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Company Information

Home » Market » Company Information

Karur Vysya Bank Ltd.

Feb 21
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101.81
Feb 21
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VOLUME : 930671
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Market Cap. ( ₹ ) 5395.30 Cr. P/BV 0.86 Book Value ( ₹ ) 78.37
52 Week High/Low ( ₹ ) 102/63 FV/ML 2/1 P/E(X) 15.61
Bookclosure 18/08/2018 TTM EPS ( ₹ ) 2.52 Div Yield (%) 3.30
DIRECTOR'S REPORT
You can view full text of the latest Director's Report for the company.
Year End :2018-03 

To the Members

The Directors are pleased to present the 99th Annual Report of business and operations of your Bank together with audited statement of accounts for the year ended 31st March 2018.

Key Performance Indicators

Indian Banking Industry contended with multiple challenges tied to regulations, heightened asset quality stress levels, new competitors and operating risks during the year under report. In spite of this, your Bank has been able to achieve reasonable growth in its operations. Performance highlights for FY18 in the key areas of operation are as detailed under:

Particulars

31.03.2018 (Rs. in Cr)

31.03.2017 (Rs. in Cr)

Deposits

56,890.09

53,699.81

Advances

45,973.14

41,434.98

Investments

15,992.25

14,955.48

Total Income

6,599.59

6,404.57

Total Expenditure

4,822.26

4,833.60

Operating Profit

1,777.33

1,570.97

Net Profit

345.67

605.98

Total Business

The total business of your Bank stood at Rs.1,02,863.23 Cr as on March 31, 2018, as against Rs.95,134.79 Cr a year before, registering y-o-y growth of 8.12%.

Deposits

Your Bank’s Gross Deposits increased to Rs.56,890.09 Cr as on March 31, 2018, as against Rs.53,699.81 Cr as on March 31, 2017, by registering a growth of 5.94%. Demand deposit stood at Rs.5,576.38 Cr as on March 31, 2018.

Savings Bank deposits grew by 10.36% from Rs.9,968.28 Cr to Rs.11,000.57 Cr. CASA deposits recorded a healthy growth of 11.34% reaching Rs.16,576.95 Cr from Rs.14,888.63 Cr. Term deposits increased to Rs.40,313.14 Cr from Rs.38,811.18 Cr by registering a growth of 3.87%.

Advances

During this FY 2017-18, your Bank’s Advances portfolio grew by 10.95% reaching Rs.45,973.14 Cr as against Rs.41,434.98 Cr in the previous fiscal. Priority sector advances of the Bank increased to Rs.18,567.61 Cr from Rs.17,010.00 Cr and recorded a growth of 9.16%. It constituted 46.31% of Bank’s Adjusted Net Bank Credit (ANBC) as against the statutory prescription of 40%.

Classification of Advances Portfolio:

Particulars

FY 2017-18 (Rs. in Cr)

FY 2016-17 (Rs. in Cr)

Y-o-Y Growth %

Commercial

16,095

14,504

10.97

Corporate

14,397

13,612

5.77

Agriculture

7,861

6,979

12.64

Retail (Personal Banking)

7,620

6,340

20.19

Total Advances

45,973

41,435

10.95

Classification of Retail Portfolio:

(Rs. in Cr)

Segment

March 2018

March 2017

Housing Loans

2,795

2,330

Mortgage Loans (LAP)

1,393

965

Vehicle Loans

1,017

921

Jewel Loans

578

596

Personal Loans

296

316

Education Loans

261

266

Others

1,280

946

Total

7,620

6,340

Agriculture Advances

Average Agriculture advances of your Bank stood at Rs.8,218.34 Cr, constituting 20.50% of ANBC as at March 31, 2018 against the regulatory stipulation of 18%. Your Bank’s average advances to micro enterprises and weaker sections stood at 8.88% and 13.44% respectively. Your Bank continues to achieve the targets stipulated as per the regulatory guidelines under priority sector, agricultural lending and weaker section advances.

Asset Quality

The Banking industry in India continued to face a challenging period with increase in Non-Performing Assets particularly from Corporate Segment due to various macro economic and other factors. Bank experienced higher slippages to Net Non-Performing Assets (Net NPA stood at 4.16% in FY18 as against 2.53% of earlier fiscal) mainly due to slippage in Corporate / Consortium accounts.

The Bank has taken numerous measures to arrest the fresh slippages and is in the process of strengthening its credit underwriting system. The net NPA stood at Rs.1,862.83 Cr for the FY18 compared to Rs.1,033.46 Cr for the FY17. The Provision Coverage Ratio (PCR) stood at 56.50% as compared to 57.83% in the previous year.

Bank introduced a follow-up mechanism with Senior Executives dedicated for close monitoring of NPA accounts having outstanding of Rs.50.00 lakh and above. In order to improve penetration in NPA accounts, Division-wise monitoring of daily recovery progress was introduced. In addition, the Bank initiated various steps to strengthen the recovery mechanism process including opening of specialised Asset Recovery Branches and recovered Rs.559.80 Cr out of which, Cash Recovery was Rs.179.09 Cr.

For speedy decisions on One Time Settlement (OTS), the Bank delegated requisite powers to Branch Heads for sanction of OTS of NPAs up to Rs.5.00 lakh.

e-Auctions of immovable & movable properties secured to the Bank were carried out throughout the year. Special thrust was given in taking physical possession of immovable properties by moving application before the concerned authority under SARFAESI Act. Bank participated in Lok adalats actively during the year under report and recovered an amount of Rs.120 Cr through compromise from 1417 accounts.

NPA Accounts of above Rs.100 lakh are reviewed by the Senior Management through Conference call / video conference with the Divisional Managers / Branch Heads to guide them in recovery initiatives.

Loan Monitoring is further enhanced and recovery efforts have been intensified. Your Bank is optimistic on reduction in slippages.

During the fiscal 2017-18, your Bank has started 3 Asset Recovery Branches (ARB) at Chennai, Hyderabad and Madurai to ensure specific thrust on recovery and follow-up. ARBs will provide close follow up with their specialized skills and the Branches can now concentrate more on business growth. The ARB’s handle NPA accounts above Rs.15 Lakh adhering to guidelines issued by RBI from time to time. A new initiative is taken to conduct settlements through Adalats in all Branches having large number / value NPA accounts in every quarter. This thrust for recovery is giving encouraging results.

Outbound Calls

In order to cater the need for improving collection mechanism of retail loans, Bank has started Centralised outbound calls facility for SMA follow-up, which is making a reasonable impact on the retail segment. The outbound call facility is being used to call Pre-delinquent customers i.e. 3 days prior intimation is given to the customers about their repayment due date, Delinquent accounts falling under SMA on PAN India basis. The outbound collection call services are introduced to support the branches in reduction of SMA’s & NPA’s. Going forward, your Bank is planning to use this facility to commercial loan borrowers as well.

Investments

The investment portfolio of the Bank has reached Rs.15,992.25 Cr as on March 31, 2018 as against Rs.14,955.48 Cr as on March 31, 2017, y-o-y growth of 6.93%. The average investment as on March 31, 2018 stood at Rs.16,030.61 Cr. The investment portfolio composition is consistent with the corporate requirement, risk perception and Investment Policy of the Bank.

Income earned on investments during 2017-18 was Rs.1,122.93 Cr as against Rs.1,106.04 Cr in 2016-17 registering a marginal increase of Rs.16.89 Cr (i.e. 1.53%). Low growth is on account of overall fall in yields in the market and due to sale of securities from HTM category during the year. Profit on sale of investments was Rs.101.08 Cr for the fiscal 2017-18 as against Rs.204.64 Cr recorded in the previous fiscal. Liquidity position was comfortable throughout the year 2017-18.

Income

Interest income of your Bank has increased by Rs.77.30 Cr and stood at Rs.5,699.65 Cr as on 31st March 2018. Net Interest Income of the bank increased to Rs.2,298.11 Cr from Rs.2,073.70 Cr, registering a growth of 10.82%.

Non-Interest Income grew by 15.05%, y-o-y from Rs.782.22 Cr to Rs.899.93 Cr.

Yield on advances dropped from 11.34% to 10.29% and Yield on investment slightly decreased from 7.22% to 7.00%.

Expenditure

The interest expenditure reduced from Rs.3,548.65 Cr in FY17 to Rs.3,401.54 Cr in FY18, registering a decline of 4.14%. Operating expenses increased from Rs.1,284.95 Cr in FY17 to Rs.1,420.72 Cr in FY18 working out to an increase of 10.57% (Rs.135.77 Cr).

Cost of Deposits reduced from 6.60% in FY17 to 5.99% in FY18 due to mobilisation of low cost / no-cost deposits during the year under report. Increase of Net Interest Margin (NIM) from 3.70% in FY17 to 3.86% in FY18 and growth in spread on funds from 3.10% in FY17 to 3.22% in FY18.

Profit

Your Bank earned an operating profit of Rs.1,777.32 Cr against Rs.1,570.97 Cr of last fiscal, registering a y-o-y growth of 13.14%.

The net profit of the Bank reduced fromRs.605.98 Cr to Rs.345.67 Cr due to highest provisioning requirements.

Appropriations

The net profit of Rs.345.67 Cr which along with a sum of Rs.2.64 Cr brought forward from the previous year aggregating Rs.348.31 Cr is appropriated as under:

Appropriation - Transfer to

Amount (Rs. in Cr)

- Statutory Reserve

87.00

- Capital Reserve

12.05

- General Reserve

160.00

- Special Reserve

35.00

Balance carried to Balance Sheet*

54.26

* Including Proposed Dividend & dividend distribution tax amount of Rs.52.46 Cr.

Share Capital

The Authorised Capital of the Bank is Rs.200.00 Cr comprising of 100 Cr Equity Shares of face value of Rs.2/- each and the Paid-up Capital of the Bank is Rs.145.33 Cr comprising of 72,66,39,371 Equity Shares of face value of Rs.2/- each fully paid-up.

During the fiscal 2017-18, the Bank has successfully raised capital by way of Rights Issue in the ratio of one Rights Share for every six shares held on the record date (i.e., October 13, 2017) along with Employee Reservation Portion (collectively referred as “Rights Issue”) of 11,73,17,101 Equity Shares of face value of Rs.2/- each for cash at a price of Rs.76/- per Equity Share (including a premium of Rs.74/- per Equity Share) aggregating to Rs.891.61 Cr. The Rights Issue was over subscribed by 1.53 times, which shows the belief and confidence on the Bank’s business and its future. The Rights Shares allotment was made on 22nd November, 2017. The paid-up share capital stands increased to Rs.145.33 Cr. consequent to the allotment of Rights issue.

The net-owned funds of the Bank increased from Rs.4,845.02 Cr to Rs.6,211.71 Cr registering a growth of 28.21% with an increase of Rs.1,366.69 Cr.

The market capitalization of your Bank at the end of March, 2018 was Rs.7,299.09 Cr.

Employee Stock Option Scheme

During the year under report, your Bank has not granted any stock options under Employee Stock Option Scheme (ESOS).

Debt Instruments

The Bank had issued Unsecured Redeemable Non-convertible Subordinated (Lower Tier II) Bonds to the value of Rs.150.00 Cr in September 2009. During the year under report, Bank did not raise any TIER II capital.

Capital Adequacy

Capital Adequacy ratio stood at 14.43% as per BASEL III norms. The Bank’s Capital Adequacy Ratio is well above the statutory limit of 9% (10.875% including Capital Conservation Buffer) prescribed by the Reserve Bank of India.

Credit Rating

ICRA Limited had rated the Unsecured Redeemable Non-convertible Subordinated (Lower Tier II) debt instruments issued in the year 2009 by re-affirming its A rating. Investments with such rating are considered to have adequate degree of safety regarding timely servicing of financial obligations.

CRISIL has re-affirmed A1 rating (pronounced as CRISIL A One Plus) for Rs.30 bn Certificate of Deposits Programme of your Bank. ICRA Limited has re-affirmed ICRA A1 (Pronounced as ICRA A One Plus) rating to the Bank’s Certificate of Deposits Programme for Rs.30 bn. Both the ratings indicate a very strong degree of safety regarding timely payment of financial obligations.

Foreign Exchange Transactions

The merchant turnover of the Bank increased at 18.49% reaching Rs.26,679 Cr in FY18 from Rs.22,516 Cr in FY17. Export credit grew by 9.93% reaching to Rs.1,738 Cr in FY 18 as against Rs.1,581 Cr in FY17.

Income earned by the Bank through forex transactions is Rs.101.60 Cr in FY18 as against Rs.95.97 Cr in FY17, posting a growth of 5.87%. Of the total income earned to the tune of Rs.101.60 Cr, exchange profit accounted for Rs.43.59 Cr and Commission and others accounted for Rs.58.01 Cr.

Dividend

Bank had formulated Dividend Distribution Policy as per the Regulation 43A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, (‘Listing Regulations’). Dividend Policy of the Bank balances the objectives and retaining capital in order to fund future growth of the Bank. Bank has a consistent track record in dividend distribution. The dividend distribution policy of the Bank is available in your Bank’s website http://www.kvb.co.in/pdf/dividend-distribution-policy.pdf.

Consistent with this policy and in recognition of the overall performance, your Directors are pleased to recommend a dividend of Rs.0.60 per Equity Share of face value of Rs.2 each i.e., 30% for the FY18. The total dividend payment works out to Rs.43.59 Cr excluding dividend tax and the pay-out ratio works out to 12.61% excluding dividend tax. The dividend is subject to the approval of the shareholders at the Annual General Meeting. This dividend will be subject to dividend distribution tax and is to be paid by the Bank. In terms of revised Accounting Standards (AS) 4 ‘Contingencies and Events occurring after the Balance sheet date’ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not appropriated proposed dividend & tax thereon and the same is included in the balance of profit.

Earnings Per Share / Book Value

The Earnings Per Share (Basic) and the Book Value per equity share of Rs.2/- each fully paid as on 31 March 2018 were at Rs.4.98 and Rs.85.49 respectively.

Subsidiaries and Associates

Your Bank does not have any Subsidiaries or Associates to report during the year under report.

Board Meetings

During the FY 2017-18, twenty one meetings of the Board were held, the details of which are given in the Corporate Governance Report which is forming part of this report.

Board Evaluation

Pursuant to the provisions of the Companies Act, 2013 and the Listing Regulations, the Board has carried out annual evaluation of its own performance (Board as a whole), all its Directors, Committees of the Board, its Non-Executive Chairman and MD&CEO.

The manner of evaluation conducted during the year under report is furnished in the Corporate Governance Report.

Disclosure to be made under Sub-Section 8 of Section 177 of the Companies Act, 2013

The Board of the Bank had constituted the Audit Committee under the extant guidelines of Reserve Bank of India (RBI), provisions of the Companies Act, 2013 and Listing Regulations. The details of the composition of the Audit Committee is furnished in the Corporate Governance Report.

System for Internal Financial Control and its Adequacy

Your Bank is operating in a fully computerized environment with Core Banking System supported by diverse application platforms for handling special business such as treasury, trade finance, retail loans etc., The process of recording of transactions in each application platform is subject to various forms of control such as in-built system checks, maker checker authorisations and independent post transaction reviews etc., The financial statements are prepared based on computer system outputs. Responsibility of preparations of financial statements is entrusted to a dedicated unit which is independent of business. The Bank has implemented adequate procedures and internal controls which provide reasonable assurance regarding reliability of financial reporting and preparation of financial statements and were operating effectively during the year.

Implementation of Indian Accounting Standards (Ind-AS)

As per RBI notification DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016, Bank has to disclose its strategy for Ind-AS implementation, including the progress made in this regard.

The Bank has set up a Steering Committee for implementation of Ind-AS. The Steering Committee of the Bank is analyzing the current accounting framework and Ind-AS for changes in significant accounting policies, preparation of disclosures, documentation. Assessment of the software / solution offered by select vendors has been undertaken during the year.

Bank has submitted Proforma Ind-AS Financial Statement to RBI for the half-year ended 30th September 2016 and also for the quarter ended 30th June 2017 as per RBI guidelines.

The Reserve Bank of India through its press release dated 5th April 2018 has deferred the implementation of Ind-AS by one year for Scheduled Commercial Banks. In accordance with the same, the Ind-AS is applicable to banks from 1st April 2019.

Network of Branches

During the FY 2017-18, Bank has opened 79 branches including 2 Digital branches and 1 Extension Counter. The Bank has also opened 6 Corporate Business Units (CBU), 5 Central Loan Processing Cells (CLPC), 3 Asset Recovery Branches (ARB) and a Currency Chest at Hyderabad. The total no. of branches as on 31.03.2018 stood at 790.

Your Bank has 1795 ATMs and 533 BNA Recyclers meant for serving the customers of the Bank as on 31st March 2018, which includes 78 ATMs and 90 BNA Recyclers installed during the year under report.

Bank has installed 158 Self-service passbook Kiosks and 58 CTS enabled Cheque Deposit Kiosks during the FY 2017-18.

Currency Chest

Currency Chests are established by the Bank in Tamil Nadu, Andhra Pradesh, Telangana, Karnataka at 7 different locations for providing adequate cash supply to branches & ATMs. Currency Chests plays a vital role in providing effective customer service at branches and help the branches to adhere Clean Note Policy of RBI.

Currency Chests help the branches to accept soiled & mutilated notes from general public and from customers over the cash counters. Apart from conducting soiled note melas at the chest attached branches, lower denomination currencies and coins are distributed to customers and general public by the Currency Chests through our various branches.

Technology Initiatives

Your Bank has always been a forerunner in implementing robust IT services which would enhance productivity and efficiency of our products and services besides delighting customers.

Your Bank introduced a number of significant IT-driven initiatives during the FY18 covering various facets of banking system. They are as under:

- Digital Banking

During the year, Bank has initiated digital transformation project and engaged Boston Consulting Group (BCG) to draw the road map and implement the project. We are glad to share that, in the first phase, Bank has rolled out end-to-end paperless Digital Application for Home Loan processing and Digital Customer Portal for renewal of working capital limits up to Rs.100 lakh. Both the applications are well received by the market and Bank is embarking on digitalising entire lending system of the Bank and creating a Digital Application for Customer on boarding and services.

- Bharat QR (BQR)

We have introduced a mobile application, Bharat QR (BQR), a new initiative by National Payments Corporation of India (NPCI) in the payment system which aims to increase the merchant based digital transaction by displaying their QR at their outlets. The Mobile application is available for facilitating both merchants and customers to make payments.

- Digital Village

Your bank has implemented the Digital village at Kathirampatty (Near Erode, Tamilnadu) and Bandarupalli village (Near Guntur, Andhra Pradesh) to promote financial literacy among the people and to create awareness of bank’s digital services. The objective is to open accounts for the residents of the village thereby enabling the villagers to do their day-to-day transactions through their account by using the touch-points like Cash Recycler, Automatic Passbook Kiosk, Micro ATM’s, Tablets etc., The day-to-day transactions covered under this will range from withdrawal & deposit of cash, payment of utility bills, subscription to purchase of goods and the users are encouraged to use the internet banking in the Tablets available at the branch. Branch has been equipped with a Television facilitating the villagers to view the agriculture related programme and to make use of the same in their daily life. Restricted Wi-Fi facility at a radius of 1.5 kms has been provided to the villagers at free of cost to make use of our Bank’s Digital Applications in their own gadget and operating the same from their home or at any location within the village. In order to provide novel shopping experience in the village, Bank has on-boarded few shopkeepers in the village on Micro-ATM as Banking Correspondence wherein the customers use their Aadhaar cum Biometric details to authorize the transactions during the purchase of household and grocery items. All these lead to the foundation for a less-cash society.

- ISO: 27001

Your Bank has been certified with ISO/IEC 27001:2013 conformance on 20th February 2018 by the certifying body M/s. TUV SUD South Asia Pvt. Ltd, Chennai. ISO 27001:2013 is a global certification which provide the standards for establishment, implementation, monitoring & review, maintenance & improvement and an overall management & control framework for managing an organization’s information security risks.

It is indeed a privilege for the Bank to receive the ISO 27001:2013 Information Security Management System (ISMS) certification for few offices, which is a highly recognized trust mark for the highest levels of internal controls towards information security management, business continuity and disaster recovery. Information Security is an integral part of the overall Risk Management Framework at KVB. Through this certification, we have taken a step forward towards its vision and strategy to establish the highest standards of Corporate Governance, benchmarked with global best practices, ensuring that the organization is managed and monitored in a responsible manner.

- Near Line Data Centre

Your bank has established a Near DC (NDC), so as to have a synchronous replication between DC & NDC and to ensure zero data loss. In case of any disaster at DC, the latest data can be retrieved from Near DC. The asynchronous replication between DC & DRS will still happen at the current time lag of 15-30 min to ensure cost effectiveness.

The NDC will be synchronously replicated from DC through storage based replication, which means that the data written at Data Centre Storage will be committed only after data being written on the Near Data Centre Storage. Your Bank is now able to achieve zero data loss on the critical applications being hosted in the Near Data Centre.

- National Electronic Toll Collection (NETC) - Acquiring

Electronic Toll Collection is a secure and interoperable solution for NHAI toll collection. NETC system will reduce wait time at toll counters, reduce fuel consumption and cash handling considerably. NETC system will use RFID tag which is pasted on the windshield of vehicle. The RFID Tag on the vehicle is read by the long range RFID reader hoisted on the NETC lanes which will allow vehicle without manual intervention.

We have taken one toll plaza at Rothak city towards acquiring of NETC tags and we are able to process the NETC tags affixed to the vehicles.

- e-Surveillance at offsite ATMs

During the FY 2017-18, your Bank has implemented remote monitoring of offsite ATM premises through e-Surveillance for 422 locations. The solution is capable of monitoring the ATM locations, Energy management, Incident control and alerting mechanism to alert the response team to take action on the incident monitored in the ATM premises. Centralized team is placed to monitor the ATM locations on 24*7 basis. Remote monitoring of ATM premises through e-Surveillance is one of the best initiative through “Internet of Things” to have better operational control with cost reduction. As on date, 515 ATMs and its locations are monitored under e-Surveillance.

- Implementation of Green Pin at ATMs

Your Bank has implemented “Green Pin” which helps the customers to generate their ATM pin on their own and it is a trend set towards the Green Initiative.

Financial Inclusion

With the basic objective of bringing the large unserved population under the banking mainstream, the Bank is striving towards a more inclusive growth by making financial products and services available to financially excluded and marginalized sections of the society in particular. As per the Government of India and the Reserve Bank of India directions, the Bank has been actively pursuing the agenda of Financial Inclusion (FI). The Bank has 61 Financial Inclusion (FI) Branches and also engaged 117 Business Correspondent Agents (BCAs) under Business Correspondents (BC) model. In addition, 38 Ultra Small Branches (USBs) are also operational in the Bank.

The business correspondents are paying the old age pension and the NAREGA payments to the eligible persons at their door steps using the hand held devices.

Pradhan Mantri Jan Dhan Yojana (PMJDY):

PMJDY is the initiative from Government of India for comprehensive financial inclusion of the households hitherto excluded from the purview of banking and empowering them with benefits and facilities provided by the banking industry. Accounts opened under PMJDY are issued with RuPay Debit card, accidental Insurance coverage to the extent of Rs.1 lakh, life insurance cover of Rs.30,000/-. The Bank was allotted 409 Urban Wards for implementation of PMJDY

Performance highlights under PMJDY:

- Opened 1,89,296 accounts under PMJDY and mobilized a CASA deposit of Rs.17.65 Crore.

- Hand-held devices are provided to Bank Mitras for facilitating payments, which are enabled for accepting RuPay Cards / Smartcard. The Bank has issued 1,86,828 RuPay Debit Cards to all eligible account holders.

- Bank Mitras have done 11.52 lakh transactions, amounting to Rs.123.53 Crore during the year.

- Bank Mitra have done 8,01,127 DBT transactions during the year.

Financial Literacy campaign:

Financial Literacy has been identified as pre-requisite for effective financial inclusion. Which is an integral part of Pradhan Mantri Jan-Dhan Yojana. In order to let the beneficiaries make best use of the financial services, your bank during the financial year FY2017-18 has conducted 244 financial literacy campaigns in Rural, Semi Urban / Urban areas.

Aadhaar Enrolments Updating Centres:

As per the Directions of Ministry of Financial Service, Karur Vysya Bank is the first Private Sector Bank to start Aadhaar enrolment centre in India. The First Aadhaar enrolment / Updation centre was started in Nelson Manickam Road Branch in Chennai, which was inaugurated by Mr. D M Gajare, Asst. Director General, UIDAI, Regional Office, Bengaluru. Subsequently more centres were started to facilitate customers to enroll for getting Aadhaar and to seed their Aadhaar number in their Bank account.

Performance under Sovereign Gold Bond Scheme, 2015

Your Bank could mobilize total subscription denominated in units of gold of 62,813 grams amounting to Rs.17.92 Cr in three tranches.

Management Discussion and Analysis

The Management Discussion and Analysis Report for the year under review as stipulated under Regulation 34(2)(e) of the Listing Regulations is presented in a separate section forming part of this Annual Report.

Risk Management

Given the risks and challenges that the Bank faces, having a robust Risk Management system is of paramount importance for ensuring the financial stability and sustained growth of the Bank. A well designed Integrated Risk Management system has been put in place by the Bank to identify measure and manage the Risks faced by the Bank in the course of conducting its business. The Board sets the Risk Appetite of the Bank and the overall Risk Management strategies to be adopted by the Bank. The Risk Management and Asset Liability Management Committee (ALCO) of the Board assists in formulating various Risk Management Policies, oversee the implementation of the Risk Management strategies and monitor the risk levels across the Bank. The Bank has created a strong Risk Management structure at the Executive levels by forming Risk Committees with special focus - Credit Risk Management Committee (CRMC), Operational Risk Management Committee (ORMC), Market Risk Management Committee (MRMC) and Asset & Liability Management Committee (ALCO).

The Bank has a Risk Management Department (RMD) headed by the Chief Risk Officer (CRO) with requisite independence to effectively discharge the Risk Management Function. While RMD acts as a nodal centre for co-ordinating the Risk Controls and mitigation measures in the Bank, other Departments / Offices / Branches manage the risks in their respective business areas.

The Bank has Board-approved Risk Management Policy covering various operational areas that provides the foundation for formulating and approving business development initiatives and the day-to-day functioning of the Bank in accordance with the Risk Appetite set by the Board. These policies are updated from time to time and reviewed at least annually. It is also ensured that the policies are not only in line with the current regulatory guidelines but also provide sufficient opportunity for the Bank to maximize its growth and profits while maintaining the risks at acceptable levels.

Vigil Mechanism / Whistle Blower Policy

The Bank has in place the “Whistle Blower Policy” since 2011. The said Policy is in compliance with RBI Guidelines, provisions of the Companies Act, 2013 and the Listing Regulations. The Audit Committee of the Board quarterly reviews the Vigil Mechanisms in the Bank.

The Policy also incorporates suggestions of the Protected Disclosure Scheme for Private Sector Banks, instituted by the Reserve Bank of India. In compliance with RBI guidelines on “Staff Empowerment”, the Board of Directors has reviewed the Whistle Blower Policy of the Bank during the FY 18.

Related Party Transactions

All transactions entered with ‘Related Parties’ during the year under review were on “arm’s length basis” and are in the ‘ordinary course of business’. There are no material related party transactions during the year under report. Therefore the provisions of Section 188 of the Companies Act, 2013 do not attract. Accordingly AOC-2 is not applicable to the Bank.

Compensation Policy

The Bank has in place a Compensation Policy for its Whole Time Directors, Chairman and President & COO, in terms of the Section 178 of the Companies Act, 2013, the rules made thereunder and Listing Regulations.

Particulars of Loans, Guarantees and Investments

The provisions relating to Section 134(3)(g) of the Companies Act, 2013 on particulars of loans, guarantees and investments are not applicable to Banking Company and as such no disclosures are being made in this regard.

Auditors

Statutory Auditors

M/s Abarna & Ananthan, Chartered Accountants, Bengaluru have been the Statutory Auditors of the Bank since the conclusion of 95th Annual General Meeting of the Bank and have to retire at the conclusion of the ensuing Annual General Meeting. As per the regulations of Reserve Bank of India, the same auditors cannot be re-appointed for a period beyond four years. Hence, they are not eligible for re-appointment. The Bank places on record their earnest appreciation of the professional services rendered by M/s Abarna & Ananthan, Chartered Accountants, Bangalore, as Statutory Auditors of the Bank.

In terms of Section 139 of the Companies Act, 2013 read with Sec 30 (1A) of the Banking Regulation Act, 1949, it is proposed to appoint M/s Walker Chandiok & Co. LLP, Mumbai (Firm Registration No. 001076N/N500013) as Statutory Auditors of the Bank from the conclusion of the this Annual General Meeting till the conclusion of next Annual General Meeting of the Bank. Fees payable to the Statutory Audit is proposed at Rs.68,00,000, plus out of pocket expenses and applicable GST for the FY 2018-19, subject to approval of the RBI and shareholders of the Bank. M/s Walker Chandiok & Co. LLP, have confirmed their eligibility to be appointed as Statutory Auditors in terms of Section 141 of the Companies Act, 2013 and applicable rules. Accordingly, the Bank sought the approval of Reserve Bank of India and RBI accorded their approval vide their letter DBS.ARS.No.1406/08.12.005/2017-18 dated 22nd June 2018 for appointment of M/s Walker Chandiok & Co. LLP, Chartered Accountants, Mumbai as the Statutory Auditors for the year 2018-19.

Members are requested to consider the appointment of M/s Walker Chandiok & Co. LLP as Statutory Auditors of the Bank.

Pursuant to the Regulation 33(1)(d) of the Listing Regulations, the Statutory Auditors have confirmed that they have subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and that they hold a valid certificate issued by the Peer Review Board of ICAI.

Independent Auditors’ Report

M/s Abarna & Ananthan, Chartered Accountants, Statutory Auditors of the Bank, have audited the accounts of the Bank for the year 2017-18 and their Report is annexed. Pursuant to Section 143(3)(i) of the Companies Act, 2013, the Statutory Auditors have also reported on the adequacy and operating effectiveness of the internal financial controls system over financial reporting, which has been enclosed as “Annexure A” to Independent Auditor’s Report.

There are no qualifications, reservations or adverse remarks made by the Statutory Auditors in their report for the FY18.

During the FY 18, no frauds were reported by Auditors under sub-section (12) of Section 143 of the Companies Act, 2013.

Secretarial Audit

Pursuant to the provisions of Sec 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Bank, with the approval of its Board appointed M/s. Solaiyappan & Associates, Company Secretaries, Salem to conduct the Secretarial Audit of the Bank for the FY 18. The Bank produced all necessary records to the Secretarial Auditors for smooth conducting of their Audit. The Secretarial Audit Report is annexed herewith as Annexure 1.

There are no qualifications, reservations or adverse remarks made by the Secretarial Auditors in their report for the FY18.

Statutory Disclosures

The Disclosures to be made under sub-section (3)(m) of Sec 134 of the Companies Act, 2013 read with Rule (8)(3) of the Companies (Accounts) Rules, 2014 by your Bank are explained as under:

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

Conservation of Energy

Considering the nature of its activities as an entity in the Financial Services sector, the Bank has voluntarily taken steps towards conservation of energy and technology absorption thus ensuring compliance of the provisions of Section 134 of the Companies Act, 2013. However the Bank has adopted the following in the areas of conservation of energy, technology absorption:

Your Bank has undertaken various energy efficiency improvement initiatives for energy conservation across all its premises. Your Bank owns 850 KW Wind Turbine Generator at Govindanagaram, Theni District, Tamil Nadu. Installed in the year 2011, the Bank is utilizing the power generated by Wind Turbine Generator for its Registered & Central Office at Karur and also its Divisional Office, Chennai premises. 17,08,987 units were generated during the fiscal under report by wind mill.

Your Bank Installed LED lights in all the new branches opened during the FY 2017-18. VRF (Variant Refrigerant Flow) AC Units have been installed in new Divisional Office Building at Coimbatore and Back Offices in Chennai to save electricity by energy conservation technology.

Technology Absorption

Technology is now becoming the great facilitator in the Bank towards achieving the business goals. Your Bank has adopted modern ways of banking practices with the help of technology along with the traditional ways of Banking, which has still remained quite fundamental. Your Bank uses the sophisticated technologies to offer better services in a secure, reliable and affordable manner and sustain competitive advantage over other banks.

Your Bank has been awarded ISO 27001 certification for the various IT offices in establishing a framework of policies and procedures that includes all legal, physical and technical controls involved in the organization’s information risk management process.

In order to provide quick and efficient customer service, your Bank has initiated the Digital Transformation Process through which the SME lending solution process is digitized as on date with threshold of ‘1 Cr and the required data is verified online from the respective entities. Your Bank is consistently maintaining the state of the art infrastructure with optimum utilization of the resources.

Foreign Exchange Earnings and Outgo

Foreign exchange earnings and outgo form part of the normal banking operations. The Bank supports and encourages the country’s export efforts through its export financing operations. The details of foreign exchange earnings and outgo are mentioned elsewhere in the report.

Material events that have happened after the Balance Sheet date

No material changes and commitments affecting the financial position of the Bank which has occurred between the end of the Financial Year of the Bank i.e., March 31, 2018 and the date of the Directors’ Report i.e., June 25, 2018.

There are no significant and material orders that were passed by the Regulators or Courts or Tribunals against the Bank impacting the going concern status and Bank’s operations in future.

Extracts of Annual Return

Pursuant to sub-section 3(a) Sec 134 and sub-section 3 of Sec 92 of the Companies Act, 2013, read with Rule 12 of the Companies (Management and Administration) Rules, 2014 the extract of the Annual Return as at March 31, 2018 in Form MGT-9 forms part of this report as Annexure 2.

Particulars of Employees

The ratio of remuneration of each Director to the median employee’s remuneration and other details and the statement containing particulars of employees in terms of sub-section 12 of Sec 197 of the Companies Act, 2013 read with Rules 5(1) and (2) of the Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 forms part of this report as Annexure 3.

Further in terms of the said rules, no employee of the Bank holds by himself or along with his / her spouse and dependent children not less than two percent of the equity shares of the Bank.

Corporate Social Responsibility (CSR)

The Bank has constituted the Corporate Social Responsibility (CSR) Committee of the Board, in accordance with the provisions of Section 135 of the Companies Act, 2013, read with Companies (Corporate Social Responsibility Policy) Rules, 2014 as amended.

The brief outline of the CSR Policy, overview of the programs undertaken by the Bank, the composition of the CSR Committee, prescribed CSR expenditure and details of the amounts spent by the Bank on CSR activities during the year under review, have been provided in Annexure - 4 to this report.

Your bank recognizes its responsibility towards the society and environment in which it operates and accordingly had been working towards CSR and Sustainable Development. The resources deployed and spent had increased significantly over the previous Financial Year. Bank is committed to identify and support outreach programmes aimed at developing and advancing the community. A steady and cautionary approach was adopted in the initial years so that sufficient platform / expertise is built to take forward the Bank’s CSR commitment. The entire expenditure could not be spent in one particular year as the proposals that were received were not viable for implementation, certain projects at evaluation stage could not ensure that the benefits reach a substantial number of people and hence were not considered and certain projects for which commitment given by the Bank could not be spend due to lack of ability of implementation partners in identifying scalable, sustainable projects.

Committee expressed its desire to enhance CSR spending to meet the Bank’s CSR commitment under the provisions of the Act. Further it will continue to strengthen its processes to evaluate all projects which will benefit the society in a large way as per the requirements and is passionately committed towards CSR objectives.

Business Responsibility Report (BRR)

In compliance with Regulation 34(2)(f) of the Listing Regulations the Business Responsibility Report describing the initiatives taken by the Bank from an environmental, social and governance perspective, in the format as specified by SEBI. The same has been hosted on the website of the Bank at the link http://www. kvb.co.in/global/business_responsibility_report.html.

The Business Responsibility Report (BRR) of the Bank for the year 2017-18 forms part of this Report as Annexure 5.

Criteria for determining qualifications, positive attributes for Appointment/Re-appointment of Directors

Pursuant to Section 178(3) of the Companies Act, 2013, the Nomination and Remuneration Committee (NRC) formulated the criteria for determining qualifications, positive attributes and independence of a Director to adhere the various provisions and guidelines as detailed below:

- Fit and Proper criteria as per Dr Ganguly Committee Norms which stipulates age, educational qualification, experience, track record, integrity etc., and various circular instructions and guidelines issued by Reserve Bank of India from time to time.

- Norms laid down by the Banking Regulation Act, 1949 as amended from time to time which stipulates substantial interest, sectorial representation as per Section 10A(2) (a), restrictions as per Section 16 and 20 of the Banking Regulation Act, 1949 etc.,

- Disqualification / Conflict of Interest of Directors and other norms as per the provisions of the Companies Act, 2013 and rules made thereunder from time to time.

- Criteria of Independence of a Director as per the provisions of Companies Act, 2013 and rules made thereunder and other applicable provisions as amended from time to time.

- Applicable regulations of Listing Regulations as amended from time to time.

- Articles of Association of the Bank.

- Any other factors as the NRC may deem fit and in the best interest of the Bank and its stakeholders.

The terms and conditions of appointment of Independent Director is disclosed on the website of the Bank at the link http://www.kvb. co.in/pdf/ID_Terms_and_Conditions.pdf.

Appointment and Retirement of Key Managerial Personnel

Shri J Natarajan, was appointed as President & Chief Operating Officer of the Bank and Key Managerial Personnel with effect from 01st April 2018, consequent to retirement of Shri K Venkateswara Rao, President & Chief Operating Officer, who demitted office at the close of the office hours on 31st March 2018 consequent to completion of his tenure of office.

Shri J Natarajan is a Post Graduate in Economics and a Certified Associate of Indian Institute of Bankers (CAIIB). He has rich experience in all the facets of Banking Operations over 34 years.

Board of Directors

In terms of Sec 152 of the Companies Act, 2013, Non-Executive Non-Independent Directors Shri M K Venkatesan (DIN:00032235) and Shri M V Srinivasamoorthi (DIN: 00694618), retire by rotation and being eligible offer themselves for re-election at the ensuing Annual General Meeting (AGM).

Shri M K Venkatesan (DIN:00032235), aged 61 years, is a graduate in Economics. He is one of the Promoters of the Bank. He is engaged in ‘Mundy Business’ dealing with agricultural commodities including seed processing and representing majority sector “MSME”. He was co-opted as an Additional Director of the Bank on 09.12.2014 and was elected as a Director at the 96th AGM held on 22.07.2015. Further he was re-appointed at the 97th AGM of the Bank. He had held two terms earlier as a Director of the Bank from 22.02.1992 to 18.02.2000 and 26.11.2003 to 26.07.2009. He is liable to retire by rotation.

Shri M V Srinivasamoorthy (DIN: 00694618), aged 54 years, is a graduate in Chemistry. He belongs to the promoter family of the Bank. He is engaged in textile business and exporting readymade garments, home textiles for the past 20 years. He is representing majority sector “MSME”. He was co-opted as an Additional Director of the Bank on 27.08.2015 and was elected as a Director at the 97th AGM held on 21.07.2016. He is liable to retire by rotation.

Managing Director and Chief Executive Officer

Consequent to completion of tenure of office, Shri K Venkataraman (DIN: 02443410), Managing Director & Chief Executive Officer demitted office at the close of office hours on 31st August 2017. Board has co-opted Shri P R Seshadri (DIN: 07820690) as an additional director of the Bank and appointed him as Managing Director & Chief Executive Officer of the Bank for a period of three years from the date of taking charge i.e 04th September 2017 on the terms and conditions approved by Reserve Bank of India. He would be representing Majority Sector - “Banking” in the Board of the Bank.

Reserve Bank of India vide its letter DBR.Appt. No. 1499/08.41.001/2017-18 dated 14th August 2017 has accorded their approval under the provisions of the Section 35 B of the Banking Regulation Act, 1949, for the appointment of Shri P R Seshadri as the Managing Director & Chief Executive Officer of the Bank. In terms of the provisions of the Section 161 of the Companies Act, 2013 and Article 24 of the Articles of Association of the Bank, Shri P R Seshadri has been appointed as an Additional Director of the Bank and hold office upto the date of ensuing Annual General Meeting. Your Directors recommended for approval of the appointment of Shri P R Seshadri as a Director and Managing Director & Chief Executive Officer of the Bank. The terms and conditions approved by the Reserve Bank of India are furnished in the Notice of the Annual General Meeting.

Shri P R Seshadri aged 54 years, is a Bachelor of Engineering (B.E.-Electrical) with distinction from Delhi College of Engineering and a Post Graduate Diploma in Management from Indian Institute of Management, Bangalore (IIM, Bangalore). He is a senior Banker with Commercial and Retail Banking experience of over 25 years spanning multiple geographies. He made significant contributions to Citibank’s business in India. He has proven track record of building and leading large teams to execute and deliver complex business objectives. He has significant business success in leadership roles enabled by wide range of experiences, intimate business knowledge, ability to create inclusive and motivated teams and an innate bias for measured action. He has working experience in highly regulated banking environments across multiple geographies and interfaced with regulators from the USA (as an offshore branch of Citibank N.A. or a fully - owned subsidiary of it) UK, Singapore, Hong Kong, India etc.,

The relevant details including profile of the Directors who are seeking election/re-election at this Annual General Meeting are furnished separately in the Notice of the AGM.

Cessations

Shri K Venkataraman (DIN: 02443410), Managing Director and Chief Executive Officer of the Bank demitted office at the close of office hours on 31st August 2017 consequent to completion of his tenure. Board places on record for the excellent and valuable services rendered and contribution made by Shri K Venkataraman for the growth of the Bank during his tenure of six years.

Shri G Rajasekaran (DIN: 00035582), Non-Executive Non-Independent Director of the Bank, demitted office after office hours on 19th June 2018 consequent to completion his tenure of 8 years in terms of Section 10A(2A)(1) of the Banking Regulation Act, 1949. Board places on record for the excellent and valuable services rendered and contribution made by him during his tenure as Director of the Bank.

Apart from the above, there were no changes in the directors holding office.

Declaration by Independent Directors

The Bank has received necessary declaration from each Independent Director under Sec 149(6) of the Companies Act, 2013 and the Listing Regulations that they met the criteria of independence laid down in the Companies Act, 2013 and Listing Regulations.

Familiarization Programmes of Independent Directors

All Independent Directors are familiar with their roles, rights and responsibilities in the Bank at the time of appointment and also on a recurrent basis. The details of various programmes undertaken for familiarizing the Independent Directors are disclosed in Corporate Governance Report, which forms part of this Annual Report.

Confirmation as to Compliance of applicable laws

It is hereby confirmed that the Bank has proper systems in place to ensure compliance of all laws applicable to the Bank.

Corporate Governance

A separate section on Corporate Governance standards followed by your Bank and the relevant disclosures as stipulated under Listing Regulations and Companies Act, 2013 and the rules made thereunder is enclosed as an annexure to this report.

A certificate from Shri CS S Solaiyappan, Practicing Company Secretary, confirming compliance to the conditions of Corporate Governance as stipulated under Listing Regulations is annexed to this report.

Directors’ Responsibility Statement

Pursuant to Sec 134(5) of the Companies Act, 2013 with respect to the Directors’ Responsibility Statement, it is hereby confirmed that:

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

b) The Directors had 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 at the end of the financial year and of the profit and loss of the Bank for that period;

c) The Directors had 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 had prepared the annual accounts on a going concern basis;

e) The Directors had laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively; and

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

Awards and Accolades

Your Bank received the following Awards and Accolades during FY 2017-18:

1. Best Small Bank for 2016 - Runner up Award from Business World in association with PricewaterhouseCoopers.

2. Award from Kamikaze Payments & Cards Summit 2017 for most disruptive payments technology of the year for FASTag.

3. Best Payments Technology Initiative of the Year for application meant for turmeric mundy dealers issued by Kamikaze Payments & Cards Summit 2017.

4. Best Bank Award for Innovative use of Technology among Small Banks from the Institute for Development & Research in Banking Technology, Hyderabad (IDRBT). Your Bank receiving the award from IDRBT for the ninth year consecutively.

5. Top Performer Award for number of Demat Accounts opened under Bank Category from National Securities Depository Limited (NSDL) - Second Place.

6. Winner-up award given by National Payment Corporation of India at their national Excellence Awards 2017 towards the best performance in Cheque Truncation System (CTS) under small-sized Banks.

Acknowledgements

The Board of Directors places on record its sincere thanks to the Government of India, Reserve Bank of India, Securities and Exchange Board of India (SEBI), various State Governments and regulatory authorities in India for their valuable guidance, support and co-operation. The Board also acknowledges with gratitude the co-operation and support received from Stock Exchanges, rating agencies and other banking / financial institutions.

The Board takes this opportunity to place on record its deep sense of gratitude to its loyal shareholders for extending their support during the year and look forward to their continued association in the years ahead.

The Board thanks the valued customers for their goodwill, patronage and continued support and looks forward to their continued patronage in scaling greater heights.

During the fiscal, the Bank has received various recognitions and accolades for its excellence in the Banking domain. The Board is thankful to all such organisations and agencies for formally recognising the Bank’s efforts.

The Board appreciates the sincere and dedicated services displayed by its entire staff and highly values their commitment in improving the Bank’s performance.

For and on behalf of the Board of Directors,

Place: Karur B Swaminathan

Date: June 25, 2018 Chairman