About Utkarsh Small Finance Bank Ltd

Utkarsh Small Finance Bank Limited was incorporated on April 30, 2016 at Varanasi, Uttar Pradesh as a Public Limited Company and was granted a Certificate of Incorporation by the Registrar of Companies. The Promoter, Utkarsh CoreInvest Limited, started operations as a NBFC in year 2010 and was focused on providing microfinance to unserved and underserved segments in the States of Uttar Pradesh and Bihar. Later on, it converted to a NBFC- MFI. The Bank is engaged in providing banking and financial services and governed by Banking Regulation Act, 1949. On October 7, 2015, the Promoter received the RBI In-Principle Approval to establish an SFB, following which it incorporated Utkarsh Small Finance Bank Limited as a wholly-owned subsidiary on April 30, 2016. Subsequently, the Bank received final approval of the RBI to carry on the business as an SFB on November 25, 2016. Accordingly, Utkarsh CoreInvest Limited transferred its business of providing microfinance, as a going concern to the Bank and consequently commenced its operations from January 23, 2017. The Bank was included in second schedule to the RBI Act as a Scheduled Commercial Bank pursuant to a notification dated October 4, 2017 issued by the RBI and published in the Gazette of India on November 7, 2017. Following the commencement of SFB operations, the Bank further engaged with borrowers by focusing on microfinance and diversifying product offerings to include savings accounts, deposit products and other loan products. The Bank operations were focused in the states of Uttar Pradesh, where it headquartered and also in Bihar and Jharkhand. The Banking Operations are spread across India and are present in 22 States and Union Territories with 686 Banking Outlets as of March 31, 2022. It had a network of 209 on-site and 6 offsite ATMs. As of March 31, 2022, the Bank had also set-up 310 micro-ATMs. As of March 31, 2022, 67.91% of Gross Loan Portfolio (GLP) has been generated from Bihar, Uttar Pradesh and Jharkhand, respectively. The Bank asset products include micro banking loans that include joint liability group loans, and individual loans; retail loans including, unsecured loans, such as business loans and personal loans, and secured loans, such as loans against property (LAP); wholesale lending that includes short term and long term loan facilities to SMEs, mid and large corporate and institutional clients; housing loans with a focus on affordable housing; commercial vehicle / construction equipment loans; and Utkarsh Gold Loan' product that was launched in Fiscal 2022. On the liabilities side, it offer savings accounts, current accounts and a variety of term and recurring deposit accounts. In addition, it provide non-credit offerings comprising ATM-cum-debit cards, bill payment system and distribute mutual funds and insurance products. The Company is planning to come out with a public issue of Rs. 500 crore Equity Shares through fresh issue.

Utkarsh Small Finance Bank Ltd Chairman Speech

Growing from strength to strength

It gives me immense pleasure to inform you that your Bank performed significantly well in the financial year 2022-23 and recorded its highest PAT of ` 405 crore. We have indeed come a long way since our inception in 2017, with the objective of ensuring financial inclusion for the underbanked and unbanked sections of the country. Today, we have emerged as one of the leading small finance banks in the country with a strong foothold across 26 states and union territories, with 830 branches, 287 ATMs and 546 micro ATMs.

The small finance banking sector has grown rapidly over the past few years. It has facilitated financial inclusion of the predominantly unbanked masses of the country.

SECTORAL BACKDROP

The Indian economy was faced with disruption caused by rising inflation. The CPI inflation for India during FY 2022-23 is estimated at 6.8% compared to 5.5% during FY 2021-22. The Government and the Reserve Bank of Indian took several measures to counter the rising inflation, such as increasing the REPO rate by, 225 bps, reducing import duty to zero on major inputs such as coking coal, phase-wise reduction in excise duty on petrol and diesel, and prohibition on export of wheat. These measures, coupled with strong credit growth, helped India grow its GDP at an estimated 7.2% in FY 2022-23 compared to 9.1% in FY 2021-22*.

The small finance banking sector has grown rapidly over the past few years. It has facilitated financial inclusion of the largely unbanked masses of the country. Because of the predominantly unsecured nature of the advances to the weaker sections of the society, the impact of COVID-19 on SFBs was severe. However, the sector has managed to successfully navigate the challenges by making judicious use of the regulatory dispensations and is now poised to grow strongly in the coming years. No new licences for setting up SFBs were given during the year, though a number of applications have been received by RBI.

RESILIENT GROWTH

Your Bank took cognizance of the post pandemic ripples and the evolving global economic scenarios and reimagined and redefined its journey for the financial year. It augured well for the Bank in its growth during the course of the year.

FY 2022-23 saw us sustain our growth trajectory with total income of ` 2,804.29 crore in FY 2022-23 compared to ` 2,033.65 crore in FY 2021-22, registering a y-o-y growth of 38%. Our operating profit stood at ` 838.32 crore in FY 2022-23 compared to ` 511.93 crore in FY 2021-22, clocking a y-o-y growth of 64%. Our growth was supported by an increase in our gross loan portfolio, rise in deposits, improvement in NPAs, and operational expansion across new geographies. FY 2022-23 saw us attain balanced growth across both the liability and asset segments, and saw us reduce our dependency on primary markets such as Uttar Pradesh and Bihar, in addition to diversifying our non-micro finance loan book and retail asset portfolio. The FY 2022-23 saw our asset segment grow by 31% , and our liability segment grow by 36% . Strengthening our digital offerings with increased investments in technology helped us in easy onboarding of customers, reduce operational costs and improve our NPAs. All these factors translated into resilient growth for us during FY 2022-23.

Further, FY 2022-23 also saw us bolster our government and institution business significantly. We have established a specific team working on the empanelment with various state governments. Some of the success in this business came from the empanelment with the government of Maharashtra for salary and pension accounts; government of Chhattisgarh for deposits; and the Indian Clearing Corporation as an authorised bank for collateral deposit. This business has the potential of generating sustained revenues for us.

INCLUSIVE APPROACH

Being a small finance bank, our primary focus has always been on ensuring financial inclusion of the people who have remained unbanked or underbanked. Our biggest chunk of revenues is carved by the micro-finance segment, wherein Joint Liability Groups (JLGs) play an instrumental role. In our endeavour to cater to the credit requirements of our customers, we have been continuously expanding our presence across the nation, and serving our customers with varied products. Our inclusive approach is not only limited to our customers, but also covers our employees. We are on a constant endeavour to not only align the goals of our employees with that of the Bank, but also ensure inclusive growth of all our employees. At Utkarsh, we believe in being a responsible corporate citizen. Our partnership with Utkarsh Welfare Foundation (UWF) addresses significant development challenges in economically backward regions of Bihar, Jharkhand, Madhya Pradesh, Odisha, Uttar Pradesh and Uttarakhand which is reflective of our inclusive approach. UWF's CSR initiatives provide project implementation support for healthcare infrastructure projects, supporting healthcare programs, and promoting education initiatives that benefit the community.

LOOKING FORWARD

Going forward, we expect that while Micro-finance will remain the core strength of the Bank, sizeable incremental revenues will be generated by our government and institutional business. Additionally, the increasing number of branches will help us expand our geographical reach across India. In order to strengthen our portfolio, we are also proactively working on third-party partnerships, launching digitalised personal loans and aspirational products such as credit cards. Our focus remains on achieving balanced and sustained growth on the back of consistent improvement in efficiency, strong human capital, robust risk assessment, diversified product portfolio, and incremental use of technology.

We are on a constant endeavour to not only align the goals of our employees with that of the Bank, but also ensure inclusive growth of all our employees.

ACKNOWLEDGEMENT

On a closing note, I would like to state that we have been taking confident strides towards building a stronger tomorrow for the Bank driven by an inclusive approach. I would like to express my gratitude to all the members of the Board for their constant support and guidance. I would also want to acknowledge the constant support of the entire team of Utkarsh Small Finance Bank Limited for their unparalleled contribution towards the strong growth of the Bank over the past few years. Further, I would like to extend my appreciation to our customers, shareholders, and investors for their unstinted faith in us.

Regards,

Parveen Kumar Gupta

Chairman

Dear Members,

The Board of Directors of Utkarsh Small Finance Bank Limited (the Bank or USFBL) is pleased to present the 7th Annual Report and the Audited Financial Statements of the Bank with immense PRIDE* – our guiding values for the Financial Year ended, March 31, 2023.

Our PRIDE - the guiding principle and values of the Bank, with an able leadership team, stood us in good stead and helped us tide over these challenges.

FY23 has been year where the Bank had reported highest ever annual profit of >` 400 crore. The Bank's capital plus reserves position crossed milestone of ` 2,000 crore at the end of FY23 and Bank's loan portfolio and deposits registered healthy business growth.

Highlights of major achievements of the Bank:

• Total deposits increased by 36.09% to 13,710.14 crore as on March 31, 2023, from ` 10,074.18 crore as on March 31, 2022

• Net Advances increased by 27.77% to 13,068.77 crore as on March 31, 2023, from `_ 10,228.15 crore as on March 31, 2022

• Bank's operating profit increased by 64% to 838.32 crore for FY23 from _ 511.93 crore in FY22.

• The Bank reported highest ever annual profit of _ ` 404.50 crore during FY23.

• Bank witnessed improvement in asset quality with reduction in Gross NPA & Net NPAs to 3.23% & 0.39% respectively as of March 31, 2023 vs. 6.10% & 2.31% respectively at March 31, 2022

• Bank's provision coverage ratio was healthy at 88.29% as on March 31, 2023.

• The capital adequacy ratio of the Bank is 20.64% as on March 31, 2023.

• Bank's capital plus reserves increased to ` 2,000.32 crore as on March 31, 2023 from ` 1,572.30 crore as on March 31, 2022

• There are 830 Branches spread across 22 States and 4 Union Territories as on March 31, 2023.

• The Bank expanded its presence to four additional States/UTs i.e. Goa, Jammu & Kashmir, Meghalaya & Puducherry during this year.

As the socio-economic and market scenario were not conducive, the Bank could not proceed with the initial public offer before the close of the financial year.

FINANCIAL PERFORMANCE

The financial highlights for the year under review are presented below:

BUSINESS UPDATE AND STATE OF BANK'S AFFAIRS

The details on the state of affairs and the business update of the Bank are separately provided in the Management Discussion and Analysis Report, which forms an integral part of the Annual Report of the Bank. However, the summary of the Bank's performance has been covered hereunder:

Liabilities Business

The Liabilities Business of the Bank, garnered through branches and alternate channels such as internet and mobile banking and ATMs aims to build a sustainable liabilities franchise with a mix of Retail and Institutional deposits. During FY 2022-23 the Bank built a diversified deposits portfolio and the aggregate deposits of the Bank at the end of the year stood at ` _13,710.14 crores. While the total deposits of the Bank grew by 36.09% on YoY basis, the CASA deposit witnessed a growth of 27.09% (YoY). Further the share of CASA plus Retail Term Deposit (RTD) stood at 61.55% of total deposits.

During the period the Bank strategically focused on building a healthy and granular deposits profile. To further expand its outreach to a larger customer base, the Bank opened 58 General Banking (GB) branches during FY 2022-23 including opening of branches in four New States / UT's i.e. Puducherry, Jammu Kashmir, Meghalaya & Goa thereby increasing Bank's GB branches presence to 251 locations spread across 22 States and 04 Union Territories as on March 31, 2023. The Bank continued to set-up its GB branches primarily in metropolitan and urban locations with a potential for sizeable deposits mobilization. The Bank further expanded presence of its Micro ATMs thereby providing cost efficient systems of offering basic banking facilities such as cash deposit, cash withdrawal, green pin generation among others.

In addition to strengthening the branch & ATM networks, the Bank further augmented its digital banking channels such as net banking, mobile banking, tab banking, digital onboarding, among others.

Further to scaling up the retail deposits book, the Bank in addition is working towards broad basing its institutional deposit profile and Wholesale Liabilities in the Government & Institutional Business (GIB) segment. In FY 22-23 bank has on boarded 208 NTB Institutional CASA Accounts and also done the empanelment in Maharashtra for Salary & Pension Accounts and empanelment in Chhattisgarh for Deposits.

Assets Business

As a Small Finance Bank (SFB), the Bank, which is primarily focused on micro banking products, has diversified its product offerings to its customers viz. retail loans, unsecured loans, business loans, personal loans, and secured loans such as loans against property, wholesale lending that includes short term and long-term loan facilities to small and medium enterprises (SMEs), mid and large corporate and institutional clients and gold loans. In addition, we offer housing loans with a focus on affordable housing. Our micro banking and retail loan products are primarily aimed at customers who are not a part of the formal banking infrastructure.

(A) Micro Banking

Micro banking business is spread across 159 districts covering 12 states and provides a comprehensive package of financial inclusion products and business development services to the underprivileged or low-income individuals or groups who have limited access to financial services. In micro banking the Bank offers ‘Joint Liability Group' (JLG) loans and business loans alongwith entire gamut of liabilities products through MB branches. In addition, the Bank provides micro banking loans through Business Correspondent (BC) partners also. The Bank provides group loans built on the peer-guarantee loan model (Joint Liability Group), which enables individuals to take loans without having to provide collateral or security on an individual basis while promoting credit discipline. This is achieved through mutual support within the group, prudent financial conduct among the group and prompt repayment of their loans. During FY 2022-23 JLG business through Micro Banking (MB) recorded a growth of 12.83% over the previous financial year. There were 86 new MB branches were opened in existing states. In order to meet the increasing fund requirement of customers who have completed multiple loan cycles and are considered as matured borrowers, the Bank introduced the individual business loans. The Bank provides individual loans especially to those who have begun their formal credit under JLG. The total JLG portfolio of Micro Banking including MBBL and PMSvanidhi stood at _ ` 9,215.58 crore as on March 31, 2023, with a total base of more than 26 lakh clients consisting of active loans through the branch network. The JLG portfolio through Business Correspondents reached _ ` 251.18 crores in FY 2022-23. The Bank has Six (6) Business Correspondents who are operating in Six (6) states covering 54 districts through 92 branches.

Lia bilities base under MB vertical stood `_ 359.81 crore as of March 2023. at

The Bank has started distributing 3 new Third-Party Product through MB vertical i.e.

1) Daily Hospital Cash Benefits (DHCB) w.e.f. January 2022, the Bank has rolled out a pilot of DHCB in the states of Bihar & U.P. with 2 partners i.e., Aditya Birla General Insurance & Kotak General Insurance. Later on, Bank has rolled out this product in other states also like Rajasthan/Maharashtra/Odisha.

HospiCash (with riders) is a health insurance product wherein the customer is covered for hospitalization expenses for upto 30 days. This works as wage loss cover as well for the insurer i.e., income protection for micro banking customers due to hospitalization. Moreover, the policy covers the customer against unfortunate death or disability due to accident or illness.

HospiCash provides cash benefit in case an insured gets hospitalized. It is specifically designed to take care of the incidental expenses in case of hospitalization and provides fixed benefit for each day of hospitalization irrespective of the actual medical cost. As on March 23; the Bank has sold 3,34,365 polices (Premium Collected: `_ 6.36 crores).

2) Tele-Medicine wef April 22 from Jharkhand state and later on added Madhya Pradesh & Uttrakhand also. As on March 23; we have enrolled 39,400 subscription with value of ` 1.18 crores.

3) Atal Pension Yojana (APY) is open to all saving bank account holders. The Bank acts as a point of presence and aggregator and enrolls subscribers through architecture of National Pension System. The Bank started the pilot in September, 2021. The full-fledge launch of APY across all branches was done in the month of January 2022.

As on March-2023, the total subscriber base stood at 25,166 with the contribution of ` _42.66 Lakh. The Bank carried out different contests of APY like – Beat the Best (9th May-30th June,22), Shine & Succeed (1st July-12th August,22), APY Citizen Choice's (1st August – 30th September, 22), Leadership Pinnacle (2nd January – 14th March, 23) & APY Big Believers (15th February-31st March, 23).

With the total customer base of Joint Liability Group lending, which is over 26 lakh + and ~10.5 lakh customers, between the age bracket of 21 to 40 years, the Bank is poised to offer the APY to all its customers with an inclination to provide social security to this customer segment.

(a) Micro Small & Medium Enterprises (MSME):

The Bank offers a combination of secured and unsecured loans (business and personal loans) to individuals and non-individual entities, such as micro, small, and medium enterprises (MSME). The Bank has devised bespoke products with flexible security requirements to make credit more accessible to the retail and MSME borrowers.

During FY 2022-23, the retail assets loan book grew by 82.62% year-on-year to _ ` 1,534.09 crore, from

` 840.04 crore in FY 2021-22. The key drivers for growth in MSME book were addition of new locations and introduction of new product variants.

(b) Housing Loans (HL):

The Bank offers home loan solutions to customers looking for construction, purchase, repair and renovation of homes through assessment of our customer's repayment ability and offer bespoke loan solutions and offerings to customers. As on March 31, 2023, the Bank offers HL done by Mortgage team through 45 branches with aggregate portfolio of _ ` 519 crore registering year-on-year growth of 45% compared to ` 359 crore as on March 31, 2022.

(c) Wheels

The Wheels business which was launched in Oct'2020 with 2 business i.e., Commercial Vehicles & Construction Equipment Loans is being offered in Uttar Pradesh, Delhi NCR, Rajasthan, West Bengal, Jharkhand, Uttarakhand & Chandigarh regions from 15 branch outlets. The Bank's wheels loan portfolio grew from _ ` 212.16 crore in March 31, 2022 to ` 560.36 crore as on March 31, 2023 with 31 operational branches.

(c) Wholesale Banking Business

The Wholesale lending vertical includes lending, deposits and other banking services provided to corporate customers of the Bank.

(a) Wholesale Lending

The Bank's BBG wholesale lending book as on March 31, 2023 stood at ` 367.99 crore compared to_

` 80 crore in March 31, 2022. The Bank also offers both fund based (WC & TL) & non-fund-based limits in the form of bank guarantee to the customers through BBG Wholesale Lending vertical.

The Bank's wholesale lending book as on March 31, 2023 stood at _ ` 1,546.81 crore (` 367.99 crore for Non NBFC and ` 1,178.82 crore for NBFC) compared to _ ` 926.12 crore (` 80 crore for non NBFC and

` 846.12 crore for NBFC) in March 31, 2022. The Bank also offers non-fund-based limits in the form of bank guarantee to the customers through Wholesale Lending vertical.

(d) Business Correspondent (BC)

The strategy of the Bank is to build its Asset portfolio through a combination approach.

1. Own Branches

2. Partnership Approach.

The partnership approach with a well-entrenched and networked individual/entity will help it gain significant presence in those markets of business interest. As on March 31, 2023 the Bank had total loan book aggregating to _ ` 372.84 crore compared to _ ` 224.42 crores in March 31, 2022. The portfolio comprised of JLG loans of _

` 251.18 crore and Retail Assets loans of ` _83.91 crore, contributing 67.37% and 22.51% respectively of the total portfolio. This portfolio is being managed by 13 active BC partners (including 6 BC partners for JLG). The Bank is further focusing on strengthening and deepening its BC partnerships including fintech partnerships for Retail Assets loans.

A. FIN ANCIAL DISCLOSURES Capital Raising and Capital Adequacy Ratio

During the FY 22-23, the Bank issued and allotted 3,83,141 Equity Shares (of face value of ` _10 each) pursuant to exercise of vested ESOPs to employees (including Managing Director & CEO).

The Bank's certificate of deposits programme is rated, at the highest credit rating grade, [ICRA] A1+ by ICRA Limited. As on March 31, 2023, the Bank's long term subordinated bonds were rated at A (Positive) rating by ICRA and CARE Ratings. Subsequent to March 31, 2023, ICRA Limited has upgraded Bank's credit rating for subordinated bonds by one notch to [ICRA]A+ (Stable) from [ICRA]A (Positive) in April 2023.

Dividend

The Board did not recommend dividend for the financial year ended on March 31, 2023.

Transfer to Reserves

As required under RBI regulations, the Bank had transferred the following amount to various reserves during the financial year ended March 31, 2023:

Net Worth

As on March 31, 2023, the Bank's net worth stood at _ ` 1,844.82 crore (computed as per RBI guidelines). The net worth comprised of paid-up equity capital of `_ 895.90 crore and free reserves of `_ 1,098.43 crore excluding revaluation reserve, Intangible assets, and deductions of _ ` 149.52 crore.

Internal Control and Compliance

The Bank's internal controls, policies and procedures are adequate and are reviewed periodically by the Internal Audit Department for all its business units. The Audit Committee and Board reviews the effectiveness of the control as per the regulatory requirements from time to time / regular intervals.

Banks Philosophy

Corporate Governance report forming part of the Board's report for the year under review is attached separately as Annexure A.

Constitution of the Board of Directors

The Board of Directors of the Bank are constituted in accordance with the provisions of the Companies Act, 2013 (Act), Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations 2015, the Banking Regulation Act, 1949 (the BR Act, 1949) and the Articles of Association. The Board consists of eminent persons with considerable professional expertise in business administration, audit, banking, payment & settlement, compliance, account, finance, human resource, risk, strategy, information technology and other related fields. Their experience and professional credentials helped the Bank to gain insights for strategy formulation, monitoring control framework and direction, and adding value to set a strong foundation, enabling the overall growth objectives.

As on March 31, 2023, the Board comprises of Eight (8) Directors consisting of - Seven (7) Non-Executive Directors, of which Five (5) are Independent Directors (including 1 woman Director), two (2) are Non-Executive Non-Independent Directors out of which one (1) is a Nominee Director; and one (1) Managing Director and Chief Executive Officer.

Further, in terms of Section 152 of the Companies Act, 2013, Mr. Chandra Shekhar Thanvi, Nominee Director (Non-Executive) who retires by rotation this year, meets the fit and proper criteria as provided for under the RBI directions and as amended from time to time and being eligible offers himself for re-appointment at the 7th Annual General Meeting (AGM).

Statement on Declaration from Independent Directors:

A declaration under section 149(6) & (7) of the Companies Act, 2013 has been obtained from each of the Independent Directors.

There was no change in the Board of Directors during FY 22-23. However, the following changes took place in the Key Managerial Personnel during FY 22-23 as given below:

* Mr. Sarju Simaria joined the Bank w.e.f. September 30, 2022. He was appointed as Chief Financial Officer by the Board of Directors at their meeting held on October 31, 2022.

Committees of the Board of Directors

For effective decision-making, the Board acts through various Committees, which oversee specific operational or strategic matters falling within the ambit of the specific terms of reference of that Committee. The Board has constituted 13 such Committees. All the Board Committees have a specific charter, and these Committees monitor activities falling within their terms of reference. Additional details of the Board Committees, its composition, attendance, meetings held during the FY 22-23 etc. have been provided separately in Corporate Governance Report.

Board Evaluation:

In accordance with the Companies Act, 2013 (Act) and the framework for Board evaluation, the Nomination and Remuneration Committee and the Board of Directors had carried out, annual performance evaluation of the Board, its Committees and Directors individually. Further, a meeting of Independent Directors was held in accordance with the provisions of the Act.

A questionnaire was prepared for evaluation based on criteria which included providing strategic perspective, attendance, time devoted and preparedness for meeting, quality, quantity and timeliness of flow of information between the members of the Management, contributions at the meetings, effective decision - making ability, role and effectiveness of the Committee. The Directors completed the questionnaire and provided feedback on the functioning of the Board, its Committees and Directors individually and the same noted in the meetings of the Board of Directors.

Annual Return

As required under the provisions of Sections 92(3) and 134(3)(a) of the Companies Act, 2013 read with the rules framed thereunder, the Annual Return of the Bank in the prescribed Form MGT-7 for the year under review is available on the website of the Bank at the following link: https://www.utkarsh.bank/investors

Conservation of Energy and Technology Absorption

The particulars to be disclosed under Section 134(3)(m) of the Companies Act, 2013, relating to conservation of energy and technology absorption does not apply to the Bank. The Bank is constantly pursuing its goal in upgrading technology to deliver quality service to its customers in a cost-effective manner.

Foreign Exchange Earnings / Outgo

The Bank has foreign exchange earnings of _ ` 0.68 crore during the financial year under review which includes cross border settlements._There was no foreign exchange outgo during the financial year.

Whistle Blower Policy (Vigil Mechanism)

The Bank, as a part of its prudent practice, has established a Vigilance Department to develop and execute a comprehensive strategy to deal with instances of fraud and mismanagement, if any, and as a preventive mechanism with active oversight, ensure holistic and smooth operations of the Bank on an ongoing basis. The Department is adequately staffed and conducts investigations on matters related to frauds committed and references received through whistle blower complaints.

Pursuant to the provisions of Section 177(9) of the Companies Act, 2013 read with rules made thereunder and RBI Guidelines and other applicable laws, the Bank has established the Vigil Mechanism as part of the Whistle Blower Policy. This empowers the Directors and employees to report concerns about unethical behaviour, actual or suspected fraud or instances of leakage of Unpublished Price Sensitive Information (UPSI), misappropriation of assets or violation of the Bank's Code of Conduct. Additionally, the Bank places zero tolerance for any incidents of doubtful integrity and corruption by employees. Towards this end, all employees are trained to maintain high standards of integrity in their work area. The Whistle Blower policy is aimed at enabling the staff to escalate instances of doubtful integrity, mismanagement, abuse/misuse of power, undue influence/coercion exercised for indulging in undesirable practices, violation of the Bank's Code of Conduct, ethics, and corruption. It also provides adequate safeguards against probable victimization of directors/ employees who avail of this mechanism and allows direct access to the Chairperson of the Audit Committee of the Board, in appropriate or exceptional cases.

The Audit Committee of the Board (ACB) reviews the details of Whistle Blower complaints received, the subsequent action taken, and the functioning of the Whistle Blower mechanism periodically.

The Audit Committee of the Board oversees the Vigil Mechanism as well.

The Whistle Blower Policy is periodically communicated to the employees and the key highlights of the Policy are available on the Bank's website at the following link: https://www.utkarsh.bank/uploads/template_forty_pdf/ Whistle_Blower_Policy_Revised_13_12_2022.pdf wherein the email and contact details of the Chairperson of Audit Committee of the Board are provided to enable complainants to reach out with their complaints under the Whistle Blower Policy.

In addition to the above, the Bank has formulated a Vigilance Policy for effectively managing the risks arising on account of possible corruption, malpractices, and frauds.

Vigilance & Security

The Bank has a Vigilance & Security Department for investigating frauds, bribery cases, and complaints, including complaints received under the whistle-blower policy of the Bank Vigilance & Security Department makes concerted efforts to reduce fraud, forgery, and burglary incidents in the Bank with the help of new ideas, technology, previous experiences, and adopting preventive vigilance measures with appropriate tools.

Statutory Auditors

RBI, on April 27 2021, had issued guidelines for appointment of Statutory Central Auditors/Statutory Auditors of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs). As per the said guidelines statutory audit of entities with asset size of _15,000 crore and above as at the end of previous year, should be conducted under joint audit of a minimum of two audit firms. The audit firms can be appointed as the Statutory Auditors (SA) of the Bank for a continuous period of 3 years only and thereafter, reappointment in the same entity will be possible only after a cooling period of six years. Further, prior approval of RBI for appointment/reappointment of SAs on an annual basis is required in terms of the above guidelines.

Based on recommendation of Audit Committee of the Bank, the Board of Directors at its meeting dated March 20, 2023, had proposed the re-appointment of M/s. Deloitte Haskins and Sells, Chartered Accountants and M/s. Kirtane & Pandit LLP, Chartered Accountants as Joint Statutory Auditors of the Bank subject to approval of the Shareholders of the Bank and prior approval of the Reserve Bank of India (RBI). RBI vide their letter reference no. DOS.CO.RPD.No.S494/08.60.005/2023-24 dated April 21, 2023 approved the appointment of M/s Deloitte Haskins & Sells, Chartered Accountants (FRN 117365W) and M/s. Kirtane & Pandit, LLP, Chartered Accountants (FRN 105215W) as the Joint Statutory Auditors for FY 23-24 subject to the firms fulfilling the eligibility criteria as prescribed by RBI. Accordingly, the proposal for their appointment would be placed in the ensuing 7th Annual General Meeting.

Employees Stock Option Plan (ESOP)

The Shareholders of the Bank had approved:

USFBL MD & CEO Employee Stock Option Plan 2020 (MD & CEO ESOP Plan)

USFBL Employee Stock Option Plan 2020 (ESOP Plan 2020) The Bank may grant upto 6,07,41,778 options under the ESOP Plan 2020.

Being a Banking Company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable.

Awards & Recognition

Re cognised as "Paragon of Branding Excellence" and awarded for "Brand of the Year 2022" by Team Marksmen Daily and media partner India Today

Ranked 46 under "The Next 500 Companies 2022" by Fortune India

Re cognition as one of the ‘Promising Brands 2022' by Economic Times

The Bank has received award from PFRDA for qualifying the contest "Beat the Best & Be the Best (9th May, 22 to 30th June,22)" under APY

The Bank received an award under special category from IBA for the Best ‘IT Risk Management'.

GRIHA Award was bestowed upon the Bank for the Integrated Water Management at Utkarsh Tower

Ranked No .2 under the Small Finance Bank category by BT-KPMG Survey

Particulars of Employees

The ratio of the remuneration of each Director to the employees' median remuneration and other details in terms of sub-section 12 of Section 197 of Companies Act 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are given below: -

(i) the ratio of the remuneration of each Director to the median remuneration of the employees of the Bank for the FY 22-23:-

Apart from sitting fees, the Bank does not pay any remuneration to any Non-Executive Directors. The part time Non-Executive Chairman of the Board is entitled to a monthly remuneration, as approved by the RBI and the Shareholders of the Bank.

(ii) The percentage increase in remuneration of each Director, Chief Executive Officer, Chief Financial Officer, Company Secretary for FY 22-23 are as follows:

(iii) The number of permanent employees on the rolls of the Bank, as on March 31, 2023 was 15,424 (includes 13,130 male employees and 2,294 female employees).

(iv) Average percentile increase already made in the remuneration of employees other than the managerial personnel in the last financial year and its comparison with the percentile increase in the managerial remuneration. (v) Average increase in remuneration is 7.27% for employees other than managerial personnel and 0% for managerial personnel (Executive Directors including Managing Director and Chief Executive Officer, Chief Financial Officer, and Company Secretary).

(vi) The key parameters for any variable component of remuneration availed by the Directors are as specified in the Remuneration Policy.

(vii) Affirmation that the remuneration is as per the remuneration policy of the Bank. The Bank is in compliance with its Remuneration Policy.

The statement containing particulars of employees as required under Section 197(12) of Companies Act 2013 read with Rule 5(2) and (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this report. In terms of Section 136 of Companies Act 2013, the Annual Reports are being sent to the members, excluding the information as required under Rule 5(2) as mentioned aforesaid and the same is open for inspection at the Registered Office of the Bank. A copy of this statement may be obtained by the members by writing to the Company Secretary of the Bank at secretarial.usfb@utkarsh.bank.

Remuneration Policy for Directors

In terms of the provisions of Companies Act 2013, Listing Regulations and applicable provisions of the Banking Regulation Act, 1949, the Board on the recommendation of the Nomination & Remuneration Committee (NRC), formulated Remuneration Policy for the remuneration of Directors, Key Managerial Personnel (KMPs) & Senior Management Officials. The Nomination and Remuneration Policy is available on the website of the Bank at the following link: https://www.utkarsh.bank/uploads/template_forty_pdf/NRC_Policy.pdf

Remuneration of Executive Directors

The Board considered the recommendation of NRC, and approved the remuneration of Managing Director and Chief Executive Officer, with or without modifications, subject to members and regulatory approvals.

The remuneration payable to Managing Director and Chief Executive Officer is subject to prior approval of the RBI. Therefore, the remuneration or any revision in the remuneration is payable only after receipt of approval from RBI.

Remuneration of part time Non-Executive Chairman

The remuneration payable to the part time Non-Executive Chairman is subject to prior approval of RBI. Therefore, the remuneration or any revision in remuneration of the part time Non-Executive Chairman is payable only after receipt of approval from RBI.

Remuneration of Non-Executive Directors (NEDs)

The NEDs (excluding Nominee Directors of the Bank) are paid sitting fees for attending each meeting of the Board of Directors or any Committee thereof. The NEDs are also entitled to reimbursement of expenses for participation in the meetings of the Board and Committees thereof.

RBI vide Circular No. DBR. No.BC.97/29.67.001/2014-15 dated June 1, 2015, issued Guidelines on Compensation of Non-Executive Directors of Private Sector Banks emphasizing that in order to enable banks to attract and retain professional Directors, it is essential that such Directors are appropriately compensated.

Pursuant to the aforesaid RBI Circular, the maximum amount that can be paid as commission was capped at

` 20 Lakh per Director, per annum. Also, Section 197 of Companies Act 2013 permits payment of profit-based commission to the Directors who are neither managing directors nor whole-time directors, not exceeding one percent (1%) of the net profits of the Bank, if there is a managing or whole-time director or manager; in any other case three per cent (3%) of the net profits.

During FY 22-23, the Bank has not paid any commission on profit or granted any stock options to NEDs.

Other Statutory Disclosures:

The Bank has not changed its nature of business during FY 22-23.

Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given or securities provided or acquisition of securities by a banking company in the ordinary course of its business are exempted from disclosure in the Annual Report.

All related party transactions that were entered into during FY 22-23 were on an arm's length basis and in the ordinary course of business and accordingly, AOC - 2 is not applicable to the Bank. There are no materially significant related party transactions entered into by the Bank with Directors, KMP or other designated persons, which may have a potential conflict with the interest of the Bank at large. The Bank has a Related Party Transactions Policy in place for identification and monitoring of any potential related party transactions;

There were no significant/material orders passed by the Regulators / a Court / Tribunal etc. during FY 22-23, which would impact the going concern status of the Bank and its future operations.

The re was no application made or any proceeding pending under the Insolvency and Bankruptcy Code, 2016 (31 of 2016) during the year under review.

The details of Risk Management Policy & its framework are separately provided in the Management Discussion and Analysis Report.

The Bank is a subsidiary company of Utkarsh CoreInvest Limited (erstwhile Utkarsh Micro Finance Limited). The Bank does not have subsidiary or associate company. Hence the details of sub-section (3) of section 129 read with rule 5 of Companies (Accounts) Rules, 2014 are not applicable to the Bank;

The provisions for maintenance of cost records as specified by the Central Government under sub-section (1) of section 148 of the Companies Act, 2013 are not applicable to the Bank.

There are no adverse observations/qualifications in the Statutory Auditors' Report. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

All recommendations of the Audit Committee were approved by the Board.

Pro per internal financial controls are in place, and that the financial controls have been adequate and operating effectively.

The re are no material changes and commitments, affecting the financial position of the Bank that have occurred between the end of the financial year of the Bank i.e. FY 22-23 and the date of the Boards' Report.

Code of Conduct

For a financial institution, transparency and the highest standards of corporate governance are important prerequisites for establishing a compliance-oriented bank. Towards this end, the Bank endeavours to ensure that all its activities are fairly aligned with the highest standards of personal and professional integrity and the highest level of ethical conduct. The Bank has adopted a Code of Conduct and norms for the avoidance of conflict of interest, all the Senior Management officials, KMPs, Employees with loan sanctioning authority, employees directly related with sourcing/servicing corporate or wholesale banking relationships and employees directly involved in the procurement of goods and services, conduct duties according to the aforesaid Code of Conduct. Some of the areas that have been covered by the Code of Conduct are: fairness of employment practices, protection of intellectual property, integrity, customer confidentiality and conflict of interest. The Bank's Code of Conduct for Directors and Senior Management is hosted on the website of the Bank at https://www.utkarsh. bank/uploads/template_forty_pdf/CODE_OF_CONDUCT_FOR_THE_BOARD_OF_DIRECTOR S_AND_SENIOR_ MANAGEMENT_PERSONNEL.pdf.

Corporate Social Responsibility (CSR)

In accordance with Section 135 of the Act, the Board of Directors on the recommendation of CSR Committee had approved the CSR Policy which provided for the activities to be carried out.

The CSR Policy is available on the Company's website https://www.utkarsh.bank/uploads/template_forty_pdf/ Corporate_Social_Responsibility_Policy.pdf.

In line with the statutory requirements under the Companies Act, 2013 and it's CSR Policy, the Company had undertaken projects in the areas of financial literacy, health initiatives, skill and entrepreneurship development programmes and other philanthropic initiatives (supporting orphanages and care centres for the elderly).

During the year under review, the Company spent /contributed _ ` 3.24 crore towards aforesaid CSR projects.

The required disclosure as per Rule 8 of Companies (Corporate Social Responsibility Policy) Rules 2014 is attached as Annexure B to this Report.

Know Your Customer (KYC) / Anti-Money Laundering (AML)

The Bank adheres to the RBI's KYC / AML Guidelines issued from time to time. The Bank's KYC / AML Policy has been prepared in accordance with the Prevention of Money Laundering Act, 2002 (PMLA) and RBI / Indian Banks' Association (IBA) guidelines, amended from time to time. The Bank complies with, various regulatory reporting requirements, as set out by the Financial Intelligence Unit (FIU) of the Government of India. The Bank has a transaction monitoring mechanism in line with regulatory requirements with an automated system solution, closely monitored by a centralised AML team. The Bank's employees are imparted training on KYC / AML aspects regularly. Executives of the Bank also attend periodic workshops/seminars organised by FIU - IND, RBI, IBA and National Institute of Bank Management (NIBM) to enhance their awareness in these aspects. Recent changes as contained in the PMLA notifications and RBI guidelines have been followed and embedded in the customer acquisition processes of the Bank. The Bank's KYC/AML Policy is duly reviewed by the Board on annual basis taking into account the various amendments to guidelines / regulations.

Prevention of Sexual Harassment

The Bank is committed to create a safe environment where all employees are treated with respect and dignity. The Bank takes a strong stand and has zero-tolerance policy on the issue of sexual harassment at workplace. We follow all the guidelines prescribed under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and seeks to protect women from sexual harassment at the place of work.

The Prevention of Sexual Harassment Policy (POSH Policy) at Utkarsh Small Finance Bank is gender neutral and is implemented for all employees and other stakeholders/ partners. Any complaint of sexual harassment made against any individual working within the Bank's premises, including third-party vendors, is investigated in line with this POSH Policy.

The Internal Complaints Committee (ICC) of the Bank deals with all complaints relating to sexual harassment and has laid down the processes and guidelines pertaining to sexual harassment related complaints. The Bank does not tolerate any form of sexual harassment and all individuals of the Bank are responsible to ensure a workplace free of harassment.

POSH Policy is applicable to all employees (permanent/ fixed term/ on contract) of the Bank across the Board and is equally applicable to all genders, grades, and stakeholders of the groups.

The POSH Policy is periodically communicated to all employees and is available on the Bank's website for information and compliance thereof.

https://www.utkarsh.bank/uploads/pdf/our-policy/template_ten/Prevention_of_Sexual_Harassment_Policy.pdf

For FY 22-23, total of 13 cases were reported under POSH. Out of 13 cases, 11 cases have been resolved and 2 cases are under investigation.

Human Resources

The Bank's Human Resources Policy (HR Policy) is aligned for the achievement of the Bank's vision and mission and constant efforts are made to motivate its employees for excellence in performance and at the same time endeavors to provide a better work-life balance through various employee welfare activities.

In its constant endeavor to promote learning and capacity building of all its employees, the Bank utilized its "Learning Management System (Utkarsh U-Learn)" to engage its employees through continuous educational programs delivered via e-modules and virtual classrooms.

Technology

Information Technology is an important driver for improving the efficiency & productivity of the organization. This is a major differentiator for the bank and constantly working on enhancement of existing technology solutions and engaging with new technology / technology partners to achieve business growth.

While continuing, digitization and automation journey, Bank has successfully implemented "UPI Lite" payment system. The Bank is the first Small Finance bank to implement this in Indian Banking domain. Cash-less collection through QR Code has been added to digitization journey further i.e., this is an addition to cash-less disbursement of Joint Liability Group Loans. To make secured Mobile Banking Transactions of our customer, the Bank added feature of device binding in-line with regulator guidance. The feature of e-signature added to our mission toward go-green i.e., paperless transaction. We have enhanced our business applications like CBS, LMS, LOS, etc. with added features during the year to improve efficiency of end users along with new product features. Bank already started using Robotic Process Automation (RPA) for processes where manual duplicate work shall be automated with the help of software robot.

The feature of Microsoft Team / office 365 is being used extensively within organizations to improve internal communication & processes. Along with Data Center (DC) & Disaster Recovery (DR) center, the bank has operationalize Near Data Recovery (NDR) center to ensure quick availability of systems in case of any disaster. Data Lake platform are being integrated with CBS & other channels to centrally collate data from different applications and enable Data Analytic output.

Bank has engaged with external consultant and conducted entire Business Technology Transformation study to review existing product & technology and emerging technology in banking space. Bank had already prepared a blueprint of the transformation journey. Now, the bank is working on "Design" phase of the business processes and technology modernization.

Secretarial Auditor, and Secretarial Audit Report

Pursuant to the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, M/s S. N. Ananthasubramanian & Co., Practicing Company Secretaries conducted the secretarial audit of the Company for FY 22-23.

The Secretarial Auditor's Report for the FY 22-23 does not contain any qualification, reservation, or adverse remark. Report of the Secretarial Auditor for the FY 22-23 in Form MR-3 is annexed to this report as Annexure C.

Compliance with Secretarial Standards

The Bank has complied with the provisions of Secretarial Standards specified by the Institute of Company Secretaries of India and notified by the Ministry of Corporate Affairs under Section 118(10) of the Companies Act, 2013.

Basel III (Pillar 3) Disclosures:

RBI Master Circular DBR.No.BP.BC.4/21.06.001/2015-16 dated July 01, 2015, on ‘Prudential guideline on Capital Adequacy and Market Discipline – New Capital Adequacy Framework (NCAF)' requires banks to make Pillar 3 disclosures, as applicable. These disclosures have not been subjected to audit or limited review. These disclosures are available on the Bank's website at https://www.utkarsh.bank/.

Prospects

FY23 has been excellent year from financial performance perspective for the Bank. The Bank had reported highest ever annual profit of >`400 crore in FY23. Bank's loan portfolio and deposits registered healthy business growth. The Directors are of the view that there is immense opportunity to cater to the unserved and underserved sections of client base in the country, particularly the area in which the Bank is currently operating.

Directors' Responsibility Statement

As per the requirements of Section 134(3)(c) of the Companies Act, 2013, the Directors hereby confirm and declare that:

In the preparation of the annual accounts for the financial year ended March 31, 2023, the applicable accounting standards have been followed, and there is no material departure from the same;

The Directors have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank as on March 31, 2023, and of the profit of the Bank for the year ended March 31, 2023;

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

The Directors have prepared the annual accounts for the financial year ended March 31, 2023 on a going concern basis.

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

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.

Acknowledgement

The Board expresses its gratitude to the Central and State Governments, Reserve Bank of India, Ministry of Corporate Affairs, SEBI, NABARD, SIDBI, MUDRA, NHB and all other Regulatory Authorities including Local Governing Bodies for the continuous support and guidance provided to the Bank.

The Board appreciates the precious support provided by the Auditors, Lawyers and Consultants. We place on record our appreciation for the contribution made by our employees at all levels. Our consistent growth has been made possible by their hard work, solidarity, cooperation, and support.

The Directors wish to place on record their gratitude to Shareholders of the Bank for the confidence reposed by them and thank all the clients, dealers, and other business associates for their contribution to the Bank's growth and for extending their assistance and co-operation.

The Directors also express their gratitude to all stakeholders and partners for extending their support.