50%, respectively, and as of September 30, 2017 was 2.88%. We restructure assets based on a borrower’s potential to restore its financial health; however,
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there can be no assurance that borrowers will be able to meet their obligations under restructured advances as per regulatory requirements and certain assets classified as restructured may be classified as delinquent.
Pursuant to guidelines issued by the RBI, loans that are restructured (other than due to delays in project implementation under certain conditions and up to specified periods) from April 1, 2015 are required to be classified as non-performing. There also exists an asset classification category of “special mention accounts”, which comprises cases that are not yet restructured or classified as nonperforming but which exhibit early signs of stress, as specified through various parameters. Banks in India are also required to share data with each other on certain categories of special mention accounts, set up joint lenders’ forums and formulate action plans for resolution of these accounts. Failure to do so may result in accelerated provisioning for such cases. The general provision required on restructured standard advance was increased from 4.25% with effect from March 31, 2015, to 5% with effect from April 1, 2016. As of September 30, 2017, we had outstanding restructured accounts of ₹ 61,881 million, with provision for diminution of fair value on this account of ₹ 3,278 million. As a consequence of such provisioning requirements under applicable RBI guidelines, our profitability may also be adversely affected.
Furthermore, the quality of our long-term project finance loan portfolio may be adversely impacted by several factors. Economic and project implementation challenges, in India and internationally, could result in additions to restructured loans and we may not be able to control or reduce the level of restructured loans in our project and corporate finance portfolio. The combination of changes in regulations regarding restructured loans, provisioning, and any substantial increase in the level of restructured assets and the failure of these structured loans to perform as expected could materially adversely affect our business, future financial performance and the trading price of the Equity Shares. There can be no assurance that the debt restructuring criteria approved by us will be adequate or successful and that borrowers will ultimately be able to meet their obligations under restructured loans.
Our results of operations depend to a significant extent on net interest income and any changes in the interest rate could adversely affect our net interest margin, the value of our fixed income portfolio, our treasury income and our financial performance.
Interest rates are highly sensitive to many external factors beyond our control, including growth rates in the economy, inflation, money supply, RBI’s monetary policies, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors. Our results of operations depend to a significant extent on our net interest income and could be adversely impacted by a rise in generally prevailing interest rates on deposits. Net interest margin (based on fortnightly averages) marginally decreased from 2.38% in Fiscal 2015 to 2.37% in Fiscal 2017 and was 2.46% in the six months ended September 30, 2017, while our net interest income, as a percentage of total income, was 23.27%, 23.28% and 23.72% in Fiscal 2015, 2016 and 2017, respectively and 25.81% in the six months ended September 30, 2017. In the event of increase in interest rates, our net interest margin could be adversely affected because the interest paid by us on our deposits could increase at a higher rate than the interest received by us on our advances and other investments. In addition, an increase in interest expense relative to interest income may lead to a reduction in our interest income, which could materially and adversely affect our results of operations.
The interest that we earn on the amounts maintained in fixed income government securities could also have a negative impact on our treasury income because interest earned on this portion of our assets is at rates that are generally far less favorable than those received on our other interest-earning assets. We are also exposed to interest rate risk through our treasury operations. If the yield on our interest-earning assets does not increase at the same time or to the same extent as our cost of funds, or if our cost of funds does not decline at the same time or to the same extent as the decrease in the yield on our interest-earning assets, our net interest income and net interest margin would be adversely impacted. Any systemic decline in low-cost funding available to banks in the form of current and savings account deposits would adversely impact our net interest margin.
Our Bank had incurred a loss in the fiscal year 2016. In the event our net loss continues to increase, it may adversely affect our business and financial condition.
We have made net profit/ (loss) (on standalone basis) of ₹15,229.00 million, ₹(16,435.00) million and ₹ 3,589.00 million for the fiscal year ended March 31, 2015, March 31, 2016 and March 31, 2017, respectively. Further, our bank has incurred a net loss of ₹ 1580.00 million for the period of six-months ended on September 30, 2017 compared to net profit of ₹1616.00 million for the period of six months ended on September 30, 2016. Due to sharp increase of NPA level on the back of Asset Quality Review conducted by RBI, slippages of some bigger corporate accounts and high value of frauds reported during the financial year, our Bank reported net loss of ₹
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16,435.00 million in the fiscal year 2016 as compared to a profit of ₹ 15,229.00 million in fiscal year 2015. Further, the operating profit of our Bank came down to 32,513.00 million for fiscal year 2016 from 40,073.00 million for fiscal years 2015 due to write off of ₹ 8826.48 million on account of major fraud discovered at the 3 branches of the Bank in Jaipur region – Rajasthan. Despite consecutive rate cut announcements by the RBI, market yields persisted at an elevated level, which prevented our Bank from booking profit on its treasury portfolio. In the event of further increase of NPA level, our interest earnings and net profits will be impacted and subsequently, our financial condition would be adversely affected.
We are subject to capital adequacy requirements as stipulated by the RBI and inability to maintain adequate capital due to lack of access to capital markets, or otherwise may impact our ability to grow and support our business.
We are subject to regulations relating to capital adequacy of banks, which determines the minimum amount of capital we must hold as a percentage of the risk-weighted assets on our portfolio, or capital-to-risk weighted asset ratio. The RBI requires banks in India to maintain a minimum Tier I capital adequacy ratio of 8.25% and a minimum risk weighted total capital adequacy ratio of 10.25% as of March 31, 2017 (inclusive of CCB of 1.25%) under the Basel III framework. Any incremental capital requirement may adversely impact our ability to grow our business and may even require us to withdraw from or curtail some of our current business operations.
In accordance with the Basel III norms, as of March 31, 2017, our Tier I and total capital adequacy ratios were 9.26% and 12.03%, respectively. We are exposed to the risk of the RBI increasing the applicable risk weight for different asset classes from time to time. In Fiscal 2016 and 2017, we raised Additional Tier I capital through bond issues of ₹8,700 million and ₹ 19,300 million, respectively. In Fiscal 2015 and 2016, we also raised Tier II capital through bond issuances of ₹ 11,500 million and ₹ 17,500 million. During the Fiscal 2016, we also issued equity share capital to Life Insurance Corporation of India on a preferential basis amounting to ₹ 2,169.32 million. We had a capital injection by the Government of India in Fiscals 2015, 2016 and 2017 through a preferential allotment of Equity Shares of ₹ 4,600 million, ₹ 7,400 million and ₹ 77,60 million (including share premium), respectively. During the six month period ended on September 30, 2017, we have raised capital through issue of Additional Tier I Bonds of ₹ 4,500 million & Tier II bonds of ₹ 5,000 million.
Although we have implemented and follow a policy of maintaining a minimum capital adequacy ratio as stipulated in the Basel III Capital Regulations issued by the RBI, there can be no assurance that we will be able to maintain this ratio in the future. Implementation of Basel III or other such capital adequacy requirements imposed by RBI may result in incurrence of substantial compliance and monitoring costs and any breach of applicable laws and regulations will adversely affect our reputation or our business operations and financial conditions. In addition, Government of India has announced recapitalization plan for public sector banks amounting to ₹ 2,110 billion. However, there can be no assurance that GoI will provide additional capital to the Bank. Moreover, if the Basel Committee on Banking Supervision (the “Basel Committee”) releases additional or more stringent guidance on capital adequacy norms which are given the effect of law in India in the future, we may be required to raise or maintain additional capital in a manner which could materially adversely affect our business, financial condition and results of operations.
A substantial portion of our Bank's branches and total advances are concentrated in southern India and are therefore, dependent on the general economic conditions and activities in this region.
A substantial portion of our Bank's branches, and consequently total advances, are located in southern India. As on October, 31 2017, majority of our branches are located in Southern region (48.49%) followed by Central region (19.93%), Northern region (12.53%), Western region (8.94%), Eastern region (8.71%) and North eastern region (1.40%). As of September 30, 2017, 46.36% of our total advances were generated by the branches located in Southern region. Due to concentration in the Southern region, the success and profitability of our operations may be proportionately exposed to the prevalent regional factors. These factors include, among others: the growth in population, income levels, and deposits; the continued attraction of business ventures to these regions; general economic conditions; laws and regulations in these regions; increased competition; and other developments including political unrest, depreciation of goods, floods and other natural calamities in these regions. Adverse developments in any of the above factors could have a material effect on our business. Any one of these events may require us to close branches, temporarily shut down operations, or lower lending levels, and may result in a material adverse change in our business, financial condition, results of operations and cash flows.
We are required to maintain cash reserve ratios (“CRRs”) and statutory liquidity ratios (“SLRs”). Any increase in these requirements could adversely affect our business.
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Under RBI regulations, we are subject to a CRR requirement. The CRR is a bank’s balance held in an interest- free current account with the RBI calculated as a specified percentage of its net demand and time liabilities, excluding interbank deposits. The CRR currently applicable to banks in India is 4.00%. In addition, under the Banking Regulation Act, all banks operating in India are required to maintain an SLR. The SLR is a specified percentage of a bank’s net demand and time liabilities required to be maintained by way of liquid assets such as cash, gold or approved unencumbered securities. Approved securities consist of unencumbered Government securities and other securities as may be approved from time to time by the RBI and, which earn lower levels of interest as compared to advances to customers or investments made in other securities.
Currently, the RBI requires banks to maintain a SLR of 19.50%. For the fiscal year 2017, majority of Government securities held by us comprised fixed income bonds. In an environment of rising interest rates, the value of Government securities and other fixed income securities may depreciate. Our large portfolio of Government securities may limit our ability to deploy funds into higher yielding investments. Further, a decline in the valuation of our trading book as a result of rising interest rates may adversely affect our financial condition and results of operations. As a result of the statutory requirements imposed on us, we may be more structurally exposed to interest rate risk as compared to banks in other countries. Further, the RBI may increase the CRR and SLR requirements to significantly higher proportions as a monetary policy measure. Any increases in the CRR from the current levels could affect our ability to deploy our funds or make investments, which could in turn have a negative impact on our results of operations. If we are unable to meet the requirements of the RBI, the RBI may impose penal interest or prohibit us from receiving any further fresh deposits, which may have a material adverse effect on our business, financial condition and results of operations.
We lend to borrowers that are engaged in varied sectors. Deterioration in the performance of any of the industry sectors where we have significant exposure may adversely impact our business.
We have credit exposure to corporate borrowers across various sectors, the most significant of which are Infrastructure, NBFC, basic metal and metal products, petroleum coal products and nuclear fuels and food processing. Their fund based outstanding balances represented 13.29%, 9.80%, 4.84%, 2.03% and 1.61%, respectively, of our total outstanding fund based loans as of March 31, 2017. Furthermore, the top five sectors accounted for 31.57% of our outstanding fund based loans as of March 31, 2017. For further information, see “Selected Statistical Information”.
The table below sets out our five largest fund-based sector exposures as of the dates indicated: (₹ in million) Sector As of March 31, 2015 As of March 31, 2016 As of March 31, 2017 % of % of total total % of total Amounts advances Amounts advances Amounts advances Infrastructure 309,514.7 15.04% 297,651.59 14.42% 275,144.3 13.29% NBFC 247,451.2 12.02% 233,749.01 11.32% 202,967.5 9.80% Basic Metal and metal Product 106,271.4 5.16% 96,386.05 4.67% 100,202.2 4.84% Petroleum, Coal Products and Nuclear Fuels 44,105.64 2.14% 35,427.27 1.72% 41,935.1 2.03% Food Processing 23,027.43 1.12% 32,249.24 1.56% 33,396.18 1.61%
We are exposed to risk of significant deterioration in the performance of a particular industry which may be driven by events not within our control. Any significant difficulty in a particular sector or industry, driven by events not within our control, such as regulatory action or policy announcements by government authorities or natural disasters, would adversely impact the ability of borrowers in that industry to service their debt obligations to us. As a result, we could experience increased delinquency risk, which may materially and adversely impact our business, prospects, financial condition and results of operations, and the market price of our Equity Shares.
Our loan portfolio contains significant advances to the agricultural sector and any change in lending rates applicable to this sector may adversely affect our future financial performance.
Our loan portfolio contains advances to the agricultural sector amounting to ₹ 262,054 million, ₹ 298,989 million and ₹ 318,782 million as of March 31, 2015, 2016 and 2017, respectively, which represented 18.49%, 18.45%
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and 18.79%, of our adjusted net bank credit as of March 31, 2015, 2016 and 2017, respectively. Furthermore, advances to the agricultural sector amounted to ₹ 336,524 million which represented 19.80% of our adjusted net bank credit as of September 30, 2017. The GoI’s agricultural lending plans may involve public sector banks, including us, lending at below market rates in the agricultural sector. RBI guidelines stipulate that our agricultural advances should be 18% of adjusted net bank credit or credit equivalent amount of off-balance sheet exposure, whichever is higher. In addition, the market may perceive the exposure of public sector banks to the agricultural sector to involve higher risks. Further, certain State governments have recently waived loans to certain customer segments, such as farmers, which may have an adverse impact on the overall loan recovery climate. This may negatively affect the risk- adjusted returns of public sector banks and may adversely affect our business, future financial performance and the trading price of the Equity Shares. In the event that we are required to further increase our exposure to the agricultural sector pursuant to GoI mandated directed lending, it may adversely affect our future financial performance.
Our financial performance may be materially and adversely affected by an inability to generate and sustain other income.
We earn fee-based income from corporate / wholesale banking and advisory services, which are provided to large and medium-sized companies, and include origination and syndication of loans, structured finance and loan processing fees. Our corporate / wholesale banking activities are generally susceptible to sustained adverse economic conditions in India or abroad. We generated commission, exchange and brokerage income of ₹ 8,827 million, ₹7,414 million and ₹ 7,568 million for the Fiscal years 2015, 2016 and 2017, respectively on consolidated basis.
We also earn fee-based income from our foreign exchange and treasury operations business, which include origination and syndication of debt, and management of foreign currency and interest rate exposure of our corporate and business banking customers. As part of our foreign exchange and treasury operations business, we may from time to time hold assets on our balance sheet which may subject us to market risk and credit risk. There can be no assurance that we will be able to sustain current levels of income from, or effectively manage the risks associated with, these businesses in the future. Further, as part of our growth strategy, we have been diversifying and expanding our product and service offerings to retail customers in order to build a more balanced portfolio. New initiatives, products and services entail a number of risks and challenges, including risks relating to execution, the failure to identify new segments, the inability to attract customers and the inability to make competitive offerings. If we are unable to successfully diversify our products and services while managing the related risks and challenges, returns on such products and services may be less than anticipated, which may materially and adversely affect our business, financial condition and results of operations.
We rely on correspondent banks in other countries to facilitate foreign exchange operations. Any failure to maintain relationships or enter new such relationships with correspondent banks may impact our ability to increase our foreign exchange business.
The Correspondent Banking Department develops and maintains relationships with banks and financial institutions across the world. We have 959 Relationship Management Application (RMA) with 430 banks spread across 100 countries. We have 23 Nostro Accounts with Correspondent banks and 3 with our overseas branch i.e Syndicate Bank London. A correspondent bank may discontinue any of its services, which may negatively affect our customer service operations internationally. There can be no assurance that we will be able to maintain our relationships with the correspondent banks or enter into similar arrangements with new correspondent banks on commercially reasonable terms or at all. In the event that we are unable to maintain arrangements with our correspondent banks for any reason whatsoever, it could adversely affect our business and future financial performance.
The Indian banking industry is very competitive and we face intense competition from banks and financial institutions that are much larger and more geographically diverse than we are.
We operate in a highly competitive industry and face strong competition in all segments of our business from our peers or from competitors larger than us. We compete directly with large government – controlled public sector banks and major private sector banks, which generally have much larger customer and deposit bases, larger branch networks and wider capital bases than we do. Further, a few banks have recently experienced higher growth, achieved better profitability and increased their market shares relative to us. Some of the banks with which we compete may be more flexible and better positioned to take advantage of market opportunities than us.
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Mergers among banks may result in enhanced competitive strengths in pricing and delivery channels for merged entities. For example, the State Bank of India, India's largest public sector bank, merged its five associate banks and Bharatiya Mahila Bank with itself, effective from April 1, 2017. As a result, we may face greater competition from larger banks, which may have greater resources than us as a result of such consolidation. Further liberalization of the Indian financial sector could lead to a greater presence or new entries of Indian and foreign banks, as well as banks promoted by private sector companies, including non-bank financial institutions meeting the RBI’s eligibility criteria. These banks and institutions may offer a wider range of products and services, which could adversely affect our position in the competitive environment. There is no assurance that the RBI will not issue further guidelines in the future to the effect of lowering barriers of entry for the banking industry, which could materially increase competitive pressures on us.
In addition, we compete with other banks operating in India for quality priority sector borrowers, particularly in the agricultural sector. Due to the Government of India’s focus on encouraging banks and other financial institutions to increase lending to the agricultural sector, there is restricted scope for expanding our agricultural loan portfolio to corporate agricultural borrowers or agricultural borrowers with an established credit history. As a result, we are required to target individual farmers with unknown credit histories, which may increase the risk of delinquencies and thus, NPAs. We also compete with non – banking financial institutions in several product categories. These competitive pressures affect the Indian and international banking industry as a whole, including us, and our future success will depend largely on our ability to respond in an effective and timely manner to these competitive pressures.
In addition, we may face attrition and difficulties in hiring at senior management and other levels due to competition from existing Indian and foreign banks, as well as new banks arising from the RBI’s proposal. Due to such intense competition, we may be unable to successfully execute our growth strategy and offer competitive products and services that generate reasonable returns, reduce our currently high operating costs and retain our competitive advantage, which could negatively impact our profit margins and materially and adversely affect our business and financial results.
A significant proportion of our loans have a residual maturity exceeding one year, exposing us to risks associated with economic cycles and project success rates.
The residual maturity of loans exceeding one year represented 60.39%, 68.51% and 66.35%, respectively of our total advances for the period ended March 2015, March 2016 and March 2017. As of September 30, 2017, the same was 62.13% of our total advances. This may expose us to risks arising out of economic cycles in the longer run. In addition, some of these loans are project finance loans. There can be no assurance that these projects will perform as anticipated or that such projects will be able to generate cash flows as estimated to service commitments under the loans.
We are also exposed to infrastructure projects that are still under development and are susceptible to risks arising out of delay in execution, failure of borrowers to execute projects on time, delay in getting approvals from necessary authorities and breach of contractual obligations by counterparties, all of which may adversely impact the projected cash flows. Although we have implemented certain risk analysis and mitigation mechanisms, as well as procedures to monitor our project finance borrowers, these procedures may not be effective, as projects often get delayed due to extraneous factors beyond our control. Risks associated with a recession in the economy and a delay in project implementation or commissioning could lead to rise in delinquency rates and, in turn, adversely impact our future financial performance and the trading price of the Equity Shares.
Our business and financial performance are dependent on maintaining and building a successful branch network.
As part of our growth strategy, we seek to transition from a corporate-commercial relationship-led bank to a bank with a diversified corporate, commercial, business banking and retail portfolio. As a result, we have increased our branch network in India from 3,551 as of March 31, 2015 to 4,005 as of October 31, 2017. The expansion and effectiveness of our retail banking business is dependent on further building our branch network. Further, scheduled commercial banks are permitted to open branches in Tier 2 to Tier 6 centres without permission from the RBI, subject to reporting requirements.
The opening of branches is subject to the delays and risks associated with obtaining suitable real estate in the appropriate locations and setting up relevant infrastructure. Our inability to open branches or a significant delay in opening additional branches, or our inability to optimize the operating performance of existing branches, may
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materially and adversely affect our branch banking business and consequently our business, financial condition and results of operations.
There are operational risks associated with the banking and financial services industry which may have an adverse impact on our business.
Like other financial institutions, we are exposed to various kinds of operational risks, including the risk of fraud or other misconduct by employees or third parties, unauthorized transactions by employees and third parties (including violation of regulations for prevention of corrupt practices, and other regulations governing our business activities), or operational errors, including clerical or record keeping errors or errors resulting from faulty computer or telecommunications systems. The proper functioning of our financial control, risk management, accounting or other data collection and processing systems, together with the communication networks connecting our various branches and offices is critical to our operations and ability to compete effectively. We outsource some functions such as facility management, ATM / card related services and rural outreach to other agencies. Given the high volume of transactions, certain errors may be repeated or compounded before they are discovered and successfully rectified. In addition, our dependence upon automated systems to record and process transactions may further increase the risk that technical system flaws or employee tampering or manipulation of those systems will result in losses that are difficult to detect. We may also be subject to disruptions of our operating systems arising from events that are wholly or partially beyond our control, and to the risk that our (or our vendors’) business continuity and data security systems prove not to be sufficiently adequate. We also face the risk that the design of our controls and procedures may prove inadequate, thereby causing delays in detection or errors in information. Although we maintain a system of controls designed to keep operational risk at appropriate levels, like all banks, we have suffered losses from operational risk in the past and there can be no assurance that we will not suffer similar losses in the future that may be material in amount, or that our reputation could be adversely affected by the occurrence of any such events involving our employees, customers or third parties.
Management of operational, legal or regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events. Although we have established these policies and procedures, these policies may not be fully effective, which could adversely affect our business or result in losses.
Our insurance coverage may not adequately protect us against all losses. To the extent that we suffer loss or damage which is not covered by insurance or exceeds our insurance coverage our financial condition and result of operations could be adversely affected.
Our Bank has obtained insurance coverage in respect of certain risks. We maintain various insurance policies to insure our assets including buildings, furniture, office machinery, electrical fittings, ATMs, etc. In addition, we maintain Group Accident Policy to insure our permanent employees, Third Party Insurance to insure persons other than our staff and Bankers’ Indemnity Policy to insure cash holding, cash in transit and cash at ATM. While we believe that the insurance coverage we maintain would be reasonably adequate to cover all normal risks associated with the operation of our business, there can be no assurance that any claim under the insurance policies maintained by us will be honoured fully, in part or on time, nor have we taken out sufficient insurance to cover all material losses. In addition, there can be no assurance that the coverage will be available in sufficient amounts to cover one or more large claims. To the extent that we suffer loss or damage for which we do not obtain or maintain insurance or exceeds our insurance coverage, the loss would have to be borne by us and our results of operations and financial performance could be adversely affected.
We may not be successful in implementing our growth strategies or penetrating new markets.
Our principal business strategies include further diversification and expansion of our customer base, expansion of our network, improving our retail lending portfolio of products and services. In order to achieve our principal business strategies, we have initiated various growth strategies, including advanced technology initiatives, targeting new customer segments, focusing on capital optimization and operational efficiencies. These strategies expose us to a number of risks and challenges, including, among others, the following:
growth requires greater marketing and compliance costs than experienced in the past, diverting operational, financial and managerial resources away from existing businesses; growth plans may not develop and materialize as we anticipate and there can be no assurance that new product or service lines will be profitable;
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we may fail to identify appropriate opportunities and offer suitable products in a timely fashion putting the businesses at a disadvantage as compared to the competitors; compliance with new market standards and unfamiliar regulations will place new demands upon management and create new and possibly unforeseen risks to us; we need to hire or retrain skilled personnel who are able to supervise and conduct the relevant new business activities, will add to our cost base; and competitors in different business segments that we operate in may have more experience and resources than us which may affect our ability to compete.
In addition, if our existing customers and targeted customers are not receptive to any changes to our brand identity or promotional activities, our business and results of operations could be adversely affected. In addition, our growth strategy in the future may involve strategic acquisitions and reconstructions, partnerships, joint ventures and exploration of mutual interests with other parties. These acquisitions and investments may not necessarily contribute to business growth and our profitability, or may be unsuccessful. In addition, we could experience difficulty in assimilating personnel, integrating operations and cultures and may not realize the anticipated synergies or efficiencies from such transactions. These difficulties could disrupt our ongoing business and increase expenses.
Any increase in or realization of our contingent liabilities could have a material adverse effect on our business, financial condition, results of operations and prospects.
As of March 31, 2017 we had contingent liabilities of ₹ 932,787.19 million. The table below sets forth certain information on our contingent liabilities as of March 31, 2017:
Particulars (₹ in million) Claims against us not acknowledged as debts 1,438.19 Liability for partly paid investments 210.81 Liability on account of outstanding forward exchange contracts 584,351.45 Guarantees given on behalf of constituents 162,949.56 Acceptances, endorsements and other obligations 57,050.60 Other items for which we are contingently liable 77.91 Capital contracts remaining to be executed 126,708.67 Total 932,787.19
For details, see “Management‘s Discussion and Analysis of Financial Condition and Results of Operations” on page 70. There can be no assurance that we will not incur similar or increased levels of contingent liabilities in the current fiscal or in the future. In the event that any of our contingent liabilities were to be recognized on our financial statements, they could have a material adverse effect on our business, financial condition and results of operations.
We rely on third-party service providers who may not perform their obligations satisfactorily or in compliance with law.
We enter into outsourcing arrangements with third party vendors, separate employees and independent contractors, in compliance with the RBI guidelines on outsourcing. These vendors, employees and contractors provide services that include, among others, ATM /card related services, business correspondents, facility management services related to information technology, software services and call centers. As a result of outsourcing such services, we are exposed to various risks including strategic, compliance, operational, legal and contractual risks. Any failure by a service provider to provide a specified service or a breach in security / confidentiality or non-compliance with legal and regulatory requirements, may result in financial loss or loss of reputation. We cannot guarantee that there will be no disruptions in the provision of such services or that these third parties will adhere to their contractual obligation. If there is a disruption in the third-party services, or if the third-party service providers discontinue their service agreement with us, our business, financial condition and results of operations will be adversely affected. In case of any dispute, the terms of such agreements may be breached, which could result in litigation costs. Such additional cost, in addition to the cost of entering into agreements with third parties in the same industry, may materially and adversely affect our business, financial condition and results of operations. The “Guidelines on Managing Risks and Code of Conduct in Outsourcing of Financial Services by Bank” issued by the RBI places obligations on banks, its directors and senior management for ultimate responsibility for the outsourced activity. Banks are required to provide prior approval for use of subcontractors by outsourced vendor and to review the subcontracting arrangements and ensure that such arrangements are compliant with aforementioned RBI guidelines. Legal risks, including actions being undertaken
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by the RBI, if our third-party service providers act unethically or unlawfully, could materially and adversely affect our business, financial condition and results of operations.
Non – compliance of the Anti-Money Laundering (“AML”) and Know Your Customer (“KYC”) guidelines or detection of any other improper activities on a timely basis or at all could expose us to additional liability and harm our business and reputation
We are required to comply with applicable AML guidelines and the prescribed KYC procedures in India. While we have adopted policies and procedures aimed at collecting and maintaining all AML and KYC related information from our customers in order to detect and prevent the use of our banking networks for illegal money – laundering activities, we run the risk of failing to comply with the prescribed procedures and the consequent risk of fraud and money laundering by dishonest customers and assessment of penalties and/or imposition of sanctions against us for such compliance failures despite having implemented systems and controls designed to prevent the occurrence of these risks.
For example, on July 27, 2016, RBI had imposed a penalty of ₹30 million, on us for non – adherence with certain KYC guidelines with respect to customer identification, non-adherence of periodical risk categorization and monitoring of transactions. For further details, see “Legal Proceedings” on page 221.
Although we believe that we have adequate internal policies, processes and controls in place to prevent and detect any AML activity and ensure KYC compliance, there can be no assurance that we will be able to fully control instances of any potential or attempted violation by other parties and may accordingly be subject to regulatory actions including imposition of fines and other penalties by the relevant government agencies to whom we report. Further, our business and reputation could suffer if any such parties use or attempt to use our Bank for money – laundering or illegal or improper purposes and such attempts are not detected or reported to the appropriate authorities in compliance with applicable legal requirements.
Our funding is primarily short-term and if depositors do not roll over deposited funds upon maturity our business could be adversely affected.
The maturity profile of our assets and liabilities shows a negative liquidity gap in the period exceeding six months as of March 31, 2017. The negative gap occurs primarily due to our deposits and other liabilities, which are of shorter average maturity than our loans and investments. Most of our incremental funding requirements are met through short-term/ medium- term funding sources, primarily in the form of deposits. However, a large portion of our assets have medium or long-term maturities, creating potential funding mismatches. As of March 31, 2015, 2016 and 2017, 52.54%, 49.57% and 45.62% of our total deposits, respectively, had maturities of up to one year, and as of September 30, 2017, 49.42% of our total deposits had maturities of up to one year. If a substantial number of our depositors do not roll-over deposited funds upon maturity, our liquidity position could be adversely affected. The failure to obtain roll-over of customer deposits upon maturity or to replace them with fresh deposits could have a material adverse effect on our business, future financial performance and the trading price of the Equity Shares.
Our risk management policies and procedures may not adequately address unanticipated risks. Inability to develop and implement effective risk management policies may adversely affect our business, financial condition and results of operations.
We have devoted significant resources to develop our risk management policies and procedures and expect to continue to do so in the future. Despite this, our policies and procedures to identify, monitor and manage risks may not be fully effective in capturing unexpected events in future. Some of our methods of managing risk are based upon the use of observed historical market behavior. As a result, these methods may not accurately predict future risk exposures which could be significantly greater than indicated by historical measures. Management of operations, legal and regulatory risk requires, among other things, policies and procedures to properly record and verify a large number of transactions and events, and these policies and procedures may not be fully effective. As we seek to expand the scope of our operations, we also face the risk that we may be unable to develop risk management policies and procedures that are properly designed for those new business areas or to manage the risks associated with the growth of our existing businesses. Implementation and monitoring may prove particularly challenging with respect to businesses that we plan on developing. Inability to develop and implement effective risk management procedures may adversely affect our business, prospects, financial condition and results of operation.
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Our success will also depend, in part, on our ability to respond to new technological advances and emerging banking, capital market and other financial services industry standards and practices on a cost-effective and timely basis. The development and implementation of such technology entails significant technical and business risks. There can be no assurance that we will successfully implement new technologies or adapt our transaction processing systems to customer requirements or improving market standards.
We may breach third party intellectual property rights or be required to initiate claims against others infringing our intellectual property rights which may adversely affect our goodwill and business.
Our logo “ ” and brand name “Syndicate Bank” that we use along with our logo and other taglines which we use for offering our services, are not registered with the Trademarks Registry and nor have we made an application registering the same. Therefore, we do not enjoy the statutory protections that are accorded to a registered trademark. There can be no assurance that we will be able to register additional trademarks and logos or that third parties will not infringe on our intellectual property, causing damage to our business prospects, reputation and goodwill. Further, we may be subject to claims by third parties, both inside and outside India, if we breach their intellectual property rights by using slogans, names, designs, software or other such subjects, which are of a similar nature to the intellectual property these third parties may have registered. Further, we may need to litigate to protect our intellectual property or to defend against third party infringement. Any such litigation could be time consuming and costly and the outcome cannot be guaranteed. We may also not be able to detect any unauthorised use or take appropriate and timely steps to enforce or protect our intellectual property. Any inability to use or protect our intellectual property could affect our relationships with our customers, which could materially and adversely affect our goodwill and business.
The effects of the demonetization measures undertaken by the GoI are uncertain, and may adversely affect our business, financial condition and results of operations.
Pursuant to notifications dated November 8, 2016 issued by the GoI and the RBI and other circulars and clarifications issued thereafter by the GoI and the RBI (together, the “Demonetization Circulars”), the GoI declared the then existing currency notes of denominations of ₹ 500 and ₹ 1,000 as having ceased to be legal tender with effect from November 9, 2016. The Demonetization Circulars have laid down the manner of implementation of the demonetization policy of the GoI, including amongst others, restrictions on use of the demonetized currency, deadlines for exchange and deposit of the demonetized currency with banks, introduction of new currency notes in the system and limits on withdrawal of cash from bank branches and ATMs.
Post demonetization, there has been a surge in the CASA deposits of banks. The share of CASA deposits of banks to their aggregate deposits has increased, which resulted in reduction in the cost of aggregate deposits, and banks have correspondingly lowered their term deposit rates. As a result, we may face increased competition from commercial banks and other lending institutions. Increased competition may have an adverse effect on net interest margin and other income and if we are unable to compete successfully and our profitability may decline.
Our ability to pay dividends in the future will depend upon applicable RBI regulations and our future earnings, financial condition, cash flows, working capital requirements and capital expenditures.
Our ability to pay dividends in the future will depend on our earnings, financial condition and capital requirements. Dividends distributed by us will attract dividend distribution tax at rates applicable from time to time. We cannot assure investors that we will generate sufficient income to cover our operating expenses and pay dividends to our shareholders, or at all. In addition, dividends that we have paid in the past may not be reflective of the dividends that we may pay in a future period. Our future dividend policy will depend on our revenues, profits, cash flow, financial condition, capital requirements and other factors. For further information, see “Dividend Policy” and “Regulations and Policies”.
As our majority shareholder, the GoI controls us and may cause us to take actions which are not in or interest or in the interest of the holders of the Equity Shares.
As of September 30, 2017, the GoI held 72.92% of our equity share capital. The GoI, in consultation with the RBI, has the power to appoint our Board of Directors, which determines the outcome of the actions relating to the general direction of our business, including payment of dividends. Furthermore, the GoI may also issue directives on matters of policy involving the public interest that may affect our business operations. We are also required to obtain approval from the GoI for any alteration in capital structure. In addition, given the importance of banking
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industry to the economy, the GoI could require us to take actions designed to serve public policy interests in India and not necessarily the interests of our other shareholders.
The legal requirement that the GoI maintain a majority shareholding interest in us of at least 51% may limit our ability to raise appropriate levels of capital financing.
Under applicable regulations, the GoI’s shareholding in our issued capital consisting of equity shares must be at least 51%. In addition, the GoI has infused further capital in us by way of preferential allotment of Equity Shares in favour of the GoI from time to time. These requirements could result in restrictions in our equity capital raising efforts as the GoI may not be able to fund any further investments that would allow us to maintain its stake at a minimum of prescribed limit while simultaneously seek funding from the capital markets. Also, the GoI has recently adopted new criteria whereby banks meeting the specified performance criteria will be eligible to receive additional capital for their equity from the GoI. As the Indian economy grows, more businesses and individuals will require capital financing. In order to meet and sustain increasing levels of growth in capital demand, we will need to accrete our capital base, whether through organic growth or, more likely, capital market financing schemes. If we are unable to grow our capital base in line with demand, our business, financial prospects and profitability may be materially and adversely affected.
We face restrictions on lending to large borrowers, which may have a material adverse effect on our business, financial condition and results of operations.
In August 2016, the RBI released the Guidelines on Enhancing Credit Supply for Large Borrowers through Market Mechanism. It was stated that corporate loans beyond the limit determined for a borrower, as per the guidelines, would attract additional provisions and higher capital. Further, the RBI has also aligned its limits on single and group borrowers to the Basel III standards.
From April 2019, our limits for single and group borrowers will be 20.00% and 25.00% of our Tier 1 capital funds as against the current norm of 15.00% and 40.00% of the total capital funds. These limits may be subjected to further changes and revisions in future. In addition, the RBI has also issued guidelines on enhancing credit supply for large exposures through market mechanism, which is effective from April 1, 2017. As per the guidelines, from Fiscal 2018, incremental exposure of the banking system to a specified borrower beyond the Normally Permitted Lending Limit shall be deemed to carry higher risks which needs be recognised by way of additional provisioning and higher risk weights. These new regulations may have a material adverse effect on our business, financial condition and results of operations.
Deficiencies in the accuracy and completeness of information about our customers and counterparties may adversely impact us.
In deciding whether to extend credit or to enter into other transactions with customers and counterparties, we may rely on information furnished to us by or on behalf of customers and counterparties, including financial statements and other financial information. We may also rely on certain representations as to the accuracy and completeness of that information and, with respect to financial statements, on reports of independent auditors. Although India has a credit information bureau, adequate information regarding loan servicing histories, particularly in respect of individuals and small businesses, is limited. CIBIL does not presently report information from retailers, utility companies and trade creditors and no other nationwide bureau of this nature presently exists. Further, in the event that the CIBIL report is not up-to-date, we may not be able to accurately assess the credit-worthiness of our borrower which may increase our risk of exposure to default by borrower. As our lending operations are primarily limited to India, we may be exposed to a greater potential for loss compared to banks with lending operations in more developed countries. Inadequate loan servicing histories for borrowers increase the risk of exposure and may lead to an increase in our NPAs which may adversely affect our business, results of operations and financial condition. For example, in deciding whether to extend credit, we may assume that a customer’s audited financial statements conform to generally accepted accounting principles and present fairly, in all material respects, the financial condition, results of operations and cash flows of the customer. Our financial condition and results of operations could be negatively affected by relying on financial statements that do not comply with generally accepted accounting principles or with other information that is materially misleading.
Majority of our branches and ATMs are located on leased premises. Our operations may be materially and adversely affected if we are unable to renew our leases to continue utilization of any of our branches or ATMs.
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Our business and operations are significantly dependent on our branches and ATMs majority of which are located on leased premises. As of October 31, 2017, out of our 4,006 branches, 3,909 were located on leased premises. We have entered into various lease arrangements for such properties. If we are unable to continue to use our branches and ATMs which are located on leased premises during the period of the relevant lease or extend such lease on its expiry on commercially acceptable terms, or at all, or if we fail to identify such alternate premises, we may suffer a disruption in our operations which could have a material and adverse effect on our business, results of operations and financial condition. In addition, some of these leases may not have been registered, which may affect the evidentiary value of such lease agreement in specific performance or other injunctive procedures in a court of law. In addition, we cannot assure you that all the lease agreements for our branches are adequately stamped in accordance with applicable laws. Any such irregularity may result in our inability to enforce our rights under such lease agreements, which may disrupt our operations and adversely affect our business, financial condition and result of operations.
Our remuneration scheme may not be as attractive as other banks with which we compete which may affect our ability to attract and maintain a skilled and committed workforce.
Our remuneration schemes are guided by industry level negotiations between bank management represented by the Indian Bank’s Association (“IBA”), and officers/workmen represented by their respective unions. In addition to such remuneration, we also offer our employees certain performance linked incentives. Our remuneration scheme is in accordance with industry level settlement formulated by the IBA following negotiation with various unions or associations. The remuneration prevalent in the public sector banks are similar except for perks which is determined by individual banks.
If the banking industry increasingly moves toward incentive-based pay schemes, attrition rates could increase and we could be forced to alter our remuneration scheme. The resultant pressures may result in diminished profitability, especially if rates of return do not experience a commensurate rise. An inability to attract and retain talented professionals or the resignation or loss of key management personnel, particularly in light of our continued expansion, may have an adverse impact on our business, future financial performance and market capitalisation.
The audit reports in respect of our financial statements contain certain matters of emphasis which could have an impact on our financial performance.
The audit report on our audited financial statements for Fiscal 2016 and Fiscal 2015 and the impact of which on financial statements is not readily ascertainable. Details of which are as follows:
Financial Year Matters of emphasis 2016 Without qualifying our report we draw attention to Note 11(a) disclosing write off of ₹8,826.50 million on account of fraud. 2015 Without qualifying our report we draw attention to: Note no. 4 b) in Schedule 18 to the financial statements regarding change in accounting policy for the year with respect to appropriation of recoveries in NPA accounts, the impact of which on financial statements is not readily ascertainable.
2015 Without Qualifying our report we draw attention to: Note no. 8 c) in Schedule 18 to the financial statements regarding the difference between accounting income and taxable income on account of difference in valuation of securities being treated as permanent difference and accordingly recognition of deferred tax liability ₹7,549.10 million as at March 31, 2015 not considered necessary based on opinion of tax consultant of the Bank
For further information in relation to certain emphasis of matters, see “Financial Statements” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations - Auditor Observations and Matters of Emphasis”.
Our business is highly dependent on our information technology systems, which require significant investment for regular maintenance, upgrades and improvements. Any failure to improve or upgrade our information technology systems could materially and adversely impact our business.
Our information technology systems are a critical part of our business that help us manage, among other things, our risk management, regulatory compliance, deposit servicing and loan origination functions, as well as our increasing portfolio of products and services in all our business segments. We depend on our computer systems
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to process a large number of transactions on an accurate and timely basis, and to store and process substantially all of our business and operating data. We seek to protect our computer systems and network infrastructure from physical break-ins as well as security breaches and other disruptive problems. These concerns could intensify with our increased use of technology, internet based resources and advanced internet banking platform.
Computer break-ins and power disruptions could affect the security of information stored in and transmitted through these computer systems and network infrastructure. Our Bank’s computer systems and network infrastructure have achieved 100% coverage of its branches under Core Banking Solution (“CBS”) platform. While our Bank employs security systems including firewalls and password encryption, designed to minimise the risk of security breaches certain parts of the system may not be properly protected from security breaches and other attacks.
Although our Bank intends to continue to implement security technology and establish operational procedures to prevent break-ins, damage and failures, there can be no assurance that these security measures will be adequate or successful or be sufficient to prevent frauds, break-ins, damage and failure. A failure of security measures could have a material adverse effect on our Bank’s business, its future financial performance and the trading price of the Equity Shares. We may also be subject to disruptions of our operating systems, arising from events that are wholly or partially beyond our control (including, for example, computer viruses or electrical or telecommunication outages), which may give rise to deterioration in customer service and to loss or liability to us.
We may face labor disruptions that could interfere with our operations and we may be unable to manage our employee costs and expenses.
We are exposed to the risk of strikes and other industrial actions by our employees as well as trade unions that our employees are part of. As on September 30, 2017, out of our 35,365 employees. Majority of our employees are members of Syndicate Bank Employees’ Union, Syndicate Bank Officers’ Association, Syndicate Bank Officers’ Federation, Syndicate Bank Officers’ Organisation, Syndicate Bank Staff Association, Syndicate Bank Staff Union, Syndicate Bank Karmachari Sena and Syndicate Bank Sub Employees.
While we believe we have a strong working relationship with our unions, associations and employees, there can be no assurance that we will continue to have such a relationship in the future. We cannot guarantee that our employees will not undertake or participate in strikes, work stoppage or other industrial action in the future. Any such employee unrest events could disrupt our operations, possibly for a significant period of time and other benefits or otherwise have a material adverse effect on our business, financial condition or results of operation.
Further, there are several cases filed against us by our former or current employees before various courts and tribunals, in relation to claims for allegedly wrongful termination of service, reinstatement along with back wages, promotions, transfers, claims pertaining to terminal benefits and disciplinary actions taken against them. If any of the cases pending are decided against us, we may be subject to payment of back-wages, compensations or may even be required to re-instate the employees, which could increase our personnel retention and administrative costs and adversely affect our financial condition and results of operation.
We may breach third party intellectual property rights or be required to initiate claims against others infringing our intellectual property rights.
We may be subject to claims by third parties, both inside and outside India, if we breach their intellectual property rights by using slogans, names, designs, software or other such subjects, which are of a similar nature to the intellectual property these third parties may have registered. Any legal proceedings that result in a finding that we have breached third parties’ intellectual property rights, or any settlements concerning such claims, may require us to provide financial compensation to such third parties or make changes to our marketing strategies or to the brand names of our products, which may have a materially adverse effect on our brand, business, prospects, financial condition and results of operations.
Our reputation may be adversely affected by any negative publicity regarding our operations which may have an adverse effect on our business, financial condition and results of our operations.
Our business is significantly dependent on the strength of our brand and reputation, as well as market perception regarding our operations. While we have developed our brand and reputation over our history, any negative incidents or adverse publicity could rapidly erode customer trust and confidence in us, particularly if such
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incidents receive widespread adverse mainstream and social media publicity, or attract regulatory investigations. Negative publicity can result from our actual or alleged conduct in any number of activities, including lending practices, foreclosure practices, regulatory compliance, mergers and acquisitions, and related disclosure, sharing or inadequate protection of customer information, and actions taken by government regulators and community organizations in response to that conduct.
We distribute several third-party products, including life insurance, health insurance, general insurance, mutual fund products and tax related services. Any failure on the part of such third parties, including any failure to comply with applicable regulatory norms, any regulatory action taken against such parties or any adverse publicity relating to such party could, in turn, result in negative publicity about us and adversely impact our brand and reputation. Any damage to our brand or our reputation may result in withdrawal of business by our existing customers or our intermediaries as well as loss of new business from potential customers.
We are subject to an inspection for supervisory evaluation (ISE) by RBI, annually under Risk Based Supervision (RBS)-Supervisory Programme for Assessment of Risk and Capital (SPARC) as per the Banking Regulation Act. Non-compliance with RBI guidelines could result in penalties which may adversely affect our business, financial condition or results of operations.
We are subject to an inspection for supervisory evaluation (ISE) by RBI under the Banking Regulation Act. In the past certain observations were made by RBI during the ISE regarding our business and operations in its ISE reports. Inspection by RBI is a regular exercise and is carried out periodically by RBI for all banks and financial institutions. While we attempt to be in compliance with all regulatory provisions applicable to us, in the event we are not able to comply with the observations made by RBI, we may be subject to penalties by RBI. Imposition of any penalty by RBI may have a material adverse effect on our reputation, financial condition and results of operations.
We are subject to supervision and regulation by RBI. RBI may impose stricter regulations and guidelines which are intended to provide tighter control may adversely affect our business, results of operation and financial condition.
We are regulated principally by and have reporting obligations to RBI. We are also subject to the corporate, taxation and other laws in effect in India. The regulatory and legal framework governing us has been and may continue to change as India’s economy and commercial and financial markets evolve. In recent years, existing rules and regulations have been modified, new rules and regulations have been enacted and reforms have been implemented which are intended to provide tighter control in the industry where we operate, such as change in loan to value ratio in our mortgage loans, restriction on charging pre-closure penalty on variable rate loans etc. Compliance with many of the regulations applicable to our operations may involve significant costs and otherwise may impose restrictions on our operations. Further, these regulations are subject to frequent amendments and depend upon government policy. There can be no assurance that changes in these regulations and the implementation of future rules by governmental and regulatory authorities (including lower loan to value ratio for mortgage loans, cap on interest rate charged/ interest spread for mortgage loans or loans to weaker sections etc.) will not adversely affect our business, results of operation and financial condition.
We are currently non – compliant with the provisions of Banking Acquisition Act on appointment of workmen employee director, officer’s director nominated by the Central Government and RBI nominee director on our Board.
We are currently not in compliance with the relevant provisions of the Banking Acquisition Act in relation to composition of our Board. As on date, our Board comprises of three whole time directors, one government nominee director, and six non – executive directors. As per sub – section of section 9 (3)(e)(f) of the Banking Acquisition Act, we are required to have two directors from the employees of bank one as a workman director and one officers’ director nominated by Central Government. Further, as per section 9 (c) of the Banking Acquisition Act, one director (who is an official from the RBI) has to be appointed by the Government on recommendation of RBI on our Board. Our erstwhile workmen employee director, officers’ director and RBI nominee director nominated by the Central Government, ceased to be the directors of our Bank with effect from September 4, 2016, July 16, 2016 and June 30, 2017 respectively, consequent upon completion of their tenure. Accordingly, we are required to have a new workmen employee director, officers’ director and RBI nominee director on our Board to ensure compliance with the applicable provisions of the Banking Acquisition Act.
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Given that our Bank is a public sector undertaking, matters pertaining to, among others, appointment of our Directors are determined by the Government of India, Ministry of Finance. Therefore, we do not have the ability to appoint directors on our Board. As a result of this, we cannot provide any assurance that such non – compliance will be rectified in a timely manner or that suitable and timely replacements will be appointed by the Ministry of Finance upon expiration of the term of our workmen employee director, as and when such vacancies may arise.
Our Bank is undertaking this Issue pursuant to, inter alia, the in-principle approvals dated December 12, 2017 issued by the NSE and BSE (the “In – principle Approvals”) which contains observations noted by the Stock Exchanges in relation to non-compliance by the Bank of the provisions of the Listing Regulations.
The NSE and BSE in its In- Principal approvals have noted that the intimation of the proposal to raise funds pursuant to this Issue is not in compliance with Regulations 29(1) and (2) of the Listing Regulations which may attract consequences of breach of the Listing Regulations. Further, the NSE and BSE have noted that the above non-compliances may attract penal action from both the stock exchanges or SEBI or both.
Risks Relating to India
We will be required to prepare financial statements under IND-AS from April 1, 2018 onwards.
The Ministry of Corporate Affairs notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015 (the “IND – AS”). The Ministry of Corporate Affairs, in its press release dated January 18, 2016, issued a roadmap for implementation of IND-AS converged with IFRS for scheduled commercial banks, insurers, insurance companies and non- banking financial companies. For banking companies, non-banking finance companies and insurance companies, preparation of IND-AS based financial statements are required for the accounting periods beginning from April 1, 2018 onwards with comparatives for the periods ending March 31, 2018. The RBI, by its circular dated February 11, 2016, requires all scheduled commercial banks to comply with IND – AS for financial statements for the periods stated above. The RBI does not permit banks to adopt IND – AS earlier than the above timeline and the guidelines also state that the RBI shall issue necessary instruction, guidance, and clarification on the relevant aspects for implementation of the IND – AS as and when required. Accordingly, we will be required to report our financials as per IND – AS from April 1, 2018 onwards.
Further, the new accounting standards may change, among other things, our Bank’s methodology for estimating allowances for probable loan losses and for classifying and valuing our investment portfolio and revenue recognition policy. There can be no assurance that our Bank’s financial condition, results of operations, cash flows or changes in shareholders’ equity will not appear materially worse under IND – AS than under Indian GAAP. In our Bank’s transition to IND – AS reporting, our Bank may encounter difficulties in the ongoing process of implementing and enhancing its management information systems. Moreover, there is increasing competition for the small number of IFRS – experienced accounting personnel available as more Indian companies begin to prepare IND – AS financial statements. Further, there is no significant body of established practice on which to draw in forming judgments regarding the new system’s implementation and application. There can be no assurance that our Bank’s adoption of IND – AS will not adversely affect our reported results of operations, cash flows or financial condition and any failure to successfully adopt IND – AS could adversely affect our Bank’s business, financial condition, cash flows and results of operations.
Significant differences exist between Indian GAAP and other accounting principles with which investors may be more familiar.
Our Financial Statements are prepared in conformity with Indian GAAP as applicable to banks. GAAP as applied in India differs in certain significant respects from IFRS, U.S. GAAP and other accounting principles and accounting standards with which prospective investors may be familiar with in other countries. We do not provide a reconciliation of our financial statements to IFRS or U.S. GAAP or a summary of principal differences between Indian GAAP, IFRS and U.S. GAAP relevant to our business. Furthermore, we have not quantified or identified the impact of the differences between Indian GAAP and IFRS or between Indian GAAP and U.S. GAAP as applied to our financial statements. As there are significant differences between GAAP as applied in India and IFRS and between GAAP as applied in India and U.S. GAAP, there may be substantial differences in our results of operations, cash flows and financial position if we were to prepare our financial statements in accordance with IFRS or U.S. GAAP instead of Indian GAAP. Prospective investors should review the accounting policies applied in the preparation of our financial statements, and consult their own professional advisors for an understanding of the differences between Indian GAAP and IFRS.
The Indian tax regime is currently undergoing substantial changes which could adversely affect our business and the trading price of the Equity Shares.
The goods and service tax (“GST”) that was implemented with effect from July 1, 2017 seeks to combine taxes and levies by the GoI and state governments into a unified rate structure, and replace indirect taxes on goods and services such as central excise duty, service tax, customs duty, central sales tax, state VAT, cess and surcharge and excise that are currently being collected by the GoI and state governments. GST is expected to increase tax incidence and administrative compliance for banks. Due to the limited availability of information in the public domain concerning the GST, we are unable to provide any assurance as to this or any other aspect of the tax
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regime following implementation of the GST. The implementation of this rationalized tax structure may be affected by any disagreement between certain state governments, which may create uncertainty. The tax rate for goods and service tax under the GST regime may also be higher than the service tax rate presently applicable, affecting our profitability to some extent.
Furthermore, the GST has reduced the taxation threshold such that companies with an aggregate turnover exceeding ₹2.00 million are now liable for GST. Aggregate turnover would be computed on an all-India basis and shall include both exempted and non-taxable supplies. Import and inter-state supplies shall be taxable without any threshold limit. Further, central registration has been replaced with state registration, resulting in additional compliance requirements for the SME sector. With the introduction of GST, any major impact on the SME and MSME sector may have a material effect on our business, results of operations and financial conditions.
As regards GAAR, the provisions of Chapter X-A (sections 95 to 102) of the Income Tax Act, 1961, are applicable from assessment year 2019 (Fiscal 2018) onwards. The GAAR provisions intend to declare an arrangement as an “impermissible avoidance arrangement”, if the main purpose or one of the main purposes of such arrangement is to obtain a tax benefit, and satisfies at least one of the following tests (i) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length; (ii) results, directly or indirectly, in misuse, or abuse, of the provisions of the Income Tax Act, 1961; (iii) lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or (iv) is entered into, or carried out, by means, or in a manner, that is not ordinarily engaged for bona fide purposes. If GAAR provisions are invoked, the tax authorities will have wider powers, including denial of tax benefit or a benefit under a tax treaty. In the absence of any precedents on the subject, the application of these provisions is uncertain.
As the taxation regime in India is undergoing a significant overhaul, its consequent effects on the banking system cannot be determined at present and there can be no assurance that such effects would not adversely affect our business, future financial performance and the trading price of the Equity Shares.
Any downgrading of India’s credit rating by an international rating agency could adversely affect our business and the price of our Equity Shares.
India’s sovereign rating could be downgraded due to various factors, including changes in tax or fiscal policy or a decline in India’s foreign exchange reserves, which are outside our control. On November 17, 2017, Moody’s Investor Services raised India’s sovereign rating from the lowest investment grade of Baa3 to Baa2, and changed the outlook of Indian economy from “stable” to “positive”. However, on November 24, 2017, Standard and Poor’s maintained its India rating unchanged at the lowest investment grade of BBB–, with a stable outlook. Earlier, in July 2016, Fitch revised its outlook for the Indian banking sector from “stable” to “negative” due to the increase in the non – performing loans. There is no assurance that India’s credit ratings will not be downgraded in the future. Any adverse revisions to India’s credit ratings for domestic and international debt by international rating agencies may adversely impact our business and limit our access to capital markets, increase the cost of funds, adversely impact our liquidity position, our shareholders’ funds and the price of our Equity Shares.
Natural disasters and other disruptions could adversely affect the Indian economy and could cause our business and operations to suffer and the price of our Equity Shares to decrease.
Our operations, including our branch network, may be damaged or disrupted as a result of natural disasters such as earthquakes, floods, heavy rainfall, epidemics, tsunamis and cyclones and other events such as protests, riots and labour unrest. Such events may lead to the disruption of information systems and telecommunication services for sustained periods. They also may make it difficult or impossible for employees to reach our business locations. Damage or destruction that interrupts our provision of services could adversely affect our reputation, our relationships with our customers, our senior management team’s ability to administer and supervise our business or it may cause us to incur substantial additional expenditure to repair or replace damaged equipment or rebuild parts of our branch network. We may also be liable to our customers for disruption in services resulting from such damage or destruction. Any of the above factors may adversely affect our business and financial results, the quality of our customer service and the price of our Equity Shares.
Rights of shareholders under Indian law may be more limited than under the laws of other jurisdictions.
The Banking Acquisition Act, the instructions issued by the RBI, and Indian laws govern our corporate affairs. Legal principles relating to these matters and the validity of corporate procedures, directors’ fiduciary duties and liabilities, and shareholders’ rights may differ from those that would apply to a bank or corporate entity in another
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jurisdiction. Shareholders’ rights under Indian law may not be as extensive as shareholders’ rights under the laws of other countries or jurisdictions. Investors may have more difficulty in asserting their rights as one of our shareholders than as a shareholder of a bank or corporate entity in another jurisdiction.
Fluctuations in the exchange rate between the Rupee and other currencies could have an adverse effect on the value of the Equity Shares in those currencies, independent of our operating results.
The Equity Shares are quoted in Rupees on the Stock Exchanges. Any dividends in respect of the Equity Shares will be paid in Rupees. Any adverse movement in currency exchange rates during the time it takes to undertake such conversion may reduce the net dividend to investors. In addition, any adverse movement in currency exchange rates during a delay in repatriating the proceeds from a sale of Equity Shares outside India, for example, because of a delay in regulatory approvals that may be required for the sale of Equity Shares, may reduce the net proceeds received by investors. The exchange rate between the Rupee and other currencies (including U.S. dollar) has changed substantially in the last two decades and could fluctuate substantially in the future, which may have an adverse effect on the value of the Equity Shares and returns from the Equity Shares in foreign currency terms, independent of our operating results.
Acts of terrorism and other similar threats to security could adversely affect our business, cash flows, results of operations and financial condition.
Increased political instability, evidenced by the threat or occurrence of terrorist attacks, enhanced national security measures, conflicts in several regions in which we operate, strained relations arising from these conflicts and the related decline in customer confidence may hinder our ability to do business. For example, in November 2008, several coordinated shooting and bombing attacks occurred across Mumbai, India’s financial capital. In June 2011, a series of three coordinated bomb explosions occurred at different locations in Mumbai. Both attacks resulted in loss of life, property and business. Any escalation in these events or similar future events may disrupt our operations or those of our customers. These events have had, and may continue to have, an adverse impact on the global economy and customer confidence, which could, in turn, adversely affect our revenue, operating results and financial condition. The impact of these events on the volatility of global financial markets could increase the volatility of the market price of our securities and may limit the capital resources available to us and to our customers.
Investors may not be able to enforce a judgment of a foreign court against us.
The enforcement by investors in our Equity Shares of civil liabilities, including the ability to affect service of process and to enforce judgments obtained in courts outside of India may be affected adversely by the fact that we are incorporated under the laws of the Republic of India and almost all of our executive officers and directors reside in India. Nearly all of our assets and the assets of our executive officers and directors are also located in India. As a result, it may be difficult to enforce the service of process upon us and any of these persons outside of India or to enforce outside of India, judgments obtained against us and these persons in courts outside of India.
India is not a party to any international treaty in relation to the recognition or enforcement of foreign judgments. Recognition and enforcement of foreign judgments are provided for under Section 13 and Section 44A of the Civil Procedure Code respectively. The Government of India has under Section 44A of the Civil Procedure Code notified certain countries as reciprocating countries, as discussed below. Section 13 of the Civil Procedure Code provides that a foreign judgment shall be conclusive regarding any matter directly adjudicated upon except: (i) where the judgment has not been pronounced by a court of competent jurisdiction, (ii) where the judgment has not been given on the merits of the case, (iii) where it appears on the face of the proceedings that the judgment is founded on an incorrect view of international law or a refusal to recognize the law of India in cases in which such law is applicable, (iv) where the proceedings in which the judgment was obtained were opposed to natural justice, (v) where the judgment has been obtained by fraud, or (vi) where the judgment sustains a claim founded on a breach of any law in force in India.
Section 44A of the Civil Procedure Code provides that where a foreign judgment has been rendered by a court in any country or territory outside India, which the Government has by notification declared to be a reciprocating territory, it may be enforced in India by proceedings in execution as if the judgment had been rendered by the relevant court in India. However, Section 44A of the Civil Procedure Code is applicable only to monetary decrees not being in the nature of any amounts payable in respect of taxes or other charges of a similar nature or in respect of a fine or other penalties and does not include arbitration awards. The United Kingdom and some other countries have been declared by the Government to be a reciprocating territory for the purposes of Section 44A. However,
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the United States has not been declared by the Government to be a reciprocating territory for the purposes of Section 44A. A judgment of a court in the United States may be enforced in India only by a suit upon the judgment, subject to Section 13 of the Civil Procedure Code and not by proceedings in execution.
The suit must be brought in India within three years from the date of the judgment in the same manner as any other suit filed to enforce a civil liability in India. Generally, there are considerable delays in the disposal of suits by Indian courts. It is unlikely that a court in India would award damages on the same basis as a foreign court if an action is brought in India. Furthermore, it is unlikely that an Indian court would enforce foreign judgments if it viewed the amount of damages awarded as excessive or inconsistent with public policy in India. A party seeking to enforce a foreign judgment in India is required to obtain prior approval from the RBI under FEMA to repatriate any amount recovered pursuant to execution and any such amount may be subject to income tax in accordance with applicable laws. Any judgment or award in a foreign currency would be converted into Indian Rupees on the date of the judgment or award and not on the date of the payment. Generally, there are considerable delays in the processing of legal actions to enforce a civil liability in India, and therefore it is uncertain whether a suit brought in an Indian court will be disposed off in a timely manner or be subject to considerable delays.
Any volatility in the exchange rate may lead to a decline in India's foreign exchange reserves and may affect liquidity and interest rates in the Indian economy, which could adversely impact us.
Foreign inflows into India have remained extremely volatile responding to concerns about the domestic macroeconomic landscape and changes in the global risk environment. The widening current account deficit has been attributed largely to the surge in gold imports led by the uncertainty stemming from the demonetisation policy.
The Indian rupee also faces challenges in the volatile swings in capital flows. The shifts in capital flows is reflected in the fact that Indian rupee recorded a high of ₹64.84 to US dollar and a low of ₹68.72 to the US dollar during Fiscal 2017. Even though the Indian rupee has been fairly stable since the start of calendar year 2017, it may come back under pressure given the possibility of global fund flows from emerging markets to the US markets over the medium term. Additionally, some anxiety about the prospect of sub-normal monsoons adversely affecting the domestic economy could make investors circumspect of investing in domestic assets. The weak monsoons of fiscal year 2016 and 2015 weakened the purchasing and investing power in India. Further, there remains a possibility of intervention in the foreign exchange market to control volatility of the exchange rate. The need to intervene may result in a decline in India's foreign exchange reserves and subsequently reduce the amount of liquidity in the domestic financial system. This in turn could cause domestic interest rates to rise.
Further, increased volatility in foreign flows may also affect monetary policy decision making. For instance, a period of net capital outflows might force the RBI to keep monetary policy tighter than optimal to guard against any abnormal currency depreciation.
Financial instability in other countries may cause increased volatility in Indian financial markets.
The Indian market and the Indian economy are influenced by economic and market conditions in other countries, particularly emerging market countries in Asia. Although economic conditions are different in each country, investors' reactions to developments in one country can have adverse effects on the securities of companies in other countries, including India. A loss of investor confidence in the financial systems of other emerging markets may cause increased volatility in Indian financial markets and, indirectly, in the Indian economy in general. Any worldwide financial instability could also have a negative impact on the Indian economy. Financial disruptions may occur again and could harm the Bank's business, its future financial performance and the prices of the equity shares.
Political instability or changes in the government in India could delay the liberalisation of the Indian economy and materially adversely affect economic conditions in India generally, which would impact our financial results and prospects.
Since 1991, successive Indian governments have pursued policies of economic liberalisation, including significantly relaxing restrictions on the private sector. Nevertheless, the roles of the Indian central and state governments in the Indian economy as producers, consumers and regulators remain significant as independent factors in the Indian economy.
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In recent years, India has been following a course of economic liberalisation and our business could be significantly influenced by economic policies followed by the Government. Further, our businesses are also impacted by regulation and conditions in the various states in India where we operate. There can be no assurance as to the policies future governments will follow or that it will continue the policies of the existing government.
The rate of economic liberalisation is subject to change and specific laws and policies affecting banking and finance companies, foreign investment, currency exchange and other matters affecting investment in our securities are continuously evolving as well. Any significant change in India's economic liberalisation, deregulation policies or other major economic reforms could materially adversely affect business and economic conditions in India generally and our business in particular.
Risks Relating to the Issue
Conditions in the Indian securities market may affect the price or liquidity of the Equity Shares.
The Indian securities markets are smaller and may be more volatile than securities markets in more developed economies. The regulation and monitoring of Indian securities markets and the activities of investors, brokers and other participants differ, in some cases significantly, from those in the U.S. and Europe. Indian stock exchanges have in the past experienced substantial fluctuations in the prices of listed securities.
Indian stock exchanges have, in the past, experienced problems that have affected the market price and liquidity of the securities of Indian companies, such as temporary exchange closures, broker defaults, settlement delays and strikes by brokers. In addition, the governing bodies of the Indian stock exchanges have from time to time restricted securities from trading, limited price movements and increased margin requirements. Further, disputes have occurred on occasion between listed companies and the Indian stock exchanges and other regulatory bodies that, in some cases, have had a negative effect on market sentiment. If similar problems occur in the future, the market price and liquidity of the Equity Shares could be adversely affected. A closure of, or trading stoppage on, either the BSE or the NSE could adversely affect the trading price of the Equity Shares.
Applicants to the Issue are not allowed to withdraw their Bids after the Bid / Issue Closing Date.
In terms of the ICDR Regulations, applicants in the Issue are not allowed to withdraw their Bids after the Bid / Issue Closing Date. The Allotment of Equity Shares in this Issue and the credit of such Equity Shares to the applicant’s demat account with depository participant could take approximately seven (7) working days and up to ten (10) working days from the Bid / Issue Closing Date. However, there is no assurance that material adverse changes in the international or national monetary, financial, political or economic conditions or other events in the nature of force majeure, material adverse changes in our business, results of operation or financial condition, or other events affecting the applicant’s decision to invest in the Equity Shares, would not arise between the Bid/Issue Closing Date and the date of Allotment of Equity Shares in the Issue. Occurrence of any such events after the Bid/Issue Closing Date could also impact the market price of the Equity Shares. The applicants shall not have the right to withdraw their Bids in the event of any such occurrence without the prior approval of SEBI. We may complete the Allotment of the Equity Shares even if such events may limit the applicants’ ability to sell the Equity Shares after the Issue or cause the trading price of the Equity Shares to decline.
There are restrictions on daily movements in the price of the Equity Shares, which may adversely affect a shareholder’s ability to sell, or the price at which it can sell Equity Shares at a particular point in time.
We are subject to a daily “circuit breaker” imposed by all stock exchanges in India, which does not allow transactions beyond specified increases or decreases in the price of the Equity Shares. This circuit breaker operates independently of the index – based market-wide circuit breakers generally imposed by SEBI on Indian stock exchanges. The percentage limit on our circuit breakers is set by the stock exchanges based on the historical volatility in the price and trading volume of the Equity Shares.
The Stock Exchanges do not inform us of the percentage limit of the circuit breaker in effect from time to time and may change it without our knowledge. This circuit breaker limits the upward and downward movements in the price of the Equity Shares. As a result of this circuit breaker, no assurance may be given regarding your ability to sell your Equity Shares or the price at which you may be able to sell your Equity Shares at any particular time.
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There is no guarantee that the Equity Shares issued pursuant to this Issue will be listed in a timely manner, or at all, and any trading closure at the Stock Exchanges may adversely affect the trading price of the Equity Shares.
In accordance with Indian regulations and practice, permission for listing and trading of the Equity Shares issued pursuant to this Issue will not be granted until after the Equity Shares have been issued and allotted. Approval for listing and trading will require all relevant documents authorizing the issuing of Equity Shares to be submitted. There could be a failure or delay in listing the Equity Shares on the Stock Exchanges. Any failure or delay in obtaining the approval would restrict an investor’s ability to dispose of the Equity Shares. The Stock Exchanges have in the past experienced problems, including temporary exchange closures, broker defaults, settlements delays and strikes by brokerage firm employees, which, if continuing or recurring, could affect the market price and liquidity of the securities of listed Indian entities, including the Equity Shares, in both domestic and international markets. A closure of, or trading stoppage on, either of the Stock Exchanges could adversely affect the trading price of the Equity Shares. Historical trading prices, therefore, may not be indicative of the prices at which the Equity Shares will trade in the future.
1. After this Issue, the price of our Equity Shares may be volatile.
The Issue Price will be determined by us in consultation with the Book Running Lead Managers, based on Bids received in compliance with Chapter VIII of the SEBI Regulations, and it may not necessarily be indicative of the market price of the Equity Shares after this Issue is completed. The trading price of the Equity Shares may fluctuate after this Issue due to a variety of factors, including our results of operations and the performance of our business, competitive conditions, general economic, political and social factors, the performance of the Indian and global economy and significant developments in India’s fiscal regime, volatility in the Indian and global securities market, performance of our competitors, the Indian financial services industry and the perception in the market about investments in the financial services industry, changes in the estimates of its performance or recommendations by financial analysts and announcements by us or others regarding contracts, acquisitions, strategic partnerships or capital commitments. The trading price of the Equity Shares might also decline in reaction to events that affect other companies in our industry even if these events do not directly affect us. Each of these factors, among others, could adversely affect the price of the Equity Shares. There can be no assurance that an active trading market for the Equity Shares will be sustained after this Issue, or that the price at which the Equity Shares have historically traded will correspond to the price at which the Equity Shares are offered in this Issue or the price at which the Equity Shares will trade in the market subsequent to this Issue.
Investors will be subject to market risks until the Equity Shares credited to the investor’s demat account are listed and permitted to trade.
Investors can start trading the Equity Shares allotted to them only after they have been credited to an investor’s demat account, are listed and permitted to trade. Since the Equity Shares are currently traded on the Stock Exchanges, investors will be subject to market risk from the date they pay for the Equity Shares to the date when trading approval is granted for the same. Further, there can be no assurance that the Equity Shares allocated to an investor will be credited to the investor’s demat account or that trading in the Equity Shares will commence in a timely manner.
An investor will not be able to sell any of our Equity Shares purchased in the offering other than on a recognized Indian stock exchange for a period of 12 months from the date of issue of our Equity Shares.
Pursuant to the ICDR Regulations, for a period of 12 months from the date of the issue of our Equity Shares in this offering, investors purchasing our Equity Shares in the offering may only sell their Equity Shares on the NSE or the BSE and may not enter into any off – market trading in respect of their Equity Shares. We cannot be certain that these restrictions will not have an impact on the price of our Equity Shares. In addition to the above, investors will be subject to the respective regulations applicable to their operations and any lock-in requirements prescribed thereunder. This may affect the liquidity of the Equity Shares purchased by investors and it is uncertain whether these restrictions will adversely impact the market price of the Equity Shares purchased by investors.
Investors may be subject to Indian taxes arising out of capital gains on the sale of the Equity Shares.
Under current Indian tax laws and regulations, capital gains arising from the sale of shares in an Indian company are generally taxable in India. Any gain realized on the sale of listed equity shares on a stock exchange held for more than 12 months will not be subject to capital gains tax in India if STT has been paid on the transaction. The
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STT will be levied on and collected by a domestic stock exchange on which the Equity Shares are sold. Any gain realized on the sale of equity shares held for more than 12 months to an Indian resident, which are sold other than on a recognized stock exchange and on which no STT has been paid, will be subject to long term capital gains tax in India. Further, any gain realized on the sale of listed equity shares held for a period of 12 months or less will be subject to short term capital gains tax in India. Capital gains arising from the sale of the Equity Shares will be exempt from taxation in India in cases where the exemption from taxation in India is provided under a treaty between India and the country of which the seller is resident. Generally, Indian tax treaties do not limit India’s ability to impose tax on capital gains. As a result, residents of other countries may be liable for tax in India as well as in their own jurisdiction on a gain upon the sale of the Equity Shares. See “Taxation” on page 214.
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USE OF PROCEEDS
The gross proceeds from the Issue are expected to be approximately ₹[●] million.
The net proceeds from the Issue, after deducting expenses, including fees and commissions for the Issue, are expected to be approximately ₹[●] million (the “Net Proceeds”).
Subject to compliance with applicable laws and regulations, our Bank intends to use the Net Proceeds of the Issue, for meeting capital requirement and to cater to its increasingly growing business level.
Since, the Net Proceeds of the Issue are proposed to be utilised towards meeting capital requirement and cater to its increasingly growing business level and not for implementing any project, the requirement to disclose (i) break up of cost of the project; (ii) means of financing such project; (iii) proposed deployment status of the proceeds at each stage of the project, are not applicable.
None of our Directors are making any contribution either as part of the Issue or separately in furtherance of the objects of the Issue.
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CAPITALISATION STATEMENT
The following table sets forth our Bank’s capitalisation and total debt, for Fiscal 2017, derived from our Bank’s audited consolidated financial statements for Fiscal 2017 and Unaudited Financial Statements and as adjusted to reflect the receipt of the gross proceeds of the Issue and the application thereof.
This table should be read with the section “Summary of Financial Information”, “Risk Factors”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” on pages 33, 43, 70 and 229, respectively.
Capitalisation Statement (₹ in million) As of March 31, As of March 31, As of September As 2017 2017 (Standalone) 30, 2017 Adjusted (Consolidated) (Standalone) for the Issue(1) Liabilities Deposits Demand Deposits 1. From banks 835.71 835.71 834.63 [●] 2. From others 115,234.59 115,239.24 110,619.57 [●] Saving Bank Deposits 642,571.92 642,571.92 644,932.61 [●] Term Deposits 1. From banks 277,579.40 277,579.40 324,508.72 [●] 2. From others 1,569,257.87 1,569,382.37 1,745,109.11 [●] Total Deposits (A) 2,605,479.49 2,605,608.64 2,826,004.64 [●]
Other Liabilities (B) 68,527.44 68,527.67 76,441.29 Borrowings 1. Short term 36,973.73 36,973.73 45,354.28 [●] 2. Long term 137,781.51 137,781.51 147,899.00 [●] Total Borrowings (C) 174,755.24 174,755.24 193,253.28 [●]
Long term Borrowings / 0.88:1 0.97:1 1.05:1 [●] Equity Ratio Total Liabilities (D = 2,848,762.17 2,848,891.55 3,095,699.21 [●] A+B+C)
Shareholders Fund Share capital 9,045.39 9,045.39 9,045.39 [●] Reserves and Surplus 148,096.20 132,796.42 131,213.11 [●] Total shareholder’s 157,141.59 141,841.81 140,258.50 [●] funds (E)
Total Capitalisation 3,005,903.76 2,990,733.36 3,235,957.71 [●] (D+E)
Capital Adequacy Ratio 12.52 12.52 12.61 [●] (Basel II) (%) Capital Adequacy Ratio 12.03 12.03 12.17 [●] (Basel III) (%)
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DIVIDEND POLICY
The RBI has laid down certain guidelines for payment of dividends by banks. We have a dividend policy named as the Dividend Distribution Policy (“Dividend Policy”). The dividend policy adopted by our Bank is based on RBI circular (RBI/2004-05/451DBOD.NO.BP.BC.88/21.02.067/2004-05) dated May 4, 2005 (“RBI Dividend Circular”) on declaration of dividends by banks. For eligibility criteria for declaration of dividend in terms of the RBI Dividend Circular, see “Regulations and Policies” and “Description of the Equity Shares – Declaration of Dividend” on pages 174 and 211, respectively.
The details of dividend declared in the last three financial years are as follows:
Fiscal Year Rate of dividend (%) Dividend per Equity Share Total amount of dividend# (₹) (in ₹ million) 2017 - - - 2016 - - - 2015 47 4.70 3,748.81 #Including dividend tax
The amounts paid as dividends in the past are not necessarily indicative of our dividend policy or dividend amounts, of any, in the future.
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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
You should read the following discussion and analysis of our financial condition and results of operations together with our audited consolidated financial statements for the years ended March 31, 2015, March 31, 2016 and March 31, 2017 and our Unaudited Financial Statements for the six-month period ended September 30, 2017 included in this Preliminary Placement Document. Also refer the sections “Summary of Financial Information” and “Selected Statistical Information” included in this Preliminary Placement Document.
We prepare our financial statements in accordance with Indian GAAP. The financial statements reflect applicable statutory requirements and regulatory guidelines and accounting practices in India. These requirements, guidelines and practices change from time to time and in accordance with Indian GAAP, adjustments to reflect such changes are made on a prospective basis and the financial statements for earlier periods are not restated. For the purposes of a comparative analysis in the discussion below, previous years’ figures have been reclassified wherever necessary.
Our fiscal year ends on March 31 of each year. Accordingly, all references to a particular fiscal year are to the twelve-month period ended on March 31 of that year. Unless otherwise specified, all information regarding cost, yield and average balances are based on daily average of balances outstanding during the relevant period.
This discussion contains forward-looking statements and reflects our current views with respect to future events and financial performance. Actual results may differ materially from those anticipated in these forward-looking statements as a result of certain factors, including those set forth under the section “Forward-Looking Statements” beginning on page 14, the section “Risk Factors” beginning on page 43 and elsewhere in this Preliminary Placement Document. Certain portions of the following discussion include information publicly available from the RBI and other sources.
Overview
We are a scheduled public sector commercial bank in India offering a wide range of banking and financial products and services to both large and mid-corporates, micro, small and medium enterprises (“MSME”), retail and agricultural customers.
Our Bank was established in 1925 at Udupi, Karnataka State as Canara Industrial and Banking Syndicate Limited, mainly to provide financial assistance to local weavers and expanded the scale of operations to a wide range of banking products off catering to large, MSME, retail and agri customers. In 1964, the Bank changed its name from Canara Industrial and Banking Syndicate Limited to Syndicate Bank Limited. We are one of the 14 banks which were nationalized on July 19, 1969. Our business is principally divided into Retail banking, Agricultural banking, Corporate / Wholesale banking, International banking, MSME banking and other banking services.
As on October 31, 2017, we had 4005 branches spread across all States and Union Territories in India and one branch at London (all of them under Core Banking Solution “CBS” platform) including 9 Large Corporate branches, 26 Mid Corporate branches, 1 Capital Market Service branch and 77 MSME specialized branches catering to the specific clientele segment. Bank has 25 Retail/MSME loan processing centres, 4 specialised women branches. As of October 31, 2017, we had 4100 ATMs, 30 Synd Lounges, 8 Zonal Office, 8 Zonal Inspection Centres, 60 regional offices, 37 Satellite Offices and 11 extension counters. As of October 31, 2017, we had a customer base of approximately 5.45 crore.
Our business is principally divided into retail banking, agricultural banking, corporate / wholesale banking, international banking, MSME banking and other banking services.
Our retail banking business offers financial products and services including consumer lending and deposit services to our retail customers. We offer a wide range of consumer credit products, including loans and advances for housing, trade, automobiles, consumer durables, education, personal loans, mortgage loans and other retail products. We have various deposit products, such as current, savings and term deposits for our customers. We offer our customers a suite of technological products, including global debit and credit cards, mobile banking, and internet banking. We also distribute third party financial products, such as insurance (life and non - life) and mutual fund products. In addition, we provide depository services and are a depository participant for CDSL. Our retail advances accounted for 13.48%, 15.78%, 16.14% and 16.70% of gross domestic advances as of March 31, 2015, 2016 and March 31, 2017 and September 30, 2017 respectively.
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Our corporate/wholesale banking business caters to corporate customers, including large, mid-sized and small businesses and government entities. Our loan products include term loans to finance capital expenditure of assets across various industries as well as short-term loans, cash credit, export credit and other working capital financing and bill discounting facilities. We also provide credit substitutes, such as letter of credit and letter of guarantee. We also offer infrastructure/ project finance, trade loans, bridge financing and foreign currency loans. We also provide finance to corporates through the syndication of loans. As on October 31, 2017, we have established 35 specialized branches which consist of 26 MCB (Mid Corporate Branch) and 9 LCB (Large Corporate Branch) that exclusively cater to the credit requirements of mid as well as large corporate clients. These branches play a key role in developing our corporate and wholesale lending business. As a percentage of our total advances, corporate/wholesale banking advances accounted for (Excluding Retail, Agriculture, MSME and overseas operations) banking advances accounted for 44.72%, 40.71%, 40.98% and 37.99% as on March 31, 2015, March 31, 2016 and March 31, 2017, and September 30, 2017 respectively.
Our international banking services includes forex services, international trade finance and NRI services comprising foreign exchange operations, remittance facilities for resident Indian, foreign currency loans, lending and deposit services to non-resident Indians. We have an international branch office in London. Our Bank is a member of Clearing Corporation of India Limited (“CCIL”), for settlement of inter-bank forex deals in USD/ INR segment and settles cross-currency deals through CCIL with continuous linked settlement. We are also managing one exchange house and have rupee drawing arrangements for cost-effective funds transfer. Our Bank maintains Correspondent Relationship Management (CRM) with 959 banks spread across 100 countries. We have 23 Nostro Accounts with Correspondent banks and 3 with our London branch. As a percentage of our total advances, international banking advances accounted for 19.75%, 18.55%, 17.23%, and 20.18% as on March 31, 2015, March 31, 2016, March 31, 2017 and September 30, 2017, respectively.
The Bank also caters to agriculture, micro-finance and rural customers. We offer direct financing to farmers for production and investment, as well as indirect financing for infrastructure development and credit to suppliers of agricultural inputs. We offer various products in the rural and semi-urban areas which would also help our Bank to meet its financial inclusion targets mandated by RBI. Our agricultural and micro small medium banking advances accounted for 30.80%, 34.24%, 34.35%, and 35.70% of gross domestic advances as on March 31, 2015, March 31, 2016 and March 31, 2017, and September 30, 2017respectively.
Our treasury operations being the interface with the financial markets, consist primarily of statutory reserves management, liquidity management, investment and trading activities, money market and foreign exchange related activities. Our treasury operations are aimed at maintaining an optimum level of liquidity, while complying with the RBI mandated cash reserve ratio and the statutory liquidity ratio. We maintain SLR through a portfolio of central Government, state Government, corporate debt and trustee securities that we actively manage to optimize yield and benefit from price movements. We are also involved in the trading of securities and foreign exchange, and invest in sovereign debt instruments, commercial papers, mutual funds, certificates of deposits, floating rate instruments, bonds and debentures to manage short-term surplus liquidity and further optimize yield and to generate profits thereon. We are also a trading-cum-clearing member on three exchanges, i.e., MCX-SX, NSE and BSE for undertaking proprietary based position in currency futures.
We also offer a wide range of general banking services to our customers including debit cards, cash management, remittance services and collection services. We market third-party products, such as mutual funds and general and life insurance policies, and also offer fee-based services including merchant banking and depository services. In addition, we have agency function for collection of Central Government Revenue viz. direct and indirect taxes through physical mode by authorized branches and through e-mode by all branches of our Bank. We also act for various state governments and the Government of India on numerous matters including the collection of state revenue and taxes, mobilization of Government deposits under PMJDY, and payment of school teacher’s salary and pension of Central Government, State Government and different autonomous organizations. Further, our Bank has been assigned with lead bank responsibilities in 29 districts inclusive of Union Territory of Lakshadweep across the country. Our Bank is also the convener of State Level Bankers’ Committee (SLBC) in Karnataka and the Union Territory of Lakshadweep and satisfactorily discharged the responsibilities cast on it as the convener of State Level Bankers’ Committee. We have sponsored three Regional Rural Banks covering 18 districts in 3 states with network of 1574 branches. As on March 31, 2017 and September 30, 2017, total business of RRBs sponsored by the Bank stood at ₹ 565,130 million and ₹ 562,000 million respectively. As of October 31, 2017, all our branches are networked to facilitate Core Banking Solution (“CBS”). In addition, we have digital banking channels such as mobile banking and internet banking. We have developed micro-payment and branchless banking solutions as well as a business correspondent network to expand our customer reach beyond the traditional
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branch service area. We deliver our products and services through our branches, extension counters, ATMs, internet banking and mobile banking. We have opened national processing center at Manipal, Karnataka a digitally enabled processing center to cater to the back office operations, centrally facilitating the Branches in instant account opening.
Our deposits increased from ₹ 2,553,881 million as of March 31, 2015 to ₹ 2,605,609 million as of March 31, 2017, and were ₹ 2,826,005 million as of September 30, 2017. Our aggregate CASA deposits increased at a CAGR of 9.11% from ₹ 637,132 million as of March 31, 2015 to ₹ 758,647 million as of March 31, 2017, and were ₹ 756,387 million as of September 30, 2017. Our CASA ratio, comprised primarily of retail demand and savings deposits, was at 25.97% as of March 31, 2016, 29.12% as of March 31, 2017 and was at 26.77% as of September 30, 2017. In addition, our gross advances increased from ₹ 2,058,039.00 million as of March 31, 2015 to ₹ 2,070,648.00 million as of March 31, 2017, and were ₹ 2,148,873.00 million as of September 30, 2 017. Our net interest income increased at a CAGR of 6.62% from ₹ 55,209.00 million in Fiscal 2015 to ₹ 62,767.00 million in Fiscal 2017, and was ₹ 32,501 million in the Six months ended September 30, 2017. Further, our operating profit increased at a CAGR of 2.78% from ₹ 40,073 million in Fiscal 2015 to ₹ 42,332 million in Fiscal 2017, and was ₹ 21,539 million in the Six months ended September 30, 2017.
Our capital adequacy ratio as of March 31, 2015, March 31, 2016 and March 31, 2017, in accordance with Basel III norms, was at 10.54%, 11.16% and 12.03%, respectively. Our CRAR as on September 30, 2017 was 12.17% constituting CET 1 Ratio of 7.23%, Tier I Ratio of 9.20% and Tier II Ratio of 2.97% well above the regulatory requirement of 10.25%.
As of March 31, 2017, gross NPAs were ₹176093.13 million or 8.50% of our gross advances, and net NPAs were ₹ 104109.83 million, or 5.21% of our net advances. As of September 30, 2017, our gross NPAs represented 9.39% of our gross advances and net NPAs represented 5.76% of our net advances. Our provision coverage ratio was 56.37% and 56.21% as of March 31, 2017 and September 30, 2017, respectively.
We have received several awards in recognition of our operations including the Skoch Financial Inclusion Award- 2017 for various IT initiatives, received third prize for the overall performance under SHG-Bank Linkage and JLG-Bank Linkage programme for Fiscal 2017 among commercial Banks operating in Karnataka from NABARD, received ‘Award of Excellence’ from Ministry of Rural Development, Government of India, for Fiscal 2015 and 2016, in recognition of exemplary leadership given to SyndRSETIs sponsored by the Bank, Certificate of Commendation from Ministry of New and Renewable Energy, Government of India for Collateral Free Farmers Friendly Initiatives for financing of Renewable Energy Projects (during February 2015 to March 2016) and our Bank has also been awarded “the 7th PSU Award 2015” by Dalal Street – Investment Journal for lowest Net NPA to Net Advances ratio. NPCI- National Payments Excellence Award 2016 for excellent performance in select parameters of various NPCI products, Bank has received SKOCH Award for employment generation under Pradhan Mantri Mudra Yojana (PMMY), Bank has received SKOCH Annual Cyber Security Awards 2017 for implementing Distributed Denial Service Solution (DDoS), Security Information and Events Management (SIEM) and Security Operation Centre (SOC), Bank has received first prize in Rajbhasha Kirti Puraskar (President Award) in “C” region for our in-house Hindi journal “Jagriti” for the year 2016-17.
Factors Affecting Results of Operations and Financial Condition
Our Bank’s asset portfolio, financial condition and results of operations have been, and are expected to be, influenced by numerous factors, including but not limited to those described below. These are expected to affect the overall growth prospects of our Bank, including its ability to expand its deposit base, the quality of its assets, the level of credit disbursed by our Bank, the value of its asset portfolio and its ability to implement its strategy.
Macroeconomic environment
Domestically macroeconomic conditions remained stable and the expectations of accelerated reforms and political stability further reinforced the overall positive business sentiment. Retail inflation witnessed significant decline during the recent quarters and the real gross value added (GVA) growth decelerated to 6.6 per cent in 2016-17 from 7.9 per cent in 2015-16, largely reflecting slowdown in services. Government’s commitment to fiscal discipline had a positive impact on macroeconomic outlook. However, concerns arise over States’ fiscal position and the stretched debt capacities of some parastatals. Going forward, reforms in foreign direct investment, implementation of goods and services tax (GST), and revival in external demand are likely to contribute to a better growth outlook. The impact of demonetisation, if any, on exchange rate and portfolio flows was fleeting. Amidst concerns over asset quality, credit intermediation by public sector banks has retrenched while that by NBFCs and
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mutual funds has increased significantly. Notwithstanding the current benign conditions, it is important to guard against geopolitical risks. (Source: Financial Stability Report June-2017).
Since the Monetary Policy Report (MPR) of April 2017, the macroeconomic setting for the conduct of monetary policy has undergone significant shifts. The gradual firming up of global growth, especially in advanced economies (AEs), has whetted a renewed search for returns that has buoyed global financial markets. The monetary policy committee (MPC) decided to reduce the policy repo rate by 25 basis points (bps), noting that (i) the baseline path of headline inflation excluding the impact of house rent allowances (HRA) awarded under the recommendation of the seventh central pay commission (CPC) was likely to fall below the projection made in June to a little above 4 per cent by Q4; (ii) inflation excluding food and fuel had fallen significantly since May after remaining sticky through 2016-17; and (iii) the roll-out of the GST during July 2017 had been relatively smooth.
The April 2017 MPR had projected an acceleration in real GVA for 2017-18 on the back of (a) a recovery in discretionary spending spurred by the pace of remonetisation; (b) the reduction in banks’ lending rates on fresh loans brought about by demonetisation-induced liquidity; (c) the growth stimulating proposals in the Union Budget 2017-18; (d) a normal south-west monsoon; and (e) an improvement in external demand. Stressed balance sheets of banks and the possibility of higher global commodity prices were seen as downside risks to growth prospects.
In India, the slowdown of economic activity that set in from Q1 of 2016-17 and became pronounced in the second half of the year appears to have extended into the first half of 2017-18. Looking ahead, some improvement in services may counterbalance the persisting weakness in industrial production. Inflation underwent a dramatic decline, reaching a historic low in June, but as the prints for July and August portend, a gradually rising trajectory may take hold over the rest of 2017-18. Alongside these developments, there has been an improvement in external viability; the foreign exchange reserves were around 11.5 months of imports in September 2017 and over 4 times short-term external debt.
(Source: Monetary Policy Report, October 2017). According to CSO data released on November 30, 2017, the India’s GDP grew by 6.3% in Q2 (Jul-Sept) quarter of FY 2017-18. This is higher than 5.7% GDP growth in Q1 (Apr-Jun) quarter of FY 2017-18. The economic activities which registered growth of over 6.0 percent in Q2 of 2017-18 over Q2 of 2016-17 are ‘manufacturing’, ‘electricity, gas, water supply & other utility services and ‘trade, hotels, transport & communication and services related to broadcasting’. Gross value added (GVA) grew by 6.1 percent in the Q2 of FY 2017-18 against 5.6 percent in the Q1 of 2017-18. (Source: Estimates of Gross Domestic Product for the Second Quarter (Jul-Sept) of 2017-18, www.mospi.in)
Growth of Money Supply on year on year basis as on October 27, 2017 stood at 6.5 per cent as compared to a growth rate of 10.4 per cent recorded in the corresponding period in the previous year. As regards the components of money supply, the growth of ‘currency with the public’ registered decline of 9 per cent as on October 27, 2017 against growth of 17.8 per cent registered during the corresponding period a year ago. The growth rate of time deposits with banks was 7.6 per cent as on October 27, 2017 as against 9.2 per cent in recorded in the corresponding period a year ago. On the other hand, demand deposits increased by 21.4 per cent as of October 27, 2017 as against 10.4 per cent during the same period previous year. (Source: Dea.gov.in/monthly-economic- report)
Growth of aggregate deposits of Scheduled Commercial Banks (SCBs) as on October 27, 2017 was 9.2 per cent on YoY basis as compared to 9.2 per cent recorded on the corresponding date of the previous year. In terms of bank credit, YoY growth was 7.2 per cent as on October 27, 2017 as against 8.7 per cent in the corresponding period a year ago. The YoY growth of investment in Government and other approved securities by SCBs was 15.9 per cent as on October 27, 2017 as compared to 8.0 per cent in the corresponding period of the previous year. The base lending rate as on November 3, 2017 was 8.95/9.45 per cent as compared to 9.30/9.65 per cent during the corresponding period a year ago. The term deposit rates for above one year was 6.00/6.75 per cent as on November 3, 2017 as against 6.50/7.30 per cent during the corresponding period a year ago. (Source: Dea.gov.in/monthly- economic-report)
Performance of the banking sector in India
The Indian banking sector is highly regulated and monitored, which contributes to its relative stability during uncertain economic periods. According to the RBI’s financial stability report, June 2017 (“RBI Financial
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Stability Report”), after years of sluggish growth, the global economy seems poised for a turnaround. While there are uncertainties, the underlying feeling of a stable transition from a global accommodative monetary policy regime to a normal rate cycle is evident in equity and fixed income markets. Notwithstanding the US decision to pull out of the Trans Pacific Partnership, there has been a steady increase in global trade. Furthermore, the US dollar in trade weighted terms has stopped rising. Domestically macroeconomic conditions remained stable and the expectations of accelerated reforms and political stability further reinforced the overall positive business sentiment. The Government’s commitment to fiscal discipline had a positive impact on macroeconomic outlook.
RBI Financial Stability Report noted that during fiscal 2017, while deposit growth of scheduled commercial banks picked up, credit growth remained sluggish putting pressure on net interest income, particularly of the public sector banks. While profitability ratios showed a marginal increase, public sector banks continued to show a negative return on assets. The gross non-performing advances of the banking sector rose but the stressed advances ratio declined between September 2016 and March 2017 on account of agriculture, services and retail sectors. Overall, capital to risk weighted assets ratio improved from 13.4% to 13.6% between September 2016 and March 2017 owing to improvement in capital adequacy of private and foreign banks. The share of large borrowers both in scheduled commercial banks total loans portfolio as well as gross non-performing advances showed a reduction between September 2016 and March 2017.
The network structure of the financial system indicates that scheduled commercial banks were the dominant players accounting for nearly 51% of the bilateral exposures followed by asset management companies managing mutual funds, nonbanking financial companies, all-India financial institutions, insurance companies and housing finance companies. The efficiency and competitiveness of the banking sector is likely to increase with entry of differentiated banks. India’s financial system remains stable, while the concerns on banks’ asset quality remain.
(Source: Financial Stability Report June-2017).
Regulations governing the Indian banking industry
The Indian banking industry is regulated by the RBI and operates within a framework that provides guidelines on capital adequacy, corporate governance, management, anti-money laundering and provisioning for NPAs. The framework also stipulates required levels of lending to “priority sectors,” such as agriculture, which may expose our Bank to higher levels of risk than it otherwise might face. Being the Banking Regulator, RBI is empowered to alter any of these policies at any time and can introduce new regulations to control any particular line of business
During the fiscal 2016 – 17, the RBI further strengthened the regulatory framework for dealing with stressed assets, inter alia, by revising its guidelines on the resolution of stressed assets; viz., the strategic debt restructuring (SDR) scheme, the scheme for sustainable structuring of stressed assets (S4A), flexible structuring of existing long term project loans to infrastructure and core industries; and guidelines for projects under implementation. Keeping in view the critical role of the bankruptcy and insolvency regime in shaping the business environment as well as resolution of debtors in distress, the government enacted the Insolvency and Bankruptcy Code, 2016 in May 2016. With a view to further strengthening banks’ ability to resolve their stressed assets effectively and to enhance transparency in the entire process, the Reserve Bank issued guidelines on sale of stressed assets by banks on September 1, 2016. The guidelines require banks to identify and list internally, at least once a year, the specific financial assets identified for sale to other institutions, including securitisation companies (SCs)/reconstruction companies (RCs).
RBI issued guidelines on implementation of Basel III capital regulation on May 2, 2012, to the extent applicable to banks operating in India. The Basel III capital regulation has been implemented from April 1, 2013 in India in phases and it will be fully implemented as on March 31, 2019.
Basel III reforms are the response of Basel Committee on Banking Supervision (BCBS) to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spill over from the financial sector to the real economy. Basel III reforms strengthen the bank-level i.e. micro prudential regulation, with the intention to raise the resilience of individual banking institutions in periods of stress. Besides, the reforms have a macro prudential focus also, addressing system wide risks, which can build up across the banking sector, as well as the pro cyclical amplification of these risks over time.
The Government’s monetary policy is heavily influenced by the condition of the Indian economy, and changes in the monetary policy affect the interest rates of our advances and deposits. The RBI responds to fluctuating levels of economic growth, liquidity concerns and inflationary pressures in the economy by adjusting the monetary
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policy. A monetary policy designed to combat inflation typically results in an increase in RBI lending rates. Further, in addition to having gradually established more stringent capital adequacy requirements, the RBI has also instituted several prudential measures to moderate credit growth including increase in risk weights for capital adequacy computation and general provisioning for various asset classes. For further information, see the section titled “Regulation and Policies” on page 174.
NPA levels and provisioning
Our loan portfolio includes loans to a wide range of businesses and industries. Financial difficulties experienced by our customers or by particular sectors of the Indian economy, to which we have historically had and continue to have significant exposure, could significantly increase our NPA levels. Our Gross NPAs were ₹ 64,423.78 million, ₹ 138,321.60 million, and ₹ 176,093.13 million as of March 31, 2015, March 31, 2016 and March 31, 2017, respectively, representing 3.13%, 6.70% and 8.50% respectively, of gross advances as of such dates; while Net NPAs were ₹ 38,436.50 million, ₹ 90,148.70 million and ₹ 104,109.84 million, representing 1.90%, 4.48% and 5.21% respectively, of net advances as of such dates. Our profits are affected by the amount of provisions against loans, recovery and litigation costs.
At a minimum, we make provisions in accordance with RBI guidelines, though we may provide in excess of RBI requirements to reflect our internal estimates of actual losses. If there is any deterioration in the quality of our security or further ageing of assets after being classified as non-performing, we may be required to increase our provisions. Moreover, our ability to manage NPA levels will depend on our ability to recover NPAs in a manner consistent with past abilities and further improve our internal controls and processes.
Pursuant to the revised “Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions” issued by the RBI on May 30, 2013, provisioning requirements on all new standard restructured assets increased to 5% with effect from June 1, 2013. These provisions will apply for two years from the date of restructuring and in case of moratorium on payment of interest and principal after restructuring, such advances will attract provisions for the moratorium period and for two years thereafter. In addition, restructured NPAs when upgraded to standard attract a higher provision in the first year of being upgraded. Our restructured asset considered standard as of March 31, 2017 was ₹ 42,921.80 million equivalent to 2.15% of our net advances.
Capital adequacy, liquidity requirements and reserve ratios
Capital adequacy
Since April 1, 2013, capital adequacy ratios prescribed by the RBI Basel III Capital Regulations have been implemented in phases. Under the RBI Basel III Capital Regulations, banks are required to improve the quantity, quality and transparency of their Tier I capital, enhance risk coverage and supplement the risk-based requirements with a leverage ratio. By March 2019, when the Basel III norms are fully implemented, the minimum total capital adequacy ratio (including the capital conservation buffer) required will be 11.50% of risk-weighted assets.
RBI, as part of Basel III liquidity framework, has issued and will continue to issue guidelines on liquidity management applicable to banks. Liquidity coverage ratio (“LCR”) is being implemented in a phased manner. It started with a minimum requirement of 60% from January 1, 2015 to reach 100% by January 1, 2019. As of the date of this Preliminary Placement Document, banks in India are required to maintain liquidity buffers in the form of high quality liquid assets of 80% with effect from January 1, 2017. This is scheduled to increase to 90% with effect from January 1, 2018. The current requirement is to maintain incremental liquidity buffer of high quality liquid assets. While LCR provides higher safety, it results in higher liquidity cost and hence lower profitability. Our average LCR as on March 31, 2017 was 118.53% against the minimum requirement of 80%.
The table below summarizes the capital requirements under RBI Basel III Capital Regulations for banks in India:
As % to Sr. No Regulatory Capital RWAs 1. Minimum Common Equity Tier 1 Ratio 5.50 2. Capital Conservation Buffer (comprised of Common Equity) 2.50 Minimum Common Equity Tier 1 Ratio plus Capital Conservation Buffer 3. [(i)+(ii)] 8.0 4. Additional Tier 1 Capital 1.50 5. Minimum Tier 1 Capital Ratio [(i) +(iv)] 7.0
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6. Tier 2 Capital 2.0 7. Minimum Total Capital Ratio (MTC) [(v)+(vi)] 9.0 8. Minimum Total Capital Ratio plus Capital Conservation Buffer [(vii)+(ii)] 11.50
The capital adequacy requirements prescribed by Basel III guidelines are more stringent than the requirements prescribed by the earlier guidelines and compliance with such requirements will have an impact on our financial results, including certain key indicators of financial performance, such as the return on equity.
Reserve ratios
Schedule commercial banks including us are subject to Cash Reserve Ratio (“CRR”) requirement as prescribed under RBI regulations. CRR is our balance held in a current account with the RBI, and is calculated as a specified percentage of our net demand and time liabilities, excluding inter-bank deposits. The CRR currently applicable to banks in India is 4%. The RBI has the authority to prescribe CRR without any ceiling limits and is not obliged to pay interest payments on CRR balances. All banks operating in India are also required to maintain a Statutory Liquidity Ratio (“SLR”), which is a specified percentage of a bank’s net demand and time liabilities by way of liquid assets such as cash, gold or approved unencumbered securities. SLR is intended to be a measure to maintain the bank's liquidity, however, it has adverse implications on our ability to expand credit. Changes in interest rates also impact the valuation of our SLR portfolio and thereby affecting our profitability.
The following table sets forth the RBI’s CRR, the reverse repo rate, the repo rate and MSF as of the dates indicated:
As of March 31, CRR Reverse Repo Rate Repo Rate MSF 2015 4.00% 6.50% 7.50% 8.50% 2016 4.00% 5.75% 6.75% 7.75% 2017 4.00% 5.75% 6.25% 6.75% (Source: RBI)
Interest income
Our results of operations depend to a great extent on our net interest income. Our net interest income is determined by the amount of interest earning assets and interest-bearing liabilities, and on our spread, which is the difference between the average rate earned on our interest-earning assets and the average rate payable on our interest-bearing liabilities. Our net interest income, as a percentage of total income, was 23.27%, 23.28% and 23.72% in Fiscal 2015, 2016 and 2017, respectively and 25.81% in the six months ended September 30, 2017. Our net interest income is affected by a number of factors including interest rates, our ability to allocate funds to assets that provide high interest rates, and cost of funding.
Interest rates
Changes in interest rates affect the interest rates we charge on our interest-earning assets and that we pay on our interest- bearing liabilities. Indian banks including us tend to follow the direction of interest rates set by the RBI and adjust both their deposit rates and lending rates upwards or downwards accordingly. Decreases in the RBI policy rates would prompt Indian banks to re-examine their lending rates. Adverse changes in prevailing interest rates may result in a decline in net interest income due to increase in our costs of funds or deposits without a corresponding increase in our yield on assets. Interest rates are highly sensitive to many external factors beyond our control, including growth rates in the economy, inflation, money supply, RBI’s monetary policies, deregulation of the financial sector in India, domestic and international economic and political conditions and other factors.
Growth in the MSE and retail segment
We have traditionally targeted the MSE and the retail segments. Lending to the MSE sector enables us to diversify our credit risk profile due to the smaller individual exposure reducing systemic risks. MSEs offer comparatively higher yields, associated business/ cross-selling opportunities and higher degree of secured/ collateralised loans. Our advances to MSE customers were ₹219,113 million, ₹ 248,807 million and ₹ 248,663 million in in Fiscal 2015, Fiscal 2016 and Fiscal 2017, respectively which constituted 13%,15% and 15% of our total domestic advances for the same periods.
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In the retail segment, we have a significant housing loan portfolio. Housing loans constituted ₹119,797 million, ₹ 141,743 million, and ₹ 149,810 millions of our total advances in Fiscals 2015, 2016 and 2017, respectively constituting 54%, 53%, and 54% of our total retail credit for the same period.
Our network has also been selectively augmented to focus on the MSE and retail segments. Going forward, we expect a significant portion of our business and revenues to continue to be derived from our exposure to the MSE and retail segment, and consequently, any downturn in these segments, occasioned by macro or micro-economic circumstances, deterioration of asset quality, low recoveries or any other circumstances may adversely affect our interest income.
Significant Accounting Policies
We have set forth below some of our critical accounting policies under Indian GAAP. Our audited financial statements of and for the fiscal years ended March 31, 2015, 2016 and 2017 are prepared in accordance with Indian GAAP as applicable to banks. The preparation of the financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, income and expenses as well as the disclosure of contingent liabilities. By their nature, the assumptions, estimates and judgments that our management is required to make are inherently subject to a degree of uncertainty. These judgments are based on our historical experience, our evaluation of accounting practices that would be appropriate in respect of our business, our observation of trends in the banking sector, information with respect to our customers, and information available from independent sources, as appropriate.
While we believe that these judgments have been exercised by our management in good faith and with due consideration to all material effects on our Financial Statements, there can be no assurance that our management’s judgment will prove correct or that actual results reported in future periods will not differ from our expectations reflected in the accounting treatment of certain items.
Basis of accounting
The financial statements of the parent bank including foreign office have been prepared following the going concern concept under the historical cost convention unless otherwise stated. They conform to Generally Accepted Accounting Principles (GAAP) in India, which comprise statutory provisions, regulatory / Reserve Bank of India (RBI) guidelines, Accounting Standards / Guidance Notes issued by the Institute of Chartered Accountants of India (ICAI) and the practices prevalent in the banking industry in India. However, in respect of foreign office, statutory provisions and practices prevailing in respective foreign country are complied with.
Use of estimates
The preparation of financial statements requires the management to make estimates and assumptions considered in the reported amount of assets and liabilities (including contingent liabilities) as on date of the financial statements and the reported income and expense for the reporting period. Management believes that the estimates used in the preparation of the financial statements are prudent and reasonable. Any revision to the accounting estimate is recognized prospectively in the current and future periods unless otherwise stated.
Use of accounting policy
Accounting Policy are consistently used unless change is required by statute or for compliance with Accounting Standard or the change would result in a more appropriate presentation of the financial statements.
Consolidation procedure
Consolidated Financial Statements (CFS) of the parent bank, its Subsidiary has been prepared on the basis of the financial statements and in accordance with Accounting Standard (AS) – 21 – “Consolidated Financial Statements” issued by the Institute of Chartered Accountants of India (ICAI) / National Advisory Committee on Accounting Standards (NACAS).
The financial statements of the parent bank and its Subsidiary have been aggregated on a line by line basis by adding together like sums of assets, liabilities, income and expenses, after eliminating intra group transactions and unrealized profit/ loss and making necessary adjustments wherever practicable, to conform to the uniform
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accounting policies. The financial statements of the Subsidiary are drawn up to the same reporting date as that of the parent.
Long term investment in Associates, as on the date of consolidation, is valued under the Equity method and the carrying amount of the investment is adjusted thereafter for the post-acquisition change in the parent’s (Investor) share of net assets of the Associates in accordance with Accounting Standard (AS) 23 - “Accounting for Investments in Associates in Consolidated Financial Statements” issued by the ICAI. The Investor’s share of the results of operations of the Associates is reflected separately in the consolidated statement of Profit and Loss
Transactions involving Foreign Exchange
Foreign currency transactions are recorded on initial recognition in the reporting currency by applying to the foreign currency amount the exchange rate between the reporting currency and the foreign currency. Following exchange rates are used for initial recognition:
a) For transactions involving foreign currency liabilities at branches (FCNR, EEFC, RFC) Weekly Average Rate (WAR) published by the Foreign Exchange Dealers’ Association of India (FEDAI). b) For transactions involving foreign currency assets at branches and assets and liabilities at ‘A’ designated branch (Treasury and International Banking Department) market rate on the date of transaction.
All the foreign currency monetary assets and liabilities are reported at closing exchange spot/ forward rates notified by the FEDAI at the end of each quarter and the resultant gains or losses are recognized in the Profit and Loss A/c. Contingent liabilities denominated in foreign currency are reported using the FEDAI closing spot rate.
Outstanding foreign exchange spot and forward for trading are revalued at the exchange rates notified by the FEDAI for specified maturities and at interpolated rates for contracts of “in between maturities”. The resultant Marked to Market (MTM) gain/loss is discounted to arrive at present value MTM gain/loss by using CCIL - Zero Coupon Yield Curve (ZCYC) rates and the same is recognized in Profit and Loss A/c.
In the case of foreign exchange forward contacts which are not intended for trading, premium or discount arising at the inception is amortised as expenses or income over the life of the contract.
The Parent Bank has a branch at London and the operations of the same is classified as “Non-Integral Operations” in accordance with Accounting Standard 11(AS-11) issued by the Institute of Chartered Accountants of India (ICAI).
a) All assets and liabilities of the foreign operations, both monetary and non-monetary as well as contingent liabilities are translated at closing spot rates notified by the FEDAI at end of each quarter b) Income and Expenditure are translated at Quarterly Average Rates (QAR) notified by the FEDAI at end of each quarter. c) The resulting Exchange Difference arising from translation as per AS-11 is accumulated in a “Foreign Currency Translation Reserve” until disposal of net investment of the foreign branch d) The Assets and liabilities of the branch in foreign currency (other than local currency of the branch) are translated into local currency using applicable spot rate at the end of each quarter.
Investments
The transactions in securities are recorded on “Settlement Date”.
Classification
The Investment portfolio of the parent bank is classified, in accordance with the RBI guidelines, into:
a) “Held to Maturity” (HTM) comprising Investments acquired with the intention to hold them till maturity. Investments in subsidiaries, joint ventures and associates are also categorised under Held to Maturity. b) “Held for Trading” (HFT) comprising Investments acquired with the intention to trade by taking advantage of short term price/interest rate movements. These are intended to be traded within 90 days from the date of purchase.
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c) “Available for Sale” (AFS) comprising Investments not covered by (a) and (b) above i.e., those investments which do not fall under in “Held to Maturity” or “Held for Trading” classification
In the balance sheet, the investments are disclosed as per the following six classifications in accordance with the guidelines of the Reserve Bank of India:
(i) Government securities (ii) Other approved securities (iii) Shares (iv) Debentures and bonds (v) Subsidiaries and / or Associates (vi) Others
Parent bank’s investments in units of VCS’s are classified under HTM category and are valued at cost. After period of three years from date of disbursement, it is shifted to AFS and marked-to market as per RBI guidelines.
Acquisition Cost of Investment
a) Brokerage, Commission, Securities Transaction Tax (STT) etc., paid in connection with acquisition of investments are expensed upfront and excluded from cost. b) Broken period interest paid/received on debt instruments is treated as interest expense/ income and is excluded from cost/sale consideration. c) Cost of investments is determined at weighted average price method d) Incentive received on subscriptions is deducted from the cost of securities. Brokerage/ Commission/Stamp Duty paid in connection with acquisition of securities are treated as revenue expense.
Method of Valuation:
a) Investments classified as HTM are carried at weighted average acquisition cost unless it is more than the face value, in which case the premium is amortized over the period remaining to maturity, on constant yield basis. Such amortisation of premium is adjusted against income under the head “interest on investments” b) Investments in subsidiaries and joint ventures are valued at acquisition cost less diminution, other than temporary in nature c) Transfer of securities from HFT/AFS category to HTM category is carried out at the lower of acquisition cost/book value/market value on the date of transfer. The depreciation, if any, on such transfer is fully provided for. However, transfer of securities from HTM category to AFS category is carried out on acquisition price/ book value. After transfer, these securities are immediately revalued and resultant depreciation, if any, is provided d) Investments held under AFS and HFT are valued as under:
a) Government/ Approved At market prices/YTM as published by Fixed Income Money Market and Securities Derivatives Association of India (FIMMDA) i. Central Govt. On appropriate yield to maturity basis as per FIMMDA/RBI guidelines. Securities ii. State Govt. Securities b) Securities guaranteed by On appropriate yield to maturity basis as per FIMMDA/RBI guidelines. Central / State Government, PSU Bonds (not in the nature of advances) c) Equity Shares At market price if quoted, otherwise at break-up value of the Shares as per latest Balance Sheet (not more than 18 months old), otherwise at ` 1 per company d) Preference Shares At market price, if quoted or on appropriate yield to maturity basis not exceeding redemption value as per RBI/FIMMDA guidelines e) Bonds & Debentures (Not At market price, if quoted or on appropriate yield to maturity basis not in nature of advances) exceeding redemption value as per RBI/FIMMDA guidelines. f) Units of Mutual Funds As per stock exchange quotation, if quoted at repurchase price/NAV, if unquoted.
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g) Venture Capital Declared NAV or break-up NAV as per audited balance sheet which is not more than 18 months old. If NAV/audited financials are not available for more than 18 months continuously then at Re. 1/- per VCF h) Security Receipts Declared NAV by the Asset Reconstruction Company as per RBI / SEBI guidelines. i) Commercial Paper/COD Valued at cost
The above valuation in category of Available for Sale and Held for Trading is done scrip wise on quarterly basis and depreciation/appreciation is aggregated for each classification. Net depreciation for each classification, if any, is provided for while net appreciation is ignored. On provision for depreciation, the book value of the individual security remains unchanged after marking to market. Depreciation on the instrument acquired by way of conversion, whether classified as standard or NPA, is not offset against the appreciation in any of other securities held under the AFS category.
Investments are classified as performing and nonperforming, based on the guidelines issued by the RBI in the case of domestic offices and respective regulators in the case of foreign offices. Investments of domestic offices become non-performing where:
Interest/instalment (including maturity proceeds) is due and remains unpaid for more than 90 days. In the case of equity shares, in the event the investment in the shares of any company is valued at Re 1 per company on account of non-availability of the latest balance sheet, those equity shares will be reckoned as NPI. If any credit facility availed by an entity is NPA in the books of the Parent Bank, investments in any of the securities issued by the same entity would also be treated as NPI and vice versa. The above would apply mutatis-mutandis to Preference Shares where the fixed dividend is not paid. The investments in debentures/bonds, which are deemed to be in the nature of advance, are also subjected to NPI norms as applicable to investments. In respect of non-performing securities, income is not recognised, and provision is made for depreciation for such securities as per RBI guidelines. Provision made on non-performing investments is not set off against the appreciation in respect of other performing investments.
In case of sale of NPA (financial asset) to securitisation Company (SC)/Asset. Reconstruction Company (ARC) against issue of Security Receipts (SR), investment in SR is recognised at lower of (i) Net Book Value (NBV) (i.e.), book value less provisions held) of the financial asset: and (ii) Redemption value of SR. SRs issued by an SC/ARC are valued in accordance with the guidelines applicable to non SLR instruments. Accordingly, in cases where the SRs issued by the SC/ARC are limited to the actual realisation of the financial assets assigned to the instruments in the concerned scheme, the Net Asset Value, obtained from the SC/ARC, is reckoned for valuation of such investments
Disposal of Investments
a) Profit/loss on sale of Investments classified as HTM is recognized in the Profit and Loss Account based on the weighted average cost/ book value of the related Investments and an amount equivalent of profit on sale of Investments in HTM classification is appropriated to Capital Reserve Account. Profit/loss on sale of Investments classified as HTM is recognized in the Profit and Loss Account based on the weighted average cost/ book value of the related Investments and an amount equivalent of profit on sale of Investments in HTM classification is appropriated to Capital Reserve Account. b) Profit/loss on sale of Investment in AFS/HFT category is recognized in Profit and Loss Account.
Floating/Fixed Rate Note and Credit Linked Note, Investments at Foreign Branch are classified as ‘Available for Sale’ category and are valued at nominal value or market value, whichever is lower. These Investments are marked to market at quarterly intervals and where the value of these Investments is lower than the nominal value, provision for depreciation is created in the Balance Sheet and a corresponding charge is recognized in the Profit and Loss Account.
The securities sold and purchased under Repo/ Reverse repo are accounted as Collateralised lending and borrowing transactions. However, securities are transferred as in case of normal outright sale/purchase transactions and such movement of securities is reflected using the Repo/ Reverse Repo Accounts and Contra entries. The above entries are reversed on the date of maturity. Costs and revenues are accounted as interest
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expenditure/income, as the case may be. Balance in Repo Account is classified as Borrowings and balance in Reverse Repo account is classified as Balance with Banks and Money at Call & Short Notice.
Foreign Branch’s Investment:
a) Floating and Fixed Rate Note investments at Foreign Branch are classified as Available for Sale category and are valued at nominal value or market value, whichever is lower b) Premium at time of purchase if any shall be amortised over the residual period of the instrument while any discount on purchase is ignored c) These investments are marked to market at quarterly intervals and where the value of these investments is lower than the nominal value, a provision for depreciation is created in the Balance Sheet and a corresponding charge is recognized in the Profit & Loss A/c.
Derivatives
The Parent Bank enters into derivative contracts, such as Foreign Exchange Forward contracts, Interest Rate Swaps, Currency Swaps, and Cross Currency Interest Rate Swaps and Forward Rate agreements in order to hedge on-balance sheet/off-balance sheet assets and liabilities or for trading purposes. The Swap contracts entered to hedge on-balance sheet assets and liabilities are structured in such a way that they bear an opposite and offsetting impact with the underlying on-balance sheet items.
All Forward Contracts are marked to market as per the generally accepted accounting practices prevalent in the industry.
Parent Bank is undertaking the Exchange Trade Derivatives in form of Currency Futures with recognized Stock Exchanges. Currency Futures are marked to market on daily basis.
The credit exposures for derivative transactions are calculated in accordance with the guidelines issued by RBI monitored on Current Credit Exposure method.
The naked hedging transactions are considered as a trading transaction and allowed to run till maturity
Advances
Advances are classified into Performing and Non-performing Assets and provisions for losses on such advances are made as per prudential norms issued by Reserve Bank of India from time to time. In respect of foreign branch, asset classification and provisioning for loan losses are made as per local requirements or as per RBI prudential norms, whichever are more stringent. Advances are stated net of provisions made for Non-Performing Assets except general provisions for Standard Advances.
In case of sale of financial assets to the Asset Reconstruction Company (ARC)/Securitization Company (SC)/Banks/FIs/NBFCs at a price below the Net Book Value (NBV), i.e. Book Value less Provision held, the shortfall is debited to the Profit and Loss Account and in case of sale at a value higher than the NBV, the excess provision is reversed to Profit and Loss Account in the year in which the amounts are received.
PREMISES, OTHER FIXED ASSETS AND DEPRECIATION
Premises and other fixed assets are stated at historical cost and/or revalued value less accumulated depreciation. The premises are revalued every three years at value determined based on the appraisal by approved valuers. Surplus arising at such revaluation is credited to Revaluation Reserve.
Depreciation on premises has been provided on composite cost wherever cost of land cannot be segregated
Depreciation in respect of fixed assets is calculated on with reference to cost or revalued amount, in case of assets revalued and the same is charged to Profit and Loss account. In the case of Revalued assets, the additional depreciation consequent to revaluation is transferred from Revaluation reserve to Free Reserve in the Balance Sheet.
Depreciation on assets in charged on straight line method (SLM) basis as per the rates stated below:
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(A) Premises Rates (SLM) I. Parent Bank owned (freehold / leasehold) 1.58% - Useful life of Building is 60 Years II. Capital Expenditure on premises taken on lease 10% - where lease period is not specified - where lease period is specified Amortised over the residual period of lease
(B) OTHER ASSETS: Sl. No. Type of Asset Dep. Rate (SLM) 1 Furniture & Fittings, Electrical Equipments - Other than 9.50% Computers and ATMs 2 UPS 15.83% 3 Other Equipments 13.57% 4 Electronic Equipments 20.00% 5 Computers and ATMs Blank 5 (i) Server Hardware, Network Equipments and Automated Teller 20.00% Machines (ATMs) 5(ii) Computers other than mentioned at 5 (i) above 33.33% 6 Vehicles including Motor Car, Motor Cycle etc. 20.00%
Depreciation on any additions to fixed assets is provided on a pro rata basis from the date of such addition
Employee Benefits
Short Term Employee Benefits:
a. Employee benefits payable wholly within twelve months of rendering the service is classified as short term employee benefits and are recognized in the period in which the employee renders the related service.
Long term Employee Benefits:
a. Employee Benefits in the form of Provident Fund is a Defined Contribution Scheme and the contributions are charged to Profit & Loss Account in the year in which the contributions are due in respect of employees who have opted for Provident Fund. i. In respect of employees who have opted for Pension Scheme, Pension Benefit is a Defined Benefit Obligation and is provided for on the basis of actuarial valuation made at the end of the Financial Year for the employees who have joined the Parent Bank up to 31st March, 2010. The Pension liability is funded by the Parent Bank to the Pension Fund Trust of the Parent Bank, ii. New Pension Scheme which is applicable to employees who joined the Parent Bank on or after 1st April, 2010 is a Defined Contribution Scheme at pre-determined rate and the obligation the Parent Bank is limited to such contribution. The Contribution is charged to Profit & Loss Account b. Gratuity liability is a Defined Benefit Plan and is provided for on the basis of actuarial valuation made at the end of the Financial Year. The gratuity liability is funded to the Gratuity Fund Trust of the Parent Bank. c. Accumulated Compensated absences such as Leave Encashment are provided for based on actuarial valuation.
Recognition of Revenue/Expenses
a) Revenue and expenses are generally accounted for on accrual basis except in respect of fees/commission on transactions with Mutual Funds, income from non-banking assets, locker rent, interest on overdue bills/tax refunds, income from non-performing assets, SDR/S4A accounts and legal expenses on suit filed accounts which are accounted for on cash basis. b) Income from dividend on shares is accounted for on accrual basis when the same is declared and the right to receive the dividend is established. c) The broken period interest on sale or purchase of securities is treated as revenue item as per RBI guidelines.
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d) Income from consignment sale of imported gold coins is accounted for as other income after the sale is completed. e) The Interest Income and Expenditure on Derivatives Transactions entered for hedging is accounted on accrual basis f) Lease payments including cost escalation for assets taken on operating lease are recognized in the Profit and Loss Account over the lease term in accordance with the AS-19 (Leases) issued by ICAI.
Taxes on Income
Current tax is determined as per the provisions of the Income tax Act, 1961.
Deferred Tax Assets and Liabilities arising on account of timing differences between taxable and accounting income, is recognized keeping in view, the consideration of prudence in respect of Deferred Tax Assets in accordance with the Accounting Standard 22 issued by ICAI.
Country Risk Management
The Parent Bank has adopted the Country Risk Management policy in accordance with the RBI guidelines. Export Credit Guarantee Corporation (ECGC) publishes the Seven Country Risk Category classification, namely, Insignificant, Low, Moderately Low, Moderate, Moderately High, High, Very High, Restricted and Off-credit. Provision for country risk exposure is made as per extant RBI Guidelines. If the country exposure (net) of the Parent Bank in respect of each country does not exceed 1% of the total funded assets, no provision is required on such country exposures. The Country Risk Provision (if required) is reflected in Schedule 5 of the Balance Sheet under “Other Liabilities and Provisions”.
Unhedged Foreign Currency Exposure
The Parent Bank has framed and approved a policy for administration of credit risk rising out of Unhedged foreign currency exposures in accordance with extant RBI guidelines.
Impairment of assets
The carrying amount of assets is reviewed at each Balance Sheet date for any indication of impairment based on internal/external factor. An impairment loss is realized whenever the carrying amount of an asset exceeds its estimated recoverable amount.
Net Profit
Net Profit is arrived at after accounting for the following under “Provisions and Contingencies”:
- Provision for Income Tax and Wealth Tax - Provision/Write off of Non-Performing Advances and Investments - Provision on Standard Assets - Adjustment for appreciation/depreciation on Investments - Transfer to Contingencies - Other usual and necessary provisions
Earnings per Share
Earnings per Share are calculated by dividing the net profit or loss for the period attributable to equity shareholders by the weighted average number of equity shares outstanding during the period. Diluted earnings per equity share are computed using the weighted average number of equity shares and dilutive potential equity shares outstanding as at the end of the year.
Provisions, Contingent Liabilities and Contingent Assets
As per AS 29 (Provisions, Contingent Liabilities and Contingent Assets) issued by the ICAI, the Parent Bank realized provisions only when it has a present obligation as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and when a reliable estimate of the amount of the obligation can be made. Contingent liability is disclosed unless the possibility of an outflow
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of resources embodying economic benefit is remote. Contingent Assets are not realized in the financial statements since this may result in the recognition of income that may never be realized.
Components of Income and Expenditure
Income
Our income comprises of income from interest earned and other income.
Interest Earned
Interest earned consists of interest on advances and bills, income on investments, interest on balances with RBI and other inter-bank funds and other interest earned. Income from investments consists of interest on government securities, interest on other approved securities and income from units of mutual funds, commercial paper and venture capital fund. Other interest earned includes interest on deposits placed with National Bank for Agricultural and Rural Development, Small Industries Development Bank of India and National Housing Bank and interest on income tax refunds. Our securities portfolio consists primarily of Government securities, debentures and bonds, equity shares, mutual fund units, certificates of deposit, commercial paper and security receipts. On the balances that we maintain with RBI to meet our cash reserve requirements, we do not receive any interest.
Other Income
Other income consists of income from non-interest bearing sources including income from commission, exchange and brokerage which include fees from opening letter of credit and negotiating bills under letter of credit, issuance of all types of guarantees, loan processing fees etc., profit on sale of investments, profit on exchange transactions, and miscellaneous income. Miscellaneous income primarily includes commission received from the sales of third party products, mutual fund products and fees collected from customers like folio charges, commitment charges etc.
Expenditure
Interest Expended
Our interest expended include interest on deposits, interest on RBI and inter-bank borrowings and other interest/discount such as interest on subordinated debt/capital bonds, discount on CBLO borrowings, penal interest paid, interest for delayed payments and other borrowings from other financial institutions.
Operating Expenses
Our operating expenses consist principally of employee expenses, rent, taxes and lighting expenses, printing and stationery expenses, advertisement and publicity expenses, depreciation on our Bank’s property, allowances, expenses of Auditors’ fees including branch auditors, law charges, postage, telegrams, telephones expenses, repairs & maintenance, insurance expenses and other expenditure.
Provisions and Contingencies
Our provisions and contingencies consist of provision for taxation, provision for NPAs, provision for diminution and/or depreciation in the value of investments, provision for standard assets, provision for unhedged foreign currency exposure of clients, provision for diminution in the value of restructured accounts, sundry assets/bad debts and bad investments written off and other provisions.
Results of Operations
The following table sets forth certain information relating to our results of operations for six months ended September 30, 2016 and September 30, 2017:
(₹ in million) Six months ended % of total Six months ended % of total September 30, 2016 income September 30, 2017 income I. INCOME
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Interest earned 116,476.89 89.64% 110,431.36 87.71% Other income 13,463.58 10.36% 15,475.56 12.29% TOTAL 129,940.47 100.00% 125,906.92 100.00%
II. EXPENDITURE Interest expended 86,240.73 66.37% 77,930.58 61.90% Operating expenses 25,790.26 19.85% 26,436.97 21.00% 15,283.28 11.76% Provisions and contingencies (Other than tax) 22,250.41 17.67% 127,314.27 97.98% 126,617.96 100.56% TOTAL
Tax Expenses 1,010.74 0.78% 868.49 0.69% III. PROFIT/LOSS Net profit for the year 1,615.46 1.24% -1,579.53 -1.25%
TOTAL 1,615.5 1.24% -1,579.53 -1.25%
Income
Interest Earned
Total interest earned decreased by 5.19% from ₹116,476.89 million in the six months ended September 30, 2016 to ₹ 110,431.36 million in the six months ended September 30, 2017. This decrease was primarily attributable to decrease in interest on advances by 8.75% because of reduction in MCLR interest rate during that period. Interest earned on investments decreased primarily due to a drop in the yield on investments from 7.97% in the six months ended September 30, 2016 to 7.71% in the six months ended September 30, 2017. The decrease in the yield on advances from 8.41% in the six months ended September 30, 2016 to 7.71% in the six months ended September 30, 2017 was primarily on account of the reduction in MCLR interest rate during that period.
Other Income
Other income increased from ₹13,463.58 million in the six months ended September 30, 2016 to ₹ 15,475.56 million in the six months ended September 30, 2017. This was primarily due to a 24.16% increase in net profit on sale of investments from ₹6,083 million in the six months ended September 30, 2016 to ₹ 7,552.47 million in the six months ended September 30, 2017, attributable to strategic planning and favorable market conditions. In addition, recovery in written off accounts increased by 29.84% from ₹1,365.45 million in the six months ended September 30, 2016 to ₹ 1,772.96 million in the six months ended September 30, 2017, and miscellaneous income increased by 26.62%.
Expenditure
Interest Expended
Total interest expended decreased by 9.64% from ₹86,240.73 million in the six months ended September 30, 2016 to ₹ 77,930.58 million in the six months ended September 30, 2017 primarily due to 10.62% decrease in interest paid on deposits from ₹ 79,582.62 million in the six months ended September 30, 2016 to ₹ 71,134.73 million in the six months ended September 30, 2017. This is due to better liability management with targeted reduction in interest on deposits and an increase in domestic CASA deposits as per cent of total domestic deposits, from 26.60% as of September 30, 2016 to 30.45% as of September 30, 2017.
Net interest margin (based on fortnightly averages) was 2.46% as of September 30, 2017 compared to 2.26% as of September 30, 2016, an increase of 20 bps, primarily on account of the increase in the net interest income by ₹2,264.61 million, or 7.49%.
Operating Expenses
Operating expenses increased by 2.51% from ₹25,790.26 million in the six months ended September 30, 2016 to ₹ 26,436.97 million in the six months ended September 30, 2017. This increase was primarily attributable to an
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increase in payments to and provisions for employees, which increased by 1.78% from ₹17,204.07 million in the six months ended September 30, 2016 to ₹17,509.59 million in the six months ended September 30, 2017. There was also an increase in rent, taxes and lighting expenses by 10.55% from ₹1,618.92 million in the six months ended September 30, 2016 to ₹ 1,789.68 million in the six months ended September 30, 2017. Further, there was increase in depreciation on property by 9.65% from ₹1,036.19 million in the six months ended September 30, 2016 to ₹ 1,136.14 million in the six months ended September 30, 2017
Provisions and Contingencies
These provisions mainly include provision towards NPAs, provision towards standard assets, provision on restructured assets, provision for depreciation on investment, and other provisions and contingencies. Provisions and contingencies (excluding provisions for tax) increased by 45.59% from ₹15,283.28 million in the six months ended September 30, 2016 to ₹ 22,250.41 million in the six months ended September 30, 2017. The increase in provision was primarily due to an increase in provision towards NPAs from ₹15,659.39 million in the six months ended September 30, 2016 to ₹ 21,203.00 million in the six months ended September 30, 2017.
Tax Expenses
Tax expenses decreased by 14.07% from ₹1,010.74 million in the six months ended September 30, 2016 to ₹ 868.49 million in the six months ended September 30, 2017.
Net Profit
Net profit decreased from ₹1,615.46 million in the six months ended September 30, 2016 to net loss of ₹ 1,579.53 million in the six months ended September 30, 2017.The decrease in net profit was primarily on account of increase in provisions and contingencies (excluding provisions for tax) by 45.59% from ₹ 15,283.28 million in the six months ended September 30, 2016 to ₹ 22,250.41 million in the six months ended September 30, 2017.
The following table sets forth certain information relating to our results of operations (consolidated) in Fiscal 2015, Fiscal 2016 and Fiscal 2017: (₹ in million) As at % of As at % of March 31, total As at March 31, % of total March 31, total 2015 Income 2016 Income 2017 Income I. INCOME Interest earned 216,151.62 91.11% 231,977.80 90.24% 230,037.87 86.93% Other income 21,098.49 8.89% 25,093.66 9.76% 34,578.61 13.07% TOTAL 237,250.11 100.00% 257,071.46 100.00% 264,616.48 100.00%
II. EXPENDITURE Interest expended 160,942.46 67.84% 172,124.04 66.96% 167,270.69 63.21%
52,404.67 54,970.35 20.77% Operating expenses 36,211.34 15.26% 20.39%
10.47% 19.04% 14.65% Provisions and contingencies 24,851.17 48,957.79 38,756.82
93.57% 106.39% 98.63% TOTAL 222,004.97 273,486.50 260,997.86
III. PROFIT/LOSS Net profit for the year 15,245.14 6.43% -16,415.04 -6.39% 3,618.62 1.37% Share of income from 1,395.62 0.59% 1,242.61 0.48% 1,555.90 0.59% Associates TOTAL 16,640.76 7.01% -15,172.43 -5.90% 5,174.52 1.96%
Fiscal 2016 compared to Fiscal 2017
Income
Interest Earned
Total interest earned marginally decrease by 0.84% from ₹231,977.80 million in Fiscal 2016 to ₹ 230,037.87 million in Fiscal 2017. This decrease was primarily attributable to decrease in interest/discount earned on
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advance/bills which decreased by 2.67% from ₹173,185.12 million in Fiscal 2016 to ₹ 168,561.65 million in Fiscal 2017. (₹ in million) As at March 31, Particulars As at March 31, 2016 2017 Percentage Interest/discount on advances/ bills 173,185.12 168,561.65 (2.67)% Income on investments 52,845.76 53,310.83 0.88% Interest on balances with RBI and other Inter Bank funds 5,936.54 6,213.73 4.67% Others 10.39 1,951.67 18684.12% Total 231,977.80 230,037.87 -0.84%
Interest earned on investments increased primarily due to an increase in the average investment from ₹703,041 million in Fiscal 2016 to ₹ 766,059.90 million in Fiscal 2017. The income earned on investments increased by 0.88% from ₹52,845.75 million in Fiscal 2016 to ₹ 53,310.83 million in Fiscal 2017. The decrease in the yield on advances from 8.63% in fiscal 2016 to 8.34% in Fiscal 2017 was primarily on account of the reduction in MCLR interest rate during that period.
Other Income
The following table sets out the components of other income: (₹ in million) Percentag Particulars As at March 31, 2016 As at March 31, 2017 e Commission, exchange and brokerage 7,414.20 7,568.57 2.08% Profit on sale of investments (Net) 8,985.10 17,397.09 93.62% (8.26) (0.26) (96.85)% Profit/ (loss) on sale of land, buildings and other assets (net) Profit on foreign exchange transactions 36.67% (net) 1,359.49 1,858.01 Income earned by way of dividends - - - Miscellaneous income 7,343.13 7,755.20 5.61% Total 25,093.66 34,578.61 37.80%
Other income increased significantly by 37.80% from ₹25,093.66 million in Fiscal 2016 to ₹34,578.61 million in Fiscal 2017. This was primarily due to a 93.62% increase in net profit on sale of investments from ₹8,985.10 million in Fiscal 2016 to ₹ 17,397.09 million in Fiscal 2017, attributable to favourable market conditions. In addition, commission, exchange and brokerage income increased by 2.08% from ₹7,414.20 million in Fiscal 2016 to ₹7,568.57 million in Fiscal 2017, and miscellaneous income increased by 5.61% from ₹ 7,343.13 million in Fiscal 2016 to ₹7,755.20 million in Fiscal 2017.
Expenditure
Interest Expended
The following table sets out the components of interest expended: (₹ in million) As at March 31, Particulars As at March 31, 2016 2017 Percentage Interest on deposits 159,951.13 154,054.92 (3.69)% Interest on RBI/ inter bank borrowings 423.87 678.54 60.08% Others 11,749.04 12537.23 6.71% Total 172,124.04 167,270.69 (2.82)%
Total interest expended decreased by 2.82% from ₹ 172,124.04 million in Fiscal 2016 to ₹ 167,270.69 million in Fiscal 2017 primarily due to a 3.69% decrease in interest paid on deposits from ₹ 159,951.13 million in Fiscal 2016 to ₹ 154,054.92 million in Fiscal 2017, The decrease is due to reduction in interest on deposits and an
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increase in domestic CASA deposits as % of total domestic deposits, from 28.88% as of March 31, 2016 to 32.32% as of March 31, 2017.This decrease was partially offset by a 6.71% increase in other interest expenses from ₹ 11,749.04 million in Fiscal 2016 to ₹ 12,537.23 million in Fiscal 2017, as well as an increase in interest paid on RBI/inter-bank borrowings, which increased by 60.08% from ₹ 423.87 million in Fiscal 2016 to ₹ 678.54 million in Fiscal 2017.
Other interest expenses primarily increased on account of an increase in long term borrowings to augment capital.
Net interest margin (based on fortnightly averages and after including RIDF balances) was 2.37% as of March 31, 2017 compared to 2.28% as of March 31, 2016, an increase of 09 bps, primarily on account of the increase in the net interest income by ₹2,913.42 million or 4.86%.
Operating Expenses
The following table sets out the components of operating expenses: (₹ in million) As at March 31, As at March Particulars 2016 31, 2017 Percentage Payments to and provisions for employees 27,917.01 37,946.35 35.93% Rent, taxes and lighting 2,978.86 3,301.62 10.83% Printing and stationery 259.97 328.08 26.20% Advertisement and publicity 312.76 296.99 -5.04% Depreciation on bank’s property 1,993.03 1,373.27 -31.10% Directors' fees, allowances & expenses 7.11 7.61 7.03% Auditors' fees and expenses (including branch auditors) 308.95 313.43 1.45% Law charges 52.62 48.77 -7.32% Postage, telegrams, telephones etc. 712.20 812.18 14.04% Repairs and maintenance 1,175.54 1,121.69 -4.58% Insurance 1,869.22 2,066.34 10.55% Other expenditure 14,817.41 7,354.03 -50.37% Total 52,404.67 54,970.35 4.90%
Operating expenses increased by 4.90% from ₹52,404.67 million in Fiscal 2016 to ₹ 54,970.35 million in Fiscal 2017. This increase was primarily attributable to an increase in payments to and provisions for employees, which increased by 35.93% from ₹27,917.01 million in Fiscal 2016 to ₹ 37,946.35 million in Fiscal 2017. There was also an increase in rent, taxes and lighting expenses by 10.83% from ₹2,978.86 million in Fiscal 2016 to ₹ 3,301.62 million in Fiscal 2017. Further, while there was increase in postage, telegram, and telephone charges by 14.04% from ₹712.20 million in Fiscal 2016 to ₹ 812.18 million in Fiscal 2017, there was decrease in depreciation on property charges by 31.10% from ₹ 1,993.03million in Fiscal 2016 to ₹ 1,373.27 million in Fiscal 2017.
Provisions and Contingencies
These provisions mainly include provision towards NPAs, provision towards standard assets, provision on restructured assets, provision for depreciation on investment, provisions made towards income tax and other provisions and contingencies. Provisions and contingencies (excluding provisions for tax) decreased by 20.84% from ₹48,957.80 million in Fiscal 2016 to ₹38,756.82 million in Fiscal 2017. The decrease in provision was primarily due to reversals in provision on standard assets from ₹4,098.01 million in Fiscal 2016 to negative ₹ 1,900.44 million in Fiscal 2017 and reversal in provision for depreciation on investments by 21.80% from ₹ 2,246.83 million in Fiscal 2016 to ₹ 1,756.96 million in Fiscal 2017. Other provisions decreased by 74.52% from ₹2,375.36 million in Fiscal 2016 to ₹ 605.17 million in Fiscal 2017.
Tax Expenses
Tax expenses decreased by 52.74% from ₹6,229.17 million in Fiscal 2016, to ₹ 2,944.11 million in Fiscal 2017.
Net Profit
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Net profit increased from reported net loss of ₹16,415.04 million in Fiscal 2016 to reported net profit of ₹ 3,618.62 million in Fiscal 2017. As discussed above, the increase in net profit was primarily on account of an increase in other income from ₹25,093.66 million in Fiscal 2016 to ₹ 34,578.61 million in Fiscal 2017 and a decrease in provisions and contingencies (including provisions for tax), by 20.84% from ₹ 48,957.79 million in Fiscal 2016 to ₹ 38,756.82 million in Fiscal 2017.
Fiscal 2015 compared to Fiscal 2016
Income
Interest Earned
Total interest earned increase by 7.32% from ₹216,151.62 million in Fiscal 2015 to ₹ 231,977.81 million in Fiscal 2016. This increase was primarily attributable to increase in income earned on investments which increased by 8.08% from ₹48,896.85 million in Fiscal 2015 to ₹ 52,845.76 million in Fiscal 2016 and increase in interest on advances by 7.43% from ₹161,200.00 million in Fiscal 2015 to ₹173,185.12 million in Fiscal 2016. The following table sets out the components of interest income:
(₹ in million) Particulars As at March 31, 2015 As at March 31, 2016 Percentage Interest/discount on advances/ bills 161,200.00 173,185.12 7.43% Income on investments 48,896.85 52,845.76 8.08% Interest on balances with RBI and other Inter Bank funds 5,887.01 5,936.54 0.84% Others 167.76 10.39 -93.81% Total 216,151.62 231,977.81 7.32%
Other Income
The following table sets out the components of other income: (₹ in million) Percentag Particulars As at March 31, 2015 As at March 31, 2016 e Commission, exchange and brokerage 8,827.24 7,414.20 -16.01% Profit on sale of investments 6,570.26 8,985.10 36.75% Less: loss on sale of investments Profit on sale of 671.96% land, buildings and other assets -1.07 -8.26 Profit on foreign exchange transactions 970.75 1,359.49 40.05% Income earned by way of dividends etc. From subsidiaries / companies and/ or joint ventures abroad/ in India 0 0 0 Miscellaneous income 4,731.31 7,343.13 55.20% 21,098.49 25,093.66 18.94% Total
Other income increased by 18.94% from ₹21,098.49 million in Fiscal 2015 to ₹ 25,093.66 million in Fiscal 2016. This was primarily due to a 36.75% increase in net profit on sale of investments from ₹6,570.26 million in Fiscal 2015 to, ₹ 8,985.10 million in Fiscal 2016 attributable to favourable market conditions. Miscellaneous income increased from ₹4,731.31 million in Fiscal 2015 to ₹ 7,343.13 million in Fiscal 2016 primarily due to an increase in processing fee collected, ATM card annual charges, commitment charges and other incidental charges such as folio charges and inspection charges.
Expenditure
Interest Expenses
The following table sets out the components of interest expended:
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(₹ in million) As at March 31, Particulars As at March 31, 2015 2016 Percentage Interest on deposits 150,071.48 159,951.13 6.58% Interest on reserve bank of India/ inter bank borrowings 469.77 423.87 -9.77% Others 10,401.21 11,749.04 12.96% Total 160,942.46 172,124.04 6.95%
Total interest expenses increased by 6.95% from ₹160,942.46 million in Fiscal 2015 to ₹172,124.04 million in Fiscal 2016, primarily due to a 6.58% increase in interest paid on deposits from ₹150,071.48 million in Fiscal 2015 to ₹ 159,951.13 million in Fiscal 2016.
Net interest margin (based on quarterly averages and after including RIDF balances) was 2.28% as of March 31, 2016 compared to 2.38% as of March 31, 2015, primarily due to fall in interest on advances on back of Interest reversal due to higher slippage to NPAs.
Operating Expenses
The following table sets out the components of operating expenses: (₹ in million) As at March 31, As at March Particulars 2015 31, 2016 Percentage Payments to and provisions for employees 22,300.72 27,917.01 25.18% Rent, taxes and lighting 2,530.05 2,978.86 17.74% Printing and stationery 256.68 259.97 1.28% Advertisement and publicity 277.00 312.76 12.91% Depreciation on bank’s property 1,865.86 1,993.03 6.82% Directors' fees, allowances & expenses 12.79 7.11 -44.41% Auditors' fees and expenses (including branch auditors) 260.42 308.95 18.63% Law charges 58.97 52.62 -10.77% Postage, telegrams, telephones etc. 831.83 712.20 -14.38% Repairs and maintenance 922.74 1,175.54 27.40% Insurance 1,670.46 1,869.22 11.90% Other expenditure 5,223.82 14,817.41 183.65% Total 36,211.34 52,404.67 44.72%
Operating expenses (exclusive of exceptional item of ₹8,826.50 million) increased by 20.34% from ₹ 36,211.34 million in Fiscal 2015 to ₹43,578.17 million in Fiscal 2016. This increase was primarily attributable to an increase in payments to and provisions for employees, which increased by 25.18% from ₹22,300.72 million in Fiscal 2015 to ₹ 27,917.01 million in Fiscal 2016. There was also an increase in rent, taxes and lighting expenses by 17.74% from ₹2,530.05 million in Fiscal 2015 to ₹ 2,978.86 million in Fiscal 2016. The Bank has written off ₹8,826.50 million on account of major fraud discovered at the three Branches of the Bank in Jaipur Region- Rajasthan State.
Provisions and Contingencies
These provisions mainly include provision towards NPAs, provision towards standard assets, provision on restructured assets, provision for depreciation on investment, provisions made towards income tax and other provisions and contingencies. Provisions and contingencies (excluding provisions for tax) increased by 97% from ₹24,851.17 million in Fiscal 2015 to ₹48,957.79 million in Fiscal 2016. The increase in provision was primarily due to an increase in provision on NPAs by 124.36% from ₹16,216.44 million in Fiscal 2015 to ₹ 36,383.72 million in Fiscal 2016, due to fresh slippages in NPAs on the back of Asset Quality review by RBI.
Tax Expenses
Tax expenses increased by 31.48% from ₹4,737.92 million in Fiscal 2015, to ₹6,229.17 million in Fiscal 2016.
Net Profit
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As a result of the above, the reported net profit decreased from ₹15,245.14 million in Fiscal 2015 to a reported net loss of ₹16,415.04 million in Fiscal 2016, primarily on account of the increase in provisions, operating expenses and one off exceptional item.
Liquidity
We regularly monitor our funding levels to ensure that we are able to satisfy requirements of loan disbursements and those that would arise upon maturity of liabilities. We maintain diverse sources of funding and liquid assets to facilitate flexibility in meeting our liquidity requirements.
Cash Flows
The following table sets forth our consolidated statement of cash flows for Fiscal 2015, 2016 and 2017: (₹ in million) Particulars Fiscal 2015 Fiscal 2016 Fiscal 2017 Net cash from/(used in) operating activities 84,759.08 39,379.61 (49,783.41) Net cash from/(used in) investing activities (3,542.90) (3,047.93) (1,825.06) Net cash from/(used in) financing activities 7,026.04 17,508.68 11,776.37 Net increase/(decrease) in cash and cash equivalents 88,242.22 53,840.36 (39,832.10)
Operating Activities
Net cash used in operating activities was ₹49,783.41 million in Fiscal 2017, primarily relating to a decrease in borrowings of ₹ 91,359.77 million and decrease in Deposits of ₹11,782.87 million.
Net cash from operating activities was ₹39,379.61 million in Fiscal 2016, primarily relating to an increase in deposits of ₹63,461.77 million.
Net cash from operating activities was ₹84,759.08 million in Fiscal 2015, primarily relating to an increase in deposits of ₹43,0431.05 million and an increase in borrowings of ₹64,284.72 million.
Investing Activities
Net cash used in investing activities was ₹1,825.06 million in Fiscal 2017, primarily relating to an increase in net fixed assets of ₹1,825.06 million.
Net cash used in investing activities was ₹3,047.93 million in Fiscal 2016, primarily relating to an increase in net fixed assets of ₹ 3,047.93 million.
Net cash used in investing activities was ₹3,542.90 million in Fiscal 2015, primarily relating to an increase in net fixed assets of ₹ 3,542.90 million.
Financing Activities
Net cash from financing activities was ₹11,776.37 million in Fiscal 2017. The primary reasons was fresh infusion of share capital.
Net cash from financing activities was ₹17,508.68 million in Fiscal 2016, primarily relating to an increase in share capital of ₹ 7,813.12 million, and issue of subordinate bonds of ₹ 16200 million.
Net cash from financing activities was ₹7,026.04 million in Fiscal 2015, primarily relating to issuance of subordinate bonds in an amount of ₹ 8,500 million.
Financial Condition
Assets
The table below sets out the principal components of our assets as of the dates indicated:
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(₹ in million) Particulars As of March 31, As of September As of September 2015 2016 2017 30, 2016 30, 2017 (Audited) (Unaudited) (Unaudited) Cash and balances with the RBI 119,745.38 133,385.57 131,089.48 109,446.07 111,150.26 Balance with banks and money at call and short notice 118,568.10 158,768.27 121,232.26 168,354.38 237,106.53
Investments 705,790.75 699,875.36 669,824.32 680,678.91 725,784.99
Advances 2,027,198.17 2,013,684.90 1,996,693.53 2,018,686.86 2,064,011.86 Fixed assets 1,6084.20 24,069.65 24,541.01 23,573.40 24,306.32 Other assets 56,359.68 63,549.74 62,523.17 62,880.74 73,597.75 Total assets 3,043,746.28 3,093,333.49 3,005,903.76 3,063,620.36 3,235,957.71
Assets amounted to ₹3,235,957.71 million as of September 30, 2017 compared to ₹ 3,063,620.36 million as of September 30, 2016, an increase of 5.63%. This increase was primarily due to (i) a 40.84 % increase in balance with bank & money at call, from ₹168,354.38 million as of September 30, 2016 to ₹ 237,106.53 million as of September 30, 2017, (ii) a 6.63 % increase in investments from ₹ 680,678.91 million as of September 30, 2016 to ₹ 725,784.99 million as of September 30, 2017, and (iii) a 17.04% increase in other assets from ₹ 62,880.74 million as of September 30, 2016 to ₹ 73,597.75 million as of September 30, 2017.
Assets amounted to ₹3,005,903.80 million as of March 31, 2017 compared to ₹3,093,333.49 million as of March 31, 2016, a decrease of 2.83%. This decrease was primarily due to (i) a 4.29% decrease in investment, from ₹699,875.36 million as of March 31, 2016 to ₹669,824.32 million as of March 31, 2017, (ii) a 0.84% decrease in advance from ₹2,013,684.90 million as of March 31, 2016 to ₹ 1,996,693.53 million as of March 31, 2017, and (iii) a 1.62% decrease in other assets from ₹ 63,549.74 million as of March 31, 2016 to ₹ 62,523.17 million as of March 31, 2017.
Assets amounted to ₹3,093,333.49 million as of March 31, 2016 compared to ₹3,043,746.28 million as of March 31, 2015, an increase of 1.63%. This increase was primarily due to (i) a 33.90% increase in balance with bank and money at call from ₹118,568.10 million as of March 31, 2015 to ₹ 158,768.27 million as of March 31, 2016, (ii) a 49.65% increase in fixed assets from ₹16,084.20 million as of March 31, 2015 to ₹ 24,069.65 million as of March 31, 2016, primarily on account of revaluation of fixed assets during Fiscal 2016.
Advances
The following table sets forth a breakdown of our advances as of the dates indicated: (₹ in million) Particulars As of March 31, As of September As of September 2015 2016 2017 30, 2016 30, 2017 (Audited) (Unaudited) Retail advances 2,22,564 2,65,292 2,76,645 2,72,214 2,86,467 MSME advances 2,46,650 2,76,771 2,69,815 2,75,126 2,75,753 2,62,054 298989 3,18,782 2,81,851 3,36,524 Agriculture advances 13,26,770 12,23,441 12,05,405 12,50,458 12,50,129 Other advances Total advances (Gross) 20,58,038 20,64,493 20,70,647 20,79,649 21,48,873
Provisions including 30,840 50,808 73,954 60,962 84,861 deductions* Net advances 20,27,198 20,13,685 19,96,693 20,18,687 20,64,012
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*Deductions include DICGC, ECGC claims settled pending for adjustment.
Our advances mainly comprise of bills purchased, cash credit, overdrafts and term loans repayable. Our Gross advances amounted to ₹2,148,873 million as of September 30, 2017 compared to ₹ 2,079,649 million as of September 30, 2016. This increase was primarily due to 19.40% increase in Agriculture loans from ₹281,851 million as of September 30, 2016 compared to ₹ 336,524 million as of September 30, 2017 and 5.24% increase in retail credit from loans from ₹ 272,214.00 million as of September 30, 2016 compared to ₹ 286,467.00 million as of September 30, 2017.
Our gross advances marginally increased by 0.30% from March 31, 2016 to March 31, 2017 primarily the Bank was diversifying its portfolio from corporate loans to Retail, such as Schematic Retail, Agriculture and MSME loans. This can be seen from 4.28% increase in retail loans from ₹265,292 million as of March 31, 2016 to ₹ 276,645 million as of March 31, 2017 and increase in agriculture loans from ₹ 298,989 million as of March 31, 2016 to ₹ 318,782 million as of March 31, 2017.
Our gross advances marginally increased by 0.31% from March 31, 2015 to March 31, 2016 primarily the Bank was diversifying its portfolio from corporate loans to Retail, such as Schematic Retail, Agriculture and MSME loans. This increase can be seen from primarily due to a 19.19% increase in retail loans from ₹222,564. million as of March 31, 2015 to ₹265,292 million as of March 31, 2016 and increase in agriculture loans from ₹ 262,054 million as of March 31, 2015 to ₹ 2,98,989 million as of March 31, 2016 and MSME advances grown from ₹ 246,650.00 million as of March 31, 2015 to ₹ 269,815.00 million as on March 31, 2017showing CAGR of 4.58%.
Investments (Domestic)
Our investments mainly represent investments in Government Securities and other Approved Securities, investments in Debt Instruments such as Debentures and Bonds of highly rated Public Sector Undertakings and Corporates, investments in Equity Shares, Security Receipts and short term Money Market Instruments such as Certificate of Deposits and Commercial Paper. Our investments increased by 9.86% from ₹ 647,664.16 million as of March 31, 2017(excluding changes in consolidation) to ₹ 711,547.61 million as of September 30, 2017 primarily due to a 10.68% increase in Government Securities from ₹ 586,451.48 million as of March 31, 2017(excluding changes in consolidation) to ₹ 649,090.87 million as of September 30, 2017 as well as due to a 2.01% increase in Non SLR Investment from ₹ 61,203.62 million as of March 31, 2017(excluding changes in consolidation) to ₹ 62,432.81 million as of September 30, 2017.
Our investments decreased by 5.15% from ₹ 682,855.82 million as of March 31, 2016 to ₹ 647,664.16 million as of March 31, 2017 primarily due to a 2.30% decrease in Government Securities from ₹ 600,274.16 million as of March 31, 2016 to ₹ 586,451.48 million as of March 31, 2017 as well as due to decrease in Non SLR investment by 25.88% from ₹82,572.61 million as of March 31, 2016 to ₹61,203.62 million as of March 31, 2017, which was primarily due to a net sale of ₹ 20776.88 million of Special State Securities issued under the UDAY scheme of the GoI at an appropriate time post demonetization.
Our investments decreased by 1.41 % from ₹692609.89 million as of March 31, 2015 to ₹682855.82 million as of March 31, 2016, This increase in debentures and bonds was primarily due to additional Special State Securities allotted under UDAY scheme of the GoI for an amount of ₹ 27854.93 million during Fiscal 2016, which was partially offset by a decrease in other investment portfolio due to a 3.52% decrease in government securities from ₹ 622,176.62 million as of March 31, 2015 to ₹ 600,274.16 million as of March 31, 2016 as well as due to decrease in Non SLR investment by 17.25% from ₹70,424.22 million as of March 31, 2015 to ₹82,572.61 million as of March 31, 2016.
Balances with Banks and Money at Call and Short Notice
Balances with banks and Money at Call and Short Notice was ₹ 237,106.53 million as of September 30, 2017 and ₹ 121,232.26 million as of March 31, 2017, compared to ₹ 158,768.27 million as of March 31, 2016 and ₹ 168,354.38 as of September 30, 2016.
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Other Assets
Other assets primarily include advance tax, RIDF deposit, deferred tax assets, net inter-office balance, and interest receivables. Other assets amounted to ₹73,597.75 million as of September 30, 2017 compared to ₹ 62,880.74 million as of September 30, 2016. Other assets amounted to ₹62,523.17 million as of March 31, 2017 compared to ₹63,549.74 million as of March 31, 2016.
Other assets amounted to ₹63,549.74 million as of March 31, 2016 compared to ₹ 56,359.68 million as of March 31, 2015.
Liabilities
The table below sets out the principal components of our shareholders’ funds and liabilities as of the dates indicated: (₹ in million) Particulars As of March 31, As of September 30, 2015 2016 2017 2017 (Audited) (Unaudited) Capital 6,620.59 7,033.72 9,045.39 9,045.39 Share application money - 7,400.00 - - Reserves and surplus 136,441.77 130,103.11 148,096.20 131,213.11 Total Shareholders’ Funds 143,062.36 144,536.83 157,141.59 140,258.50 Deposits 2,553,800.60 2,617,262.37 2,605,479.49 2,826,004.64 Borrowings 265,029.85 255,012.01 174,755.24 193,253.28 Other liabilities and provisions 81,853.46 76,522.28 68,527.43 76,441.29 Total Liabilities 2,900,683.91 2,948,796.66 2,848,762.17 3,095,699.21 Total liabilities and shareholders’ 3,043,746.27 3,093,333.49 3,005,903.76 3,235,957.71 funds
Deposits
The following table sets forth a breakdown of our deposits, as well as the percentage of total deposits that each item contributes, as of March 31, 2015, 2016, 2017 and as of September 30, 2017: (₹ in million) Parameter As of March 31, As on Sept 2017 % to % to % to % to 2015 Total 2016 Total 2017 Total Reviewed Total Demand 172,458.67 6.75 159,297.63 6.09 116,070.30 4.46 111,454.20 3.94 deposits(cu rrent account) Savings 464,673.03 18.20 520,487.12 19.88 642,571.92 24.66 644,932.61 22.82 bank deposits Term 1,916,668.90 75.05 1,937,477.62 74.03 1,846,837.27 70.88 2,069,617.83 73.23 deposits Total 2,553,800.60 100 2,617,262.37 100 2,605,479.49 100 2,826,004.64 100 deposits
Deposits mainly comprise demand deposits, savings bank deposits and term deposits. Deposits increased by 8.46% from ₹2,605,479.49 million as of March 31, 2017 to ₹ 2,826,004.64 million as of September 30, 2017, primarily due to increase in savings banks deposits by 0.37% from ₹ 642,571.92 million as of March 31, 2017 to ₹ 644,932.61 million as of September 30, 2017 and Term deposits showed an increase of 12.06% from ₹ 1,846,837 million as of March 31, 2017 to ₹ 2,069,618 million as of September 30, 2017.
Deposits marginally decreased by -0.45% from ₹2,617,262.37 million as of March 31, 2016 to ₹ 2,605,479.49 million as of March 31, 2017 primarily due to decrease in term deposits by -4.68% from ₹ 1,937,477.62 million
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as of March 31, 2016 to ₹ 1,846,837.27 million as of March 31, 2017. Savings bank deposits, increased significantly by 23.46% from ₹52,0487.12 million as of March 31, 2016 to ₹ 64,2571.92 million as of March 31, 2017, primarily on account of various initiatives to push digital products and partly on account of demonetization.
Deposits increased by 2.48% from ₹2,553,800.60 million as of March 31, 2015 to ₹ 2,617,262.37 million as of March 31, 2016. Savings bank deposits increased from ₹464,673.03 million as of March 31, 2015 to ₹ 520,487.12 million as of March 31, 2016.
Borrowings
Borrowings mainly comprise borrowings from the RBI and other banks, borrowings from other institutions and agencies, as well as subordinated debts and Additional Tier I Bonds (AT I bonds), in the form of bonds. As of September 30, 2017 total borrowings amounted to ₹193,253.28 million compared to ₹ 200,950.1 million as of September 30, 2016. The decrease in borrowings by 3.83% was primarily due to a decrease in borrowings outside India by 37.10% from ₹93,274 million as of September 30, 2016 to ₹ 58,669 million for September 30, 2017.
As of March 31, 2017 total borrowings amounted to ₹174,755.24 million compared to ₹ 255,012.01 million as of March 31, 2016. The decrease was primarily on account of decrease in repo borrowings from the RBI, from ₹59,510 million as of March 31, 2016 to Nil as of March 31, 2017.
As of March 31, 2016 total borrowings amounted to ₹255,012.01 million compared to ₹ 265,029.85 million as of March 31, 2015. The decrease was primarily on account of decrease in repo borrowings by 36.70% from the RBI, from ₹94,010 million as of March 31, 2015 to ₹ 59,510 million as of March 31, 2016.
Other Liabilities and Provisions
Other liabilities and provisions represent bills payable, interest payable, provision against standard assets and other provisions. Other liabilities and provisions amounted to ₹76,441.29 million as of September 30, 2017, ₹ 68,527.43 million as of March 31, 2017, ₹ 76,522.28 million as of March 31, 2016 and ₹ 81,853.46 million as of March 31, 2015.
Capital
We have implemented a defined internal capital adequacy assessment process (“ICAAP”). The ICAAP process captures both Pillar I and Pillar II risks as part of its comprehensive assessment process. We maintained a CRAR ratio of 12.03% (Tier I – 9.26% and Tier II - 2.77%) as of March 31, 2017 and 12.17% (Tier I – 9.20% and Tier II – 2.97%) as of September 30, 2017, which is above the regulatory minimum of 10.25%. We have implemented a stringent credit risk rating model to assess borrowers.
We are registered with and subject to supervision by the RBI, including the RBI’s detailed guidelines for implementation of Basel III capital regulations that were issued in May 2012. Basel III Capital Regulations are being implemented in India with effect from April 1, 2013 in a phased manner, which we have complied with.
Our regulatory capital and capital adequacy ratios calculated under Basel III as of March 31, 2017 are as follows:
Regulatory Capital ₹ million Tier I capital 164,247.37 Tier II capital 49,223.90 Total Capital 213,471.27
Regulatory Capital As % of Risk Weighted Assets Common Equity Tier I Ratio 6.25 Capital Conservation Buffer – CCB (comprising Common Equity) 1.25 Common Equity Tier I Ratio plus Capital Conservation Buffer (i)+(ii) 7.50 Additional Tier I capital 1.76 Tier I capital adequacy ratio (i) +(iv) 8.01
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Regulatory Capital ₹ million Tier II capital 2.77 Total Capital Ratio before CCB (v)+(vi) 10.78 Total Capital Ratio plus Capital Conservation Buffer (vii)+(ii) 12.03
Capital Expenditure
Our capital expenditure consists principally of expenditure relating to branch/office/ IT Infrastructure. In Fiscal 2015, Fiscal 2016 and Fiscal 2017, we incurred ₹3,174.61 million, ₹ 3,716.08 million (excluding revalued portion) and ₹ 1,947.70 million, respectively, as capital expenditure in connection with the expansion of our branch and office network.
Our planned future capital expenditure relates primarily to branch expansion, maintenance and investments in technology and communication infrastructure. The approved capital budget by the Board for Fiscal 2018 is ₹6,578.50 million primarily focused on our future information technology spend other capital expenditure. However, our actual capital expenditure may be higher or lower than our current expectations, and could be material in amount. Moreover, we may use incur capital expenditure for purposes other than the above, depending on, among other factors, the business environment prevailing at the time and any change in our business plans.
Contingent Liabilities
Our contingent liabilities primarily relate to claims against us not acknowledged as debts which represent claims filed against us 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 us. Contingent liabilities also include liabilities on account of outstanding forward exchange contracts that we enter into on our own account and on behalf of our customers. Guarantees given on behalf of entities, capital contracts pending execution and other obligations also form part of our contingent liabilities.
The table below sets forth, as of the dates indicated, the principal components of our consolidated contingent liabilities as of the dates indicated: (₹ in million) Contingent Liabilities As of March 31, 2015 2016 2017 Claims against us not acknowledged as debts 1,307.95 1,469.92 1,438.19 Liability for partly paid investments 403.38 231.62 210.81 Liability on account of outstanding forward exchange contracts 983,435.71 466,308.59 584,351.45 Guarantees given on behalf of constituents 142,525.99 143,723.45 162,949.55 Acceptances, endorsements and other obligations 46,648.50 56,523.77 57,050.60 Other items for which we are contingently liable 154.83 133.62 77.91 Capital contracts remaining to be executed 146,135.49 144,908.58 126,708.67 Total 1,320,611.85 813,299.55 932,787.20
Audit Qualifications and Matters of Emphasis
There are no qualifications highlighted by the auditors in their reports to our financial statements for Fiscal 2015, Fiscal 2016 and Fiscal 2017. The auditors have however highlighted the following matters of emphasis in their audit reports relating to Fiscal 2015 and Fiscal 2016:
Fiscal 2016
a. “Without qualifying our report we draw attention to Note 11(a) disclosing write off of ₹882.65 Crores on account of fraud.”
Fiscal 2015
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b. “Note no. 4 b) in Schedule 18 to the financial statements regarding change in accounting policy for the year with respect to appropriation of recoveries in NPA accounts, the impact of which on financial statements is not readily ascertainable.” c. “Note no. 8 c) in Schedule 18 to the financial statements regarding the difference between accounting income and taxable income on account of difference in valuation of securities being treated as permanent difference and accordingly recognition of deferred tax liability ₹754.91 crores as at 31st March, 2015 not considered necessary based on opinion of tax consultant of the Bank.”
Changes in Significant Accounting Policies
There have been no changes to our significant accounting policies in the last three Fiscals.
Significant Developments after the Last Audited Financial Statements included in the Placement Document that may affect our Future Results of Operations
Pursuant to a meeting of our Board of Directors on October 31, 2017, we have adopted and filed with the stock exchanges on October 31, 2017, the unaudited financial results for the three months ended September 30, 2016 and September 30, 2017, subjected to a limited review by our statutory auditors. For further information, see the Unaudited Interim September Financial Information included in the section “Financial Information” in this Preliminary Placement Document.
Except as discussed above and as otherwise stated in this Preliminary Placement Document, to our knowledge, no circumstances have arisen since the date of the last audited financial statements as disclosed in this Preliminary Placement Document which materially and adversely affects or is likely to affect, our profitability, or the value of our assets or our ability to pay our liabilities.
Qualitative Disclosure about Risks and Risk Management
We are exposed to various risks that are an inherent part of any banking business, with the major risks being credit risk, market risk, liquidity risk and operational risk. We have various policies and procedures in place to measure, manage and monitor these risks systematically across all our portfolios. For further information about the types of risks and our risk management policies, see “Business - Risk Management”.
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SELECTED STATISTICAL INFORMATION
The selected statistical information contained in this section is based on or derived from (i) the Audited Financial Statements of the Bank and (ii) Unaudited Financial Statements of the Bank included in the section “Financial Statements” of this Preliminary Placement Document. The following information should be read together with the information included in the sections “Summary of Financial Information”, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and “Financial Statements” included elsewhere in this Preliminary Placement Document.
Certain non-GAAP financial measures and certain other statistical information relating to our operations and financial performance have been included in this section and elsewhere in this Preliminary Placement Document. The Bank computes and discloses such non-GAAP financial measures and such other statistical information relating to its operations and financial performance as it considers such information to be useful measures of its business and financial performance. However, note that these non-GAAP financial measures and other statistical and other information relating to the Bank’s operations and financial performance may not be computed on the basis of any standard methodology that is applicable across the industry and therefore may not be comparable to financial measures and statistical information of similar nomenclature that may be computed and presented by other banks in India or elsewhere.
Average Balance Sheet
The table below presents the average balances for interest-earning assets and interest-bearing liabilities together with the related interest income and expense amounts, resulting in the presentation of the average yields and cost for the periods indicated.
Average Balance: The average balances of Advance, Deposits and Investments are the fortnightly average of balances outstanding.
Average Yield on Average Interest-Earning Assets: The average yield on average interest-earning assets is the ratio of interest income to average interest-earning assets.
Average Cost on Average Interest-Bearing Liabilities: The average cost on average interest-bearing liabilities is the ratio of interest expense to average interest-bearing liabilities. For purposes of calculating spread, interest bearing liabilities include non-interest bearing demand deposits.
Average Balance of Advances: The average balances of advances are net of average balances of bills rediscounted (BRDS) and bank risk participation (IBPC), consistent with our balance sheet presentation, as mandated by the RBI. Accordingly, interest expended on BRDS and IBPC transactions is netted off from interest income on advances for the purposes of the information on average yield/cost. The interest expended on these transactions is included under interest expense on borrowings in our financial statements for each of the periods presented.
Average Balance of Investments: The average balances of investments are net of average balances of securities sold under repurchase agreements (repo transactions) with the RBI and include average balances of securities purchased under agreements to resell (reverse repo transactions) with the RBI, consistent with our balance sheet presentation, as mandated by the RBI. Accordingly, interest expended on these repo transactions is netted off from interest income on investments, and interest income on the reverse repo transactions is included under interest income on investments for the purposes of the information on average yield/cost. The interest expended on the repo transactions is included under interest expense on borrowings and the interest income on the reverse repo transactions is included under interest income on balances with the RBI and other inter-bank funds in our financial statements for each of the periods presented.
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(₹ in million) Particulars (on Year ended March 31, Year ended March 31, 2015 Year ended March 31, 2017 consolidate 2016 d basis) Interes Interes Aver Aver Avera t t Interest age age ge Average Average Income Average Income Income / yield/ yield/ yield/ Balance Balance / Balance / Expense cost cost cost Expens Expens (%) (%) (%) e e Interest-earning assets: Advances# 1,726,010 161,200 9.34% 2,007,045 173,185 8.63% 2,020,463 168,562 8.34% Investments# 631,279 48,897 7.75% 703,041 52,845 7.52% 766,060 53,311 6.96% Others** 70,760 6,055 8.56% 138,668 5,947 4.29% 140,000 8,166 5.83% Total interest- earning 2,428,049 216,152 8.90% 2,848,754 231,977 8.14% 2,926,523 230,039 7.86% assets Fixed assets* 15,387 - - 20,077 - - 24,305 - - Other assets* 181,281 - - 186,520 - - 195,274 - - Total non- interest earning 196,668 - - 206,597 - - 219,579 - - assets* 3,055,35 3,146,102 Total assets 2,624,717 1 - -
Total deposits# 2,230,553 150,071 6.73% 2,551,048 159,951 6.27% 2,630,264 154,055 5.86% Subordinated 48,177 60,527 7,4178 loans* 10,871 4.75% 12,173 4.68% 13,216 6.15% Borrowings* 180,460 199,493 140,705 Total interest- bearing 2,459,190 160,942 6.54% 2,811,068 172,124 6.12% 2,845,147 167,271 5.88% liabilities Capital and 136,338 - - 143,800 - - 150,840 - - reserves* Bills 8,656 - - 8,784 - - 8,649 - - Payable* Other 20,533 - - 91,699 - - 141,466 - - liabilities$* Total non- interest- bearing 165,527 - - 244,283 - - 300,955 - - liabilities* Total 3,055,35 3,146,10 2,624,717 ------liabilities 1 2 # Fortnightly Average balance of quarterly closing Yields, Spreads and Margins, in case of average investments and average deposits effects of consolidation not considered. *Yearly Average balance ** includes Cash Balances with Other Banks and Money at call and short notice $ Due to averaging of Assets and Liabilities, the mismatch in total of assets and total of liabilities has been adjusted in Other liabilities (₹ in million)
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Six months ended September Six months ended September 30, Particulars (on consolidated 30, 2016 2017 Averag basis) Interest Interest Average Average e Average Income / Income / yield/cost Balance yield/c Balance Expense ost Expense (%) (%)**
Advances# 2,060,814 86,649 8.41 2,050,462 79,070 7.71
Investments# 743,914 26,608 7.15 741,076 24,595 6.64
Others 163,561 3,220 3.94 179,169 6,767 7.55
Total interest- earning assets 2,968,289 116,477 7.85 2,970,707 110,432 7.43
Non-interest earning assets: Fixed assets* 23,821 - 24,423 - Other assets* 184,630 - 189,180 - Total noninterest earning 208,451 - 213,603 - assets Total Assets 3,176,740 - 3,184,310 - Interest-bearing liabilities: Total deposits# 2,626,432 79,583 6.06 2,717,861 71,135 5.23 Subordinated loan* 70,179 84,480 6,658 5.84 6796 7.38 Borrowings* 157,802 99,524 Total interest-bearing 2,854,413 86,241 6.04 2,901,865 77,931 5.37 liabilities Non – interest bearing liabilities:
Capital and reserves* 135,257 - 141,050 - Bills payable* 7,927 - 8,338 - Other liabilities$ 179,143 - 133,057 - Total noninterest bearing 322,327 282,445 liabilities Total liabilities 3,176,740 3,184,310 # Fortnightly Average balance of quarterly closing Yields, Spreads and Margins.
* Half Yearly Average balance of quarterly closing ** Percentages Annualized $ Due to averaging of Assets and Liabilities, the mismatch in total of assets and total of liabilities has been adjusted in other liabilities
Yields, Spreads and Margins
The following table sets forth, for the periods indicated, the yields, spreads and interest margins on our interest-earning assets.
(₹ in million) Particulars Year ended March 31, Six months ended September 30 (Consolidated) (Standalone) 2015 2016 2017 2016 2017 Interest income on 216,152 231,977 230,039 116,477 110,432 interest-earning assets Interest expense on 160,942 172,124 167,271 86,241 77,931 interest-bearing liabilities (Deposits+ Borrowings) Average interest-earning 2,428,049 2,848,754 2,926,523 2,968,289 2,9707,07 assets Average interest-bearing 2,459,190 2,811,068 2,845,147 2,854,413 2,901,865 liabilities
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Particulars Year ended March 31, Six months ended September 30 (Consolidated) (Standalone) 2015 2016 2017 2016 2017 (Yearly average of Deposit of and Borrowings) Average total assets 2,624,717 3,055,351 3,146,102 3,176,740 3,184,310 Average interest-earning 92.51% 93.24% 93.02% 93.44% 93.29% assets as a percentage of average total assets Average interest-bearing 93.69% 92.00% 90.43% 89.85% 91.13% liabilities as a percentage of average total assets Average interest-earning 98.73% 101.34% 102.86% 103.99% 102.37% assets as a percentage of average interest-bearing Liabilities Yield on funds (1) 8.90% 8.14% 7.86% 7.85% 7.43% Cost of funds(2) 6.54% 6.12% 5.88% 6.04% 5.37% Spread (Yield – Cost of 2.36% 2.02% 1.98% 1.81% 2.06% Funds)(3) Net interest margin(4) 2.27% 2.10% 2.14% 2.04% 2.19%
Notes: (1) Yield is interest income divided by average interest-earning assets. (2) Cost of Fund is the ratio of interest expense to average interest-bearing liabilities. (3) Spread is the difference between the yield on funds and Cost of funds (4) Net interest margin is the difference between interest earned and interest expended divided by the total average interest-earning assets.
Financial Ratios
The following table sets forth certain of our key financial indicators as of and for the periods indicated.
Six months ended September 30, Fiscal (Consolidated) (Standalone) 2015 2016 2017 2016 2017 Return on average equity(1) 12.21% -10.55% 3.43% 2.39% -2.24% Return on average assets(2) 0.63% -0.50% 0.16% 0.10% -0.10% Dividend pay out ratio(3) 18.70% 0% 0% 0% 0% Cost to average assets(4) 1.38% 1.72% 1.75% 1.62% 1.66% Tier I capital adequacy ratio* 7.84% 7.75% 9.26% 8.42% 9.20% Tier II capital adequacy ratio* 2.70% 3.41% 2.77% 2.93% 2.97% Total capital adequacy ratio* 10.54% 11.16% 12.03% 11.35% 12.17% Net non-performing assets ratio(5) 1.90% 4.48% 5.21% 5.03% 5.76% Allowance as percentage of gross non- performing assets (Provision Coverage Ratio) (6) 66.61% 53.73% 56.37% 53.69% 56.21% Average net worth to total average 5.19% 4.71% 4.79% 4.26% 4.43% assets(7) Credit to deposit ratio(8) 80.58% 78.88% 79.47% 78.38 76.04 Cost to income ratio(9) 47.91% 51.30% 56.47% 59.02% 55.10%
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Six months ended September 30, Fiscal (Consolidated) (Standalone) 2015 2016 2017 2016 2017 Other income to operating income ratio(10) 27.65% 29.54% 35.52% 30.81% 32.26%
*Under Basel III
Notes: 1. Return on average equity is the ratio of the net profit after tax to the Yearly/ Half Yearly average net worth (capital plus reserves). 2. Return on average assets is the ratio of the net profit after tax to the total average assets. 3. Dividend payout ratio is the ratio of dividend to adjusted net profit (after exclusion of a one-off income item from net profit). 4. Cost to average assets is the ratio of the operating expenses, to the average assets. 5. Net non-performing assets ratio is the ratio of net non-performing assets divided by net advances. 6. Allowance as a percentage of gross non-performing assets is the ratio of NPA provisions made to the gross NPAs (Provision Coverage Ratio). 7. Average net worth to total average assets is the ratio of average capital (shareholders funds) and reserves divided by total average assets. 8. Credit to deposit ratio is calculated as a ratio of total gross advances to total deposits. 9. Cost to income ratio is calculated as a ratio of operating expenses excluding exceptional items divided by total operating income (total of net interest income and non-interest income). 10. Other income to operating income ratio is calculated as a ratio of other income divided by total operating income (total of net interest income and non-interest income) Analysis of Changes in Interest Income and Interest Expense
The following table sets forth, for the periods indicated, the allocation of the changes in our interest income and interest expense between average balance and average rate. The changes in net interest income between periods have been reflected as attributed either to average balance or average rate changes. (Rs. In Millions)
Fiscal 2015 vs. Fiscal 2016Increase Standalone Fiscal 2016 vs. Fiscal 2017Increase (decrease) due to (decrease) due to Increases Change in Increases Change in Particulars Due to change in Due to change in Net Average Net Average average rates average rates Change Volume Change Volume Interest income: Advances 11,985 26,248 -14,263 -4,623 1,158 -5,781 Investments 3,948 5,562 -1,614 466 4,739 -4,273 Others -108 5,813 -5,921 2219 57 2,162 Total interest- earning assets 15,825 37,623 -21,798 -1,938 5,954 -7,892
Interest expense: Deposits 9,880 21,569 -11,689 -5,896 4,966 -10,862 Subordinate loan & Borrowings 1,302 1,491 -189 1,043 -2,112 3,155 Total interest expense 11,182 23,060 -11,878 -4,853 2,854 -7,707 Net Interest Income 4,643 14,563 -9,920 2,915 3,100 -185
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Particulars Six months ended September 30, 2016 vs. Six months ended September 30, 2017
Increases Net Change in Average Due to change in average Change Volume rates Interest revenue Advances (Gross) -7,579 -871 -6,708 Investments -2,013 -203 -1,810 Others 3547 615 2,932
Total interest-earning assets -6,045 -459 -5,586
Total Deposits -8,448 5,540 -13,988 Subordinated loan & Borrowings 138 -2,568 2,706
Total interest-bearing liabilities -8,310 2,972 -11,282 Net interest revenue 2,265 -3,431 5,696
Return on Equity and Assets
The following table presents selected financial ratios for the periods indicated
Six months ended Year ended March 31 (Consolidated) Particulars September 30 2015 2016 2017 2016(4) 2017(4) Net profit 16,641 (15,172) 5,175 1,615 -1,579 Average total assets 2,624,717 3,055,351 3,146,102 3,176,740 3,184,310 Average total shareholders’ equity(1) 136,338 143,800 150,480 135,257 141,050 Return on assets (net profit as a 0.63% -0.50% 0.16% 0.10% -0.10% percentage of average total assets) Return on equity (net profit as a percentage of average total 12.21% -10.55% 3.44% 2.39% -2.24% shareholders’ equity) (%) Average total shareholders’ equity as a percentage of average total assets (2) 5.19% 4.71% 4.79% 4.26% 4.43% (%) Dividend Payout Ratio (3) (%) 18.70% 0 0 0 0 Notes
(1) Average total shareholder’s equity is the yearly average share capital, reserves and surplus (2) Average total shareholders’ equity as a percentage of average total assets is calculated as average shareholder’s equity divided by average total assets (3) Dividend payout ratio is the ratio of dividend to adjusted net profit (after exclusion of a one-off income item from net profit). (4) Ratios are annualized.
Investment Portfolio (Domestic) (as per standalone financials)
As of March 31, 2015, 2016 and 2017, our Net Investments (domestic) comprised 22.78%, 22.03% and 21.45% of our total assets, respectively, while Net Advances (domestic) were 53.55%, 53.18% and 55.15% of our total assets, respectively.
As of September 30, 2016 and September 30, 2017, our net Domestic Investments comprised 21.97% and 21.78% of our total assets, respectively, while total net domestic advances were 53.04% and 50.72% of our total assets, respectively. We carry out our investment activities according to our Investment Policy. The investment policy
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sets forth delegation of powers, types of instruments, maximum limits on investments in different types of securities, position limits, stop loss limits, duration limits, and minimum acceptable credit ratings. We attempt to achieve optimal risk-adjusted returns on our funds.
With effect from October 14, 2017, we are required to maintain a minimum holding of 19.50% of our demand and time liabilities in SLR securities. In addition, the surplus funds are invested by treasury. These investments are in conformity with our policy on investments and the risk limits set by our Board.
Total Investment Portfolio (Domestic)
The following tables set forth, as of the dates indicated, information related to our gross investments classified under the held to maturity (HTM), available for sale (AFS) and held for trading (HFT) categories:
(₹ in millions, except percentages) As of March 31, 2015 As of March 31, 2016 Book Market Unrealize Unrealize Book Market Unrealize Unrealize Particulars Value Value d Gain d Loss Value Value d Gain d Loss Government 622,17 625,019. 2,859.05 15.80 600,27 603,392. 3,117.93 0.00 Securities 6.62 86 4.16 09 Other Debt 55,404 58,018.8 2,640.91 26.86 65,229 66,775.0 1,620.93 75.35 Securities .81 6 .43 1 Total Debt 677,58 683,038. 5,499.96 42.66 665,50 670,167. 4,738.86 75.35 Securities 1.43 72 3.59 10 15,028 18,218.9 4,267.45 1,076.93 17,352 17,181.2 2,233.32 2,404.30 Non-debt .46 8 .23 5 Total 692,60 701,257. 9,767.41 1,119.59 682,85 687,348. 6,972.18 2,479.65 Securities 9.89 70 5.82 35
(₹ in millions, except percentages) As of March 31, 2017 As of September 30, 2017 Book Market Unrealized Unrealize Book Market Unrealized Unrealize Particulars Value Value Gain d Loss Value Value Gain d Loss Government 586,451 589,071. 2,804.41 184.21 649,105 651 2,803.80 630.56 Securities .48 68 .75 ,278.99 Other Debt 41,604. 42,822.0 1,765.76 548.09 42, 43,521.7 1,840.12 558.75 Securities 32 0 240.33 0 Total Debt 628,055 631,893. 4,570.17 732.30 691,346 694,800. 4,643.92 1,189.31 Securities .80 68 .08 69 Non-debt 19,608. 18,935.0 2,734.37 3,230.37 20,201. 18, 2,889.58 3,928.70 Securities 35 5 53 985.11 Total 647,664 650,828. 7,304.54 3,962.67 711,547 713,785. 7,533.50 5,118.01 Securities .15 73 .61 80
Available for Sale (AFS) Domestic Investments
The following table sets forth, as of the dates indicated, information related to our Domestic Investments Available for Sale (AFS): (₹ in millions, except percentages) As of March 31, 2015 As of March 31, 2016 Unrea Unreali Market Unrealized lized Book Market zed Unrealiz Particulars Book Value Value Gain Loss Value Value Gain ed Loss Government 114,711. Securities 104,374.70 107,188.08 2,819.96 6.58 82 117,829.00 3,117.18 0.00 Other Debt 43,020.8 Securities 55,404.81 58,018.86 2,640.91 26.86 0 44,566.38 1,620.93 75.35 Total Debt 157,732. Securities 159,779.51 165,206.94 5,460.87 33.44 62 162,395.38 4,738.11 75.35 Non-debt 1,076. 16,545.3 Securities 13,927.63 17,118.15 4,267.45 93 2 16,374.34 2,233.32 2,404.30
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Total 1,110. 174,277. Securities 173,707.14 182,325.09 9,728.32 37 94 178,769.72 6,971.43 2,479.65
(₹ in millions, except percentages) As of March 31, 2017 As of September 30, 2017 Book Market Unrealize Unrealize Book Market Unrealize Unrealize Particulars Value Value d Gain d Loss Value Value d Gain d Loss Government 99,189 101,810. 144 146 2,803.80 606.62 Securities .76 96 2,804.41 184.21 647.58 844.76 Other Debt 38,028 39,244.8 38 39 1,840.12 558.75 Securities .15 3 1,765.76 548.09 664.16 945.53 Total Debt 137,21 141,055. 183 186 4,643.92 1,165.37 Securities 7.91 79 4,570.17 732.30 311.74 790.29 Non-debt 18,797 18,124.4 19 18 2,889.58 3,928.70 Securities .75 6 2,734.38 3,230.38 444.77 228.35 Total 156,01 159,180. 202 205 7,533.50 5,094.07 Securities 5.66 25 7,304.55 3,962.68 756.51 018.64
Held to Maturity (HTM) Domestic Investments
The following tables set forth, as of the dates indicated, information related to our Domestic Investments Held to Maturity (HTM); (₹ in millions, except percentages) As of March 31, 2015 As of March 31, 2016 Unr Unre ealiz alize Unreal ed Unreali Book Market d ized Book Market Gai zed Particulars Value Value Gain Loss Value Value n Loss Government 489,382.12 489,382.12 0.00 0.00 484,811.73 484,811.73 0.00 0.00 Securities Other Debt 0.00 0.00 0.00 0.00 22,208.63 22,208.63 0.00 0.00 Securities Total Debt 489,382.12 489,382.12 0.00 0.00 507,020.36 507,020.36 0.00 0.00 Securities Non-debt 1,100.83 1,100.83 0.00 0.00 806.91 806.91 0.00 0.00 Securities Total 490,482.95 490,482.95 0.00 0.00 507,827.27 507,827.27 0.00 0.00 Securities
(₹ in millions, except percentages)
As of March 31, 2017 As of September 30, 2017 Unrea Unrea Unrea Unreali Market lized lized Market lized zed Particulars Book Value Value Gain Loss Book Value Value Gain Loss Government 486,842.52 486,842.52 0.00 0.00 501 ,306.96 501 ,306.96 0.00 0.00 Securities Other Debt 3,576.17 3,576.17 0.00 0.00 3 ,576.17 3,576.17 0.00 0.00 Securities Total Debt 490,418.69 490,418.69 0.00 0.00 504 ,883.13 504 ,883.13 0.00 0.00 Securities Non-debt 810.59 810.59 0.00 0.00 756.75 756.75 0.00 0.00 Securities Total 491,229.28 491,229.28 0.00 0.00 505 ,639.88 505 ,639.88 0.00 0.00
Held for Trading (HFT) Domestic Investments
The following table sets forth, as of the dates indicated, information related to our Domestic Investments Held for Trading (HFT).
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(₹ in millions, except percentages) As of March 31, 2015 As of March 31, 2016 Unrea Unreali Mark Book Market lized zed Book et Unrealiz Unrealiz Particulars Value Value Gain Loss Value Value ed Gain ed Loss Government Securities 28,419.80 28,449.66 39.09 9.22 750.61 751.36 0.75 0.00 Other Debt Securities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total Debt Securities 28,419.80 28,449.66 39.09 9.22 750.61 751.36 0.75 0.00 Non-debt Securities 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total Securities 28,419.8 28,449.66 39.09 9.22 750.61 751.36 0.75 0.00
(₹ in millions, except percentages) As of March 31, 2017 As of September 30, 2017 Unreal Unreal Book Marke ized ized Market Unrealize Unrealize Particulars Value t Value Gain Loss Book Value Value d Gain d Loss Government 419.20 419.20 0.00 0.00 3 151.22 3 127.28 0.00 23.94 Securities Other Debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Securities Total Debt 419.20 419.20 0.00 0.00 3 151.22 3 127.28 0.00 23.94 Securities Non-debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Securities Total 419.20 419.20 0.00 0.00 3 151.22 3 127.28 0.00 23.94 Securities
Residual Maturity Profile: Available for Sale (AFS)
The following tables set forth, as of the dates indicated, an analysis of the residual maturity profile of our Domestic Investments in Government and Corporate Debt Securities classified as Available for Sale securities and their weighted average market yields. (₹ in millions, except percentages) As of September 30, 2017 Up to three Three months to More than five months one year One to five years years Particulars Amount Yield Amount Yield Amount Yield Amount Yield Government 132.20 6.00 0.00 0.00 53,985.30 6.22 90,530.08 6.93 securities Other debt 1.74 4 8.58 16,692.81 7.72 15,190.73 7.67 securities 1,930.11 850.51 Total Book Value 2,062.31 3.87 4,850.51 8.58 70,678.11 6.97 105,720.81 7.30 Total Debt 1,966.20 4,900.08 72,653.55 107,402.66 Securities (Market value)
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(₹ in millions, except percentages) As of March 31, 2017 Up to three Three months to one More than five months year One to five years years Particulars Amount Yield Amount Yield Amount Yield Amount Yield Government securities 0.00 0.00 2,105.51 6.38 16,558.78 6.74 80,525.47 6.99 Other debt securities 1390.55 0.59 2,681.67 7.70 19,144.25 7.99 14,811.68 7.73 Total Book Value 1390.55 0.59 4,787.18 7.04 35,703.03 7.37 95,337.15 7.36 Total Debt Securities (Market value) 1291.02 4,886.70 36,647.62 98,230.44
(₹ in millions, except percentages)
As of March 31, 2016 Three months to More than five Up to three months one year One to five years years Yiel Yiel Particulars Amount Yield Amount Yield Amount d Amount d Government 984.75 6.84 449.62 7.20 16,339.88 7.61 96,937.57 7.83 securities Other debt 4,040.84 7.61 2,552.32 8.58 19,400.26 8.93 15,942.84 8.55 securities Total Book Value 5,025.59 7.23 3001.94 7.89 35,740.14 8.27 112,880.40 8.19 Total Debt 5 ,025.67 2,985.26 36,694.18 116,605.72 Securities (Market value)
(₹ in millions, except percentages) As of March 31, 2015 Three months to Up to three months one year One to five years More than five years Particulars Amount Yield Amount Yield Amount Yield Amount Yield Government 493.35 8.14 3 ,029.99 8.24 2 ,057.42 7.90 98 ,793.93 7.96 securities Other debt 11,123.61 0.39 1 ,727.33 7.13 26 ,446.76 9.11 16 ,107.11 8.70 securities Total Book 11 ,616.96 4.27 4 ,757.32 7.69 28 ,504.18 8.51 114 ,901.04 8.33 Value Total Debt 11 ,621.73 4 ,885.95 29 ,337.60 119 ,361.66 Securities (Market value)
Residual Maturity Profile: Held to Maturity (HTM)
The following tables set forth, as of the dates indicated, an analysis of the Residual Maturity Profile of our Domestic Investments in Government and Corporate Debt Securities classified as Held to Maturity and their weighted average market yields. (₹ in millions, except percentages) As of September 30, 2017 Three months to one Up to three months year One to five years More than five years Particulars Amount Yield Amount Yield Amount Yield Amount Yield
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Government 2,309.46 6.31 11,690.05 6.25 179 ,882.57 6.60 307,424.89 7.01 securities Other debt 0.00 0.00 829.83 6.71 0.00 0.00 2,746.34 7.40 securities Total Book 2,309.46 6.31 12,519.88 6.48 179 ,882.57 6.60 310,171.23 7.21 Value Total Debt 2,313.72 12,647.08 183 ,105.01 315,375.21 Securities (Market Value)
(₹ in millions, except percentages) As of March 31, 2017 Up to three Three months to one More than five months year One to five years years Yiel Yiel Yiel Particulars Amount d Amount Yield Amount d Amount d Government 1,221.15 5.91 19,902.66 6.15 191 6.68 274 ,684.75 7.10 securities ,863.79 Other debt 0.00 0.00 829.83 6.73 16.50 7.23 2,729.84 7.54 securities Total Book Value 1,221.15 5.91 20,732.50 6.44 191,880.29 6.96 277,414.59 7.32 Total Debt 1,222.72 20,097.55 1 96 2,84,741.00 Securities (Market ,114.03 Value)
(₹ in millions, except percentages) As of March 31, 2016 Up to three Three months to one More than five months year One to five years years Yiel Particulars Amount Yield Amount Yield Amount Yield Amount d Government 8,316.68 7.08 542.71 7.21 192,065.47 7.42 283 ,886.87 7.86 securities Other debt 0 0.00 0 0.00 2,656.13 7.88 19,552.50 7.89 securities Total Book 8,316.68 7.08 542.71 7.21 19,4721.60 7.65 3,03,439.37 7.88 Value Total Debt 8,546.71 544.66 195 ,306.58 308,131.48 Securities (Market Value)
(₹ in millions, except percentages) As of March 31, 2015 Up to three months Three months to one year One to five years More than five years Particulars Amount Yield Amount Yield Amount Yield Amount Yield Government 2,101.92 8.22 9,640.96 8.22 193,927.25 7.88 2,83,711.99 7.94 securities Other debt 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 securities 2,101.92 8.22 9,640.96 8.22 193,927.25 7.88 283 ,711.99 7.94 Total Book Value Total Debt 2,114.48 9,624.80 1 91,691.80 291,865.69 Securities (Market Value)
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London Branch Profile
London Investments:
As of March 31, 2017, the Bank had an international branch office in London. The Branch is active in wholesale banking operations for Indian corporate in United Kingdom, money market operations, investments, and treasury operations. The branch is permitted to invest in banks bonds (fixed/floating rate) issued by Indian banks, foreign banks, financial institutions and their wholly owned subsidiaries. It is also permitted to invest in bonds issued by Indian corporates, foreign large corporates and wholly owned subsidiaries owned by such corporates. As on March 31, 2017, the total investment portfolio of the London branch comprised of approximately 2% of the Banks total investments. All investments are under AFS category.
The position of the Investments at London branch as per residual maturity for Financial Year ending March 2015, 2016 and 2017 and the six months period ended September 30, 2017 is as follows:
March 31, March 31, March 31, Septembe Residual Maturity Bucketing 2015 2016 2017 r 30, 2017 Short Term(< 6 months) (USD Mio) 0.00 11.14 57.61 21.6 Medium Term(>6mths-3yrs) (USD Mio) 3.00 59.02 92.05 237.04 Long Term(> 3 years) (USD Mio) 44.50 46.50 54.05 63.23 Total (USD Mio) 47.50 116.66 203.71 321.87 GBP/USD Exchange Rate 1.47 1.43 1.25 1.34 GBP Equivalent(in Million) 32.10 81.21 162.38 240.11 *FEDAI GBP Spot Rate 92.47 95.47 80.90 87.37 INR Equivalent(in Million) 2,968.79 7,753.71 13,137.44 20,979.78
Funding (Standalone)
The Bank’s funding operations are designed to ensure stability, low cost of funding and effective liquidity management. Our principal sources of funds are deposits from retail and corporate customers, borrowings from the RBI and other financial institutions, foreign currency borrowings, profits from the purchase and sale of investments, and the public and private issuance of bonds. The sources of funding include the details set out below.
Total Deposits (₹ in millions, except percentages) Fiscal 2015 Fiscal 2016 Fiscal 2017 %of Particulars Amounts %of total Amounts total Amounts %of total Term deposits 1,877,869 73% 1,878,045 72% 1,846,962 71% Saving 464,673 18% 520,487 20% 642,572 25% Currentdeposits 172,460 7% 159,299 6% 116,075 4% deposits Certificate of 38,879 2% 59,522 2% - - deposits Total 2,553,881 100% 2,617,353 100% 2,605,609 100%
(₹in millions, except percentages) Particulars As of September 30, 2016 As of September 30, 2017 Amounts Percentage of total Amounts Percentage of total Term deposits 2,015,855 76% 2,069,618 73% 532,624 20% 644,933 23% Saving deposits 104,944 4% 111,454 4% Current deposits
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Total 2,653,423 100% 2,826,005 100%
As of March 31, 2017, our individual domestic term deposits in excess of ₹5 million had balance to maturity profiles as set out below
Balance to maturity for Over three deposits exceeding ₹ 5 Up to three months to one Over one year Over five million months year to five years years Total 231,339 480,668 137,848 454 850,309.0
As of September 30, 2017, our individual domestic term deposits in excess of ₹5 million had balance to maturity profiles as set out below.
Balance to maturity Up to three Over three months Over one year Over five for deposits exceeding months to one year to five years years Total ₹ 5 million 268,271 516,751 130,063. 904 915,989
Short-term Borrowings
The following table sets forth, for the periods indicated, information related to our Short-Term Domestic Borrowings, which primarily include borrowing under Call, Notice, CBLO and Repos
Fiscal Fiscal Fiscal Septembe Particulars 2015 2016 2017 r 30, 3017 Period End Balance 99,210 59,510 0 0 Average Balance During The period not captured(1) 7,830 26430 3985 1,074 Average interest rate during the period(2) (in 5.96 percentage) 8.02 7.05 6.40 Interest at period end(3) 628 1862 255 32
Note:
1. Average daily balances outstanding. 2. Represents the ratio of interest expense on short-term borrowings to the average of balances of short-term borrowings. 3. Represents the total interest paid on account of short term borrowings during the period.
Cash Flow Mismatch Analysis
The following table sets forth our structural liquidity gap position as of September 30, 2017.
(₹ in millions, except percentages) Particulars As of Sep 30, 2017 Three Up to three months to One to five More than months one year years five years Total Cash and Balances with RBI 25,687 26,872 48,085 10,506 111,150 Balances with Other Banks 17,580 11,011 26,318 1,198 56,107 Investments 201,855 21,372 286,961 215,597 725,785 Advances 428,833 352,817 874,386 289,033 1,945,069 Operating Fixed Assets - - - 24,306 24,306 Deferred Tax Assets - - - - - Other Assets 7,929 6,781 49,622 16,617 80,949
NPA - - 50,198 68,745 118,943 Reverse Repo 181,000 - - - 181,000 Swaps 433,926 445,023 9,830 - 888,779
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Interest Receivable 109 880 7,971 7,830 16,790 Export Refinance - - - - - Total Inflows 1,296,919 864,756 1,353,371 633,832 4,148,878 Capital and Reserves - - - 140,259 140,259 Bills Payable 3,439 - 4,342 - 7,781 Borrowings 59,942 17,307 41,538 74,467 193,254 Deposits from Other 608,019 788,482 1,214,971 214,533 2,826,005 UnAccounts-availed portion of Cash Credit/ Overdraft/ Demand 22,379 - - - 22,379 Loans component of working Othercapital Liabilities 10,416 17,325 949 23,881 52,571 Letter of Credit 1,762 - - - 1,762 Repos - - - - - Swaps 434,458 444,776 8,846 - 888,080 Interest Payable 3,704 6,355 4,485 1,545 16,089 Total Outflows 1,144,119 1,274,245 1,275,131 454,685 4,148,180
(₹ in millions, except percentages) Particulars As of September 30, 2017 Up to three Three months to One to five More than months one year years five years Liquidity Gap 152,800 -409,489 78,240 179,147 Cumulative Gap 152,800 -256,690 -178,451 698 Liquidity gap as % of Total 13.36 -32.14 6.14 39.40 Liabilities (total outflow)
\Note: 1. Classification methodologies are based on the Asset Liability Management Guidelines issued by the RBI. 2. Assets and liabilities are classified into categories as per residual maturity. 3. Assets and liabilities that do not mature or have ambiguous maturities are classified as per historical behavioural analysis or management judgment.
The following table sets forth our structural liquidity gap position as of March 31, 2017:
(₹ in millions, except percentages) Particulars As of March 31, 2017 Up to three Three months One to five More than months to one year years five years Total Cash and Balances with RBI 54,027 36,288 40,134 640 131,089 Balances with Other Banks 14,113 9,404 23,448 1,210 48,175 Investments 166,384 24,921 242,580 220,769 654,654 Advances 336,177 335,693 891,801 328,913 1,892,584 Operating Fixed - - - 24,541 24,541 Assets Deferred Tax Assets - - - - - Other Assets 6,592 7,496 54,292 2,475 70,855 NPA - - 39,726 64,383 104,109 Reverse Repo 73,059 - - - 73,059 Swaps 253,694 286,184 7,581 - 547,459
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(₹ in millions, except percentages) Particulars As of March 31, 2017 Up to three Three months One to five More than months to one year years five years Total Interest Receivable 635 648 6137 7313 14733 Export Refinance 0 0 0 0 0 Total Inflows 904679 700634 1305700 650243 3561256 Capital and Reserves 0 0 0 141842 141842 Bills Payable 3821 0 5076 0 8897 Borrowings from 1143 11793 94818 67001 174755 Financial Institutions Deposits from Other 522920 665807 1196329 220553 2605609 Accounts Un-availed portion of Cash Credit/ Overdraft/ 21414 0 0 0 21414 Demand Loans component of working Othercapital Liabilities 6442 14100 1161 23970 45673 Letter of Credit 1651 0 0 0 1651 Repos 0 0 0 0 0 Swaps 252995 285989 6701 0 545685 Interest Payable 3222 4745 4496 1497 13960 Total Outflows 813608 982433 1308579 454862 3559482 Liquidity Gap 91071.8 -281799.2 -2879.32 195381 Cumulative Gap 91071.8 -190727.40 -193606.70 1774.24 Liquidity gap as % of Total Liabilities ( Total Outflows) 11.19 -28.68 -0.22 42.95
Note: 1. Classification methodologies are based on the Asset Liability Management Guidelines issued by the RBI. 2. Assets and liabilities are classified into categories as per residual maturity. 3. Assets and liabilities that do not mature or have ambiguous maturities are classified as per historical behavioural analysis or management judgment.
Loan Portfolio and Credit Substitutes
As of March 31, 2017, our gross loan portfolio was ₹ 2,070,647 million. Further, as of September 30, 2017, our gross loan portfolio was ₹2,148,873 million. The majority of our gross loans and credit substitutes are to borrowers in India. For a description of our consumer loan products, see “Our Business”.
We make loans to a wide range of public sector and private sector commercial and industrial customers, agricultural customers and individual customers, in each case within the guidelines issued by the RBI. Working capital facilities consist of revolving cash credit facilities and short-term loans. Revolving cash credit facilities, based on a traditional overdraft system of lending, have been the most common form of working capital financing in India. Pursuant to RBI guidelines, only a specified percentage of a working capital facility can be accessed as cash credit, with the balance being short-term loans having a minimum maturity of one year.
The following table sets forth, for the periods indicated, our loan portfolio classified by product groups. (₹ in millions, except percentages) Particulars As of March 31,2015 As of March 31, 2016 As of March 31, 2017 % to total % to total % to total Amount Credit Amount Credit Amount Credit
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Retail 222,564 10.81 265,292 12.85 276,645 13.36 MSME 246,650 11.98 276,771 13.41 269,815 13.03 Agriculture 262,054 12.73 298,989 14.48 318,782 15.40 Corporate / Others 920,263 44.72 840,472 40.71 848,531 40.98 Overseas Operations 406,507 19.75 382,968 18.55 356,874 17.23 2,058,03 Gross Advances 8 100.00 2,064,492 100.00 2,070,647 100.00 Note: Previous period figures have been regrouped/ reclassified wherever necessary to conform to current period classification.
(₹ in millions, except percentages) Particulars As of September 30, 2017 2016 Amount % to total Credit Amount % to total Credit Retail 286,467 13.33 272,214 13.09 MSME 275,753 12.83 275,126 13.23 Agriculture 336,524 15.66 281,851 13.55 Corporate / others 816,429 37.99 848,225 40.79 Overseas Operations 433,700 20.18 402,233 19.34 Gross Advances 2,148,873 100 2,079,649 100
Interest Rate Sensitivity Analysis
The following table sets forth the interest rate sensitivity analysis of our assets and liabilities as of March 31, 2017: (₹ in millions, except percentages)
Particulars As of March 31, 2017 Three Up to three months to One to five More than Non- months one year years five years sensitive Total
Cash and Balances 0 0 0 0 131,089 131089 with RBI Balances with Other 11,962 10,091 24,340 638 1,143 48,174 Banks Investments 6,983 24,913 240,744 362,406 19,608 654,654 Advances 1,498,048 214,033 132,198 49,016 0 1,893,295
(₹ in millions, except percentages) As of March 31, 2017 Three More Up to three months to One to five than five Non- Particulars months one year years years sensitive Total NPA 0 0 103,398 0 0 103,398 Fixed Assets 0 0 0 0 24,541 24,541 Reverse Repos 73,059 0 0 0 0 73,059 Forex Swaps 253,826 286,246 7,582 0 0 547,654 Other Assets 0 0 0 0 62,523 62,523 Total Assets 1,843,878 535,283 508,262 412,060 238,904 3,538,387
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Borrowings from Financial 1,114 11,811 82,089 1 10 95,025 Institutions 640,218 957,145 999,946 8,300 0 2,605,609 Deposits from other Accounts 0 0 0 0 68,528 68,528 Other liability
Capital 0 0 0 0 9,045 9,045 Reserve & Surplus 0 0 0 0 132,796 132,796 0 2,400 5,330 28,000 0 35,730 Capital Instrument Tier II Capital 0 0 5,000 39,000 0 44,000 0 0 0 0 0 0 Repo Forex Swaps 253,120 286,042 6,701 0 0 545,863 Total Liabilities 894,452 1,257,397 1,099,066 75,301 2,10,379 3,536,596
(₹ in millions, except percentages) As on September 30, 2017 Up to Three More three months to One to than five Non- months one year five years years sensitive Total Cash and Balances with 0 0 0 0 111,150 111,150 RBI Balances with Other 16,390 10,997 26,286 1,196 1,238 56,107 Banks Investments 13,972 28,091 267,905 408,580 7,237 725,785 Advances 1,434,671 223,781 218,997 67,620 0 1,945,069 Other Assets 0 0 0 0 73,598 73,598 NPA 0 0 112,644 6,299 0 118,943 Fixed Assets 0 0 0 0 24,306 24,306 Reverse Repos 181,000 0 0 0 0 181,000 Forex Swaps 434,343 445,272 9,871 0 0 889,486 Total Assets 2,080,375 708,141 635,703 483,696 217,529 4,125,444 Borrowings 59,936 14,906 26,708 2,467 6 104,023 Deposits from other 717,128 1,095,212 1,004,253 9,411 0 2,826,005
Accounts 0 0 0 0 0 0 Other liability 0 0 0 0 76,441 76,441 Capital 0 0 0 0 9,045 9,045 Reserve & Surplus 0 0 0 0 131,213 131,213 Capital Instrument 0 2,400 5,330 0 0 7730 Tier II Capital 0 0 42,500 39,000 0 81,500 Repo 0 0 0 0 0 0 Forex Swaps 434,244 444,572 8,813 0 0 887,628 Total Liabilities 1,211,308 1,557,091 1,087,604 50,878 216,705 4,123,586
Concentration of Loans and Credit Substitutes
Pursuant to RBI guidelines, exposure ceilings are 15% of capital funds in the case of a single borrower and 40% in the case of a borrower group. The single borrower exposure limit is extendable by another 5%, up to 20% of capital funds provided that the additional exposure is for the purpose of financing Infrastructure projects. The borrower group exposure limit is extendable by another 10%, up to 50% of capital funds, provided that the
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additional exposure is for the purpose of financing infrastructure projects. In addition, a bank may, in exceptional circumstances and with the approval of its board of directors, consider increasing its exposure to a single borrower up to a maximum of an additional 5% of capital funds, subject to the borrower consenting to the bank making appropriate disclosure about the borrower in the bank’s annual report. There are generally no restrictions in India on exposure to a particular industry. RBI norms specify exposure to capital market, real estate, sensitive commodities listed by the RBI, venture capital funds, stockbrokers, financing for acquisition of overseas entities, and credit to overseas joint ventures. For further information, see “Regulations and Policies”.
The following table sets forth, as of the dates indicated, our global fund-based loans outstanding categorized by sector or economic activity.
(₹ in millions, except percentages) As of March 31, As of March 31, As of March 31, 2015 30-Sep-17 2016 2017 % of % of % of % of Total Total Amoun Total Amoun Total Amounts Amounts Advanc Adva ts Advan ts Adva es nces ces nces 262,053.80 12.73 298,989.98 14.48 318,781 15.4 336,52 15.66 Agriculture .83 4 Mining & Quarrying 8,408.6 0.41% 8,659.78 0.42 7,851.7 0.38% 7,487.4 0.35% (incl. Coal) % 4 4 23,027.43 1.12% 32,249.24 1.56 33,396. 1.61% 31,797. 1.48% Food Processing % 18 77 Of which 5,652.77 0.27% 7,277.74 0.35 7,651.6 0.37% 5,735.9 0.27% Sugar % 3 5 Edible Oils 1,990.54 0.10% 3,584.66 0.17 4,078.5 20.00 5,200.9 0.24% & % 7 % 7 Vanaspati 307.4 0.01% 365.24 0.02 415.47 2.00% 389.49 0.02% Tea % 15,076.72 0.74% 21,021.6 1.02 21,250. 1.03% 20,471. Others % 51 36 0.95% 1,347.55 0.07% 1,507.16 0.07 1,500.7 0.07% 1,391.9 0.06% Beverage & Tobacco % 5 5 32,368.35 1.57% 27,490.61 1.33 27,941. 1.35% 27,462. 1.28% Textiles % 18 14 Of which: Cotton 15,299.85 0.74% 10,491.99 0.51 10,287. 0.50% 9,891.4 0.46% Textiles % 05 3 Jute 21.65 0.00% 51.78 0.00 118.15 0.01% 111.69 0.01% Textiles % Man-Made 632.27 0.03% 878.35 0.04 1,253.7 0.06% 1,366.7 0.60% Textiles % 1 0 16414.58 0.80% 16,068.49 0.78 16,282. 0.79% 16092. 0.75% Others % 27 32 Leather & Leather 679.5 0.03% 871.24 0.04 1,222.3 0.06% 1,423.3 0.07% Products % 2 Wood & Wood 875.66 0.04% 1,218.16 0.06 1,707.9 0.08% 2,146.8 0.10% Products % 5 6 Paper & Paper 6,763.94 0.33% 8,830.76 0.43 8,834.6 0.43% 7,757.1 0.36% Products % 6 2 Petroleum, Coal 44,105.64 2.14% 35,427.27 1.72 41,935. 2.03% 20,473. 0.95% Products & Nuclear % 1 63 Fuels Of which: 43,636.25 2.12% 31,792.21 1.54 36,348. 1.76% 18,549. 0.86% Petroleum % 91 07 Chemicals & 21,025.98 1.02% 25,017.28 1.21 30,572. 1.48% 29,855. 1.39% Chemical Products % 04 78 Of which:
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As of March 31, As of March 31, As of March 31, 2015 30-Sep-17 2016 2017 % of % of % of % of Total Total Amoun Total Amoun Total Amounts Amounts Advanc Adva ts Advan ts Adva es nces ces nces 3,799.22 0.18% 3,719.15 0.18 5,683.5 0.27% 4,856.1 0.23% Fertilizer % 3 6 Drugs & 4,684.93 0.23% 5,642.39 0.27 9,005.8 0.43% 9,094.8 0.42% Pharmaceuti % 3 4 cals Petro 4,427.72 0.22% 4,546.11 0.22 12,217. 0.59% 12,255. 0.57% Chemicals % 93 79 8,114.11 0.39% 11,109.64 0.54 3,664.7 0.18% 3,649 0.17% Others % 5 Rubber, Plastic & 4,273.99 0.21% 5,583.8 0.27 7,731.8 0.37% 8,662.2 0.40% their Products % 1 3 2,066.6 0.10% 2,139.01 0.10 2,110.1 0.10% 2,007.8 0.09% Glass & Glassware % 6 6 Cement & Cement 6,965.88 0.34% 8,548.93 0.41 8,237.4 0.40% 8,601.8 0.40% Products % 7 1 Basic Metal & Metal 106,271.4 5.16% 96,386.05 4.67 100,202 4.84% 97,508. 4.54% Product % .2 52 97,453.27 4.74% 90,860.06 4.40 89,771. 4.34% 85,206. 3.97% Iron & Steel % 16 02 Other Metal & Metal 8,818.15 0.43% 5,525.99 0.27 10,431. 0.50% 12,302. 0.57% Product % 08 5 18,226.73 0.89% 20,657.03 1.00 20,255. 0.98% 22,311. 1.04% All Engineering % 42 74 Of which: 3,581.41 0.17% 3,275.16 0.16 2,305.3 0.11% 2,509.5 0.12% Electronics % 4 8 14,645.32 0.71% 17,381.87 0.84 17,950. 0.87% 19,802. 0.92% Others % 08 17 Vehicles, Vehicle 8,596.24 0.42% 9,064.02 0.44 9,558.5 0.46% 10,368. 0.48% Parts & Transport % 7 66 Equipment 17,389.87 0.84% 20,558.43 1.00 18,704. 0.90% 18,231. 0.85% Gems & Jewellery % 91 46 Construction (other 24,632.27 1.20% 27,044.6 1.31 26,450. 1.28% 29,997. 1.40% than Infrastructure) % 71 36 309,514.7 15.04% 297,651.6 14.42 275,144 13.29 249,07 11.59 Infrastructure % .3 % 9.15 % Of which: 170,053.3 8.26% 166,525.2 8.07 150,881 7.29% 131,43 6.12% Power % .5 7.96 Of which: 0 State-owned 114,983.2 5.59% 106,150.7 5.14 88,322. 4.27% 73,197. 3.41 Power % 9 90 Utilities Telecommu 46,382.52 2.25% 45,105.72 2.18 28,529. 1.38% 25,217. 1.17% nication % 97 16 23,930.94 1.16% 27,005.46 1.31 28,065. 1.36% 26,677. 1.24% Roads % 18 2 13,307.2 0.65% 3,076.91 0.15 1,731.0 0.08% 0 0.00% Airports % 1 1,555.55 0.08% 1,872.86 0.09 3,113.2 0.15% 3,247.4 0.15% Ports % 8 1 Railways 10,518.21 0.51% 9,615.18 0.47 11,642. 0.56% 12205. 0.57% (other than % 35 36 Indian Railways)
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As of March 31, As of March 31, As of March 31, 2015 30-Sep-17 2016 2017 % of % of % of % of Total Total Amoun Total Amoun Total Amounts Amounts Advanc Adva ts Advan ts Adva es nces ces nces Other 43,766.93 2.13% 44,450.28 2.15 51,180. 2.47% 50,294. 2.34% Infrastructur % 99 06 e Other Industries 456,599.95 22.19% 448,346.12 21.72 45,912. 2.22% 40,497. 1.88% (Excluding NBFC) % 19 99 247,451.2 12.02% 233,749 11.32 202,967 9.80% 204,58 9.52% NBFC % .5 2.87 Total of Industries 1,602,645.30 77.87% 1,609,990.07 77.98 1,191,0 57.52 1,158,1 53.90 (Including NBFC) % 18.96 % 69.66 % 455,393.42 22.13% 454,502.63 22.02 879,628 42.48 990,70 46.10 Residual Advances % .86 % 2.81 % 2,058,038.72 100.00 2,064,492.7 100.0 2,070,6 100.00 2,148,8 100.0 Total gross Advances % 0% 47.82 % 72.47 0%
As of March 31, 2017, aggregate exposure to our five largest borrowers amounted to ₹77,987.01 million representing approximately 36.54% of our total Capital of ₹ 213,417.27 million. We had an exposure of ₹16,928.60 million on such date for our single largest borrower, representing 7.93% of our Total Capital as of March 31, 2017. Further, as of September 30, 2017, aggregate outstanding to our five largest borrowers (Nonfood credit) amounted to ₹73,075.41 million representing approximately 33.02% of our total capital of ₹ 221,277.36 million. We had an exposure of ₹17,110 million on such date for our single largest borrower, representing 7.73% of our total capital, as of September 30, 2017.
Regional Concentration
Our widespread branch network enables us to diversify our lending risks geographically. The following table presents an analysis of our gross credit by State/Union Territory as of the dates indicated:
(₹ in millions, except percentages)
STATE/UNION TERRITORY Fiscal 2015 Fiscal 2016 Fiscal 2017 Andaman &Nicobar Islands 1,308 1,409 1,426 Andhra Pradesh 126,782 145,205 153,412 Arunachal Pradesh 88 110 128 Assam 2,691 3,513 3,635 Bihar 4,177 5,046 5,536 Chandigarh 7,794 4,683 5,273 Chhattisgarh 1,362 1,804 2,006 Goa 5,362 4233 4,190 Gujarat 52,813 58,912 61,495 Haryana 29,518 30,575 31,433 Himachal Pradesh 806 877 1,001 Jammu &Kashmir 2,359 2,489 2,552 Jharkhand 2,459 4,403 3,036 Karnataka 217,058 255,338 261,636 Kerala 68,747 67,923 79,214 Lakshadweep(ut) 561 655 662 Madhya Pradesh 10,872 13,677 15,765 Maharashtra 441,038 409,041 413,409 Manipur 62 146 147 Megalaya 343 394 441 Mizoram 73 127 133 Nagaland 240 227 199 NCT of Delhi 223,150 189,783 174,967 Odisha 11,807 12,226 13,761 Puducherry 948 958 1,016 Punjab 5,675 8,677 9,458 Rajasthan 34,223 32,520 29,479 Sikkim 56 57 68
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Tamil Nadu 144,617 147,861 142,468 Telangana 111,333 109,486 102,510 Tripura 175 212 271 Uttarakhand 409,654 386,934 361,476 Uttar Pradesh 85,996 104,524 120,001 West Bengal 53,892 60,467 68,444 Grand total 2,058,039 2,064,492 2,070,648
Provisioning Policy for Non-Performing Assets
Specific loan loss provisions in respect of non-performing advances are made based on management’s assessment of the degree of impairment of wholesale and retail advances, subject to the minimum provisioning level prescribed by the RBI. The specific provision levels for retail NPAs are also based on the nature of product and delinquency levels. In relation to non-performing derivative contracts, as per the extant RBI guidelines, we make provision for the entire amount of overdue and future receivables relating to positive marked to market value of the said derivative contracts. Provisions for substandard, doubtful and loss asset categories are required to be made as per the RBI guidelines described below. These provisioning requirements are the minimum provisions that have to be made in accordance with the RBI guidelines.
Substandard assets
A general provision of 15.0% on total outstanding loans is required without making any allowance for the Export Credit Guarantee Corporation of India guarantee cover and securities available. The unsecured exposures which are identified as sub-standard are subject to an additional provision of 10.0% (i.e. a total of 25.0% on the outstanding balance). However, unsecured loans classified as substandard, where certain safeguards such as escrow accounts are available, are subject to an additional provision of only 5.0% (i.e. a total of 20.0% on the outstanding balance).
Doubtful assets
A 100.0% provision is made against the unsecured portion of the doubtful asset. The value assigned to the collateral securing a loan is the realizable value determined by third party appraisers. In cases where there is a secured portion of the asset, depending upon the period for which the asset remains doubtful, a 25.0% to 100.0% provision is required to be made against the secured asset as follows: . Up to one year: 25.0% provision. . One to three years: 40.0% provision. . More than three years: 100.0% provision.
Loss assets
The entire asset is required to be written off or 100.0% of the outstanding amount is required to be provided for.
Analysis of Non Performing Advances
Our gross NPA ratio increased from 3.13% as of March 31, 2015 to 6.70% as of March 31, 2016 due to the Asset Quality Review conducted by the RBI and further increased to 8.50% as of March 31, 2017, respectively, while our net NPA ratio increased from 1.90% as of March 31, 2015 to 4.48% as of March 31, 2016 and to 5.21% as of March 31, 2017.
Our gross NPA ratio increased from 7.72% as of Sept 30, 2016 to 9.39% as of Sept 30, 2017, and our net NPA ratio increased from 5.03% to 5.76% as of Sept 30, 2016 and Sept 30, 2017, respectively. For further information, see “Risk Factors - Risks Relating to the Bank’s Business - An increase in our portfolio of NPAs and provisioning requirements mandated by the RBI may adversely affect our business”.
For further information, see “Risk Factors -An increase in our portfolio of NPAs and provisioning requirements required under applicable RBI regulations could adversely affect our business, financial condition and results of operations.”
The following table sets forth, as of the dates indicated, information about our NPA portfolio. (₹ in millions, except percentages)
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As of September As of March 31, As of March March 31, 30, 2017 Particulars 2015 31, 2016 2017 Gross NPAs 64,423.78 138,321.60 176,093.13 201,766.4 Specific provisions 23,646.70 45,682.30 69,475.30 80,241.10 Floating provisions 1,022.10 1,022.10 1,022.10 1,022.10 Deductions* 1,318.48 1,468.50 1,485.90 1,560.20
NPA net of provisions 38,436.50 90,148.70 104,109.83 118,943.00
Gross advances 2,058,038.70 2,064,492.70 2,070,647.80 2,148,872.50
Net advances 2,027,198.20 2,013,684.90 1,996,693.50 2,064,011.90 Gross NPAs/gross advances (%) 3.13 6.7 8.5 9.39 Net NPAs/net advances (%) 1.90 4.48 5.21 5.76 Specific provision as a percentage of gross NPAs 36.70 33.03 39.45 39.77 Total provisions as a percentage of gross NPAs 66.61 53.73 56.37 56.21
*Deductions - DICGC/ECGC received and part payment received against NPA pending for adjustment.
Our net provisioning coverage ratio as of March 31, 2015, 2016 and 2017, computed as per RBI guidelines, was 66.61%, 53.73% and 56.37%, respectively. The following table sets forth, for periods indicated, information about our NPA provisions.
(₹ in millions, except percentages) As of March 31, As of March 31, As of March 31, Particulars 2015 2016 2017 Specific provision at the beginning of the year 15,597.80 23,646.70 45,682.30 Addition during the year 18,315.50 38,201.60 36,155.40 Reduction during the period 10,266.60 16,166.00 12,362.40 Specific provision at the end 23,646.70 45,682.30 69,475.30 Floating provision at the end 1,022.10 1,022.10 1,022.10
(₹ in millions, except percentages) As of March 31, As of March 31, As of March 31, Septembe Particulars 2015 2016 2017 r 30, 2017 Cash Recovery 10,871.10 12,602.90 1,5002.10 9,628.90 Upgradation 15,270.90 21,207.70 15,899.00 8,094.90 Write Off 10,545.20 14,297.00 12,706.90 10,679.50 Gross Reduction 36,687.20 48,107.60 43,608.00 28,403.30 Fresh Slippages 54,999.70 122,005.40 81,379.50 54,076.60 Net Increase/ 18,312.50 73,897.80 37,771.50 25,673.30 (Decrease) Gross NPA% 3.13 6.7 8.5 9.39
The following table sets forth, for periods indicated, information about our NPA provisions.
(₹in millions, except percentages) Particulars As of September 30, 2016 2017 Specific provision at the beginning of the year 45,682.30 69,475.30 Addition during the period 6 M 15,942.00 21,464.80 Reduction during the period 6M 5,132.90 10,699.00
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Specific provision at the end 56,491.40 80,241.10 Floating provision 1,022.10 1,022.10
The following table sets forth the classification of our gross loan assets as of the dates indicated.
(₹in millions, except percentages) Particulars As of September 30, 2016 2017 Standard (excluding restructured accounts) 1,873,366.60 1913,454.00 Restructured standard assets 45,714.70 33,652.10 Non-performing assets 160,567.30 201,766.40 Sub-standard assets 75,058.60 60,182.20 Doubtful assets 85,170.10 140,047.40 Loss assets 338.60 1,536.80
(₹in millions, except percentages) As of March 31, As of March 31, As of March 31, Particulars 2015 2016 2017 Standard (excluding restructured 1,902,640.82 1,876,480.40 1,851,632.87 accounts) Restructured Standard assets 90,974.10 49,690.70 42,921.80 Non-performing assets 64,423.78 138,321.60 176,093.13
(₹ in millions, except percentages) Particulars As of March 31, 2015 As of March 31, 2016 As of March 31, 2017 Sub-standard 26,342.00 65,061.20 48,730.93 Doubtful 37,636.50 72,874.80 125,875.30 Loss 445.28 385.60 1,486.90 Non-performing assets 64,423.78 138,321.60 176,093.13
The following table provides a summary of our gross loan assets as of the periods indicated, in accordance with RBI classifications:
(₹ in millions, except percentages) September 30, Particulars As of March 31, 2015 As of March 31, 2016 As of March 31, 2017 2017 Standard 1,993,614.92 1,926,171.10 1,894,554.67 1,947,106.10 Sub-standard 26,342.00 65,061.20 48,730.93 60,182.20 Doubtful 37,636.50 72,874.80 125,875.30 140,047.40 Loss 445.28 385.6 1,486.9 1,536.80 Total 2,058,038.70 2,064,492.70 2,070,647.80 2,148,872.50
The following table sets forth our provisions for possible credit losses at the dates indicated.
(₹ in millions, except percentages) As of March As of March 31, As of March 31, September Particulars 31, 2015 2016 2017 30, 2017 Provision held (Specific) 23,646.70 45,682.30 69,475.30 80,241.10 Provision held as percentage of gross advances 1.15 2.21 3.36 3.73 Provision held as percentage of gross NPAs 36.70 33.03 39.45 39.77 Total provisions as a % of gross NPAs 66.61 53.73 56.37 56.21
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Restructured Assets
The RBI has issued prudential guidelines on the restructuring of assets by banks. The guidelines essentially deal with the norms/conditions, the fulfillment of which is required to maintain the category of the restructured account as a ‘standard asset’. Similar guidelines apply to assets categorized as substandard. Substandard accounts which have been subjected to restructuring, whether in respect of principal installment or interest amount, are eligible to be upgraded to the standard category only after the specified period, i.e. a period of one year after the date when the first payment of interest or principal, whichever is earlier, falls due, subject to satisfactory performance during the period. If there is a failure to meet payment or other terms of a restructured loan, it may be considered a failed restructuring, in which case it is no longer classified as a restructured loan. We restructure assets on a case-by- case basis after our management has determined that restructuring is the best means of maximizing realization of the asset.
The following table sets forth the movement in restructured assets for the period ended March 31, 2017
(₹ in millions, except percentages) Particulars As of March 31, 2017 Standard NPA Total 57,539.00 34,172.60 91,711.60 Restructured Accounts as of April 1, 2016 (Opening position) Add: Fresh Restructuring + Increase in outstanding during 8,208.50 244.90 8,453.40 Fiscal 2016 2,569.10 (-) 2,376.50 192.60 Add/less: Up-gradation to restructured standard category (-)1,464.90 0.00 (-) 1,464.90 Less: Restructured Standard Advances which cease to attract higher provisioning and/or additional risk weight at the end of the quarter and hence need not be shown as restructured standard advances at the beginning of the next quarter Add/Less: Down-gradations of restructured accounts during (-) 6,638.00 6,638.00 0.00 Fiscal 2016 Less: Write-offs + Closures + Decrease in outstanding (-) 17,291.90 (-) 9,075.00 (-) 26366.90 Total restructured accounts as of March 31, 2017 (Closing 42,921.80 29,604.00 72,525.80 Position)
(₹in millions, except percentages) Particulars As of September 30, 2017 Standard NPA Total Restructured Accounts as of April 1, 2017 (Opening position) 42,921.80 29,604.00 72,525.80 Add: Fresh Restructuring + Increase in outstanding during the 4,333.30 25.00 4,358.30 three months ended June 30, 2017 Add/less: Up-gradation to restructured standard category 105.50 -105.50 0 Less: Restructured Standard Advances which cease to attract (-)3,200.30 0.00 (-)3,200.30 higher provisioning and/or additional risk weight at the end of Add/the quarterLess: Downand hence-gradations need not of berestructured shown as restructuredaccounts during the -3,593.60 5,403.40 1,809.80 threestandard months advances ended at June the beginning30, 2017 of the next quarter* Less: Write-offs + Closures + Decrease in outstanding 6,914.60 -6,698.00 13,612.60 Total restructured accounts as of Sep 30, 2017 (Closing 33,652.10 28,228.90 61,881.00 Position)
Analysis of NPAs by Business Segment
Business segment analysis of our Global NPA portfolio as of March 31, 2017:
(₹in millions, except percentages) Business segment As of March 31, 2017 As of September 30, 2017 Agriculture 22,461.70 247,00.00 MSME 22,141.80 27,911.50
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Infrastructure 14,245.80 11,685.45 Iron and Steel 46,645.99 44,749.78 Engineering 890.17 2,334.23 Textile 7,959.65 5,950.31 Others 61,748.02 84,435.13 Total 176,093.13 201,766.40
Top 10 Non-Performing Assets
The tables below sets forth, for the period indicated, information regarding our largest NPAs, identified by industry sector, as well as the value of the collateral securing the loan (the valuations are derived from the audited financial statements of the borrower or independently arrived at by outside agencies). However, the net realizable value of such collateral may be less.
(₹ in millions, except percentages) As of March 31, 2017 Gross Principal Currently Type of Principal Outstanding Net servicing all Industry (no. of Banking Outstandi of Provision for Collatera interest accounts) Arrangement ng Provisions credit losses l payments 42,497.67 16,064.60 26,433.07 48,791.63 NO Basic Metal and Metal products- Iron & Steel-(6 Accounts) consortium Food Processing -(1 3,104.91 465.74 2,639.17 3,026.78 NO Account) consortium Infrastructure- Roads 3,114.93 778.73 2,336.20 6,878.00 NO & Bridges-(1 Account) consortium Mining & 3,224.86 806.21 2,418.65 7,651.12 NO Quarrying-(1 Account) consortium Textiles-(1 Account) consortium 4,030.06 1,007.52 3,022.54 5,051.10 NO Total 55,972.43 19,122.80 36,849.63 - -
(₹ in millions, except percentages)
Industry (No. of accounts) As of September 30, 2017 Principal Outstanding Currently Type of Gross Net of servicing all Banking Principal Provision for interest Arrangement Outstanding Provisions credit losses Collateral payments Basic Metal and Metal products- Iron & Steel –(5 Accounts) consortium 40,439.19 15,147.64 25,291.55 45,302.28 No
Commercial real estate – (1 Account) consortium 3,200.49 480.07 2,720.42 14,419.80 No Infrastructure- Roads & Bridges(1 Account) consortium 3,114.93 778.73 2,336.20 6,878.00 No
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Mining & Quarrying(1 Account) consortium 3,187.80 1,275.12 1,912.68 7,712.48 No Textiles (1 Account) consortium 3,993.08 1,597.23 2,395.85 5,051.10 No Other Industry(1 Account) consortium 7,630.00 1,144.50 6,485.50 14,432.50 No
Total 61,565.49 20,423.29 41,142.20 -
Capital Adequacy
The following table sets forth, for the periods indicated, our capital adequacy ratios computed as per applicable RBI guidelines
(₹ in millions, except percentages) Particulars As at March 31, As at September 30, 2015 2016 2017 2016 2017 Common Equity Tier -1 (CET- 120,702.70 121,398.22 132,982.37 129,045.78 131,518.10 1) Additional tier I capital 4902.84 12,775.60 31,265.00 22,110.38 35,815.00 Tier I capital 125,605.54 134,173.82 164,247.37 151,156.16 167,333.10 Tier II capital 43,306.56 58,961.32 49,223.90 52,591.63 53,944.26 Total capital 168,912.10 193,135.14 213,471.27 203,747.79 221,277.36 1,602,485.2 1,730,706.1 1,774,810.9 1,795,776.7 1,818,448.0 Risk weighted assets 5 0 2 7 0 CET I ratio (%) 7.53 7.01 7.50 7.19 7.23 Tier I capital ratio 7.84 7.75 9.26 8.42 9.20 Tier II capital ratio 2.70 3.41 2.77 2.93 2.97 Total capital ratio 10.54 11.16 12.03 11.35 12.17
Notes: Capital Adequacy ratios have been calculated in accordance with RBI Guidelines (Basel-III Capital Regulations, generally referred to as Basel-III). See the section “Regulation and Policies”.
The following table sets forth, for the periods indicated, our risk weighted assets (RWA) pertaining to credit risk, market risk and operational risk computed as per applicable the RBI guidelines:
(₹ in millions, except percentages) As at March 31, As at September 30, Particulars 2015 2016 2017 2016 2017
Basel II Basel III Basel III Basel III Basel III Credit risk RWA 1,361,943.65 1,475,450.40 1,512,741.82 1,504,736.67 1,521,510.30 Market risk RWA 131,434.10 123,310.90 118,893.30 147,864.30 137,040.90 Operational risk RWA 109,107.50 131,944.80 143,175.80 143,175.80 159,896.80 Total risk weighted assets 1,602,485.25 1,730,706.10 1,774,810.92 1,795,776.77 1,818,448.00
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INDUSTRY OVERVIEW
The information presented in this section includes extracts from various publicly available information, data and statistics and has been derived from various government publications and industry sources. Unless otherwise stated, the information mentioned in this chapter has been taken from the RBI annual report for the year 2016- 17. Neither have we nor any other person connected with the Issue has independently verified information contained herein. The data may have been re-classified by us for the purposes of presentation. Industry sources and publications generally state that the information contained therein has been obtained from sources generally believed to be reliable, but that their accuracy, completeness and underlying assumptions are not guaranteed and their reliability cannot be assured. Industry sources and publications are also prepared based on information as of specific dates and may no longer be current or reflect current trends. Industry sources and publications may also base their information on estimates, projections, forecasts and assumptions that may prove to be incorrect. Accordingly, investors should not place undue reliance on or base their investment decision on this information.
While we have exercised reasonable care in compiling and reproducing such official, industry, market and other data in this document, it has not been independently verified by Book Running Lead Managers, us or any of our advisors, and thus should not be relied on as if it had been so verified. Statements in this section that are not statements of historical fact constitute “forward looking statements”. Such forward-looking statements are subject to various risks, assumptions and uncertainties, and certain factors could cause actual results or outcomes to differ materially.
Economic Overview
Global economic activity has strengthened further and become broad based supported by pick up in investment, trade, and industrial production, coupled with strengthening business and consumer confidence. Global growth is forecasted at 3.6 percent in 2017 and 3.7 percent in 2018. Growth in South Asia region is forecast to pick up to 6.5% in 2017 and 2018 reflecting an expansion of domestic demand and exports. Indian economy is expected to grow by 6.7% in 2017 and 7.4% in 2018. The key structural reforms are expected to push the growth above 8 percent in the medium term. (Source: World Bank, Global Economic Prospects, October, 2017).
India’s economic growth is supported by good monsoon rains and better crop production, and, the expansion in Government expenditure due to payouts on account of the Seventh Pay Commission and structural reforms. The RBI had projected an acceleration in real GVA for 2017-18 on the back of (a) a recovery in discretionary spending spurred by the pace of remonetisation; (b) the reduction in banks’ lending rates on fresh loans brought about by demonetisation induced liquidity; (c) the growth stimulating proposals in the Union Budget 2017-18; (d) a normal south west monsoon; and (e) an improvement in external demand. Stressed balance sheets of banks and the possibility of higher global commodity prices were seen as downside risks to growth prospects. (Source: RBI Monetary Policy Report – April 2017). As per the Provisional Estimates released by the Central Statistics Office, the economy is estimated to grow at 7.1 per cent in 2016 – 17, as compared to the growth of 8.0 per cent achieved in 2015 – 16.(Source: the Provisional Estimates of Annual National Income 2016-17, 31st May 2017 www.mospi.in)
The growth rate of Gross Domestic Product (“GDP”) at constant market prices in first quarter (April – June) (Q1) of 2017-18 was 5.7 per cent as compared to 7.9 per cent in the corresponding period of previous year. The growth of Gross Value Added (GVA) at constant basic prices for Q1 of 2017-18 was 5.6 per cent as compared to 7.6 per cent in the corresponding period of previous year. (Source: Estimates of Gross Domestic Product for first quarter (Apr-June) 2017-18, August 2017. www. Mospi.gov.in).
According to CSO data released on 30th November, 2017, the India’s GDP grew by 6.3% in Q2 (Jul-Sept) quarter of FY 2017-18. This is higher than 5.7% GDP growth in Q1 (Apr-Jun) quarter of FY 2017-18. The economic activities which registered growth of over 6.0 percent in Q2 of 2017-18 over Q2 of 2016-17 are ‘manufacturing’, ‘electricity, gas, water supply & other utility services and ‘trade, hotels, transport & communication and services related to broadcasting’. Gross value added (GVA) grew by 6.1 percent in the Q2 of FY 2017-18 against 5.6 percent in the Q1 of 2017-18. (Source: Estimates of Gross Domestic Product for the Second Quarter (Jul-Sept) of 2017-18, www.mospi.gov.in)
CPI inflation has declined by 1.11 basis points to 3.28 percent in September 2017 as against 4.39 percent in September 2016. These price pressures have coincided with an escalation of global geo-political uncertainty and heightened volatility in financial markets due to the US Fed’s plans of balance sheet unwinding and the risk of normalisation by the European Central Bank. Such juxtaposition of risks to inflation needs to be carefully
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managed. However, it is expected that headline inflation is expected to be kept on hold at around 4 per cent on a durable basis.(Source RBI Monitory Policy Report –October 2017).
The Index of Industrial Production (IIP) grew by 3.8 per cent in September 2017, as compared to a growth of 5.0 per cent in September 2016. IIP growth during April-September2017 was 2.5 per cent, as compared to growth of 5.8 per cent during April – September 2016. (Source: IIP for September 2017. www.mospi.gov.in).
Growth of money supply on year on year (YoY) basis as on September 29, 2017 stood at 6.0 per cent as compared to a growth rate of 11.7 per cent recorded in the corresponding period of the previous year. As regards the components of money supply, the growth of ‘currency with the public’ registered decline of 9.7 per cent as on September 29, 2017 against growth of 17.0 per cent registered during the corresponding period a year ago. (Source: RBI Bulletin weekly statistical supplement extract, October 13, 2017).
The growth rate of time deposits with scheduled commercial banks was 6.93 per cent as on September 29, 2017 as against 9.46 per cent recorded in the corresponding period a year ago. On the other hand, growth of demand deposits decreased to 18.53 per cent as on September 29, 2017 as against a growth of 22.61 per cent during the same period of previous year.(Source: RBI Bulletin weekly statistical supplement extract, October 13, 2017/2016/2015)
India’s current account deficit (CAD) increased sharply from US$ 0.4 billion (0.1 per cent of GDP) in Q1 of 2016 -17 to US$ 14.3 billion (2.4 per cent of GDP) in Q1 of 2017-18. During the first quarter of 2017-18, the net invisibles balance (invisible receipts minus invisible payments) was US$ 26.9 billion as compared to US$ 23.4 billion in the corresponding quarter of 2016-17. The net capital inflows (including errors and omissions) were US$ 25.7 billion (4.3 per cent of GDP) in the first quarter of 2017-18 as compared to US$ 7.4 billion (1.4 per cent of GDP) in the corresponding quarter of 2016-17. (Source: Dea.gov.in/monthly-economic-report).
India’s external debt stood at US$ 485.8 billion at June 2017, recording an increase of 3.0 per cent over the level at March 2017. Long-term debt was US$ 397.0 billion at June 2017 as compared to US$ 383.9 billion at March 2017. Short-term external debt was US$ 88.8 billion at June 2017, as compared to US$ 88.0 billion at March 2017. (Source: Dea.gov.in/monthly-economic-report).
Key Banking Industry Trends in India
Various structural reforms introduced in the recent period will likely be growth augmenting over the medium- to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy. RBI continues to work towards the resolution of stressed corporate exposures in bank balance sheets which should start yielding dividends for the economy over the medium term.
RBI’s initiatives to reinvigorate investment activity which, in turn, would revive the demand for bank credit by industry as existing capacities get utilised and the requirements of new capacity open up to be financed. Recapitalising public sector banks adequately will ensure that credit flows to the productive sectors are not impeded and growth impulses not restrained. In addition, measures could be undertaken by the Government to support growth and achieve a faster closure of the output gap: a concerted drive to close the severe infrastructure gap; restarting stalled investment projects, particularly in the public sector; enhancing ease of doing business, including by further simplification of the GST; and ensuring faster rollout of the affordable housing program with time-bound single-window clearances and rationalisation of excessively high stamp duties by states. (Source: RBI Monetary Policy Report –October 2017)
The domestic outlook remains positive with macroeconomic stability. Liquidity conditions remain easy. The current account deficit remains contained. However, weak investment demand is a major challenge. Retrenchment of credit by public sector banks is partly offset by non-banking financial companies, mutual funds and the capital market but they cannot fully substitute banks in a bank-based financial system. The Reserve Bank of India (“RBI”) and the Government are accordingly proactively taking steps to resolve challenges with respect to rising non- performing assets in the banking sector. The RBI has also activated prompt corrective actions (PCA) to manage the banking system. (Source: RBI - Financial Stability Report, June 2017)
Bank Deposits as on September 29, 2017 stood at ₹109,677 billion registering a growth of 8.7% y-o-y. Similarly, Bank Credit as on September 29, 2017 stood at ₹80,088 billion registering a growth of 6.9% y-o-y. (Source: RBI Bulletin dated October 20, 2017).
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Macroeconomic Trends
According to World Bank’s Ease of Doing Business report (2017), India stands out this year (2017) as one of the top 10 economies that improved the most in the areas measured by Doing Business. With eight reforms namely improvement in starting a business, dealing with construction permits, getting credit, protecting minority investors, paying taxes, trading across borders, enforcing contracts and resolving insolvency it became easier to do business in 2016-17. India was the only economy in South Asia to join the list of the top 10 improvers. India has notched up 30 points to reach 100th position among 190 nations in the index of ease of doing business. (Source: World Bank’s Ease of Doing Business report 2017)
The Monetary Policy Committee of RBI has decided to keep the policy repo rate unchanged at 6.0 percent in its Fourth Bi-monthly Monetary Policy Committee Meeting held on 3rd & 4th October 2017, noting that, (i) price pressures have coincided with an escalation of global geo-political uncertainty (ii) heightened volatility in financial markets due to the US Fed’s plans of balance sheet unwinding (iii) the risk of normalisation by the European Central Bank. Such juxtaposition of risks to inflation needs to be carefully managed. (iv) Although the domestic food price outlook remains largely stable, generalised momentum is building in prices of items excluding food, especially emanating from crude oil. (v) The possibility of fiscal slippages may add to this momentum in the future. (vi) the likelihood of the output gap widening, but requires more data to better ascertain the transient versus sustained headwinds in the recent growth prints. (Source: Minutes of the Monetary Policy Committee- October 4, 2017)
The MPC was of the view that various structural reforms introduced in the recent period will likely be growth augmenting over the medium- to long-term by improving the business environment, enhancing transparency and increasing formalisation of the economy. The Reserve Bank continues to work towards the resolution of stressed corporate exposures in bank balance sheets which should start yielding dividends for the economy over the medium term. (Source: Minutes of the Monetary Policy Committee- October 4, 2017)
In India, the slowdown of economic activity that set in from Q1 of 2016-17 and became pronounced in the second half of the year appears to have extended into the first half of 2017-18. Looking ahead, some improvement in services may counter balance the persisting weakness in industrial production. Inflation underwent a dramatic decline, reaching a historic low in June, but as the prints for July and August portend, a gradually rising trajectory may take hold over the rest of 2017-18. Alongside these developments, there has been an improvement in external viability; the foreign exchange reserves were around 11.5 months of imports in September 2017 and over 4 times short term external debt. Source: the Monetary Policy Committee Report - October 4, 2017)
Growth of aggregate deposits of Scheduled Commercial Banks (“SCB”) as on 29th September, 2017 was 8.7 per cent on YoY basis as compared to 10.8 per cent recorded on the corresponding date of the previous year. In terms of bank credit, YoY growth was 6.9 per cent as on September 29, 2017 as against 10.1 per cent in the corresponding period a year ago. The YoY growth of investment in Government and other approved securities by SCBs was 16.8 per centas on September 29, 2017 as compared to 6.5 per cent in the corresponding period of the previous year. The base lending rate as on October 13, 2017 was 8.95/9.45 per cent as compared to 9.30/9.65 per cent during the corresponding period a year ago. The term deposit rates for above one year was 6.25/6.75 per cent as on October 13, 2017 as against 7.00/7.30 per cent during the corresponding period a year ago. (Source: Dea.gov.in/monthly-economic-report)
Evolution of Indian Banking Industry
The Reserve Bank of India was established on April 1, 1935 in accordance with the provisions of the Reserve Bank of India Act, 1934. The Central Office of the Reserve Bank was initially established in Calcutta but was permanently moved to Mumbai in 1937. The Central Office is where the Governor sits and where policies are formulated, though originally privately owned, since nationalisation in 1949, the Reserve Bank is fully owned by the Government of India. The Reserve Bank of India performs the function of financial supervision under the guidance of the Board for Financial Supervision (BFS). The Board was constituted in November 1994 as a committee of the Central Board of Directors of the Reserve Bank of India. (Source: https://www.rbi.org.in/Scripts/AboutusDisplay.aspx)
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Indian Financial Sector
As on date of this Preliminary Placement Document, there are 20 public sector banks, 21 private sector banks, 43 foreign banks, 9 small finance banks, 4 payment banks and 56 regional rural banks. (Source:https://www.rbi.org.in/commonman/english/scripts/banksinindia.aspx#rrb).
The RBI, the central banking and monetary authority of India, is the central regulatory and supervisory authority for the Indian financial system. A variety of financial intermediaries in the public and private sectors participate in India’s financial sector, including:
1. Commercial Banks; 2. Public Sector Banks; 3. Private Sectors Bank; 4. Foreign Banks; 5. Co-Operative Banks; 6. Regional Rural Banks; 7. Small Finance Banks and Payment Banks; 8. Non-Banking Financial Companies; and 9. Housing Finance Companies.
Set forth below are the details of financial intermediaries in the public and private sectors participate in India’s financial sector:
Commercial Banks
Department of Banking Supervision (“DBS”) supervises all SCBs (excluding RRBs), local area banks (LABs), payment banks, small finance banks and AIFIs within the existing legal and regulatory framework, based on supervisory inputs received through off – site monitoring and on – site inspections. During 2016-17, all SCBs operating in India (excluding RRBs and LABs) were brought under risk based supervision – Supervisory Programme for Assessment of Risk and Capital (SPARC). The Reserve Bank also started the process of developing a suitable framework for supervising Payment Banks and Small Finance Banks. The inter-regulatory forum for monitoring financial conglomerates (IRF – FC) identified a revised set of 11 FCs in the Indian financial sector including five bank led FCs, four insurance company led FCs and two securities company led FCs, based on their significant presence in two or more segments of the financial sector.
Public Sector Banks
Public sector banks (majority ownership by the Government of India) make up the largest category in the Indian banking system. The public sector banks in India include 20 nationalized banks and 56 RRBs, as of May 31, 2017. (Source: https://www.rbi.org.in)
Excluding the RRBs, the remaining public sector banks (nationalized and SBI Group) had over 92,000 reporting offices, and accounted for 65.89% of the bank credit and 69.43% of the aggregate deposits of the scheduled commercial banks at March 31, 2017. The public sector banks’ large network of branches enables them to fund themselves out of low cost deposits. (Source: RBI’s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 31, 2017).
Private Sector Banks
Most large banks in India were nationalized in 1969, resulting in public sector banks making up the largest portion of Indian banking. The Government’s focus on public sector banks was maintained throughout the 1970s and 1980s. In addition, existing private sector banks that showed signs of an eventual default were merged with state- owned banks. In July 1993, as part of the banking reform process and as a measure to induce competition in the banking sector, the RBI permitted entry of the private sector into the banking system. This resulted in the introduction of private sector banks. According to RBI, there were 21 Indian private sector banks, as of May 31, 2017. (Source: https://www.rbi.org.in)
As of March, 31, 2017, private sector banks accounted for approximately 22.99% of aggregate deposits and 26.70% of bank credit of the scheduled commercial banks. Their network of 23,896 reporting offices accounted
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for 17.34% of the total reporting office network of scheduled commercial banks in the country. (Source: RBI’s Quarterly Statistics on Deposits and Credit of Scheduled Commercial Banks, March 31, 2017)
Foreign Banks
At present, foreign banks, if eligible, are allowed by the RBI to set up business in India through a single mode of presence i.e. either branch mode or a wholly owned subsidiary (WOS) mode. It has been decided, as hitherto to, allow foreign banks to operate in India either through branch presence or they can set up a wholly owned subsidiary (“WOS”) with near national treatment. The foreign banks have to choose one of the above two modes of presence and shall be governed by the principle of single mode of presence. Subsequently, Reserve Bank, in terms of the powers conferred on it under Section 35A read with Section 44A of the Banking Regulation Act, 1949, in the public interest and in the interest of banking policy issued a ‘Scheme for Setting up of WOS by foreign banks in India’.
The factors taken into account while considering applications for setting up WOS in India would include the following:
Economic and political relations with the country of incorporation of the parent bank; Reciprocity with home country of the parent bank; Financial soundness; Ownership pattern; International and home country ranking of the parent bank by a reputed agency; Home country/parent bank rating by a rating agency of international repute such as Moody Investors Service, Standard & Poor’s and Fitch Ratings; International presence of the and Adequate risk management and internal control systems.
A foreign bank, which obtains an in-principle approval from the Reserve Bank for opening a WOS in India has to apply to the Registrar of Companies for registering the subsidiary as a company under the Companies Act, 2013 and shall be required to comply with the provisions of that Act, to the extent they are applicable to banking companies as defined in Banking Regulation Act, 1949.
(Source: Scheme for Setting up of Wholly Owned Subsidiaries (WOS) by foreign banks in India)
Co – operative Banks
The Reserve Bank continues to playa key role in the revival and strengthening of the cooperative banking sector by fortifying the regulatory and supervisory framework. The Department of Co – operative Bank Supervision is entrusted with the supervisory responsibility of primary (urban) cooperative banks (UCBs) to ensure a safe and well managed cooperative banking sector. The department undertakes supervision of these banks on an ongoing basis through periodic on-site inspections and continuous off-site monitoring. In this context, Department of Co – operative Bank Regulation, in charge of prudential regulations of cooperative banks, took the following initiatives:
Harmonisation of regulatory policies; Revival and licensing of unlicensed DCCBs; Scheduling, licensing, mergers and voluntary Conversions; A scheme of financial assistance to UCBs for implementing the core banking solution (CBS) was announced on April 13, 2016 in consultation with IDRBT/Indian Financial Technology and Allied Services (IFTAS) (a subsidiary of IDRBT).
Regional Rural Banks
Regional Rural Banks (RRBs) were set up as state-sponsored, regionally based and rural oriented institutions under the Regional Rural Banks Act, 1976. RRBs were conceived as hybrid micro banking institutions, combining the feel and familiarity of the cooperatives and business acumen of the commercial banks with the mandate to serve the credit needs of the small and marginal farmers, agricultural labourers, socio-economically weaker section of population for development of agriculture, trade, commerce, industry and other productive activities.
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During the year 2013 – 14, 13 RRBs have been amalgamated into 6 new RRBs in 5 States (Chhattisgarh, Uttar Pradesh, Kerala, Karnataka and Haryana). (Source: http://financialservices.gov.in/sites/default/files/Consolidated%20Review%20RRB_1.pdf).
With this, the effective number of RRBs as on the date of this Preliminary Placement Document stands at 56 playing a significant role in developing agriculture and rural economy.(Source:https://www.rbi.org.in/scripts/AboutUsDisplay.aspx?pg=RegionalRuralBanks.htm).
Small Finance Banks and Payment Banks
Keeping in view the entry of differentiated banks and their role in financial inclusion, the branch authorisation policy was revised to harmonise the treatment of different forms of a bank’s presence for the purpose of opening banking outlets in under-served areas. Licenses were issued to more players in the financial sector and some small finance banks (SFBs) and payments banks (PBs) began operations during the year. The Reserve Bank also explored the scope for operations of other types of differentiated banks to cater to the sector-specific financing needs of the economy.
As part of the efforts to promote financial inclusion through a greater focus on small credit and payment/remittance facilities, the Reserve Bank issued licenses to eight SFBs and six PBs during the year taking the number of licensees to10 in case of SFBs and seven in case of PBs. Eight SFBs and four PBs have commenced operations.
Further, RBI reported final guidelines clarifying what is a ‘banking outlet’ and harmonising the treatment of different forms of bank presence for the purpose of opening outlets in under – served areas were issued on May 18, 2017 wherein a banking outlet includes a branch as well as business correspondent (BC) outlet, among others. For a domestic scheduled commercial bank (DSCB), a small finance bank (SFB) and a payment bank (PB),it is a fixed point service delivery unit, manned by either bank’s staff or its business correspondent where services of acceptance of deposits, encashment of cheques/ cash withdrawal or lending of money are provided for a minimum of four hours per day for at least five days a week. If it provides services for less number of hours per day and days in a week, it is considered a part – time banking outlet.
Non – Banking Financial Companies
Non – Banking Financial Companies (“NBFCs”) play a vital role in providing credit by complementing commercial banks and also cater to some niche sectors. Department of Non – Banking Regulation (“DBNR”) is entrusted with the regulation of the NBFC sector with a view to providing a conducive environment for orderly growth of the sector as also protecting the interests of depositors and customers. During the year, the Reserve Bank issued guidelines on NBFC – account aggregators (NBFCA-As). Subsequently, the process of registering NBFC-AAs has been initiated. The guidelines to banks for relief measures in areas affected by natural calamities, were extended mutatis mutandis to NBFCs. The guidelines on pricing of credit were issued for NBFC- microfinance institutions (NBFC-MFIs) to ensure that the average interest rate on loans sanctioned during a quarter does not exceed the average borrowing cost during the preceding quarter plus the margin, within the prescribed cap. Guidelines in respect of disbursal of loans in cash by NBFCs were amended to align these with the requirements under the Income Tax Act, 1961.
The NBFC sector has evolved over a period of time resulting in a variety of categories of NBFCs. The different categories were envisaged to promote specific sector/ asset classes and hence different sets of regulatory prescriptions were put in place. There are NBFCs catering to asset financing, infrastructure financing, microfinance, lending, etc. At present, there are eleven categories of NBFCs – Asset Finance Company (AFC), Loan Company (LC), Investment Company (IC), Core Investment Company (CIC), NBFC-Factor, IDF-NBFC, Infrastructure Finance Company (IFC), NBFC-MFI, NOFHC, NBFC-AA and Mortgage Guarantee Company (MGC). In line with the Reserve Bank’s medium term goal of moving toward activity-based regulation rather than entity-based regulation, the rationalisation of multiple categories of NBFCs into fewer categories is under way.
Housing Finance Companies
Housing finance companies form a distinct sub-group of non-banking financial companies. As a result of the various incentives given by the government for investing in the housing sector in recent years, the scope of this business has grown substantially. In recent years, several other players including banks have entered the housing finance industry. The National Housing Bank and the Housing and Urban Development Corporation Limited are the two major financial institutions instituted through acts of Parliament to improve the availability of housing
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finance in India. The National Housing Bank Act, 1987, provides for securitisation of housing loans, foreclosure of mortgages and setting up of the Mortgage Credit Guarantee Scheme.
Key Banking Business Sector
MSME Sector
Given the significant role of micro, small and medium enterprises (MSMEs) in employment generation and GDP growth, a number of initiatives were undertaken to enhance the flow of credit to these sectors, including trading in priority sector lending certificates (PSLCs), expanding the scope of the ‘additional working capital limit’ for banks to account for possible cash flow mismatches faced by micro and small enterprises (MSEs) borrowers due to withdrawal of legal tender status of Specified Bank Notes (SBNs), scaling-up the capacity building programmes by launching Version 2 of the National Mission for Capacity Building of Bankers for Financing the MSME Sector (NAMCABS) and laying down a framework for accreditation of credit counsellors.
In August 2015, banks were advised to incorporate with their Boards’ approval, a clause for fixing a separate additional limit in their lending policy to MSEs, at the time of sanction/renewal of working capital limits, specifically for meeting the temporary increase in working capital requirements arising mainly due to unforeseen/seasonal increase in demand for products produced by them. During 2016-17, keeping inview the possible cash flow mismatches likely to be faced by MSE borrowers due to the withdrawal of legal tender status of SBNs, banks were further advised to use the same facility of providing ‘additional working capital limit’ to their MSE borrowers to overcome such difficulties. This was announced as a one-time measure up to March31, 2017 and to be normalised thereafter in the fresh working capital assessment cycle.
The Government took several initiatives related to the MSME sector as it plays a crucial role in the economy both from the point of view of its employment generation and poverty alleviation potential. The Reserve Bank also accords significant importance to this sector in its agenda for financial inclusion, with its policy focused on improving access, adequacy, timeliness, and price of credit for MSMEs.
Priority Sector
Priority sector lending aims to ensure adequate and timely availability of credit for those vulnerable sections of society which are often deprived of credit due to the perceived lack of viability and creditworthiness. Priority sector loans include small value loans to farmers for agriculture and allied activities, MSMEs, poor people for housing, students for education, other low income groups and weaker sections. Social infrastructure and renewable energy are also eligible categories under this mechanism. An important development during 2016 – 17 was the operationalisation of priority sector lending certificates (PSLCs) scheme in April 2016.The PSLC scheme is a mechanism to incentivise banks having surplus in lending to different categories of the priority sector and thereby to boost overall priority sector lending. PSLCs allow the market mechanism to drive priority sector lending by leveraging the comparative strength of different banks. This scheme allows a bank to benefit by selling over- achievement of its target in a particular sector through PSLCs to another bank, which can buy it to meet its target in that sector, while selling its own over-achievement of the target in another sector to another bank and soon. A platform to enable trading in the certificates has been provided by the Reserve Bank through its core banking solution (CBS) portal (e-Kuber).
Non – performing Assets
The Banking Regulation (Amendment) Ordinance, 2017 came into effect from May 5, 2017. This ordinance empowers the Reserve Bank to direct banking companies to initiate insolvency proceedings in respect of corporate borrowers in default, under the provisions of the Insolvency and Bankruptcy Code, 2016 (“IBC”). It also enables the Reserve Bank to constitute committees to advise banking companies on resolution of stressed assets. Pursuant to the ordinance, the Reserve Bank released a detailed action plan to implement the ordinance on May 22, 2017.(Source: www.ibbi.gov.in)
An Internal Advisory Committee (IAC) was constituted by the Reserve Bank. The IAC recommended that all accounts with an outstanding amount greater than ₹50 billion, and with more than 60 percent classified as non – performing by banks as on March 31,2016 be resolved using the new IBC. Using these criteria, 12accounts aggregating to around 25 per cent of the current gross NPAs were referred to the National Company Law Tribunal (NCLT), a statutory body responsible for judging insolvency proceedings under the new IBC( Source: Financial Stability Report June 2017)
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Stressed Assets Ratio (%) for Indian Banks Gross NPA Ratio (%) for Indian Banks
The banking sector continued to grapple with the challenge of rising non-performing assets (NPAs) during 2016- 17. In view of the mounting stress on asset quality, the banking sector’s performance in terms of profitability and return on assets came under pressure in 2016 – 17. To deal with stressed assets, the existing regulations were revised in consultation with the stakeholders. Subsequent to promulgation of the Banking Regulation (Amendment) Ordinance, the Reserve Bank has taken several steps to expedite the process of resolution of certain large value stressed accounts. The market perception of this Ordinance seems to be positive for banks with relatively high level of non-performing assets(NPAs) and for firms with greater capacity to meet their interest obligations. Further, in order to bring in greater transparency, banks were mandated to make suitable disclosures in the Notes to Accounts to Annual Financial Statements for 2016-17 and onward with regard to divergences in asset classification and provisioning from the Reserve Bank’s supervisory assessment.
Monetary Policy Transmission
The massive influx of current account and savings account (CASA) deposits into the banking system post- demonetisation brought about an appreciable reduction in the cost of funds of banks and helped strengthen the transmission of monetary policy to lending rates. While transmission was relatively stronger to deposit rates before demonetisation, the transmission to marginal cost of funds based lending rate (MCLR) gained significant traction post demonetisation Across bank groups, the spread between weighted average lending rate (WALR)and MCLR remained higher in respect of outstanding rupee loans than in the case of fresh rupee loans, suggesting that
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transmission to rates on outstanding rupee loans was incomplete as they were contracted at a relatively higher cost and much of the legacy portfolios is linked to the base rate (which moved slower than the MCLR). Since July 31, 2017, several banks have reduced savings bank deposit rates, breaking the “cartelised” rigidity which had made saving deposit rates highly insensitive to monetary policy impulses even after banks were given full flexibility to set rates in October2011.Transmission was asymmetric across sectors, reflecting varied credit conditions and risk appetite. Since January 2015, lending rates across sectors, barring credit card segment, declined in the range of 15-238 bps, with the largest transmission taking place in the case of Rupee export credit. Interest rates on fresh rupee loans declined significantly in respect of housing in personal loan segment and vehicle loans in the commercial segment during January 2015 to June 2017.
Flexible resetting of saving deposit rates, based on changing market clearing conditions and shifts in the stance of monetary policy, is important for greater flexibility in price setting behaviour on the asset side, given the high share of CASA deposits in total deposits. Competition from small savings on which the interest rates have generally been higher than term deposit rates, and which are not adjusted as per the announced formula by the Government, has also constrained transmission. (Source Monetary Policy Report October 4,2017)
Penetration of Banking Services
Rural Banking Initiatives The Reserve Bank had taken several steps to provide banking facilities in all the unbanked villages in the country. A roadmap to cover villages with population more than 2,000 was first rolled out in 2010. A total of 74,414 villages with population more than 2,000 were identified and allotted to various banks (public sector banks, private sector banks and regional rural banks) through State Level Bankers’ Committees (SLBCs) for coverage. All the identified villages have been provided banking services through branches or business correspondents or through other modes such as ATMs and mobile vans.
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In June 2012, a roadmap was rolled out to provide banking services to unbanked villages with population less than 2,000. A total of 491,825 unbanked villages across the country with a population of less than 2,000 were allotted to various banks through SLBCs for coverage As on March 31, 2017, 96.0 per cent (472,136 villages) of the total villages allotted had been covered comprising of 19,875 villages through brick and mortar branches, 431,359 villages through BCs and 20,902 villages through other modes. Continuing with its efforts to provide banking services in unbanked villages, the SLBC convenor banks were advised in December 2015 to identify villages with population above 5,000 without a bank branch of a scheduled commercial bank in their State and allot these villages among scheduled commercial banks for opening branches.
Financial Inclusion
On May 18, 2017, the Reserve Bank issued revised guidelines on branch authorisation policy with a view to facilitate financial inclusion as also to provide flexibility to banks on the choice of delivery channel.
Assignment of Lead Bank Responsibility
During the year, 21 new districts were formed in Telangana, taking the total number of districts in the State to 31. State Bank of Hyderabad, Andhra Bank, Syndicate Bank and Canara Bank were assigned lead bank responsibility of the new districts. In Manipur, seven new districts were formed taking the total number of districts in the State to 16. United Bank of India and State Bank of India were assigned lead bank responsibility of the new districts. In Haryana and West Bengal, one new district each was created and Punjab National Bank and State Bank of India were assigned lead bank responsibility of the new districts, respectively. Lead bank responsibility of the three newly created districts in Arunachal Pradesh was assigned to the State Bank of India. Further, in view of the merger of Associate Banks with the State Bank of India, the lead bank responsibility of districts hitherto held by the Associate Banks in the states of Karnataka, Kerala, Rajasthan, Telangana and Punjab have been assigned to State Bank of India. As on June 2017, lead bank responsibility has been assigned in 706 districts across the country.
Financial Literacy
Financial literacy has been an important element in the financial inclusion plan of the Reserve Bank. During 2016- 17, added importance was attached to spreading financial literacy, given the skewed distribution and limited reach of financial literacy centres in some states as well as in view of the withdrawal of legal tender status of SBNs and the push for digital transactions. A number of initiatives were undertaken, which included conducting a pan – India Financial Literacy and Inclusion Survey, Pilot Project on Setting up Centres for Financial Literacy at the block levels, digital focus in literacy camps, capacity building for FLC counsellors and rural branch managers, and observation of a financial literacy week. Accordingly, SLBC convenor banks have been advised to review and identify the unbanked rural centres (URCs) in villages with population above 5,000 and ensure that such unbanked rural centres are banked forthwith by opening of CBS enabled banking outlets by December 31, 2017.As at March 2017, 1,376 FLCs were operational in the country. During the year ended March 2017, nearly 96,315 financial literacy activities were conducted by the FLCs as against 87,710 activities during the preceding year.
Train the Trainers Programme (TOT)
A two-tier training programme has been designed for the capacity building of FLC counsellors and rural branch managers. DuringTier-1 of the program, CLOs (Chief Literacy Officer attached to the corporate office of the banks), LLOs (Lead Literacy Officers - faculty members of the Banks’ training/staff colleges) and RLOs (Regional Office Literacy Officers from regional offices of the Reserve Bank) have been trained at CAB, Pune. In Tier-2 of the programme, faculty members of the Bank’s training/staff colleges will undertake training sessions for FLC counsellors and rural branch managers. A comprehensive curriculum on the core competencies of financial literacy has been prepared for the benefit of the trainers.
Development in Banking Sector
Legislative Reforms
The prompt corrective action (PCA) framework for banks was introduced by the Reserve Bank in December 2002 as an early intervention mechanism. The sub-committee of the Financial Stability and Development
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Council (FSDC-SC) in its meeting held in December 2014 decided to introduce the PCA framework for all regulated entities. Subsequently, the Reserve Bank reviewed the existing PCA framework keeping in view the recommendations of the working group on resolution regimes for financial institutions in India (January 2014), the Financial Sector Legislative Reforms Commission (FSLRC, March 2013) and international best practices. The Board for Financial Supervision (BFS) decided to implement the provisions of the revised PCA framework with effect from April 1, 2017, based on the financials for March 31, 2017.
During 2016-17, the Reserve Bank further strengthened the regulatory framework for dealing with stressed assets, inter alia, by revising its guidelines on the resolution of stressed assets; viz., the strategic debt restructuring (SDR) scheme, the scheme for sustainable structuring of stressed assets (S4A), flexible structuring of existing long term project loans to infrastructure and core industries; and guidelines for projects under implementation. With a view to further strengthening banks’ ability to resolve their stressed assets effectively and to enhance transparency in the entire process, the Reserve Bank issued guidelines on sale of stressed assets by banks on September 1, 2016. The guidelines require banks to identify and list internally, at least once a year, the specific financial assets identified for sale to other institutions, including securitisation companies (SCs) / reconstruction companies (RCs).
In April 2017, Basel Committee on Banking Supervision (BCBS)’s guidance on ‘Prudential treatment of problem assets – definitions of non-performing exposures and forbearance’, harmonised the measurement and application of non-performing exposures and forbearance, and complemented the existing accounting and regulatory framework for asset categorisation. (Source: RBI Financial Stability Report – June 2017)
The Aadhaar (Targeted Delivery of Financial and Other Subsidies, Benefits and Services) Act, 2016 provides for the targeted delivery of subsidies and services to individuals residing in India by assigning them unique identity numbers, called Aadhaar numbers.
The Finance Act, 2017 amended Section 31 of the Reserve Bank of India Act, 1934 relating to the issue of demand bills and notes, providing for the central government to authorise any scheduled bank to issue electoral bonds.
The Finance Act, 2017 also amended certain provisions of the Payment and Settlement Systems Act, 2007. The amendment provides that instead of the existing Board for Regulation and Supervision of Payments and Settlement, the Payments Regulatory Board will exercise functions relating to the regulation and supervision of payments and settlement systems under the Act.
The Specified Bank Notes (Cessation of Liabilities) Act, 2017 provided for the cessation of liabilities on specified bank notes in public interest.
The Calcutta High Court vide its decision dated March 03, 2017 upheld the Reserve Bank’s powers to require a company to transit from the business of residuary non – banking companies(RNBC).
SEBI, along with the RBI, allowed derivative transactions in the International Financial Services Centres (IFSCs), while making the disclosure requirements for top listed entities more comprehensive. Investor protection measures were further enhanced by SEBI.
Concerns arising from frauds and cyber-attacks remain elevated with the recent global ransomware attacks. Various responses by the regulators in this regard include setting up of an Inter-disciplinary Standing Committee on Cyber Security by the RBI. (Source www.rbi.org.in)
Goods and Service Tax
The goods and service tax ("GST") has been implemented with effect from July 1, 2017 and has replaced the indirect taxes on goods and services such as central excise duty, service tax, central sales tax, state VAT and surcharge currently being collected by the central and state governments. The GST is expected to be applied to banking transactions, which will increase the tax incidence and administrative compliance costs for banks. The rate of GST on banking transactions has been set at 18% as compared to 15% that was applicable prior to implementation of the GST.
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Implementation of Ind – AS
The implementation of Ind AS will mark a major shift from the current accounting framework followed by banks in India which is based on a melange of accounting standards and regulatory guidelines, especially in certain key areas such as classification and measurement of financial instruments, and impairment of financial assets. Recent developments in the banking system underscore the continued importance of adequate provisioning, commensurate with the increase in credit risk. Applying an incurred loss provisioning framework can result in impairments that are recognised after the loss event has occurred, when the probability of default is close to 100 per cent. Provisions are not made as credit risk increases significantly (although short of default) even where bank management has information about stress/future likely losses.
The estimated overall impact of Ind AS on regulatory capital is likely to be adverse mainly due to the impairment requirements under it. In view of the capital constraints already faced by many banks, particularly public sector banks, the Reserve Bank believes that it may be appropriate to introduce transitional arrangements for the impact of accounting changes on regulatory capital. The primary objective of a transitional arrangement is to avoid a 'capital shock’, by giving banks time to rebuild their capital resources following a potentially significant negative impact arising from the introduction of ECL accounting. The Reserve Bank is also considering the introduction of ‘regulatory floor’ for provisioning in the regulatory capital calculation, i.e., when a bank makes lower accounting provisions than the standardised regulatory floor amounts, the shortfall would be deducted from the bank’s common equity tier (CET)1 capital, which would incentivise robust provisioning.
Basel III Capital Regulations
Reserve Bank issued Guidelines on implementation of Basel III capital regulation on May 2, 2012, to the extent applicable to banks operating in India. The Basel III capital regulation has been implemented from April 1, 2013 in India in phases and it will be fully implemented as on March 31, 2019.
Basel III reforms are the response of Basel Committee on Banking Supervision (BCBS) to improve the banking sector’s ability to absorb shocks arising from financial and economic stress, whatever the source, thus reducing the risk of spill over from the financial sector to the real economy. Basel III reforms strengthen the bank-level i.e. micro prudential regulation, with the intention to raise the resilience of individual banking institutions in periods of stress. Besides, the reforms have a macro prudential focus also, addressing system wide risks, which can build up across the banking sector, as well as the procyclical amplification of these risks over time.
(Source: Master Circular – Basel III Capital Regulations)
Insolvency and Bankruptcy Code
The Central Government, vide Notification S.O. 1005(E) dated March 30, 2017 appointed April 1, 2017 as the date on which certain provisions of the Insolvency and Bankruptcy Code, 2016 came into force. These provisions relate to voluntary liquidation, information utilities and agreements with foreign countries. Insolvency and Bankruptcy Board of India was set up on October 1, 2016 under the Insolvency and Bankruptcy Code, 2016 (Code). It is a unique regulator: regulates a profession as well as transactions. It has regulatory oversight over the Insolvency Professionals, Insolvency Professional Agencies and Information Utilities. It writes and enforces rules for transactions, namely, corporate insolvency resolution, corporate liquidation, individual insolvency resolution and individual bankruptcy under the Code. It is a key pillar of the ecosystem responsible for implementation of the Code that consolidates and amends the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.
(Source: http://www.ibbi.gov.in/about-ibbi.html)
Master Direction on Financial Services provided by Banks amended
The Reserve Bank of India on September 25, 2017, amended the Master Direction on Financial Services provided by Banks as under:
No bank should –
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Hold more than 10 per cent in the equity of a deposit taking NBFC provided that this does not apply to a housing finance company; Make an investment of more than 10 per cent of the unit capital of a Real Estate Investment Trust/Infrastructure Investment Trust subject to overall ceiling of 20 per cent of its net worth permitted for direct investments in shares, convertible bonds/debentures, units of equity-oriented mutual funds and exposures to Alternative Investment Funds; Hold more than 10 per cent of the paid up capital of a company, not being its subsidiary engaged in non- financial services or 10 per cent of the bank’s paid up capital and reserves, whichever is lower, provided investments in excess of 10 per cent but not exceeding 30 per cent of the paid up share capital of such investee company should be permissible under select circumstances; Hold along with its subsidiaries, associates or joint ventures or entities directly or indirectly controlled by the bank; and mutual funds managed by Asset Management Companies (AMCs) controlled by the bank, more than 20 per cent of the paid up share capital of an investee company engaged in non-financial services. However, this cap does not apply to certain cases; Make any investment in a Category III Alternative Investment Fund (AIF). Investment by a bank’s subsidiary in a Category III AIF should be restricted to the regulatory minima prescribed by SEBI.
In addition to certain minor amendments made in the Master Direction, the Reserve Bank, in its amended Master Direction on Financial Services provided by Banks, advised the commercial banks to ascertain the risks arising on account of equity investments in alternative investment funds done directly or through their subsidiaries, within the Internal Capital Adequacy Assessment Process (ICAAP) framework and determine the additional capital required which would be subject to supervisory examination as part of Supervisory Review and Evaluation Process. This should also be applicable to sponsoring of Infrastructure Debt Funds by banks.
The Reserve Bank further advised that no bank should become a professional clearing member of the commodity derivatives segment of SEBI recognised exchanges unless it satisfies the prudential criteria as prescribed and should do so subject to certain conditions.
On ‘Broking services for Commodity Derivatives segment’, the Reserve Bank advised the banks that no bank should offer broking services for the commodity derivatives segment of SEBI recognised stock exchanges except through a separate subsidiary set up for the purpose or one of its existing subsidiaries and should do so subject to certain conditions. (Source: Amendments to Master Direction-Reserve Bank of India (Financial Services provided by Banks) directions 2016 dated 25th September 2017)
Impact of Demonetisation on the Banking Industry
On November 8, 2016, it was decided to demonetise high value currency notes of denomination of ₹1000 and ₹500 (called specified bank notes - SBNs). Such notes, valued at ₹15.4 trillion, constituted 86.9 per cent of the value of total currency in circulation. The decision was in continuation of a series of measures taken by the Government of India during last two years aimed at eliminating corruption, black money, counterfeit currency and terror funding. The decision was guided by the aim of reaping its enormous potential medium-term benefits in the form of reduced corruption, greater digitisation of the economy, increased flow of financial savings and greater formalisation of the economy.
The Reserve Bank in its Fifth Bi-monthly Monetary Policy Statement on December7, 2016 placed the GVA growth for 2016-17 at 7.1 per cent, which was lower than 7.6 percent GVA growth projected in its Fourth Bi- monthly Monetary Policy Statement of October4, 2016. The 50 basis points (bps) downward revision in GVA growth was on account of 35bps loss in momentum, which was reflected in GVA growth in Q2 estimated by the Central Statistics Office (CSO) in November 2016 and 15 bps on account of the adverse impact of demonetisation. The CSO in its first advance estimates released on January 6, 2017 placed the GVA growth for 2016-17 at 7.0 per cent. The overall GVA growth in the Sixth Bi-monthly Monetary Policy Statement on February 8, 2017 was pegged lower at 6.9 per cent. The impact of demonetisation on GVA growth was estimated at about 33 bps for the full year 2016-17. After the peak impact inQ3, GVA growth was estimated to strengthen with the progressive remonetisation in Q4. Asper the second advance estimates of the CSO released on February 28, 2017, GVA growth for 2016-17 is pegged at 6.7 per cent, which is about 30 bps lower than what was estimated on January 6, 2017. Importantly, Q3 growth (at 6.6 per cent) was only marginally lower than that recorded in Q2 (6.7 per cent), thereby suggesting that demonetisation had only a modest impact on growth in Q3 of 2016-17.
Demonetisation has had a significant impact on the balance sheet of scheduled commercial banks (SCBs), both in terms of size and composition. Decline in currency in circulation on account of demonetisation led to a surge in bank deposits. The demonetised notes were accepted at bank counters till December 30,2016. Between October
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28, 2016 and January 6, 2017 (i.e., days immediately prior to and after demonetisation for which fortnightly banking system data are available), total currency in circulation declined by about ₹8,800 billion. This, in turn, was largely reflected in sharp increase of about ₹6,720 billion in aggregate deposits of the banking system even after outflows in NRI deposits during the period. Banks furnish data on their major assets and liabilities on a fortnightly basis. As per data available for the reporting Fridays of October 28, 2016 (prior to demonetisation) and February 17, 2017 (latest available), aggregate deposits of SCBs increased by ₹5,549 billion during the period.
(Source: RBI Report on Macroeconomic Impact of Demonetisation, March 10, 2017)
Future Outlook and Key Trends
Going forward, banks will need to move towards the mandated higher capital standards, stricter liquidity and leverage ratios and a more cautious approach to risk. This implies that Indian banks will need to improve efficiency even as their costs of doing business increase, including by way of consolidation of branches and increasing focus on non-interest income. They will need to refine their risk management skills for enterprise-wide risk management. In addition, banks need to have in place a fair and differentiated risk pricing of products and services, since capital comes at a cost. This involves costing, a quantitative assessment of revenue streams from each product and service and an efficient transfer-pricing mechanism that would determine capital allocation.
Due to the demonetization and digitization push by the Government, banks will also need to develop their digital banking infrastructure to provide mobile and online services to their customers. These services would not only have to facilitate online payments and transactions, but also the creation of new accounts and the checking of existing accounts.
During Fiscal 2017, NPAs rose sharply across the industry, with the gross non-performing advances ratio of scheduled commercial banks rising from 9.2% in September 2016 to 9.6% in March 2017 and their net non- performing advances ratio increasing from 5.4% to 5.5% in the same period. (Source: RBI - Financial Stability Report, June 2017)
RBI has constituted an Internal Advisory Committee to focus on large stressed accounts which were classified as partly or wholly as NPAs from amongst the top 500 exposures in the banking system. The Internal Advisory Committee (IAC) noted that 12 accounts totaling about 25 per cent of the current gross NPAs of the banking system would qualify for immediate reference under Insolvency and Bankruptcy Code (IBC). (Source: RBI Press Release 2016-2017/3363, June 13, 2017).
The central government has announced a ₹ 2.11 lakh crore capital infusion plan for state owned banks and an ambitious road development programme to boost the economy. (Source: RBI Press Release 2017-2018/1124, October 25, 2017 Governor’s Statement)
Government has created an alternative mechanism (AM) to facilitate consolidation among the public sector banks (PSBs) to create strong and competitive banks to meet credit needs of a growing economy and to have capacity to raise resources without depending unduly on the state exchequer. (Source: PIB, GOI, Cabinet, 23, August 2017).
International Rating Agency Moody’s Investors Service has upgraded India’s Sovereign Bond rating to Baa2 from Baa3 and changed the country’s outlook to stable from positive due to economic and institutional reforms undertaken by the government (GST & demonetisations, flexible inflation targeting and MPC based Monetary Policy framework, Aadhaar & DBT, Measures to address NPA, Insolvency law and bank recapitalisation and new fiscal consolidation framework). (Source: Sovereigns Rating List 2017/ Countryeconomy.com)
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BUSINESS
Some of the information in the following discussion, including information with respect to our plans and strategies, contain forward-looking statements that involve risks and uncertainties. Please see section “Forward- Looking Statements” for a discussion of the risks and uncertainties related to those statements. Our actual results may differ materially from those expressed in or implied by these forward-looking statements. Also please see section “Risk Factors” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for a discussion of certain factors that may affect our business, financial condition or results of operations.
Unless otherwise indicated, the financial information included herein is based on our Audited Consolidated Financial Statements and our Unaudited Financial Statements, included in this Preliminary Placement Document. For further information, see “Financial Statements”.
Unless otherwise indicated, industry and market data used in this section has been derived from industry publications and other publicly available information.
Unless otherwise stated, references to “the Bank”, are to Syndicate Bank on a standalone basis and references to “we”, “us”, “our”, are to Syndicate Bank and its Subsidiary on a consolidated basis.
Overview
We are a scheduled public sector commercial bank in India offering a wide range of banking and financial products and services to both large and mid-corporates, micro, small and medium enterprises (“MSME”), retail and agricultural customers.
Our Bank was established in 1925 at Udupi, Karnataka State as Canara Industrial and Banking Syndicate Limited, mainly to provide financial assistance to local weavers and expanded the scale of operations to a wide range of banking products off catering to large, MSME, retail and agri customers. In 1964, the Bank changed its name from Canara Industrial and Banking Syndicate Limited to Syndicate Bank Limited. We are one of the 14 banks which were nationalized on July 19, 1969. Our business is principally divided into Retail banking, Agricultural banking, Corporate / Wholesale banking, International banking, MSME banking and other banking services.
As on October 31, 2017, we had 4005 branches spread across all States and Union Territories in India and one branch at London (all of them under Core Banking Solution “CBS” platform) including 9 Large Corporate branches, 26 Mid Corporate branches, 1 Capital Market Service branch and 77 MSME specialized branches catering to the specific clientele segment. Bank has 25 Retail/MSME loan processing centres, 4 specialised women branches. As of October 31, 2017, we had 4100 ATMs, 30 Synd Lounges, 8 Zonal Office, 8 Zonal Inspection Centres, 60 regional offices, 37 Satellite Offices and 11 extension counters. As of October 31, 2017, we had a customer base of approximately 5.45 crore.
Our business is principally divided into retail banking, agricultural banking, corporate / wholesale banking, international banking, MSME banking and other banking services.
Our retail banking business offers financial products and services including consumer lending and deposit services to our retail customers. We offer a wide range of consumer credit products, including loans and advances for housing, trade, automobiles, consumer durables, education, personal loans, mortgage loans and other retail products. We have various deposit products, such as current, savings and term deposits for our customers. We offer our customers a suite of technological products, including global debit and credit cards, mobile banking, and internet banking. We also distribute third party financial products, such as insurance (life and non - life) and mutual fund products. In addition, we provide depository services and are a depository participant for CDSL. Our retail advances accounted for 13.48%, 15.78%, 16.14% and 16.70% of gross domestic advances as of March 31, 2015, 2016 and March 31, 2017 and September 30, 2017 respectively.
Our corporate/wholesale banking business caters to corporate customers, including large, mid-sized and small businesses and government entities. Our loan products include term loans to finance capital expenditure of assets across various industries as well as short-term loans, cash credit, export credit and other working capital financing and bill discounting facilities. We also provide credit substitutes, such as letter of credit and letter of guarantee. We also offer infrastructure/ project finance, trade loans, bridge financing and foreign currency loans. We also provide finance to corporates through the syndication of loans. As on October 31, 2017, we have established 35
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specialized branches which consist of 26 MCB (Mid Corporate Branch) and 9 LCB (Large Corporate Branch) that exclusively cater to the credit requirements of mid as well as large corporate clients. These branches play a key role in developing our corporate and wholesale lending business. As a percentage of our total advances, corporate/wholesale banking advances accounted for (Excluding Retail, Agriculture, MSME and overseas operations) banking advances accounted for 44.72%, 40.71%, 40.98% and 37.99% as on March 31, 2015, March 31, 2016 and March 31, 2017, and September 30, 2017 respectively.
Our international banking services includes forex services, international trade finance and NRI services comprising foreign exchange operations, remittance facilities for resident Indian, foreign currency loans, lending and deposit services to non-resident Indians. We have an international branch office in London. Our Bank is a member of Clearing Corporation of India Limited (“CCIL”), for settlement of inter-bank forex deals in USD/ INR segment and settles cross-currency deals through CCIL with continuous linked settlement. We are also managing one exchange house and have rupee drawing arrangements for cost-effective funds transfer. Our Bank maintains correspondent Relationship Management with 959 banks spread across 100 countries. We have 23 Nostro Accounts with Correspondent banks and 3 with our London branch. As a percentage of our total advances, international banking advances accounted for 19.75%, 18.55%, 17.23%, and 20.18% as on March 31, 2015, March 31, 2016, March 31, 2017 and September 30, 2017, respectively.
The Bank also caters to agriculture, micro-finance and rural customers. We offer direct financing to farmers for production and investment, as well as indirect financing for infrastructure development and credit to suppliers of agricultural inputs. We offer various products in the rural and semi-urban areas which would also help our Bank to meet its financial inclusion targets mandated by RBI. Our agricultural and micro small medium banking advances accounted for 30.80%, 34.24%, 34.35%, and 35.70% of gross domestic advances as on March 31, 2015, March 31, 2016 and March 31, 2017, and September 30, 2017respectively.
Our treasury operations being the interface with the financial markets, consist primarily of statutory reserves management, liquidity management, investment and trading activities, money market and foreign exchange related activities. Our treasury operations are aimed at maintaining an optimum level of liquidity, while complying with the RBI mandated cash reserve ratio and the statutory liquidity ratio. We maintain SLR through a portfolio of central Government, state Government, corporate debt and trustee securities that we actively manage to optimize yield and benefit from price movements. We are also involved in the trading of securities and foreign exchange, and invest in sovereign debt instruments, commercial papers, mutual funds, certificates of deposits, floating rate instruments, bonds and debentures to manage short-term surplus liquidity and further optimize yield and to generate profits thereon. We are also a trading-cum-clearing member on three exchanges, i.e., MCX-SX, NSE and BSE for undertaking proprietary based position in currency futures.
We also offer a wide range of general banking services to our customers including debit cards, cash management, remittance services and collection services. We market third-party products, such as mutual funds and general and life insurance policies, and also offer fee-based services including merchant banking and depository services. In addition, we have agency function for collection of Central Government Revenue viz. direct and indirect taxes through physical mode by authorized branches and through e-mode by all branches of our Bank. We also act for various state governments and the Government of India on numerous matters including the collection of state revenue and taxes, mobilization of Government deposits under PMJDY, and payment of school teacher’s salary and pension of Central Government, State Government and different autonomous organizations. Further, our Bank has been assigned with lead bank responsibilities in 29 districts inclusive of Union Territory of Lakshadweep across the country. Our Bank is also the convener of State Level Bankers’ Committee (SLBC) in Karnataka and the Union Territory of Lakshadweep and satisfactorily discharged the responsibilities cast on it as the convener of State Level Bankers’ Committee. We have sponsored three Regional Rural Banks covering 18 districts in 3 states with network of 1574 branches. As on March 31, 2017 and September 30, 2017, total business of RRBs sponsored by the Bank stood at ₹ 565,130 million and ₹ 562,000 million respectively. As of October 31, 2017, all our branches are networked to facilitate Core Banking Solution (“CBS”). In addition, we have digital banking channels such as mobile banking and internet banking. We have developed micro-payment and branchless banking solutions as well as a business correspondent network to expand our customer reach beyond the traditional branch service area. We deliver our products and services through our branches, extension counters, ATMs, internet banking and mobile banking. We have opened national processing center at Manipal, Karnataka a digitally enabled processing center to cater to the back office operations, centrally facilitating the Branches in instant account opening.
Our deposits increased from ₹ 2,553,881 million as of March 31, 2015 to ₹ 2,605,609 million as of March 31, 2017, and were ₹ 2,826,005 million as of September 30, 2017. Our aggregate CASA deposits increased at a CAGR
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of 9.11% from ₹ 637,132 million as of March 31, 2015 to ₹ 758,647 million as of March 31, 2017, and were ₹ 756,387 million as of September 30, 2017. Our CASA ratio (Domestic), comprised primarily of retail demand and savings deposits, was at 25.97% as of March 31, 2016, 29.12% as of March 31, 2017 and was at 26.77% as of September 30, 2017. In addition, our gross advances increased from ₹ 2,058,039.00 million as of March 31, 2015 to ₹ 2,070,648.00 million as of March 31, 2017, and were ₹ 2,148,873.00 million as of September 30, 2 017. Our net interest income increased at a CAGR of 6.62% from ₹ 55,209.00 million in Fiscal 2015 to ₹ 62,767.00 million in Fiscal 2017, and was ₹ 32,501 million in the Six months ended September 30, 2017. Further, our operating profit increased at a CAGR of 2.78% from ₹ 40,073 million in Fiscal 2015 to ₹ 42,332 million in Fiscal 2017, and was ₹ 21,539 million in the Six months ended September 30, 2017.
Our capital adequacy ratio as of March 31, 2015, March 31, 2016 and March 31, 2017, in accordance with Basel III norms, was at 10.54%, 11.16% and 12.03%, respectively. Our CRAR as on September 30, 2017 was 12.17% constituting CET 1 Ratio of 7.23%, Tier I Ratio of 9.20% and Tier II Ratio of 2.97% well above the regulatory requirement of 10.25%.
As of March 31, 2017, gross NPAs were ₹176,093.13 million or 8.50% of our gross advances, and net NPAs were ₹ 104,109.83 million, or 5.21% of our net advances. As of September 30, 2017, our gross NPAs represented 9.39% of our gross advances and net NPAs represented 5.76% of our net advances. Our provision coverage ratio was 56.37% and 56.21% as of March 31, 2017 and September 30, 2017, respectively.
We have received several awards in recognition of our operations including the Skoch Financial Inclusion Award- 2017 for various IT initiatives, received third prize for the overall performance under SHG-Bank Linkage and JLG-Bank Linkage programme for Fiscal 2017 among commercial Banks operating in Karnataka from NABARD, received ‘Award of Excellence’ from Ministry of Rural Development, Government of India, for Fiscal 2015 and 2016, in recognition of exemplary leadership given to SyndRSETIs sponsored by the Bank, Certificate of Commendation from Ministry of New and Renewable Energy, Government of India for Collateral Free Farmers Friendly Initiatives for financing of Renewable Energy Projects (during February 2015 to March 2016) and our Bank has also been awarded “the 7th PSU Award 2015” by Dalal Street – Investment Journal for lowest Net NPA to Net Advances ratio. NPCI- National Payments Excellence Award 2016 for excellent performance in select parameters of various NPCI products, Bank has received SKOCH Award for employment generation under Pradhan Mantri Mudra Yojana (PMMY), Bank has received SKOCH Annual Cyber Security Awards 2017 for implementing Distributed Denial Service Solution (DDoS), Security Information and Events Management (SIEM) and Security Operation Centre (SOC), Bank has received first prize in Rajbhasha Kirti Puraskar (President Award) in “C” region for our in-house Hindi journal “Jagriti” for the year 2016-17.
COMPETITIVE STRENGTHS
We believe that our success can be attributed to a combination of the following competitive strengths:
Wide distribution network and multiple delivery channels
As at October 31, 2017, our extensive multi-channel distribution network comprised over 54 million customer base, and our operations covered all States and Union Territories, with 4,006 branches (including a branch at London), 4,100 ATMs, 11 extension counters and 37 satellite offices. Multiple delivery channels and large distribution infrastructure has resulted in giving us access to a large customer base spread across the country. The Bank has an international branch office in London which is active in wholesale banking operations / Loans to corporate, money market operations, investments, and treasury operations. As of October 31, 2017, we had a customer base of over 54 million compared to over 52 million customers as of March 31, 2017 and over 49 million customers as of March 31, 2016. Our branches are spread across metropolitan cities as well as rural, semi urban and urban areas, with 847, 1224, 1116 and 818 branches respectively. In Fiscal 2017, we have added 169 new branches and 244 new ATMs to our network. Further, In Fiscal 2018, up to October 31, 2017 we have added 73 new branches and 126 new ATMs. We offer a user-friendly internet banking facility that allows our customers to conduct a comprehensive range of banking transactions online without visiting our branches or ATMs. We also offer debit and credit cards to our customers in association with Visa, MasterCard and RuPay. These debit cards provide customers with 24-hour access to their funds through our ATMs as well as any Visa, MasterCard and RuPay-enabled ATMs and merchant establishments in India, as well as outside India.
In order to complement our existing core banking solution platform of branches and ATMs, we have also developed a multi¬channel electronic banking system that we believe enables us to acquire new customers and strengthen our relationship with existing customers. Our electronic banking system includes internet banking,
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phone banking, mobile applications, Unified Payment Interface (SyndUPI). Our internet banking system is functional across various platforms and ensures seamless connectivity across devices. As of October 31, 2017, we had 1,239,730 registered users, providing various services such as balance enquiry, account statement, intra-bank and inter-bank fund transfers, payment of indirect / direct taxes, commercial taxes, utility bill payments and online donations. As of October 31, 2017, we had 1,206,429 registered mobile banking users. Our multi-channel network is diversified and so reduces dependence on any single distribution channel, and also enables us to access a broad range of customers across industries, geographic locations, income groups and customer demographics.
Robust credit portfolio
We offer wide range of products that generate both interest and non-interest income. We provide diversified solutions to the financial and banking needs of our customers. In particular, our retail credit portfolio consists of a variety of financial products including housing loans, personal loans and education loans. We provide funding to sectors identified by the GoI as priority sectors with specific focus on products to the MSME sector. We cater to our corporate customers by offering infrastructure/ project finance in the form of working capital, short term credit, import-export credit, and letters of credit facilities. We believe that our combination of diverse product offerings and a relationship-driven approach has enabled us to structure solutions to meet our customers’ needs, resulting in sustained revenue generation. As of September 30, 2017, retail and MSME represented 16.70% and 16.08% respectively, of our gross domestic advances.
We believe that retail credit has significant advantages including a better risk spread, higher yield and cross-selling opportunities. While our gross advances increased at a CAGR of 0.31% between Fiscal 2015 and Fiscal 2017, advances in the retail segment increased at a CAGR of 11.49% between Fiscal 2015 and Fiscal 2017. In Fiscal 2015, 2016 and 2017, advances in the retail segment were₹ 222,564 million, ₹ 265,292 million and ₹ 276,645 million, respectively, accounting for 10.81%, 12.85% and 13.36% of gross credit. Within our retail credit portfolio, our housing loan and vehicle segments recorded significant growth with CAGR of 11.83% and 21.65%, respectively, from Fiscal 2015 to Fiscal 2017. Further, our corporate lending profile primarily consists of commercial banking products and services to corporate customers comprising private and public companies. We believe our corporate / wholesale banking activities benefit us through improved yield and also provide us with opportunities to build our fee-income based products such as cash management services and depository services. Our agriculture loan portfolio represented 18.79 % of our adjusted net bank credit in Fiscal 2017 and total advances in this segment increased at a CAGR of 10.29% between Fiscal 2015 and Fiscal 2017, with advances in Fiscal 2017 amounting to ₹318,782 million. Our agriculture loan portfolio has grown over the years and amounted to ₹336,524 million as of September 30, 2017. Our non-interest income has also increased and accounted for 52.62%, 77.11% and 81.60% of our net operating income for Fiscal 2015, 2016 and 2017, respectively, and 71.85% in the six months ended September 30, 2017.
Robust risk management framework and healthy asset quality
We have an independent risk management function covering enterprise risk management, credit risk, market risk and operational risk that contribute to preserving our asset quality amongst other risk objectives. Our risk management function is overseen by the Risk Management Committee, an independent board-level subcommittee that strives to put in place specific policies, frameworks and systems for effectively managing the various risks. We have implemented a defined internal capital adequacy assessment process (“ICAAP”). The ICAAP process captures both Pillar I and Pillar II risks as part of its comprehensive assessment process. We maintained a CRAR ratio of 12.03% (Tier I – 9.26% and Tier II - 2.77%) as of March 31, 2017 and 12.17% (Tier I – 9.20% and Tier II – 2.97%) as of September 30, 2017, which is above the regulatory minimum of 10.25%. We have implemented a stringent credit risk rating model to assess borrowers.
Our prudent credit evaluation processes, together with effective monitoring systems, have enabled us to contain our NPA levels, restructured standard asset and special mention account (“SMA”) levels. As of September 30, 2017, our gross NPAs were ₹201,766.40 million, or 9.39 % of our gross advances, and net NPAs were ₹ 118,943.00 million, or 5.76% of our net advances. In Fiscal 2017, we implemented an aggregate cash recovery of ₹27,093.90 million (including interest) and upgraded NPAs aggregating ₹ 12,553.50 million. Consequently, while NPA slippages were ₹120,282.70 million in Fiscal 2016, there was a significant decrease in NPA slippages in Fiscal 2017 of ₹ 73,702.50 million. Our risk management function is described in further detail under “Business— Risk Management”. Further, we have opened a National Processing Centre (South) established at Manipal catering to the instant account opening services for 1029 branches of the Bank and we intend to extend it to 2000 branches by the financial year 2018.
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Technology infrastructure
We have implemented several RBI-led technology projects designated to facilitate greater inter-bank connectivity and faster clearing and settlement. We have implemented Real Time Gross Settlement (“RTGS”) and National Electronic Funds Transfer (“NEFT”) in all our branches. We have also implemented image based Cheque Truncation System (“CTS”) in all the three grids, namely, Delhi, Chennai and Mumbai.
In an effort to increase our operational efficiencies, we have established a lending automation processing system (LAPS) in the form of a software that is used for processing our retail loan portfolio. Borrower eligibility is automatically processed by the software based on the income/ repayment capacity in accordance with extant scheme guidelines. The software also monitors the entire life cycle of loan processing, significantly reducing the time taken to process loans, thereby improving our operational efficiencies. Our treasury operations are executed through an integrated treasury management system (ITMS) that supports direct transaction processing in fixed income securities as well as foreign exchange transactions. The software carries out mark to market evaluations of the various portfolios of our treasury and records interest and other income of our treasury, which allows us to efficiently prepare our financial statements while maintaining updated financial records on a regular basis. The ITMS software is also linked to dealing platforms to readily capture transactions and simultaneously update our core banking solution platform. An integrated risk management system manages our risk portfolio.
Professional and highly experienced board of directors and senior management team
We have a professional and experienced management team with extensive experience in the banking and other industries. Our Managing Director and CEO, Mr. Melwyn Rego an MBA rank holder in Finance from SIBM Pune has held assignments in areas of Corporate / Wholesale Banking, Rehabilitation Finance, Treasury, International & Domestic Resources, Infrastructure Corporate Group, Project Appraisal Department, Sourcing, Syndication and Advisory Department, Priority Sector and Retail Banking Group in various capacities. He has over 33 years of work experience in the Banking Sector and currently nominated as Deputy Chairman of Indian Bank Association. We also benefit from strategic guidance from our executive directors Mr. CH. S.S. Mallikarjuna Rao and Mr. S. Krishnan who have experience in banking and finance sector. In addition, we are supported by representatives of the GoI on our Board.
Our Board is also supported by a team of senior management professionals with significant knowledge of banking operations, including credit management, risk management and treasury operations. We believe that the experience of our Board and senior management team has enabled us to develop a strong understanding of industry-specific aspects of our business and operations. We continue to be supported by an experienced employee base. We believe that our management’s capabilities, strong reputation, extensive network of industry relationships and wide-ranging experience in the finance and banking industry will continue to help us to grow, modernize and develop further. For additional details see section titled “Board of Directors and Senior Management” beginning on page 160.
Our Strategies
We intend to grow our market share, including our retail and MSME deposit base, and to continue to achieve balanced growth in our balance sheet, profitability (improving our return on assets and our return on equity) and efficiency (improving our cost to income ratio) across all segments of our operations. Our key strategies to achieve these goals are set out below:
Sustained credit growth with focus on retail lending
Our retail Loans portfolio amounted to ₹ 276,645 million or approximately 13.36% of our total advances, as of March 31, 2017. The Bank aims to focus on increasing its share of retail loans in total advances by leveraging its branch network for sourcing retail loans, expanding the distribution network for retail assets and diversifying its retail loan product portfolio.
As part of our overall retail strategy, we intend to invest in further strengthening our brand, which may include changes to our brand identity, augmenting our technology capabilities, selectively upgrading our branch infrastructure, enhancing capabilities across alternate delivery channels, and by migrating certain operational activities from the branches to a central unit. We intend to increase marketing and sales resources at our branches,
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launch new products, invest in technology for speedier credit processing and improved monitoring, and cross sell products like life insurance to our existing customers.
We have identified the retail loan segment as a key area for increasing our credit portfolio. In our retail business, we intend to increase our retail lending profile by increasing focus on products such as loans against property, personal loans and gold loans, by simplifying our current processes, launching new products and services and developing our distribution channels. We believe this will help us spread risk, increase our interest income and better efficiency in capital utilization. Further, this will enhance our customer base and provide us business opportunities through relationship banking and cross selling.
Reduction in cost of deposits by augmentation of CASA
CASA is the prime source of low cost funds for our Bank. We seek to augment our CASA deposits and reduce our dependence on bulk deposits in order to reduce cost of funds and improve our core capital. Our aggregate CASA deposits increased at a CAGR of 9.12% from ₹637,132.96 million as of March 31, 2015 to ₹ 758,646.87 million as of March 31, 2017, and were at ₹ 756,386.80 million as of September 30, 2017. In order to increase our CASA deposits, we intend to introduce new products through marketing efforts at our branches. In addition, we also regularly review and continuously monitor our CASA growth. We propose to increase our CASA by launching deposit products across business, enhancing our brand presence, attracting new retail customers, appointing relationship managers for high net worth customers, acquisition of salary accounts from corporate customers, growing our multi-channel distribution network (including by adding more branches subject to the conditions laid down by RBI), improving our business mix, introducing new products and improving the service quality and efficiency of our non-branch delivery channels.
Increase focus on improving asset quality and containing NPA levels by building effective risk management systems
We have constantly focused on reducing our impaired assets and improving the quality of our assets. We intend to continue to focus on this with the objective of reducing our NPA levels while upgrading the quality of our assets. The share of gross NPAs as a percentage of gross advances increased from 3.13% as of March 31, 2015 to 9.39% as of September 30, 2017. Our gross NPA was ₹176,093.13 million and net NPA was ₹ 104,109.84 million as of March 31, 2017. We intend to contain our NPA levels by improving the quality of credit. We propose to achieve this by ensuring that our documented loan sanction policies and procedures are complied with and by actively monitoring our loan accounts (particularly Special Mention Accounts (SMA) and evaluating their credit ratings on a frequent basis. In order improve the asset quality and to check the NPA level, the Bank has taken various step to standardise the loan assessment and processing. The Bank has set-up a central processing centre in Manipal, Karnataka, and the Bank proposes to set-up more such centres across India.
We are committed to efficiently managing and reducing our NPAs, as well as the stressed assets, and are implementing measures to manage and reduce our NPAs. In relation to origination and appraisal of our loans, we propose to continuously review and upgrade our rating models, scorecards and credit approval process, including training and enhancing our resources. We also intend to implement latest technology/ analytical tools for effective operational and process controls, credit evaluation and implementation of advanced approaches of Basel III guidelines. Further, we have taken several initiatives to contain slippages and continue to proactively address recoveries from overdue loan accounts including identification of stressed accounts for restructuring, revising need based credit limits, carrying out regular follow-up of over dues in loan accounts, conducting auctions for the sale of seized assets to asset reconstruction companies and initiation of stringent recovery measures against wilful defaulters. We have introduced special OTS scheme for agricultural and micro and small enterprises borrowers and set up Synd Adalat for speedy disposal and to settle the dues and manage the NPAs. In addition, we intend to formulate methods for enforcing the SARFAESI, the Recovery of Debts Due to Bank and Financial Institutions Act, 1993 and the RBI’s corporate debt restructuring (“CDR”) mechanism and Bankruptcy Code more strictly and stringently.
Focus on developing fee based income including treasury operations
Our integrated branch and electronic banking network and our increasingly diversified product and service portfolio have enabled us to develop our fee and commission-based business. We intend to focus on increasing our fee-based income by expanding our third-party product offerings like cross selling of mutual funds and insurance products. We intend to achieve this by increasing our fee-based services and alliances and by cross-
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selling our offerings to our existing as well as new customers. Our Bank has also tied up with various insurance companies for distribution of life insurance and general insurance products to our customers.
We believe that our increased focus on retail and SME customers, integrated branch network, technology led channels and increasingly diversified product mix will enable us to increase our fee and non-fund based revenues. To our existing SME customers, we aim to market fee and non-fund based products such as letters of credit, bank guarantees, foreign exchange services and insurance products. We also intend to acquire new SME customers who specifically require such fee and non-fund based products. For our retail customers, we intend to follow a relationship based approach by providing and expanding our third party product offerings including mutual fund and insurance products, wealth management services, money transfer and foreign exchange services.
Increase customer penetration through expansion of branch and ATM network and strengthening alternate delivery channels
The Bank intends to increase revenues generated from its banking business by expanding its distribution network, growing its customer base and diversifying its banking product mix. We intend to increase our branch network and infrastructure across India, through a growing network of branches, ATMs, BC agents and cross sell our products at competitive costs to gain a larger pan-India market share in terms of advances and deposits. Working towards this goal, we plan to open 160 branches in the fiscal year 2017 – 2018, our Bank also intends to strengthen its alternate delivery channels by encouraging customers from less cash to cash less environment. Our branch network strategy is to cater to each geographical region of India instead of treating India as one market. As part of this approach, we are focused on emerging as a bank with a leading branch presence in other region, in part, building a higher density of branches. We believe this will enable us to address more customer segments per branch and thereby increase our CASA percentage and fee income per branch in such markets.
While we typically have onsite ATMs at majority of the branches, we intend to increase the number of offsite ATMs at strategic locations and intend to install in relatively under-penetrated markets in India. We also intend to increase the number of cash deposit machines and passbook kiosks in order to increase accessibility of these services to our customers. As part of our efforts to enhance our non-branch delivery channels to encourage cash- less transactions, we intend to improve our existing internet banking system, mobile banking and Unified Payment Interface platforms. We are providing instant fund transfer facilities through IMPS, utility bill payment and QR code based transactions and installed POS machines for merchants. Our Bank will also empower its business correspondence to provide entire gamut of its services and products to the rural and unbanked population.
The Bank plans to increase its efforts to cross-sell a wide variety of banking products across its business groups and through numerous distribution channels, while also expanding its banking product offerings. The Bank is also pursuing strategic relationships with corporate entities and government departments to provide financing products to their employees and customers. In addition, the Bank is expanding into the more rural and semi urban areas of India where growth potential is significant. The Bank also intends to grow its business through further overseas expansion, to meet the growing needs of Indian corporations operating overseas and non-resident Indians living abroad.
Banking Operations
Our banking operations are broadly categorized into five segments namely i) Retail Banking; ii) Agriculture Banking; iii) MSME Banking; iv) Corporate / Wholesale Banking; and v) International Banking.
In addition to our primary offerings, we also offer a variety of fee-based services, including cash management services, remittance services for NRIs and collection services. We offer general banking services to our customers including debit cards, cash management, remittance services and collection services.
The following table sets forth certain information relating to our loan portfolio classified by our principal operational segments in the periods indicated:
Particulars As of March 31 2015 2016 2017 Amount % of total Amount % of total Amount % to total credit credit credit Retail 222,564 10.81% 265,292 12.85% 276,645 13.36% MSME 246,650 11.98% 276,771 13.41% 269,815 13.03%
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Agriculture 262,054 12.73% 298,989 14.48% 318,782 15.40% Corporate/wholesale / others 920,263 44.72% 840,472 40.71% 848,531 40.98% International Banking 406,507 19.75% 382,968 18.55% 356,874 17.23% Gross Advances 2,058,038 100% 2,064,492 100% 2,070,647 100%
i) Retail Banking
Retail banking plays a pre-dominant role in increasing the total business of our bank. We offer a broad range of services and products through our multi-channel distribution network to meet the needs of individuals across urban and rural India. Our retail banking operations are targeted primarily at individuals (salaried, self-employed professionals and other self-employed individuals) for meeting their personal financial requirements. Retail banking services include housing loans, education loans, car loans, personal loans, loan against term deposit, and debit card services and constitute a significant portion of our operating income. We offer these services and products to our retail customers through our branch outlets as well as our multichannel electronic banking system that includes 4,100 ATMs as of October 31, 2017 comprising 3,920 onsite and 180 offsite ATMs, internet banking and mobile banking (available 24 hours a day / 7 days a week).
Our Bank has embarked several new initiatives to increase credit under retail sector. One such initiative was Synd Carnival campaign for mobilizing retail loan and other was home loan star campaign for canvassing high value housing loans. Additionally, we have introduced various schemes such as empanelment of home loan counsellors for canvassing housing loans, “Vidyalakshmi Portal” to facilitate students to apply for education loans online and “Credit Guarantee Fund Scheme for Education Loans” and “Credit Guarantee Fund Scheme for Skill Development” schemes to provide collateral free education loans upto ₹0.75 million and ₹0.15 million respectively.
Our CASA ratio (Domestic), comprised primarily of retail demand and savings deposits, was at 25.97% as of March 31, 2016, 29.12% as of March 31, 2017 and was at 26.77% as of September 30, 2017. As a percentage of total deposits, retail deposits accounted for 49.15%, 51.90%, 60.12% and 56.41% as of March 31, 2015, March 31, 2016, March 31, 2017 and September 30, 2017, respectively. As a percentage of total net advances, retail advances accounted for 10.98%, 13.17%, 13.86% and 13.88% as of March 31, 2015, March 31, 2016, March 31, 2017 and September 30, 2017, respectively.
The following table sets forth details on our retail credit across segments:
As of March 31, As of September 30, 2015 2016 2017 2017 Amount % of Amount (₹ % of Amount (₹ % of Amount (₹ % of (₹ million) total million) total million) total million) total Housing loan 119,797.40 53.83 141,743.00 53.43 149,809.80 54.15 156,026.40 54.47 Education 27,452.80 12.33 28,578.60 10.77 28,929.50 10.46 30,291.40 10.57 loan Vehicle loan 20,277.30 9.11 27,674.10 10.43 30,007.50 10.85 30,144.10 10.52 Personal loan 34,547.20 15.52 36,211.90 13.65 34,180.20 12.36 34,423.30 12.02 Other retail 20,489.70 9.21 31,084.50 11.72 33,717.64 12.19 35,581.70 12.42 loan Total Retail 222,564.40 100 265,292.10 100 276,644.64 100 286,466.90 100.00 loans
a) Housing Loan
Our Bank extends housing loans under SyndNivas and SyndKuteer schemes. SyndNivas scheme extends credit facility to individual borrowers for acquiring a residential site and constructing a house thereon, acquisition and purchase of new or old dwelling units or construction of house on already owned site/plot. The rate of interest offered by us is one year MCLR irrespective of quantum and tenor of the housing loan. SyndKuteer scheme extends credit facility to individual borrowers under EWS / LIG categories in rural, urban and metro areas for acquiring a residential site and constructing a house thereon, acquisition and purchase of new or old dwelling units
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or construction of house on already owned site/plot. The maximum loan amount offered under SyndKuteer scheme is ₹1.00 million and the applicable rate of interest is one year MCLR. Further, our Bank covers all eligible credit linked subsidy home loans under Pradhana Mantri Awas Yojana scheme to economically weaker sections / low income groups and middle income group. Our housing loan portfolio increased at CAGR of 11.83% from ₹119,797.40 million as of March 31, 2015 to ₹149,809.80 million as of March 31, 2017 and stood at ₹156,026.40 million as of September 30, 2017. b. Vehicle Loan
We offer loans for the purchase of new and pre owned vehicles by extending SyndVahan scheme credit facility to purchase new four wheelers to borrowers with annual income of ₹0.2 million and purchase of new two wheelers to the borrowers with minimum annual income of ₹0.05 million p.a. Our vehicle loan portfolio increased at CAGR of 21.65% from ₹20,277.30 million as of March 31, 2015 to ₹30,007.50 million as of March 31, 2017 and was ₹30,144.10 million as of September 30, 2017. c. Education Loan
Our Bank extends education loans under SyndVidya and SyndSuperVidya schemes. SyndVidya scheme offers education loan to a student, who has secured admission in recognized institutions in India or abroad after completion of higher secondary or equivalent course to pursue graduation and post-graduation courses. SyndSuperVidya offers education loan to students who have secured admission in premier technical and management institutes in India. The maximum loan amount approved under SyndSuperVidya scheme is ₹2.00 million. Further, we also offer SyndVidya abroad scheme to the students who have secured admission for studying abroad with a minimum amount of ₹2.00 million and a maximum amount of ₹20 million. Education loan portfolio increased at CAGR of 2.65 % from ₹27,452.80 million as of March 31, 2015 to ₹28,929.50 million as of March 31, 2017 and stood at ₹30,291.40 million as of September 30, 2017. d. Personal Loans
Our Bank offers personal loans under Syndsaral and SyndConnect schemes to meet various family and personal needs during their service or after retirement. The quantum of loan offered under SyndSaral scheme shall not exceed 12 months’ gross salary with no maximum ceiling. Quantum of loan under SyndConnect scheme shall not exceed 15 times gross monthly salary with a maximum cap of 2 million whichever is less. Extension of credit facility to Pensioners is under SyndSenior scheme. Personal loan portfolio decreased at CAGR of 0.53% from ₹34,547.20 million as of March 31, 2015 to ₹ 34,180.20 million as of March 31, 2017 and stood at ₹ 34,423.30 million as of September 30, 2017. e. Other Retail Loans
We also offer loans for which we accept gold ornaments as security, loans for which customers may pledge securities in our favour, offer business purpose loans against residential and commercial property as collateral. Our Bank has introduced new gold loan product “Synd Swarna – EMI” for non – agricultural purposes with EMI facility with enhanced scale of finance at 70% net value of gold. In addition to above, we offer other banking services to our retail customers such as utilities and lockers. We offer customers a means to pay their electricity and other utility bills such as mobile phone bills and credit card bills. Our lockers are available in different sizes, are protected by advanced security systems and may be nominated to others.
ii) Agriculture Banking
We offer a wide variety of products and schemes under agricultural banking, including both direct and indirect advances. We have various area-specific schemes suitable to different agro-climatic conditions and agricultural practices, including credit for tea plantation, short term credit for seasonal agricultural operations and working capital limits to allied activities of agriculture. In addition, we provide farmers with credit facilities for the rescheduling and rephasing of existing loans if they are unable to repay their existing loans due to various reasons, including natural calamities. To encourage the non – conventional energy, our Bank is financing the solar pump sets and has introduced various schemes.
The short term crop cultivation credit needs of farmers are met by our Syndicate Kisan Credit Card Scheme, which is a farmer friendly flexible credit product, wherein limits are sanctioned for a period of 5 years, subject to annual
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review. For small and marginal farmers who have minimum land holding and no access to banks are financed by us through tie up facility with NGO, MFI, wherein the credit facilities are delivered at their door step through business correspondent model. Further, for accelerating lending to agriculture, farm producer companies and agri value chain our bank started Rural Credit Processing Cell and has appointed Agri Business Resource Officer sat different strategic locations.
We participate in the Pradhan Mantri FasalBima Yojana, Restructured Weather Based Crop Insurance Scheme and Unified Package Insurance Scheme to cover crops raised by both the loanee and non – loanee farmers in operational areas of our branches. We also lend to self-help groups and joint liability groups under our agriculture banking operations, which have been effective credit delivery routes to access the rural and urban population. Additionally, we have entered into arrangements with collateral management agencies, sugarcane factories, farm machinery companies and tobacco boards for extending credit facilities to farmers.
Our Bank has also entered into arrangements with National Bulk Handling Corporation, Star Agri Warehousing and Collateral Management Services Limited, CNX Corporation Limited for extending pledge loans to farmers and other borrowers against negotiable warehouse receipt issued for agricultural produce stored in the warehouses and cold storages owned by corporations or managed by them. We have also entered into strategic tie – ups for business development with Shree Kshetra Dharmasthala Rural Development Project, Dharmasthala and initiatives for development foundation, Tumkur for providing credit facility to self help groups, Tobacco Board, Guntur for financing tobacco farmers and sugar factories to facilitate farmers to avail sugarcane crop loans.
As of September 30, 2017, we had an outstanding loan portfolio to the agriculture sector of ₹336,524.00 million of our total outstanding loans and advances as of that date. Further, as of March 31, 2017, we had an outstanding loan portfolio to the agriculture sector of ₹318,782.00 million of our total outstanding loans and advances as of that date, compared with ₹298,989.00 million as of March 31, 2016, representing year-on-year growth of 6.62%.
iii) MSME Banking
With a view to enlarge our credit exposure in the MSME sector, we have initiated several sector friendly measures at highly competitive interest rates based on the enactment of the government on Micro, Small & Medium Enterprises Development (MSMED) Act, 2006. Our Bank extends credit facilities, both term loan and working capital, to Micro, Small and Medium Enterprises involving manufacturing and service /trade activities.
Our Bank has formulated schemes to suit the specific needs of MSME borrowers such as SyndUdyog and SyndVyapar schemes for manufacturing and services / retail trade sector respectively. We also offer loans under Pradhan Mantri Mudra Yojana (“PMMY”) scheme to provide funding to the non – corporate, non – farm sector income generating activities of micro and small enterprises whose credit needs are below ₹1 million. To mobilize substantial business, we offer loan products such as “Synddoctor”, and “SyndProfessional”.
As on October 31, 2017, we have 77 MSME branches and deployed specialized officers at MSME centric locations. We propose to strengthen our relationship with these sectors by tying up with various manufacturers of commercial vehicles and giving them various facilities at competitive terms and thereby expand our business.
Further, in order to increase MSME credit, we have entered into memorandum of understanding with various commercial vehicle manufacturing companies.
The following table represents our total revenue from MSME sector:
As of March 31, As of March 31, 2016 As of March 31, 2017 As on September 30, 2015 2017 Amount (₹ % of Amount (₹ % of Amount (₹ % of Amount (₹ % of million) total million) total million) total million) total Micro 139,692.10 56.64 164,227.70 59.34 161,599.20 59.89 170,396.07 61.79 Enterprises Small 79,421.40 32.20 84,579.80 30.56 87,063.80 32.27 84,110.99 30.50 Enterprises Total 219,113.50 88.84 248,807.50 89.90 248,663.00 92.16 254,507.05 92.30 (MSE) Medium 27,537.00 11.16 27,963.10 10.10 21,151.90 7.84 21,245.70 7.70 Enterprises
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Total 246,650.50 100 276,770.60 100 269,814.90 100 275,752.76 100 MSME
Our MSME loan portfolio increased at CAGR of 4.59 % from ₹246,650.50 million as of March 31, 2015 to ₹ 269,814.90 million as of March 31, 2017 and stood at ₹ 275,752.76 million for the period ended September 30, 2017
iv) Corporate / Wholesale Banking
We provide our corporate and institutional clients, both in public and private sector, a wide array of commercial banking products and transactional services ranging from large corporates, multi-national corporates and other financial institutions. Our principal commercial banking products include a range of financing products, documentary credits (primarily letters of credit) and bank guarantees, foreign exchange and derivative products, investment banking services and corporate deposit products. Our financing products include loans, overdrafts, bill discounting and credit substitutes, such as commercial papers, debentures, preference shares and other funded products. Our foreign exchange and derivatives products assist corporations in managing their currency and interest rate exposures. We also offer infrastructure/ project finance, trade loans, bridge financing and foreign currency loans and finance to corporates through the syndication of loans.
Our Bank has established 35 specialized branches which consist of 26 MCB (Mid Corporate Branches) and 9 LCB (Large Corporate Branches) that exclusively cater to the credit requirements of mid as well as large corporate clients. These branches play a key role in developing our corporate and wholesale lending business.
For our commercial banking products, our customers include companies that are part of private sector business houses, public sector enterprises and multinational corporations, as well as small and mid – sized businesses. Our customers also include suppliers and distributors of corporations to whom we provide credit facilities and with whom we thereby establish relationships as part of a supply chain initiative for both our commercial banking products and transactional services.
Our revenue from corporate / Wholesale banking advances business was ₹110,347.30 million for Fiscal 2015, ₹90,052.40 million for Fiscal 2016, ₹92,727.20 million for Fiscal 2017 and ₹40,618.70 million for six months period ended September 30, 2017.
v) International Banking
We operate in the domestic and international money, foreign exchange and derivatives markets to hedge our customers’ risks on foreign exchange and interest rates. We offer a number of treasury products, such as spots, forwards, buyers’ credit, standby LCs and swaps for hedging short term exchange risk on foreign currency receivables and payables and options and swaps for hedging medium and long term foreign exchange risk. We also offer various foreign exchange products and services for expatriate workers to remit foreign exchange through electronic fund transfers, SWIFT remittances and demand drafts.
We operate through our branch office in London which is active in wholesale banking operations / loans to corporate, money market operations, investments and treasury operations. This branch also focuses on syndications and ECBs, besides bilateral loans for Indian corporates having global presence. The loan portfolio of our branch was approximately 17.23% of our Bank’s total advances as of March 31, 2017.
Our Bank is having Rupee Drawing Arrangements (RDA) with 7 overseas exchange houses and 6 foreign banks. Out of the 7 exchange houses, our Bank manages one exchange house M/s Musandam Exchange Company, Ruwi at Ruwi in Sultanate of Oman for more than 3 decades and serving the expatriate community in the Gulf region for improved and cost effective funds transfer by Indian Migrants to India from Gulf Countries. Our Bank receives service fees from providing management expertise to exchange house which also focuses on mobilizing deposits and opening new NRI accounts for the Bank. Customers at London office/exchange house can also access instant remittance facility for credits to accounts maintained in Indian offices through centralized SWIFT operations. Remittances to accounts in other banks are routed through the National Electronic Funds Transfer scheme of the RBI. Anti-Money Laundering / Office of Foreign Assets Control of the U.S. Department of the Treasury monitoring and Sanction Screening is done at London office with advanced tools.
Other Banking Services
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Treasury Operations
Treasury Department performs the crucial function of interacting with dynamic market forces, understanding them and transforming such understanding into profits. Treasury maintains the statutory reserves of CRR and SLR prescribed by RBI, meets our short term liquidity requirements in domestic and foreign currencies effectively, manages our SLR and Non-SLR investment book, trades in interest rate, equity and forex instruments, utilizes arbitrage opportunities available across markets and also provides crucial market related inputs in our asset liability management.
Forex dealing room of treasury provides market views to its exporter / importer customers and also executes forex transactions on their behalf, in addition to doing proprietary forex trading activities. Treasury conducts its operations in accordance with the Board approved investment policy which sets limits, controls, accounting policies and general guidelines for the treasury operations, including the parameters of investments in securities. Our investment portfolio is managed with a view to capitalize on the market movements in interest rates and credit spread, to maintain a balanced portfolio, to minimize risk, to ensure deployment of surplus cash in securities at attractive yields while maintaining adequate liquidity. The overall objective of Treasury activities is to earn optimal return on deployed investments and to minimize credit risks assumed in its investment/ trading activities.
Our revenue from treasury segment was ₹6,232.50 million, ₹6,912.70 million, and ₹7,878.00 million and ₹3,853.90 million for Fiscals 2015, 2016 and 2017 and for the six months ended September 30, 2017, respectively. Our non-interest income from our treasury segment, consisting of profit and loss from the sale of investments and foreign exchange transactions was ₹7,541.00 million, ₹10,344.50 million, ₹19,255.10 million and ₹ 8,556.39 for Fiscals 2015, 2016 and 2017 and for the six months ended September 30, 2017.
Bancassurance
In order to provide a wide range of finance and investment products to its customers as a value addition, and also to augment its non-interest income, our Bank has entered into agreements with various insurance companies for distribution of life insurance and general insurance products to our customers..
Government Business
We have agency function for collection of Central Government Revenue viz. direct and indirect taxes through physical mode by authorized branches and through e-mode by all branches of our Bank. We also act for various state governments and the Government of India on numerous matters including the collection of state revenue and taxes, mobilization of Government deposits.
Mutual Funds
We also distribute various mutual fund products through select branches.
Cash Management Services
Our Bank offers CMS services to its clients along with various products to corporate, private and foreign banks for efficient management of account receivables and payments and through all our branches across the country. Electronic payment facilities are offered to such corporate and institutional customers for payments to vendors or suppliers.
Capital Markets Services
We are registered with SEBI as self – certified syndicate bank for providing Application Supported by Blocked Amount (ASBA) services to our customers. This scheme aims at providing the facility of blocking of amount to the extent of the bid amount of the customers investing in shares and bonds through the initial public offering / further public offering.
Depository Participant Services
Our Bank is registered with SEBI as a depository participant which enables our customers to keep their capital market services in electronic form. We have also launched the 3 – in – 1account cum online trading facility under the brand name “Synd-e-Trade” on October 24, 2011. The facility comprises of the CASA account, demat account
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and trading account enabling our customers to trade in shares online, using the funds in the CASA account and dematerialized securities in the depository participant account.
Card Services
We, in association with VISA International offer and classic credit cards to be used at ATMs, POS terminals and e- commerce. Further, our Bank has entrusted end – to – end management of credit card services through tie up with Atos Worldline India Private Limited. We also offer debit cards in association with VISA International and Master Card such as global debit cards and with higher transaction limits. In 2016, our Bank has launched variants of debit cards in association with VISA / NPCI such as RuPay Mudra Cards, RuPay Platinum Cards and AEPS Rupay Debit Cards. Our Bank has issued 20.36 million debit cards as on October 31, 2017 out of which 3.84 million RuPay cards were issued under Pradhan Mantri Jan Dhan Yojana.
In compliance with the directives issued by RBI, we also issue EMV / chip based credit cards which have replaced the existing magstripe credit cards since 2015.
Advances / Loans
As of September 30, 2017, we had total (gross) outstanding loans of ₹2,148,873 million. In Fiscals 2017 and 2016, we had outstanding total (gross) loans amounting to ₹2,070,647 million and ₹ 2,064,492 million, respectively. The table below sets forth the composition of our loan assets by business divisions for Fiscals 2015, 2016 and 2017 and for six months period ended September 30, 2017:
As of September 30, Particulars As of March 31,2015 As of March 31, 2016 As of March 31, 2017 2017 % to % to % to total total % to total total Amount Credit Amount Credit Amount Credit Amount Credit Retail 222,564 10.81 265,292 12.85 276,645 13.36 286,467 13.33 MSME 246,650 11.98 276,771 13.41 269,815 13.03 275,753 12.83 Agriculture 262,054 12.73 298,989 14.48 318,782 15.40 336,524 15.66 Corporate / Others 920,263 44.72 840,472 40.71 848,531 40.98 816,429 37.99 Overseas Operations 406,507 19.75 382,968 18.55 356,874 17.23 433,700 20.18 Gross 2,058,03 2,064,49 2,070,64 Advances 8 100.00 2 100.00 7 100.00 2,148,873 100.00
Deposits
We offer certain deposit products to our retail customers like “SyndSupreme Savings Account”, “SyndSamanya Savings Account”, “Synd Navratana”,”SyndRDPlus” “SyndTaxShield Deposit”, “Syndicate Suvidha Deposit” and “Synd Corporate Suvidha Deposit Scheme”. We also offer a range of deposit and transaction banking services such as cash management, custodial and clearing bank services and correspondent banking. The tenure of these deposit accounts normally range from a minimum of 7 days to a maximum of 10 years. As a percentage of total deposits, retail banking deposits accounted for 49.15 %, 51.90%, 60.12% and 56.41% in Fiscals 2015, 2016 and 2017 and six months’ period ended on September 30, 2017, respectively. We offer several deposit accounts to Non-Resident Indians, including deposits in foreign currencies.
The following table sets forth the composition of our total deposits for Fiscals 2015, 2016 and 2017 and six months’ period ended September 30, 2017 (standalone):
Particulars As of March 31, As of March 31, As of March 31, As of September 30, 2015 2016 2017 2017 Deposit % of Deposit % of Deposit % of Deposit % of (₹ million) Total (₹ Total (₹ million) Total (₹ million) Tota depos million) depos depos l it it it depo sit
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1,298,708.00 50.85 1,258,877. 48.10 1,039,111.80 39.88 1,231,917.80 43.5 Corporate$ 20 9 618,040.00 24.20 678,690.0 25.93 807,850.00 31.00 837,700.00 29.6 Retail 0 4 Total Term 1,916,748.00 75.05 1,937,567. 74.03 1,846,961.80 70.88 2,069,617.80 73.2 Deposit (A) 20 3 Current 172,459.90 6.75 159,299.0 6.09 116,075.00 4.45 111,454.10 3.94 Account 0 Saving 464,673.00 18.19 520,487.0 19.89 642,571.90 24.66 644,932.60 22.8 Account 0 2 Total CASA 637,132.90 24.95 679,786.2 25.97 758,646.80 29.11 756,386.70 26.7 (B) 7 Total 2,553,880.90 100 2,617,353. 100 2,605,608.60 100 2,826,004.50 100 Deposits 40 (A+ B) $ term deposits of ₹10 million and above.
Our deposits are broadly classified into current (also known as demand) deposits, savings deposits and term deposits, which are briefly discussed as under:
Term deposits: We accept term deposits giving a fixed return, for periods ranging from 7days to 10 years. Term Deposits are also known as fixed deposits or time deposits. Such deposits can be withdrawn before maturity in accordance with applicable rates by paying penalties. Term deposits include recurring deposits, which enable the customer to make deposits over a fixed term at regular intervals. We also offer overdraft facility against the term deposits to our customers. Term deposits provide us with a cost efficient and stable funding source, and remain a key focus area for us.
Savings accounts: We offer savings accounts, which are interest bearing on-demand deposit accounts designed primarily for individuals and trusts. We currently offer 3.50% on savings deposits upto and inclusive of ₹2.50 million and 4.00% on savings deposits above ₹2.50 million.
Current Accounts: We also offer current accounts which are non-interest-bearing accounts, designed primarily for businesses. Customers have a choice of regular and premium product offerings with different minimum average quarterly account balance requirements.
The average cost (interest expense divided by average of fortnightly balances) of savings deposits as on September 30, 2017 and Fiscals 2017, 2016 and 2015 stood at 4%. The average cost of term deposits was 5.87% as of September 30, 2017, 6.70% in Fiscal 2017, 7.24% in Fiscal 2016 and 7.85% in Fiscal 2015. The average cost of total deposits was 5.23% as of September 30, 2017, 5.86% in Fiscal 2017, 6.27% in Fiscal 2016 and 6.73% in Fiscal 2015.
The following table sets forth our outstanding deposits and the percentage composition by each category of deposits for the periods indicated therein (Consolidated):
As of September 30, As of March 31, 2015 As of March 31, 2016 As of March 31, 2017 2017 Particula Amount % of Amount % of % of Amount % of Amount rs Outstandi Total Outstandin Total Total Outstandi Total Outstandin ng (₹ Outstan g (₹ Outstan Outstand ng (₹ Outstandi g (₹ million) million) ding million) ding ing million) ng Current 172,459 6.75 159,298 6.09 116,070 4.45 111,455 3.94 deposits (A) -From 1,333 0.05 534 0.02 836 0.03 835 0.03 banks -From 171,126 6.70 158,764 6.07 115,234 110 ,620 3.91 others 4.42 Savings 464,673 18.19 520,487 19.89 642,572 644 ,933 22.82 deposits 24.66 (B)
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Term 1,916,66 75.05 1,937,478 74.02 1,846,837 2,069,618 73.23 deposits 9 70.88 (C) -From 386,781 15.14 325,621 12.44 277,579 324 ,509 11.48 banks 10.65 -From 1,529,88 59.91 1,611,857 61.58 1,569,258 1,745,109 61.75 others 8 60.23 Total 2,553,80 100.00 2,617,263 100.00 2,605,479 100.00 2,826,006 100.00 deposits 1 A+B+C
In addition to our conventional deposit products, we offer a variety of special value-added products and services thereby increasing product offerings and providing greater convenience for customers, such as higher rate deposit accounts for senior citizens. We offer deposit for NRIs, which gives the convenience of variable monthly recurring deposit instalments and special NR deposits with higher return by way of forward-booking of underlying foreign currency.
Deposits for Non-Resident Indians
In addition to providing remittance and portfolio investment services to NRIs, we allow them to open various types of deposit account. As of September 30, 2017 and in Fiscals 2017, 2016 and 2015, our total NRI deposit portfolio was ₹69,116.50 million, ₹68,129.60 million, ₹66,879.80 million and ₹55,606.60 million, respectively.
We offer the following deposit programs to NRIs:
Foreign Currency Non-Resident Deposits: We offer foreign currency deposits in ten currencies, including the U.S. dollar, the Pound Sterling, the Euro and the Japanese yen. The principal as well as the interest on these deposits are fully repatriable outside of India and interest and principal are repaid in the currency of deposit. The teure of these deposits range from a minimum of one year to a maximum of five years.
Non-Resident External Fixed Deposits: These deposits are established in Rupees and are maintained for periods from a minimum of one year to a maximum of ten years. The principal and interest from these accounts are fully repatriable outside of India. Interest rates on these deposits are fixed by ALCO, subject to a maximum of rates offered to comparable domestic rupee term deposits. Loans can be granted against these deposits for up to 90% of the deposit amount.
Non-Resident Ordinary Deposits: These products are offered primarily to NRIs who also derive income from India. These products are offered as savings bank deposits as well as fixed deposits. The interest rates and terms are structured along the same lines as domestic deposits. While the principal is not repatriable, except in certain cases, the interest paid is repatriable, net of payment of Indian taxes.
Non-Resident External Savings Accounts: Non-Resident External Savings Accounts are maintained in Rupees. We presently offer 3.50% interest on such savings accounts. The balances in these accounts are fully repatriable outside of India. We also offer zero interest bearing current account for NRI customers. We offer savings accounts, which are interest bearing on-demand deposit accounts designed primarily for individuals and trusts. We currently offer 3.50% on savings deposits upto and inclusive of ₹2.50 million and 4.00% on savings deposits above ₹2.50 million.
Delivery Channels
We cater to our customer base of over 54 million customers across metropolitan and rural areas through a range of delivery channels in order to enable them to access our products and services, including physical branches and extension counters. In addition, our customers have access to select banking services offered through ATMs, internet banking and mobile banking.
Branch Network
As of October 31, 2017, we had 4,006 branches (including overseas branch) across all states and union territories in India, 8 zonal offices and 60 regional offices. We also have 979 ultra – small branches in unbanked villages as of October 31, 2017.
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With an aim to increase the business and better monitoring and control, in fiscal 2017 our Bank has opened 1 regional office at Kanpur by carving out branches from Agra, Lucknow and Varanasi regions and also opened 169 additional branches. In Fiscal 2018, we have set up 9 new regional offices during May 2017 at Bhubaneshwar, Chennai, Noida, Nizamabad, Ranchi, Raipur, Siliguri, Tirupathi and Udaipur and also opened 73 additional branches up to October 31, 2017. Further, we had 11 extension counters and 37 satellite offices as of October 31, 2017.
The following table sets forth the number of our branches in metro, urban, semi-urban and rural locations:
Number of Branches March 31, 2015 March 31, 2016 March 31, 2017 October 31, 2017 Metropolitan 682 681 838 847 Urban 783 823 813 818 Semi-Urban 936 1,030 1,091 1,116 Rural 1,150 1,231 1,190 1,224 London Branch 1 1 1 1 Total 3,552 3,766 3,933 4,006
Population group – wise composition of total branch network:
Number of Branches March 31, 2015 March 31, 2016 March 31, 2017 October 31, 2017 Eastern Region 304 322 339 349 North Eastern Region 44 54 56 56 Western Region 338 344 352 358 Northern Region 428 461 492 502 Southern Region 1,790 1,867 1,914 1,942 Central Region 647 717 779 798 Total 3,551 3,765 3,932 4,005
The following table represents the number of branches and offices in each state and union territory as of October 31, 2017:
Semi – % of total No. of State/UT Rural Urban Metro Total Urban network Districts Andhra Pradesh 175 109 90 32 406 10.14 14 Arunachal Pradesh 0 2 0 0 2 0.05 1 Assam 8 12 16 0 36 0.90 19 Bihar 18 13 21 9 61 1.52 26 Chhattisgarh 11 4 10 5 30 0.75 14 Goa 14 12 0 0 26 0.65 2 Gujarat 27 12 26 35 100 2.50 24 Haryana 52 42 43 15 152 3.80 22 Himachal Pradesh 3 9 1 0 13 0.32 8 Jammu & Kashmir 0 2 2 1 5 0.12 4 Jharkhand 11 7 13 11 42 1.05 15 Karnataka 325 223 159 107 814 20.32 31 Kerala 9 172 49 0 230 5.74 14 Madhya Pradesh 20 26 32 34 112 2.80 43 Maharashtra 55 29 34 112 230 5.74 35 Manipur 0 0 1 0 1 0.02 1 Meghalaya 2 1 2 0 5 0.12 2 Mizoram 0 1 1 0 2 0.05 2 Nagaland 0 0 1 0 1 0.02 1 Odisha 43 33 32 0 108 2.70 27
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Semi – % of total No. of State/UT Rural Urban Metro Total Urban network Districts Punjab 11 32 18 9 70 1.75 21 Rajasthan 26 30 31 16 103 2.57 34 Sikkim 1 1 1 0 3 0.07 2 Tamil Nadu 71 109 42 76 298 7.44 32 Telangana 50 33 12 86 181 4.52 10 Tripura 1 4 1 0 6 0.15 4 Uttar Pradesh 231 137 107 124 599 14.96 77 Uttarakhand 17 21 19 0 57 1.42 14 West Bengal 30 24 41 32 127 3.17 19 Union Territories 7 13 13 143 176 4.39 18 Andaman & Nicobar Islands 5 1 5 0 11 0.27 3 Delhi 2 7 1 143 153 3.82 9 Chandigarh 0 0 6 0 6 0.15 1 Dadra & Nagar Haveli 0 1 0 0 1 0.02 1 Daman & Diu 0 1 0 0 1 0.02 1 Lakshadweep(UT) 6 3 0 0 9 0.22 1 Puducherry 0 3 1 0 4 0.10 3 Total 1,224 1,116 818 847 4,005 100 537
ATM Network
We have set up Synd – e – lounge (“Synd Lounges”) such as self-service kiosks like BNA, ATM, passbook, cheque deposit and internet kiosks in identified locations to enable the customers to have access on 24X7 basis. As on October 31, 2017, 30 Synd Lounges are functional across India.
As on October 31, 2017, we have 4,100 ATMs across India. The table below represents the number of onsite and offsite branches:
State/UT OFFSITE ONSITE Total Andaman And Nicobar 2 10 12 Andhra Pradesh 4 385 389 Arunachal Pradesh 0 2 2 Assam 3 33 36 Bihar 2 55 57 Chandigarh 0 6 6 Chhattisgarh 0 23 23 Dadra And Nagar Haveli 0 0 0 Daman And Diu 0 1 1 Delhi 10 170 180 Goa 1 31 32 Gujarat 3 97 100 Haryana 5 149 154 Himachal Pradesh 0 11 11 Jammu And Kashmir 0 5 5 Jharkhand 0 39 39 Karnataka 43 840 883 Kerala 12 241 253 Lakshadweep(UT) 1 12 13 Madhya Pradesh 2 102 104
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State/UT OFFSITE ONSITE Total Maharashtra 8 234 242 Manipur 0 1 1 Meghalaya 1 5 6 Mizoram 0 1 1 Nagaland 0 1 1 Odisha 10 104 114 Pondichery 0 4 4 Punjab 1 52 53 Rajasthan 2 101 103 Sikkim 0 2 2 Tamil Nadu 34 292 326 Telangana 3 184 187 Tripura 1 6 7 Uttar Pradesh 23 546 569 Uttaranchal 1 47 48 West Bengal 8 128 136 Grand Total 180 3,920 4,100
Below are the details of classification of our ATMs as on October 31, 2017:
Classification No. of ATMs Metro 1,003 Rural 1,106 Semi-urban 1,081 Urban 910 Grand Total 4,100
Digital Channels
Internet Banking
We offer our customers internet banking facilities which can be used seamlessly from any part of the world. We provide services such as balance enquiry, account statement, intra – bank and inter – bank fund transfers through RTGS/NEFT/IMPS, transaction related SMS alerts, payment of indirect / direct taxes, state commercial taxes, utility bill payments and online donations.
Unified Payment Interface (UPI)
Syndicate UPI is a system that powers multiple bank accounts into a single mobile application (of any participating bank) and allows for immediate money transfer through mobile device round the clock 24x7 and 365 days and serves as a single mobile.
Project Ananya
We have embarked on a transformation programme “Project Ananya” to provide customers with modern and improved business areas of the Bank such as digital banking, sales and CRM and human resources development. Under this initiative, our Bank has transformed 372 branches, created digizones, opened National Processing Centre at Manipal, introduced instant account opening facility in 460 branches, opened loan processing centres at Bengaluru and Mangalore and introduced “Sales Saathi”, a lead management application to facilitate the employees of our Bank to be guided for business. Digitalization of Villages
Our Bank has declared Anantapuramu and Kadapa districts of Andhra Pradesh as digitized villages. Subsequently, one village each in Siddipet, Mathura, Dakshina Kannada, Prakasam, Dharawad, Nellore, Ballari district and five villages in Kurnool district have been digitalized. As SLBC convener, we have organized 4 Digi – Dhan melas in
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co – ordination with the government of Karnataka and 1 mela in Lakshwadeep by Union Territory Level Bankers' Committee. Further, under Syndicate Samruddhi Gram Vikas Yojana, our Bank has adopted 26 villages for overall development by allotting ₹2.00 million.
Risk Management
A robust and comprehensive risk management framework is established by our Bank. The Board of Directors assumes the overall responsibility for risk management in the Bank. The Risk Management Committee (RMC) of the Board defines the risk appetite of our Bank. The RMC is ably assisted by Credit Risk Management Committee (CRMC), Asset Liability Management Committee (ALCO) and Operational Risk Management Committee (ORMC). A technology risk management framework is established to manage technology risks in a systematic and consistent manner. Our Bank has developed, implemented and maintained a documented comprehensive risk based program based within the context of the bank’s business activities and risk. It includes an information technology governance framework consisting of IT Strategy Committee, IT Steering Committee, Chief Information Officer (CIO), Information Security Management Committee (ISMC), a Chief Information Security Officer (CISO) assisted by various teams, business continuity teams and an IS audit function to initiate, implement, monitor, maintain and improve the information security within our Bank and to make sure that IT is aligned and delivers value to the business.
Our risk management department functioning at Corporate Office oversees the overall implementation of various risk management initiatives across the Bank, with the assistance of RMCs at regional offices.
Market Risk Management Policy - To ensure that our Bank’s operations are in line with management expectations of return vis-à-vis market risk, it is crucial to define set of principles and processes in place for articulating how our Bank plans to manage market risks it faces, in Trading or Banking Book. Our Bank’s Market Risk Management Policy aims to set out broad outlines of processes by which market risks carried by our Bank shall be managed i.e. identified, measured, controlled and monitored in such a way that risk taken is within the approved risk tolerance limits. The scope of this policy covers market risks arising from our Bank’s “Trading book” and investment portion of “Banking book”.
Operational Risk Policy – Our Bank has framed Operational Risk Management Policy in line with RBI Guidelines for Advanced Approaches for Operational Risk. Other policies which deal with management of operational risk are (a) Information System Security Policy, (b) Business Continuity Planning Policy, (c) Compliance Policy, (d) Outsourcing Policy and (e)Fraud Risk Management Policy. Our Bank has been constantly reviewing legal documents to ensure that legal documents are comprehensive and enforceable. As a measure of risk transfer, Bank has obtained insurance cover for all assets owned by our Bank. It is also ensured that assets financed by our Bank are also adequately insured, as a risk mitigation measure. The operational risk management policy outlines organization structure and detail processes for management of operational risk. Basic objective of policy is to closely integrate operational risk management system in day-to-day risk management processes of our Bank by clearly assigning roles for effectively identifying, assessing, monitoring and controlling /mitigating operational risks and by timely reporting of operational risk exposures including material operational losses. Operational risks in our Bank are managed through comprehensive and well-articulated internal control framework.
Credit Risk
We operate on the basis of a comprehensive lending policy as well as a credit risk management policy which sets out our risk appetite, risk based pricing, risk diversification/ mitigation strategy, prudential limit, substantial exposure ceiling, group exposure ceiling, rating wise exposure ceiling, preferred sector growth strategies, credit approval process, documentation and security standards, and security valuation. These policies are revised periodically based on our corporate goals and business plans.
The stress tests for credit risk are carried out on quarterly basis which cover scenarios such as increase in NPAs, slippage of top borrowers downgrade in counter-party rating, and depletion in collateral. We have also established a comprehensive risk rating/ scoring system which serves as a single point indicator of diverse risk factors on the counterparty to facilitate execution of proper and consistent credit decisions. We have evolved separate risk scoring models for retail loans. We carry out a rating migration analysis in respect of credit exposures of ₹50 million and above on a quarterly basis. We conduct risk ratings of all retail and non-retail loans, which enables us to ensure prudent sanctioning of loans. We have also undertaken various measures to comply with the foundation internal rating based approach within our credit risk management framework.
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Capital Adequacy and Liquidity Coverage
As of March 31, 2017, our capital adequacy ratio under the RBI Basel III Capital Regulations was 12.03% and our Tier I capital adequacy ratio was 9.26% and our Common Equity Tier 1 (“CET1”) capital adequacy ratio was 7.50%. As of September 30, 2017, our capital adequacy ratio under the RBI Basel III Capital Regulations was 12.17% and our Tier I Capital Adequacy Ratio was 9.20% and our Common Equity Tier I (CET1) capital adequacy ratio was 7.23%.
In Fiscal 2017, we augmented our capital position by raising Additional Tier I capital of ₹19,300 million through issuing Basel III compliant additional Tier I bonds, by allotment of Equity shares to Government of India for ₹7,760 million and by internal accruals, i.e. retained earnings amounting to ₹3,589.49 million. In the first two quarters of FY 18, we have further strengthened our capital position by raising Basel III compliant Additional Tier I Bonds of ₹4,500 million and Basel III Compliant Tier II Bonds of ₹5,000 million.
Our liquidity coverage ratio (“LCR”) was 118.53% as of March 31, 2017, compared to the minimum requisite LCR of 80%. In addition, our leverage ratio was 5.17% as of March 31, 2017 and 4.88% as of Sept 30 2017 compared to the requisite RBI indicative ratio of 4.50%.
Information Technology
We have implemented several RBI led technology projects designated to facilitate greater inter-bank connectivity and faster clearing and settlement. We have implemented Real Time Gross Settlement and National Electronic Funds Transfer (NEFT) in all our branches. We have also implemented image based Cheque Truncation System in all the three grids, namely, Delhi, Chennai and Mumbai. As of October 31, 2017, we had installed 206 cash deposit kiosks and more than 385 passbook printing kiosks across the country.
In an effort to increase our operational efficiencies, we have established a lending automation processing system (LAPS) in the form of software that is used for processing our retail loan portfolio. Borrower eligibility is automatically processed by the software based on the income/ repayment capacity in accordance with extant scheme guidelines. The software also monitors the entire life cycle of loan processing, significantly reducing the time taken to process loans, thereby improving our operational efficiencies. Our treasury operations are executed through an integrated treasury management system (ITMS) that supports direct transaction processing in fixed income securities as well as foreign exchange transactions. The software carries out mark to market valuation of the various portfolios of our treasury and records interest and other income of our treasury, which allows us to efficiently prepare our financial statements while maintaining updated financial records on a regular basis. The ITMS software is also linked to dealing platforms to readily capture transactions and simultaneously update our core banking solution platform. An integrated risk management system manages our risk portfolio.
We also focus on alternate delivery channels to effectively serve our customers, including through internet banking, mobile banking, e-wallet and e-passbook services. We also issue RuPay, Mastercard and Visa debit cards. With an aim to leverage technology, we have introduced electronic passbook facilities for customers as a mobile application to view account transactions. We also provide online saving account opening facilities, point- of-sale machines. We have also provided Unified Payment Interface. We use the Aadhaar Enabled Payment System (AEPS), BHIM Aadhar SYNDICATE which allows the bank to authenticate customers using biometric verification. We provide inter-bank electronic fund transfer services via mobile phones, Immediate Mobile Payment Service and NEFT transactions for customers.
Lead Bank Scheme
Our Bank has been assigned with the lead bank responsibilities in 29 districts including the union territory of Lakshadweep. We are also the convener of State Level Banker’s Committee in Karnataka and in the union territory of Lakshadweep.
Our Subsidiary
Syndbank Services Limited (“Syndbank”) was incorporated on January 25, 2006 under the Companies Act, 1956 and a certificate of incorporation was issued by Registrar of Companies, Bengaluru. The CIN of Syndbank is U72300KA2006PLC038305 and it is a wholly owned subsidiary of our Bank. Syndbank was set up to primarily extend back – office services to our Bank, clients and other financial institutions.
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Our Associates
We have sponsored three regional rural banks namely Prathama Bank, Karnataka Vikas Grameena Bank and Andhra Pragathi Grameena Bank which cover 18 districts in 3 states with a network of 1,574 branches across the country. As on September 30, 2017, the total business of the regional rural banks was ₹ 562,000 million with total deposit of ₹ 315,990 million and advance of ₹246,016 million.
Competition
We face competition in all our principal lines of business. Our primary competitors are public sector banks and private sector banks, including foreign banks. Many of our competitors have, over time, built extensive branch networks, providing them with the advantage of a low cost deposit base, and enabling them to lend at competitive rates. In addition, the extensive geographic reach of many of these institutions enables product delivery in remote parts of the country. We seek to compete with these banks through value added services, faster customer service response, quality of service, a growing inter – connected branch network and delivery capabilities based on enhanced technology. Other private sector banks also compete in the corporate banking market on the basis of pricing, efficiency, service delivery and technology. We also face competition from foreign banks, which have traditionally been active in providing trade finance, fee-based services and other short-term financing products to large Indian corporations. Additionally, we also face competition from small finance banks (“SFBs”) and payment banks (“PBs”). For example, Reserve Bank has issued licenses to eight SFBs and six PBs during the year taking the number of licensees to 10 in case of SFBs and seven in case of PBs. Eight SFBs and four PBs have commenced operations.
Insurance
We maintain ongoing insurance policies in respect of our premises, ATMs, office automation, furniture and fixtures, electronic equipment, other valuables and documents. These assets are insured against burglary, theft, fire, perils and terrorism. Additionally, we maintain machinery breakdown policy for insuring the generators, of our Bank. We also maintain the public liability insurance policy and marine cargo open policy. We believe that we maintain all material insurance policies commonly required by a bank in India.
Employees
As of October 31, 2017, we had 35,597 permanent employees. Business per employee of our Bank stood at ₹135.10 million in Fiscal 2017 as compared to ₹146.10 million in Fiscal 2016 and profit per employee in Fiscal 2017 was ₹0.11 million. In addition to basic compensation, our employees are eligible for housing loans at concessional rates, medical reimbursement, group insurance cover and basic retirement benefits, including provident fund and gratuity for eligible employees.
We also provide our employees regular training to enable them to effectively address regulatory and market developments in the banking and financial services industry. We also provide specialized training on certain operational areas such as credit management, foreign exchange related issues, treasury management, risk management, as well as sales and marketing skills, systems and procedures and security. Considering the large scale retirements and developing skills, we have undertaken process of revamping our training to the employees by arranging special executive development programmes.
We have co-sponsored 27 Rural Development and Self Employment Training Institutes across the country to impart training to the candidates. We have also set up a Syndicate Institute of Bank Management (SIBM) training institute at Manipal and seven training centres at Bengaluru, Chennai, Delhi, Ernakulam, Hyderabad, Kolkata and Mumbai are catering to the training needs of our Bank by conducting various types of training programmes for different cadres of employees. To develop team leadership roles and to align organization vision, the performing executives/officers are being deputed to external training programmes conducted by NIBM, IIM, etc.
Properties
Our Head Office and Corporate Office are situated in premises owned by us. As of October 31, 2017, we had a network consisting of 4,006 bank branches, 8 zonal offices, 60 regional offices and 4,100 ATMs spread over all states and union territories, throughout India and our Subsidiary had one office. We sponsored 3 RRBs covering
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18 districts in 3 states with a network of 1574 branches. 97 branches are functioning from the Bank’s owned premises and the remaining 3909 branches are functioning from leased premises.
Corporate Social Responsibility
Our Bank participates in activities aimed at socio – economic transformation of various facets of society and upliftment of the down trodden. We have established Syndicate Rural Development Trust to promote rural entrepreneurship and self-employment among the rural sector. Our Bank has jointly with Karnataka Bank Limited, Karnataka Vikas Grameena Bank and Andhra Pragathi Grameena Bank established Jnana Jyothi FLCC Trust, Manipal to set up financial literacy centres.
Some of the major contributions under corporate social responsibility during the Fiscal 2017 are donation of ambulance, construction of washrooms under Swachh Bharat Abhiyan, contribution to National Sports Development Fund (NSDF), Paralympic Sports Academy of India and Disabled War Veterans, financial assistance towards study expenses of children, providing modern educational aids and education of tribal children.
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BOARD OF DIRECTORS AND SENIOR MANAGEMENT
Board of Directors
The composition of our Board is governed by the provisions of the Banking Acquisition Act and the Nationalised Banks Scheme since all the Directors are appointed / nominated pursuant to Banking Acquisition Act and the Nationalized Banks Scheme. As on date of this Preliminary Placement Document, we have ten directors on our Board. Our Board is headed by the Chairman along with our Managing Director and Chief Executive Officer and two Executive Directors. Other than three whole time directors, we have six non – executive directors on our Board. The Board meets regularly in accordance with the requirements of the Nationalised Banks Scheme, with a minimum of six meetings per year. The Board held 13 meetings during Fiscal 2017.
The non-executive directors who are on the Board of the Bank as on the date of this Preliminary Placement Document are:
One director (who is an official from the Central Government) nominated under Section 9(3)(b) of the Banking Acquisition Act by the Government; One Director nominated under Section 9(3)(g) of the Banking Acquisition Act by the Government; Two directors nominated under Section 9(3)(h) of the Banking Acquisition Act by the Government; and Two directors elected under Section 9(3)(i) of the Banking Acquisition Act by the shareholders (other than the Government).
The current composition of our Board is not in compliance with the provisions of the Banking Acquisition Act since 1 position of an RBI Nominee Director, 1 position of workman employee director, and 1 position of officer employee director, which are to be nominated by the Central Government, have been vacant with effect from June 30, 2017, September 4, 2016 and July 16, 2016 respectively. For further details, see “Risk Factors – We are currently non – compliant with the provisions of Banking Acquisition Act on appointment of workmen employee director, officer’s director nominated by the Central Government and RBI nominee director on our Board.” on page 43.
The following table sets forth details regarding our Board as on the date of this Preliminary Placement Document:
Name, Occupation, Term and Address Age Designation Ajay Vipin Nanavati 61 Non-executive Chairman and Part-time Non-official Director Occupation: Service
Term: For a period of 3 years from August 22, 2017 or until further orders, whichever is earlier.
Address: 191-194, Tower 4, Pebble Bay, 1st Main, RMV Stage 2, Dollars Colony, Bengaluru – 560094, Karnataka
Melwyn Rego 58 Managing Director and Chief Executive Officer Occupation: Service
Term: From July 01, 2017 to August 13, 2018.
Address: House number 3539, Syndicate Bank House, 2nd Cross, 13 “H” Main, HAL 2nd Stage, Indiranagar, Bengaluru -560008, Karnataka.
CH. S. S. Mallikarjuna Rao 55 Executive Director
Occupation: Service
Term: For a period of 3 years with effect from the date of his taking over charge of the post or until further order, whichever is earlier.
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Name, Occupation, Term and Address Age Designation
Address: House no. 521, Dollars Colony, RMV Layout, Bengaluru – 560 094.
S. Krishnan 55 Executive Director
Occupation: Service
Term: For a period of 3 years from with effect from the date of his taking over charge of the post on or after November 1, 2017 or until further orders, whichever is earlier.
Address: House no. 500, 6th Main, 11th Cross, Dollars Colony, RMV Layout, Bengaluru – 560 094
R. N. Dubey 59 Government Nominee Director
Occupation: Service
Term: with effect from January 15, 2016 until further orders
Address: M – 2755, D – II Netaji Nagar, New Delhi, Delhi 110021.
Kamal Kishore Singhal 59 Shareholder Director
Occupation: Service
Term: For a period of 3 years from October 31, 2015 to October 30, 2018
Address: B-1, Jeevan Jyot, Setalwad lane Nepeansea Road, Mumbai – 400026, Maharashtra.
Sunil Vashisht 61 Shareholder Director
Occupation: Service
Term: For a period of 3 years from September 17, 2016 till September 16, 2019
Address: R – 8, Block – R, South Extension Part – 2 , Delhi, New Delhi South Extension II, Andrewsganj, Defence Colony South Delhi, Delhi -110049
Jayant Gokhale 61 Part – time (Non – Official Director)
Occupation: Professional
Term: For a period of 3 years from August 23, 2016 or until further orders, whichever is earlier
Address: Icchhapoorti 79, Anant Patil Road, Gokhale Road, North Dadar, Mumbai – 400028, Maharashtra.
Vandana Kumari Jena 62 Part – time (Non – Official Director)
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Name, Occupation, Term and Address Age Designation Occupation: Service
Term: For a period of 3 years from April 25, 2016 or until further orders, whichever is earlier
Address: House number D3/3458, Vasant Kunj, South west Delhi, Delhi – 110070.
G. Ramesh 61 Part – time (Non – Official Director)
Occupation: Professor
Term: For a period of 3 years from April 25, 2016 or until further orders, whichever is earlier
Address: 428, Indian Institute of Management Bangalore, Bannergatta road, Bengaluru – 560076, Karnataka.
Brief Profiles of the Directors
Ajay Vipin Nanavati, aged 61 years, is our Non-executive Chairman and Part-time Non-official Director. He holds a Bachelor’s degree in Chemical Engineering from Virginia Polytechnic Institute and State University, US and has been on our Board since August 22, 2017.
Melwyn Rego, aged 58 years, is our Managing Director and Chief Executive Officer. He holds a Master’s degree in Business Administration from Symbiosis Institute of Business Management. Prior to joining our Bank, he served as the managing director and chief executive officer of Bank of India and as the deputy managing director of IDBI Bank Limited. He has been on our Board since July 01, 2017.
CH. S. S. Mallikarjuna Rao, aged 55 years, is our Executive Director. He holds a Bachelor’s degree in Science from Sri Venkateswara University and a Bachelor’s degree in Law from Shivaji University, Kolhapur. He is also a certified associate of Indian Institute of Bankers. Prior to joining our Bank he served as general manager in Oriental Bank of Commerce. He has been on our Board since September 15, 2016.
S. Krishnan, aged 55 years, is our Executive Director. He holds a Master’s degree in commerce from Madurai Kamaraj University. He is a qualified Cost Accountant from Institute of Cost and Works Accountants of India and is a certified associate of Indian Institute of Bankers. Prior to joining our Bank, he was the general manager of Indian Bank and has been on our Board since November 01, 2017.
R. N. Dubey, aged 59 years, is our Government Nominee Director. Presently, he is working as a Senior Economic Advisor in the department of Financial Services, Ministry of Finance and has been on our Board since January 15, 2016.
Kamal Kishore Singhal, aged 59 years, is our Shareholder Director. He holds a Bachelor’s degree in Law from Rajasthan University. He is a qualified Company Secretary from the Institute of Company Secretaries of India and is a qualified Chartered Accountant from Institute of Chartered Accountants of India. He has been on our Board since October 31, 2015.
Sunil Vashisht, aged 61 years, is our Shareholder Director. He holds a Bachelor’s degree in commerce from Kurukshetra University and is a qualified Chartered Accountant from Institute of Chartered Accountants of India. He has been on our Board since September 17, 2016.
Jayant Gokhale, aged 61 years, is our Part – time (Non – Official Director). He is a qualified Chartered Accountant from Institute of Chartered Accountants of India and has been on our Board since August 23, 2016.
Vandana Kumari Jena, aged 62 years, is our Part – time (Non – Official Director). She holds a Master’s degree in Arts from the University of Delhi and has been on our Board since April 25, 2016.
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G Ramesh, aged 61 years is our Part – time (Non – Official Director) He holds a Doctorate in Management from IIM Ahmedabad and is presently a professor in IIM, Bengaluru. He has been on our Board since April 25, 2016.
Remuneration and Sitting Fees of our Directors
The following table sets forth the details of remuneration paid by our Bank to the present Executive Directors for the 7 months period ended October 31, 2017 and fiscal years 2017, 2016 and 2015. (₹ in million) Salary and Perquisites Name of Director April 1, 2017 up to Fiscal year Fiscal year Fiscal year October 31, 2017 2017 2016 2015 Melwyn Rego 1.32 - - - CH. S. S. Mallikarjuna Rao 1.33 1.29 - - S. Krishnan* - - - - Total 2.65 1.29 - - *S. Krishnan has been on the Board with effect from November 01, 2017.
As per Government of India’s directive dated July 20, 2015, all the directors other than the Executive Directors, Government Nominee Director and RBI Nominee Director, are paid sitting fees of ₹20,000 for attending each meeting of the Board and ₹10,000 for attending each meeting of the committee of the Board.
The following table sets forth the sitting fees paid by our Bank to our present Directors for the 7 months period ended October 31, 2017 and Fiscal Years 2017, 2016, 2015: (₹ in million) Name of Directors April 1, 2017 up to Fiscal year Fiscal year Fiscal year October 31, 2017 2017 2016 2015 Ajay Vipin Nanavati 0.08 - - - Jayant Gokhale 0.21 0.24 - - Vandana Kumari Jena 0.25 0.39 - - G Ramesh 0.25 0.44 - - Kamal Kishore Singhal 0.20 0.39 0.07 - Sunil Vashisht 0.31 0.21 - - Total 1.30 1.67 0.07 -
Bonus or profit sharing plan of the Directors
Government of India, Ministry of Finance, Department of Financial Services vide notification no. 16/65/2011 – BO – I dated May 29, 2012 has set out broad parameters for performance linked incentives to whole time directors on the boards of public sector banks. Such performance linked incentives are given in accordance with scores obtained as per the performance evaluation matrix prescribed in the notification. The performance evaluation matrix consists of qualitative and quantitative parameters. The evaluation of performance is done by our Remuneration Committee.
Interest of Directors
Our Executive Directors may be deemed to be interested to the extent of salary and remuneration received by them, perquisites and reimbursement of expenses allowed to them in the ordinary course of business in terms of Central Government guidelines and RBI guidelines as may be applicable, to the extent of shares held by them in our Bank and dividend payable to them, if any.
Our Non – Executive Directors may be deemed to be interested to the extent of the sitting fees received by them for attending the meetings of the Board of Directors or committees thereof, reimbursement of expenses allowed in terms of the Government and RBI guidelines, and to the extent of shares held by them in our Bank and dividend payable to them, if any.
Except as disclosed in this Preliminary Placement Document, and except to the extent of shareholding in our Bank, our Directors do not have any financial or other material interest in the Issue and there is no effect of such interest in so far as it is different from the interests of other persons.
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For details of related party transactions entered into by our Bank during the two years preceding the date of this Preliminary Placement Document, the nature of transactions and the cumulative value of transactions, see “Related Party Transactions” in the section “Financial Statements” on page 229.
Corporate Governance
Our Bank has in place adequate processes and systems for maintaining the corporate governance requirements and to ensure compliance with the Act for operational reasons to facilitate the decision making process. Our Bank has been complying with the requirements of corporate governance under applicable law, including the Listing Regulations, to the extent applicable, and RBI guidelines, including constitution of the Board and committees thereof.
Further, our Bank has constituted various committees for the smooth functioning and supervision of various aspects of business such as Special committee for monitoring and follow up on fraud cases, Management Committee, Share Transfer Committee, Human Resources Committee, Customer Service Committee, IT Strategy Committee, Committee for Monitoring Recovery, Committee for Reviewing Decision of Willful Defaulters Identification Committee.
Our key committees constituted in accordance with the relevant provisions of the Listing Regulations and RBI Guidelines include (i) Audit Committee, (ii) Nomination Committee, (iii) Remuneration Committee, (iv) Stakeholders Relationship Committee and v) Risk Management Committee. The constitution and functions of each of these Committees are set out below:
i) Audit Committee
Our Audit Committee is constituted in accordance with RBI guidelines and complies with the provisions of Listing Regulations to the extent that such provisions do not violate the directives and guidelines issued by the RBI. Our Audit Committee was last reconstituted on September 29, 2016 and the present composition is as follows:
Name of the Director Position Held Jayant Gokhale Chairman S. Krishnan Member R. N. Dubey Member Vandana Kumari Jena Member
The functions of our Audit Committee include the following:
Oversight of the operation of the total audit function including organization, operationlisation and quality control of internal audit of the Bank; Review of the internal inspection / audit function, system, quality and effectiveness in terms of the follow – up; Review of inspection reports of specialized and extra-large branches and branches with unsatisfactory ratings; Review of half – yearly reports from the compliance officers appointed in the banks; Follow – up on all the issues raised in the long form audit report (LFAR) and interaction with the external auditors before finalization of the annual / semi – annual financial accounts and reports; Follow – up on all the issues / concerns raised in the inspection reports of RBI. Special focus on the following follow ups – a) inter branch adjustment accounts; b) unreconciled long outstanding entries in inter – bank accounts and nostro accounts; c) arrears in balancing of books at various branches; d) frauds; and e) all other major areas of house – keeping.
ii) Nomination Committee
Our Nomination Committee is constituted in terms of RBI letter DBOD No. BC No. 47/29.391/2007-08 dated November 01, 2007. The Nomination Committee was set up to undertake the process of due diligence to determine
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a ‘fit and proper’ status of existing or future persons to be elected as a director. Our Nomination Committee was last reconstituted on August 28, 2017 and the present composition is as follows:
Name of the Director Position Held Ajay Vipin Nanavati Chairman R N Dubey Member Jayant Gokhale Member Vandana Kumari Jena Member G Ramesh Member
iii) Remuneration Committee
Our Remuneration Committee was constituted in terms of GoI letter No. 20/1/2005-BO.1 dated March 09, 2009 to evaluate the performance of Managing Director and Chief Executive Officer and Executive Directors. Our Remuneration Committee was last reconstituted on August 28, 2017 and the present composition is as follows:
Name of the Director Position Held Ajay Vipin Nanavati, Chairman R N Dubey Member Jayant Gokhale Member Kamal Kishore Singhal. Member
iv) Stakeholders Relationship Committee
Our Stakeholders Relationship Committee has been formed with the objective of specifically looking into redressing shareholders and investor complaints/grievances such as transfer of shares, non-receipt of annual report, non-receipt of dividend warrants etc. Our Stakeholders Relationship Committee was last reconstituted on July 31, 2017 and the present composition is as follows:
Name of the Director Position Held Kamal Kishore Singhal Chairman CH. S. S. Mallikarjuna Rao Member S. Krishnan Member G. Ramesh Member
v) Risk Management Committee
Our Risk Management Committee has been formed in terms of RBI directive for successful implementation of proper risk management systems in our Bank. It devises the policies and strategies for integrated risk management containing various risk exposures of our Bank, including the credit risk. Our Risk Management Committee was last reconstituted on September 19, 2017 and the present composition is as follows:
Name of the Director Position Held Ajay Vipin Nanavati Chairman Melwyn Rego Member CH. S S Mallikarjuna Rao Member S. Krishnan Member G Ramesh Member Kamal Kishore Singhal Member
The functions of our Risk Management Committee includes the follows:
a) Setting risk strategies, risk policies, risk appetite and risk tolerance of the Bank; b) Setting policies and guidelines for measurement/ management/ monitoring/reporting of Credit Risk, Market Risk and Operational Risk. Approving all related policies i.e., Credit policy, Credit Risk Policy, Forex Treasury Policy and Operational guidelines, Domestic Treasury Policy and Operational Guidelines, ALM policy, Operational risk policy, etc.; c) Approving procedures for analysing, measuring and monitoring various risks, which should be sufficiently comprehensive to capture all material risk inherent in the Bank’s business;
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d) Setting up efficient internal control system to promote effective operations, reliable reporting, safeguarding assets and ensuring compliance with risk limits, laws, regulations and approved policies; e) Approving and Reviewing risk limits under credit risks, market risks and operational risks; f) Undertaking on an ongoing basis an assessment of credit risk, market risk, liquidity risk, interest rate risk, equity price risk, foreign exchange risk, operational risk, legal risk, etc.; g) Ensuring robustness of financial models and effectiveness of all systems used to calculate Credit/Market/Operational risks; h) Monitoring compliance with risk parameters by various operating departments and ensure the appropriateness of risk control process, keeping in view the level of risks posed by the bank’s activities; i) Paying prompt attention to identify material weaknesses and take remedial action; j) Ensuring that risk management processes (related to people, systems, operations, limits and controls) satisfy Bank’s policy; k) Co-ordinate and supervise Credit Risk Management Committee (CRMC), Asset- Liability Management Committee (ALCO) and Operational Risk Management Committee (ORMC) through review of minutes of these committees; l) Report to the Board of Directors by placing the minutes of RMC meetings; m) Place any note to the Board for approval / discussion depending upon the importance of the matter. Separate sub-committees, are set up to manage and control various risks: Credit Risk Management Committee (CRMC); Operational Risk Management Committee (ORMC); and Asset Liability.
The following chart represents the structure of our Board and senior management team:*
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Chairman Managing Director & CEO (Sri Ajay Vipin Nanavati) (Sri Melwyn Rego)
Executive Director Executive Director (Sri CH S S Mallikarjuna Rao) (Sri S Krishnan)
Credit Monitoring General Business MSME & RBD & Management of Administration, Strategy, Department Stressed Assets Operations & Planning & MIS Sri Atul Kumar, Sri Jagan Mohan Government Department GM Prasad K, GM Business Dept. Sri H Bhaskar, Sri R Alagirisamy, GM
GM Priority Sector, Corporate Credit Financial
Department Inclusion, SLBC Sri K Jayakumar, NPA Management Mid Corporate & RRB GM & Legal Dept. Credit Sri M Mohan Sri Vinayak M Department Reddy, GM Bhat, GM
Audit, Inspection & Fraud Risk Risk Management Information Management Department Treasury & Technology Sri K
Sri P Madhu, GM Sri U S Majumder, International Srinivasa Rao, GM & CRO Banking Dept. GM & CIO Sri R Ashokan,
GM
Board Secretariat Compliance Central Accounts & Investor Department Dept. Relation Cell Human Sri G Mohan Dr. K Rajeswar, Resources Rao, GM & CFO Sri N DGM & CCO Department
Guruprakash, Sri A Steven Vas, AGM & Board GM Secy. Overseas Branch, London PI, BPR, Digital Sri Ashok Reddy Banking & Nakula, GM & Marketing Dept. CEO Sri M Prasad, GM
*Our other General Managers and Company Secretary and Compliance Officer are considered at par with the Senior Management Team
Senior Managerial Personnel
The following are the Senior Managerial Personnel who are the permanent employees of our Bank:
Atul Kumar, aged 54 years, is our General Manager (Retail Business). He holds a bachelor’s degree in science from Bhagalpur University. He holds a post-graduate diploma in computer applications from Indian Institute of Management, Patna and a post-graduate diploma in management from International Management Institute, New Delhi. He is a certified information systems auditor from the Information Systems Audit and Control Association. He has been the recipient of awards such as Innovative CIO Awards 2015, Elite CISO 2015, and InfoSec Maestros Awards 2016. He has been associated with our Bank since 1998.
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Ashok Reddy Nukala, aged 56 years, is our General Manager (London). He holds a bachelor’s degree in science (agriculture) from Punjabrao Krishi Vidyapeeth (Agricultural University), Akola. He is a certified information systems auditor from the Information Systems Audit and Control Association. He is also an associate of the Indian Institute of Bankers. Prior to joining our Bank, he was working with Andhra Bank and has been associated with our Bank since 1984.
C B L Narasimha Rao, aged 58 years, is our General Manager (Chennai Zonal Office). He holds a bachelors and master’s degree in science (agriculture) from Andhra Pradesh Agricultural University. He is an associate of the Indian Institute of Bankers has been associated with our Bank since 1984.
D Sampath Kumar Chary, aged 56 years, is our General Manager (Lucknow Zonal Office). He holds a bachelors and master’s degree in science (agriculture) from Andhra Pradesh Agriculture University. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1984.
K Manjunath, aged 58 years, is our General Manager Bengaluru Zonal Office. He holds a bachelor’s degree in engineering from the Bangalore University and a master’s degree in management from University of Bombay. Prior to joining our Bank, he was working with Karnataka Electricity Board and as a lecturer at Malnad College of Engineering, Hassan. He has been associated with our Bank since 1984.
S Ravindran, aged 56 years, is our RRB Chairman (Kar Vikas Grameena Bank). He holds a bachelors and master’s degree in science (agriculture) from Tamil Nadu Agricultural University. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1984.
Sathish Kamath, aged 57 years, is our General Manager (Manipal Zonal Office). He holds a master’s degree in commerce from Karnatak University, Dharwad. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1980.
Siva Kumaravel, aged 57 years, is our General Manager (Kolkata Zonal Office). He holds a bachelors and master’s degree in science (agriculture) from the Tamil Nadu Agricultural University. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1984.
S. P. Sharma, aged 58 years, is our General Manager (Hyderabad Zonal Office). He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1978.
T. Ravindranath, aged 59 years, is our General Manager (Mumbai Zonal Office). He holds a bachelor’s degree in science (agriculture) from Andhra Pradesh Agricultural University. He has been associated with our Bank since 1980.
V. Ashokan, aged 59 years, is our General Manager (Delhi Zonal Office). He holds a bachelor’s degree in science (agriculture) from Tamil Nadu Agricultural University. He has been associated with our Bank since 1982.
U. S. Majumder, aged 48 years, is our General Manager (Risk Management and Monetary Department). He holds a bachelors and master’s degree in commerce from the University of Calcutta. He is a cost accountant from the Institute of Cost and Works Accountants of India. He has been associated with our Bank since 2001.
H. Bhaskar, aged 57 years, is our General Manager (Business, Strategy, planning and MIS Department). He holds a bachelor’s degree in science from the University of Mysore. He is an associate of the Indian Institute of Bankers. Prior to joining our Bank, he was working with State Bank of Mysore. He has been associated with our Bank since 1984.
M. Mohan Reddy, aged 59 years, is our General Manager (Priority Sector Credit Department). He holds a bachelor’s degree in science (agriculture) from Panjabrao Krishi Vidyapeeth (Agricultural University), Akola. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1984.
Vinayak M. Bhat, aged 59 years, is our General Manager (Recoveries Department). He holds a bachelor’s degree in science (agriculture) from the University of Agricultural Sciences, Bengaluru along with a master’s degree in commerce from the Karnataka State Open University. He has completed diploma in treasury investment and risk management from the Indian Institute of Banking and Finance. He has been associated with our Bank since 1984.
M. Prasad, aged 57 years, is our General Manager (PI and Business Process Re – engineering Department). He
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holds a bachelors and master’s degree in science (agriculture) from Andhra Pradesh Agriculture University. He has been associated with our Bank since 1984.
K. Srinivas Rao, aged 56 years, is our General Manager (Information Technology Department). He holds a bachelor’s degree in science (agriculture) from Panjabrao Krishi Vidyapeeth (Agricultural University), Akola. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1985.
K. Jayakumar, aged 58 years, is our General Manager (Credit Department). He holds a bachelor’s degree in law and a master’s degree in arts from Sri Venkateswara University. He has been associated with our Bank since 1978.
R Ashokan, aged 58 years, is our General Manager (Treasury and International Banking Department). He holds a bachelor’s degree in commerce and a bachelor’s degree in law from Bangalore University. He is an associate of the Indian Institute of Bankers has been associated with our Bank since 1983.
Jagan Mohan Prahlad K, aged 57 years, is our General Manager (Credit Monitoring and Revenue Department). He holds a bachelor’s degree in science from Andhra University. He also holds a diploma in industrial relations and personnel management. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1984.
Mohan Rao G, aged 57 years, is our General Manager (Audit and Taxation). He holds a bachelor’s degree in science from the University of Madras. He is a certified associate of the Institute of Chartered Accountants in India. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1985.
A Steven Vas, aged 59 years, is our General Manager (Human Resources). He holds a bachelor’s degree in science from the University of Mysore. He has been associated with our Bank since 1979.
Madhu P, aged 59 years, is our General Manager (Inspection Department). He holds a master’s degree in science (agriculture) from Kerala Agricultural University. He is an associate of the Indian Institute of Banking & Finance and has been associated with our Bank since 1985.
R Alagirisamy, aged 59 years, is our General Manager (General Administration Department). He holds a bachelor’s degree in arts from University of Madras and a master’s degree in arts from Madurai Kamaraj University. He is an associate of the Indian Institute of Bankers and has been associated with our Bank since 1979.
Sushant Jain, aged 35 years, is our Company Secretary and Compliance Officer. He is a certified company secretary from the Institute of Company Secretaries of India. He has been associated with our Bank since 2009.
Relationship between the Directors and / or Senior Managerial Personnel
None of our Directors or Senior Managerial Personnel are related to each other.
Shareholding of the Directors and Senior Managerial Personnel
Our Directors are not required to hold any qualification shares of our Bank in terms of the Banking Regulation Act. Except as stated below, none of the Directors or senior managerial personnel hold any Equity Shares in our Bank as on October 31, 2017:
Name of the Shareholder Number of Equity Shares Percentage shareholding Director CH. S S Mallikarjuna Rao 200 Negligible Kamal Kishore Singhal 200 Negligible Sunil Vashisht 299 Negligible Senior Managerial Personnel H. Bhaskar 400 Negligible Siva Kumaravel 794 Negligible T. Ravindranath 60 Negligible C B L Narasimha Rao 251 Negligible R. Alagirisamy 525 Negligible Vinayak M. Bhat 525 Negligible Atul Kumar 500 Negligible
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Name of the Shareholder Number of Equity Shares Percentage shareholding A Steven Vas 1001 Negligible V Ashokan 302 Negligible Madhu P 356 Negligible Ashok Reddy Nukala 25 Negligible S P Sharma 1204 Negligible Sathish Kamath (Jointly held with 26 Negligible Sudha Kamath) K Manjunath 700 Negligible S Ravindran 401 Negligible
Loans to Directors and Senior Managerial Personnel
None of our Directors have availed any loans from us. However, except as mentioned herein below, none of the Senior Managerial Personnel have taken loans from us as on October 31, 2017.
(₹ in millions) Name of Director / Senior Managerial Personnel Net Amount Outstanding T. Ravindranath 4.54 Satish Kamath 0.12 V. Asokan 4.04 R. Ashokan 2.67 Jagan Mohan Prahlad K 2.89 M. Prasad 1.08 D Sampath Kumar Chary 1.10 M. Mohan Reddy 0.07 C B L Narasimha Rao 1.57 S Ravindran 1.53 Siva Kumaravel 2.88 Vinayak M. Bhat 5.97 K Srinivas Rao 4.69 Madhu P 0.81 Mohan Rao G 3.43 Atul Kumar 3.70 Ashok Reddy Nukala 6.63
Bonus or a profit sharing plan to the Senior Managerial Personnel
Our Bank does not have a performance linked bonus or a profit sharing plan for the Senior Managerial Personnel.
Interests of Senior Managerial Personnel
Our Senior Managerial Personnel may be deemed to be interested to the extent of the salary and remuneration received by them, perquisites and reimbursements allowed to them for services rendered by them in the ordinary course of business of our Bank and to the extent of the shares held by them and dividend payable to them in our Bank, if any. Further they may be also interested to the extent of loans taken at preferential rates or otherwise, principal thereof and interest thereon. Other than as disclosed in this Preliminary Placement Document, there were no outstanding transactions other than in the ordinary course of business undertaken by our Bank in which the Senior Managerial Personnel were the interested parties.
Employees’ Stock Option Plan
Our Bank does not have any Employee Stock Option Scheme.
Other Confirmations
Our Directors have not been identified as wilful defaulters by any bank or financial institution or consortium thereof, in accordance with the guidelines on wilful defaulters issued by the RBI.
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Neither our Bank nor any of our Directors have been debarred from accessing capital markets under any order or direction made by SEBI.
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PRINCIPAL SHAREOLDERS
The table below represents the shareholding pattern of our Bank in accordance with Regulation 31 of the Listing Regulations, as on September 30, 2017:
Summary statement holding of Equity Shares
Category of Nos. of No. of fully Total nos. Shareholdin Number of Locked in Number of shareholder shareho paid up shares held g as a % of shares equity lders equity shares total no. of No.(a) As a shares held held shares % of in (calculated total dematerializ as per Share ed form SCRR, s held 1957)As a % (b) of (A+B+C2) (A) Promoter 1 65,95,62,697 65,95,62,697 72.92 23,86,42,350 36.18 65,95,62,697 & Promoter Group (B) Public 2,55,409 24,49,76,741 24,49,76,741 27.08 0.00 22,34,44,098 (C1) Shares 0.00 0.00 underlying DRs (C2) Shares 0.00 0.00 held by Employee Trust (C) Non 0.00 0.00 Promoter - Non Public Grand Total 2,55,410 90,45,39,438 90,45,39,438 100.00 23,86,42,350 26.38 88,30,06,795 Note: C=C1+C2 Grand Total=A+B+C
Statement showing shareholding pattern of the Promoter and Promoter Group
Category of No. No. of fully Total nos. Shareholdi Number of Locked in Number of shareholder of paid up shares held ng as a % shares equity shares shar equity shares of total no. No.(a) As a held in ehol held of shares % of dematerialize ders (calculated total d form as per Shares SCRR, held 1957) As a (b) % of (A+B+C2) A1) Indian 1 65,95,62,697 65,95,62,697 0.00 23,86,42,350 0.00 65,95,62,697 Central 1 65,95,62,697 65,95,62,697 72.92 23,86,42,350 36.18 65,95,62,697 Government/ State Government(s) President of India 1 65,95,62,697 65,95,62,697 72.92 23,86,42,350 36.18 65,95,62,697 Sub Total A1 1 65,95,62,697 65,95,62,697 72.92 23,86,42,350 36.18 65,95,62,697 A2) Foreign 0.00 0.00 0.00 0.00 0.00 0.00 0.00 A=A1+A2 1 65,95,62,697 65,95,62,697 72.92 23,86,42,350 36.18 65,95,62,697
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Statement showing shareholding pattern of the Public shareholders
Category & Name of the No. of No. of fully paid Total nos. Shareholding No of voting Total No. of Locked in Equity shares held in shareholders sharehol up equity shares shares held % calculated rights as a shares dematerialised form(not ders held as per SCRR, % of No. As a % of applicable) 1957 As a % of total (a) total (A+B+C2) voting shares rights held B1) Institutions 0 0 0.00 0.00 Mutual Fund/ 12 48,12,578 48,12,578 0.53 48,12,578 0.53 0.00 48,12,578 Foreign Portfolio Investors 90 4,03,45,647 4,03,45,647 4.46 4,03,45,647 4.46 0.00 4,03,45,647 Financial Institutions / Banks 14 16,26,134 16,26,134 0.18 16,26,134 0.18 0.00 16,22,734
Insurance Companies 14 10,05,96,998 10,05,96,998 11.12 10,05,96,998 11.12 0.00 10,05,96,998
Life Insurance Corporation Of 1 9,70,74,881 9,70,74,881 10.73 9,70,74,881 10.73 0.00 9,70,74,881 India (LIC) Sub Total B1 130 14,73,81,357 14,73,81,357 16.29 14,73,81,357 16.29 0.00 14,73,77,957 B2) Central Government/ State 0 0 0.00 0.00 0.00 Government(s)/ President of India B3) Non-Institutions 0 0 0.00 0.00 0.00 Individual share capital up to ₹ 2,52,173 7,08,66,407 7,08,66,407 7.83 7,08,66,407 7.83 0.00 4,96,78,564 2 lacs Individual share capital in 181 98,18,206 98,18,206 1.09 98,18,206 1.09 0.00 97,92,506 excess of ₹ 2 lakhs. NBFCs registered with RBI 12 45,126 45,126 0.00 45,126 0.00 0.00 45,126 Any Other (specify) 2,913 1,68,65,645 1,68,65,645 1.86 1,68,65,645 1.86 0.00 1,65,49,945 Trusts 14 32,330 32,330 0.00 32,330 0.00 0.00 31,330 Alternative Investment Funds 1 12,35,388 12,35,388 0.14 12,35,388 0.14 0.00 12,35,388 NRI 1,112 18,59,179 18,59,179 0.21 18,59,179 0.21 0.00 16,59,179 Clearing Members 116 9,23,223 9,23,223 0.10 9,23,223 0.10 0.00 9,23,223 NRI – Non – Repat 518 4,50,660 4,50,660 0.05 4,50,660 0.05 0.00 4,50,660 Overseas corporate bodies 1,152 1,23,64,865 1,23,64,865 1.37 1,23,64,865 1.37 0.00 1,22,50,165 Sub Total B3 2,55,279 9,75,95,384 9,75,95,384 10.79 9,75,95,384 10.79 0.00 7,60,66,141 B= B1+B2+B3 2,55,409 24,49,76,741 24,49,76,741 27.08 24,49,76,741 27.08 0.00 22,34,44,098
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REGULATIONS AND POLICIES
The following description is a summary of the relevant laws, regulations and policies as prescribed by the Government of India, and other regulatory bodies that are applicable to our business. The information detailed in this chapter has been obtained from the various legislations, including rules and regulations promulgated by the regulatory bodies that are available in the public domain. The acts, regulations and policies set out below may not be exhaustive and are only intended to provide general information to the investors and are neither designed nor intended to be a substitute for professional advice.
Reserve Bank of India Act, 1934
As per section 2(e) of the Reserve Bank of India Act, 1934, (“RBI Act”) our Bank is a scheduled bank included in the Second Schedule. According to the said act, RBI shall regulate the issue to Bank notes and keeping reserves with a view to securing monetary stability in the country. Scheduled banks like our Bank are required to maintain cash reserves with the RBI. In this regard, RBI may stipulate an average daily balance requirement to be complied with by such banks and may direct that such banks regard a transaction or class of transactions as a liability. Further, RBI may direct any banking company to submit returns for the collection of credit information and may also furnish such information to a banking company upon an application by such company. RBI has the power to impose penalties against any person for inter-alia failure to produce any book, account or other document or furnish any statement, information or particulars which such person is duty-bound to produce or furnish under the RBI Act, or any order, regulation or direction thereunder.
Banking Regulation Act, 1949
Commercial banks in India are required to obtain a license from the RBI to carry on banking business in India. Such license is granted to the bank subject to compliance with certain conditions, as specified in Section 22 of the Banking Regulation Act. The RBI may cancel the license if the bank fails to meet the qualifications or if the bank ceases to carry on banking operations in India.
The Banking Regulation Act confers power on the RBI (in consultation with the Central Government) to supersede the Board of Directors of a banking company for a period not exceeding a total of 12 months, in public interest or for preventing the affairs of the bank from being conducted in a manner detrimental to the interest of the depositors or for securing the proper management of any banking company.
We have obtained a banking license from the RBI and are regulated and supervised by the RBI. The RBI requires us to furnish statements, information and certain details relating to our business and it has issued guidelines for commercial banks on recognition of income, classification of assets, valuation of investments, maintenance of capital adequacy, provisioning for non-performing and restructured assets, and periodical submission of reports etc.. The RBI has set up a Board for Financial Supervision (“BFS”), under the chairmanship of the Governor of the RBI. The primary objective of the BFS is to undertake consolidated supervision of the financial sector comprising commercial banks, financial institutions and non-banking finance companies. The appointment of the auditors of the banks is subject to the approval of the RBI. The RBI can direct a special audit in the interest of the depositors or in the public interest.
When a bank fails to or omits to comply with the provisions of the Banking Regulation Act, and directions issued thereunder or wilfully makes a statement which is false in any material particularly, knowing it to be false or wilfully omits to make a material statement, the RBI may impose fine within prescribed limits on banks and its officers or punish with imprisonment for the term provided in the law, on the basis of the nature of the violation.
Regulatory reporting and examination procedures
The RBI is empowered under the Banking Regulation Act to call for certain information from a bank as well as to inspect a bank. The RBI monitors prudential parameters at quarterly intervals. RBI has introduced a system of off-site monitoring and surveillance, with the primary objective of monitoring the financial condition of banks in between on-site examinations. To this end and to enable off-site monitoring and surveillance by the RBI, banks are required to report to the RBI on various aspects of their business. This system of off-site monitoring and surveillance has been migrated to a secured Online Returns Filing System (“ORFS”) in which data collection and consolidation has been streamlined. The RBI also conducts on-site super vision of selected branches with respect of their general operations and foreign exchange related transactions. The RBI also conducts periodical on-site
inspections on matters relating to the bank's portfolio, risk management systems, internal controls, credit allocation and regulatory compliance, at intervals ranging from one to three years.
Maintenance of records
The Banking Regulation Act requires banks to maintain books and records in the manner specified therein and file the same with the Registrar of Companies on a periodic basis. The provisions for production of documents and availability of records for inspection by shareholders as stipulated under the Companies Act and the rules thereunder would apply to our Bank as in the case of any company. The “Reserve Bank of India (Know Your Customer (KYC)) Directions, 2016” issued by the RBI dated February 25, 2016 also provide for certain records to be maintained for a minimum period of five years from the business relationships have ended.
Regulations relating to the opening of branches
Section 23 of the Banking Regulation Act, requires banks to obtain prior approval of the RBI to open new branches, in or outside India. The RBI issues instructions and guidelines to banks on branch authorization from time to time, including guidelines allowing banking companies to open new branches, banking outlets, closure, shifting of branches/ extension counters/ ATMs etc. As per the “Relaxations in Branch Authorization Policy” dated August 6, 2015 read along with circulars dated September 19, 2013, October 21, 2013, and January 14, 2016, domestic scheduled commercial banks may open branches in Tier 1 to Tier 6 centres without prior permission from RBI. Further, such banks may also shift, merge or close all branches except rural branches and sole semi-urban branches, subject to certain conditions laid down by RBI. Rural branches and sole semi-urban branches can also be closed subject to certain conditions.
Additionally in terms of the revised Branch Authorisation Policy released by the RBI dated May 18, 2017, banks are required to open at least 25 percent of the total number of branches opened during a financial year in unbanked rural (Tier 5 and Tier 6) centres.
Further, RBI has permitted installation of off-site ATMs at centres identified by banks, without the need for permission from the RBI in each case. Banks are also required to periodically report details of the branches opened/closed/shifted to RBI.
Capital adequacy requirements
The RBI has issued guidelines for implementation of the Prudential Guidelines on Capital Adequacy and Market Discipline - New Capital Adequacy Framework (“NCAF”), to ensure that the capital held by a bank is commensurate with the bank’s overall risk profile. The NCAF prescribes the minimum Capital to Risk – weighted Assets Ratio (“CRAR”) to be maintained by banks.
The Basel Committee on Banking Supervision, with a view to improve the banking sectors’ ability to absorb shocks arising from financial and economic stress, implemented Basel III framework. Further, the Basel III capital regulations in India were made applicable to banks from April 1, 2013 and are required to be fully implemented by March 31, 2019 in a phase-wise manner.
Prudential norms on Income Recognition, Asset Classification and provisioning pertaining to Advances
The RBI vide a master circular dated July 1, 2015 formulated prudential norms on income recognition, asset classification and provisioning pertaining to advances so as to ensure transparency and consistency in the published accounts of the banks. These norms were introduced, in a phased manner, to be in line with international practices and as per the recommendations made by the committee on the Financial System. The norms state that the policy on Income Recognition has to be objective and should be based on record of recovery. Internationally, the income from non performing assets (“NPA”) is not recognised on accrual basis and is recorded only when it is actually received. Under these norms, banks cannot charge and take to income account interest on any NPA.
In order to ensure uniform and consistent application of the norms, the classification of the assets of the bank has to be done on the basis of objective criteria. The provisioning has to be made on the basis of the classification of assets, availability of security and their realisable value. Banks are required to classify the NPA depending upon the period for which the asset has become non performing and the realisabilty of dues i.e. substandard assets, doubtful assets and loss assets. The norms further state that it is the primary responsibility of the bank management and statutory auditors to make adequate provisions for diminution in the value of loan assets, investment or other
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assets. In addition, the prudential norms give out guidelines as to restructuring of advances and the general principles for the same. Liquidity coverage ratio
The Basel III framework on ‘Liquidity Standards’ includes ‘Liquidity Coverage Ratio’, ‘Net Stable Funding Ratio’ and liquidity risk monitoring tools. With effect from January 1, 2015, the RBI introduced a requirement for commercial banks in India to maintain certain levels of Liquidity Coverage Ratio (“LCR”). The LCR measures a bank’s ability to manage and survive for 30 days under a significant stress scenario that combines idiosyncratic as well as market-wide shock situations that would result in accelerated withdrawal of deposits from retail as well as wholesale depositors, partial loss of secured funding, increase in collateral requirements and unscheduled drawdown of unused credit lines. At least 80% of the net cash outflows in the next 30 days, computed with these assumptions of a stressed scenario, are required to be supported by High Quality Liquid Assets (“HQLA”). Banks are required to maintain LCR of 80% with effect from January 1, 2017, which will increase to 90% with effect from January 1, 2018, and to 100% with effect from January 1, 2019.
The Basel Committee on Banking Supervision issued the final rules on ‘Net Stable Funding Ratio’ in October 2014. RBI has issued draft guidelines on NSFR on May 28, 2015. RBI proposes to make NSFR applicable to banks in India from January 1, 2018.
Loan Loss Provisions and Non-Performing Assets
The RBI has issued guidelines on income recognition, asset classification, provisioning standards and the valuation of investments, which are revised from time to time. In terms of the guidelines issued by RBI, banks are required to classify an asset into non-performing when it ceases to generate income for the bank. Once the account has been classified as a non-performing asset, the unrealized interest and other income already debited to the account is derecognized and further interest is not recognized or credited to the income account unless collected in cash. The RBI, pursuant to its Master Circular on Prudential Norms issued on July 1, 2015, classifies NPAs into. (i) sub-standard assets;(ii) doubtful assets; and (iii) loss assets based on the period for which the asset has remained non-performing. These norms also specify provisioning requirements specific to the classification of the assets.
The RBI issued revised “Prudential Guidelines on Restructuring of Advances by Banks and Financial Institutions” on May 30, 2013. Pursuant to those guidelines, from April 1, 2015 advances that are restructured (other than due to extension in date of commencement of commercial operation (DCCO) of Infrastructure and non-Infrastructure project) would be immediately classified as sub-standard on restructuring and the nonperforming assets, upon restructuring, would continue to have the same asset classification as prior to restructuring and slip into further lower asset classification categories as per the extant asset classification norms with reference to the pre restructuring repayment schedule. The general provision required on restructured standard accounts stands increased to 5 percent from March 31, 2016.
The RBI has issued a notification dated April 18, 2017 encouraging all scheduled commercial banks to make additional provisions in respect of advances to stressed sectors of the economy. The banks are required to put in place a Board– approved policy for making provisions for standard assets at rates higher than the regulatory minimum, based on evaluation of risk and stress in various sectors. This policy shall be reviewed on a quarterly basis. The RBI has issued guidelines on sale of stressed assets by banks on September 1, 2016 to improve the framework governing sale of such assets by banks to Securitisation Companies / Reconstruction Companies /other banks/ Non Banking Financial Companies /Financial Institutions etc. The guidelines further state that in order to make sure that sale of stressed assets by banks actually result in ‘true sale’ of assets, banks’ investment in Security Receipts (“SRs”) backed by their own stressed assets would be progressively restricted. With effect from April 1, 2017, where the investment in a bank in SRs backed by stressed assets sold by it, under an asset securitisation is more than 50 % of the SRs backed by its sold assets and issued under that securitisation, provisioning requirement on SRs will be higher of the provisioning rate required in terms of net asset value declared by the SCs/ RCs and provisioning rate as applicable to the underlying loans, assuming that the loans notionally continued in the books of the bank. With effect from April 1, 2018, this threshold of 50 % will be reduced to 10 %.
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Corporate debt restructuring mechanism (“CDR system”)
The corporate debt restructuring mechanism (“CDR”) provides for an institutional mechanism to restructure corporate debt. The objective of this framework is to ensure a timely and transparent mechanism for the restructuring of corporate debts of viable entities, particularly entities that are affected by certain internal and external factors and aims to minimize the losses to creditors and other stakeholders through an orderly and co – ordinated restructuring program.
Scheme for Sustainable Structuring of Stressed Assets (“Scheme for Stressed Assets”)
The RBI has formulated the Scheme for Stressed Assets as an optional framework for the resolution of large stressed accounts. The Scheme for Stressed Assets envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and unsustainable debt.
The Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (“RDDBFI Act”)
The RDDBFI Act was enacted for adjudication of disputes pertaining to debts due to banks and financial institutions exceeding ₹10 million. The RDDBFI Act provides for the constitution of debt recovery tribunals, before which banks and financial institutions may file applications for recovery of debts. Further, no court or other authority, except the Supreme Court or a High Court exercising jurisdiction under Articles 226 and 227 of the Constitution of India, shall have, or is entitled to exercise, any jurisdiction, powers or authority in relation to the aforementioned matter. The tribunals may pass orders for directions including inter- alia recovery of such dues by the bank as may be deemed fit along with a recovery certificate to such effect from the presiding officer of the respective tribunal; attachment of the secured properties towards the dues to the bank: injunctive orders restraining the debtors from alienating, transferring or disposing of such secured properties; appointment of receivers and/or local commissioners with respect to such secured properties and distribution of proceeds from sale of such secured properties towards dues. Pursuant to the recovery certificate being issued, the recovery officer of the respective debt recovery tribunal shall effectuate the final orders of the debt recovery tribunal in the application. Unless such final orders of the debt recovery tribunal have been passed with the consent of the parties to an application, an appeal may be filed against such final orders of the debt recovery tribunal before the debt recovery appellate tribunal, which is the appellate authority constituted under the RDDBFI Act.
Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 as amended by the Enforcement of Security Interest and Recovery of Debts Laws and Miscellaneous Provisions (Amendment) Act, 2016 (“SARFAESI Act”)
The SARFAESI Act provides for sale of financial assets by banks and financial institutions to asset reconstruction companies. The SARFAESI Act provides for the enforcement of security interests and rights of the secured creditor in case of default without the intervention of the courts. Under the provisions of the SARFAESI Act, a secured creditor can recover dues from its borrowers by taking any of the measures as provided therein. Rights, with respect to the enforcement of security interest, under the SARFAESI Act cannot be enforced unless the account of the borrower has been classified as an NPA in the books of account of the secured creditor in accordance with the directions or guidelines issued by the RBI or any other applicable regulatory authority. The secured creditors must serve a 60-day notice on the borrower demanding repayment of the amount due and specifying the borrower’s assets over which the bank proposes to exercise remedies. If the borrower still fails to pay, the secured creditors, on expiry of the 60-day notice period, can: (i) take possession of the secured assets; (ii) take over the management of the secured assets along with the right to transfer by way of lease, assignment or sale of the secured assets; (iii) appoint any person to manage the secured assets; and (iv) require any person who has acquired any of the secured assets from the borrower to pay amounts necessary to satisfy the debt. The security interests covered by the SARFAESI Act are security interests over immovable and movable property, existing or future receivables, certain intangible assets (such as know-how, patents, copyrights, trademarks, licenses, franchises) and any debt or any right to receive payment of money, or any receivable, present or future, and in which security interest has been created. Security interests over ships and aircraft, any statutory lien, a pledge of movables, any conditional sale, hire purchase or lease or any other contract in which no security interest is created, rights of unpaid sellers, any property not liable to attachment, security interest for securing repayment of less than ₹100,000, agricultural land and any case where the amount due is less that 20.00% of the principal amount and interest are not enforceable under the SARFAESI Act. In the event that the secured creditor is unable to recover the entire sum due by exercise of the remedies under the SARFAESI Act in relation to the assets secured, such secured creditor may approach the Debt Recovery Tribunal or the relevant court for the recovery of the balance
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amounts. A secured creditor may also simultaneously pursue its remedies under the SARFAESI Act as well as the Debt Recovery Tribunal.
The SARFAESI Act also provides for sale of financial assets by banks and financial institutions to asset reconstruction companies. The financial assets can be sold to asset reconstruction companies in accordance with the extant guidelines and prudential norms issues by the RBI. As per extant guidelines, a bank may sell only those assets classified as an SMA-2 or an NPA to asset reconstruction companies. The banks may not sell financial assets at a contingent price with an agreement to bear a part of the shortfall on ultimate realization. However, banks may sell specific financial assets with an agreement to share in any surplus realised by the asset reconstruction company in the future. Consideration for the sale may be in the form of cash, bonds or debentures or security receipts or pass through or pay through certificates issued by the asset reconstruction company or trusts set up by it to acquire the financial assets. As an incentive for the early sale of NPAs, the RBI has allowed banks to spread over any shortfall, if the sale value is lower than the NBV, over a period of two years. This facility of spreading over the shortfall would however be available for NPAs sold up to March 31, 2015 and will be subject to necessary disclosures in the Notes to Account in Annual Financial Statements of the banks.
Priority sector lending
The Master Direction -Reserve Bank of India (Priority Sector Lending – Targets and Classification) Directions, 2016 dated July 7, 2016 sets out the broad policy in relation to priority sector lending. In accordance with these directions, the priority sectors for all scheduled banks include (i) agriculture; (ii) micro, small and medium enterprises; (iii) export credit; (iv) education; (v) housing; (vi) social infrastructure; (vii) renewable energy and(viii) others. Further, it also prescribes the details of eligible activities under the aforesaid categories. Under the Master Direction, the priority sector lending targets are linked to adjusted net bank credit as defined (“ANBC”) or credit equivalent amount of off-balance sheet exposure, whichever is higher, as on the corresponding date of the preceding year. Currently, the total priority sector lending target for domestic banks is 40% of ANBC or credit equivalent amount of off-balance sheet exposure, whichever is higher. It also prescribed sub-targets for small and marginal farmers, micro-enterprises and weaker sections.
Exposure norms
As a prudent measure aimed at better risk management and avoidance of concentration of credit risk, the RBI has prescribed credit exposure limits for banks and long-term lending institutions in respect of their lending to individual borrowers and to all companies in a single group (or sponsor group). The RBI has prescribed exposure ceiling for a single borrower as 15 % of capital funds and group exposure limit as 40% of capital funds comprising of Tier I and Tier II capital. Relaxations are permitted in exceptional circumstances and lending to infrastructure sector. The total exposure to a single NBFC and NBFC-AFC (Asset Financing Companies) and Infrastructure Finance Companies should not exceed 10%, 15% and 15% respectively, of the bank's capital funds as per its last audited balance sheet. The limit may be increased by another 5% provided that the excess exposure is on account of funds on-lent to the infrastructure sector.
The aggregate exposure of a bank to the capital markets in all forms (both fund based and non-fund based) should not exceed 40% of its net worth, on both standalone and consolidated basis as on March 31 of the previous year. Within this overall ceiling, the bank’s direct investment in shares, convertible bonds / debentures, units of equity- oriented mutual funds and all exposures to Venture Capital Funds (VCFs) (both registered and unregistered) should not exceed 20 % of its net worth on both standalone and consolidated basis.
The RBI on August 25, 2016 released guidelines on Enhancing Credit Supply for Large Borrowers through market Mechanism with the objective of mitigating the risk posed to the banking system on account of large aggregate lending to a single corporate. As per the framework, exposure to corporate with large borrowing from banking system beyond the prescribed limit would attract additional provisions and higher risk weights.
Further on December 1, 2016, the RBI released guidelines on Large Exposures Framework to align the exposure norms for Indian banks with the Basel Committee on Banking Supervision standards. The framework shall be effective from April 1, 2019. The sum of all the exposure values of a bank to a single counterparty or to a group of connected counterparties must not be higher than 20 percent and 25 percent of our Tier 1 capital fulfilling the criteria defined in Master Circular on Basel III – Capital Regulation / Master Direction on ‘Basel III Capital Regulations’ as per the last audited balance sheet as against the current norm of 15% and 40% of the Total Capital funds Limits.
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Short-selling of Government securities
As per the “Master Circular on Prudential Norms for Classification, Valuation and Operation of Investment Portfolio by Banks” dated July 1, 2015, banks and primary dealers are allowed to undertake short sale of Government dated securities, subject to the short position being covered within a maximum period of three months, including the day of trade and in accordance with the conditions prescribed, therein. Further, such short positions shall be covered only by outright purchase of an equivalent amount of the same security or through a long position in the ‘when issued’ market or allotment in primary auction.
Regulations relating to interest rates on deposits and advances
The RBI has issued “Reserve Bank of India - Interest rate on Deposits Directions, 2016” dated March 3, 2016. Scheduled commercial banks are required to pay interest on deposits of money (other than current account deposits accepted by them or renewed by them in their domestic, ordinary non-resident, non-resident (external) accounts and foreign currency (non-resident) accounts (banks) scheme deposit account), subject to certain conditions prescribed by the directions. Further, certain additional restrictions have been prescribed to determine interest rates for savings deposits and term deposits. Additionally, interest rates offered by banks on NRO and NRE deposits cannot be higher than those offered by them on comparable domestic rupee term deposits.
Deposit insurance
Demand and time deposits of up to ₹1,00,000 accepted by Indian banks (other than primary co-operative societies) have to be mandatorily insured with the Deposit Insurance and Credit Guarantee Corporation, a wholly-owned subsidiary of the RBI. Banks are required to pay the insurance premium for the eligible amount to the Deposit Insurance and Credit Guarantee Corporation on a half yearly basis. The cost of the insurance premium cannot be passed on to the customer.
Prevention of Money Laundering Act, 2002 (“PMLA”)
In order to prevent money laundering activities, the Government enacted the PMLA which seeks to prevent money laundering and to provide for confiscation of property derived from, or involved in money laundering, and for incidental matters connected therewith. PMLA and the Rules notified there under came into force with effect from July 1, 2005. Section 12 of the PMLA casts certain obligations on, inter alia, banking companies in regard to preservation and reporting of customer account information. The RBI has advised all banks to go through the provisions of the PMLA and the rules notified thereunder and to take all steps considered necessary to ensure compliance with the requirements of Section 12 of the PMLA.
Regulations relating to Know Your Customer (“KYC”) and anti-money laundering (“AML”)
The RBI has issued several guidelines on Know Your Customer (KYC) and Anti Money Laundering (AML) inter alia containing rules on (i) customer identification and acceptance; (ii) monitoring of transactions; and (iii) vigilance at the time of opening accounts for new customers to prevent misuse of the banking system. Banks have been advised to ensure that systems and procedures are in place to control financial frauds, identify money laundering and suspicious activities and monitor high value cash transactions. Such monitoring includes cross border transactions. Further, banks have also been advised to ensure that adequate policies are formulated and adopted in relation to KYC and AML.
Legal Reserve Requirements
i. Cash Reserve Ratio
Each bank is required to maintain CRR on a daily basis which is a specified percentage of total of Demand and Time Liabilities (“DTL”) adjusted for the exemptions, by way of a balance in a current account with the RBI. At present the required CRR is 4%. The RBI does not pay any interest on CRR balances. The CRR has to be maintained on an average basis for a fortnightly period and the minimum daily maintenance of the CRR should be 90% effective from the fortnight beginning April 16, 2016. The RBI may impose penal interest at the rate of 3% above the bank rate on the amount by which the reserve falls short of the CRR required to be maintained on a particular day and if the shortfall continues further the penal interest charged shall be increased to a rate of 5% above the bank rate in respect of each subsequent day during which the default continues. In case of default in the
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maintenance of CRR on average basis during the fortnight, penal interest will be recovered as envisaged under Section 42(3) of the RBI Act.
ii. Statutory Liquidity Ratio
Each Bank is required to maintain a SLR, a specified percentage of total DTL by way of liquid assets like cash, gold or approved unencumbered securities. The percentage of this liquidity ratio is fixed by the RBI from time to time, pursuant to Section 24 of the Banking Regulation Act. At present, the RBI requires banks to maintain SLR of 20%.
Regulations relating to Authorised Dealers (“ADs”) for foreign exchange and cross-border business transactions
The foreign exchange and cross border transactions undertaken by banks, both on its own account and also on behalf of customers, are subject to the provisions of the Foreign Exchange Management Act and rules/ regulations/ directions and notifications issued thereunder. The bank should monitor all non-resident accounts and cross border transactions to prevent money laundering. RBI may impose penalty for contravention of Foreign Exchange Management Act and regulations/ notifications issued there under, or for contravention of any condition subject to which an authorisation is issued by the RBI.
The “Master Direction on Risk Management and Interbank Dealings”, dated July 5, 2016, states that all categories of overseas foreign currency borrowings of AD Category I banks, including existing external commercial borrowings and loans or overdrafts from their head office, overseas branches and correspondents outside India, international/ multilateral financial institutions or any other entity as permitted by RBI and overdrafts in nostro accounts (not adjusted within five days), shall not exceed 100.00% of their unimpaired Tier I capital or U.S. Dollar 10 million (or its equivalent), whichever is higher. Overseas borrowings for the purpose of financing export credit, subordinated debt placed by head offices of foreign banks with their branches in India as Tier II capital, capital funds raised/augmented by the issue of innovative perpetual debt instruments and any other overseas borrowings with the specific approval of the RBI would continue to be outside the limit of 100.00% of their unimpaired Tier I capital or U.S. Dollar 10 million (or its equivalent), whichever is higher.
Secrecy obligations
A bank’s obligations relating to maintaining secrecy arise out of Section 13 of the Banking Companies (Acquisition and Transfer of Undertakings) Act, 1980 (for public sector banks specifically) and common law principles governing its relationship with its customers. Further, according to the Master Circular on Customer Service dated July 1, 2015, wherever banks desire to collect information for purposes other than KYC requirements, it should not form part of the account opening form. Subject to certain exceptions, a bank cannot disclose any information to third parties. Further, the RBI may, in the public interest, publish the information obtained from the bank.
Ownership restrictions
Section 12 of the Banking Regulation Act prohibits any shareholder of the bank from exercising voting rights on poll in excess of 10% of total voting rights of all the shareholders of the bank. However, the RBI may increase this ceiling to 26% in a phased manner. At present this is capped by RBI at 15%.
RBI guidelines prescribe a policy framework for the ownership and governance of private sector banks. As per the extant guidelines any individual / entity who wishes to acquire shareholding of 5% or more but less than 10% of the total paid up capital of the Bank needs to obtain prior approval of the RBI. Thereafter prior approval is also needed to go beyond 10% of the total paid-up capital. The RBI, when considering whether to grant an approval, may take into account all matters that it considers relevant to the application, including ensuring that shareholders whose aggregate holdings are above specified thresholds meet fit and proper criteria prescribed by RBI.
Regulation of financial services provided by banks
The Reserve Bank of India (Financial Services provided by Banks) Directions, 2016 dated May 26, 2016 require banks to comply with certain restrictions while undertaking financial services including in relation to risk mitigation measures, limits on investment that can be made by banks in companies undertaking financial services.
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The directions also provide for specific regulations for certain financial services such as, inter alia, setting of an infrastructure debt fund, underwriting activities, mutual fund business, insurance business.
Guidelines on management of intra-group transactions and exposures
The RBI issued the “Guidelines on Management of Intra-Group Transactions and Exposures on February 11, 2014”. Pursuant to the said guidelines, RBI has prescribed quantitative limits on financial intra-group transactions and exposures and prudential measures for the non-financial intra-group transactions and exposures. The objective of these guidelines is to ensure that banks engage in intra-group transactions and exposures in safe and sound manner in order to contain concentration and contagion risks arising out of such transactions.
Capital and provisioning requirements for exposures to entities with unhedged foreign currency exposure
RBI issued a circular relating to “Capital and Provisioning Requirements for Exposures to entities with unhedged Foreign Currency Exposure” on January 15, 2014. Pursuant to these guidelines, RBI has introduced incremental provisioning and capital requirements for bank exposures to entities with unhedged foreign currency exposures. The circular also lays down the method of calculating the incremental provisioning and capital requirements. The banks will be required to calculate the incremental provisioning and capital requirements at least on a quarterly basis.
Framework for revitalizing distressed assets in the economy
The RBI issued the Framework for Revitalising Distressed Assets in the Economy on January 30, 2014 (the “Framework”) which lays down the corrective action plan that will incentivise early identification of problem cases, timely restructuring of accounts which are considered to be viable, and prompt steps taken by banks for recovery or sale of unviable accounts. This framework became fully effective from April 1, 2014. In this regard, the RBI issued the Framework for Revitalising Distressed Assets in the Economy - Guidelines on Joint Lenders’ Forum and Corrective Action Plan (“CAP”) detailing guidelines on formation of the joint lenders’ forum and adoption of the corrective action plan for operationalising the aforementioned framework. The RBI, by its circular dated May 5, 2017, clarified that the CAP may include resolution by way of flexible structuring of project loans, change in ownership under strategic debt restructuring or scheme for sustainable restructuring of stressed assets. The RBI, further reiterated that banks must scrupulously adhere to the timelines prescribed in the Framework for finalising and implementing of CAP and any noncompliance with the directions of the RBI with regards to the Framework shall attract monetary penalties on the concerned banks under the provisions of the Banking Regulation Act. Following the notification dated February 25, 2016, the prudential guidelines on revitalising stressed assets in the economy, have been partially revised in relation to inter alia, strategic debt restructuring scheme, joint lenders’ forum empowered group, restructuring of advances, structuring of project loans and sale of financial assets to securitisation company/ reconstruction company.
Central Repository of Large Common Exposures
The RBI has introduced Central Repository of Large Common Exposures (CRILC) repository of large credits and share information with the banks for enabling them to be aware of building leverage and common exposures. All banks are required to report to RBI, on a quarterly basis, exposures of individuals and entities having exposure (both fund and non-fund based) of more than ₹50 million and also details of customers with outstanding current account balance (debit or credit) of ₹10 million and above. In addition, RBI guidelines require banks to report, among others, the SMA 2 (Principal or interest payment overdue between 61-90 days) status of the borrower to the CRILC. Any non-submission of or wrong reporting in these returns attracts penalties as specified in the Banking Regulation Act 1949.
The Banking Ombudsman Scheme, 2006
The Banking Ombudsman Scheme, 2006 (“Ombudsman Scheme”) provides the extent and scope of the authority and functions of the Banking Ombudsman for redressal of grievances against deficiency in banking services, concerning loans and advances and other specified matters. On February 3, 2009, the Ombudsman Scheme was amended to provide for revised procedures for redressal of grievances by a complainant under the Ombudsman Scheme. The Banking Ombudsman receives and considers complaints relating to the deficiencies in banking or other services filed on the grounds mentioned in clause 8 and facilitates their satisfaction or settlement by agreement or through conciliation and mediation between the bank concerned and the aggrieved parties or by passing an Award in accordance with the Ombudsman Scheme.
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Declaration of dividend by banks
The payment of dividends by banks is subject to restrictions under the Banking Regulation Act. Section 15(1) of the Banking Regulation Act states that no banking company may pay any dividend on its shares until all its capitalised expenses (including preliminary expenses, organisation expenses, share-selling commissions, brokerage, amounts of losses incurred and any other item of expenditure not represented by tangible assets) have been completely written off. In addition, Section 17(1) of the Banking Regulation Act requires every banking company to create a reserve fund and, out of the balance of the profit of each year as disclosed in the profit and loss account, transfer a sum equivalent to not less than 20% of such profit to the reserve fund before declaring any dividend.
Further, in May 2005, the RBI issued guidelines on Declaration of Dividends by Banks, which prescribed certain conditions for declaration of dividends by banks.
Regulations relating to banking business
The Banking Regulation Act defined the forms of business in a banking company may engage. RBI has issued various guidelines/directions/circulars governing the functioning of banks in India. These guidelines include but are not limited to, governance, deposits, loans, investments, risk management, operations, audit, compliance, housekeeping etc.
Regulations governing International Operations and IFSC Banking Units
Our Bank’s international operations are governed by regulations in the countries in which our Bank has a presence and also certain guidelines issued by Reserve Bank of India. RBI has formulated a scheme for setting up of IFSC Banking Units (“IBUs”). All banks in the public sector and private sector authorized to deal in foreign exchange are eligible to set up one IBU in each IFSC with the prior permission of the RBI. The IBU is required to maintain the minimum prescribed regulatory capital on an on-going basis as per regulations amended from time to time. All prudential norms applicable to overseas branches of Indian Bank are applicable to IBUs. All transaction of IBUs shall be in currency other than INR. IBUs may undertake transactions with resident (for deployment of funds) and non-resident (for both raising of resources and deployment of funds) entities other than individuals including HNIs and retail customers.
Consolidated Supervision Guidelines
In 2003, the RBI issued guidelines for consolidated accounting and consolidated supervision for banks. Under the guidelines, banks are required to prepare consolidated financial statements, submit consolidated prudential returns among other things.
Classification and Reporting of Fraud Cases
The RBI issued a master direction on July 1, 2016 on the classification and reporting of fraud cases. The fraud cases have been classified into misappropriation and criminal breach of trust, fraudulent encashment through forged instruments, manipulation of books of account or through fictitious accounts and conversion of property, unauthorised credit facilities extended for reward or for illegal gratification, negligence and cash shortages, cheating and forgery, fraudulent transactions involving in foreign exchange and any other type of fraud not coming under the specific heads as above. The banks are required to submit fraud related data to RBI through various returns/ reports.
Marginal Cost of Funds based Lending Rate (MCLR)
Pursuant to the notification issued by RBI dated December 17, 2015, all rupee loans sanctioned and credit limits renewed with effect from April 1, 2016 are to be priced with reference to the MCLR which is the internal benchmark for such purposes. MCLR comprises of: (a) marginal cost of funds; (b) negative carry on account of CRR (c) operating costs (d) tenor premium.
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Liquidity Adjustment Facility
Liquidity Adjustment Facility (“LAF”) is a facility extended by RBI to scheduled commercial banks (excluding Regional Rural Banks) and primary dealers to avail of liquidity in case of requirement or park excess funds with the RBI in case of excess liquidity on an overnight basis against government securities as collateral. Therefore, LAF enables liquidity management on a day to day basis and enables RBI to transmit interest rate signals to the market. The operations of LAF are conducted by way of repurchase agreements with RBI being the counter-party to all the transactions. The interest rate in LAF is fixed by the RBI from time to time. LAF is an important tool of monetary policy.
Collateralized Borrowing and Lending Obligation
Collateralized Borrowing and Lending Obligation (“CBLO”) is a money market instrument operated by the Clearing Corporation of India Limited (“CCIL”), for entities that either have no access to inter-bank call money market or have restricted access due to ceilings on call borrowing and lending transactions. By participating in the CBLO market, CCIL members can borrow or lend funds against the collateral of eligible securities. Eligible securities include central government securities including treasury bills, and such other securities as specified by CCIL from time to time. Borrowers under CBLO have to deposit the required amount of eligible securities with the CCIL based on which CCIL fixes the borrowing limits. CCIL matches the borrowing and lending orders submitted by the members and notifies them. While the securities held as collateral are in custody of the CCIL, the beneficial interest of the lender on the securities is recognized through proper documentation.
Submission of credit information
According to the Credit Information Companies Regulation Act, 2005 (“CICRA”), a “credit institution” means a banking company and every credit institution shall become a member of at least one Credit Information Company (“CIC”). A CIC, may, by notice in writing, require its members to furnish such credit information as it may deem necessary. Further, RBI, through its notification dated January 15, 2015, has directed that: a) all credit institutions shall become members of all CICs and submit data, including historical data, to them, b) credit institutions shall keep the credit information collected/maintained by them, updated regularly on a monthly basis or at such shorter intervals as may be mutually agreed upon between the credit institution and the CIC under the CICRA.
Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970
The act applies to acquisition and transfer of undertaking of banking companies which shall not include foreign companies. It caters to the developmental needs of the economy in conformity with the national policy and objectives for the connected thereto. The Act paved way for constitution of corresponding new banks and established our Bank, i.e. Syndicate Bank from the earlier corresponding The Syndicate Bank as per Schedule I. The acts vide section 6, schedule II paid an amount of ₹2300 million compensation was paid to our Bank.
This act provided for the constitution of Board of Directors, which vests with the Central Government after consultation with the RBI. The Central Government gives timely directions on discharge of banking functions and matters of policy involving public interest. However, the power for appointment of Additional Directors to the bank shall vest entirely with RBI.
Nationalized Banks (Management and Miscellaneous Provisions) Scheme, 1970
The scheme is in exercise of Power of Central Government under Banking Companies (Acquisition and Transfer of Undertakings) Act, 1970. The scheme provides for the constitution of Board by the Central Government. The director of the bank shall be nominated by the central government from the panel of three employees furnished by the representative union. The manner of retirement of the nominee director by rotation basis, appointment of chairman, Managing Director is listed out in the scheme. A whole-time director can hold office for a period of maximum five years and shall then be eligible for reappointment. The Central Government shall exercise the power for remuneration, termination, salary, allowances after due consultation with the RBI. A director is disqualified for being appointed, if he has at any time been adjudicated as insolvent/suspended payment/compounded its creditors; or found to be of unsound mind and stands so declared by a competent Court; or has been convicted by a Criminal Court of an offence which involves moral turpitude holds any office of profit under any nationalized bank or State Bank of India constituted under sub-section (1) of section 3 of the State Bank of India Act, 1955 or subsidiary bank as per the mentioned act. The meeting of the board shall be held at least six times in a year and at least once in each quarter. Notice of at least 15 days to be given and such notice shall be
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sent to all the directors at the specified address. This Act provides that the Board of a nationalized bank must form the following committees:
i) Management Committee; ii) Credit Approval Committee; iii) Advisory Committees; and iv) Regional Consultative Committees
The paid-up capital of nationalized bank can be increased from time to time. The Board in consultation with RBI and previous sanction of Central Government transfer a specified amount of reserve fund or make a contribution of any specified amount to the paid-up capital of Nationalized Bank or raise the paid-up capital by public issue of shares in manner prescribed, however Central Government shall at all times hold not less than 51% of paid-up capital of the bank.
Issue of Long Term Bonds by Banks - Financing of Infrastructure and Affordable Housing
In order to ensure adequate credit flow to infrastructure sector also towards the affordable housing needs of the country RBI issued guidelines on issue of long term bonds by banks on June 1, 2015. Banks can issue long-term bonds with a minimum maturity of seven years to raise resources for lending to (i) long term projects in infrastructure sub-sectors, and (ii) affordable housing. As a regulatory incentive these bonds exempted from computation of net demand and time liabilities and would therefore not be subjected to CRR / SLR requirements subject to certain conditions. Eligible bonds will also get exemption in computation of Adjusted Net Bank Credit (ANBC) for the purpose of Priority Sector Lending (PSL).
Banker Books Evidence Act, 1891
The act amends the law of evidence with respect to Banker’s Books. It applies to any company or corporation carrying on the business activity. A certified copy of any entries in the banker’s books shall in all legal proceeding be received as the prima facie evidence of the existence of such entry and shall be admitted as evidence in matters, transactions and accounts pertaining to the books. The officer of the bank cannot be compelled to produce the entries in any case where he is not a party to the case. The books can be made available for inspection to any party on application made to the court. The Judge or the court may order the bank to make available such copies to the party.
Lending to Micro, Small & Medium Enterprises (MSME) Sector
With a view to enlarge our credit exposure in the MSME sector, we have initiated several sector friendly measures at highly competitive interest rates based on the enactment of the government on Micro, Small & Medium Enterprises Development Act, 2006. The RBI has from time to time, issued a number of guidelines / instructions / circulars / directives to banks in the matters relating to lending to Micro, Small & Medium Enterprises Sector. Given the importance of the micro, small and medium enterprises for India’s economy, the financing needs of this sector will continue to command special attention. The provisions shall apply to every Scheduled Commercial Bank (excluding Regional Rural Banks (RRBs)) licensed to operate in India by the RBI.
A typical role for banks in mature markets is to originate loans and then distribute them to other willing players. In this context, it is necessary to overcome the post-crisis securitization-stigma. In view of the inherent heterogeneity of MSMEs and relatively constrained availability of credit information, it may be more difficult to achieve a necessary level of disintermediation in the case of MSME financing. A centralized and shared database of MSMEs capturing all available data resolving inherent information asymmetry problems associated with MSME lending, enabling efficiency in assessing the creditworthiness of the underlying MSME loans in securitization.
The Insolvency and Bankruptcy Code, 2016
The Insolvency and Bankruptcy Code, 2016 (the “I&BC”) was enacted and notified in the Gazette of India on May 5, 2016. The I&BC became a single law that deals with insolvency and bankruptcy - consolidating and amending various laws relating to reorganization and insolvency resolution. The I&BC covers individuals, companies, limited liability partnerships, partnership firms and other legal entities as may be notified, except the financial service providers and is aimed at creating an overarching framework to make it easier for sick companies
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to either wind up their businesses or engineer a turnaround, and for investors to exit. The salient features of I&BC are enumerated herein under:
The I&BC provides for a clear, coherent and speedy process for early identification of financial distress and resolution of companies and limited liability entities if the underlying business is found to be viable. Under the provisions of the I&BC, insolvency resolution can be triggered at the first instance of default and the process of insolvency resolution has to be completed within stipulated time limit.
For individuals, the I&BC provides for two distinct processes, namely – “Fresh Start” and “Insolvency Resolution” and lays down the eligibility criteria for the debtor for the purposes of making an application for a “fresh start” process.
The National Company Law Tribunal and the Debt Recovery Tribunal are designated as the adjudicating authorities for corporate persons and firms and individuals, respectively, for resolution of insolvency, liquidation and bankruptcy.
The I&BC also provides for establishing the Insolvency and Bankruptcy Board of India for regulation of insolvency professionals, insolvency professional agencies and information utilities.
Insolvency professionals will assist in the completion of insolvency resolution, liquidation and bankruptcy proceedings envisaged in the I&BC. Insolvency professional agencies will develop professional standards, code of ethics and will be first level regulators for insolvency professionals leading to the development of a competitive industry for such professionals. Information utilities will collect, collate, authenticate and disseminate financial information to facilitate such proceedings.
The I&BC also proposes to establish the Insolvency and Bankruptcy Fund of India for the purposes of insolvency resolution, liquidation and bankruptcy of persons.
Pursuant to the Banking Regulation (Amendment) Bill, 2017 promulgated to come into force on May 4, 2017, the Central Government has been granted the power to authorise the RBI to issue directions to one or more banking companies to initiate insolvency resolution process in respect of a “default” under the I&BC. The RBI has also been granted powers to issue directions to banks for resolution of stressed assets.
Indian Accounting Standards (“Ind AS”)
On February 16, 2015, the Ministry of Corporate Affairs (“MCA”), Government of India has notified the Companies (Indian Accounting Standards) Rules, 2015. On January 18, 2016 MCA outlined the roadmap for implementation of Indian Accounting Standards for banks, non-banking financial companies, select All India Term Lending and Refinancing Institutions and insurance entities. Pursuant to this, RBI has issued guidelines on February 11, 2016 on implementation of Indian Accounting Standards (Ind AS). All scheduled commercial banks to follow Indian Accounting Standards (Ind AS) for financial statements for accounting periods beginning from April 1, 2018 onwards. Ind AS would be applicable to both standalone financial statements and consolidated financial statement. These accounting standards could impact the financials of banks in many ways but not limited to the way the fair value is computed on financial assets and liabilities, the way financial assets and liabilities are classified and measured in resulting in volatility in profit or loss and equity, accounting of interest income, the credit loss provisioning which would be based on expected credit losses rather than percentage based provisioning etc.
Insurance
The insurance sector in India is governed by the Insurance Act, 1938 and the regulations, guidelines and circulars issued by The Insurance Regulatory and Development Authority (“IRDAI”) from time to time. These govern the matters relating to the insurance sector in India, such as opening of new places of business, accounts and balance sheet, audit of financial statements, actuarial report and abstract, insurance intermediaries and agents, investment of funds, valuation of assets and liabilities, solvency margins, restrictions on dividends, limits on expenses of management. IRDAI has been established under the Insurance Regulatory and Development Authority Act, 1999, to regulate, promote and ensure orderly growth of the insurance sector in India. Separately, any entity which intends to carry on the life insurance business in India must receive a certificate of registration, in accordance with regulations promulgated by IRDAI. Some of the important areas in which the regulations are issued by IRDA which affect our operations are as under:
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Policy and procedure for issuing e-policies KYC guidelines Guidelines on investment of premium received Customer grievance redressal mechanism and method of charging the customers Guidelines on claims settlements
Insurance Regulatory and Development Authority of India (Registration of Corporate Agents) Regulations, 2015 (“IRDAI Registration Guidelines”)
IRDAI Registration Guidelines came into force on April 1, 2016. These guidelines cover registration of corporate agents for the purpose of soliciting, procuring and servicing of insurance business of life insurers, general insurers and health insurers during the validity of certificate of registration as follows:
a. corporate agent (life), may have arrangements with a maximum of three life insurers to solicit, procure and service their insurance products;
b. corporate agent (general), may have arrangements with a maximum of three general insurers to solicit, procure and service their insurance products. Further, the corporate agent (general) shall solicit, procure and service retail lines of general insurance products and commercial lines of such insurers having a total sum insured not exceeding ₹50 million per risk for all insurances combined;
c. corporate agent (health), may have arrangements with a maximum of three health insurers to solicit, procure and service their insurance products;
d. in the case of corporate agent (composite), the conditions as specified in clauses (a) to (c) shall apply;
e. any change in the arrangement with the insurance companies shall be done only with the prior approval of the Authority and with suitable arrangements for servicing existing policyholders.
The guidelines further stipulate that a corporate agent who has been issued a licence prior to the commencement of these guidelines may seek a fresh certificate of registration to work as a corporate agent by applying to the authority in accordance with the procedure specified by the authority in this behalf. Further, every corporate agent shall file, at the time of seeking registration, with IRDAI, a Board or its equivalent approved policy on the manner of soliciting and servicing insurance products. The policy shall address the manner of adopting the philosophy of open architecture and going forward in implementing the same. The policy, inter alia, shall include the approach to be followed by the corporate agent in having single or multiple tie – ups, the partners in the tie – ups, the business mix, the type of products sold, grievance redressal mechanism and reporting requirements.
Depositories Act, 1996
The Depositories Act, 1996 was enacted to provide for regulation of depositories in securities and for matters connected therewith or incidental thereto and came into force September 20, 1995. The Act establishes the depository system in India by providing for setting up of one or more depositories to enable the investors to hold securities in non-physical form (known as dematerialized form) and to affect transfer of securities by way of book entries in accounts maintained by the depository. Every depository is required to be registered with the Securities and Exchange Board of India (SEBI) and will have to obtain a Certificate for commencement of business on fulfillment of the prescribed conditions. Investors opting to join the system are required to be registered with one or more participants who are the agents for the depository. Investors have the choice of continuing with the existing securities certificates or opt for the depository mode.
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ISSUE PROCEDURE
The following is a summary intended to present a general outline of the procedure relating to the application, payment, Allocation and Allotment of the Equity Shares to be issued pursuant to the Issue. The procedure followed in the Issue may differ from the one mentioned below, and investors are presumed to have apprised themselves of the same from our Bank or the Book Running Lead Managers. Investor is advised to inform themselves of any restrictions or limitations that may be applicable to them. See the sections “Selling Restrictions” and “Transfer Restrictions” on pages 199 and 205, respectively.
Qualified Institutions Placement
The Issue is being made to QIBs in reliance upon Chapter VIII of the ICDR Regulations, through the mechanism of a QIP. Under Chapter VIII of the ICDR Regulations, a listed company in India may issue equity shares, fully convertible debentures, partly convertible debentures, non-convertible debentures with warrants or any other security (other than warrants), which are convertible into or exchangeable with equity shares of the issuer at a later date in a qualified institutions placement to QIBs, provided that:
a special resolution approving the QIP has been passed by our Bank’s shareholders. Such special resolution must specify (a) that the allotment of the Equity Shares is proposed to be made pursuant to the qualified institutions placement, and (b) the relevant date;
equity shares of the same class of such issuer, which are proposed to be allotted through the QIP, are listed on a recognised stock exchange in India having nation-wide trading terminals for a period of at least one year prior to the date of issuance of notice to its shareholders for convening the meeting to pass the above- mentioned special resolution;
the aggregate of the proposed issue and all previous QIPs made by the issuer in the same fiscal year does not exceed five times the net worth (as defined in the ICDR Regulations) of the issuer as per the audited balance sheet of the previous fiscal year;
the issuer shall be in compliance with the minimum public shareholding requirements set out in the SCRR;
the issuer shall have completed allotments with respect to any prior offer or invitation made by the issuer or shall have withdrawn or abandoned any prior invitation or offer made by the issuer;
the offering of securities by issue of public advertisements or utilisation of any media, marketing or distribution channels or agents to inform the public about the issue is prohibited
At least 10% of the equity shares issued to QIBs must be allotted to Mutual Funds, provided that, if this portion or any part thereof to be allotted to mutual funds remains unsubscribed, it may be allotted to other QIBs.
Prospective purchasers will be deemed to have represented to us and the Book Running Lead Managers in order to participate in the Issue that they are outside the United States and purchasing the Equity Shares in an offshore transaction in accordance with Regulation S under the Securities Act and the applicable laws of the jurisdictions where those offers and sales are made.
Bidders are not allowed to withdraw their Bids after the Issue Closing Date.
Additionally, there is a minimum pricing requirement under the ICDR Regulations. The Floor Price shall not be less than the average of the weekly high and low of the closing prices of the Equity Shares of the same class of the Equity Shares of the Issuer quoted on the stock exchange during the two weeks preceding the Relevant Date. However, a discount of up to 5.00% of the Floor Price is permitted in accordance with the provisions of the ICDR Regulations.
The “Relevant Date” referred to above, for Floor Price, will be the date of the meeting in which the Board of Directors or the Committee thereof decides to open the Issue and “stock exchange” means any of the recognised stock exchanges in India on which the equity shares of the issuer of the same class are listed and on which the highest trading volume in such equity shares has been recorded during the two weeks immediately preceding the Relevant Date.
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Our Bank has applied for and received the in-principle approval of the Stock Exchanges under regulation 28(1) of the Listing Regulations for the listing of the proposed Equity Shares on the Stock Exchanges. Our Bank has also delivered a copy of this Preliminary Placement Document and will deliver a copy of the Placement Document to the Stock Exchanges and hosted on our Bank’s website.
The Issue has been authorized by (i) the Board of Directors pursuant to a resolution passed on May 29, 2017, and (ii) the shareholders, pursuant to a resolution passed at the AGM held on June 23, 2017. The Bank has also obtained all consents, approvals and authorizations required in connection with this Issue, including RBI recommendation dated July 20, 2017 and the approval from the GoI pursuant to a letter dated July 31, 2017.
The Equity Shares will be Allotted within 12 months from the date of the shareholders’ resolution approving the QIP and within 60 days from the date of receipt of subscription money from the successful Bidders. For details of refund of application money, please see the section “Issue Procedure – Pricing and Allocation – Designated Date and Allotment of Equity Shares” on page 187.
The Equity Shares issued pursuant to the QIP must be issued on the basis of this Preliminary Placement Document and the Placement Document that shall contain all material information including the information specified in Schedule XVIII of the ICDR Regulations. This Preliminary Placement Document and the Placement Document are private documents provided to only select investors through serially numbered copies and are required to be placed on the website of the concerned Stock Exchanges and of our Bank with a disclaimer to the effect that it is in connection with an issue to QIBs and no offer is being made to the public or to any other category of investors.
The minimum number of allottees for each QIP shall not be less than:
two, where the issue size is less than or equal to ₹2,500 million; and
five, where the issue size is greater than ₹2,500 million
No single allottee shall be allotted more than 50.00% of the issue size.
QIBs that belong to the same group or that are under common control shall be deemed to be a single allottee. For details of what constitutes “same group” or “common control”, please see the section “Issue Procedure— Application Process—Application Form” on page 187.
Securities allotted to a QIB pursuant to a QIP shall not be sold for a period of one year from the date of allotment except on the floor of a recognised stock exchange in India. Allotments made to VCFs and AIFs in the Issue are subject to the rules and regulations that are applicable to them, including in relation to lock-in requirements.
The Equity Shares offered hereby have not been and will not be registered under the U.S. Securities Act or any state securities laws in the United States and may not be offered, sold or delivered within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable state securities laws. Accordingly, the Equity Shares are being offered and sold outside the United States in offshore transactions in reliance on Regulation S under the U.S. Securities Act and the applicable laws of the jurisdictions where those offers and sales are made. For a description of certain restrictions on transfer of the Equity Shares, please see “Transfer Restrictions” on page 205.
The Equity Shares have not been and will not be registered, listed or otherwise qualified in any other jurisdiction outside India and may not be offered or sold, and Bids may not be made by persons in any such jurisdiction, except in compliance with the applicable laws of such jurisdiction.
Issue Procedure
1. Our Bank and the BRLMs shall circulate serially numbered copies of the Preliminary Placement Document and the serially numbered Application Form, either in electronic or physical form, to the QIBs and the Application Form has been specifically addressed to such QIBs. Our Bank shall maintain complete records of eligible QIBs to whom the Preliminary Placement Document and the serially numbered Application Form have been dispatched.
2. Unless a serially numbered Preliminary Placement Document along with the serially numbered Application Form is addressed to a particular QIB, no invitation to subscribe shall be deemed to have
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been made to such QIB. Even if such documentation were to come into the possession of any person other than the intended recipient, no offer or invitation to offer shall be deemed to have been made to such person and any application that does not comply with this requirement shall be treated as invalid.
3. QIBs may submit an Application Form, including any revisions thereof, during the Bidding Period to the BRLMs.
4. QIBs will be required to indicate the following in the Application Form:
Complete official name of the QIB to whom Equity Shares are to be Allotted;
number of Equity Shares Bid for;
price at which they are agreeable to subscribe for the Equity Shares, provided that QIBs may also indicate that they are agreeable to submit a Bid at “Cut-off Price”; which shall be any price as may be determined by our Bank in consultation with the Book Running Lead Managers at or above the Floor Price. Our Bank may offer a discount of not more than 5.00% discount on the Floor Price in terms of Regulation 85 of the ICDR Regulations;
details of the depository participant account to which the Equity Shares should be credited; and
a representation that it is outside the United States, at the time it places its buy order for the Equity Shares, it is acquiring the Equity Shares in an offshore transaction in reliance on Regulation S and it has agreed to certain other representations set forth in “Representations by Investors” and “Transfer Restrictions” on pages 4 and 205, respectively and certain other representations made in the Application Form.
Note: Each sub-account of an FII other than a sub-account which is a foreign corporate or a foreign individual will be considered as an individual QIB and separate Application Forms would be required from each such sub-account for submitting Bids. FIIs or sub-accounts of FIIs are required to indicate SEBI FII/ sub-account registration number in the Application Form.
5. Once a duly completed Application Form is submitted by a QIB, such Application Form constitutes an irrevocable offer and cannot be withdrawn after the Issue Closing Date. The Issue Closing Date shall be notified to the Stock Exchanges and the QIBs shall be deemed to have been given notice of such date after receipt of the Application Form.
6. The Bids made by asset management companies or custodians of Mutual Funds shall specifically state the names of the concerned schemes for which the Bids are made. In case of a Mutual Fund, a separate Bid can be made in respect of each scheme of the Mutual Fund registered with SEBI. Upon receipt of the duly completed Application Form, after the Issue Closing Date, our Bank shall determine the final terms, including the Issue Price of the Equity Shares to be issued pursuant to the Issue in consultation with the Book Running Lead Managers. Upon determination of the final terms of the Equity Shares, the Book Running Lead Managers will send the serially numbered CAN along with the Placement Document, either in electronic form or through physical delivery, to the QIBs who have been Allocated the Equity Shares pursuant to this Issue. The dispatch of a CAN shall be deemed a valid, binding and irrevocable contract for the QIBs to pay the entire Issue Price for all the Equity Shares Allocated to such QIB. The CAN shall contain details such as the number of Equity Shares Allocated to the QIB and payment instructions including the details of the amounts payable by the QIB for Allotment of the Equity Shares in its name and the Pay-In Date as applicable to the respective QIB. Please note that the Allocation will be at the absolute discretion of our Bank and will be based on the recommendation of the Book Running Lead Managers and may not be proportionate to the number of Equity Shares applied for.
7. Pursuant to receiving a CAN, each successful Bidder shall be required to make the payment of the entire application monies for the Equity Shares indicated in the CAN at the Issue Price, only through electronic transfer to our Bank’s designated bank account by the Pay-In Date as specified in the CAN sent to the respective successful Bidder. No payment shall be made by successful Bidder in cash. Please note that any payment of application money for the Equity Shares shall be made from the bank accounts of the relevant QIBs applying for the Equity Shares. Pending Allotment, all monies received for subscription of the Equity Shares shall be kept by our Bank in a separate bank account with a scheduled bank and shall be utilised only for the purposes permitted under the applicable laws and mentioned in this Preliminary Placement Document.
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8. Upon receipt of the application monies from the QIBs, Board of Directors of our Bank or the Committee thereof shall approve Allotment of the Equity Shares as per the details in the CANs sent to the successful Bidder.
9. After passing the resolution for Allotment and prior to crediting the Equity Shares into the depository participant accounts of the successful Bidders, our Bank shall apply to the Stock Exchanges for listing approvals. Our Bank will intimate to the Stock Exchanges the details of the Allotment.
10. After receipt of the listing approvals of the Stock Exchanges, our Bank shall credit the Equity Shares Allotted pursuant to this Issue into the Depository Participant accounts of the respective Allottees.
11. Our Bank will then apply for the final trading approvals from the Stock Exchanges.
12. The Equity Shares that would have been credited to the beneficiary account with the Depository Participant of the QIBs shall be eligible for trading on the Stock Exchanges only upon the receipt of final listing and trading approvals from the Stock Exchanges.
13. Upon receipt of intimation of final listing and trading approval from the Stock Exchanges, our Bank shall inform the Allottees of the receipt of such approval. Our Bank and the Book Running Lead Managers shall not be responsible for any delay or non-receipt of the communication of the final trading and listing permissions from the Stock Exchanges or any loss arising from such delay or non-receipt. Final listing and trading approvals granted by the Stock Exchanges will also be placed on their respective websites. QIBs are advised to apprise themselves of the status of the receipt of the permissions from the Stock Exchanges or our Bank.
Qualified Institutional Buyers
Only QIBs as defined in Regulation 2(1)(zd) of the ICDR Regulations and not otherwise excluded pursuant to Regulation 86(1)(b) of the ICDR Regulations are eligible to invest. Currently, under Regulation 2(1) (zd) of the ICDR Regulations, a QIB means:
alternate investment funds registered with SEBI Eligible FPIs; foreign venture capital investors registered with SEBI; insurance companies registered with Insurance Regulatory and Development Authority; insurance funds set up and managed by army, navy or air force of the Union of India; insurance funds set up and managed by the Department of Posts, India; multilateral and bilateral development financial institutions; Mutual Funds registered with SEBI; pension funds with minimum corpus of ₹250 million; provident funds with minimum corpus of ₹250 million; public financial institutions as defined in Section 4A of the Companies Act, 1956 (Section 2(72) of the Companies Act, 2013); scheduled commercial banks; state industrial development corporations; the National Investment Fund set up by resolution no. F. No. 2/3/2005-DDII dated November 23, 2005 of the Government published in the Gazette of India; foreign venture capital funds registered with SEBI; and Systematically important non – banking financial companies (being a non-banking financial companies registered with the RBI and having a net worth of more than ₹5,000 million as per the last audited financial statements).
Eligible FPI are permitted to participate in the Issue subject to compliance with all applicable laws and such that the shareholding of the Foreign Portfolio Investors does not exceed specified limits as prescribed under applicable laws in this regard.
In terms of the SEBI FPI Regulations, purchase of equity shares of each company by a single FPI or an investor group shall be below 10.00% of the total issued capital of such company.
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In terms of the SEBI FPI Regulations, any FPI who holds a valid certificate of registration shall be deemed to be an FPI.
The issue of the Equity Shares to a single FPI (together with any Equity Shares already held by the FPI) should not exceed 10.00% of the post-Issue paid up capital of the Bank.
Allotments made to FVCIs and VCFs in the Issue are subject to the rules and regulations that are applicable to each of them respectively.
All non – resident QIBs shall ensure that the investment amount is paid as per RBI Notification no. FEMA 20(R)/2017 – RB dated November 7, 2017.
Under Regulation 86(1)(b) of the ICDR Regulations, no allotment shall be made pursuant to the Issue, either directly or indirectly, to our Promoter or any person related to our Promoter, except for such eligible QIBs who are public sector enterprises. Eligible QIBs, other than in case of eligible QIBs who are Public Sector Enterprise who have all or any of the following rights shall be deemed to be a person related to Promoter:
rights under a shareholders’ agreement or voting agreement entered into with the Promoter or persons related to the Promoter; veto rights; or right to appoint any nominee director on the Board.
Provided, however, that a QIB which does not hold any shares in our Bank and which has acquired the aforesaid rights in the capacity of a lender shall not be deemed to be related to the Promoter.
Our Bank and the Book Running Lead Managers are not liable for any amendment or modification or change to applicable laws or regulations, which may occur after the date of this Preliminary Placement Document. QIBs are advised to make their independent investigations and satisfy themselves that they are eligible to apply. QIBs are advised to ensure that any single application from them does not exceed the investment limits or maximum number of Equity Shares that can be held by them under applicable law or regulation or as specified in this Preliminary Placement Document. Further, QIBs are required to satisfy themselves that their Bids would not eventually result in triggering a tender offer under the Takeover Code.
A minimum of 10.00% of the Equity Shares offered in the Issue shall be Allotted to Mutual Funds. If no Mutual Fund is agreeable to take up the minimum portion as specified above, such minimum portion or part thereof may be Allotted to other QIBs.
Note: Affiliates or associates of the Book Running Lead Managers who are QIBs may participate in the Issue in compliance with applicable laws.
Application Process
Application Form
QIBs shall only use the serially numbered Application Forms (which are addressed to them) supplied by our Bank and the Book Running Lead Managers in either electronic form or by physical delivery for the purpose of making a Bid (including revision of a Bid) in terms of this Preliminary Placement Document.
By making a Bid (including the revision thereof) for Equity Shares through Application Forms and pursuant to the terms of this Preliminary Placement Document, the QIB will be deemed to have made the following representations and warranties and the representations, warranties and agreements made under the sections “Notice to Investors”, “Representations by Investors”, “Selling Restrictions” and “Transfer Restrictions” on pages 2, 4, 199 and 205, respectively:
1. The QIB confirms that it is a QIB in terms of Regulation 2(1)(zd) of the ICDR Regulations and is not excluded under Regulation 86 of the ICDR Regulations, except public sector undertakings, has a valid and existing registration under the applicable laws in India and is eligible to participate in this Issue;
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2. The QIB confirms that it is not a Promoter and is not a person related to the Promoter, either directly or indirectly and its Application Form does not directly or indirectly represent the Promoter or Promoter Group or persons related to the Promoter, except for such eligible QIBs who are Public Sector Enterprises;
3. The QIB confirms that it has no rights under a shareholders’ agreement or voting agreement with the Promoter or persons related to the Promoter, neither veto rights nor rights to appoint any nominee director on the Board other than those acquired in the capacity of a lender which shall not be deemed to be a person related to the Promoter;
4. The QIB acknowledges that it has no right to withdraw its Application after the Issue Closing Date;
5. The QIB confirms that if Equity Shares are Allotted through this Issue, it shall not, for a period of one year from Allotment, sell such Equity Shares otherwise than on the Stock Exchanges;
6. The QIB confirms that the QIB is eligible to Bid and hold Equity Shares so Allotted. The QIB further confirms that the holding of the QIB, does not and shall not, exceed the level permissible as per any applicable regulations applicable to the QIB;
7. The QIB confirms that its Bids would not eventually result in triggering a tender offer under the Takeover Code;
8. The QIB confirms that to the best of its knowledge and belief, the number of Equity Shares Allotted to it pursuant to the Issue, together with other Allottees that belong to the same group or are under common control, shall not exceed 50.00% of the Issue Size. For the purposes of this representation:
The expression ‘belong to the same group’ shall derive meaning from the concept of ‘companies under the same group’ as provided in sub-section (11) of Section 372 of the Companies Act, 1956; and
‘Control’ shall have the same meaning as is assigned to it by Regulation 2(1)(e) of the Takeover Code;
9. The QIBs shall not undertake any trade in the Equity Shares credited to its beneficiary account maintained with the Depository Participant until such time that the final listing and trading approvals for the Equity Shares are issued by the Stock Exchanges.
10. The QIB represents that it is outside the United States and is acquiring the Equity Shares in an offshore transaction in reliance on Regulation S, and is not our affiliate or a person acting on behalf of such an affiliate and it has agreed to certain other representations set forth in the Application Form.
11. The QIBs are aware of, acknowledge, represent and agree to the following in respect of their shareholding in our Bank that if their aggregate holding in the paid-up share capital of our Bank, whether direct or indirect, beneficial or otherwise held by them, their relatives, associate enterprises and persons acting in concert exceeds 5.00% of the total paid-up share capital of our Bank or entitles them to exercise 5.00% or more of the total voting rights of our Bank, they shall seek prior approval of the RBI, in accordance with the terms of the Reserve Bank of India (Prior approval for acquisition of shares or voting rights in private sector banks) Directions, 2015.
It has read and understood, and by making a Bid for the Equity Shares through the Application Forms and pursuant to the terms of this Preliminary Placement Document, will be deemed to have made the representations, warranties and agreements made under the sections “Notice to Investors”, “Representations by Investors”, “Selling Restrictions” and “Transfer Restrictions” of this Preliminary Placement Document.
QIBS MUST PROVIDE THEIR DEPOSITORY ACCOUNT DETAILS, PAN, THEIR DEPOSITORY PARTICIPANT’S NAME, DEPOSITORY PARTICIPANT IDENTIFICATION NUMBER AND BENEFICIARY ACCOUNT NUMBER IN THE APPLICATION FORM. QIBS MUST ENSURE THAT THE NAME GIVEN IN THE APPLICATION FORM IS EXACTLY THE SAME AS THE NAME IN WHICH THE DEPOSITORY ACCOUNT IS HELD. FOR THIS PURPOSE, ELIGIBLE SUB ACCOUNTS OF AN FII WOULD BE CONSIDERED AS AN INDEPENDENT QIB.
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Demographic details such as address and bank account will be obtained from the Depositories as per the Depository Participant account details given above.
The submission of an Application Form by a QIB shall be deemed a valid, binding and irrevocable offer for the QIB to pay the entire Issue Price for the Equity Shares (as indicated by the CAN) and becomes a binding contract on the QIB upon issuance of the CAN by our Bank in favour of the QIB.
Submission of Application Form
All Application Forms must be duly completed with information including the number of Equity Shares applied for. All Application Forms duly completed along with payment and a copy of the PAN card or PAN allotment letter shall be submitted to the Book Running Lead Managers either through electronic form or through physical delivery at the following address:
Equirus Capital Private BOB Capital Markets Limited BNP Paribas Limited 1704, B Wing, 17th Floor, BNP Paribas House, 12th Floor, C Wing, Marathon Parinee Crescenzo, 1 North Avenue, Maker Maxity, Futurex, Plot No. C-38/39, G Block, Bandra - Kurla Complex, N. M. Joshi Marg, Bandra Kurla Complex, Bandra East, Bandra East, Lower Parel, Mumbai 400 051, Maharashtra, India Mumbai 400051 Mumbai 400 013 Contact: Aarti Rathi Maharashtra, India Maharashtra, India Email: [email protected] Contact: Anubhav Behal / Shrey Contact: Sameer Purohit / Telephone: +91 22 6138 9300 Biyani Gaurav Phadke Email: Email: [email protected]. [email protected] com Telephone: +91 22 4332 0600 Telephone: +91 22 3370 4000
Centrum Capital Limited Elara Capital (India) Private IDBI Capital Markets & Centrum House, Limited Securities Limited CST Road, 21st Floor, Tower 3, Indiabulls (Formerly known as IDBI Capital Vidyanagari Marg, Finance Centre, Senapati Bapat Marg, Market Services Limited) Kalina, Santacruz (East), Elphinstone Road (West) Mumbai – 3rd Floor, Mafatlal Centre, Nariman Mumbai – 400 098, 400 013, Point, Mumbai – 400 021, Maharashtra, India Maharashtra, India Maharashtra, India Contact: Aanchal Wagle Contact: Kunal Safari / Harshit Sood Contact: Sumit Singh Email: Email: project.syndhu@elaracapital Email: [email protected] .com [email protected] Telephone: + 91 22 4215 9000 Telephone: +91 22 6164 8500 Telephone: +91 22 4322 1212
The Book Running Lead Managers will not be required to provide any written acknowledgement of receipt of the Application Form.
Permanent Account Number or PAN
Each QIB should mention its PAN allotted under the Income Tax Act 1961 in the Application Form. The copy of the PAN card or PAN allotment letter is required to be submitted with the Application Form. Applications without this information will be considered incomplete and are liable to be rejected. QIBs should not submit the GIR number instead of the PAN as the Application Form is liable to be rejected on this ground.
Pricing and Allocation
Build-up of the Book
The QIBs shall submit their Bids (including the revision of bids) within the Bidding Period to the Book Running Lead Manager(s). Such Bids cannot be withdrawn after the Issue Closing Date. The book shall be maintained by the Book Running Lead Managers.
Price Discovery and Allocation
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Our Bank, in consultation with the Book Running Lead Managers, shall determine the Issue Price, which shall be at or above the Floor Price. However, our Bank may offer a discount of not more than 5 % on the Floor Price in terms of Regulation 85 of the ICDR Regulations. After finalization of the Issue Price, our Bank will update this Preliminary Placement Document with the Issue details and file the same with the Stock Exchanges as the Placement Document and uploaded on our Bank’s website.
Method of Allocation
Our Bank shall determine the Allocation in consultation with the Book Running Lead Managers on a discretionary basis and in compliance with Chapter VIII of the ICDR Regulations. Bids received from the QIBs at or above the Issue Price shall be grouped together to determine the total demand.
The Allocation to all such QIBs will be made at the Issue Price. Allocation to Mutual Funds for up to a minimum of 10.00 % of the Issue Size shall be undertaken subject to valid Bids being received at or above the Issue Price.
THE DECISION OF OUR BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS IN RESPECT OF ALLOCATION SHALL BE FINAL AND BINDING ON ALL QIBS. QIBS MAY NOTE THAT ALLOCATION OF EQUITY SHARES IS AT THE SOLE AND ABSOLUTE DISCRETION OF OUR BANK IN CONSULTATION WITH THE BOOK RUNNING LEAD MANAGERS AND QIBS MAY NOT RECEIVE ANY ALLOCATION EVEN IF THEY HAVE SUBMITTED VALID APPLICATION FORMS AT OR ABOVE THE ISSUE PRICE. NEITHER OUR BANK NOR THE BOOK RUNNING LEAD MANAGERS IS OBLIGED TO ASSIGN ANY REASON FOR ANY NON-ALLOCATION.
CAN
Based on the Application Forms received, our Bank, in consultation with the Book Running Lead Managers, in their sole and absolute discretion, shall decide the successful Bidder to whom the serially numbered CAN shall be sent, pursuant to which the details of the Equity Shares Allocated to them and the details of the amounts payable for Allotment of such Equity Shares in their respective names shall be notified to such successful Bidder. Additionally, a CAN will include details of the relevant Escrow Account into which such payments would need to be made, address where the application money needs to be sent, Pay-In Date as well as the probable designated date, being the date of credit of the Equity Shares to the respective successful Bidder’s account.
The successful Bidders would also be sent a serially numbered Placement Document either in electronic form or by physical delivery along with the serially numbered CAN. The dispatch of the serially numbered Placement Document and the serially numbered CAN to the QIBs shall be deemed a valid, binding and irrevocable contract for the QIB to furnish all details that may be required by Bank and the Book Running Lead Managers and to pay the entire Issue Price for all the Equity Shares Allocated to such QIB.
QIBS ARE ADVISED TO INSTRUCT THEIR DEPOSITORY PARTICIPANT TO ACCEPT THE EQUITY SHARES THAT MAY BE ALLOTTED TO THEM PURSUANT TO THE ISSUE.
Bank Account for Payment of Application Money
Our Bank has opened the “Syndicate Bank – QIP Escrow Account” with Syndicate Bank, Cuff Parade branch, acting as the Escrow Collection Bank in terms of the arrangement among our Bank, the Book Running Lead Managers and the Escrow Bank. The QIB will be required to deposit the entire amount payable for the Equity Shares Allocated to it by the Pay-In Date as mentioned in, and in accordance with, the respective CAN. Payments are to be made only through electronic fund transfer.
In case of cancellations or default by the QIBs, the Bank and the Book Running Lead Managers have the right to reallocate the Equity Shares at the Issue Price among existing or new QIBs at their sole and absolute discretion, subject to the compliance with the requirement of ensuring that the Application Forms are sent to QIBs.
Note: Payments through cheques are liable to be rejected.
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Our Bank undertakes to utilise the amount deposited in “Syndicate Bank – QIP Escrow Account” only for the purposes of (i) adjustment against Allotment of Equity Shares in the Issue; or (ii) repayment of application money if our Bank is not able to Allot Equity Shares in the Issue.
Designated Date and Allotment of Equity Shares
1. The Equity Shares will not be Allotted unless the QIBs pay the Issue Price to the Escrow Account as stated above.
2. Subject to the satisfaction of the terms and conditions of the Placement Agreement, our Bank will ensure that the Allotment of the Equity Shares is completed by the Designated Date provided in the CAN for the QIBs who have paid the aggregate subscription amounts as stipulated in the CAN.
3. In accordance with the ICDR Regulations, Equity Shares will be issued and Allotment shall be made only in the dematerialised form to the Allottees. Allottees will have the option to re-materialise the Equity Shares, if they so desire, as per the provisions of the Depositories Act.
4. Our Bank reserves the right to cancel this Issue at any time up to Allotment without assigning any reasons whatsoever.
5. Post receipt of the listing approval of the Stock Exchanges, the Issuer shall credit the Equity Shares into the Depository Participant account of the QIBs.
6. Following the Allotment and credit of Equity Shares into the QIBs Depository Participant account, our Bank will apply for final listing and trading approval from the Stock Exchanges. In the case of QIBs who have been Allotted more than five % of the Equity Shares in the Issue, our Bank shall disclose the name and the number of the Equity Shares Allotted to such QIB to the Stock Exchanges and the Stock Exchanges will make the same available on their website. The Escrow Bank shall release the monies lying to the credit of the Escrow Bank Account to our Bank after the receipt of the final listing and trading approval from the Stock Exchanges.
7. In the event that we are unable to issue and Allot the Equity Shares offered in the Issue or on cancellation of the Issue, within 60 days from the date of receipt of application money, we shall repay the application money within15 days from expiry of 60 days, failing which we shall repay that money with interest at the rate of 12.00% per annum from expiry of the sixtieth day. The application money to be refunded by us shall be refunded to the same bank account from which application money was remitted by the eligible QIBs.
Other Instructions
Right to Reject Applications
Our Bank, in consultation with the Book Running Lead Managers, may reject Bids, in part or in full, without assigning any reason whatsoever. The decision of our Bank and the Book Running Lead Managers in relation to the rejection of Bids shall be final and binding.
Equity Shares in Dematerialized form with NSDL or CDSL
1. The Allotment of the Equity Shares in this Issue shall be only in dematerialised form, (i.e., not in the form of physical certificates but be fungible and be represented by the statement issued through the electronic mode). 2. A QIB applying for Equity Shares must have at least one beneficiary account with a Depository Participant of either NSDL or CDSL prior to making the Bid.
3. Allotment to a successful QIB will be credited in electronic form directly to the beneficiary account (with the Depository Participant) of the QIB.
4. Equity Shares in electronic form can be traded only on the stock exchanges having electronic connectivity with NSDL and CDSL. The Stock Exchange have electronic connectivity with NSDL and CDSL. 5. The trading of the Equity Shares to be issued pursuant to the Issue would be in dematerialised form only for all QIBs in the demat segment of the respective Stock Exchanges.
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6. Our Bank will not be responsible or liable for the delay in the credit of the Equity Shares due to errors in the Application Forms or on part of the QIBs.
Release of funds to our Bank
The Escrow Bank shall not release the monies lying to the credit of the Escrow Account till such time, that it receives an instruction in pursuance to the Escrow Agreement, along with the listing and trading approval of the Stock Exchanges for the Equity Shares offered in the Issue.
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PLACEMENT AND LOCK – UP
Placement Agreement
The Book Running Lead Managers have entered into a placement agreement dated December 12, 2017 with our Bank (the “Placement Agreement”), pursuant to which the Book Running Lead Managers have agreed to use best efforts, to place the Equity Shares with QIBs, pursuant to chapter VIII of the ICDR Regulations and our Bank has agreed to Allot the Equity Shares to such QIBs as may be determined in consultation with the Book Running Lead Managers, pursuant to the receipt of Application Forms and application monies from such QIBs.
This Preliminary Placement Agreement contains customary representations and warranties, as well as indemnities from our Bank and BRLMs and is subject to termination in accordance with the terms contained therein.
Applications shall be made to list the Equity Shares issued pursuant to the Issue and admit them to trading on the Stock Exchanges. No assurance can be given as to the liquidity or sustainability of the trading market for such Equity Shares, the ability of holders of the Equity Shares to sell their Equity Shares or the price at which holders of the Equity Shares will be able to sell their Equity Shares.
This Preliminary Placement Document has not been, and will not be, registered as a prospectus with the Registrar of Companies and, no Equity Shares will be offered in India or overseas to the public or any members of the public in India or any other class of investors, other than QIBs. No assurance can be given on liquidity or sustainability of trading market for the Equity Shares (including the Equity Shares) post the Issue.
The Equity Shares have not been and will not be registered under the U.S. Securities Act or any state securities laws in the United States and may not be offered or sold within the United States, except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of U.S. Securities Act and applicable state securities law. Accordingly, the Equity Shares are offered and sold outside the United States in offshore transactions in reliance on Regulation S under the U.S. Securities Act and the applicable laws of the jurisdictions where those offers and sales are made. The Equity Shares are transferable only in accordance with the restrictions described under the sections “Selling Restrictions” and “Transfer Restrictions” on pages 199 and 205 respectively.
In connection with the Issue, the Book Running Lead Managers (or their affiliates) may, for their own accounts, enter into asset swaps, credit derivatives or other derivative transactions relating to the Equity Shares at the same time as the offer and sale of the Equity Shares, or in secondary market transactions. As a result of such transactions, the Book Running Lead Managers may hold long or short positions in such Equity Shares. These transactions may comprise a substantial portion of the Issue and no specific disclosure will be made of such positions. Affiliates of the Book Running Lead Managers may purchase Equity Shares and be allocated Equity Shares for proprietary purposes and not with a view to distribution or in connection with the issuance of P-Notes. See the section titled “Representations by Investors - Offshore Derivative Instruments”.
From time to time, the Book Running Lead Managers and certain of their affiliates have provided and continue to provide commercial and investment banking services, particularly acting as an underwriter or Book Running Lead Managers, to us or our affiliates for which they have received and may in the future receive compensation.
Lock up
The Bank undertakes that it will not for a period commencing from the date of execution of the Placement Agreement and ending 90 days from the date of Allotment, without the prior written consent of the Book Running Lead Managers, directly or indirectly: a. purchase, offer, issue, lend, sell, grant any option or contract to purchase, purchase any option or contract to offer, issue, lend, sell, grant any option, right or warrant to purchase, any Equity Shares or any securities convertible into or exercisable for Equity Shares (including, without limitation, securities convertible into or exercisable or exchangeable for Equity Shares which may be deemed to be beneficially owned by the undersigned) or file any registration statement under the U.S. Securities Act, with respect to any of the foregoing, or b. enter into any swap or other agreement or any transaction that transfers, in whole or in part, directly or indirectly, any of the economic consequences associated with the ownership of any of the Equity Shares or any securities convertible into or exercisable or exchangeable for Equity Shares (regardless of whether any of
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the transactions described in clause (a) or (b) is to be settled by the delivery of Equity Shares or such other securities, in cash or otherwise), or c. deposit Equity Shares with any other depository in connection with a depository receipt facility, or d. enter into any transaction (including a transaction involving derivatives) having an economic effect similar to that of a sale or deposit of the Equity Shares in any depository receipt facility; or e. publicly announce any intention to enter into any transaction falling within (a) to (d) above or enter into any transaction falling within (a) to (d) above.
Provided, however, that the foregoing restrictions do not apply to (i) the issuance of any Issue Shares, and (ii) any issue or offer of Equity Shares by our Bank to the extent issue or offer is (a) required by Indian law and/or (b) undertaken pursuant the instructions order or such other guidelines as maybe issued by the RBI, Central Government of India or such other authority acting on its behalf.
Further, in accordance with Regulation 88 of the ICDR Regulations, our Bank shall not undertake a subsequent QIP until the expiry of six months from the date of the Issue.
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SELLING RESTRICTIONS
The distribution of this Preliminary Placement Document and the offer, sale or delivery of the Equity Shares is restricted by law in certain jurisdictions. Persons who come into possession of this Preliminary Placement Document are advised to take legal advice with regard to any restrictions that may be applicable to them and to observe such restrictions. This Preliminary Placement Document may not be used for the purpose of an offer or sale in any circumstances in which such offer or sale is not authorized or permitted.
General
No action has been taken or will be taken in any jurisdiction by our Bank or the Book Running Lead Managers that would permit a public offering of the Equity Shares or the possession, circulation or distribution of this Preliminary Placement Document or any other material relating to our Bank or the Equity Shares in any jurisdiction where action for such purpose is required. Accordingly, the Equity Shares may not be offered or sold, directly or indirectly, and neither this Preliminary Placement Document nor any offering materials or advertisements in connection with the Equity Shares may be distributed or published in or from any country or jurisdiction except under circumstances that will result in compliance with any applicable rules and regulations of any such country or jurisdiction. The Issue will be made in compliance with the applicable ICDR Regulations. Each purchaser of the Equity Shares in this Issue will be deemed to have made acknowledgments and agreements as described under “Notice to Investors – Representations by Investors” and “Transfer Restrictions”.
India
This Preliminary Placement Document may not be distributed, directly or indirectly, in India or to residents of India and any Equity Shares may not be offered or sold, directly or indirectly, in India to, or for the account or benefit of, any resident of India except as permitted by applicable Indian laws and regulations, under which an offer is strictly on a private and confidential basis and is limited to eligible QIBs and is not an offer to the public. This Preliminary Placement Document is neither a public issue nor a prospectus under the Companies Act or an advertisement and should not be circulated to any person other than to whom the offer is made.
Australia
This Preliminary Placement Document and the offer of Equity Shares are only made available in Australia to persons to whom a disclosure document is not required to be given under Chapter 6D of the Australian Corporations Act 2001 (the “Australian Corporations Act”) and has not been and will not be lodged or registered with the Australian Securities & Investments Commission or any other regulatory body or agency in Australia. This Preliminary Placement Document is not a prospectus, product disclosure statement or any other form of formal “disclosure document” for the purposes of the Australian Corporations Act and is not required to, and does not, contain all the information which would be required in a disclosure document under the Australian Corporations Act. (i) The offer of the Equity Shares under this Preliminary Placement Document is only made to persons to whom it is lawful to offer the Equity Shares without a disclosure document such as a professional investor or sophisticated investor for the purposes of Chapter 6D of the Australian Corporations Act; (ii) this Preliminary Placement Document is made available in Australia to persons as set forth in clause (i) above; and (iii) by accepting this offer, the offeree represents that the offeree is such a person as set forth in clause (ii) above and agrees not to sell or offer for sale within Australia any Equity Shares sold to the offeree within 12 months after their transfer to the offeree under this Preliminary Placement Document.
Cayman Islands
This Preliminary Placement Document does not constitute an invitation or offer to the public in the Cayman Islands of the Equity Shares, whether by way of sale or subscription. The Equity Shares are not offered or sold, and will not be offered or sold, directly or indirectly, to the public in the Cayman Islands.
Dubai International Financial Centre
This Preliminary Placement Document relates to an "exempt offer" in accordance with the Dubai Financial Services Authority (“DFSA”) Rulebook Markets Module, and which is not subject to any form of regulation or approval by the DFSA. The DFSA has no responsibility for reviewing or verifying this Preliminary Placement Document or any other documents in connection with this offer. Accordingly, the DFSA has not approved this Preliminary Placement Document or any other associated documents nor taken any steps to verify the information
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set out in this Preliminary Placement Document, and has no responsibility for it. The shares to which this Preliminary Placement Document relates may be illiquid and/or subject to restrictions on their resale. Prospective purchasers should conduct their own due diligence on the shares. If you do not understand the contents of this document, you should consult an authorised financial adviser. This Preliminary Placement Document may only be provided to Professional Clients as defined in the DFSA Rulebook Conduct of Business Module (“COB Module”). This offer is not directed at Retail Clients as defined in the COB Module.
European Economic Area
In relation to each member state of the European Economic Area which has implemented the Prospectus Directive (each, a “Relevant Member State”), each of the Book Running Lead Managers has severally and not jointly, or jointly and severally, represented and warranted that it has not made and will not make an offer to the public of any Equity Shares which are the subject of the issue of Equity Shares contemplated by this Preliminary Placement Document in that Relevant Member State, except that the Equity Shares may be offered to the public in that Member State at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:
1. to any legal entity which is a qualified investor, as defined in the Prospectus Directive (as defined below);
2. to fewer than 150 natural or legal persons (other than qualified investors as defined in the Prospectus Directive or supplement a prospectus pursuant to Article 16 at the Prospectus Directive), subject to obtaining the prior consent of the relevant Book Running Lead Managers nominated by the Bank for any such offer; or
3. at any time in any other circumstances falling within Article 3(2) of the Prospectus Directive, provided that no such offer of the Equity Shares shall result in a requirement for the publication by the Bank or any Book Running Lead Managers of a prospectus or the initial purchaser of a prospectus pursuant to Article 3 of the Prospectus Directive and each person who initially acquires any Equity Shares or to whom any offer is made will be deemed to have represented, acknowledged and agreed with the Book Running Lead Managers and the Bank that it is a qualified investor within the meaning of the law of the Relevant Member State implementing Article 2(1)I of the Prospectus Directive or any measure implementing the Prospectus Directive in any Relevant Member State.
For the purposes of this provision, the expression “an offer to the public” in relation to any securities in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any securities to be offered so as to enable an investor to decide to purchase any securities, as the same may be varied in that Member State by any measure implementing the Prospectus Directive in that Member State and the expression “Prospectus Directive” means Directive 2003/71/EC (and amendments thereto, including the 2010 PD Amending Directive, to the extent implemented in the Relevant Member State), and includes any relevant implementing measure in each Relevant Member State and the expression “2010 PD Amending Directive” means Directive 2010/73/EU.
Hong Kong
This Preliminary Placement Document has not been approved by the Securities and Futures Commission in Hong Kong and, accordingly, (i) the Equity Shares have not been offered or sold and will not be offered or sold in Hong Kong, by means of any document, other than (a) to “professional investors” as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong (the “SFO”) and any rules made under that SFO; or (b) in other circumstances which do not result in the document being a “prospectus” as defined in the Companies (Winding up and Miscellaneous Provisions) Ordinance (Cap. 32) (the “CWUMPO”) of Hong Kong or which do not constitute an offer to the public within the meaning of the CWUMPO; and (ii) each of the Book Running Lead Managers has not issued or had in its possession for the purposes of the issue of Equity Shares whether in Hong Kong or elsewhere any advertisement, invitation or document relating to the Equity Shares, which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong), other than with respect to Equity Shares which are or are intended to be disposed of only to persons outside Hong Kong or only to “professional investors” as defined in the SFO and any rules made under the SFO.
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Japan
The Equity Shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Act No. 25 of 1948, as amended; the “FIEA”) The Book Running Lead Managers have represented and agreed that they will not offer or sell any Equity Shares, directly or indirectly, in Japan or to, or for the benefit of, any resident in Japan (as defined under Item 5, Paragraph 1, Article 6 of the Foreign Exchange and Foreign Trade Act (Act No. 228 of 1949, as amended)), or to others for reoffering or resale, directly or indirectly, in Japan or to, or for the benefit of, a resident of Japan except pursuant to an exemption from the registration requirements of, and otherwise in compliance with, the FIEA and any other applicable laws, regulations and ministerial guidelines of Japan.
Korea
The Equity Shares have not been and will not be registered under the Financial Investment Business and Capital Markets Act of Korea and none of the Equity Shares may be offered or sold, directly or indirectly, in Korea or to any resident of Korea or to any persons for reoffering or resale, directly or indirectly, in Korea or to any resident of Korea (as defined under the Foreign Exchange Transaction Act of Korea and its Enforcement Decree) except pursuant to an exemption from the registration requirements of the Financial Investment Business and Capital Markets Act of Korea available thereunder and/or in compliance with applicable laws and regulations of Korea.
Kuwait
This Preliminary Placement Document is not for general circulation to the public in Kuwait. The Equity Shares have not been licensed for offering in Kuwait by the Kuwait Capital Markets Authority or any other relevant Kuwaiti government agency. The offering of the Equity Shares in Kuwait on the basis a private placement or public offering is, therefore, restricted in accordance with Law No. 7 of 2010 and the bylaws thereto (as amended). No private or public offering of the Equity Shares is being made in Kuwait, and no agreement relating to the sale of the Equity Shares will be concluded in Kuwait. No marketing or solicitation or inducement activities are being used to offer or market the Equity Shares in Kuwait.
Malaysia
No prospectus or other offering material or document in connection with the offer and sale of the Equity Shares has been or will be registered with the Securities Commission of Malaysia pursuant to the Securities Commission Act, 1993 as the offer for purchase of, or invitation to purchase the Equity Shares is meant to qualify as an “excluded offer or excluded invitation” within the meaning of Section 38 of the Securities Commission Act, 1993. Each Lead Manager has severally represented, warranted or agreed that the Equity Shares will not be offered, sold, transferred or otherwise disposed, directly or indirectly, nor any document or other material in connection therewith distributed, in Malaysia, other than to persons falling within any one of the categories or person specified in Schedule 2 and/or Schedule 3 of the Securities Commission Act, 1993 who are also persons to whom any offer or invitation to purchase or sell would be an excluded offer or invitation within the meaning of Section 38 of the Securities Commission Act, 1993.
Mauritius
The Equity Shares are not being offered to the public in Mauritius and nothing in the Preliminary Placement Document or any information contained herein may be treated as a prospectus for the purposes of the Securities Act 2005 of Mauritius. The Mauritius Financial Services Commission (FSC) has neither reviewed nor approved the Preliminary Placement Document and the Bank does not hold any licence issued by the FSC. Accordingly, the Preliminary Placement Document has not been registered with the FSC. Equity Shares are being offered by way of private placement only to the person to whom such offer has been made.
Only persons licensed by the FSC as, investment dealers, investment advisers or investment bankers conducting activities as an investment dealer or investment adviser may market and carry out any form of solicitation in Mauritius in respect to the offer, distribution or sale of the Equity Shares. Where solicitation does not exist, a licensee as distributors of financial products may distribute the Equity Shares. The Equity Shares may not be offered, distributed or sold, directly or indirectly, in Mauritius, except as permitted by applicable Mauritius law, including but not limited to Securities Act 2005 of Mauritius.
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The Bank has not been authorized (or recognized) and does not intend to seek authorization (or recognition) with the FSC, and the FSC expresses no opinion as to the matters contained in the Preliminary Placement Document and as to the merits of an investment in the Bank. There is no statutory compensation scheme in Mauritius in the event of the Bank's failure.
New Zealand
This Preliminary Placement Document is not a prospectus. It has not been prepared or registered in accordance with the Securities Act 1978 of New Zealand (the “New Zealand Securities Act”). This Preliminary Placement Document is being distributed in New Zealand only to persons whose principal business is the investment of money or who, in the course of and for the purposes of their business, habitually invest money, within the meaning of section 3(2)(a)(ii) of the New Zealand Securities Act (“Habitual Investors”). By accepting this Preliminary Placement Document, each investor represents and warrants that if they receive this Preliminary Placement Document in New Zealand they are a Habitual Investor and they will not disclose this Preliminary Placement Document to any person who is not also a Habitual Investor.
Oman
By receiving this Preliminary Placement Document, the person or entity to whom it has been issued understands, acknowledges and agrees that this Preliminary Placement Document has not been approved by the Capital Market Authority of Oman (the “CMA”) or any other regulatory body or authority in the Sultanate of Oman (“Oman”), nor have the Book Running Lead Managers or any placement agent acting on their behalf received authorisation, licensing or approval from the CMA or any other regulatory authority in Oman, to market, offer, sell, or distribute interests in the Equity Shares within Oman.
No marketing, offering, selling or distribution of any interests in the Equity Shares has been or will be made from within Oman and no subscription for any interests in the Equity Shares may or will be consummated within Oman. Neither the Book Running Lead Managers nor any placement agent acting on their behalf is a company licensed by the CMA to provide investment advisory, brokerage, or portfolio management services in Oman, nor a bank licensed by the Central Bank of Oman to provide investment banking services in Oman. Neither the Book Running Lead Managers nor any placement agent acting on their behalf advise persons or entities resident or based in Oman as to the appropriateness of investing in or purchasing or selling securities or other financial products.
Nothing contained in this Preliminary Placement Document is intended to constitute Omani investment, legal, tax, accounting or other professional advice. This Preliminary Placement Document is for your information only, and nothing herein is intended to endorse or recommend a particular course of action. You should consult with an appropriate professional for specific advice on the basis of your situation.
Qatar
This document does not, and is not intended to, constitute an invitation or an offer of securities in the State of Qatar (including the Qatar Financial Centre) and accordingly should not be construed as such. The Equity Shares have not been, and shall not be, offered, sold or delivered at any time, directly or indirectly, in the State of Qatar. Any offering of the Equity Shares shall not constitute a public offer of securities in the State of Qatar.
By receiving this document, the person or entity to whom it has been provided to understands, acknowledges and agrees that: (i) neither this Preliminary Placement Document nor the Equity Shares have been registered, considered, authorized or approved by the Qatar Central Bank, the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority or any other authority or agency in the State of Qatar; (ii) neither the Bank nor persons representing the Bank are authorized or licensed by the Qatar Central Bank, the Qatar Financial Markets Authority, the Qatar Financial Centre Regulatory Authority, or any other authority or agency in the State of Qatar, to market or sell the Equity Shares within the State of Qatar; (iii) this Preliminary Placement Document may not be provided to any person other than the original recipient and is not for general circulation in the State of Qatar; and (iv) no agreement relating to the sale of the Equity Shares shall be consummated within the State of Qatar.
No marketing of the Equity Shares has been or will be made from within the State of Qatar and no subscription to the Equity Shares may or will be consummated within the State of Qatar. Any applications to invest in the Equity Shares shall be received from outside of Qatar. This document shall not form the basis of, or be relied on in connection with, any contract in Qatar. Neither the Bank nor persons representing the Bank are, by distributing
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this document, advising individuals resident in the State of Qatar as to the appropriateness of investing in or purchasing or selling securities or other financial products. Nothing contained in this document is intended to constitute investment, legal, tax, accounting or other professional advice in, or in respect of, the State of Qatar.
Saudi Arabia
Any investor in the Kingdom of Saudi Arabia or who is a Saudi person (a “Saudi Investor”) who acquires Equity Shares pursuant to the Issue should note that the offer of Equity Shares is an offer to “Sophisticated Investors” (as defined in Article 11 of the “Offer of Securities Regulations” as issued by the Board of the Capital Market Authority resolution number 2-11-2004 dated October 4, 2004 and amended by the Board of the Capital Market Authority resolution number 1-28-2008 dated August 18, 2008 (the “KSA Regulations”)) for the purposes of Article 9 of the KSA Regulations. Each Book Running Lead Manager has represented, warranted and agreed that the offer of the Equity Shares will only be directed at Sophisticated Investors.
The offer of Equity Shares shall not therefore constitute a “public offer” pursuant to the KSA Regulations, but is subject to the restrictions on secondary market activity under Article 17 of the KSA Regulations. Any Saudi Investor who has acquired Equity Shares as a Sophisticated Investor may not offer or sell those Equity Shares to any person unless the offer or sale is made through an authorised person appropriately licensed by the Saudi Arabian Capital Market Authority and (i) the Equity Shares are offered or sold to a Sophisticated Investor; (ii) the price to be paid for the Equity Shares in any one transaction is equal to or exceeds Saudi Arabian Riyal 1 million or an equivalent amount; or (iii) the offer or sale is otherwise in compliance with Article 17 of the KSA Regulations.
Singapore
The Book Running Lead Managers have acknowledged that this Preliminary Placement Document has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, the Book Running Lead Managers have represented and agreed that it has not offered or sold any Equity Shares issued pursuant to the Issue or caused such Equity Shares to be made the subject of an invitation for subscription or purchase and will not offer or sell such Equity Shares issued pursuant to the Issue or cause such Equity Shares to be made the subject of an invitation for subscription or purchase, and have not circulated or distributed, nor will they circulate or distribute, this Preliminary Placement Document or any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of such Equity Shares issued pursuant to the Issue, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act, Chapter 289 of Singapore (“SFA”), (ii) to a relevant person pursuant to Section 275(1), or any person pursuant to Section 275(1A), and in accordance with the conditions specified in Section 275 of the SFA, or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA.
Where the Equity Shares are subscribed or purchased under Section 275 by a relevant person which is:
a corporation (which is not an accredited investor) (as defined in Section 4A of the SFA) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or
a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary of the trust is an individual who is an accredited investor, securities (as defined in Section 239(1) of the SFA) of that corporation to the beneficiaries’ rights and interest (howsoever described) in that trust shall not be transferred within 6 months after that corporation or that trust has acquired the Equity Shares pursuant to an offer made under Section 275 except:
to an institutional investor under Section 274 of the SFA or to a relevant person defined in Section 275(2) of the SFA, or to any person arising from an offer referred to in Section 275(1A) or Section 276(4)(i)(B) of the SFA;
where no consideration is or will be given for the transfer;
where the transfer is by operation of law; as specified in Section 276(7) of the SFA; or
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as specified in Regulation 32 of the Securities and Futures (Offers of Investments) (Shares and Debentures) Regulations 2005 of Singapore.
United Arab Emirates (excluding the Dubai International Financial Centre)
This Preliminary Placement Document is not intended to constitute an offer, sale or delivery of shares or other securities under the laws of the United Arab Emirates (the “UAE”). The Equity Shares have not been and will not be registered under Federal Law No. 4 of 2000 Concerning the Emirates Securities and Commodities Authority and the Emirates Security and Commodity Exchange, or with the UAE Central Bank, the Dubai Financial Market, the Abu Dhabi Securities market or with any other UAE exchange. the Issue, the Equity Shares and interests therein do not constitute a public offer of securities in the UAE in accordance with the Commercial Companies Law, Federal Law No. 8 of 1984 (as amended) or otherwise. This Preliminary Placement Document is strictly private and confidential and is being distributed to a limited number of investors and must not be provided to any person other than the original recipient, and may not be reproduced or used for any other purpose. The interests in the Equity Shares may not be offered or sold directly or indirectly to the public in the UAE.
By receiving this Preliminary Placement Document, the person or entity to whom this Preliminary Placement Document has been issued understands, acknowledges and agrees that the Equity Shares have not been and will not be offered, sold or publicly promoted or advertised in the Dubai International Financial Centre other than in compliance with laws applicable in the Dubai International Financial Centre, governing the issue, offering or sale of securities. The Dubai Financial Services Authority has not approved this Preliminary Placement Document nor taken steps to verify the information set out in it, and has no responsibility for it.
United Kingdom
Each of the Book Running Lead Managers has represented, warranted and undertaken that:
1. it has only communicated or caused to be communicated and will only communicate or cause to be communicated in the United Kingdom any invitation or inducement to engage in investment activity (within the meaning of section 21 of the Financial Services and Markets Act 2000 (“FSMA”) received by it in connection with the issue or sale of any Equity Shares in circumstances in which section 21(1) of FSMA does not apply to the Bank; and
2. it has complied and will comply with all applicable provisions of FSMA with respect to anything done by it in relation to the Equity Shares in, from or otherwise involving the United Kingdom.
United States of America
The Equity Shares offered in the Issue have not been and will not be registered under the U.S. Securities Act or any state securities laws in the United States and may not be offered, sold or delivered in the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and in accordance with any applicable state securities laws. The Equity Shares are being offered and sold in the Issue only outside the United States in accordance with Regulation S in accordance with Regulation S and the applicable laws of the jurisdictions where those offers and sales are made. To help ensure that the offer and sale of the Equity Shares in the Issue was made in compliance with Regulation S, each purchaser of Equity Shares in the Issue will be deemed to have made the representations, warranties, acknowledgements and undertakings set forth in “Transfer Restrictions” on page 205.
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TRANSFER RESTRICTIONS
Allottees are not permitted to sell the Equity Shares for a period of one year from the date of Allotment except through the Stock Exchanges. In addition to the above, allotments made to QIBs, including FVCIs, VCFs and AIFs in the Issue, may be subject to lock-in requirements, if any, under the rules and regulations that are applicable to them. Accordingly, purchasers are advised to consult their own legal counsel prior to making any offer, re-sale, pledge or transfer of the Equity Shares.
Due to the following restrictions, investors are advised to consult legal counsel prior to making any resale, pledge or transfer of the Equity Shares.
The Equity Shares have not been and will not be registered under the U.S. Securities Act and may not be offered or sold within the United States except pursuant to an exemption from, or in a transaction not subject to, the registration requirements of the U.S. Securities Act and applicable United States state securities laws. Accordingly, the Equity Shares are being offered and sold only outside the United States in offshore transactions in reliance on Regulation S, under the U.S. Securities Act and applicable laws of the jurisdictions where those offers and sales are made.
If you purchase the Equity Shares in this Issue, by accepting delivery of this Preliminary Placement Document, submitting a bid to purchase the Equity Shares and accepting delivery of the Equity Shares, you will be deemed to have represented to and agreed with our Bank and the Book Running Lead Managers as follows:
you have received a copy of the Placement Document and such other information as you deem necessary to make an informed decision and that you are not relying on any other information or the representation concerning the Bank or the Equity Shares and neither the Bank nor any other person responsible for this document or any part of it or the Book Running Lead Managers will have any liability for any such other information or representation;
you are authorised to consummate the purchase of the Equity Shares in compliance with all applicable laws and regulations;
you will comply with all laws, regulations and restrictions (including the selling restrictions contained in this Preliminary Placement Document) which may be applicable in your jurisdiction and you have obtained or will obtain any consent, approval or authorization required for you to purchase and accept delivery of the Equity Shares, and you acknowledge and agree that none of our Bank, the Book Running Lead Managers or any of their respective affiliates shall have any responsibility in this regard;
you acknowledge (or if you are a broker-dealer acting on behalf of a customer, your customer has confirmed to you that such customer acknowledges) that such Equity Shares have not been and will not be registered under the U.S. Securities Act, or with any securities regulatory authority of any state of the United States, and are subject to restrictions on transfer;
you and the person, if any, for whose account or benefit you are acquiring the Equity Shares, were located outside the United States at the time the buy order for the Equity Shares was originated and continue to be located outside the United States and have not purchased the Equity Shares for the account or benefit of any person in the United States or entered into any arrangement for the transfer of the Equity Shares or any economic interest therein to any person in the United States;
you are not an affiliate (as defined in Rule 405 of the U.S. Securities Act) of our Bank or a person acting on behalf of such affiliate; and you are not in the business of buying and selling securities or, if you are in such business, you did not acquire the Equity Shares from our Bank or an affiliate (as defined in Rule 405 of the U.S. Securities Act) thereof in the initial distribution of the Equity Shares;
you certify that either (A) you are, or at the time the Equity Shares are purchased will be, the beneficial owner of the Equity Shares and are located outside the United States (within the meaning of Regulation S) or (B) you are a broker-dealer acting on behalf of your customer and your customer has confirmed to you that (i) such customer is, or at the time the Equity Shares are purchased will be, the beneficial owner of the Equity Shares, and (ii) such customer is located outside the United States (within the meaning of Regulation S);
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you are aware of the restrictions on the offer and sale of the Equity Shares pursuant to Regulation S described in this Preliminary Placement Document and that neither the BSE nor the NSE is a “designated offshore securities market” within the meaning of Regulation S of the U.S. Securities Act;
the Equity Shares have not been offered to you by means of any “directed selling efforts” as defined in Regulation S; and
you acknowledge that our Bank, the Book Running Lead Managers and their respective affiliates (as defined in Rule 405 of the U.S. Securities Act), and others will rely upon the truth and accuracy of the foregoing acknowledgements, representations and agreements and agrees that, if any of such acknowledgements, representations and agreements deemed to have been made by virtue of its purchase of the Equity Shares are no longer accurate, you will promptly notify our Bank and the Book Running Lead Managers, and if you are acquiring any of the Equity Shares as a fiduciary or agent for one or more accounts, you represent that you have sole investment discretion with respect to each such account and that you have full power to make the foregoing acknowledgements, representations and agreements on behalf of such accounts.
you acknowledge that the Equity Shares have not been and will not be registered under the U.S. Securities Act or the securities law of any state of the United States and warrant to our Bank, the BRLMs and its respective affiliates that it will not offer, sell, pledge or otherwise transfer the Equity Shares except in an offshore transaction complying with Rule 903 or Rule 904 of Regulation S or pursuant to any other available exemption from registration under the U.S. Securities Act and in accordance with all applicable securities laws of the states of the United States and any other jurisdiction, including India.
you represent and warrant to our Bank, the Book Running Lead Managers and their respective affiliates that if it acquired any of the Equity Shares as fiduciary or agent for one or more investor accounts, it has sole investment discretion with respect to each such account and that it has full power to make the foregoing acknowledgments, representations and agreements on behalf of each such account.
the Bank, the Book Running Lead Managers, their respective affiliates and others will rely upon the truth and accuracy of your representations, warranties, acknowledgements and undertakings set out in this document, each of which is given to (a) the Book Running Lead Manager on their own behalf and on behalf of the Bank, and (b) to the Bank, and each of which is irrevocable and, if any of such representations, warranties, acknowledgements or undertakings deemed to have been made by virtue of your purchase of the Equity Shares are no longer accurate, you will promptly notify the Bank.
you and any accounts for which you are subscribing to the Equity Shares (i) are each able to bear the economic risk of the investment in the Equity Shares, (ii) will not look to the Bank or the Book Running Lead Managers or their respective affiliates for all or part of any such loss or losses that may be suffered, (iii) are able to sustain a complete loss on the investment in the Equity Shares, (iv) have no need for liquidity with respect to the investment in the Equity Shares, and (v) have no reason to anticipate any change in its or their circumstances, financial or otherwise, which may cause or require any sale or distribution by it or them of all or any part of the Equity Shares. You acknowledge that an investment in the Equity Shares involves a high degree of risk and that the Equity Shares are, therefore, a speculative investment. You are seeking to subscribe to the Equity Shares in this Issue for your own investment and not with a view to distribution;
you have been provided access to this Preliminary Placement Document which you have read in its entirety;
you are aware of the restrictions of the offer, sale and resale of the Equity Shares pursuant to Regulation S;
you agree to indemnify and hold the Bank and the Book Running Lead Managers and their respective affiliates harmless from any and all costs, claims, liabilities and expenses (including legal fees and expenses) arising out of or in connection with any breach of these representations and warranties. You will not hold any of the Bank or the Book Running Lead Managers and their respective affiliates liable with respect to its investment in the Equity Shares. You agree that the indemnity set forth in this paragraph shall survive the resale of the Equity Shares; and
any resale or other transfer, or attempted resale or other transfer, of the Equity Shares made other than in compliance with the above-stated restrictions will not be recognized by our Bank.
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THE SECURITIES MARKET OF INDIA
The information in this section has been extracted from documents available on the website of SEBI and the Stock Exchange and has not been prepared or independently verified by our Bank or the BRLMs or any of its respective affiliates or advisors.
The Indian Securities Market
India has a long history of organised securities trading. In 1875, the first stock exchange was established in Mumbai. The BSE and the NSE are the significant stock exchanges in terms of the number of listed companies, market capitalisation and trading activity.
Indian Stock Exchanges
Indian stock exchanges are regulated primarily by SEBI, as well as by the Government acting through the Ministry of Finance, Capital Markets Division, under the Securities Contracts (Regulation) Act, 1956 (the “SCRA”) and the Securities Contracts (Regulation) Rules, 1957 (the “SCRR”). On June 20, 2012, SEBI, in exercise of its powers under the SCRA and the Securities and Exchange Board of India Act, 1992, as amended from time to time (the “SEBI Act”), notified the Securities Contracts (Regulation) (Stock Exchanges and Clearing Corporations) Regulations, 2012 (the “SCR (SECC) Rules”), which regulate inter alia the recognition, ownership and internal governance of stock exchanges and clearing corporations in India together with providing for minimum capitalisation requirements for stock exchanges. The SCRA, the SCRR and the SCR (SECC) Rules along with various rules, bye-laws and regulations of the respective stock exchanges, regulate the recognition of stock exchanges, the qualifications for membership thereof and the manner, in which contracts are entered into, settled and enforced between members of the stock exchanges.
The SEBI Act empowers SEBI to regulate the Indian securities markets, including stock exchanges and intermediaries in the capital markets, promote and monitor self-regulatory organisations and prohibit fraudulent and unfair trade practices. Regulations and guidelines concerning minimum disclosure requirements by public companies, investor protection, insider trading, substantial acquisitions of shares and takeover of companies, buy- backs of securities, employee stock option schemes, stockbrokers, merchant bankers, underwriters, mutual funds, FIIs, FPIs, credit rating agencies and other capital market participants have been notified by the relevant regulatory authority.
Listing of Securities
The listing of securities on a recognised Indian stock exchange is regulated by the applicable Indian laws including the Companies Act, the SCRA, the SCRR, the SEBI Act and various guidelines and regulations issued by SEBI and the Listing Regulations. The SCRA empowers the governing body of each recognised stock exchange to suspend trading of or withdraw admission to dealings in a listed security for breach of or noncompliance with any conditions or breach of a company’s obligations under the Listing Regulations or for any reason, subject to the issuer receiving prior written notice of the intent of the exchange and upon granting of a hearing in the matter. SEBI also has the power to amend the Listing Regulations and bye-laws of the stock exchanges in India, to overrule a stock exchange’s governing body and withdraw recognition of a recognized stock exchange.
All listed companies are required to ensure a minimum public shareholding at 25%. Further, where the public shareholding in a listed company falls below 25% at any time, such company is required to bring the public shareholding to 25% within a maximum period of 12 months from the date of such fall. Consequently, a listed company may be delisted from the stock exchanges for not complying with the above-mentioned requirement. However, the GoI vide its notification dated July 4, 2017 has extended the time limit for complying with the minimum public shareholding requirements for a period of four years.
Delisting
SEBI has notified the Securities and Exchange Board of India (Delisting of Equity Shares) Regulations, 2009 in relation to the voluntary and compulsory delisting of equity shares from the stock exchanges which were significantly modified in 2015. In addition, certain amendments to the SCRR have also been notified in relation to delisting.
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Disclosures under Listing Regulations
Public limited companies are required under Listing Regulations to prepare and circulate to their shareholders audited annual accounts which comply with the disclosure requirements and regulations governing their manner of presentation and which include provisions relating to corporate governance, related party transactions and management’s discussion and analysis as required under the Listing Regulations. In addition, a listed company is subject to continuing disclosure requirements pursuant to the terms of the Listing Regulations.
Minimum Level of Public Shareholding
Pursuant to an amendment of the SCRR in June 2010, all listed companies (except public sector undertakings) were required to maintain a minimum public shareholding of 25.00%. However, pursuant to a subsequent amendment to the SCRR, a public company, including public sector undertakings, seeking to get a particular class or kind of securities listed shall offer and allot to the public (i) at least 25% of such class or kind of securities issued by the company, if the post issue capital is less than or equal to ₹ 16,000 million (ii) at least such percentage of such class or kind of securities issued by the company equivalent to ₹ 4,000 million if the post issue capital of the company is more than ₹ 16,000 million but less than or equal to ₹ 40,000 million or (iii) at least 10.00% of such class or kind of securities issued by the company, if the post issue capital of the company is above ₹ 40,000 million. In case of (ii) and (iii) above, the public shareholding is required to be increased to 25.00% within a period of three years from the date of listing of the securities. In this regard, SEBI has provided several mechanisms to comply with this requirement. Where the public shareholding in a listed company falls below 25.00% at any time, such company shall bring the public shareholding to 25.00% within a maximum period of 12 months from the date of such the public shareholding having fallen below the 25.00% threshold. However, the GoI vide its notification dated July 4, 2017 has extended the time limit for complying with the minimum public shareholding requirements for a period of four years.
Index-Based Market-Wide Circuit Breaker System
In order to restrict abnormal price volatility in any particular stock, SEBI has instructed stock exchanges to apply daily circuit breakers which do not allow transactions beyond a certain level of price volatility. The index based market-wide circuit breaker system (equity and equity derivatives) applies at three stages of the index movement, at 10.00%, 15.00% and 20.00%. These circuit breakers, when triggered, bring about a co-ordinated trading halt in all equity and equity derivative markets nationwide. The market-wide circuit breakers are triggered by movement of either the SENSEX of the BSE or the S&P CNX NIFTY of the NSE, whichever is breached earlier.
In addition to the market-wide index-based circuit breakers, there are currently in place individual scrip-wise price bands of up to 20% movements either up or down. However, no price bands are applicable on scrips on which derivative products are available or scrips included in indices on which derivative products are available.
The stock exchanges in India can also exercise the power to suspend trading during periods of market volatility. Margin requirements are imposed by stock exchanges that are required to be paid by the stockbrokers.
BSE
Established in 1875, the BSE is the oldest stock exchange in India. In 1956, it became the first stock exchange in India to obtain permanent recognition from the Government under the SCRA. It has evolved over the years into its present status as one of the premier stock exchanges of India. Pursuant to the BSE (Corporatisation and Demutualisation) Scheme 2005 of the SEBI, with effect from August 19, 2005, the BSE was incorporated and is now a company under the Companies Act.
NSE
The NSE was established by financial institutions and banks to provide nationwide online, satellite-linked, screen- based trading facilities with market-makers and electronic clearing and settlement for securities including government securities, debentures, public sector bonds and units. The NSE was recognised as a stock exchange under the SCRA in April 1993 and commenced operations in the wholesale debt market segment in June 1994. The capital market (equities) segment commenced operations in November 1994 and operations in the derivatives segment commenced in June 2000.
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Internet-based Securities Trading and Services
Internet trading takes place through order routing systems, which route client orders to exchange trading systems for execution. Stockbrokers interested in providing this service are required to apply for permission to the relevant stock exchange and also have to comply with certain minimum conditions stipulated under applicable law. The NSE became the first exchange to grant approval to its members for providing internet based trading services. Internet trading is possible on both the “equities” as well as the “derivatives” segments of the NSE. The NSE became the first exchange to grant approval to its members for providing internet-based trading services. Internet trading is possible on both the “equities” and the “derivatives” segments of the NSE.
Trading Hours
Trading on both the NSE and the BSE occurs from Monday to Friday, between 9:15 a.m. and 3:30 p.m. IST (excluding the 15 minutes pre-open session from 9:00 a.m. to 9:15 a.m.). The BSE and the NSE are closed on public holidays. The recognised stock exchanges have been permitted to set their own trading hours (in the cash and derivatives segments) subject to the condition that (i) the trading hours are between 9.00 a.m. and 5.00 p.m.; and (ii) the stock exchange has in place a risk management system and infrastructure commensurate to the trading hours.
Trading Procedure
In order to facilitate smooth transactions, the BSE replaced its open outcry system with BSE On-line Trading (or “BOLT”) facility in 1995. This totally automated screen based trading in securities was put into practice nationwide. This has enhanced transparency in dealings and has assisted considerably in smoothening settlement cycles and improving efficiency in back-office work.
The NSE has introduced a fully automated trading system called National Exchange for Automated Trading (or “NEAT”), which operates on strict time/price priority besides enabling efficient trade. NEAT has provided depth in the market by enabling large number of members all over India to trade simultaneously, narrowing the spreads.
Takeover Code
Disclosure and mandatory bid obligations for listed Indian companies under Indian law are governed by the Takeover Code, which provides specific regulations in relation to substantial acquisition of shares and takeover. The Takeover Code came into effect on October 22, 2011 and replaced the Securities and Exchange Board of India (Substantial Acquisition of Shares and Takeovers) Regulations, 1997 (“Takeover Code 1997”). Once the equity shares of a company are listed on a stock exchange in India, the provisions of the Takeover Code will apply to any acquisition of the company’s shares/voting rights/control. The Takeover Code prescribe certain thresholds or trigger points in the shareholding a person or entity has in the listed Indian company, which give rise to certain obligations on part of the acquirer. Acquisitions up to a certain threshold prescribed under the Takeover Code mandate specific disclosure requirements, while acquisitions crossing particular thresholds may result in the acquirer having to make an open offer of the shares of the target company. The Takeover Code also provides for the possibility of indirect acquisitions, imposing specific obligations on the acquirer in case of such indirect acquisition.
The key changes from the Takeover Code 1997 under the Takeover Code include:
the trigger for making a public offer upon acquisition of shares or voting rights has been increased from 15.00% to 25.00%;
every public offer has to be made for at least 26.00% of all the shares held by other shareholders;
creeping acquisition of up to 5.00% is permitted up to a limit of 75.00% of the shares or voting rights of a company;
acquisition of control in a target company triggers the requirement to make a public offer regardless of the level of shareholding and the acquisition of shares; and
if the indirect acquisition of a target company is a predominant part of the business or entity being acquired, it would be treated as a direct acquisition.
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Insider Trading Regulations
The SEBI (Prohibition of Insider Trading) Regulations, 2015, as amended have been notified by SEBI to prohibit and penalise insider trading in India. An “insider” is defined to include any person who has received or has access to unpublished price sensitive information (“UPSI”) or a “Connected Person”. A “Connected Person” includes, inter alia, any person who is or has directly or indirectly, been associated with the company in any capacity whether contractual, fiduciary or employment or has any professional or business relationship with the company whether permanent or temporary, during the six months prior to the concerned act which would allow or reasonably expect to allow access, directly or indirectly, to UPSI.
The Insider Trading Regulations also provide disclosure obligations for promoters, employees and directors, with respect to their shareholding in our Bank, and the changes therein. An insider is, inter alia, prohibited from trading in securities of a listed or proposed to be listed company when in possession of UPSI and to provide access to any person including other insiders to the above referred UPSI except where such communication is for legitimate purposes, performance of duties or discharge of legal obligations. UPSI shall include any information, relating to a company or its securities, directly or indirectly, that is not generally available which upon becoming generally available, is likely to materially affect the price of the securities. The Insider Trading Regulations also provide disclosure obligations for shareholders holding more than 5% of equity shares or voting rights, and the changes therein. Initial disclosures are required from promoters, key managerial personnel, directors as well as continual disclosures by every promoter, employee or director in case value of trade exceed monetary threshold of ten lacs rupees over a calendar quarter, within two days of reaching such threshold. The board of directors of all listed companies are required to formulate and publish on the company’s website a code of procedure for fair disclosure of UPSI along with a code of conduct for its employees for compliances with the Insider Trading Regulations.
Depositories
The Depositories Act provides a legal framework for the establishment of depositories to record ownership details and effect transfers in book-entry form. Further, SEBI framed regulations in relation to, among other things, the formation and registration of such depositories, the registration of participants as well as the rights and obligations of the depositories, participants, companies and beneficial owners. The depository system has significantly improved the operation of the Indian securities markets.
Derivatives (Futures and Options)
Trading in derivatives is governed by the SCRA, the SCRR and the SEBI Act. The SCRA was amended in February 2000 and derivatives contracts were included within the term “securities”, as defined by the SCRA. Trading in derivatives in India takes place either on separate and independent derivatives exchanges or on a separate segment of an existing stock exchange. The derivatives exchange or derivatives segment of a stock exchange functions as a self-regulatory organisation under the supervision of the SEBI.
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DESCRIPTION OF EQUITY SHARES
Set forth below are certain provisions relating to the Bank’s share capital and the Equity Shares, including brief summaries of certain provisions of the Syndicate Bank (Shares and Meetings) Regulations, 1998, as amended. Our Bank follows RBI Dividend Circular relating to declaration of dividends.
General
The authorised share capital of our Bank is ₹30,000 million consisting of 3,000 million Equity Shares of ₹10 each. As on date of this Preliminary Placement Document, the issued, subscribed and paid up share capital of our Bank is ₹9,045.40 million divided into 904,539,438 Equity Shares of ₹10 each. The Equity Shares are listed on the BSE and the NSE.
Dividend
As per the Dividend Policy and RBI Dividend Circular, our Bank may declare and pay dividend, subject to the following ceilings:
Category CRAR Net NPA Ratio Zero More than zero Form 3% to From 5% to but less than 3% less than 5% less than 7% Range of Dividend Payout Ratio A 11% or more for each of Up to Up to 35 Up to 25 Up to 15 the last three years 40 B 10% or more for each of Up to Up to 30 Up to 20 Up to 10 the last three years 35 C 9% or more for each of the Up to Up to 25 Up to 15 Up to 5 last three years 30 D 9% or more in current year Up to 10 Up to 5 Nil
As per the letter dated April 13, 2010, the Ministry of Finance has directed all public sector banks, including our Bank, to pay a minimum of 20.00% of their equity or 20.00% of their post-tax profits, whichever is higher for the fiscal year 2010.
The Bank is required to comply with certain provisions of the Banking Regulation Act, 1949, and the prevailing regulations / guidelines issued by RBI, including creating adequate provisions for impairment of assets and staff retirement benefits, transfer of profits to statutory reserves. The proposed dividend should be paid out of the current year’s profit. Also, the RBI should not have placed any explicit restrictions on the Bank for declaration of dividends.
General Meetings of Shareholders
There are two types of general meetings of shareholders (i) annual general meetings and (ii) extra ordinary general meetings.
For convening an annual general meeting, a notice signed by the Chairman and the Managing Director or the Executive Director or any officer not the below scale VII or the Company Secretary, and should be published at least twenty-one clear days before the meeting in not less than two daily newspapers having wide circulation in India. Every such notice is required to state the time, date and place of such meeting, and also the business that should be transacted at that meeting. The time and date of such meeting shall be specified by the Board. The meeting shall be held at the Head Office of Syndicate Bank.
A special general meeting of shareholders can be convened by the Chairman and Managing Director or in its absence by the Executive Director or in his absence any one of the Directors may convene an EGM, if so directed by the Board or on a requisition for such a meeting having been received either from the Central Government or from other shareholders holding shares, carrying, in the aggregate, not less than 10% of the total voting rights of all the shareholders. The requisition should state the purpose for which EGM is required to be convened, but may consist of several documents in like form each signed by one or more of the requisitionists. The time, date and place of an EGM shall be decided by the Board, provided that the EGM convened on requisition by the Central Government or other shareholder shall be convened not later than 45 days of the receipt of the requisition. If the
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Chairman and Managing Director or in his absence the Executive Director, as the case may be, does not convene the meeting as required within the stipulated time, the meeting may be called by the requisitionists themselves within 3 months from the date of its requisition. No business can be transacted at any meeting of the shareholders unless a quorum of at least five shareholders entitled to vote at such meeting in person are present. If within half an hour after the time appointed for the holding of a meeting, a quorum is not present, in the case of a meeting called by a requisition of shareholders, other than the Central Government, the meeting shall stand dissolved. In any other case, if within half an hour after the time appointed for the holding of a meeting, a quorum is not present, the meeting shall stand adjourned to the same day in the next week at the same time and place or to such other day and such other time and place as the Chairman may determine. If at the adjourned meeting the quorum is not present within half an hour, the shareholders who are present in person or by proxy or by duly authorized representative at such adjourned meeting, shall be the quorum and may transact the business for which the meeting was called.
Register of Shareholders
The Bank is required to keep, maintain and update share register of its shareholders, the particulars required to be entered in the share register shall be maintained in the form of data stored in magnetic / optical / magneto-optical media by way diskettes, floppies, cartridges or otherwise in computers to be maintained at the head office and the back up at such location as may be decided from time to time by the chairman and managing director or any other official not below the rank of a chief general manager designated in this behalf by the chairman and managing director. The register of the beneficial owners is maintained by a depository under Section 11 of the Depositories Act, 1996 and will be deemed to be the register for, such shareholders.
Issue of Share Certificates
While issuing share certificates to any Shareholder, it shall be competent for the Board to issue the certificates on the basis of one certificate for every hundred shares or multiples thereof registered in his name or on any one occasion and one additional share certificate for the number of shares in excess thereof but which are less than hundred. If the number of shares to be registered is less than hundred, one certificate shall be issued for all the shares. In respect of any share or shares held jointly by several persons, our Bank shall not be bound to issue more than one certificate, and delivery of a certificate for a share to one of several joint holders shall be sufficient delivery to all such holders.
Issue of new or duplicate share certificate
If any share certificate is worn out or defaced, the Board or the Committee designated by it on production of such certificate may order the same to be cancelled and have a new certificate issued in lieu thereof. If any share certificate is alleged to be lost or destroyed, the Board or the Committee designated by it on such indemnity with or without surety as the Board or the Committee thinks fit, and on publication in two newspapers and on payment to our Bank of its costs, charges and expenses, issue a duplicate certificate in lieu thereof to the person entitled to such lost or destroyed certificate.
Consolidation and sub-division of shares
On a written application made by the Shareholder(s), the Board or the Committee designated by it may consolidate or sub-divide the shares submitted to it for consolidation / sub-division as the case may be and issue a new certificate (s) in lieu thereof on payment to the Bank of its costs, charges and expenses of and incidental to the matter.
Transfer of Shares
Upon receipt by the Bank of an instrument of transfer along with a share certificate with a request to register the transfer, the Board or the Committee designated by the Board shall forward the said instrument of transfer along with share certificate to the Registrar or Share Transfer Agent for the purposes of verification that the technical requirements are complied within their entirety. The Registrar or Share Transfer Agent shall return the instrument of transfer along with the share certificate, if any, to the transferee for resubmission unless the instrument of transfer is presented to the bank, duly stamped and properly executed for registration and is accompanied by the certificate of the shares to which it relates and such other evidence as the Board may require to show the title of the transferor to make such transfer.
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Transmission of shares in the event of death, insolvency, etc.
The executors or administrators of a deceased shareholder in respect of a share, or the holder of letter of probate or letters of administration with or without the will annexed or a succession certificate issued under Part X of the Indian Succession Act, 1925, or the holder of any legal representation or a person in whose favour a valid, instrument of transfer was executed by the deceased sole holder during the latter’s lifetime shall be the only person who may be recognised by our Bank as having any title to such share.
In the case of shares registered in the name of two or more Shareholders, the survivor or survivors and on the death of the last survivor, his executors or administrators or any person who is the holder of letters of probate or letters of administration with or without will annexed or a succession certificate or any other legal representation in respect of such survivor’s interest in the share or a person in whose favour a valid instrument of transfer of share was executed by such person and such last survivor during the latter’s lifetime, shall be the only person who may be recognised by our Bank as having any title to such share.
Our Bank shall not be bound to recognise such executors or administrators unless they shall have obtained probate or letters of administration or succession certificate, as the case may be, from a court of competent jurisdiction.
Forfeiture of shares
The notice of forfeiture shall name a day not being less than fourteen days from the date of notice and the place or places on and at which such call or instalment or such part or other monies and such interest and expenses are to be paid. The notice shall also state that in the event of non-payment on or before the time and at the place appointed, the share in respect of which the call was made or instalment is payable will be liable to be forfeited.
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TAXATION
The information provided below sets out the possible tax benefits available to the shareholders in a summary manner and is not a complete analysis / listing of all potential tax consequences relating to the subscription, ownership and disposal of the equity shares, under the current tax laws presently in force in India. Several of these benefits are dependent on the shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence, the ability of any shareholder to derive the tax benefits is dependent upon fulfilling such conditions, which based on business imperatives it faces in the future, it may not choose to fulfill. The following overview is not exhaustive or comprehensive and is not intended to be a substitute for professional advice. Investors are advised to consult their own tax consultants and advisors with respect to the tax implications of an investment in the Equity Shares, particularly in view of certain legislation which may not have a direct legal precedent or may have a different interpretation on the benefits which can be availed. All the tax benefits mentioned in this document are subject to the specific conditions mentioned in the respective section and / or the related rules or guidelines.
The law stated below is as per the Income tax Act, 1961 (hereinafter referred to as “IT Act” or “Act” as amended by the Finance (No. 2) Act, 2017.
The Government has introduced two major reforms in Indian tax laws, namely the Goods and Services Tax (GST), and provisions relating to General Anti-Avoidance Rules (GAAR). With respect to the implementation of the goods and service tax, the Government of India has implemented this from July 1, 2017. The GST would subsume the indirect taxes on goods and services such as central excise duty, service tax, central sales tax, state VAT, cess and surcharge and excise currently being collected by the Central and State Governments. The tax rate applicable for the Bank’s services to customers under GST is @ 18% and is higher than the earlier service tax rate of 15%, and such increase is passed on to the customers.
As regards GAAR, the provisions of Chapter X-A (Sections 95 to 102) of the Act are applicable in respect of Assessment Year 2018-19 (Financial Year 2017-18) and onwards. The GAAR provisions intend to declare an arrangement as “impermissible avoidance arrangement”, if any arrangement, the main purpose of which is to obtain a tax benefit and which satisfies at least one of the following tests (a) creates rights, or obligations, which are not ordinarily created between persons dealing at arm’s length; (b) results, directly or indirectly, in misuse, or abuse, of the provisions of the Income Tax Act, 1961; (c )lacks commercial substance or is deemed to lack commercial substance, in whole or in part; or (d) is entered into, or carried out, by means, or in a manner, which are not ordinarily employed for bona fide purposes. If GAAR provisions are invoked, the tax authorities will have wide powers, including denial of tax benefit or a benefit under a tax treaty. However, as the Bank has good systems to ensure that its transactions do not fall into the categories mentioned above, there may not be any significant adverse effect. As the taxation system is expected to undergo significant overhaul, its consequent effects on the banking system cannot be determined at present and there can be no assurance that such effects would not adversely affect the Bank’s business, future financial performance and the trading price of the Equity Shares.
LIMITATION
Our views expressed in this section are based on the facts and assumptions. No assurance is given that the revenue authorities/ courts will concur with the views expressed herein. Our views are based on the existing provisions of law and its interpretation, which are subject to change from time to time. We do not assume responsibility to update the views consequent to such changes. Reliance on this statement is on the express understanding that we do not assume responsibility towards the investors who may or may not invest in the Offer relying on the statement. This statement has been prepared solely in connection with the Offer under the Regulations as amended.
I. INCOME TAX
A. TAX BENEFIT TO THE BANK
1. Income by way of interest, premium on redemption or other payment on notified securities, bonds, certificates issued by the Central Government is exempt from tax under Section 10(15) as per conditions specified in the concerned notification.
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2. Dividends earned by the Bank from domestic companies are exempt from tax in accordance with and subject to the provisions of Section 10 (34) read with Section 115-O. However, as per Section 94(7), losses arising from sale/ transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed as exempt. Also, no credit can be claimed in respect of the Dividend Distribution Tax paid by the company.
3. Income earned by the Bank from investment in units of mutual fund specified under Section 10(23D) or income received in respect of units from the administrator of the specified undertaking or income received in respect of units from the specified company is exempt from tax under Section 10(35), subject to conditions. However, as per Section 94(7), losses arising from the sale/ redemption of units purchased within three months prior to the record date (for entitlement to receive income) and sold within nine months from the record date, will be disallowed to the extent such loss does not exceed the amount of income claimed exempt. Under Section 94(8), losses arising from sale/ transfer of units of mutual funds, where such units are purchased within three months prior to the record date, additional units are allotted without payment based on holdings on such date and all or any units initially purchased are sold within nine months from the record date while continuing to hold all or any additional units, will be ignored for computing chargeable income. Such loss ignored will be considered as the cost of acquisition of the additional units held on the date of sale/transfer.
4. Under Section 36(1)(vii), any bad debt or part thereof written off as irrecoverable in the accounts of the Bank is allowable as a deduction, subject to the provisions of section 36(2). The deduction of bad debts is limited to the amount, by which such bad debts or part thereof, exceeds the credit balance in the provision for bad and doubtful debts account made under Section 36(1)(viia).
5. Under Section 36(1)(viia),a deduction is allowable in respect of any provision made for bad and doubtful debts, by an amount not exceeding 8.5% of total income (computed before making any deduction under this Clause and Chapter VIA) and an amount not exceeding 10% of the aggregate average advances made by rural branches of the Bank computed in the prescribed manner.
6. In terms of Section 36(1) (viii) of the Act, the bank is allowed deduction in respect of any special reserve created and maintained by the Bank for an amount not exceeding 20% of the profits derived from the business of long term finance for industrial or agricultural development or development of infrastructure facility in India or development of housing in India. Further, if the aggregate amount carried to the Special Reserve account from time to time exceeds twice the paid-up capital and general reserves, no deduction shall be allowed on the excess amount under the Section. The amount withdrawn from such a Special Reserve Account would be chargeable to income tax in the year of withdrawal, in accordance with the provisions for Section 41(4A) of the Act.
7. Under Section 36(1)(xv), securities transaction tax paid by a taxpayer in respect of taxable securities transactions entered into in the course of its business, would be allowed as a deduction if the income arising from such taxable securities transactions is included in the income computed under the head “Profits and gains of business or profession”.
8. Interest income on certain categories of bad and doubtful debts, as specified in Rule 6EA of the Income tax Rules,1962, is chargeable to tax only in the year of receipt or credit to the Profit & Loss Account of the Bank whichever is earlier, in accordance with the provisions of Section 43D.
9. Under Section 47(xv), no capital gain is chargeable on any transfer in a scheme of lending of any securities under an agreement or arrangement, which the assessee has entered into with the borrower of such securities and which is subjected to the guidelines issued by the Securities and Exchange Board of India or Reserve Bank of India, in this regard.
10. As per provisions of Section 72, the Bank is entitled to carry forward business losses that cannot be set off against permitted sources of income in the relevant assessment year, for a period of 8 consecutive assessment years immediately succeeding the assessment year when the losses were first computed, and set off such losses against income chargeable under the head “Profits and gains from business or profession” in such assessment year. The set off is permissible even if the business in which the loss was sustained is not carried on in the year of set off.
11. Under Section 74, short-term capital loss suffered during the year is allowed to be carried forward and set-
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off against short-term as well as long-term capital gains of a subsequent year. Such loss is permitted to be carried forward for upto eight years immediately succeeding the year in which such loss arises, for claiming set-off against subsequent years’ short-term as well as long term capital gains. Long-term capital loss suffered during the year is allowed to be set-off against long-term capital gains. Balance loss, if any, could be carried forward for upto eight years for claiming set-off against subsequent years’ long-term capital gains.
B. STATEMENT OF GENERAL DIRECT TAX BENEFITS AVAILABLE TO THE RESIDENT SHAREHOLDERS (PUBLIC SECTOR ENTERPRISES, MUTUAL FUNDS AND DOMESTIC INSURANCE COMPANIES IN INDIA) AND FOREIGN INSTITUTIONAL INVESTORS (FIIs)
The information provided below sets out the possible tax benefits available to the shareholders of an Indian company in a summary manner only and is not a comprehensive analysis or listing of all potential tax consequences of the subscription, ownership and disposal of equity shares, under the current tax laws presently in force in India. Several of these benefits are dependent on the shareholders fulfilling the conditions prescribed under the relevant tax laws. Hence the ability of the shareholders to derive the tax benefits is dependent upon fulfilling such conditions, which, based on business imperatives a shareholder faces, may or may not choose to fulfil. The following over view is not exhaustive or comprehensive and is not intended to be a substitute for professional advice. Investors are advised to consult their own tax advisors with respect to the tax implications of an investment in the shares particularly in view of the fact that certain legislation may not have a direct legal precedent or may have a different interpretation on the benefits, which an investor can avail.
1. In respect of non-residents, the tax rates and the consequent taxation, mentioned in this section shall be further subject to any benefits available under the Double Taxation Avoidance Agreement, if any, between India and the country in which the non-resident has fiscal domicile; and
2. The under-mentioned tax benefits will be available only to the sole/first-named holder in case the Equity Shares are held by joint shareholders. The law stated below is as per the Income-tax Act, 1961 as amended by time to time. 3. Attention is invited to the requirements under the Income Computation and Disclosure Standards (“ICDS”), which are applicable from Assessment year 2017-18 to all assesses (other than an individual or an HUF not required to get his/its accounts of the previous year audited under section 44AB of the IT Act) following mercantile system of accounting, and are to be followed for the purposes of computation of income chargeable to income tax under the head “Profits and gains of business or profession” or “Income from other sources”.
B.1. RESIDENT SHAREHOLDERS:
1. Bank is required to pay a Dividend Distribution Tax currently at the rate of 20.358% (including applicable surcharge and education cess) on the total amount distributed or declared or paid as dividend. Under Section 10(34) of the IT Act, income by way of dividends referred to in Section 115-O of IT Act received on Bank’s shares is exempt from income tax in the hands of shareholders. However, as per Section 115BBDA of the IT Act, in case of an Individual, Hindu Undivided Family (“HUF”) or a firm, resident in India, if aggregate of dividend income during the year is in excess of ten lakh rupees, then such dividend shall be chargeable to tax at the rate of 10% (plus applicable surcharge and education cess).However, it is pertinent to note that Section 14A of the IT Act restricts claims for deduction of expenses incurred in relation to exempt income. Thus, any expense incurred to earn the dividend income is not allowable expenditure.
As per section 94(7) of the IT Act, losses arising from sale/transfer of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed exempt.
2. The characterization of gains/losses, arising from sale of shares, as Capital Gains or Business Income would depend on the nature of holding in the hands of the shareholder and various other factors.
3. Under Section 10(38) of the IT Act, LTCG arising to a shareholder on transfer of equity shares would be exempt from tax where the sale transaction has been entered into on a recognised stock exchange of India and is chargeable to Securities Transaction Tax (“STT”).
4. Section 48 of the IT Act, which prescribes the mode of computation of capital gains, provides for deduction of cost of acquisition/improvement and expenses incurred wholly and exclusively in connection with the transfer of a capital asset, from the sale consideration to arrive at the amount of capital gains. However, in respect of Long
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Term Capital Gains, (“LTCG”) (other than those exempt under Section 10(38) of the I.T. Act) i.e. gains from Bank’s shares being transfer of shares of Indian company held for a period exceeding twelve months, the second proviso to Section 48 of the IT Act, permits substitution of cost of acquisition/improvement with the indexed cost of acquisition/improvement, which adjusts the cost of acquisition/improvement by a cost inflation index, as prescribed from time to time.
5. Under Section 112 of the IT Act and other relevant provisions of the IT Act, LTCG, (other than those exempt under Section 10(38) of the IT Act) arising on transfer of our shares would be subject to tax at the rate of 20% (plus applicable surcharge and education cess) after indexation. The amount of such tax shall, however, be limited to 10% (plus applicable surcharge and education cess) without indexation, at the option of the shareholder in case the shares are listed.
6. Under Section 54EC of the IT Act and subject to the conditions and to the extent specified therein, long-term capital gains (other than those exempt under Section 10(38) of the IT Act) arising on the transfer of our shares would be exempt from tax if such capital gain is invested within 6 months after the date of such transfer in the bonds (long term specified assets) issued by: i. National Highway Authority of India constituted under Section 3 of The National Highway Authority of India Act, 1988; ii. Rural Electrification Corporation Limited, the company formed and registered under The Companies Act, 1956. The investment in the long term specified assets is eligible for such deduction to the extent of Rs.5 million whether invested during the financial year in which the asset is transferred or in the subsequent financial year. If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years from the date of its acquisition, the amount of capital gains so exempted shall be chargeable to tax as LTCG during the year of such transfer or conversion. For this purpose, if any loans or advance is taken as against such specified securities, then such person shall be deemed to have converted such specified securities into money. The cost of the long term specified assets, which has been considered under Section 54EC for calculating capital gain, shall not be allowed as a deduction from the income under Section 80C of the IT Act.
However in case of companies, such exempt capital gains cannot be reduced from “book profits” under Section 115JB and the company will be required to pay Minimum Alternate Tax (MAT) at 18.5% (plus applicable surcharge and education cess) on such book profits if 18.5% of ‘book profits” is higher than tax liability under normal provisions of the Act. MAT credit can be claimed under Section 115JAA subject to conditions stipulated under the said section.
7. As per Section 111A of the IT Act, Short Term Capital Gains (“STCG”), i.e., gains from shares held for a period not exceeding twelve months) arising on transfer of our equity share would be taxable at a rate of 15% (plus applicable surcharge and education cess) where such transaction of sale is entered on a recognised stock exchange in India and is liable to STT. STCG arising from transfer of our shares, other than those covered by Section 111A of the IT Act, would be subject to tax as calculated under the normal provisions of the IT Act.
8. As per Section 74 of the IT Act, Short Term Capital Loss computed for the given year is allowed to be set off against Short Term as well as Long Term Gains computed for the said year. The balance loss, which is not set off, is allowed to be carried forward for subsequent eight assessment years for being set off against subsequent years’ Short Term as well as Long Term Gains.
However, the Long Term capital Loss computed for a given year is allowed to be set off only against the LTCG. The balance loss, which is not set off, is allowed to be carried forward for subsequent eight assessment years for being set off only against subsequent years’ LTCG.
9. In terms of Section 36(1)(xv) of the IT Act, the STT paid by the shareholder in respect of the taxable securities transactions entered into in the course of his business of transactions/trading in shares would be eligible for deduction from the amount of income chargeable under the head “Profit and gains of business or profession” ” if the income arising from taxable securities transaction is included in such income. As such, no deduction will be allowed in computing the income chargeable to tax as capital gains of such amount paid on account of STT.
B.2. To the Resident Mutual Fund
Under Section 10(23D), exemption is available in respect of all income (including capital gains arising on transfer
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of shares of the Bank) earned by a Mutual Fund registered under the Securities and Exchange Board of India Act, 1992 or such other mutual fund set up by a public- sector bank or a public financial institution or authorized by the Reserve Bank of India and subject to the conditions as the Central Government may specify by notification.
B.3. To the Domestic Insurance Company
Taxation of insurance companies is governed by Section 44 of the Act which provides a special regime for taxation of insurance companies. The section states that notwithstanding anything to the contrary contained in the provisions of this Act relating to computation of income chargeable under the head “income from house property”, “capital gains” or “income from other sources” or in section 199 or in sections 28 to 43B, the profits and gains of any business of insurance, including a mutual insurance company or by a co-operative society shall be computed in accordance with the rules contained in the First Schedule.
Taxation of life insurance business in India governed by section 115B, section 44 and the First Schedule of the Income Tax Act, 1961. “Profit and gains of the life insurance business” is taken as “annual average of the surplus arrived at after adjusting the surplus or deficit disclosed by the actuarial valuation” excluding “from it any surplus or deficit included therein which was made in any earlier inter-valuation period.”
Profits and gains of business of general insurance companies is computed based on the profit and loss account prepared in accordance with the provisions of the Insurance Act, 1938 and the IRDA Act, 1999 and the related Rules under both laws, subject to the following adjustments:
1. Additions of the amounts which are not admissible under the provisions of section 30 to 43B
2. Any gains or loss on realization of investments shall be added or deducted, if such gain or loss is not to the profit and loss account
3. Any provision for diminution in the value of investments debited to profit and loss account shall be added back
4. Amount carried to reserve for unexpired risk shall be allowed as a deduction as prescribed in rule 6E of the Income Tax Rules, 1962.
Tax rates for:
Life Insurance Companies: 12.5% on profits from life insurance business and 30% on other than life Insurance business income as increased by surcharge and education cess.
General insurance companies: 30% of profits as increased by surcharge and education cess.
B.4. Provident Fund and Pension Fund
Under section 10(25) of the Act, any income received by trustees on behalf of a recognized provident fund (as defined in section 2(38)) and an Approved superannuation fund (as defined in section 2(6)) is exempt from tax.
B.5. Venture Capital Fund or Venture Capital Company (VCC or VCF):
Income of a VCF or VCC from investments in a Venture Capital Undertaking is exempt under section 10(23FB) of the Act. In accordance with section 115-U, any income accruing or received by a person out of investment in venture capital fund or venture capital company shall be chargeable to income tax in the same manner as if it were income accrued or received by such person had he made investment in the venture capital undertaking directly. The income paid by VCF or VCC shall be deemed to be of the same nature and in the same proportion in the hands of the person receiving it as it had been received by or had accrued or arisen to VCF or VCC as the case may be. The income accruing or arising to or received by a VCF or VCC from investments in a Venture Capital Undertaking shall be deemed to have been credited to the account of such person on the last day of the previous year in the same proportion in which such person would have been entitled to receive the Income.
B.6. NON-RESIDENT SHAREHOLDERS - FIIS:
1. Bank is required to pay a Dividend Distribution Tax currently at the rate of 20.358% (including applicable
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surcharge and education cess) on the total amount distributed or declared or paid as dividend. Under Section 10(34) of the IT Act, income by way of dividends (whether interim or final) referred to in Section 115-O of the IT Act received on Bank’s shares is exempt from income tax in the hands of shareholders. Section 14A of the IT Act restricts claims for deduction of expenses incurred in relation to exempt income. Thus, any expense incurred to earn the dividend income is not treated as allowable expenditure. As per section 94(7) of the Income Tax Act, losses arising from transfer / sale of shares, where such shares are purchased within three months prior to the record date and sold within three months from the record date, will be disallowed to the extent such loss does not exceed the amount of dividend claimed as exempt.
2. Section 2(14) of IT Act defining capital asset, specifically includes any securities held by an FII which has invested in such securities in accordance with the SEBI Regulations.
3. Under the first proviso to Section 48 of the IT Act, in case of a non-resident shareholder, in computing the capital gains arising from transfer of shares of the company acquired in convertible foreign exchange (as per exchange control regulations), protection is provided from fluctuations in the value of rupee in terms of foreign currency in which the original investment was made. Cost indexation benefits will not be available in such a case. The capital gains/loss in such a case is computed by converting the cost of acquisition, sale consideration and expenditure incurred wholly and exclusively in connection with such transfer into the same foreign currency which was utilised in the purchase of the shares.
4. Under Section 10(38) of the IT Act, Long Term Capital Gains arising to a shareholder on transfer of equity shares would be exempt from tax where the sale transaction has been entered into on a recognised stock exchange of India and is liable to STT.
5. The provisions of section 115JB of the Act do not apply to a foreign company if it is a resident of a country with which India has entered into a Double Tax Avoidance Agreement u/s 90 of the Act and the assessee does not have a Permanent Establishment in India or such company is a resident of a country with which India does not have such agreement and the assessee is not required to seek registration under any law for the time being in force, relating to companies.
6. Under Section 54EC of the IT Act and subject to the conditions and to the extent specified therein, LTCG (other than those exempt under Section 10(38) of the IT Act) arising on the transfer of our shares would be exempt from tax if such capital gain is invested within six months after the date of such transfer in the bonds (long term specified assets) issued by: i. National Highway Authority of India constituted under Section 3 of the National Highway Authority of India Act, 1988; ii. Rural Electrification Corporation Limited, the company formed and registered under the Companies Act, 1956.
The investment in the long term specified assets is eligible for such deduction to the extent of Rs. 5 million whether invested during the financial year in which the asset is transferred or subsequent financial year. If only part of the capital gain is so reinvested, the exemption available shall be in the same proportion as the cost of long term specified assets bears to the whole of the capital gain. However, in case the long term specified asset is transferred or converted into money within three years from the date of its acquisition, the amount of LTCG so exempted shall be chargeable to tax during the year such transfer or conversion. For this purpose, if any loans or advance is taken as against such specified securities, than such person shall be deemed to have converted such specified securities into money.
7. Under Section 115AD (1)(ii) of the IT Act STCG arising to an FII on transfer of shares shall be chargeable at a rate of 30%, where such transactions are not subjected to STT, and at the rate of 15% if such transaction of sale is entered on a recognised stock exchange in India and is chargeable to STT. The above rates are to be increased by applicable surcharge and education cess. Under Section 115AD (1)(iii) of the IT Act income by way of LTCG arising from the transfer of shares (in cases not covered under Section 10(38) of the IT Act) held in the company will be taxable at the rate of 10% (plus applicable surcharge and education cess). The benefits of indexation of cost and of foreign currency fluctuations are not available to FIIs.
8. As per section 90(2) of the IT Act, the provisions of the IT Act would prevail over the provisions of the
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DTAA entered between India and the country of fiscal domicile of the non-resident, if any , to the extent they are more beneficial to the non-resident. Thus, a non-resident (including NRIs) can opt to be governed by the provisions of the IT Act or the applicable tax treaty, whichever is more beneficial. However, the non-resident investor will have to furnish a certificate of his being a resident in a country outside India, to get the benefit of the applicable DTAA and such other document as may be prescribed as per the provision of section 90(4) of IT Act.
9. With effect from April 1, 2017, the benefit of the DTAA will not be available to a non-resident investor if the Tax department declares any arrangement to be an impermissible avoidance arrangement.
10. As per Section 196D of IT Act, no tax is to be deducted from any income, by way of Capital Gains arising to an FII from the transfer of securities referred to in section 115AD of the IT Act.
B.7. Foreign Venture Capital Investor (FVCI):
1. Income of a FVCI from investments in a Venture Capital Undertaking/ Companies is exempt under section 10(23FB) of the Act.
2. In accordance with section 115-U, any income accruing or received by a person out of investment in venture capital fund or venture capital company shall be chargeable to income tax in the same manner as if it were income accrued or received by such person had he made investment in the venture capital undertaking directly. The income paid by a VCF or VCC shall be deemed to be of the same nature and in the same proportion in the hands of the person receiving it as it had been received by or had accrued or arisen to VCF or VCC as the case may be. The income accruing or arising to or received by a VCF or VCC from investments in a Venture Capital Undertaking shall be deemed to have been credited to the account of such person on the last day of the previous year in the same proportion in which such person would have been entitled to receive the income. The FVCI eligible to avail DTAA benefits shall obtain TRC from the Government of the Country of its residence or specified territory containing the prescribed particulars which has been notified by the CBDT through insertion of Rule 21AB in the Income Tax Rules, 1962 and also submit Form 10F (wherever applicable) to avail of the tax benefit.
II. SECURITIES TRANSACTION TAX (STT):
1. For Purchaser: The transaction for purchase of equity shares entered into on a recognized stock exchange and settled by actual delivery or transfer is liable to STT @ 0.1%.
2. For Seller: The transaction for sale of equity shares entered into on a recognized stock exchange and settled by actual delivery or transfer is liable to STT @ 0.1%. The transaction for sale of equity shares entered into on a recognized stock exchange and not settled by actual delivery or transfer is liable to STT @ 0.025%.
Note:
1. The above statement of possible tax benefits sets out the provisions of the direct tax laws in a summary manner only and is not a comprehensive analysis or list of all potential tax consequences of the purchase, ownership and disposal of shares.
2. The above statement covers only certain relevant direct tax law benefits and does not cover any indirect tax law benefits or benefits under any other law.
3. No assurance is given that the Revenue authorities / Courts will concur with the view expressed herein. Our view is based on the existing provisions of law and its interpretation which is subject to change from time to time. We do not assume responsibility to update our view consequent to such changes.
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LEGAL PROCEEDINGS
Except as described below, there is no outstanding litigation, suits or civil proceedings, or criminal proceedings, or prosecutions, statutory and other notices or tax liabilities by or against our Bank or our Directors and there are no defaults, non-payment or overdues of statutory dues, overdues to banks / financial institutions, defaults against banks / financial institutions, defaults in dues payable to holders of any debentures, bonds, or fixed deposits, and arrears on preference shares issued by our Bank, defaults in creation of full security as per terms of issue/ other liabilities, proceedings initiated for economic/ civil/ and other offences /criminal (including cases where penalty may or may not have been imposed in the past) that would result in a material adverse effect on our business. A materiality threshold of ₹1,392 million that is approximately 1% of the net worth of the Bank in Fiscal 2017, has been adopted for civil cases filed by/against the Bank.
A. Cases filed against our Bank
(i) Criminal Cases:
1. Shiva Kumar (“Complainant”) has filed a private complaint bearing number CC 314/2008 before the Addl. Chief Judicial Magistrate, Mysore (“Court”) bearing P.C.R No. 80/06 against G.M.A Prabhu (Assistant Manager-in-charge), and Lakshmi Puttur (Cashier) for an offence under section 420 of IPC. The Complainant alleged that he received a call on 29/08/2006 i.e. just an hour after he deposited ₹ 0.40 million in our Bank. Out of ₹ 0.40 million deposited by him only ₹ 0.30 million was credited and remaining ₹ 0.10 million was confiscated by the Police alleging fake notes which were retained by our Bank for destruction purpose as per the RBI norms. The Complainant prayed before the Court to take cognizance of the offence and direct the police to investigate the case and to impose huge penalty in the form of award.
2. Writ petition was filed by Ajai Arora (“Complainant”) bearing number 1/2009 in the High Court of Allahabad against Ramesh Chand Salgotra, then Chief Manager of Maliwara Branch, and staff members, Om Prakash and Arvind Aggarwal. The complaint was filed by the Complainant stating that ₹ 1.15 million was transferred to Mohd Arif’s account with Oriental Bank of Commerce by the cheque bearing number 104898, which was stolen and subsequently, the fraudulently transferred funds were enchased by Mohd Arif Khan on November 28, 2008. Further, the Complainant alleged that it being a criminal conspiracy and cheating on the part of the bankers, due to which they suffered loss of ₹ 1.15 million. However, High Court of Allahabad by the order dated January 7, 2009, stated that the petitioner shall not be arrested under section 379 and 420 of Indian Penal Code, 1860, and counter affidavit be filed. The case was last heard on October 27, 2017 and is pending for further hearing.
3. Criminal complaint was filed by Krishna Chand Agrawal (“Complainant”) bearing case number CC No 7618 of 2009 against Managing Director, Regional Manager, Ghaziabad and Chief Manager, Raj Nagar branch, Ghaziabad under section 420, 406, 409, 504, 506 of Indian Penal Code, 1860. The complaint was filed by the Complainant as the accused did not credit the dividend amount of ₹ 200, sent by Royal Archtic Hotel. The Complainant further alleged that in spite of oral assurances no amount was credited and when he visited the Bank, accused misbehaved which caused mental agony. The Complainant in his complain had demanded the amount along with interest at the rate of 18% p.a from October 01, 2006 and cost of ₹ 1,000, further he claimed ₹50,000 towards damages, which accused didn’t oblige. The stay was granted by the High Court of Allahabad, stating that allegations made against the applicants are false and frivolous as the communication letter was filed by the Chief Manager on January 24, 2009, but complaint was filed on January 30, 2009. Hence proceeding shall remain stayed before the Special Judicial Magistrate, Ghaziabad, till the next date of listing.
4. M/s Herald Engineers (“Complainant”) has filed a criminal case against our Bank, bearing number R.C.C 1160/10, before the Judicial Magistrate First Class, Nashik. In the complaint, the Complainant has alleged that our Bank has demanded ₹ 21.06 million against the loan which was deposited by him along with interest, pursuant to the order of Hon’ble High Court of Mumbai, dated March 03, 2010 and the Bank by another notice under SARFAESI dated August 12, 2009 has taken illegal possession of the factory premises. The Complainant further stated that demand made was illogical, which has caused mental and physical agony along with damage to the reputation, and illegal possession of the property was an act of criminal conspiracy and criminal trespass. Further, the Complainant preferred S.A. No. 189/2009 in the court of the Debt Recovery Tribunal, in which after the adjudication, by the notice date June 16, 2009, it was directed to handover the premises to the complainant, to which appeal was made by our Bank which was dismissed by DRAT Mumbai on June 02, 2010 against the order of process issued by Junior Magistrate First Class, Nasik in the criminal complaint, bank has preferred Criminal writ petition No.3721 of 2013, wherein the Mumbai High Court has
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stayed the proceedings in the criminal complaint before the Junior Magistrate First Class.
5. Criminal case was filed before the Chief Metropolitan Magistrate, Kolkata against our Bank by Ila Tiwari (“Complainant”), shareholder of our Bank under sections 68, 628, 629 of the Companies Act, 1956. The Complainant, in its complaint alleged that the dividend issued by the bank on July 06, 2010 and July 07, 2011 was not received as the account was out of order from the period January 01, 2009 to March 30, 2009, the account was regularized on March 31, 2009 by transferring fixed deposit held as the collateral security for the overdraft. The Complainant has alleged that bank has on purpose violated various NPA and RBI norms, hidden certain relevant figures, issued false statements and inflated the income, net profits and reserves and surplus in their financial statements which deprived the Complainant from getting the true facts and view of the state of the Bank. The Complainant therefore prayed before the Chief Metropolitan Magistrate Court, Kolkata, to punish the respondent under Section 200 of Criminal Procedure Code, 1973 and issue notices upon the accused persons after taking cognizance. The matter is yet to be taken up for hearing.
6. Syed Abbas Mohd Zaidi (“Complainant”) filed criminal case bearing number 339/2014 at Gazipur Police station, Lucknow against our Bank bearing number 339 of 2014 through Krushna Chandra Mishra (“Manager”) under section 420, 466, 468, And 471 of IPC. It was alleged that our Manager was involved in the fraudulent transfer of cheque no. 618014 in the name of Alex Anthony D’Souza. However, writ petition under article 226 was filed by our Manager before the High Court of Judicature at Lucknow, against the respondent, Syed Mohd. Abbas Zaidi for quashing of FIR and preventing the arrest, stating that allegations made in the first information report are absurd and improbable as the cheque was genuine. The police are yet to file the charge sheet in this matter.
7. Complaint was filed against Vishnu Narayan Mathur and others for sanctioning the overdraft limits of ₹ 17.90 million to Narendra Singh and Arvind Chaudhary against fake legal documents, title deeds and legal opinion. The matter was later investigated by Central Bureau Investigation and complaint was converted into FIR which was later referred to special court CBI on February 02, 2010. The CBI in its charge-sheet stated that OD was sanctioned against bribe, which led to management giving voluntary retirement to Vishnu Narayan Mathur. The special court vide its ordered dated January 21, 2017 framed charges under section 467/120B against the accused. However, criminal revision application was filed against the order dated January 21, 2017 by the special court CBI, for setting aside the order, stating that there was no fabrication in the sale deed in question, which was admitted by the court. However, our ex-CVO M.R.Bagade has been made one of the respondents as complaint was filed by him. The suit is pending for further hearing.
(ii) Civil Cases:
NIL
(iii) Banking Ombudsman Complaints:
As on October 31, 2017, details of the complaints received by the Bank and status of the complaints are as follows:
Total complaints Number of Total complaints Complaints received from complaints pending Resolution Pending as on April 01, 2017 to resolved from as on October 31, March 31,2 017 October 31, 2017 April 01, 2017 to 2017 October 31, 2017 Bengaluru Zone 9 36 41 4 Chennai Zone 7 40 44 3 Delhi Zone 14 66 71 9 Hyderabad Zone 3 51 45 9 Kolkata Zone 3 21 21 3 Lucknow Zone 2 26 15 13 Manipal Zone 6 30 34 2 Mumbai Zone 7 18 21 4 Total 51 288 292 47
B. Cases filed by our Bank
(i) Criminal cases
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Details of cases filed by our Bank under Section 138 of Negotiable Instruments Act, 1881:
Year Number of complaints Amount involved (₹ in million) 2014 – 2015 9 117.02 2015 – 2016 8 49.64 2016 – 2017 17 13.43 2017 – October 31, 2017 5 13.96 Total 39 194.05
Our Bank has set up a fraud monitoring cell (“FMC”) to deal with the cases pertaining to fraud. On the scrutiny and verification of accounts of the fraud reported by the zonal officer, the FMC further reports the same to the Board of our Bank. Thereafter, in terms of the guidelines issued by RBI, our Bank files the complaint with the respective authority assigned as per the following criteria set up
Amount involved in the fraud Authority to whom complaint should be lodged ₹ 10,000 -₹ 1 lac State Police ₹ 1 lakh -₹ 3 crores State CID / Economic Offences Wing of the State concerned. ₹ 3 crores -₹ 25 crores Central Bureau of Investigation ₹ 25 crores -₹ 50 crores Central Bureau of Investigation More than ₹ 50 crores Central Bureau of Investigation
Below are the details of fraud cases filed by our Bank:
A. Details of complaints made by the Bank against borrowers for fraud:
Year Number of complaints Amount involved (₹ in million) 2014-2015 149 7793 2015-2016 143 16222 2016-2017 132 3805 2017- October 31, 2017 48 1132 Total 472 28952
B. Details of complaints made by the Bank against its employees for fraud:
Year Number of complaints Amount involved (₹ in million 2014-2015 50 80 2015-2016 22 89 2016-2017 21 69 2017- October 31, 2017 6 4 Total 99 242
C. Details of cases filed by our Bank against third party frauds (other than/borrower/staff)
Year Number of complaints Amount involved (₹ in million) 2014-2015 38 59 2015-2016 134 103 2016-2017 38 25 2017- October 31, 2017 15 2 Total 225 189
(ii) Willful Defaulters
Year Number of Complaints Amount involved (₹ in million) 2014-2015 35 4813.60 2015-2016 17 637.10 2016-2017 3 1863.10 2017- October 31, 2017 NIL NIL
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Total 55 7313.8
(iii) Civil Cases
1. The suit was filed by our Bank against Global Holding Corporation Private Limited bearing OA no 479 of 2016, before the Debt Recovery Tribunal -II, Delhi. The suit was filed for recovery of sum of ₹ 1,892,391,667.23/- along with interest of at the rate of 13.50% per annum. The OA has been filed inter alia seeking relief / interim reliefs that (a) applicant be allowed to withdraw the amount standing to the credit of the cash top-up account (b) applicant be allowed to liquidate the pledged shares of GTL number being 2,20,00,000 and (c) applicant be allowed to liquidate the pledged shares of CNIL number 10,00,00,000. The suit is pending before Debt Recovery Tribunal.
2. The suit was filed by our Bank against GVK Power & Infrastructure Limited and GVK Perambalur SEZ Private Limited, bearing OA no 519 of 2017, before the Debt Recovery Tribunal, Hyderabad. The suit was filed for recovery of sum of ₹ 174,68,60,387.02/- along with interest of at the rate of 14.60% per annum. The suit has been filed praying that a recovery certificate be issued for the said claim and to direct the Recovery Officer to recover the debt amount with interest by applying the modes of recovery as mentioned under section 25 of Recovery of Debts and Bankruptcy Act, 1993. An interim relief for issuance of interim certificate as provided under section 19 (5B) of the Act during pendency is also sought as defendants have admitted their liability as a borrower and guarantor/mortgagor respectively. The suit is pending before Debt Recovery Tribunal.
(iv) Insolvency proceedings
There are 20 insolvency proceedings filed by operational creditors / corporate debtors before NCLT in which our Bank is also a claimant aggregating to ₹ 71,125.45 million. Details of insolvency proceedings above the materiality threshold are given below: ₹ in million Sr. No Account Holder Dues as on October 31, 2017 1. Educomp Solutions Limited 444.48 2. Monnet Ispat & Energy Limited 1233.22 3. Amtek Auto Limited 990.77 4. Bhushan Steel Limited 17779.98 5. Assam Company India Limited 139.21 6. KSS Petron Private Limited 790.88 7. P&S Jewellery Limited 351.12 8. Alok Industries Limited 5298.52 9. Jyoti Structures Limited 1183.92 10. Jaypee Infratech Limited 4003.90 11. Essar Steel India Limited 10002.71 12. ABG Shipyard Limited 2716.28 13. Electrosteel Steels Limited 2431.79 14. Gujrat NRE Coke Limited 640.32 15. Nagarjuna Oil Corporation Limited 2056.63 16. Air Carnival Private Limited 127.94 17. Samtel Color Limited 1474.85 18. Roofit Industries Limited 1146.92 19. DCS International Private Limited 13.55 20. Bhushan Power and Steel Limited 18298.46
(v) Tax cases
A. Direct Tax
Below are the details of Income tax cases pending as on date of this Placement Document:
(₹ in million) Sr. No. Assessment Year Forum Amount involved 1. Assessment Year 1987-1988 High Court, Karnataka 40.41 2. Assessment Year 1990-1991 High Court, Karnataka 18.50
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3. Assessment Year 1998-1999 High Court, Karnataka 54.21 4. Assessment Year 1999-2000 High Court, Karnataka 80.68 5. Assessment Year 2000-2001 High Court, Karnataka 104.04 6. Assessment Year 2001-2002 High Court, Karnataka 109.83 7. Assessment Year 2002-2003 High Court, Karnataka 124.27 8. Assessment Year 2003-2004 High Court, Karnataka 818.43 9. Assessment Year 2004-2005 High Court, Karnataka 392.40 10. Assessment Year 2005-2006 High Court, Karnataka 5108.87 11. Assessment Year 2006-2007 High Court, Karnataka 2293.28 12. Assessment Year 2007-2008 High Court, Karnataka 4368.01 13. Assessment Year 2008-2009 High Court, Karnataka 3155.49 14. Assessment Year 2009-2010 High Court, Karnataka 2713.10 15. Assessment Year 2010-2011 High Court, Karnataka 2737.56 16. Assessment Year 2011-2012 ITAT, Bangalore 3815.74 17. Assessment Year 2012-2013 ITAT, Bangalore 5626.11 18. Assessment Year 2013-2014 CIT(A), Mangalore 10358.38 19. Assessment Year 2014-2015 CIT(A), Mangalore 8588.15 20. Assessment Year 2015-2016 CIT(A), Mangalore 10921.27 21. Assessment Years2011-12, 2012-13 & 2013-14 High Court, Karnataka 11.02 22. Assessment Years2011-12, 2012-13 & 2013-14 CIT(A), Bangalore 8.41 TOTAL 61,448.16
B. Indirect Tax
Below are the details of indirect tax cases pending as on date of this Placement Document: (₹ in million) Sr. No. Period under dispute Forum Amount involved 1. September 10, 2004 to September 30, 2006 CESTAT, Bengaluru 16.61 2. September 10, 2004 to March 31, 2007 CESTAT, Bengaluru 190.08 3. September 10, 2004 to September 30, 2007 CESTAT, Bengaluru 212.08 4. June 10, 2006 to March 31, 2007 CESTAT, Bengaluru 28.18 5. April 1, 2007 to March 31, 2008 CESTAT, Bengaluru 195.48 6. Fiscal 2008 – 09 To Fiscal 2011 – 12 CESTAT, Bengaluru 176.54 7. Fiscal 2012 – 13 To Fiscal 2014 -15 CESTAT, Bengaluru 580.98 8. Commissioner of Central Fiscal 2014 -15 4.36 Excise, Mysore. 9. September 10, 2004 to March 31, 2007 CESTAT, Bengaluru 30.47 TOTAL 1,434.78
C. Cases against our Directors
There is no litigation or legal action pending or taken by any ministry or department of the Government or any statutory authority against our Directors.
D. Cases against our Subsidiary
NIL
E. Defaults in payment of statutory dues
There have been certain instances of defaults / delays in payment of statutory dues by our Bank. Our Bank has 3,932, 3,765 and 3,528 branches as on March 31, 2017, March 31, 2016 and March 31, 2015 respectively, out of which 2,050, 2,247 and 2,026 branches were unaudited respectively.
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F. Material Developments
There are no material developments, since the date of the last financial statements disclosed in this Preliminary Placement Document.
G. Penalties imposed or actions taken by regulatory authorities in past
1. RBI vide its press release dated July 27, 2016 had imposed an aggregate penalty of ₹30 million (Rupees thirty million only) on the Bank in exercise of its powers conferred under Section 47 (A)(1)(c) read with section 46 (4)(i) of the Banking Regulation Act, 1949 for non - adherence on the part of our Bank of KYC guidelines in case of customer identification, non-adherence of periodical risk categorization and monitoring of transactions. Our Bank has paid the said amount.
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INDEPENDENT ACCOUNTANTS
Our Bank’s current statutory central auditors are M/s. Ganesan and Company, Chartered Accountants; M/s. Manian & Rao, Chartered Accountants; M/s. P G Bhagwat, Chartered Accountants; M/s. S N Kapur & Associates, Chartered Accountants and M/s. Agasti & Associates, Chartered Accountants. Our Bank's financial statements are prepared in accordance with Indian GAAP under the guidelines issued by the ICAI, guidelines issued by the RBI from time to time and practices generally prevailing in the banking industry in India. The Bank’s financial statements included in this Preliminary Placement Document were audited, as the case may be, by a rotation of auditors appointed by RBI.
Further, our financial statements as at and for Fiscals 2017 and 2016 and six months period ended September 30, 2017, included in this Preliminary Placement Document were jointly audited by M/s. Ganesan and Company, Chartered Accountants; M/s. Manian & Rao, Chartered Accountants; M/s. P G Bhagwat, Chartered Accountants; M/s. S N Kapur & Associates, Chartered Accountants and M/s. Agasti & Associates, Chartered Accountants.
Our financial statements as at and for Fiscal 2015, included in this Preliminary Placement Document, were jointly audited by M/s. J N Sharma & Co., Chartered Accountants; M/s. Ramanlal G Shah & Co., Chartered Accountants; M/s K N Goyal & Co, Chartered Accountants; M/s. Ganesan and Company, Chartered Accountant and M/s. Vishnu Rajendran & Co., Chartered Accountant.
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GENERAL INFORMATION
1. Our Bank was constituted as The Canara Industrial & Banking Syndicate Limited in 1925 and was renamed as Syndicate Bank Limited in January 1, 1964. Subsequently, in 1969, our Bank was nationalized under The Banking Companies (Acquisition and Transfer of Undertakings) Ordinance dated July 19, 1969.
2. Our authorized capital is ₹30,000 million divided into 3,000 million Equity Shares of ₹10 each. Prior to the Issue, the issued, subscribed and paid-up share capital of our Bank is ₹9,045.40 million comprising of 904,539,438 Equity Shares of ₹10 each.
3. The Head Office of our Bank is located at Door No. 16/355 and 16/365A, Manipal – 576 104, Udupi, Karnataka, India and our Corporate Office is located at II Cross, Gandhi Nagar, Bengaluru 560 009, Karnataka, India.
4. The Issue was authorized and approved by our Board of Directors by resolution dated May 29, 2017 and approved by our Shareholders, pursuant to a resolution passed at the AGM held on June 23, 2017.
5. We have obtained all consents, approvals and authorizations required in connection with this Issue including RBI recommendation dated July 20, 2017 and GoI Letter dated July 31, 2017 in respect of offering our equity share.
6. The Bank’s outstanding Equity Shares are listed on BSE and NSE. We have applied for in-principle approvals from the Stock Exchanges under regulation 28(1) of the Listing Regulations. We will apply for final approvals to list our Equity Shares to be issued in the Issue on the BSE and the NSE.
7. Except as disclosed in this Preliminary Placement Document, there are no material legal proceedings or arbitration proceedings nor we are aware of any threatened legal proceedings, which, if determined adversely, could result in a material adverse effect on our business, financial condition or results of operations or which might be material in the context of the Issue of Equity Shares.
8. There has been no material change in our financials since September 30, 2017, the date of the Unaudited Financial Statements of our Bank prepared in accordance with in accordance with Standard on Review Managements (SRE) 2410 and since March 31, 2017, the date of the last Audited Financial Statements of our Bank prepared in accordance with Indian GAAP included in this Preliminary Placement Document, except as disclosed herein.
9. M/s. Agasti & Associates, Chartered Accountants, M/s. Manian & Rao, Chartered Accountants; M/s. P G Bhagwat, Chartered Accountants; and M/s. S N Kapur & Associates, Chartered Accountants have consented to the inclusion of their certificate on the statement of tax benefits dated December 12, 2017 in connection with the Issue.
10. The financial statements of our Bank included herein have been prepared in accordance with Indian GAAP as applicable to companies in India. Unless the context otherwise requires, all financial data in this Preliminary Placement Document are derived from our Audited Financial Statements and Unaudited Consolidated and Standalone Financial Statements.
11. Our Bank and the BRLMs accept no responsibility for statements made otherwise than in this Preliminary Placement Document and anyone placing reliance on any other source of information, including our website www.syndicatebank.in, would be doing so at his or her own risk.
12. The Bank confirms that it is in compliance with the minimum public shareholding requirements as specified under the SCRR and required under the provisions of the Regulation 38 of the Listing Regulations.
13. The Floor Price for the Issue is ₹88.57 per Equity Share calculated in accordance with Regulation 85 of the ICDR Regulations and is certified by the Auditors to the Issue. Our Board may consider offering a discount of not more than 5.00% on the Floor Price in terms of Regulation 85 of the ICDR Regulations.
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FINANCIAL STATEMENTS
Financial Statements Page No Unaudited financial results of the Bank for the six months ended September 30, 2017 along F-1 with the limited review report. Audited Financial Statements for Fiscal 2017 F-13 Audited Financial Statements for Fiscal 2016 F-137 Audited Financial Statements for Fiscal 2015 F-254
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DECLARATION
Our Bank certifies that all relevant provisions of Chapter VIII read with Schedule XVIII of the ICDR Regulations have been complied with and no statement made in this Preliminary Placement Document is contrary to the provisions of Chapter VIII and Schedule XVIII of the ICDR Regulations and that all approvals and permissions required to carry on the business have been obtained, are currently valid and have been complied with. Our Bank further certifies that all the statements in this Preliminary Placement Document are true and correct.
Signed by
Sd/-
______Melwyn Rego Managing Director and Chief Executive Officer
Date: December 12, 2017 Place: Bengaluru
I am authorized by the Board of Directors of our Bank vide resolution dated December 12, 2017 to sign this form and declare that all the requirements of the Applicable Law and the rules made thereunder in respect of the subject matter of this form and matters incidental thereto have been complied with. Whatever is stated in this form and in the attachments thereto is true, correct and complete and no information material to the subject matter of this form has been suppressed or concealed and is as per the original records maintained by our Bank.
It is further declared and verified that all the required attachments have been completely, correctly and legibly attached to this form.
Signed by
Sd/-
______Melwyn Rego Managing Director and Chief Executive Officer
Date: December 12, 2017 Place: Bengaluru
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NAME OF THE ISSUER AND HEAD OFFICE
SYNDICATE BANK Head Office: Door No. 16/355 and 16/365A, Manipal – 576 104, Udupi, Karnataka, India Telephone: +91 820 2571181, Fax: +91 820 2570266 Corporate Office: II Cross, Gandhi Nagar, Bengaluru 560 009, Karnataka, India Website: www.syndicatebank.in, Email: [email protected]
ADDRESS OF THE COMPLIANCE OFFICER Sushant Jain Company Secretary and Compliance Officer II Cross, Gandhi Nagar, Bengaluru 560 009, Karnataka, India
Telephone: +91 820 2551 1360 Email: [email protected]
BOOK RUNNING LEAD MANAGERS
Equirus Capital Private Limited BOB Capital Markets Limited BNP Paribas 12th Floor, C Wing, 1704, B Wing, 17th Floor, BNP Paribas House, Marathon Futurex, Parinee Crescenzo, 1 North Avenue, Maker Maxity, N. M. Joshi Marg, Plot No. C – 38/39, G Block, Bandra – Kurla Complex, Lower Parel, Bandra Kurla Complex, Bandra Bandra East, Mumbai 400 013 East, Mumbai 400 051, Mumbai 400051 Maharashtra, India Maharashtra, India Maharashtra, India Tel: +91 22 4332 0600 Tel: +91 22 6138 9300 Tel: +91 22 3370 4000 Fax: +91 22 4332 0601 Fax: +91 22 2652 4518 Fax: +91 22 6196 5194
Centrum Capital Limited Elara Capital (India) Private IDBI Capital Markets & Centrum House, Limited Securities Limited CST Road, 21st Floor, Tower 3, Indiabulls (Fromerly known as IDBI Vidyanagari Marg, Finance Centre, Senapati Bapat Capital Market Services Limited) Kalina, Santacruz (East), Marg, Elphinstone Road (West) 3rd Floor, Mafatlal Centre Mumbai – 400 098, Mumbai – 400 013, Nariman Point Maharashtra, India Maharashtra, India Mumbai – 400 021 Tel: + 91 22 4215 9000 Tel: +91 22 6164 8500 Maharashtra, India Fax: +91 22 4215 9444 Fax: + 91 22 6164 8569 Tel: +91 22 4322 1212 Fax: + 91 22 2285 0785
DOMESTIC LEGAL ADVISOR TO THE ISSUE INTERNATIONAL LEGAL ADVISOR WITH RESPECT TO INTERNATIONAL SELLING AND TRANSFER RESTRICTIONS
M/s. Crawford Bayley & Co. Squire Patton Boggs Singapore LLP State Bank Buildings, 4th Floor 10 Collyer Quay N.G.N. Vaidya Marg, Fort #03-01 / 03 Ocean Financial Centre Mumbai 400 023 Singapore 049315 Maharashtra, India
AUDITORS TO THE ISSUE M/s. Manian & Rao, M/s. P G Bhagwat, M/s. S N Kapur & M/s. Agasti & Chartered Accountants Chartered Accountants Associates, Chartered Associates, Chartered 361, 1st Floor, 7th Cross, Suit 101-102, Orchard, Accountants Accountants Jayanagar, I Block, Dr. Pai Marg, Baner 311, Vinay Palace, 11, 97, Bhoi Nagar, P.O. Bhoi Bangalore 560 011, Pune 411 045 Ashok Marg, Nagar, Bhubaneshwar Karnataka Maharashtra Lucknow 226 001 751022 Uttar Pradesh Odisha
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