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CONTENTS 06 08 14 20 The Joy of The joy of fighting Delivering the Joyful stories of Transformation the partiality of joy of banking transformation prosperity 24 26 32 34 The Joy of Joyfully Building Disseminating Joy Notice of Annual Compliance Risk Management through Customer General Meeting Architecture Service 36 54 68 76 Directors’ Basel III Report on Corporate Management Report Disclosures Governance Discussion & Analysis 80 85 Independent Financial Auditors’ Report Statements To check this Annual Report online for any other information please log on to www.esafbank.com Download: http://bit.ly/ESAFSFBAnnualReport2018 Registered Office : Hepzibah Complex, Second Floor, No. X/109/M4, Mannuthy P.O., Thrissur, Kerala - 680651 Corporate Office : ESAF Bhavan, Mannuthy P.O., Thrissur, Kerala - 680 651 CIN : U65990KL2016PLC045669 RBI Registration Number : MUM 124 Board of Directors Mr. Prabha Raveendranathan Mr. K. Paul Thomas Chairman & Independent Managing Director & Director Chief Executive Officer* Dr. V. A. Joseph Mr. George Joseph Mr. Assan Khan Akbar Independent Director Independent Director Non Executive Director Mr. Saneesh Singh Mrs. Asha Morley Mr. Alex P. George Non Executive Director Independent Director Independent Director *Till 2nd June 2018 Agencies, Auditors & Consultants System Integrator Statutory Auditors Secretarial Auditors Krishna Prasad R S & Co. Consultants - Branding & Communications Consultant - PR Consultant RTA Advisers - IFC Advisers - Capital Raising Business Correspondents All logos and brand names are registered trade marks of their respective owners. Executive Vice Presidents Mr. A. G. Varughese Mr. George Thomas* Mr. Ajit K. Choudhary Mr. George K. John^ Senior Management Team Mr. Murali N. A. Mr. Mohanachandran K. R. Mr. Padmakumar K. Mr. Swaminathan K. Head-Treasury Chief Risk Officer Chief Financial Officer Head-Retail Liability Mr. Bosco Joseph Mr. Sabu Thomas Mr. Paul Joy Palocaren Mr. Raju Antony Head-Administration, Infra- Head-Marketing Head-Retail Assets Head-IT structure & Procurement Mr. Mathews M. Mr. Dominic Joseph Dr. Jose A. V. Mr. Narayanan Kutty M. Chief Compliance Officer Head-Vigilance Head-HR & Training Head-Internal Audit Mr. Reji Daniel Mr. Jaleesh Peter Mr. Abiesh Jose Mr. Ranjith Raj P. Head-Sustainable Banking Head-Corporate Head-Customer Service Company Secretary Communications Quality *Resigned on 31st May 2018 | ^Appointed on 13th June 2018 Dear Shareholders, On behalf of the Board of Directors, I have great pleasure in placing before you the second Annual Report of the Bank, which gives highlights of your bank’s performance during the first full year of working. Last year I had shared with you my optimism about the Bank. The results stated in the Annual Report vindicates my stand and give you a graphic account of the Bank’s performance. It has been an exhilarating journey for the Bank. On many occasions we had to find our own way as there were no beaten tracks to follow. The Bank’s working results for the year is spectacular in every sense, coming at a time when banking industry in the country is facing serious and extra ordinary challenges on multiple fronts. For the fine results, I would like to thank the committed employees of ESAF SFB, under the visionary Leader and Managing Director, Mr. K. Paul Thomas and his Senior Management Team. I also place on record my appreciation and thanks for the guidance and help provided by the Reserve Bank of India, Other Regulators, the Central and State Governments and the Local Self Governments. I acknowledge and thank the Customers and our Shareholders for their co- operation, support and above all their understanding and expect their continued patronage. The Bank is still in a transformative stage. The strategic initiatives it has taken to introduce door step banking with the support of technology will help the Bank to emerge as a common man’s bank. The emphasis on customer acquisition and various initiatives in financial inclusion space it proposes for 2018-‘19, would place the Bank as one among the top among all the Small Finance Banks in the country. Our long term strategy is to build the Bank as ‘a one stop’ financial supermarket for the masses. We believe there are enough opportunities at the bottom of the pyramid for the Bank to excel. I am privileged to preside over an enlightened Board, which believes in creating a transparent, ethical and a compliant Organization. The policies it framed have helped the Bank to steer a righteous course. The focus on governance enabled the Bank to adopt global best practices. This should eventually enable the Bank to join the group of best governed Banks in the country. The Bank today is in the threshold of a great leap forward. I trust and hope that the Bank’s future is quite bright as millions of its customers rely on it to turn around their life. In our fascinating journey forward, I seek active support from one and all. Prabha Raveendranathan Chairman ANNUAL REPORT 7 2017-2018 8 ANNUAL REPORT 2017-2018 Dear Shareholders, As we complete first year of full fledged operations as a bank, it gives me immense satisfaction to present before you some outstanding achievements, attained through sheer hard work and commitment. Primarily I have to thank upfront the employees who have delivered, what was expected of them. Also, I would like to thank all the shareholders for the trust, support, and patronage extended to the organization, which is now regarded as a force to reckon with, in the banking space. While the Global economy hardly returned to normalcy in FY 2017-18, the Indian economy consolidated the gains achieved. Also, it is applaudable that the Government of India has continued its reform agenda with focused initiatives like Digital India and improving the ease of doing business. GST implemented in 2017 has been one of the biggest structural economic reforms. Along with demonetization and digitization efforts, GST may help in the formalization of the economy. Hopefully, these policy measures will reiterate India’s position in leading the global economy. The banking landscape in India has evolved enormously over the last few years, although the fiscal year 2018 gave a mixed response in terms of growth. The introduction of Small Finance Banks and Payment Banks in addition to private, public and co-operative banks have made positive impact on the society and the economy. To Fighting the partiality of priority sectors like MSMEs and Agriculture, prosperity and bringing in the Small Value Credits, Small Finance Banks financial peace is a passion proved to be the core facilitator apart from Co-operative Banks. The recent Government and discipline for us. policy initiatives like ‘Skill India’ and ‘Make in India’ have also been aimed at strengthening the SME sector.Further. SFBs have also played a key role in extending the Government’s social benefit schemes and driving the financial inclusion agenda. From 60,000 in 1991, the branch network of all Scheduled Commercial Banks in India has more than doubled to 138,000 in 2017. Also total bank credit and deposits have grown nearly 70 times and 55 times, respectively, despite asset quality problems and issues of incidence of frauds. However, the RBI has issued guidelines at the appropriate time, ensuring that the systems, business practices, operational processes and risk management for the sector are robust and safe and is making sure that the inclusive agenda is taking forward to the next level. I am very proud to say that we could transform more than 20 lakh families and businesses so far and our contributions have resulted in a deeper impact beyond the economic growth of the nation. What I am referring to is the impact we have created through the unquantifiable soft sides of our contributions, rooted in the value of servant leadership. I always believe that the right to lead has to be earned everyday by exemplifying the values we uphold. Fighting the partiality of ANNUAL REPORT 9 2017-2018 prosperity and bringing in the financial peace is a passion and discipline for us. The journey of building a bank has just begun and we will continue to pursue our mission by building the nation from its roots. When it comes to the financial performance of ESAF Small Finance Bank, I would say that we had a challenging but satisfying year. Our focus on SME and micro loans and the bank at the doorstep approach proved to be the crucial differentiators. We have strengthened our Risk Management practices and are all set to launch the corporate banking vertical, which will surely increase the volume of transactions. We have registered a CASA ratio of 10% and have strengthened our distribution by opening 104 branches as on March 31, 2018. In total, we have mobilised deposits worth `25230 mn as on March 31, 2018. As employee productivity can be improved through automation, we have relied on smaller branch formats. We will continue to invest in branch network as we rely on branches for deposit mobilisation, customer acquisition and rendering localised services.