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Federal Bank Ltd.

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Market Cap. (₹) 20131.25 Cr. P/BV 1.65 Book Value (₹) 61.49
52 Week High/Low (₹) 107/67 FV/ML 2/1 P/E(X) 16.18
Bookclosure 10/08/2018 EPS (₹) 6.27 Div Yield (%) 1.38
Year End :2018-03 


The Board of Directors has immense pleasure in presenting this 87th Annual Report of The Federal Bank Limited, along with the audited financial statements for the year ended 31 March, 2018.

Financial Results (Rs, in Crore)

Financial Parameters for the year ended

March 31, 2018

March 31, 2017

Net interest income



Fee and Other income



Net Revenue



Operating Expense



Operating Profit



Net Profit



Profit brought forward



Total Profit Available for appropriation




Transfer to Revenue Reserves



Transfer to Statutory Reserves



Transfer to Capital Reserves



Transfer to/(from) investment Reserve Account



Transfer to Special Reserve



Dividend pertaining to previous year paid during the year



Tax on dividend



Balance Carried over to Balance Sheet



Financial Position (as on 31.03.2018)


11 1,992.49





Total Business (Deposits Advances)



Other Borrowings

1 1,533.50





Total Assets ( Balance Sheet Size)


1 14,976.93

Equity Capital




Return on Total Assets (%)



Return on Equity (%)



Earnings Per Share (Rs,)



Book value per share (Rs,)



Operating cost to income (%)



Capital Adequacy Ratio (%) Basel (iii)




1. Previous year figures have been regrouped / reclassified, where necessary to conform to current year's classification.

Highlights of performance

During the year 2017-18, your Bank has delivered robust growth in all the business segments. Total business of your Bank improved by 19.27% to reach at Rs, 203,949.96 Cr as on 31 March 2018. 14.67% growth in deposits and 25.39% growth in advances (net) helped your Bank to clock this number. Total deposits reached Rs, 111,992.49 Cr and advances (net) reached Rs, 91,957.47 Cr and on averages, deposit portfolio of your bank grew by 13.34% to reach Rs, 98,038.12 Cr and advance portfolio grew by 25.97% to reach Rs, 79,094.18 Cr.

On the NR side, NRE deposits had a growth rate of 16.97% to reach Rs, 42,586.31 Cr and NRE Savings clocked a growth of 17.44% to reach Rs, 12,386.81 Cr. The total NR business of your Bank stood at Rs, 45,071.86 Cr with a growth of 16.83%.

Growth in Business

On CASA front, Savings deposit touched Rs, 30,919.83 Cr with 17.13% growth and Current deposits stood at Rs, 6,332.01 Cr with a growth of 16.40%. Your bank registered a healthy CASA growth of 17.01% to reach Rs, 37,251.84 Cr. CASA ratio of your bank stood at 33.26%.

The investment portfolio of your Bank has reached Rs, 30,781.07 Cr as on 31 March 2018. The average investment as on 31 March 2018 is Rs, 28,809.53 Cr.


The Operating Profit of your Bank increased by 19.02% to Rs, 2,291.03 Cr and Net Profit of your Bank is up by 5.78% to Rs, 878.85 Cr. Healthy traction in core income streams has helped your bank to have a good momentum in core operating performance. Net interest income improved by 17.37% to Rs, 3,582.81 Cr while the Non-interest income rose to Rs, 1,159.12 Cr, showing a rise of 7.15%.

Total income of your Bank during the fiscal year 2018 recorded 11.81% growth to reach Rs, 10,911.98 Cr. income from advances increased by 15.17% to reach Rs, 7,538.78 Cr. The yield on advances stood at 9.53% and the yield on investments at 7.48 %. The Net Interest Margin for the fiscal year is at 3.21% as against 3.31%, in the previous year.

Return on Average Equity and Return on Average Total Assets stood at 8.37 % and 0.75% respectively. Earnings per Share (face value of Rs, 2 each) of the Bank, as on 31 March 2018 was Rs, 4.46. Book value per share had increased to Rs, 61.55 during FY 18.


Higher revenue growth and better cost management resulted in Cost / income Ratio improving to 51.69% in 2017-18 as against 53.44% last year. The total expenses of your bank increased by 10.04%,to reach at Rs, 8,620.95 Cr and by an increase of 9.69%, interest expenses increased to Rs,6,170.05 Cr in FY 18.Operating

Expenses of the Bank during the fiscal year grew to Rs,2,450.90 Cr. The cost of deposits of the Bank has come down during the year. The cost of deposits of the Bank is 5.84% as on 31 March 2018. The interest expenses as percentage to total income stood at 56.54%.


During the fiscal year the Bank's spread on advances (gross) decreased to 3.69% and spread on investments (gross) decreased to 1.64%. The Spread (net of provisions) on advance decreased to 2.74% from 3.53% of last year.

Asset Quality

The Gross NPA of your Bank as on 31 March 2018 stood at Rs, 2,795.62 Cr. Gross NPA as a percentage to Gross Advances is 3% which is higher than 2.33% as at the end of FY17. The Net NPA stood at Rs,1,551.96 Cr and this as a percentage to Net Advances is 1.69%. The Provision Coverage Ratio (including technical writeoffs) stood at 64.50%.

Net worth and Capital Adequacy

The Net Worth of your Bank grew by 37.06% to Rs,12,138.49 Cr as against Rs, 8,856.47 Cr in the previous year. Historically, your Bank has been strong on capital adequacy. CRAR of the Bank calculated in line with Basel iii norms stood at 14.70% which is considerably higher than the 9% stipulated by RBi. Of this, Tier 1 CRAR is at 14.18%.

Business Overview

Your Bank continued its consistent performance during FY 2017-18 with the total business of the Bank increasing by 19.27% to Rs, 203,949.96 Cr.

There is no change in the nature of business of the Bank for the year under review. Further information on the business overview and outlook and state of the affairs of the Bank is discussed in detail in the Management Discussion & Analysis.

Employee Productivity

Business per employee of your Bank during the period stood at Rs,17.21 Cr, an improvement of 17.39% for the year and the profit per employee of the Bank stood at Rs, 7.415 Lakh during the fiscal.

Expansion of Network

The Bank has 1252 branches and 1696 ATMs as on 31 March 2018. The Bank also has its Representative Office at Abu Dhabi and Dubai and an iFSC Banking Unit (iBU) in Gujarat international Finance Tec-City (GiFT City).

Share Value

Earnings Per Share (face value Rs, 2 /- each) of your Bank has declined from 4.82 to 4.46 during the year under review. Return on Equity

reached 8.37% in the fiscal year ended 31 March 2018. Dividend

Continuing the Bank's policy of striking a fine balance between retained earnings and dividend distribution, the Board of Directors have recommended a dividend of 50% i.e. Rs,1.00 per Equity Share on face value of Rs, 2/- each for the year 2017-18 (previous year 45% i. e Rs, 0.90 per Equity Share) subject to the approval of the members in the ensuing Annual General Meeting. Protecting shareholders' value has always been a guiding philosophy of the Bank. (Rs, in Thousands)


FY 2017-18

FY 2016-17

Transfer to Revenue Reserve



Transfer to Statutory Reserve



Transfer to Capital Reserve



Transfer to/(from) investment Reserve Account



Transfer to Special Reserve



Dividend pertaining to previous year paid during the year



Tax on dividend



Balance carried over to Balance Sheet






Material changes and commitment affecting financial position of the Bank

There are no material changes affecting the financial position of the bank which have occurred between the end of the financial year of the bank to which the financial statements relate and the date of the report.

Significant and material orders passed by the regulators or courts or tribunals impacting the going concern status of the company and its future operations

There are no material orders passed by the regulators or courts or tribunals impacting the going concern status and company's operations in future.

Dividend Distribution Policy in accordance with the Regulation 43A of securities and exchange board of India (listing obligations and disclosure requirements) regulations, 2015, the Bank has formulated a dividend distribution policy and the same is annexed herewith as Annexure VIII. The Policy is hosted on the website of the bank and can be viewed in the following link httos://www. Federalbank. distribution poHcy/ ea1bb41c-64fc-4fb5-bce5-bf96dea3432b


Being a banking company, the disclosures required as per rule 8(5)(v) & (vi) of the companies (accounts) rules, 2014, read with section 73 and 74 of the companies act, 2013 are not applicable to your bank.

Increase Of Capital

in FY 2017-18,the paid up capital of the bank was increased by an amount of Rs, 431,034,482 by allotment of 215,517,241 equity shares of Rs, 2/- each raised by way of qualified institutional placement and Rs, 65,154,068 by allotment of 32,577,034 esos shares of Rs, 2/- each and Rs, 9500 by allotment of 4750 shares by way of release of rights abeyance shares. The paid up capital of the bank as on 31 March 2018 is Rs, 3,944,284,628 consisting of 1,972,144,439 equity shares of Rs, 2/- each

Investor Education And Protection Fund

As per the companies act 2013, dividend unclaimed for more than seven years from the date of declaration is to be transferred to investor education and protection fund. On 04th October 2017 the bank had transferred Rs, 6,269,885/- to the above fund, being the unclaimed dividend for the year 2010.

Employee Stock Option Scheme (ESOS)

The Bank has instituted Employee Stock Option Schemes, duly approved by the shareholders of the Bank to enable its employees including Whole Time Directors to participate in the future growth and financial success of the Bank. The Employee Stock Option Schemes are in accordance with the SEBi guidelines, as amended from time to time. The eligibility and number of options to be granted to an employee is determined on the basis of various parameters such as scale, designation, performance, grades, period of service, Bank's performance and such other parameters as may be decided by the Compensation Committee from time to time in its sole discretion and is approved by the Board of Directors. The Bank's shareholders had approved the Employee Stock Option Scheme 2010 (ESOS 2010) on December 24, 2010 and the Federal Bank Limited Employee Stock Option Scheme 2017 (ESOS 2017) on July 14, 2017.

Under ESOS 2010, the Nomination, Remuneration, Ethics & Compensation Committee granted 34,720,200 options during the year 2011-12, 24,484,750 options during the year 2012-13, 26,094,250 options during the year 2013-14, 11,156,450 options during 2014-15, 1,025,000 options during the year 2015-16, 965,000 options during the year 2016-17 and 100,000 options during the year 2017-18. The options granted which are non transferable, with vesting period of 1,2,3 and 4 years subject to standard vesting conditions, must be exercised within five years from the date of vesting. As on 31 March 2018, 32,577,034 options had been exercised and 38,476,532 options were in force. Under ESOS 2017, the Compensation Committee granted 22,318,348 options during the year 2017-18, the options granted which are non transferable, with vesting period of 1, 2 and 3 years subject to standard vesting conditions, must be exercised within five years from the date of vesting. As on 31 March 2018, no options had been exercised and 15,770,539 options were in force. Other statutory disclosures as required by the SEBi guidelines/ Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 on ESOP are given in Annexure II to this report.

Corporate Social Responsibility

Corporate Social Responsibility (CSR) has been an inherited and inbuilt element of our fundamentals - right from the day the Bank was founded. Our founder's values & ethos based on trust got embedded in the Bank's policies and principles. CSR in Federal Bank began with the first act of cultivating banking habits in the agrarian society - to effectively utilize idle money for productive purposes.

Overview of some of the major CSR programs undertaken by the Bank during FY 2017-18 is detailed in the Management Discussion and Analysis part of the Annual Report.

CSR Expenditure

The amount to be spent by the Bank towards CSR for FY 2017-18 as per Section 135 of the Companies Act, 2013, comes to Rs,23.88 Crores. Amount spent by the Bank this year towards CSR was Rs,14.01 Crores. Through various projects which are already sanctioned, your Bank will be thoughtfully spending the CSR funds earmarked for the purpose. The ratio adopted was 80:20, wherein 80 % of the CSR funds will be utilized for long term sustainable projects and 20 % of the funds will be utilized to meet location specific requests. The Bank had also embarked on some major projects last year in the field of education, youth engagement, skill development, support to differently abled individual/persons etc. By choosing long term sustainable projects, Bank has taken an approach which brings steady and long lasting impact on the society.

The details of the CSR activities of FY 2017-18 are mentioned in Annexure iV to this report.

Risk Management

The Board of Directors oversees the enterprise wide risk management functions of the Bank. A separate Risk Management Committee of the Board supervises the risk management functions, thereby bringing in a top to down focus on risk management. integrated Risk Management Department co-ordinates and administers the risk management functions in the Bank. The Department has three dedicated divisions for managing Credit risk, Market risk and Operational risk. Dedicated teams within the Divisions are responsible for assessment, monitoring and reporting of risks across the Bank. The Bank has established an independent Mid Office as a part of Market Risk Division to monitor the Treasury activities. Business Continuity Plans & information Security Plans also form part of risk management functions in the Bank. Risk Management policies are approved by Board of Directors, and reviewed from time to time. Executive level risk management committee, such as Credit Risk Management Committee, Asset Liability Management Committee, Operational Risk Management Committee and information Security Committee regularly assess the functional efficiency of the Bank in risk management and refine the policies and processes. Responsibility for identification, measurement and controlling of risk in various spheres of activities of the Bank is vested with a Senior Executive designated as Chief Risk Officer, who reports directly to the Managing Director & CEO. All material risks of the Bank emerging in the course of its business are identified, assessed and monitored. In our opinion presently there are no material risks which threaten the current functioning of the Bank.

Internal control systems and their adequacy

The Bank has through the years developed and stabilized an effective internal control system calibrated to the risk appetite of the Bank and aligned to the scale, size and complexity of its operations. The scope and authority of the internal audit function is defined in the Audit and Inspection Policy of the Bank, duly approved and recommended by the Audit Committee of the Board and approved and adopted by the Board of Directors. in order to help Bank achieve its mission of adopting the best professional practices prevailing in the industry, while framing the policy, substantial inputs are taken from - RBi guidance note on Risk Based internal Audit, 'The internal audit function in banks' published by Basel Committee on Banking Supervision and Model Audit Manual on internal & Concurrent Audit Systems in Public Sector Banks. Audit and inspection Policy is reviewed annually. Policy is reviewed considering various guidelines of RBi, Basel Committee recommendations, iCAi guidelines, other statutory / regulatory guidelines, directions of Board / Audit Committee of the Board issued from time to time and periodic internal guidelines / instructions issued by the Bank. At the enterprise level, the inspection and Audit Department, on a continuous basis, assesses and monitors the effectiveness of the control systems and its adequacy to meet the growing complexities. The audit function essentially validates the compliance of Bank's processes and operations with regulatory guidelines, accounting procedures and Bank's own internal rules and guidelines. A department level committee meets on periodical intervals to discuss latest internal / RBi / regulatory guidelines for ensuring that the required changes are implemented for making the audit function updated and dynamic.

The Bank has a robust system towards escalating the audit findings to appropriate levels in the hierarchy of management and discussions in various committee towards suggesting corrective action and its follow up. The Bank in compliance of the requirements of Section 138 of the Companies Act 2013, has designated the Head of inspection and Audit Department as internal Auditor. Audit being an independent function, the internal Auditor is reporting to the Audit Committee of the Board of Directors. The Bank has various types of audit which inter-alia include Risk Based internal Audit, information System Audit, Concurrent Audit, Gold Loan Audit and Management Audit. Branches are risk rated and the frequency of Risk Based Internal Audit is decided based on Risk - Audit Matrix defined in Audit and Inspection Policy. Significant Audit findings and observations are presented to inspection Review Committee of Executives and a report on the meetings of inspection Review Committee of Executives along with significant audit findings, directions / suggestions of the committee and action taken in such cases is placed to the Audit Committee of the Board for review periodically. Other findings are placed before a department level committee called the 'inspection Department Review Committee' for review and its observations are placed before inspection Review Committee of Executives.

As per the requirement of Companies Act 2013, Bank has formulated internal Financial Controls framework. Risk and Controls associated with each process in the Bank are documented under the internal Financial Controls Framework. inspection and Audit Department plays a significant role of testing the control effectiveness for each process under the framework.

The internal Audit function provides independent assurance to the Board of Directors and Senior Management on the quality and effectiveness of the bank's internal control, risk management and governance systems and processes, thereby helping the Board and Senior Management protect the bank and its reputation.

Vigil Mechanism/Whistle Blower Policy

Bank has a comprehensive Fraud Risk Management Policy that speaks on various control systems, monitoring and surveillance mechanism so as to prevent, detect and investigate frauds both internal and external. Vigilance department plays a dynamic role in prevention as well as investigation of frauds. Preventive measures include spreading awareness on potential fraudulent activities and instigating a compliant environment among all employees of the Bank. Effectiveness of fraud prevention mechanism is ensured by conducting industrious Preventive Vigilance Workshops, Preventive Vigilance Audits and alerts to all employees on regular basis that disseminates various modus operandi of frauds in the banking industry. Bank has been keen on educating customers against fraudulent activities through various channels including SMS, E-mails, posters at Branches, scroll messages on Bank website and internet banking webpage, etc. Suspected frauds/complaints/ internal irregularities are promptly investigated by the Vigilance

Department. Crucial factors of investigation like the methodology, investigating officer from the Vigilance Department, scope of investigation, etc are under the discretion of Chief Vigilance Officer and he/ she reports to MD & CEO directly.

Bank has a robust Whistle Blower Policy termed as Protected Disclosure Scheme (PDS) with a view to enhancing public confidence in the Bank and also in compliance of RBI directions in this regard. The policy aims at establishing an efficient vigil mechanism in the Bank to quickly spot aberrations and deal with it at the earliest. it is disseminated among the employees assuring confidentiality and protection to the whistle blower against any personal vindictive actions such as humiliation, harassment or any other form of unfair treatment. Directors and Employees of the Bank, employee representative bodies, customers, stakeholders, non-governmental organizations (NGO) and members of the public can lodge complaints/disclosures under this scheme. A dedicated e-mail iD is provided for sending complaints/disclosures under PDS. Vigilance Department conducts investigation of all complaints /information received through the PDS and submits report to MD & CEO. The details of the complaints and findings are also placed before the Audit Committee of the Board on a quarterly basis. The scheme is popularised through various measures such as preventive vigilance classes, internal circulars, alerts etc. No personnel have been denied access for giving any information as envisaged in the Protected Disclosure Scheme. The PDS Document is made available in Bank's website and intranet.

Website link to Bank's Whistle Blower Policy/Vigil Mechanism is http://www. federalbank. Whistle Blower policy/558aea51-1335-4546-9c9a-28c5030377a1

Subsidiary of the Bank

As on 31 March 2018, the Bank has one unlisted fully-owned subsidiary named Fedbank Financial Services Limited. Fedbank Financial Services Limited is a diversified Non-Deposit-Taking & Systemically important (ND-Si) NBFC offering multiple loan products such as Loan against Property (LAP), Structured Finance and Loan against pledge of Gold ornaments. it also distributes loan products of The Federal Bank Limited.

The total loan portfolio of Fedbank Financial Services Limited as on 31 March 2018 is Rs, 1413 Crores as against Rs, 962 Crores as on 31 March 2017. The Profit After Tax of the company for the year ended 31 March 2018 increased to Rs, 30.80 Crores from Rs, 22.53 Crores for the year ended 31 March 2017.

The Bank and Fedbank Financial Services Limited (Fedfina) have entered into definitive agreements for Fedfina, to issue fresh equity shares constituting 26% of the post issue paid up share capital of Fedfina, to a fund managed by True North Enterprise Private Limited subject to statutory and regulatory approval.

Joint Venture in Life Insurance Business

The Bank's Joint Venture Life insurance Company, in association with iDBi Bank Limited and Fortis insurance international N.V. (now Ageas), namely iDBi Federal Life insurance Company Limited (erstwhile iDBi Fortis Life insurance Company Limited), commenced operations in March 2008. Currently the Bank has a total stake of Rs, 208 Crore in the equity of the company holding 26 % of the equity capital. The total premium collected by iDBi Federal Life insurance Company Limited during the period ended 31 March 2018 is Rs, 1783 Crores.

Consolidated Financial Statements

in accordance with the provisions of Section 129(3) of the Companies Act, 2013 read with Rule 8 of Companies (Accounts) Rules, 2014, the Bank has prepared its consolidated financial statement including its subsidiary, Fedbank Financial Services Limited and associate iDBi Federal Life insurance Company Limited, which is forming part of this Annual report. The financial position and performance of its subsidiary/ Associate is given in the statement containing salient features of the financial statements of the subsidiaries/Associate Companies/Joint Venture, (Given as Annexure VII) which forms part of the consolidated financial statements.

in accordance with third proviso to Section 136(1) of the Companies Act, 2013, the Annual Report of the Bank, containing therein its standalone and the consolidated financial statements has been hosted on its website Further, as per fourth proviso to the said section, the audited annual accounts of the said subsidiary company of the Bank have also been hosted on the Bank's website The said documents have been hosted on the website of the subsidiary company of the Bank also, in compliance with the said section. The documents/details available on the Bank's website (www. will also be available for inspection by any Member at its Registered Office. Further, pursuant to the provisions of Accounting Standard ('AS') 21, Consolidated Financial Statements notified under Section 133 of the Companies Act, 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014 issued by the Ministry of Corporate Affairs, the Consolidated Financial Statements of the Bank along with its subsidiary for the year ended March 31, 2018 forms part of the Annual Report.

Corporate Governance

Corporate governance is essentially a set of standards, systems, and procedures aimed at effective, honest, transparent, and responsible management of a company within the applicable statutory and regulatory structures. This Code represents a set of desirable, corporate governance practices to be adopted by the Bank. The Code takes into account the relevant statutory and SEBi/stock exchange listing requirements and Reserve Bank of India (RBi) directives and other guidelines under the Companies Act 2013. The efficacy of the Code lies in how well it is put into practice. in adopting the Code, the stress is in its substance and spirit rather than on its form.

Good corporate governance practices help support and strengthen corporate actions aimed at achieving the corporate objective. The Bank's principal corporate objective, like that of any corporate business entity, is to perpetuate its business while protecting and enhancing, over the long term, the value of the investments of its shareholders in the Bank. A copy of the Code of Conduct for the Board of Directors and Management is available on Bank's website.

A separate section on Corporate Governance standards followed by the Bank and the relevant disclosures, as per regulatory requirements forms part of this Annual Report.

Board of Directors

The composition of the Board of Directors is governed by the Banking Regulation Act, 1949, the Companies Act,201 3, SEBi (Listing Obligations and Disclosure Requirements) Regulations,2015 ("Listing Agreement") and the Code of Corporate Governance adopted by the Bank. The Board comprises of eleven Directors as on the date of this report, with rich experience and specialized knowledge in various areas of relevance to the Bank, including banking, accountancy, MSME, finance, small scale industry, agriculture, strategic planning, risk management, information Technology and Payment and Settlement Systems During FY 2017-18 RBi approval was obtained vide letter DBR. Appt No.6837/08.38.001/2017-18 dated 25th January 2018 for reappointment of Mr. Ashutosh Khajuria, Executive Director of the Bank for a further period of 2 years w.e.f 28th January 2018 based on the revised terms and conditions to be made effective from 01st February 2018. The Board had on 16.04.2018 approved the reappointment of Mr. Ganesh Sankaran as Executive Director with a seat on the Board of the Bank, for a period of two years with effect from completion of his present term based on the revised terms and conditions approved by the Board at its meeting held on 19 October 2017, subject to RBi approval.

Mr. A P Hota who was appointed as an Additional independent Director on 15 January 2018 and Mr Deepak Maheshwari who is appointed as an Additional independent Directors as on date of this report will be regularized in this AGM. The Bank has also proposed the confirmation of reappointment of Mr Ashutosh Khajuria as Executive Director of the Bank as approved by RBi and also reappointment of Mr. Ganesh Sankaran as Executive Director of the Bank for which RBi approval is awaited, in this AGM.

The detailed profile of all the directors recommended for appointment/ reappointment in this AGM are mentioned in the Notice of Annual General Meeting for the benefit of shareholders as required under law.

During the year Mr. Nilesh Vikamsey was appointed by the Board as the Chairman of the Bank, subject to RBi approval w.e.f 01st March 2018 on the stepping down of Mr. K M Chandrasekhar as Director from the Board of the Bank.

Mr. K M Chandrasekhar, independent Director and past Chairman of the Bank retired as Director from the Board of the Bank w.e.f 01st March 2018 on attaining seventy years of age, as per the regulatory requirements. The Board places on record their appreciation for the commendable contribution made by Mr. K M Chandrasekhar, as independent Director during his tenure in the Bank.

Excluding the MD & CEO, Executive Director & Chief Financial Officer, Mr. Ashutosh Khajuria and Executive Director, Mr. Ganesh Sankaran, all other members of the Board are Non-Executive and independent Directors. Necessary declarations were obtained from the independent Directors as required under the RBi Regulations, SEBi (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Companies Act. The remuneration and other benefits paid to MD & CEO of the Bank and Executive Directors during the year are disclosed in Annexure I to this Report and in Corporate Governance Report. The Non Executive independent Directors, except Chairman of the Board, are paid only sitting fees for attending every meeting of the Board/ Committee of the Board within the limits as prescribed under the Companies Act, 2013. During the year Mr. K M Chandrasekhar the Chairman of the Board, till 28th February 2018 was an paid an amount of Rs, 1.25 lakhs per month(Rs, 15,00,000/- per annum) as remuneration, as approved by the Board and RBi in addition to sitting fee for attending Board / Committee meetings. The Board had in its meeting dated 22nd February 2018 approved the appointment of Mr. Nilesh Vikamsey as the Chairman of the Board of the Bank from 01st March 2018 and also approved the payment of remuneration of an amount of Rs,1.50 Lakh per month in addition to payment of sitting fee for attending Board/Committee meetings for which the RBi approval is awaited. The Bank has framed a Comprehensive Compensation Policy for Non-Executive Directors of the Bank (Other than Part Time Chairman) which is detailed in the heading 'Policy on Remuneration to Non-Executive Directors/independent Directors.' Mr. Ganesh Sankaran, Executive Director of the Bank is liable to retire at this AGM in compliance with Section 152 of Companies Act, 2013,as required under the regulations regarding retirement of directors by rotation. The detailed profile of Mr. Ganesh Sankaran, recommended for reappointment in this AGM is mentioned in the Notice for the Annual General Meeting of the Bank.

Composition of Audit Committee

The Audit Committee consists of three Non Executive, independent Directors, chaired by Ms. Grace Koshie, a Non-Executive independent Director. The Committee was reconstituted once in the financial year 2017-18. The other members of the Committee are Mr. Nilesh S Vikamsey, Ms. Shubhalakshmi Panse and Mr. A P Hota who are Non-Executive independent Directors as on the date of this report.

The constitution of the Committee is in compliance with the regulatory requirements. The terms of reference of the Audit Committee incorporated in the Bank's Code of Corporate Governance, are in accordance with the SEBi (Listing Obligations and Disclosure Requirements) Regulations, 2015, Companies Act, 2013 and RBi guidelines, which are detailed in Corporate Governance section of this report.

Independent Directors

In terms of the definition of Independence of Director as prescribed under SEBi (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Section 149(6) of Companies Act, 2013 and based on the confirmation / disclosures/declarations received from the Directors, the following Directors are independent Directors of the Bank as on the date of this report:

1. Mr. Nilesh S Vikamsey (DiN- 00031213)

2. Mr. Dilip G Sadarangani (DiN- 06610897)

3. Mr. Harish H Engineer (DiN- 01843009)

4. Ms. Grace Elizabeth Koshie (DiN- 06765216)

5. Ms. Shubhalakshmi Panse (DiN- 02599310)

6. Mr. C Balagopal (DiN- 00430938)

7. Mr. A P Hota (DiN- 02593219)

8. Mr. Deepak Maheshwari (DiN- 08163253)

A meeting of independent Directors was conducted on 10 April 2018 to evaluate the performance of Board as a whole, evaluation of Non-independent Directors and Chairman of the Board and assess the flow of information. The meeting was attended by all the independent Directors of the Bank.

Woman Director in terms of the provisions of Section 149 of the Companies Act, 2013 and Clause 17(1 )(a) of the SEBi(Listing Obligations and Disclosure Requirements), Regulations 2015(LODR Regulations) a company shall have at least one Woman Director on the Board of the company. Your Bank has Ms. Grace Elizabeth Koshie and Ms. Shubhalakshmi Panse as Directors on the Board of the Bank.

Bank's policy on directors' appointment and remuneration including criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178;

a) Qualifications, Experience and knowledge

1. The Board should bring to their tasks a balanced mix of knowledge, skills, experience, and judgment relevant to the

Bank's policies, operations, and needs. Not less than fifty-one percent of the total number of Directors shall be persons having special knowledge, skills, or valuable experience in one or more fields, such as banking, finance, management, economics, law, accountancy, agriculture and rural economics, cooperative movement, trade, industry, infrastructure, engineering, and technology. At least two Directors shall be persons having special knowledge or practical experience in agriculture and rural economy, cooperation, or small-scale industry. The Bank shall ensure to include in its Board need based representation of skills such as marketing, technology and systems, risk management, strategic planning, treasury operations, credit recovery, Payment and Settlement Systems etc.

2. The directors should be able to devote sufficient time and attention to the discharge of their duties to the Bank.

3. The directors shall preferably be in the range of 35-70 years of age.

b) Disqualification/Conflicts of interest

1. The Bank's Directors shall be subject to the disqualifications/ prohibitions contained in the Companies Act 2013 and the Banking Regulation Act 1949 with respect to directorship of companies in general or banking companies in particular.

2. A Director shall not be a director of any other company, or partner or proprietor of a firm, where such directorship, partnership, or proprietorship involves or is likely to involve actual or potential conflicts of interest as a Director of the Bank. A Director shall promptly inform the Board/committee of any actual or potential conflicts of interest with respect to any matter that may come up for the consideration of the Board or of any committee of which he is a member, and shall refrain from participating in a discussion on the matter.

c) Suggested criteria for determining attributes of a director as required to be specified under Companies Act, 2013 include

1. integrity in personal and professional dealings.

2. wisdom and ability to take appropriate decisions.

3. ability to read and understand financial statements

4. ability to deal with others with a sense of responsibility, firmness, and cooperation.

5. refrain from any action that would lead to loss of his independence.

d) Suggested criteria for determining Independence of a director

The criteria of independence of a director are determined based on the conditions specified in Section 149 (6) of the Companies Act, 2013 and SEBi-LODR Regulations, 2015.

The independent director shall at the first meeting of the Board in which he participates as a director and thereafter at the first meeting of the Board in every financial year or whenever there is any change in the circumstances which may affect his status as an independent director, give a declaration that he meets the criteria of independence.

The terms and conditions of appointment of independent Director is disclosed on the website of the Bank and a web link thereto is : https.//www. federalbank. co. in/documents/10180//63602//Terms and conditions of Appointment of independent Directo rs/4e33ba77-1cc5-42b4-aa02-ab4b84a62324

Policy on remuneration to Non-Executive Directors/Independent Directors

The Policy of the Bank for the payment of remuneration to Non-Executive Directors/independent Directors of the Bank is explained in the Comprehensive Compensation Policy for Non Executive Directors/independent Directors (other than Part Time Chairman), as approved by the Board of Directors and is disclosed on the website of the Bank and a web link thereto is: http://www. As required under Banking Regulation Act, 1949 prior approval of RBi is required, to give remuneration to Non-Executive Part Time Chairman of the Board.

As per the Policy during FY 2017-18, Non- Executive independent Directors of the Bank are paid only sitting fee for attending Board/Committee meetings and reimbursement of expenses for participation in Board/Committee meetings other than Non Executive Part Time Chairman, who is paid remuneration in addition to sitting fee for attending Board/Committee meetings and reimbursement of expenses for participation in Board/ Committee meetings, with the approval of RBi.

Policy on remuneration to MD & CEO, Executive Director, Key Managerial Personnel and other employees

The Compensation / Remuneration Policy of the Bank as approved by the Board contains the policy for payment of remuneration to Executive Directors including MD & CEO, Key Managerial Personnel and for all the other employees of the Bank.

As per the guidelines given by RBi, Compensation/Remuneration Policy has been designed with the following Core Principles:

Core Principles

1. Effective governance of Compensation.

2. Alignment of Compensation with Prudent Risk Taking.

3. Effective Supervisory Oversight and Stakeholder Engagement.

Compensation of Managing Director & CEO, Whole Time Directors and Senior Executives (Non IBA)

The compensation paid out to the referred functionaries is divided into two components:

1. The fixed compensation is to be determined based on the industry standards, the exposure, skill sets, talent and qualification attained by the official over his/her career span. (Approval from RBi to be taken as per section 35B of the Banking Regulation Act while deciding the fixed and variable compensation part for Managing Director & CEO and Whole Time Directors)

2. The variable compensation for Managing Director & CEO and senior Executives (Non - IBA package) to be fixed based on organizational performance and KPAs set for the official. The organization's performance is charted based on Performance Scorecard which takes into account various financial indicators like business growth, revenue earned, cost deployed, profit earned, ROA/ROE, NPA position and other intangible factors like leadership and employee development. Variable pay is paid purely based on performance and is measured through score cards for Managing Director & CEO / WTDs. The score card provides a mix of financial and non financial, quantitative and qualitative metrics. KPAs to contain targets on risk adjusted metrics such as RAROC, RARORAC, in addition to target on NPAs.

Grander Compensation Package to Executives in Level IV and above

The compensation package applicable to Executives in Level 4 to 7 was fixed and governed based on the periodical industry level settlements under iBA pattern. The annual increment is based on seniority under iBA pattern, whereas it is linked to performance rating in competitive organizations. Hence, to make the compensation structure market driven and competitive, a new performance based compensation package called "Grander Compensation Package" has been introduced for Executives in Level 4 (AVP) and above with effect from 01.05.2017. The Grander Pay structure is expected to bring more performance focus and greater productivity. Compensation under the "Grander Compensation Package" will depend on the annual performance rating of the Executive concerned.

Compensation paid to employees on IBA package

The compensation paid to Award Staff and Officers coming under Scale I to III is fixed based on the periodic industry level settlements with Indian Banks' Association. The scale of pay and other service conditions applicable to employees, whose compensation package is governed under iBA package has been revised consequent to the 10th Bipartite Settlement.

Policy on Board Diversity

Policy on Board Diversity of the Bank mainly depends on the qualifications for appointment of Directors of the Bank as contained in the Banking Regulation Act, 1949 and satisfying the Fit and Proper Criteria for directors as per the regulatory requirement of RBi.

The Bank continuously seeks to enhance the effectiveness of its Board and to maintain the highest standards of corporate governance and recognizes and embraces the benefits of diversity in the boardroom. Diversity is ensured through consideration of a number of factors, including but not limited to skills, regional and industry experience, background and other qualities. in forming its perspective on diversity, the Bank also take into account factors based on its own business model and specific needs from time to time.

Board Diversity enhances the quality of performance of the Board, usher in independence in the performance of the Board; eradicate the gender bias in the Board; achieves sustainable and balanced performance and development; support the attainment of strategic objectives and also ensures compliance of applicable laws and good corporate practices.

The Nomination, Remuneration, Ethics & Compensation Committee has the responsibility for leading the process for Board appointments and for identifying and nominating, for approval by the Board, candidates for appointment to the Board. The benefits of diversity continue to influence succession planning and continue to be the key criteria for the search and nomination of directors to the Board.

Board appointments will be based on merit and candidates will be considered against objective criteria, having due regard for the benefits of diversity on the Board, including gender. While making Board appointments, the requirement as per the Companies Act,2013 for appointment of at least one woman director on the Board of the Bank will also be considered.

Key Managerial Personnel who were appointed or have resigned during the year in compliance with Section 203 of the Companies Act, 2013, no Key Managerial Personnel have been appointed or have resigned during FY 2018.

Management Discussion and Analysis

The Management Discussion and Analysis Report for the year under review as stipulated under the listing agreement with the stock exchanges in India is presented in a separate section forming part of this Annual Report.

Loans, Guarantees or Investments in Securities

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of Companies Act, 2013, except subsection (1), do not apply to a loan made, guarantee given or security provided by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements as per the applicable provisions of Banking Regulation Act, 1949.

Internal Complaints Committee

Bank had constituted internal Complaints Committee, as per letter and spirit contained in the provisions of "The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013", at 9 Zones and Head Office to prevent and redress the complaints relating to sexual harassment and to organize workshops/ awareness programs to empower women employees while handling cases relating to sexual harassment. Workshops/ awareness programs regarding women empowerment were conducted at various locations pan India. The data with regard to the redressal of complaints by the internal Complaints Committee are as follows:

a) No. of complaints received for the year FY2018 : 2

b) No. of complaints disposed of during FY 2018 : 2

c) No. of cases pending for more than 90 days : Nil

d) No. of workshops/ awareness program against : 09

sexual harassment carried out

e) Nature of action taken by the employer/ District Officer: Administrative/disciplinary action taken/initiated.

Board evaluation

Pursuant to the provisions of the Companies Act, 2013 and Regulation 17(10) and other applicable regulations of the Listing Regulations, the Board has carried out an annual performance evaluation of its own performance and of the directors individually, as well as the evaluation of the working of its various Committee for the year under consideration.

The evaluation process was initiated by putting in place, a structured questionnaire after taking into consideration inputs received from the Directors, covering various aspects of the Board's functioning, such as adequacy of the composition of the Board and its Committee, Board culture, execution and performance of specific duties, obligations and governance.

Thereafter a separate exercise was carried out to evaluate the performance of individual Directors, including the Chairman of the Board, who were evaluated on specified parameters. The performance evaluation of the independent Directors was carried out by the entire Board, other than the independent Director concerned. The performance evaluation of the Chairman and the Non independent Directors were carried out by the independent Directors. The Nomination, Remuneration, Ethics and Compensation Committee carried out the performance evaluation of all the Directors of the Bank. The Directors expressed their overall satisfaction with the evaluation process.

I) Performance Evaluation of Non-Independent Directors (MD & CEO and Executive Director)

Criteria for Evaluation include:

i) Achievements of performance against targets set ii) Appraises the Board regarding the organization's financial position and operational budget so as to enable the Board to make informed financial decisions iii) Provides Leadership in developing strategies and organizational plans with the management and the Board of Directors iv) Ensures that the Board is kept informed about all issues concerning the Bank v) Media interaction and ability to project positive image of the Company vi) Effectively pursue the performance goals in relation to mission and objective of the organization vii) Motivating employees, providing assistance & directions viii) Supervising & Safeguard of confidential information

ix) Establishment of internal control processes, monitoring policies and encouraging suggestions x) Cultivates effective Relationship with industry Forums, Community and business leaders, Regulatory Bodies and Public Officials.

Evaluation outcome

i) Attendance of MD &CEO and EDs at the Board and Committee meetings was good; ii) They present financial reports to the Board on a regular basis and submit an annual budget for Board review, revision and approval; iii) They regularly appraise the Board on the organization's financial position and operational budgets that aids the Board to make informed financial decisions; iv) The Executives constantly endeavor to enhance internal control processes, monitor execution of policies and are very receptive to suggestions. v) The MD has adequate qualities of leadership in developing strategy and execution for achieving them vi) The MD & CEO and EDs adequately endeavor to implement Board decisions and are very strong in media interactions and have put in efforts in building and reinforcing the Brand and image of the Bank. vii) MD demonstrates his commitment to the Organization goals, is ethical, motivates and guides employees for better performance. viii) His personal rapport and good relationship with industry forums / regulatory bodies, etc are highlights and testimony of the respect and prominence of Federal Bank in the Indian banking landscape.

II) Performance Evaluation of Independent Directors including Chairman

Criteria for evaluation include:

i) Attendance at the Board and Committee meetings ii) Study of agenda papers in depth prior to meeting and active participation at the meeting iii) Contributes to discussions on strategy as opposed to focus only on agenda iv) Participate constructively and actively in the Committee of the Board in which they are chairpersons or Members v) Exercises his/her skills and diligence with due and reasonable care and brings an independent judgment to the Board vi) The Director remains abreast of developments affecting the company and external environment in which it operates independent of his being appraised at meetings vii) Knowledge and Competency: a) How the person fares across different competencies as identified for effective functioning of the entity and the Board b) Whether the person has sufficient understanding and knowledge of the entity and the sector in which it operates viii) Whether the person demonstrates highest level of integrity, including conflict of interest disclosures, maintenance of confidentiality, etc

Evaluation Outcome

The evaluation done, brought out the fact that good attendance of independent Directors was there in the Board and committee meetings. They are knowledgeable, ethical and bring their respective expertise in the deliberations and make valuable contributions. They have adequate understanding of their role and responsibilities as independent directors. The independent Directors also demonstrates highest level of integrity, including conflict of interest disclosures and maintenance of confidentiality. it was also noted that the independent Directors exercises his/ her skills and diligence with due and reasonable care and brings an independent judgement to the Board and also the Directors remains abreast of developments affecting the company and external environment in which it operates.

III) Performance Evaluation of Board and Committee

A. Criteria for Evaluation of Board include:

i) if Board is of appropriate size and has the appropriate balance and diversity of background, business experience, industry knowledge, skills and expertise in areas vital to the Bank's success, representing sectors laid down by the regulators, given its current and future position ii) New Board members participate in an orientation program to get educated on the organization, their responsibilities, and the organization's activities, the Board encourages a culture that promotes candid communication iii) The Board oversees management's procedures for enforcing the organization's code of conduct, Action Taken Reports on the discussion/directions of the Board are submitted at regular intervals to the Board iv) The Board oversees risk management through inputs from the Risk Management Committee v) The Board considers the quality and appropriateness of financial reporting, including the transparency of disclosures vi) The Board ensures compliance with the relevant provisions of the Companies Act and other regulatory provisions as applicable to the Bank vii) The Board oversees the compliance processes viii) The Board views the organization's performance from the competitive perspective - industry and peers performance, industry trends and budget analysis and with reference to areas where significant differences are apparent etc. ix) The Board ensures compliance with the relevant provisions of the Companies Act and other regulatory provisions as applicable to the Company,

x) The Board has defined an effective Code of Conduct for the Board and Senior Management. xi) Whether the Board monitors and manages potential conflicts of interest of management, members of the board of directors and shareholders, including misuse of corporate assets and abuse in related party transactions.

B. Criteria for Evaluation of Committee include:

i) The Committee's Terms of Reference and composition is reviewed annually and is found to be constituting of Directors representing sectors laid down by the regulator and continue to be appropriate

ii) Committee meetings are organized properly in number, timing and location iii) The Committee allocates the right amount of time for its work etc iv) The Committee is effective in carrying out its mandate v) Whether adequate independence of the Committee is ensured from the Board vi) Whether the Committee has fulfilled its functions as assigned by the Board and laws as may be applicable.

Evaluation Outcome of Board/Committee

i) The structure and composition of the Board is appropriate with adequate number of Directors and a good balance of diverse professional backgrounds, business experience, industry knowledge, skills and expertise in areas vital to the Bank's success in it's current and future position; ii) The proportion of independent to non-independent directors is good; iii) The Board demonstrates integrity, credibility, trustworthiness, active and effective participation at Board and Committee meetings which are held at reasonable and regular intervals; iv) The Board and Committee processes and procedures are good with different committee reviewing different functional areas of the Bank's operations. v) The Board and its Committee also reviews Bank's performance, risk management, financial reporting, compliances, technology, operations with adequate frequency of meetings etc.

IV) Assessment of flow of information Criteria for Evaluation include:

The agenda and related information are circulated in advance of meetings to allow board members sufficient time to study and understand the information, information on the annual operating plans and budgets and other updates are provided to the Board; Updates on operating results of the Bank is furnished to the Board, periodically, etc. Update on the compliance with the regulatory, statutory or listing requirements are placed before the Board.

Evaluation Outcome

The flow of information to the Board and its committee is generally good.

Evaluation of Senior Management Personnel in the Bank

The compensation paid out to KMP is divided into two components. The fixed compensation is to be determined based on the industry standards, the exposure, skill sets, talent and qualification attained by the official over his/her career span.

The variable compensation for Managing Director & CEO and Senior Executives (Non-Grander Compensation Package) to be fixed based on organizational performance and KPAs set for the official. The organization's performance is charted based on the Performance Scorecard which takes into account various financial indicators like revenue earned, cost deployed, profit earned, NPA position and other intangible factors like leadership and employee development. Variable pay will be paid purely based on performance and is measured through Score Cards for Managing Director & CEO / WTDs. Key Performance indicators (KPis) to contain targets on Risk Adjusted Metrics such as RAROC, RARORAC, in addition to target on NPAs. An ED level Committee has been constituted for reviewing the linkage of risk based performance with remuneration, for employees above Level 5. The Committee with the assistance of Risk Department & HR will study the business and industry environment, analyze and categorize the risks into immediate and long term and streamline the components of the compensation plan like proportion of the total variable compensation to be paid to Senior Employees so as to ensure financial stability of the organization. These committee would also analyze various factors to ascertain whether cost/ income ratio supports the remuneration package provided to Senior Executives and other officials consistent with maintenance of sound capital adequacy ratio.


During the year ten Board meetings were convened and held, the details of which are given in the Corporate Governance Report. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 and also as per the Listing Regulations.

Related Party Transactions

All related party transactions that were entered during the financial year were in the ordinary course of the business of the Bank and were on arm's length basis. There were no materially significant related party transactions entered by the Bank with related parties which may have a potential conflict with the interest of the Bank. All Related Party Transactions were placed before the Audit Committee of the Board for approval. Prior omnibus approval for transactions which are of repetitive nature is obtained from the Audit Committee and accordingly the required disclosures are made to the Committee on quarterly basis in terms of the approval of the Committee.

The policy on materiality of Related Party Transactions and also on dealing with Related Party Transactions as approved by the Audit Committee and the Board of Directors is uploaded on the website of the Bank and the link for the same is http://www.federalbank.

Since all related party transactions entered into by the Bank were in the ordinary course of business and were on an arm's length basis, disclosures as per Form AOC-2 is not applicable to the Bank. There were also no material contracts or arrangement or transactions at arm's length basis during the period.

Business Responsibility Report

As stipulated in the Listing Regulations the Business Responsibility Report describing the initiatives taken by the Bank from environmental, social and governance perspective forms part of the Annual Report.

Business Responsibility Report as stipulated under Regulation 34 of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 has been hosted on the website of the Bank ( shareholder-information ) Any Member interested in obtaining a physical copy of the same may write to the Company Secretary at the Registered Office of the Bank.

Technology and digital updates and measures taken in IT governance, Information Security, IT audit, IT operations, IT services outsourcing

Technology and Digital updates:

During the financial year 2017-18 your Bank focused extensively on Digital Banking. Growth in the number of digital transactions has been exponential since November 2016 and continuing the same till date. in line with the country's drive to Digitalize India, the Bank introduced a range of innovative products this year; and below are a few to mention.

Federal Bank Cross Border Remittance Solution

Declared as Winner under the category "Emerging Block chain Technology Solution of the Year" for BFSi innovative Technology Awards 2018, Federal Bank caters to the cross border remittance solution using Block Chain Technology. Federal Bank envisions a one stop solution for payments and financial services, Nonresident customers and partners. The concept which makes the service unique is, its one of the very few Block chain solutions that are fully functional and Federal Bank is one of the first Indian bank to develop an in house block chain solution. The Block chain code is designed in such a way that the basic architecture can be used to deploy further user cases such as Loyalty points, KYC database, etc. which will further showcase the power of block chain technology and real-time settlement of remittance process across multiple parties, which helps exchange houses to achieve considerable efficiency.


Federal Bank's completely digital loan series- Be Your Own Master (BYOM) introduced BYOM- Flexi EMi loan, a unique product to its variants of digital loans, which reach out to a million customers of our bank every year. Through this service customers can convert their online purchases made using Federal bank's debit cards to EMi options offered by the bank, completely online.

API Banking Platform

Federal bank has developed an APi marketplace to collaborate with various FinTechs and Corporate to offer seamless banking experience. With our API banking platform, FinTechs would now be empowered to innovate banking services including wallets, apps, cards, payments, and accounts. Corporate houses can easily utilize various banking services by directly integrating with their internal ERPs. We are on boarding mByom Consultancy as our first merchant in the platform, who is developing a micro procurement app for agriculture produce.


Federal Bank introduced a comprehensive web based solution for processing bulk transactions of corporate clients. Corporate customers being an integral part of the bank's customer base, bank caters to their need for processing daily bulk transactions with this product.

Partner in Digital India Mission- First Bank to enroll as Issuer to DigiLocker

Federal Bank is the first bank in the country to become an issuer of documents through Digi locker. Now, the bank issues documents such as TDS certificates, interest certificates, bank account statements, etc. directly to the DigiLocker account of the customers and they can access the documents by logging in to their digilocker account, which is linked to their aadhaar number.


Federal Bank started issuing Fastag, a product from NPCi. FASTag is linked to a prepaid account from which the applicable toll amount is deducted. The tag employs Radio-Frequency Identification (RFID) technology and is affixed on the vehicle's windscreen after the tag account is active. FASTag is a perfect solution for a hassle free trip on national highways.

Information Technology (IT) Governance:

iT provides the strong foundation that enables your Bank to grow extensively and gain market share. in the following paragraphs, we provide more details of the entire governance structure over iT, with focus on information security.

iT governance is the processes that ensure the effective and efficient use of IT in enabling our organization to achieve its goals. it is an integral part of corporate governance and consists of the organizational structures, leadership and process that ensure iT sustains and extends the organization's strategy and objectives. The governance of iT is effectively supervised by the Board of Directors through the iT & Operations Committee of the Board. The iT & Operations Committee, that meets on a quarterly basis, is chaired by an independent Non Executive Director and has 2 Non Executive Directors as members, along with the MD & CEO. All members of the Committee have extensive experience in iT & Operations and are able to provide effective guidance and direction to the management team.

Executive level committee which oversee the iT governance function include the Operational Risk Management Committee (ORMC), the information Security Committee (iSC) and the Project Steering Committee (PSC).

Your Bank has a well-defined Information System Security Policy and a Cyber Security Policy. The effective implementation of these policies is supervised by the information Security Committee and by the iT & Operations Committee of the Board. in recognition of the need for enhanced systems security, your Bank conducts a wide range of system audits, using internal and external auditors. These range from the quarterly Vulnerability Assessments (VA) and Penetration Testing (PT) to concurrent audits to an annual end to end audit of iT infrastructure. All the applications, both web based and mobile based apps exposed to internet are subjected to external penetration testing (PT) before releasing to use.

Bank has deployed best in the class infrastructure to provide availability of service to users and customers without fail. The installed infrastructure is tested for its reliability and robustness by periodic audits. in addition, periodic Disaster Recovery Tests are conducted to ensure the ability to move to the Disaster Recovery infrastructure in the event of downtime in the main production capability.

The Bank is conducting employee and customer awareness on cyber frauds, vishing/phishing attacks etc through SMS, eMails and popup messages in banks' website and mobile banking applications. Bank has done separate awareness workshops for Directors on the cyber frauds and its impacts. As a measure to assess the effectiveness of awareness among employees Bank is conducting 'Redteam' exercises on a quarterly basis. Bank has implemented most of the Gopalakrishna Committee recommendations on information Security, Electronic Banking, Technology Risk and Cyber Fraud. The progress of pending items for implementations are followed up for completion in a time bound manner.

Compliance with the ICSI Secretarial Standards

The Bank has complied with relevant Secretarial Standards issued by the institute of Company Secretaries of India (iCSi) related to the Board Meetings and General Meeting during the year.

AUDITORS Statutory Audit

M/s. B S R & Co. LLP, Chartered Accountants, Mumbai, together with M/s M M Nissim & Co, Chartered Accountants, Mumbai, carried out the statutory central audit of the Bank during Financial Year 2017-18. Additionally 1234 number of branches / offices were subjected to branch statutory audit by various branch auditors appointed by the Bank. The statutory central/branch auditors audited all the branches and other offices of the Bank. The resolution for the appointment of M/s. B S R & Co. LLP, Chartered Accountants, Mumbai, together with M/s M M Nissim & Co, Chartered Accountants, Mumbai, as the Joint Central Statutory Auditors of the Bank from the conclusion of the 87th Annual General Meeting till the conclusion of 88th Annual General Meeting is placed in the Notice to shareholders for AGM.

Secretarial Audit

The Board had in its meeting dated 13 March 2018, appointed M/s. SVJS & Associates, Practicing Company Secretaries, to undertake the Secretarial Audit of the Bank during the Financial Year ended 31 March 2018, in compliance with the provisions of Section 204 of the Companies Act, 2013 and The Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014. The Secretarial Audit Report is annexed herewith as "Annexure V".

Awards and Accolades

Your Bank has won various awards and accolades in the Financial Year 2017-18 also. The Bank continues its thrust on technology and digital with an impetus on innovation.

For the innovative BYOM (Be Your Own Master) Flexi EMi product, your Bank has won the Finnoviti Award for 2018. Your Bank successfully rolled out instant account opening through the branches and has won SKOCH Smart Technologies for Growth Award 2017', Process innovation at the Finacle forum 2017 by infosys for it. As a recognition for your Bank for use of technology, bank has won the iBA Banking technology Conference, Expo & Awards 2017 for best use of Digital and Channels Technology among Small Banks. For innovative HR Policies, your bank has won the KMA Excellence Awards 2017.Your Bank was adjudged the winner in Outlook Money Award in Banks category for the year 2017. Your Bank was also bestowed with 'The Bank of the Year Award instituted' by Dhanam Business Magazine and Golden Leaf Award as 'Trusted National Financial (Banking) Brand of Kerala' instituted by Future Kerala Business and Financial Daily.

Energy Conservation, Technology Absorption, Foreign Exchange Earnings and Outgo

The Bank has undertaken various initiatives for energy conservation at its premises, further details are given under Principle 6 of Section E of the Business Responsibility Report. The Bank prides itself on continuous investment in technology upgrades that are designed to deliver cost effective best in class customer service. The Bank has used information technology extensively in its operations, for more details please refer the section on Technology and Digital Updates portion forming part of Directors report. Through its export-financing operations, the Bank supports and encourages the country's export efforts.

Extract of Annual Return

Pursuant to sub-section (3) of Section 92 of the Companies

Act,2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the details forming part of the extract of the Annual Return as at March 31,2018 in form MGT 9 is annexed herewith as "Annexure III".

Particulars of Employees

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended forms part of this report as Annexure I

The ratio of the remuneration of each Director to the median remuneration of the employees of the Bank and other details in terms of Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are forming part of this report as Annexure VI.

Stock Exchange Information

The Bank's Equity Shares are listed on:

1. BSE Limited, Phiroze Jeejeebhoy Towers, Dalal Street, Mumbai

- 400 001 and

2. National Stock Exchange Ltd. "Exchange Plaza", Bandra - Kurla Complex Bandra East, Mumbai - 400 051.

3. The GDRs issued by the Bank are listed on the London Stock Exchange.

The annual listing fees have been paid to all the Stock Exchanges mentioned above.

Director's Responsibility Statement

in accordance with Section 134(3)(c), 134(5) of the Companies Act, 2013, your Directors state that:

(a) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

(b) the directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as at the end of financial year March 31, 2018 and profit and loss account for that period.

(c) the directors have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities.

(d) the directors have prepared the annual accounts on a going concern basis.

(e) the directors have laid down the internal financial controls followed by the Bank and that such internal financial controls are adequate and are operating effectively.

(f) the directors have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.


The Board of Directors places on record its sincere thanks to the Government of India, Reserve Bank of India, various State Governments and regulatory authorities in India and overseas for their valuable guidance, support and cooperation. The Directors wish to express their gratitude to investment Banks, rating agencies and Stock Exchanges for their wholehearted support.

The Directors record their sincere gratitude to the Bank's shareholders, esteemed customers and all other well-wishers for their continued patronage. The Directors express their appreciation for the contribution made by every employee of the Bank.

For and on behalf of the Board of Directors

Aluva Mr. Nilesh Vikamsey

(DIN- 00031213)

22 June 2018 Chairman of the Board

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