AU Small Finance Bank Ltd
Directors Reports
Dear Members,
Your Board of Directors are pleased to present the Twenty-Eighth Annual
Report of the AU Small Finance Bank Limited ("Bank") covering business
and operations together with the Audited Financial Statements and Independent Auditors'
Report for the financial year ended March 31, 2023.
A. Financial Summary & Highlights
The summary of the financial performance of your Bank for FY 2022-23 is
presented below:
(C in crore) |
|
|
Particulars |
March 31, 2023 |
March 31, 2022 |
Total Income |
9,239.87 |
6,915.42 |
Interest Income |
8,205.41 |
5,921.73 |
Other Income |
1,034.46 |
993.69 |
Interest Expenditure |
3,780.13 |
2,687.61 |
Operating Expenses (excluding depreciation) |
3,254.84 |
2,272.60 |
Profit before Depreciation, Provisions and Tax |
2,204.90 |
1,955.21 |
Depreciation |
185.42 |
140.17 |
Provision for Income Tax |
436.71 |
324.24 |
Other Provisions and Write-offs |
154.84 |
360.97 |
Net Profit |
1,427.93 |
1,129.83 |
Appropriations |
|
|
Transfer to Statutory Reserve |
356.98 |
282.46 |
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax
Act, 1961 |
115.00 |
117.30 |
Transfer to Capital Reserve |
2.52 |
18.52 |
Transfer to Investment Reserve Account |
- |
- |
Transfer to Investment Fluctuation Reserve |
17.20 |
20.24 |
Dividend pertaining to previous year paid during the year |
31.51 |
- |
Dividend (in C) (Per Equity Share) |
1 |
0.50* |
Surplus carried over to Balance Sheet |
4,287.14 |
3,382.42 |
Earnings Per Share (EPS) (in D) (After excluding
Exceptional Items not annualised) |
|
|
Basic (in D) |
21.86 |
18.03 |
Diluted (in D) |
21.74 |
17.85 |
*The Board recommended dividend of Cl per equity share on pre-bonus
share capital for the year ended March 31, 2022. Further, consequent to approval of the
Bonus Issue of 1:1 by the shareholders vide Postal Ballot dated May 29, 2022, the dividend
was proportionately adjusted to C0.50 per equity share on post-bonus share capital which
was duly approved by the shareholders at the 27th Annual General Meeting
("AGM") held on August 23, 2022.
Key Performance Highlights
Your Bank witnessed growth and consistent performance in FY 2022-23.
The key financial performance indicators for the year are as follows:
Profit Before Tax increased to C1,864.64 crore for FY 2022-23
vis-a-vis C1,454.07 crore for FY 2021-22 registering YoY growth of 28.24%.
Net Profit After Tax increased to C1,427.93 crore for FY 2022-23
vis-a-vis C1,129.83 crore for FY 2021-22 registering YoY growth of 26.38%.
Balance sheet size grew to C90,216.12 crore as on March 31, 2023
vis-a-vis C69,077.80 crore as on March 31, 2022 registering YoY growth of 30.60%.
Deposits grew by 32% YoY to C69,365 crore and CASA ratio
improved to 38.4% as on March 31, 2023 against 37.3% as on March 31, 2022 resulting to
consistent and strong performance across parameters while continuing to progress on the
journey of building a standardised, scalable, and sustainable banking franchise in
deposits, assets, and digital banking.
Gross NPA and Net NPA ratio continue to gradually decline to
1.66% and 0.42% as on March 31, 2023 vis-a-vis 1.98% and 0.50% as on March 31, 2022 on
account of significant improvement in the asset quality.
Analysis of Bank's performance is covered in Management Discussion
& Analysis section of the Annual Report.
B. Dividend
The Board at its meeting held on April 25, 2023 recommended dividend of
10% i.e., C1 per fully paid-up Equity Share of C10 each for the year ended March 31, 2023.
The payment of dividend is subject to approval of the shareholders at the forthcoming AGM
of the Bank.
In terms of regulation 43A of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 ("Listing Regulations") and
Reserve Bank of India ("RBI") guidelines, your Bank has formulated and
adopted a Dividend Distribution Policy which inter alabalances the objective of rewarding
its shareholders by sharing a part of profits and ensuring that sufficient funds are
maintained for the growth of the Bank.
The dividend declared is in compliance of Dividend Distribution Policy
and applicable RBI guidelines/ Regulations. The Dividend Distribution Policy was reviewed
by the Board from time to time and the same has been hosted on the website of the Bank at
https://www.aubank.in/investors/secretarial-policies.
C. Business Overview
The FY 2022-23 witnessed a period of unpredictable macro and global
headwinds with constrained liquidity and elevated inflation resulting in notable upsurges
in interest rates and intensified competition for deposits. Amidst this challenging and
unsettled environment, Bank exhibited commendable resilience and achieved remarkable
results across various key performance indicators and remained steadfast in commitment to
establish a robust Banking ecosystem encompassing Deposits, Assets, and Digital Banking.
Bank continued its efforts towards developing a standardised, scalable, and sustainable
banking brand and strategically enhanced its distribution channels and made continuous
investments in digital initiatives, branding, and distribution. These efforts are aimed at
capitalising the substantial opportunities within the Banking sector and ensuring
readiness of Bank for future.
The Bank demonstrated strong performance across key parameters
including an enhanced CASA ratio and a balanced mix of retail deposits, acquisition
through digital products, credit growth across all lending verticals, stable spreads and
asset quality, reduction in GNPA ratio supported by strong collections remaining north of
100% achieving an overall robust level of profitability.
The Bank continued its momentum on harnessing the digital capabilities
through diversified digital banking offerings, i.e. AU 0101, Video Banking, Credit Cards,
UPI QR, and more, all of which continued to see strong momentum during the year and
notably, over 5 lakh cards issued and out of which nearly one-third of customers availing
their first-ever credit card and over 1 million UPI QRs to merchants were issued. This
coupled with QR- based lending, enabled us to empower this customer segment with easy
access to formal credit.
As on March 31, 2023, Bank has established operations across 1,027
Banking touchpoints while serving 38 lakh+ customers in 21 States & 3 Union
Territories with an employee base of 28,320 employees. Bank's focus on digital initiatives
has seen significant traction in all areas.
Bank is delighted to announce that the RBI through its letter dated
April 19, 2023, has issued a licence authorising the Bank to operate as an Authorised
Dealer Category-I (AD-I) under Section 10 of the Foreign Exchange Management Act, 1999 to
engage in foreign exchange transactions, including buying and selling currencies,
facilitating international trade, and providing foreign exchange services to its Business
including EXIM customers, Resident & NR customers. This shall facilitate international
trade by providing services such as issuing letters of credit, handling import/export
documentation, and offering trade finance solutions leading to competitive advantage,
diversification of revenue streams and enhanced Credibility and Trust.
The key business developments and segment-wise position of business and
its operations are covered in detail under the Management Discussion & Analysis
section of the Annual Report.
D. Credit Rating
The details of credit rating assigned to the Bank for debt instruments
issued and outstanding as on March 31, 2023 along with outlook is provided below:
Nature of Debt Instrument |
Nature of Term |
CRISIL* |
India Ratings# |
CARE@ |
Fixed Deposits |
Long-Term |
AA+/Stable |
- |
- |
Long-Term/ Subordinated Debt/ Tier II Bond |
Long-Term |
AA/Stable |
AA/Stable |
AA/Stable |
Certificate of Deposits |
Short-Term |
A1+ |
A1+ |
A1+ |
Note:
*CRISIL rating upgraded long-term rating to AA/Sable from AA-/Positive
and reaffirmed Short-Term Ratings to A1+ and also upgraded FD ratings to AA+/Stable from
FAA+/Positive on June 29, 2022. CRISIL assigned AA/Stable to Tier II Bond and withdrawn
the ratings of Subordinated Debt as the Bank has repaid the term loan in full on July 7,
2022
#India Ratings upgraded long-term Tier II bonds ratings to AA/Stable
from AA-/Stable, reaffirmed Short-Term Ratings to A1+ and has withdrawn the ratings of
Subordinated Debt & Bank Facilities as the Bank has repaid the term loan in full on
July 22, 2022.
@CARE Ratings has reaffirmed the Long-Term Tier-II Bond Rating to
AA/Stable and reaffirmed rating of Certificate of Deposits to A1+ on April 4, 2023.
The above rating details is available on the website of the Bank and
can be accessed at https://www.aubank.in/credit-rating
E. Change in Nature of Business
During the year under review, there were no changes in the nature of
business of the Bank.
F. Transfer to Reserves
In terms of RBI regulations and other applicable regulations, the Bank
has proposed to transfer the following amounts to various reserves for the financial year
ended March 31, 2023 as mentioned below:
Amount transferred to |
Amount (D in crore) |
Statutory Reserve |
356.98 |
Transfer to Special Reserve U/s 36 (1) (viii) |
115.00 |
Transfer to Capital Reserve |
2.52 |
Transfer to Investment Fluctuation Reserve |
17.20 |
During the year under review, no amount was transferred to general
reserves by the Bank.
G. Transfer to the Investor Education and Protection Fund
("IEPF")
In accordance with Section 124 and 125 of the Companies Act, 2013 ("Act")
read with applicable rules, as amended, there was no unclaimed/unpaid dividend or shares
liable to be transferred to the IEPF during the FY 2022-23.
Further, details of the unclaimed/un-encashed dividends lying in the
unpaid dividend accounts as on end of the financial year are provided on website of the
Bank at https://www.aubank.in/investors/investor-services.
H. Deposits
Being a Banking company, the disclosures required under Rule 8(5)(v)
& (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Act
and Companies (Acceptance of Deposits) Rules, 2014 are not applicable. The details of the
deposits received and accepted by your Bank as a Banking company have been disclosed in
the financial statements for the financial year ended March 31, 2023.
I. Capital Structure & Fund Raising
Authorised Share Capital
During the period under review, the Authorised Share Capital of the
Bank increased from C350 crore to C1,200 crore comprising of 1,20,00,00,000 equity shares
of C10 each.
Paid-up Capital
Pursuant to the below allotments of equity shares, the total issued,
and paid-up equity share capital of the Bank increased by C351.85 crore to C666.75 crore
as on March 31, 2023 as compared to C314.90 crore as on March 31, 2022.
Bonus Issue
During the year, the Bank had allotted 31,50,93,233 equity shares of
C10 each as fully paid-up Bonus Equity Shares to the eligible shareholders as on the
record date i.e. June 10, 2022 in the proportion of 1:1, i.e., 1 (One) bonus equity share
for every 1 (One) fully paid-up equity shares held. The shareholders approved the above
issue of bonus shares vide postal ballot dated May 29, 2022.
Qualified Institutions Placement
Pursuant to the provisions of SEBI (Issue of Capital and Disclosure
Requirements) Regulations, 2018 and the Act and considering the growth aspirations, your
Bank successfully completed Qualified Institutions Placement ("QIP") of
3,44,82,758 equity shares of face value of C10 each at an issue price of C580 per Equity
Share (including a security premium of C570 per Equity Share) on subscription by Qualified
Institutional Buyers ("QIB") aggregating to C2,000 crore. The issue was
opened on August 3, 2022 and allotment of Equity shares were made on August 9, 2022.
With respect to disclosure under Regulation 32(7A) of SEBI Listing
Regulations, the Audit Committee of the Board at its meeting held on October 19, 2022, had
reviewed, and confirmed that the funds raised through QIP issue during the year have been
fully utilised for the intended object as mentioned in the private placement document and
there was no deviation or variation in utilisation of the said funds. Further, No
allotment was made to Promoter and Promoter Group under QIP.
Allotment of Equity Shares pursuant to exercise of Stock Options
The Board of Directors allotted 22,69,033 equity shares pursuant to
exercise of ESOP under different ESOP Schemes.
Non-convertible Debentures ("NCDs")
During the year, your Bank has successfully raised Tier-II capital of
C500 crore by way of private placement by issuing 500 (Five Hundred) 9.30% Unsecured, Not
guaranteed, Subordinate - Tier 2 - Lower, Taxable, NonCumulative, Rated, Redeemable,
Non-Convertible Debentures having a face value of C1,00,00,000 (Rupees One crore only)
each for cash.
Accordingly, total outstanding NCDs stood at C1,000 crore as on March
31, 2023 against C500 crore as on March 31, 2022.
Details of outstanding NCDs as on March 31, 2023 are as below:
N ISIN No. |
Series |
Amount (D in crore) |
Date of Issue |
Date of Allotment |
Date of Maturity |
1. INE949L08418 |
- |
500 |
April 26, 2018 |
November 30, 2018 |
May 30, 2025 |
2. INE949L08442 |
Series I Debentures |
350 |
July 29, 2022 |
August 3, 2022 |
August 3, 2032 |
3. INE949L08434 |
Series II Debentures |
100 |
July 29, 2022 |
August 3, 2022 |
August 13, 2032 |
4. INE949L08426 |
Series III Debentures |
50 |
July 29, 2022 |
August 3, 2022 |
August 23, 2032 |
The Audit Committee of the Board at its meeting held on October 19,
2022, had reviewed, and confirmed that the Bank had utilised the said funds for the
intended object as mentioned in offer document and there was no deviation or variation in
utilisation of the said funds.
J. Employee Stock Option Schemes
Your Bank has formulated several Employee Stock Option Schemes ("Schemes"),
which have been duly approved by the shareholders of the Bank. The Schemes have been
devised in accordance with the SEBI (Share-Based Employee Benefits) Regulations, 2014 read
with SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021 ("SBEB
& SE Regulation - 2021") as amended from time to time.
The Option grants to employees under the schemes are approved by the
Nomination and Remuneration Committee ("NRC") in terms of Compensation
Policy of the Bank, as part of Annual Performance Review of employee's performance and at
the time of hiring. Several factors including scale, designation, performance, grades,
period of service, criticality of role and their contribution for the Bank's overall
performance is taken into consideration for deciding number of options to be granted to
the employees.
The Bank had following Employee Stock Option Schemes as on March 31,
2023:
Employee Stock Option Scheme 2015 - Plan A (ESOP 2015 - Plan A)
Employee Stock Option Scheme 2015 - Plan B (ESOP 2015 - Plan B)
Employee Stock Option Scheme 2016 - (ESOP 2016)
Employee Stock Option Scheme 2018 - (ESOP 2018)
Employee Stock Option Scheme 2020 - (ESOP 2020)
The details of vesting of various schemes are as follows:
ESOP Scheme & Plan |
Vesting Period |
% of vesting of Options |
ESOP 2015 - Plan A |
1 year from the date of grant or at the time of IPO whichever
is later |
20% |
|
Expiry of 1 year from 1st vesting |
30% |
|
Expiry of 2 years from 1st vesting |
50% |
|
Total |
100% |
ESOP 2015 - Plan B |
1 year from the date of grant or at the time of IPO whichever
is later |
20% |
|
Expiry of 1 year from 1st vesting |
30% |
|
Expiry of 2 years from 1st vesting |
50% |
|
Total |
100% |
ESOP 2016 |
Options granted under this scheme would vest after one year
but not later than six years from the date of grant of options |
100% |
ESOP 2018 |
Options granted under this scheme would vest after one year
but not later than six years from the date of grant of options |
100% |
ESOP 2020 |
Options granted under this scheme would vest after one year
but not later than six years from the date of grant of options |
100% |
Note: Options granted may be exercised within four years from the date
of first vesting of the options under ESOP 2015 and six years from the date of first
vesting of the options under ESOP 2016, ESOP 2018, and ESOP 2020. The term of vesting is
also mentioned as per terms of grant approved by NRC in the grant letter issued to
employees.
The Brief Details of Existing ESOP Schemes as on March 31, 2023 is
given below:
Particulars |
ESOP
Plan A 2015 |
ESOP
Plan B 2015 |
ESOP Scheme 2016 |
ESOP Scheme 2018 |
ESOP Scheme 2020 |
Date of Shareholders Approval |
31-Aug-15 |
31-Aug-15 |
10-Oct-16 |
07-Aug-18 |
23-Dec-20 |
Total Number of Options approved (Pre Bonus) |
38,36,058 |
49,33,194 |
21,00,000 |
49,33,200 |
50,00,000 |
Increase in Number of options due to Bonus |
39,425 |
1,60,243 |
10,71,733 |
31,27,329 |
49,96,200 |
Total Number of Options approved (Post Bonus) |
38,75,483 |
50,93,437 |
31,71,733 |
80,60,529 |
99,96,200 |
Total Number of options outstanding at the Beginning of the
period@ |
1,18,000 |
22,000 |
11,04,139 |
28,84,340 |
16,23,695 |
Particulars |
ESOP
Plan A 2015 |
ESOP
Plan B 2015 |
ESOP Scheme 2016 |
ESOP Scheme 2018 |
ESOP Scheme 2020 |
Total Number of Options granted (during FY 2022-23) |
- |
41,000 |
37,468 |
6,11,828 |
50,98,223 |
Total Number of Bonus Options Issued during the FY 2022-23 |
- |
22,000 |
10,54,575 |
28,35,939 |
16,22,925 |
The Pricing Formula (per share) |
C10.11 |
C16.69 (C33.37 prior to Bonus Issue) |
Market Price Linked# |
Market Price Linked |
Market Price Linked |
Options Vested (during FY 2022-23)@ |
- |
11,200 |
4,17,278 |
26,42,164 |
6,27,176 |
Options Exercised (during FY 2022-23) |
1,18,000 |
- |
3,00,397 |
17,84,285 |
66,351 |
Total Number of shares arising as a result of exercise of
option |
1,18,000 |
- |
3,00,397 |
17,84,285 |
66,351 |
Options lapsed/Forfeited (during FY 2022-23)@ |
- |
- |
44,033 |
1,45,346 |
4,70,897 |
Total Number of options exercisable at the end of the year@ |
- |
16,000 |
6,17,020 |
19,56,556 |
5,76,857 |
Total Number of options outstanding at the end of the year@ |
- |
85,000 |
18,51,752 |
44,02,476 |
78,07,595 |
Variation in terms of options |
Appropriate adjustments with respect to the exercise price
and/or the number of stock options were made to give effect of bonus issue completed
during FY 2022-23 for options which were available for grant and those already granted but
not exercised as on Record Date. No variation in terms of options were made during the FY
2022-23. |
|
|
|
|
Money realised by exercise of Options (during FY 2022-23) (in
C) |
11,92,980.00 |
- |
6,21,31,266.00 |
59,31,30,686.50 |
3,72,79,984.00 |
Total Number of Options granted to Key Managerial Personnel |
|
|
Refer Note 1 |
|
|
Any other employee who received a grant in any one year of
options amounting to 5% or more of options granted during that year |
Nil |
Nil |
Nil |
Nil |
Nil |
Identified employees who are granted options, during any one
year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the Bank at the time of grant |
Nil |
Nil |
Nil |
Nil |
Nil |
Diluted Earnings Per Share (EPS) of the Bank after
considering the effect of potential equity shares on account of exercise of Options |
|
Please refer Note 2 |
|
|
|
Impact of the difference between the Intrinsic Value of the
Options and the Fair Value of the Options on Profits and on EPS |
|
Please refer Note 2 |
|
|
|
Weighted average share/exercise price of the shares exercised
during the year (in C) |
C10.11 |
- |
C206.83 |
C332.42 |
C561.86 |
Weighted average fair values of the outstanding
options (in C) |
Please refer point no. 25 of B. Other Disclosures
of Schedule 18 of Notes to accounts to Audited Financial Results for FY 2022-23 |
@In terms of SEBI circular dated June 15, 2021 regarding relaxation
from the requirement of minimum vesting period in case of death of employee(s) and
provisions of the SEBI (Share-Based Employee Benefit and Sweat Equity) Regulations, 2021,
options granted to employees who have demised, have been vested in the legal heirs or
nominees of the deceased employees immediately. The numbers given above include the
options vested in legal heirs/nominees of deceased employees.
#Pricing for ESOP Scheme 2016 was changed from fixed price of ' 140 to
market linked price with the approval of shareholders obtained in the Annual General
Meeting held on July 19, 2019.
Note 1
Sr .. ' Name of Official No. |
Designation |
Number of Options Granted in |
|
|
ESOP 2018 |
ESOP 2020 |
1 Uttam Tibrewal |
Whole-Time Director |
- |
54,136 |
2 Vimal Jain |
Chief Financial Officer |
22,781 |
- |
3 Manmohan Parnami |
Company Secretary |
- |
13,546 |
Grand Total |
|
22,781 |
67,682 |
Note 2
The Securities and Exchange Board of India ("SEBI")
has prescribed two methods to account for stock grants; namely (i) the intrinsic value
method; (ii) the fair value method. The Securities and Exchange Board of India
("SEBI") has prescribed two methods to account for stock grants: namely (i) the
intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value
method to account for the stock options grants to the employees. Further, the Bank
calculates the fair value of options at the time of grant using Black- Scholes pricing
model for Whole-Time Directors, Chief Executive Officers/Material Risk Takers and Control
Function staff as per RBI guidelines dated November 4, 2019 with the following
assumptions:
Particulars |
March 31, 2023 |
Risk free interest rate |
7.12% - 7.45% |
Expected life |
3 Year - 5.5 Year |
Expected volatility |
41.37% - 48.62% |
Expected dividends |
0.08% - 0.10% |
Had the Bank used the fair value model to determine the compensation,
its profit after tax and earnings per share as reported would have changed to the amounts
indicated below:
(C in crore)
Particulars |
Year ended March 31, 2023 |
Year ended March 31, 2022 |
Profit after tax as reported |
1,427.93 |
1,129.83 |
Add: ESOP Expense already booked (net of tax) |
15.53 |
13.76 |
Less: ESOP cost using fair value method (net of tax) |
77.62 |
48.53 |
Profit after tax (adjusted) |
1,365.84 |
1,095.06 |
Earnings Per Share |
|
|
Basic |
|
|
- As reported |
21.86 |
18.03 |
- Adjusted for ESOP cost using fair value method |
20.91 |
17.48 |
Diluted |
|
|
- As reported |
21.74 |
17.85 |
- Adjusted for ESOP cost using fair value method |
20.79 |
17.30 |
|
|
(C in crore) |
Particulars |
As on March 31, 2023 |
As on March 31, 2022 |
Stock options outstanding (gross) |
229.16 |
203.94 |
Deferred compensation cost outstanding |
30.67 |
26.16 |
Stock options outstanding (net) |
198.49 |
177.78 |
I n accordance with SBEB & SE Regulation - 2021 necessary
disclosures are made in Schedule 18 - Notes forming part of the financial statements for
FY 2022-23 and are included in the annual report and also disclosed on the website of the
Bank at https://www.aubank.in/reports/disclosures.
K. Detail of Board of Director's and Key Managerial Personnel
The composition of the Board of Directors of the Bank ("Board")
is governed by the provisions of the Act, the Banking Regulation Act, 1949 ("BR
Act"), the SEBI Listing Regulations other applicable laws, and the Articles of
Association of the Bank. At the end of March 31, 2023, the Board of your Bank had 10
Directors, out of which 8 were Independent Directors and 2 were Executive Directors.
During the FY 2022-23 and up to the date of this report, following
changes took place in the Board of Directors and Key Managerial Personnel of the Bank:
Appointments
1. Mr. Kamlesh Shivji Vikamsey (DIN: 00059620) was appointed as
Additional Director (Independent) for a period of 3 years with effect from April 25, 2022
to April 24, 2025. Further, shareholders vide resolution passed through postal ballot
approved his appointment as Independent Director on May 29, 2022.
2. Ms. Malini Thadani (DIN: 01516555) was appointed as Additional
Director (Independent) of the Bank to hold office for a period of 3 years with effect from
November 25, 2022 up to November 24, 2025. Further, shareholders vide resolution passed
through postal ballot approved her appointment as Independent Director on December 30,
2022.
3. Ms. Kavita Venugopal (DIN: 07551521) was appointed as Additional
Director (Independent) of the Bank to hold office for a period of 3 years with effect from
March 29, 2023 up to March 28, 2026. Further, shareholders vide resolution passed through
postal ballot approved her appointment as Independent Director on April 30, 2023.
Re-appointments
4. Re-appointment of Mr. Mankal Shankar Sriram and Mr. Pushpinder
Singh, Independent Directors for a second term for a period of 3 years commencing from
October 21, 2022 to October 20, 2025 and of Mr. Kannan Gopalaraghavan Vellur, Independent
Director for a second term for a period of 3 years commencing from January 22, 2023 to
January 21, 2026 has been approved by the shareholders in its 27th AGM held on
August 23, 2022 after taking into the consideration the balance of skills, knowledge,
qualifications, experience and basis the 'fit and proper assessment' carried out by the
NRC & Board.
5. With the approval of the Board of Directors at their meeting held on
October 10, 2022, the proposal for re-appointment of Mr. Raj Vikash Verma (DIN: 03546341)
as Part-time Chairman (Independent Director) of the Bank for a period from April 8, 2023
till January 29, 2024, was submitted to RBI. The proposal has been approved by RBI for the
above-mentioned period and communicated vide its letter dated February 22, 2023. Further,
shareholders vide resolution passed through postal ballot has already approved his
re-appointment as Part-Time Chairman (Independent Director) on November 12, 2022.
6. Re-appointment of Mr. Sanjay Agarwal (DIN: 00009526) as Managing
Director & CEO and Mr. Uttam Tibrewal (DIN: 01024940) as Whole-Time Director has been
approved by RBI vide its letter dated April 12, 2023, for a period of 3 (three) years
w.e.f. April 19, 2023 till April 18, 2026. Further, shareholders vide resolution passed
through postal ballot has already approved their re-appointment on March 9, 2022 vide
resolution passed through postal ballot.
7. In accordance with the provisions of Section 152 of Act, Mr. Sanjay
Agarwal, Managing Director & CEO retired by rotation at the previous AGM and
shareholders approved his re-appointment. Further, Mr. Uttam Tibrewal, Whole-Time Director
of the Bank shall retire by rotation at the ensuing AGM and being eligible for
reappointment, offers himself for re-appointment.
Completion of Tenure
8. Mr. Krishan Kant Rathi (DIN: 00040094) and Ms. Jyoti Narang (DIN:
00351187) ceased to be the Independent Directors of the Bank with effect from March 29,
2023 (close of business hours) on completion of their tenures. The Board hereby places on
record its sincere appreciation for Mr. Krishan Kant Rathi and Ms. Jyoti Narang for
guidance and wisdom to Board during their tenure.
During the year, no other change took place in the Board of Directors
or in Key Managerial Personnel of the Bank. The composition of the Board of Directors and
Key Managerial Personnel of the Bank was compliant with the applicable regulatory norms.
Further, none of the directors have been debarred from holding office
as director by virtue of any order of the SEBI or any other authority.
L. Code of Conduct for Directors and SMPs
In accordance with Regulation 17(5) of SEBI Listing Regulations, the
Bank has adopted the Code of Conduct for Directors and Senior Management Personnel ("SMPs").
The code of conduct sets forth the guiding principles for orderly & fair conduct by
Directors and SMPs. All Directors and SMPs have affirmed the compliance of the code for
the FY 2022-23 and a declaration to this effect signed by the MD & CEO forms part of
Report on Corporate Governance annexed with Board's Report as Annexure - I. The
Bank's Code of Conduct for Directors and SMPs is disclosed on the website of the Bank at
https://www.aubank.in/investors/secretarial- policies.
M. Number of Meetings of Board
During the period under review, Sixteen (16) Board Meetings were held
and the gap between the said meetings did not exceed the limit of 120 days as prescribed
under the provisions of Act and Rules made thereunder, Secretarial Standard-I Issued by
the Institute of Company Secretaries of India and provisions of SEBI Listing Regulations.
The dates of Board meetings and details of attendance of each Director have been disclosed
in the Report on Corporate Governance annexed with Board's Report as Annexure-I.
N. Committees of the Board
The Bank believes that Board Committees are critical to promote best
Corporate Governance practices within the Bank. Accordingly, the Bank has constituted
various Board Committees to improve the Board effectiveness and to support in
decision-making. The constitution of these Committees is in compliance of provisions of
the Act and relevant rules made thereunder, SEBI Listing Regulations, BR Act, RBI Circular
& Guidelines, Articles of Association of the Bank and other guidelines issued from
time to time.
Further, in view of completion of tenure of Mr. Krishan Kant Rathi
& Ms. Jyoti Narang as Independent Directors on the Board w.e.f. March 29, 2023
(closure of business hours) and appointment of Ms. Kavita Venugopal as an Independent
director w.e.f. March 29, 2023, the Board of Directors at their meeting held on March 10,
2023 have approved the revised constitution of Board Committees effective from March 30,
2023. The details of the Board Committees of the Bank including, constitution, their
scope, number & date of meetings held during FY 2022-23 and attendance thereof are
disclosed in the Report on Corporate Governance annexed with Board's Report as Annexure-I.
O. Meeting of Independent Directors
As per the requirement of the Section 149(8) read with Schedule IV of
Act and Regulation 25 of SEBI Listing Regulations, a meeting of the Independent Directors
of the Bank is required to be held at least once a year in absence of non-independent
directors.
During the year under review, the Independent Directors of the Bank met
2 (Two) times on April 25, 2022 and on March 10, 2023, chaired by Mr. Raj Vikash Verma and
attended by all the Independent Directors of the Bank and discussed & reviewed inter
alia below matters:
Performance of Non-Independent Directors, the Board of Directors
as a whole, and Chairperson of the Bank.
Assessed the quality, quantity, and timeliness of flow of
information between the management of the Bank and the Board of Directors that is
necessary for the Board of Directors to perform their duties effectively and reasonably.
Assessed whether adequate time is spent by the Board/Committees
on discussions on important issues.
Reviewed the criteria for evaluation of performance of Board
Committees.
Familiarisation Programme held during the year.
Reviewed the revised composition of Board Committees of the
Bank.
P. Familiarisation Programme for Independent Directors
I n accordance with Regulation 25(7) of SEBI Listing Regulations and
RBI guidelines, the Bank conducted various familiarisation programme during FY 2022-23 for
the Independent Directors to enable them to familiarise with the Bank, its Management,
Bank's Business, and its operations for better understanding of their responsibilities,
roles, and rights for effective contribution in sustainable growth of the Bank.
The Details of familiarisation programme and other sessions organised
for Independent Directors during FY 2022-23 is disclosed in the Report on Corporate
Governance annexed with Board's Report as Annexure-I and on the website of the Bank
under https://www.aubank.in/investors/secretarial-policies.
Q. Declaration of Independence
In accordance with provisions of Sections 149(6) and 149(7) of the Act,
Schedule IV and Regulation 16(1)(b) and 25(8) of the SEBI Listing Regulations, the Bank
has received necessary declarations/disclosures from all the Independent Directors
confirming that they meet and comply with the criteria of independence.
All the Independent Directors possesses requisite domain knowledge,
experience, expertise, integrity, and proficiency as required under the Code applicable
for Independent Directors as stipulated under Schedule IV of the Act and in terms of
policies of the Bank.
R. Compensation Policy for appointment and remuneration of
Director's, Key Managerial Personnel, Senior Management Personnel, Material Risk
Takers (MRTs) and Control Function Staff
In accordance with the provisions of Section 178(3) of the Act read
with relevant rules made thereunder, SEBI Listing Regulations, RBI guidelines and on the
recommendation of the NRC, the Bank has formulated and adopted a compensation policy for
appointment and remuneration of its Directors, Key Managerial Personnel ("KMP"),
Senior Management Personnel ("SMP"), Material Risk Takers ("MRTs")
and Control Function Staff.
Compensation policy regulates the appointment and remuneration of
Directors (including Independent Directors), KMP, SMP, MRTs and Control Function staff as
applicable in accordance with criteria formulated by the NRC of the Board under the
requirement of the Act read with applicable Rules under the Act and SEBI Listing
Regulations and other applicable guidelines.
The key objectives of policy are as under:
Establish standards on compensation/remuneration including fixed
and variable pay - covering share- linked instruments, which are in alignment with the
applicable rules and regulations and is based on the trends and practices of remuneration
prevailing in the industry.
Retain, motivate, and promote talent and to ensure long-term
sustainability of talented WTDs, KMPs, SMPs, MRTs, Control Function Staff and other
employees as applicable.
Define internal guidelines for payment of other reimbursement to
the Directors and KMPs.
Institutionalise a mechanism for the appointment/ removal/
resignation/evaluation of performance of Directors.
Perform such functions as are required to be performed by the
NRC under the Securities and Exchange Board of India (Share-Based Employee Benefits and
Sweat Equity) Regulations, 2021, including the following:
(a) administering the ESOP plans;
(b) determining the eligibility of employees to participate under the
ESOP plans;
(c) granting options to eligible employees and determining the date of
grant;
(d) determining the number of options to be granted to an employee;
(e) determining the exercise price under the ESOP plans; and
Ensure compliance with applicable laws, rules, and regulations
as well as 'Fit and Proper criteria' of directors before their appointment.
The policy is reviewed by the Board of Directors in addition to the
other amendments that may be required in the policy. The Policy is hosted by the Bank on
its website at https://www.aubank.in/investors/secretarial- policies.
The terms of reference of the NRC and Compensation Policy have been
provided in Report on Corporate Governance annexed with Board's Report as Annexure-I.
S. Evaluation of the Directors, the Board and Committees
I n accordance with the provisions of Section 149(8) read with Schedule
IV, Section 178(2) of the Act, Regulation 17 and other applicable Regulations of SEBI
Listing Regulations, and in consonance with Guidance Note on Board Evaluation issued by
the SEBI, the Board assesses the performance of the Individual Director, Board Committees
and Board as a whole on the basis of various criteria with the aim to improve the
effectiveness of the individual Director, Committees and the Board.
The description and process of annual performance evaluation has been
provided in Report on Corporate Governance annexed with Board's Report as Annexure-I.
T. Statutory Auditors and their Report
In accordance with the 'Guidelines for Appointment of Statutory Central
Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and
NBFCs (including HFCs)' dated April 27, 2021 ("RBI Guidelines") issued by
RBI, Banks shall appoint the Statutory Auditors for a continuous period of three (3)
years, subject to the firms satisfying the eligibility norms each year and the approval of
RBI on an annual basis.
M/s. Deloitte Haskins and Sells, Chartered Accountants (Registration
No. 117365W) and M/s. G. M. Kapadia & Co., Chartered Accountants (Registration No.
104767W) were appointed as the Joint Statutory Auditors for a period of Three (3) years by
the Shareholders of the Bank at the 26th AGM held on August 17, 2021, to hold
office from the conclusion of the 26th AGM till the conclusion of the 29th
AGM of the Bank subject to the approval of the RBI on annual basis.
There are no qualifications, reservations or adverse remarks made by
M/s. Deloitte Haskins and Sells, Chartered Accountants and M/s. G. M. Kapadia & Co.,
Chartered Accountants, Joint Statutory Auditors of the Bank, in their report on the
financial statements for the FY 2022-23. Further, pursuant to Section 143(12) of the Act
the Statutory Auditors of the Bank have not reported any instances of frauds committed in
the Bank by its officers or employees.
The Statutory Auditors have confirmed their eligibility under Section
141 of the Act and as per the guidelines issued by RBI from time to time. Further, as
required under the relevant provisions of SEBI Listing Regulations, the Statutory Auditors
had also confirmed that they had subjected themselves to the peer review process of the
Institute of Chartered Accountants of India ("ICAI") and they hold a
valid certificate issued by the Peer Review Board of ICAI.
U. Secretarial Auditors and their Report
I n accordance with the provisions of Section 204 of the Act and the
Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and
Regulation 24A of SEBI Listing Regulations and upon recommendation of the Audit Committee,
the Bank has appointed M/s. V. M. & Associates, Company Secretaries (Registration No.
P1984RJ039200) to undertake the Secretarial Audit of the Bank for the financial year ended
March 31, 2023.
During the year under review, pursuant to provisions of the Section
143(12) of the Act no frauds have been reported by the Secretarial Auditors, and there
were no observations or qualifications made by the Secretarial Auditors in their Report.
The Secretarial Audit Report for FY 2022-23 in form MR-3 is annexed with Board's Report as
Annexure-IV.
V. Particulars of Loans, Guarantees and Investments
In accordance with the provisions of Section 186(11) of Act the
provisions of Section 186 of the Act except sub-section (1), do not apply to loans made,
guarantees given or securities provided or acquisition of securities by a Banking company
in the ordinary course of business and are exempted from disclosure requirement in the
Annual Report.
However, the particulars of investments made by the Bank are disclosed
in Schedule 8 of the Financial Statements for FY 2022-23, forming part of this Annual
Report, as per the applicable provisions of BR Act.
W. Related Party Transactions
During FY 2022-23, the Bank has not entered into any materially
significant transaction with its related parties, which could lead to a potential conflict
of interest between the Bank and these parties. All the related party transactions that
were entered into during the year were on an arm's length basis and in ordinary course of
business.
The Audit Committee of the Board has given omnibus approval for related
party transactions of repetitive nature and entered in the Ordinary Course of Business.
Further, the Audit Committee of the Bank reviewed details of all related party transaction
entered by the Bank on quarterly basis.
Hence, pursuant to Section 134(3)(h) of the Act read with Rule 8(2) of
the Companies (Accounts) Rules, 2014, there are no related party transactions that are
required to be reported in form AOC-2. The requisite disclosure has been made under
Schedule 18 of the notes forming part of audited financial statements for the financial
year ended March 31, 2023.
The Policy on Related Party Transactions and Materiality as approved by
the Board is available on the website of the Bank at
https://www.aubank.in/investors/secretarial-policies.
X. Material Changes and Commitments, if any, affecting the Financial
Position of the Bank
There are no material changes and commitments which affect the
financial position of the Bank which have occurred between the end of the financial year
i.e. March 31, 2023 up to the date of this Report.
Y. Conservation of Energy, Technology Absorption & Foreign Exchange
Earnings and Outgo
Since inception, your Bank has operated responsibly towards environment
sustainability. The Bank has taken proactive measures to address its emissions footprint
by leveraging digital interventions, and implementing emission reduction initiatives
wherever possible.
(a) Conservation of Energy
Steps taken or impact on conservation of energy, utilising alternate
sources of energy and capital investment on energy conservation equipment's:
Your Bank has launched a gamut of initiatives that are a testimony of
Bank's strong intent towards simplifying Banking by eliminating unnecessary steps and
enabling smooth onboarding of customers while reducing negative impact on the environment.
The Bank has undertaken the following initiatives for conservation of energy:
AC capacity planning ensures optimal sizing to prevent over
consumption of energy.
Energy-efficient Star Rated equipments are installed for saving
of electricity cost.
Bank promotes green plant & garden in premises to reduce air
conditioning load.
Installation of an i-Touch manager to help monitor and control
electricity usage, reducing consumption by 20% and preventing pilferage.
Variable Refrigerant Volume (VRV) based Chiller used for energy
usage reduction in ACs.
Insulation used to minimise Heat load in offices and to reduce
the need for excessive air conditioning.
Use of LED instead of tradition lighting to reduce electricity
consumption.
Natural Sunlight is maximised through Green Building design in
Offices to the extent possible to reduce reliance on artificial lighting to the extent
possible.
Installation of Timer for signages to optimise energy usage.
Power factor system installed in Electrical panel for optimum
usage of electricity.
UPS & Inverter used to minimise reliance on Diesel generator
set.
As part of Bank's commitment to environmental responsibility and to
conserve energy, Bank installed a 1.25-Megawatt Solar plant a renewable source of energy
that is long-lasting source, thereby resulting into numerous benefits, including reducing
energy and carbon intensities, saving of cost, minimising environmental impact, mitigating
climate change, and conserving water resources.
Using power supervision technology and guidelines: With
installation of range of tools and systems that are designed to monitor, control, and
optimise power usage in existing buildings and assets of the Bank, increased energy
efficiency is achieved through the replacements and lighting retrofits including
installation of intelligent energy management devices among other measures.
Using Cloud based technology and virtualised info Centre: Your Bank
strives to channelise its efforts and investment towards infrastructure development in the
digital space. The Bank makes use of virtual machines and cloud-based technologies to
create a virtual ecosystem. This not only reduces dependency on physical servers thereby
reducing operational wattage and space, new, energy efficient, reliable, and vastly
advanced cloud-based systems have been put in place.
Being a technology absorption measure as well, Bank shall be immensely
benefited with virtualisation of server where there will be saving energy cost due to high
availability under cloud based technology, reduced need for on premises physical servers,
scalability, workload sharing, elasticity, and rapid resource provisioning etc., thereby
achieving enhanced efficiency, flexibility, and cost-effectiveness.
Recycling systems and supplies: Your Bank also practices highly
efficient management methods to refurbish aging IT systems. This is carried out to avoid
sending hazardous materials into huge landfills and scaling down the load on already
overburdened junkyards. The Bank also employs a coherent system of recycling slightly
older IT systems by assigning them to the staff that does not need to perform heavy data
processing on their system. By doing so, the Bank successfully reduces the demand for new
desktops and laptops even with the growing workforce.
Scrap Disposal
There is limited scope for Scrap build up & disposal as the Bank is
into financial Services Space. Further, in respect of IT Assets, the same were disposed
through E-Waste vendor and details are covered in the Business Responsibility and
Sustainability Report of FY 2022-23 annexed with Board's Report as Annexure-V.
(b) Technology Absorption
I) The efforts made towards Technology absorption:
1. Digital Banking: The Bank witnessed strong growth in the
adoption of Tab-based account opening, Android-based Mobile Banking, WhatsApp Banking
(24/7 Banking solutions), and Net Banking, thus minimising paper usage, reducing waste
generation, and achieving improved waste management.
2. AU 0101 App: This app enables the customers to Bank from
anywhere and which contributes to reducing carbon footprint through a video-enabled chat
with Bank's executives, eliminating the need to travel.
3. Video Banking: Launched Video Banking with a vision of
offering all Bank's services virtually through video-enabled chat with branch executives,
eliminating the need for Branch visits. This initiative helped two-fold in promoting
Digital Banking and inspiring customers to adopt a more environmentally sustainable
Banking channel and saving of fuel by reducing commutation.
4. E-receipts Culture: E-receipts at ATMs, followed by a
detailed SMS regarding the last transaction and Bank balance sent to the customer's
registered mobile number, resulting in reduced consumption of paper.
II) The benefits derived like product improvement, cost reduction,
product development or import substitution:
Bank is continuously taking various steps on the product improvement.
Bank is in the process of implementation of new and upgraded version of ITAM tool (IT
asset management tool). This tool will manage all Bank's IT assets life cycle i.e., from
procurement to scrap and disposal of asset, for PAN INDIA banking operations. Highly
efficient use of technology through software helps in save time, improve efficiency,
reduce costs, improve productivity, more agile and helps in information security.
III) In case of imported technology (imported during the last three
years reckoned from the beginning of the financial year):
a) The details of technology imported: Nil
b) The year of import: Nil
c) Whether the technology been fully absorbed: Nil
d) If not fully absorbed, areas where absorption has not taken place,
and the reasons thereof: Nil
IV) Expenditure incurred on Research and Development:
Since financial services is being primarily covered under Service
Sector, the details of this clause are not applicable to the Bank.
(c) Foreign Exchange Earnings and Outgo
During the financial year ended March 31, 2023, the foreign exchange
earnings was C3.53 crore and the foreign exchange outgo was C12.31 crore.
Z. Risk Management
Your Bank operate in a highly dynamic, evolving, competitive and strict
regulatory environment. Constantly identifying the emerging and evolving risks for Bank's
business is critical to protect the business sustainability. Proactive steps are taken to
contain and mitigate these risks which helps to safeguard the interests of Bank's
stakeholders.
The nature of Risk in a Banking Industry are of wide array evolving
around Credit Risk, Market & Liquidity Risk, Operational Risk, IT and Cyber Security
Risk, Compliance Risk, and other risks. Your Bank has adopted a multi-layered risk
management process to identify, assess, monitor, and manage risks through the effective
use of processes, information, and technology.
Bank's robust risk management framework has evolved over the years
under the supervision of highly experienced Board and senior leadership. Bank approach is
to ensure that it understand these risks well in order to respond to them in a timely
manner. This translates into consistent risk management practices to measure, monitor,
control, and mitigate risks. This approach is translated into Bank's daily risk management
practices, which encompass the measurement, monitoring, control, and mitigation of risks.
By actively engaging in these practices, Bank aim to proactively contain and address
potential threats to Bank's business. This proactive stance ensures that Bank stay ahead
of the curve and are well-prepared to handle any challenges that may arise in
ever-changing industry and regulatory landscape.
The Bank's risk management is governed by the three Lines of Defence.
First Line of Defence consists of individual business units and support functions that own
and manage risks through adherence to laid-down procedures.
Second Line of Defence consists of the Risk Management and Compliance
departments which ensure the First Line of Defence is properly designed, is in place and
operating as intended through regular reporting.
Third Line of Defence consists of the Internal Audit function, which
provides the highest level of independent assurance on the effectiveness of governance,
risk management and internal controls through audit in line with the approved audit plan
and reporting the same to the Audit Committee of the Board on a regular basis.
Collectively, these three functions provide assurance to the Board that
the risks assumed by the Bank are within the risk appetite approved by the Board and the
adequacy and effectiveness of the governance framework around the risks for Bank's
business.
The Risk Management policies act as guiding principles for
implementation of risk management framework in the Bank. The Board is supported by an
experienced executive management team, Board Committees, and Board Delegated Committees as
part of the Risk Governance Framework. The Board ensures a balance between growth and
prudent risk management while creating value for stakeholders. To comply with regulatory
provisions, the Bank has established a Risk Management Committee that oversees the
implementation of the risk governance framework and guiding principles. The Bank has
appointed a Chief Risk Officer (CRO) who administers various risk areas such as Credit
Risk, Market & Liquidity Risk, Operational Risk, Fraud Risk, Information Security
Risk, Compliance Risk, and other risks. The CRO works in accordance with the approved risk
management policies and the delegation matrix, and has direct access to the Risk
Management Committee. The CRO plays a key role in making risk management decisions that
impact the Bank's strategic direction and monitors the progress of risk management
activities. The details of the Risk Management Committee and its terms of reference are
set out in the Report on Corporate Governance annexed with Board's Report as Annexure-I.
The Risk Management framework is a layered structure and broadly
consists of the following aspects for effective risk management across the Bank:
(a) Credit Risk Management
Risk: Credit risk arises from business operations that give rise to
actual, contingent, or potential claims against any counterparty, borrower, or obligor.
The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit
risk within the Bank through strengthening underwriting norms, keeping close watch on
asset quality trends and concentrations at individual exposures as well as at the
portfolio level.
Mitigation: Credit Committee and Credit Risk & NPA Management
Committee ("CRNPAC") overseas and reviews the credit risk and is
responsible for prudential limits on large credit exposures, asset concentration,
portfolio management, loan review mechanism, risk concentration, monitoring and
evaluation, provisioning, regulatory and other issues around it. All aspects of credit
risk are governed by the Credit Risk Management Policy and other Policies. Your Bank has
laid down prudential limits and caps on various aspects to control the magnitude of credit
risk. The defined risk limits are forward-looking and are reviewed in sync with future
business plans. Loan administration and monitoring is carried out through Portfolio
Profiling, Early Warning Framework, Rapid Portfolio Review, and Annual Monitoring of High
Value Customers and other risk activities.
The CRNPAC looks after credit risk assessment on quantitative and
qualitative basis. The Bank has a defined mechanism for necessary action to be taken in
case of any alarming situation. Key risk indicators are defined for all major products
having significant contribution to asset book.
CRNPAC follow the guiding principles listed below:
Ensure that a governance framework is established for an
effective oversight, segregation of duties, monitoring and management of Credit Risk in
the Bank.
Ensure that the sourcing and approval of credit proposals are as
per the defined strategies, systems, and processes.
Ensure that guiding principles shall be laid down for the
setting up and monitoring of the credit and credit risk appetite and limits.
Establish standards to facilitate effective identification and
assessment of credit risks in the Bank.
Establish standards for effective measurement and monitoring of
credit risk and NPA.
Ensure adherence to the guidelines/policies related to credit,
credit risk and NPA management as issued by the RBI from time to time.
The Board Delegated Credit Committees submit their updates to Risk
Management Committee of the Board at regular intervals.
(b) Operational Risk Management
Risk: Operational Risk has been defined by the RBI as the risk of
loss resulting from inadequate or failed internal processes, people, and systems or from
external events. This definition includes Legal Risk but excludes strategic and
reputational Risk.
Mitigation: The Bank has the Board delegated Operational Risk
Management Committee ("ORMC") to oversee implementation of the
operational risk management framework across the Bank and advise on implementation of
measures for risk mitigation which further reports to Risk Management Committee of the
Board. The Bank follows an integrated risk approach, where operational risks and its
monitoring folds into CRO and ORMC. The Bank has in place a Board approved Operational
Risk Management Policy which includes a comprehensive Operational Risk Management
Framework for documenting, assessing, and periodic monitoring of various risks and
controls linked to various processes across all business verticals.
Your Bank also has Risk Containment Unit that is guided by a Board
approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to
the Audit Committee and the Board and fraud cases in excess of C1 crore or more are
specifically reported and dealt by the Special Committee for Fraud Monitoring ("SFMC")
of the Board. The Bank is continuously strengthening its systems, operational practices
and processes, procedures, controls, and review mechanism so that fraud-prone areas are
sanitised against internal and external breaches and by continuously monitoring that these
control measures are operating effectively.
With the Digital Banking services, the Bank has seen significant
milestones in both at customer facing technologies and internal digitisation. To ensure
safe and secure transactions and improve the customer experience at digital fronts, the
Bank monitors the transactions on an ongoing basis. As your Bank prepares for the next
step in the world of Digital Banking, it is confident that its technological capabilities
will propel the next phase of growth in the coming years.
Your Bank has in place a comprehensive Outsourcing Risk Policy in line
with RBI guidelines released on time-to-time basis keeping in view the extensive use of
outsourcing by the Bank. Board has the ultimate responsibility for the outsourced
activity. However, for ease of functioning, the powers have been delegated to the Risk
Management Committee of the Board and Committee for Outsourcing of IT and Financial
Services. The outsourcing policy document of the Bank lays down the framework adopted by
the Bank for reviewing and approving outsourcing of services that includes plans and
procedures to evaluate, assess, approve, review, control and monitor the risks and
materiality of all its vendor/outsourcing activities and serve as a guidance to the Bank
to adopt sound and responsive risk management practices for effective oversight, due
diligence and management of risks arising from outsourcing activities.
Your Bank has in place a comprehensive Business Continuity Management
plan, policy, and procedures in place to ensure continuity of critical operations of the
Bank in the event of any disaster/incident affecting business continuity. The Bank's
business continuity Programme is developed considering the criticality of the functions
performed and the systems have been designed to minimise the operational, financial,
legal, and other material consequences arising from such a disaster and focus is on
ensuring faster recovery of and minimising impact on the IT systems of the Bank. Your Bank
has dedicated DR sites and there are periodic drills in place to validate effectiveness of
Bank's Business Continuity Plans ("BCP"). These controls helped Bank in
taking immediate action in case of any business/application level issue arises which is
leading to impact on Banking services/operations. The learning from the BCP drill
exercises are used in refining the BCP framework.
(c) Market Risk, Liquidity and Asset Liability Management
Risk: Market Risk for the Bank originates from investment and
trading in securities, which are undertaken both for the customers and on a proprietary
basis. The market risk management framework of the Bank sets benchmark for market risk
exposures, the performance of portfolios vis- a-vis the market risk limits and comparable
benchmarks, which provide guidance to optimise the risk-adjusted rate of return of the
Bank's investment portfolio. Liquidity risk refers to Bank's inability to fund an increase
in assets or withdrawal of liabilities and meet both expected and unexpected cash &
collateral obligations at reasonable cost without adversely impacting its financial
condition.
Mitigation: Market risk management is guided by well-defined
policies, guidelines, processes and systems for the identification, measurement,
monitoring and reporting of exposures against various risk limits set in accordance with
the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk
management of its trading and investment portfolios.
The Asset Liability Management Policy of the Bank stipulates a broad
framework for liquidity risk management to ensure that the Bank is able to meet its
liquidity obligations as well as to withstand a period of liquidity stress from Bank-level
factors, market-wide factors, or a combination of both. The Board approved policy captures
the risk appetite around the liquidity and market risk of the Bank and helps to put in
place defined governance structure in consonance with the Bank's Risk Appetite.
The Asset Liability Management Committee of the Bank oversees the
framework for identification, measurement and management of market risk, interest rate
risk and liquidity risk in the Bank and ensures compliance with established internal and
regulatory prudential limits and operate within the approved risk appetite by the Board.
(d) IT Risk Management
Risk: Your Bank is growing with digitisation and aimed at
leveraging digital technology to provide a best-in-class experience for its customers
while simultaneously enhancing productivity and improve on IT risk management. Risk of
cyber-attacks on your Bank's systems arises among others from computer viruses, malicious
or destructive code, phishing attacks, denial of service or information, application
vulnerability and other security breaches resulting in disruption of its services or theft
or leak of sensitive internal data or customer information.
Mitigation: Your Bank has established a robust information and
cyber security framework for securing its IT infrastructure and systems. IT Steering
Committee and IT Security Risk Management Committee reports to Board level IT Strategy
& Information Systems Security Committee. This committee reviews and monitors IT
security infrastructure and vigilance over IT related vulnerabilities against emerging
cyber security risks. The Chief Information Security Officer ("CISO") is
responsible for monitoring the information security risks covering all aspects of data
security for the Bank who reports to CRO. Cyber Security Operation Centre with qualified
professionals is reporting to CISO for monitoring of real-time cyber security glitches.
Your Bank has also deployed advanced controls at various layers to ensure that cyber
security risk in minimised.
(e) Reputation Risk Management
Risk: Reputation risk can negatively impact the Bank's ability to
attract or retain customers and expose it to litigation and regulatory action.
Mitigation: Your Bank assesses and manages Reputation Risk on
periodic basis. Your Bank communicates with its stakeholders regularly through appropriate
engagement mechanisms to address stakeholder expectations and assuage their concerns, if
any. There is Zero tolerance for knowingly engaging in any activities that are not
consistent with values, Code of Conduct, or policies of the Bank.
(f) Compliance Risk Management
Risk: The adoption of effective AML/KYC standards is an essential
part of Banks' Risk Management practices. Banks with inadequate Compliance (AML/KYC) risk
management programmes may be subject to significant risks, especially legal and
reputational risk. Sound Compliance (AML/KYC) policies and procedures not only contribute
to a Bank's overall safety and soundness and also protect the integrity of the banking
system by reducing the likelihood of Banks becoming vehicles for money laundering,
terrorist financing and other unlawful activities. Recent initiatives to reinforce actions
against terrorism in particular have underlined the importance of Banks' ability to
monitor their customers wherever they conduct business.
Mitigation: The Bank has a dedicated Compliance Department that
continuously monitors new developments and updates the Bank's Board and senior management
about its implications. The Bank has a strong compliance culture and have well-articulated
policies with regard to conduct, Vigil Mechanism, AML & KYC, and engagement with third
party vendors. Compliance & risk department update status of compliance & controls
to Audit Committee Board on regular basis to review and advise on implementation of
measures for AML/KYC risk mitigation along with effective Transaction monitoring.
AA.Corporate Social Responsibility
Your Bank has been financing the entrepreneurship aspiration of the
unreached and unbanked masses of India. This has been further adopted in designing and
implementing high impact CSR projects aimed at improving livelihoods of marginalised and
vulnerable segment of the society. The CSR initiatives of the Bank is focused on Skills
Development, Women Entrepreneurship, Rural Sports, among others, all of which have a
profound positive impact on the targeted communities.
CSR activities and funds are monitored by the CSR Committee formed by
the Board of Directors. Further, assessing the impact of these projects that would be
carried out in the upcoming years.
Pursuant to CSR provisions of the Act and rules made thereunder, the
Bank has transferred C8.26 crore in "Unspent Corporate Social Responsibility
Account" for carrying out expenditure on its ongoing CSR Projects and such amount
shall be spent in Compliance of CSR Policy towards CSR obligation as per their respective
implementation schedule.
The terms of reference of CSR Committee have been disclosed in the
Report on Corporate Governance and a detailed breakup of expenditure carried out and other
details related to CSR activities has been disclosed in the Annual Report on Corporate
Social Responsibility is annexed with Board's Report as Annexure-II. The CSR Policy
is disclosed on the website of the Bank at
https://www.aubank.in/investors/secretarial-policies.
AB. Disclosure under the Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013
In accordance with the provisions of the Sexual Harassment of Women at
Workplace (Prevention, Prohibition and Redressal) Act, 2013, your Bank is committed to
provide a safe and conducive work environment to all its employees and associates. The
Bank has implemented its Policy on Prevention and Redressal against Sexual Harassment at
the work place.
The disclosure required under the Sexual Harassment of Women at
Workplace (Prevention, Prohibition and Redressal) Act, 2013 is provided in Report on
Corporate Governance annexed with Board's Report as Annexure-I.
AC. Subsidiary, Joint Ventures & Associate Companies
The Bank does not have any subsidiary, joint ventures & associate
companies. Hence, the details of this clause are not applicable to the Bank. Accordingly,
the Bank is also not required to formulate a specific policy on dealing with material
subsidiaries.
AD. Material Orders Passed by Regulators or Courts or Tribunals
During the period under review, no material orders have been passed by
the Regulators/ Courts/ Tribunals which would impact the going concern status of the Bank
and its future operations.
AE. Internal Financial Control & their Adequacy
Your Bank has an effective internal financial control system in line
with the risk appetite of the Bank and aligned to the scale, size, and complexity of its
operations. The scope and authority of the risk based internal audit function is defined
in the Internal Audit Policy of the Bank which is duly approved by the Board.
The audit function essentially validates the compliances of Bank's
processes and operations with regulatory guidelines, accounting procedures and Bank's own
internal rules and guidelines.
The internal audit function provides independent assurance to the Board
of Directors and Audit Committee on the quality and effectiveness of the Bank's internal
control, risk management and governance systems and processes.
Proper internal controls were in place and operating effectively for
the period under review. Further, in compliance with the requirements of the Act joint
statutory auditors have issued an opinion with respect to the adequacy of the internal
controls over financial reporting of the Bank and the operating effectiveness of such
controls, details of which may be referred to in the Auditor's Report attached to the
audited financial statements of FY 2022-23.
AF. Cost Records
Being a Banking company, provisions of Section 148(1) of the Act,
relating to maintenance of cost records is not applicable to the Bank.
AG. Corporate Governance
Your Bank believes in promoting transparency, accountability,
integrity, fairness and compliance while maintaining adequate risk management and internal
controls for sustainable business growth and fostering public confidence.
The Bank consistently evaluates its practices against industry
benchmarks to ensure adherence to the best practices of Corporate Governance to achieve
and upholding the utmost standards of Corporate Governance. The Bank remains steadfast in
its commitment to operate in accordance with the highest principles of governance and
ethics, with the aim of maintaining its reputation as a model institution in the banking
industry.
The Bank accords paramount importance in having a best-in-class
Governance and assurance framework in the Institution. The Bank continuously endeavour to
fortify and upgrade its Risk Management, Compliance and Audit practices. The Board of
Directors and its various committees, being the apex decision-making bodies of the Bank,
oversee the overall Governance & Assurance framework.
As stated above, it is Bank's persistent effort to continuously elevate
the level of governance & assurance functions and it is pertinent to enumerate some of
the present key aspects of these functions in the Bank along with the new practices
implemented/initiatives undertaken in the recent past to fortify the risk and compliance
culture:
1. Risk Management:
Bank's risk management philosophy and approach are designed to protect
customers and investors interests along with Bank's reputation and financial strength.
Execution of core risk management activities in the Bank has been delegated to Board
Delegated Committee viz. Credit Risk & NPA Management Committee, Operational Risk
Management Committee, Asset Liability Management Committee, IT Steering Committee and IT
Security Risk Management Committee.
2. Compliance Function:
The most important role of Compliance function is to ensure a robust
compliance culture in the Bank. To set the right tone of Compliance culture, the function
seeks regular guidance from the Board of Directors and its various committees. It connects
with the internal stakeholders through periodic structured and unstructured meetings to
convey the compliance requirements 'loud and clear'.
The Compliance Function in its endeavour to further fortify its efforts
has implemented various new initiatives, some of which are (i) Compliance Sustenance
Framework, (ii) Compliance Self Certification, (iii) Strengthening the Product Approval
Process, (iv) Quality Assurance and Improvement Programme (QAIP), (v) specialised domain
knowledge of IT/IS resources roped in.
3. Internal Audit Function:
The Internal Audit Department follows a risk-based audit approach as
laid down in the Risk Based Internal Audit Policy of the Bank and prioritises audits of
high-risk areas identified in collaboration with the Risk Management as well as Compliance
Functions. Further, to strengthen the IAD, Bank has set up an independent Quality
Assurance function carries out an independent quality check of the audit activities
conducted by the various sub-verticals of the Internal Audit function.
During the year, your Bank was awarded with the Certificate of
Excellence on Corporate Governance from The Institute of Company Secretaries of India.
The Report on Corporate Governance for FY 2022-23 along with
certificate issued by M/s. V. M. & Associates, Company Secretaries confirming the
compliance to applicable requirements related to corporate governance as stipulated under
Chapter IV of the SEBI Listing Regulations, is annexed with Board's Report as Annexure-I.
AH. Business Responsibility and Sustainability Report &
Sustainability Initiatives
The Bank endeavours to benchmark itself with the best of corporates in
India and continued its focus to implement best Environmental, Social and Governance (ESG)
practices in its operations with responsible lending approach. In alignment with the
vision of the Bank, through its sustainability initiatives, the Bank continue to enhance
value creation in society, steer itself towards resilience and sustainable growth.
The Board of Directors has constituted Sustainability Committee and
approved the Sustainability Policy of the Bank which serve as guiding principle for
driving the Bank's sustainability initiatives, thereby ensuring that sustainable practices
are consistently, methodically, and strategically integrated into Banking operations.
As a measure of global best practices on sustainable initiatives and
ESG practices, Bank's First Sustainability Report was released on January 19, 2023 for FY
2021-22 in line with the Global Reporting Initiative framework - Sustainability Reporting
Standards (GRI Standards core option).
Further, In accordance with the amendment in Regulation 34(2)(f) of the
SEBI Listing Regulations, vide Gazette notification no. SEBI/LAD-NRO/GN/2021/22 dated May
5, 2021, the Business Responsibility and Sustainability Report ("BRSR")
is hosted at the Bank's website.
The BRSR is annexed with Board's Report as Annexure-V and
disclosed on the website of the Bank at https://www.aubank.in/investors.
AI. Particulars of Employee Remuneration
I n accordance with Section 197(12) of the Act read with Rule 5(1) of
the Companies (Appointment and Remuneration of Managerial Personnel) Rule, 2014, the ratio
of the remuneration of each Director to the median employee's remuneration and other
details is annexed with Board's Report as Annexure-III.
The statement containing particulars of employees as required under
Section 197(12) of the Act read with Rule 5(2) and Rule 5(3) of the Companies (Appointment
and Remuneration of Managerial Personnel) Rules, 2014, as amended, forms part of this
report. In terms of Section 136(1) of the Act the annual report is being sent to the
Members excluding the aforesaid annexure, the annexure is available for inspection up to
the date of AGM at the registered office of the Bank and any Member interested in
obtaining a copy of the Annexure may write to the Company Secretary of the Bank at
investorrelations@aubank.in.
AJ. Management Discussion and Analysis
In accordance with the Regulation 34(2)(e) and Schedule V of the SEBI
Listing Regulations, the Management Discussion and Analysis Report for the FY 2022-23 is
covered in a separate section forming part of the Annual Report.
AK. Annual Return
In accordance with the provisions of Section 134(3)(a) read with
Section 92(3) of the Act the draft Annual Return for the financial year ended on March 31,
2023 in the prescribed form MGT-7 is disclosed on the website of the Bank at
https://www.aubank.in/investors.
AL. Whistle-Blower Policy & Vigil Mechanism
In accordance with the provisions of Section 177(9) of the Act rules
made thereunder and Regulation 4(2)(d) and Regulation 22 of the SEBI Listing Regulations,
the Bank has implemented Whistle-Blower Policy & Vigil Mechanism which is disclosed on
the website of the Bank at https://www.aubank.in/investors/Secretarial- policies.
The details have been provided in Report on Corporate Governance
annexed with Board's Report as Annexure-I.
AM. Anti-bribery and Anti-corruption Policy
The Bank follows a 'zero-tolerance approach' towards bribery,
corruption, and other wrong practices. The Bank is resolute to act professionally, fairly,
ethically and with integrity in its dealings and operations. The Bank has a Board approved
Anti-Bribery and Anti-Corruption Policy laying down the principles for carrying out
Banking business in an honest and ethical manner. The said policy is disclosed on the
website of the Bank at https://www.aubank.in/notice-board.
AN. Compliance of Secretarial Standard issued by the Institute of
Company Secretaries of India
The Bank has complied with the Secretarial Standards issued by the
Institute of Company Secretaries of India on Meetings of the Board of Directors and
General Meetings.
AO. Status of Ind AS Implementation
As per the RBI circular RBI/2015-16/315
DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016 Implementation of Indian
Accounting Standards (Ind AS), The Banks are advised to follow the Indian Accounting
Standards as notified under the Companies (Indian Accounting Standards) Rules, 2015,
subject to any guideline or direction issued by the RBI in this regard. The Banks in India
currently prepare their financial statements as per the guidelines issued by the RBI, the
Accounting Standards notified under Section 133 of the Act and generally accepted
accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate
Affairs issued the roadmap for implementation of new Indian Accounting Standards (Ind AS),
which were based on convergence with the International Financial Reporting Standards
(IFRS), for scheduled commercial Banks, insurance companies and non-banking financial
companies (NBFCs). In March 2019, RBI deferred the implementation of Ind AS for Banks till
further notice as the recommended legislative amendments were under consideration of
Government of India. The Bank had undertaken preliminary diagnostic analysis of the GAAP
differences between Indian GAAP vis-a-vis Ind AS and shall proceed for ensuring the
compliance as per applicable requirements and directions in this regard.
Directors' Responsibility Statement
Pursuant to Section 134(3)(c) read with Section 134(5) of the Act the
Board of Directors hereby confirm that:
1. In the preparation of the annual accounts for the year ended March
31, 2023, the applicable accounting standards have been followed along with proper
explanation relating to material departures, if any.
2. We have selected such accounting policies and applied them
consistently and made judgements and estimates that are reasonable and prudent, so as to
give a true and fair view of the state of affairs of the Bank as on March 31, 2023 and of
the profit of the Bank for the year ended on that date.
3. We 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 Bank's assets and for preventing and detecting fraud and other
irregularities.
4. We have prepared the annual accounts on a going concern basis.
5. We have laid down internal financial controls to be followed by the
Bank and ensured that such internal financial controls are adequate and were operating
effectively.
6. We have devised proper systems to ensure compliance with the
provisions of all applicable laws and that such systems were adequate and operating
effectively.
Acknowledgment and Appreciation
The Board places on record its gratitude to the Government of India,
various State Governments, RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, Bankers, Lenders,
Credit Rating Agencies & Debenture Trustees for their continued support and faith
reposed in the Bank.
The Board would also like to thank BSE Limited, National Stock Exchange
of India Ltd., National Securities Depository Limited, Central Depository Services (India)
Limited, Registrar & Share Transfer Agent, Vendors and Service Providers for their
continued support & co-operation.
The Board also places on record its appreciation to its valued
customers for their continued patronage and to the members & Debenture holders of the
Bank.
The Board also expresses its heartfelt thanks and gratitude to each
employee and their families for their continued commitment towards the Bank and its
customers, who by demonstrating strong work ethics, professionalism, teamwork, and
initiatives helped the Bank continue to serve its depositors and customers and reinforce
its customer centric image despite the challenging environment.
For and on behalf of the Board of Directors AU SMALL FINANCE BANK
LIMITED
Sd/- |
Sd/- |
Sanjay Agarwal |
Uttam Tibrewal |
Managing Director & CEO |
Whole-Time Director |
DIN: 00009526 |
DIN: 01024940 |
Date: June 29, 2023 |
Date: June 29, 2023 |
Place: Jaipur |
Place: Mumbai |
CIN: L36911RJ1996PLC011381 Registered
Office: 19-A, Dhuleshwar Garden, Ajmer Road, Jaipur - 302 001, Rajasthan, India |