Kotak Mahindra Bank Ltd
Directors Reports
To the Members of KOTAK MAHINDRA BANK LIMITED
The Directors present their Thirty-fourth Annual Report together with
the audited accounts of your Bank for the year ended 31st March, 2019.
FINANCIAL HIGHLIGHTS
(A) Kotak Mahindra Bank Limited – Consolidated financial
highlights *:
|
31st March, 2019 |
31st March, 2018 |
|
र in crore |
र in crore |
| Total income |
45,979.11 |
38,813.31 |
| Total expenditure, excluding provisions and contingencies |
34,358.03 |
28,630.34 |
| Operating Profit |
11,621.08 |
10,182.97 |
| Provisions and contingencies, excluding provision for tax |
1,045.36 |
1,024.74 |
| Profit before tax |
10,575.72 |
9,158.23 |
| Provision for taxes |
3,456.02 |
3,011.09 |
| Profit after tax |
7,119.70 |
6,147.14 |
| Less: Share of minority interest |
- |
56.68 |
| Add: Share in profit of Associates |
84.43 |
110.51 |
| Consolidated profit for the Group |
7,204.13 |
6,200.97 |
| Earnings per Equity Share: |
|
|
| Basic (र) |
37.78 |
32.70 |
| Diluted (र) |
37.74 |
32.66 |
(B) Kotak Mahindra Bank Limited – Standalone financial highlights:
|
31st March, 2019 |
31st March, 2018 |
|
र in crore |
र in crore |
| Total Income |
28,547.24 |
23,800.70 |
| Total expenditure, excluding provisions and contingencies |
20,199.06 |
16,642.53 |
| Operating Profit |
8,348.18 |
7,158.17 |
| Provisions and contingencies, excluding tax provisions |
962.39 |
939.95 |
| Profit before tax |
7,385.79 |
6,218.22 |
| Provision for taxes |
2,520.46 |
2,133.92 |
| Profit after tax |
4,865.33 |
4,084.30 |
| Add: Surplus brought forward from the previous year |
13,604.60 |
10,756.29 |
| Amount available for appropriation |
18,469.93 |
14,840.59 |
| Appropriations: |
|
|
| Statutory Reserve under Section 17 of the Banking Regulation
Act, 1949 |
1,216.34 |
1,021.08 |
| Transfer to Investment Reserve Account |
31.06 |
- |
| Transfer to Capital Reserve |
6.99 |
24.00 |
| Transfer to Special Reserve |
40.00 |
55.00 |
| Transfer to Investment Fluctuation Reserve Account |
70.89 |
114.21 |
| Transfer to Fraud Provision |
1.40 |
- |
| Dividend Paid ** |
160.28 |
- |
| Corporate Dividend Tax |
23.68 |
21.70 |
| Surplus carried to Balance Sheet |
16,919.29 |
13,604.60 |
* In accordance with the Companies (Indian Accounting Standards (IND
AS)) Rules, 2015 the financial statements of the subsidiaries are being prepared in line
with notified IND AS with effect from 1st April, 2018. The financial statements
of the subsidiaries used for consolidation of the consolidated financial results are
special purpose financial statements prepared in accordance with Generally Accepted
Accounting Principles in India (‘GAAP') specified under Section 133 of the
Companies Act, 2013 read with relevant notifications.
** The Bank has paid a dividend at rate of र 0.70 per equity
share for the year ended 31st March, 2018 (previous year: 0.60 per equity share
for the year ended 31st March, 2017) and has paid interim dividend at rate of
8.10% (on pro-rata basis) on preference shares for year ended 31st March, 2019
(previous year: NIL), to all shareholders, whose names appear on the Register of members /
beneficial holders list on the book closure date. As per the requirements of revised AS 4
– ‘Contingencies and Events Occurring After the Balance Sheet Date', this
payout (including dividend distribution tax) has been appropriated from amount available
for appropriation in the year of pay-out.
DIVIDEND
Your Directors are pleased to recommend a dividend of र 0.80 per
equity share (previous year र 0.70 per equity share) for the year ended 31st
March, 2019. This would entail a payout of र 184.10 crore including dividend
distribution tax based on the number of shares as at 30th April, 2019. The
dividend would be paid to all the shareholders, whose names appear on the Register of
members / beneficial holders list on the book closure date.
In March 2019, your Directors declared an interim dividend on Perpetual
Non-Cumulative Preference Shares of face value of र5 each issued by the Bank,
carrying a dividend rate of 8.10%, on pro-rata basis, in respect of the financial year
2018-19, as per the terms of issuance. This entailed a payout of र32.37 crore
(including dividend distribution tax).
Pursuant to Regulation 43A of the Securities and Exchange Board of
India (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board of
Directors of the Bank have adopted a Dividend Distribution Policy which is in line with
the parameters prescribed by SEBI for distribution of dividend. The Policy is available on
the Bank's website viz. URL:https://www.kotak.com/en/investor-relations/governance/
policies.html
CAPITAL
During the year, authorized share capital of the Bank was altered and
increased from र1500 crore consisting of 300 crore equity shares of र5 each to
र1900 crore divided into 280 crore equity shares of र5 each and 100 crore
preference shares of र5 each.
In August 2018, your Bank has issued and allotted 100 crore 8.10%
Perpetual Non-Cumulative Preference Shares (PNCPS) of र5 each amounting to
र500 crore.
During the year, your Bank allotted 31,06,321 equity shares arising out
of the exercise of Employees Stock Options granted to the whole time director and
employees of your Bank and its subsidiaries.
Post allotment of equity shares as aforesaid, the issued, subscribed
and paid-up share capital of the Bank as at 31st March, 2019 stood at
र14,54,37,74,135 comprising of 1,90,87,54,827 equity shares of र5 each and
100,00,00,000 preference shares of र5 each.
Your Bank has a Capital Adequacy Ratio (‘CAR') under Basel
III as at 31st March, 2019 of 17.45% with Tier I being 16.93%.
During the year, your Bank has not issued any capital under Tier II. As
on 31st March, 2019, outstanding Unsecured, Redeemable Non-Convertible,
Subordinated Debt Bonds were र456 crore. The outstanding Unsecured, Non-Convertible,
Redeemable Debt Capital Instruments Upper Tier II have matured during the year.
Further, in March 2019, your Bank has issued and allotted 1500 Senior
Unsecured Rated Listed Redeemable Long Term Bonds in the nature of Non-Convertible
Debentures bearing a face value of र10 lakh each aggregating to र150 crore.
OPERATIONS
Consumer Banking
Your Bank services a customer base in excess of 16 million customers
covering a wide spectrum across domestic individual and households, non-residents, small
and medium business segments for a range of products from basic savings & current
accounts to term deposits, credit cards, unsecured and secured loans, working capital and
investment advisory.
Your Bank continued its strategy of calibrated expansion of its branch
network. As of 31st March, 2019, your Bank had 1500 branches and 2352 ATMs,
covering 744 locations. Of the 112 new branches commissioned this year, 44 were in metro,
24 were in urban, 15 semi urban & 29 rural branches. Aided partly by 811, your Bank
saw fast paced customer acquisition across all core banking products including savings and
current accounts, term deposits, overdrafts and non-resident accounts. Bank has also set
up 27 e-lobbies to enable convenience banking for customers. Your Bank also relocated 36
branches across metro and semi urban locations to give easier access and higher
convenience to its customers.
Your Bank rolled out several initiatives aimed at offering a superior
and differentiated customer experience. Strengthened its customer relationship management
capability by setting up a new channel for phone based remote engagement, called VRM
(Virtual Relationship Management) channel. This led to a wider coverage and enabled your
Bank to reach out to more than 6 lakh customers and service them across deposit, lending
and investment needs. In the Retail Institutional Business, for segments like housing
societies, educational institutions, etc. introduced a range of services like apartment
management solution, smart card solution, closed loop payment solutions, etc. This has
helped your Bank strengthen its relationship in this segment. Your Bank extended the Silk
program for woman customers to cover salaried base and offers distinctive features like
cash back on point of sale (POS) based transactions, linked accounts for minors and
discount on lockers. Proposition around Image debit cards was further strengthened with
introduction of images of Bank's brand ambassador Ranveer Singh and exclusive art
works of renowned artist, Seema Kohli for the Silk program. A new current account
proposition was launched specifically for constituents of agriculture produce market
committee (APMC) markets and will be available across the 2400 markets in the country. For
the Arthias segment in Punjab, a customized solution via Arthia Rupay card was launched
which would help your Bank to build a significant market share in the state of Punjab.
Your Bank entered into a banking alliance with government procurement
agency, Haryana State Co-operative Supply and Marketing Federation Limited (HAFED) in
Haryana and National Agency for Export Development (NAFED) at national level for mustard
seed procurement. This would give a significant boost to the current account book linked
to this line of business. The merchant acquiring line of business which was started in
2017-18, gained significant momentum in 2018-19, with the transaction thru put crossing 2
crore figure. Value added features like EMI facility on point of sale transactions were
also offered. For customers desirous of investing in mutual funds, a facility was made
available in the form of online investment account. This feature was also made available
on netbanking and mobile banking. For the internationally aligned customers, ability to
subscribe to forex card online, via net or mobile was made available. In line with the
regulatory requirement, all the ATMs of your Bank, have been upgraded to become Europay,
Mastercard, Visa (EMV) compliant. As per the Government mandate, your Bank has
successfully set up aadhaar enrolment centers in 145 branches and also surpassed the
transaction volume mandate given by Unique Identification Authority of India (UIDAI). Your
Bank also participated in the Pradhan Mantri Gram Swaraj Abhiyan and achieved 100% of the
targets under this program. India's first bilingual voice bot in Banking – Keya
that responds to customer's queries in English and Hindi was launched by your Bank.
Keya handled 17 lakh calls without human assistance.
Your Bank continued to ramp up 811 acquisition numbers this year as
well. In order to drive higher engagement with 811 customers, your Bank, this year,
focused on cross selling various bank products to the existing 811 customers.
In line with its commitment to enhance customer experience, your Bank
joined Ripple's leading enterprise blockchain network (RippleNet) to provide impetus
to its cross-border inward remittances. Ripple's settlement solution, xCurrent, is
now used to provide the customers with real-time cross-border transactions in a safe and
secure manner. FCNR deposits in Singapore Dollar (SGD) was re-introduced to provide NRI
customers in Singapore the facility of placing deposit in India under the FCNR (B) scheme.
Your Bank participated in a host of events, ranging from business forums, sports leagues
& industry awards, etc. to engage with the Mariner community in India.
The Corporate salary business scaled up significantly in 2018-19 and it
now services over 3.5 million customers across more than 25000 corporates. Acquisition and
servicing capability has been further streamlined to enable inroads in Tier 2 & 3
markets as well and will be the focus in 2019-20.
The year 2018-19 continued to be strong for your Bank's credit
card business. Spend volumes on credit card have grown by 56% driven heavily by e-commerce
transactions and higher spends per transaction. Digital/Paperless acquisition of Credit
Card customers through Sales App and other digital channels like Mobile and Net Banking
saw a growth of 290% versus last year, showcasing a superior on-boarding journey to the
customers. The business also introduced a unique solution under its Commercial Cards
product line which enables a "Do-it-yourself" payment interface for corporates
to streamline their indirect expenses like statutory and other ad-hoc payments.
On the Salaried Personal loans segment, loans on mail and SMS was
launched to enhance the bouquet of instant loan offering. These along with other digital
channels have enabled Salaried Personal Loans book to grow by 45% year on year.
With a view to enhance customer experience, your Bank introduced
multiple self-serve features on Home Loan and Loan against Property on Mobile Banking.
This helped the customers view their loan details on the Mobile App itself including
details like tax certificate, disbursement and repayment details through a click of a
button. The service, which went live in January 2019 has already seen over 1 lakh+ hits on
the Mobile Banking App Loan section.
Commercial Banking
Your Bank's Commercial Banking business focuses on meeting the
banking and financial needs of various customer segments with deeper coverage that goes
beyond metro and urban centers through an expanding network of branches and associates.
The business has specialized units which offer financial solutions in the areas of
Commercial Vehicles, Construction Equipment, Tractor and Agriculture business. It services
the priority sector through providing finance for Tractor, Crop loans, Small Enterprises
and Allied agricultural activities thereby helping your Bank meet its financial inclusion
goal. In line with growing rural incomes, our Bank's Commercial Bank branches have
experienced robust growth across product lines on savings as well as lending side.
Your Bank's Construction Equipment (CE) and Tractor Finance
businesses reported significant growth and gained market share in their respective
businesses, while Commercial Vehicle (CV) business witnessed a slight drop in market share
due to margin pressures & change in load carrying norms. Tractor Finance businesses
witnessed double digit volume growth and continued to gain market share. The Government
spending in the infrastructure sector has led to a strong demand in the CE and CV
industry.
Your Bank's Agriculture Financing business continued its focus on
the agriculture value chain funding for various agro processing activities. It has
registered good growth despite volatility and uncertainty in the commodities market.
Microfinance Institutions (MFI) segment growth remains robust and asset quality remains
good.
Branches in semi-urban and rural area comes under the umbrella of
Commercial Bank. This network plays a crucial role in meeting the financial inclusion
goals and credit demand of ‘Bharat'. Branch network has expanded and the
Liability book has grown at a healthy pace.
Wholesale Banking
Your Bank's Wholesale Banking business caters to a wide range of
corporate customer segments including major Indian corporates, conglomerates, financial
institutions, public sector undertakings, multinational companies, mid-market companies,
small and medium enterprises and realty businesses. This segment offers a comprehensive
portfolio of products and services to these customers including working capital finance,
medium term finance, trade finance, foreign exchange services, other transaction banking
services, custody services, debt capital markets and treasury services.
The year has witnessed significant disruptions in the corporate banking
space driven by high NPAs in the industry and stress in certain industry segments. With
more capital from banks, mutual funds and NBFCs chasing the high rated end of the
corporate space, this space is witnessing high competition which in turn is pushing down
yields for banks. The overall credit offtake in the economy has also been muted over the
last few years. Despite these challenges, the Wholesale Banking business has been able to
achieve growth in the large corporate space in a healthy and profitable manner. Over the
years, the Wholesale Banking business has grown its market share through higher customer
acquisition, improved customer service and product innovations.
At the same time, your Bank has remained cautious in its exposure,
especially in certain segments, which witnessed increased stress and uncertainty during
the year. This year, the Small and Medium Enterprise (SME) business was brought into the
Wholesale Banking fold. The last couple of years has witnessed disruptions in the SME
space from demonetization and rollout of GST which manifested as stress in the Bank's
books as well. This year, a number of initiatives were taken to stabilize the business
while integrating it with the rest of the Wholesale Bank. The SME business is well poised
to capture the growth opportunities in the market. However, this year, owing to the phase
of consolidation, growth in this segment was muted. Your Bank has been cautious on the
real estate developer segment given the stress in the sector. Your Bank compensated for
this slowdown by ramping up exposure to lower risk businesses such as Lease Rental
Discounting; however the spreads were impacted by this mix change. Your Bank has also been
cautious on its lending to Non-Banking Financial Institutions and therefore changed mix
towards higher rated NBFCs given the challenges that the NBFC sector went through during
the year.
Your Bank has remained as focused on adding new customers in a
profitable manner as increasing wallet share with existing customers. The last few years
have seen a healthy addition of New-to-Bank customers in the large corporate segment,
which in turn sets a strong foundation for future growth in the business. Going forward,
your Bank will focus on increasing the momentum in New-to-Bank customer acquisition in the
SME space too.
Your Bank has an integrated Corporate and Investment Banking (CIB)
approach towards certain top conglomerates and large corporates. The CIB model has ramped
up well and has helped it to deepen its presence with these clients and gain further
market share.
Robust risk management practices are in place and your Bank has
achieved growth over the years without compromising the health of the book. At a time when
most corporate banks in the industry are facing huge NPAs, your Bank has kept a tight
control on asset slippages. Other than SME, the rest of the corporate segment has
witnessed minimal additions to the Gross NPA this year. In SME, a number of initiatives
have been taken to stabilize the business. Across corporate segments, your Bank has been
proactive in rebalancing the portfolios to reflect economic situations and reduction in
exposure to situations with heightened risk. Your Bank's focus on risk management has
helped the business reduce its Risk Weighted Assets (RWA) as a percentage of assets over
the past few years. The use of Risk Adjusted Return on Capital (RaRoC) pricing models has
become ingrained in the way the Wholesale Banking division conducts its business and has
helped to optimize pricing, better utilize capital and improve return on equity. Economic
Value Add (EVA) measurement tools have been implemented that help your Bank monitor the
true risk adjusted value being derived from each client. These initiatives ensure greater
focus on improving income mix in favour of non-capital intensive income streams.
The strong momentum in the Integrated Global Transaction Banking
Services (GTS) continues across its large suite of products. Current Account & Savings
Account balances saw significant growth through innovative solutions and focused marketing
efforts. Through focused efforts, your Bank has been successful in capturing a higher
market share in Cash Management Services (CMS) from identified flagship accounts. Your
Bank launched various receivable solutions across C2B and B2B clients which witnessed a
growth of more than 300% in flows through client accounts. Products like Smart Collect,
Application Program Interface (API) based e-collection offerings, customized value added
solutions using National Automated Clearing House (NACH) as clearing system have helped
your Bank to acquire as well as increase its wallet share among various key clients. With
focus on product development and building new age platforms, your Bank became primary
banker to major unicorn companies. Your Bank has also invested in product development for
the acquiring business and are now bankers to top aggregators in the e-commerce space.
Your Bank was also the largest banking player for Bharat Bill Payment System (BBPS) as a
biller onboarding participant during the year. Your Bank believes that, in this dynamic
environment, bringing the best of solutions to clients will require engagement with
solution providers in the country and your Bank has partnered with flintechs to provide
value added solutions. These initiatives have helped increase Current Account balances
substantially. On the trade side, the funded and non-funded book continued a strong double
digit growth momentum. Strong focus on fee income through trade flows led to a robust
growth in fees earned through trade finance and services, with the wholesale business
almost doubling this fee income. The strong growth in GTS products has helped your Bank to
partly compensate for the fall in spreads in its traditional lending business.
The Custody business continued to witness strong growth despite market
uncertainty seen during the second half of this year. Your Bank is today one of
India's largest domestic Custodians with Assets Under Custody (AUC) upwards of US$ 30
Bn and is strongly positioned in the India focused offshore funds space. The Custody
business added a number of marquee Alternative Investment Funds (AIF) & Portfolio
Management Services (PMS) clients in the Domestic segment in addition to having a good
market share amongst India based Foreign Portfolio Investments (FPIs). Your Bank also
obtained a Professional Clearing Member (PCM) License to offer clearing services on the
INDIA INX Exchange in GIFT City becoming the first bank custodian to do so.
Your Bank's dedicated Service Solutions vertical has helped ensure
faster customer response and improve customer experience. This vertical is the single
point of contact for all service related and documentation issues with personnel present
across the country. Your Bank has been successful in significantly reducing
Turn-Around-Time (TAT) across various processes including account opening and disbursals.
Initiatives such as digitization and workflow automation have helped reduce TAT further.
Strengthening its organizational platform, your Bank continues to
target productivity and efficiency improvements. There is greater focus on measuring and
improving employee productivity including of its sales force through use of technology and
digital tools. Given high focus in this area, costs have been kept well in control further
improving profitability of the business.
Your Bank has undertaken a series of digital initiatives primarily
focused on improving customer experience. These digital initiatives encompass the entire
gamut of transaction banking and include initiatives such as creation of a complete C2B
platform for our corporate clients which includes one view for products like BBPS, Unified
Payment Interface (UPI) and E-Collections. Corporate mobility platform has been extended
for all segments of your Bank and is witnessing good growth in adoption. A number of new
product initiatives have been taken in e-commerce - acquiring, issuances, liquidity
management, UPI, BBPS, API based solutions, over the counter products, Government based
initiatives, aadhaar based initiatives and structured receivable and payable solutions.
Bank is investing on NACH and escrow platforms to make onboarding and transaction
experience seamless for clients. Furthermore, a few long term initiatives are in various
stages of implementation which include an online trade portal, an integrated corporate
portal, incorporation of the block chain based technology in foreign and domestic trade
products and multiple digital initiatives being undertaken for various Government Bodies.
Wealth Management
Wealth Management, your Bank's private banking arm, acts as
advisor to a number of distinguished Indian families and is of the oldest and the most
respected Indian wealth management firms. Its customers range from entrepreneurs to
business families and professionals.
The business has a strong advisory capability for private clients
across equities, fixed income & alternates with complete alignment of interest which
makes it the preferred advisor across HNI investors. In addition to comprehensive
financial solutions, the business goes beyond investments and includes value added
services such as assistance with investment structuring, banking and credit, consolidated
reporting, referral for philanthropy services and concierge services. With an in-depth
understanding of client requirements and expertise across various asset classes, the
business offers the widest range of financial solutions through transaction-based
investment approach and asset-advisory based approaches. It has built a formidable suite
of products and services for high net worth individuals and offers the same through its
Asset-Advisory model. As per the Reserve Bank of India guidelines, advisory activities
that were being offered out of your Bank are now offered out of Kotak Investment Advisors
Limited, a subsidiary of your Bank with effect from 20th April, 2019.
In addition, your Bank has also built a large Priority Banking
business, assisting mass affluent customers with products and solutions developed to meet
their financial requirements. The total relationship value across your Bank's Wealth
& Priority offerings is ~ र2,70,000 crore.
The business has won several accolades & received recognition at
various forums and recently, it has been recognized as the Best Private Bank, India two
years in a row by Euromoney Private Banking & Wealth Management Survey 2018 & 2019
& Best Private Bank, India Domestic 2018 by Asian Private Banker among others.
International Business
The GIFT City Branch, an International Financial Services Center
Banking Unit of your Bank, has helped your Bank to participate in syndication of overseas
loans, lending to clients in international markets and providing External Commercial
Borrowing to eligible Indian corporates. Client forex and derivative transactions were
also undertaken to help offshore clients with management of interest rate and currency
risks, in addition to routine investments in offshore bonds.
Asset Reconstruction
Insolvency and Bankruptcy Code (IBC) initiated to resolve bad and
stressed loan is settling down and it may take few more years to see the major impact of
this landmark legislation.
During FY 2018-19, resolutions of some large NPA's of the country
are seen at an advanced stage through the IBC process.
Your Bank which has been an active player in the business for several
years has made significant progress in acquiring several NPA's in all the categories
like SME, Corporate and Retail Assets. The size of the book through acquisition from other
banks largely by auctions, have sizeably increased in the last financial year. Your Bank
believes that the market will continue to be robust for acquiring bad loans and it should
be able to continue to acquire sizeable loans at a fair price in the coming year, as well.
Treasury
Your Bank's treasury actively contributes to your Bank by way of:
• Proprietary Trading: The various proprietary trading desks
actively trade in products such as Fixed Income, Money Markets, Derivatives, Foreign
Exchange and Equity. Primary Dealer Desk – part of the proprietary trading desk,
actively participates in the primary auctions of government securities, makes market in
government securities and engages in retailing of government securities.
• Customer Transactions:
• Forex & Derivatives: Facilitating customer access to foreign
currency markets through cash & derivatives products for remittances, trade
transactions and for managing foreign exchange and interest rate risks.
• Bullion: Under License from Reserve Bank of India (RBI), Bank
imports gold and silver to meet needs of customers. The bullion desk provides efficient
working capital solutions to domestic Jewellery manufacturers as per prescribed rules of
RBI.
• Balance Sheet Management: The Balance Sheet Management Unit
(BMU) ensures maintenance of regulatory reserves and adequate liquidity buffers and also
manages the Interest rate risk & Liquidity risk within the Risk appetite of the Bank.
Human Resources
FY 2018-19 has been a year of strengthening initiatives in the area of
digital adoption, employee engagement, employee wellness and development.
With the talent base of the Bank reaching to over 41,500 employees,
more and more millennials being on boarded the average age of the employee base has gone
younger by a year at 31 years now. Your Bank has taken various initiatives to engage using
digital and technology platforms with employees. It has launched Mobile first app KLAPP
for managing onboarding journey of from pre joining to post joining stage to transition
from candidate to employee seamlessly. This has helped in engagement, quick assimilation
and personalization of the onboarding journey for the new joinee.
Your Bank has also enhanced the focus on future readiness of mid to
senior level employees through learning intervention of Digital Blurr, Design Thinking and
Digi-Talk. With the renewed rigor on platform launched for on demand learning and byte
size learning has enhanced the horizon for learning from behavioral and functional
learning to developing skills for future career needs of the employees.
The focus on performance discussion has been enhanced with more through
the year focus on "Talk2Do" between managers and their teams for constructive
performance discussions.
With the objective to identify, build and nurture leaders across levels
to deliver superior business results and address individual career aspirations your Bank
continues to invest in spans, structures and assessment tools through various
interventions of talent management, succession planning and career management.
Technology & Digitization
Technologies, this year, were leveraged to deliver customer experience,
business efficiency, business collaborations and cybersecurity.
Mobile banking app continues to be the highest rated iOS app with 4.8
rating and Android app is at 4.5 rating. App was made more user friendly and saw improved
customer experience with home page revamp and payment section revamp. App also became more
comprehensive with new features like forex card section, premature withdrawal of
fixed/recurring deposits, loan section, online investment account opening etc.
Newer channels, Keya Chatbot and WhatsApp Banking, were launched which
use conversational banking approach and Natural Language Processing (NLP) to interact with
customers. Keya Chatbot is enabled on all digital channels, viz. Mobile App, www.kotak.com
website and Net Banking. Keya Chatbot is able to handle queries about products like Credit
Card, Debit Card, Accounts, Fund Transfer, Bill Payment and Personal Loan. Your Bank is
the first Indian bank to offer banking services on Whatsapp which allows customers to get
services on WhatsApp without installing any app or visiting any webpages. Search and
discovery use cases have been enabled on Google Assistant thru voice based interaction.
Kotak Net Banking features were further enhanced with revamped payment
experience, online investment account opening, forex card section, buy insurance policies
online, refreshed Home page for notifications and revamped Apply Now section.
To make website pages lighter and mobile friendly, which helps in
improving SEO (Search Engine Optimization) ranking, 90+ Accelerated Mobile Pages (AMPs)
made live on www.kotak.com. These AMP pages are 5 times faster than normal ones. Kotak
website has been acknowledged as "Best in class brand for mobile experience" in
Finance category - Google ‘Masters of mobile' report.
Multiple digital payment methods were introduced for the Bank's
customers including Visa Paywave, Samsung Pay, Bharat QR, UPI, BBPS (Bharat Bill Payment
System) for Consumers & for Billers, AEPS (Aadhaar Enabled Payment System), AadhaarPay
and FASTag – enabling more cashless payments for consumers, merchants, corporates,
flintechs, billers etc. and reinforcing Kotak's commitment to the country's
Digital India journey. M-store in the Mobile App has been re-branded to KayMall and
encompasses multiple commerce categories like Travel (Train, Bus, Flights, Hotels),
Shopping (Flipkart, Shopclues) and Subscriptions which the consumer can securely &
seamlessly purchase from within the comfort of the Mobile App or Netbanking without having
to use a third-party application. Some of the new products launched like Aadhaar Enabled
Payment System (AEPS) and AadhaarPay have enabled last-mile payments for Business
Correspondent Agents and have also allowed the Bank to service its customers for services
like cash withdrawal and payments. For the second consecutive year, your Bank has been
ranked amongst the Top 5 Banks in MeitY's ‘Digital Payments Achievement
Dashboard' (based on a point-scoring methodology) and has overachieved targets set by
MeitY for FY 2018-19 on Digital Payments transaction @ ~110% of target achievement.
Your Bank started fulfilling the digitally originated leads for Home
loans and scaled up the Super-Fast Home Loan initiative.
There were certain digital initiatives of the Bank which were suspended
basis the Supreme Court ruling on Aadhaar viz. credit card product as part of 811 Savings
account opening journey by using Aadhaar stack and credit bureau; Project Velocity which
aimed at servicing through biometric means was a hit with customers and branches with a
high Net Promoter Score (NPS) of 77+ till September due to the immediate fulfilment of
their service requests which had to be stopped post the ruling. But later different ways
of automation were devised to keep the same experience of near realtime fulfilment; 811
FullKYC biometric based onboarding was suspended through this platform(s) post the ruling
last year. However, subsequently, the non Aadhaar (scanned physical image based KYC with
OTP authentication) full KYC platform for onboarding was made live.
Robotics Process Automation where more than 2 lakh transactions have
been completed across multiple processes and Cognitive Machines Reading are the next
scaleup areas which are taking shape in India and are said to bring in a culture of basic
routine tasks being automated.
Ecosystem collaborations have been enabled thru the Bank's Open
banking platform. The Bank has onboarded lending and payment application program interface
(API) products, which have gone live with 57 partners availing those API products.
This year, the Bank focussed on SMEs and launched some initiatives
around it. Your Bank is the first bank to take co-lending LIVE with Capital Float and
participate in Market Place model of psbloansin59minutes.com. Digital processes have been
set up for disbursing Business Loan instantly, for existing customers.
This year, technologies were put in place to provide support for
customer lending. Starting with a Lead Management System to accept loan enquires, and
track them, to systems to support loan application evaluation and a "business rule
engine" that uses analytics to assist in disbursement decisions. The systems will
provide a base for processing of a wide spectrum of different types loans from simple
personal loans to the more complex housing loans in the coming years.
The foundation for NLP laid down last year to launch ‘Keya'
the first Artificial Intelligence (AI) powered Voicebot in the banking sector was further
leveraged. The use of IVR was replaced by conversational banking, so that the
customer's experience on calling the Bank's contact center was simpli ed and
enhanced. A "Virtual Relationship Manager" capability was also introduced, to
enable customers to telephonically connect to their personalized service manager.
With increased focus on digital solutions and heightened cybersecurity
concerns, there is a need for constant innovation in the information security area. New
solutions were implemented to mitigate the risk of APT (Advanced Persistent Threat)
attacks. The solution detects and prevents custom malicious code being sent over the
network into the Bank's environment.
SUBSIDIARIES & ASSOCIATES
As at 31st March, 2019, your Bank has nineteen (19)
subsidiaries as listed below:
| Domestic Subsidiaries |
| Kotak Mahindra Prime Limited |
| Kotak Mahindra Investments Limited |
| Kotak Securities Limited |
| Kotak Mahindra Capital Company Limited |
| Kotak Mahindra Life Insurance Company Limited |
| Kotak Mahindra General Insurance Company Limited |
| Kotak Mahindra Asset Management Company Limited |
| Kotak Mahindra Trustee Company Limited |
| Kotak Mahindra Pension Fund Limited |
| Kotak Investment Advisors Limited |
| Kotak Mahindra Trusteeship Services Limited |
| Kotak Infrastructure Debt Fund Limited |
| IVY Product Intermediaries Limited |
| BSS Microfinance Limited |
| International Subsidiaries |
| Kotak Mahindra (UK) Limited |
| Kotak Mahindra (International) Limited |
| Kotak Mahindra Inc. |
| Kotak Mahindra Financial Services Limited |
| Kotak Mahindra Asset Management (Singapore) Pte. Limited |
| The key business segments where the subsidiaries operate include
investment banking, stock broking, vehicle finance, advisory services, asset management,
life insurance and general insurance. |
Kotak Mahindra Life Insurance Company Limited (KLI) has recorded a
growth of 23.8% on the gross premium, mainly coming from Individual renewal premium. KLI
has solvency ratio of 3.02 against requirement of 1.50.
Capital Markets witnessed a significant slowdown in primary market
activity compared to previous fiscal; accordingly, Kotak Securities Limited and Kotak
Mahindra Capital Company Limited reported lower profits compared to the previous year.
The growth in the mutual funds industry continued albeit with a
relatively modest pace in FY 2019. Kotak Mahindra Asset Management Company (KMAMC),
continues to be the 7th largest Fund House in the country in terms of Quarterly
Average Asset Under Management (QAAUM). Market share in QAAUM has grown to 6.14% from
4.32% 3 years back. KMAMC has outperformed strong growth in the mutual funds industry.
The NBFC sector experienced liquidity problems in September 2018. This
not only resulted in increase in borrowing costs but also Kotak Mahindra Prime Limited and
Kotak Mahindra Investments Limited (KMIL) had to maintain surplus liquidity for sometime,
which had an impact on their bottomline. The liquidity concern in NBFC sector eased post
January 2019. International subsidiaries have performed well and continue to add to the
shareholders value.
KMIL on 26th April, 2019 sold off its entire equity stake of
19.77% held in Matrix Business Services India Pvt. Ltd. (‘Matrix'), an associate
company of KMIL. Accordingly, Matrix ceased to be an associate company of KMIL &
consequently of the Bank from that date.
The various activities of the subsidiaries and the performance and
financial position of the subsidiaries and associates are outlined in the Management
Discussion and Analysis section appended to this Report.
The Bank's Policy for determining material subsidiaries is
available on the Bank's website viz. URL:
https://www.kotak.com/en/investor-relations/ governance/policies.html in line with the
SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. KLI is a
material subsidiary of the Bank.
As at 31st March, 2019, your Bank has following four (4)
Associate companies: Infina Finance Private Limited Phoenix ARC Private Limited Matrix
Business Services India Private Limited * ACE Derivatives & Commodity Exchange Limited
* Ceased to be an Associate Company w.e.f. 26th April, 2019
The Annual Report which consists of the financial statements of your
Bank on standalone basis as well as consolidated financial statements of the group for the
year ended 31st March, 2019, is being sent to all the members of your Bank. The
financial statements of the subsidiaries used for consolidation of the Bank's
consolidated financial results are special purpose financial statements prepared in
accordance with Generally Accepted Accounting Principles in India (‘GAAP')
specified under Section 133 of the Companies Act, 2013 read with relevant notifications.
Web link of the Annual Report is sent to all members whose email IDs are registered with
the Bank/Depository Participant(s). For members who have not registered their email IDs,
physical copies of the Annual Report are sent. It does not contain Annual Reports of your
Bank's subsidiary companies. Your Bank will make available full Annual Report
(including the Annual Reports of all subsidiaries) either a hard or soft copy depending
upon request by any member of your Bank. These Annual Reports will be available on your
Bank's website viz. URL: https://www.
kotak.com/en/investor-relations/financial-results/annual-reports.html and will also be
available for inspection by any member at the Registered Office of your Bank during
working hours.
EMPLOYEE STOCK OPTION & STOCK APPRECIATION RIGHTS SCHEMES
The stock options and the stock appreciation rights granted to the
employees of the Bank and its subsidiaries currently operate under the following Schemes:
• Kotak Mahindra Equity Option Scheme 2007
• Kotak Mahindra Equity Option Scheme 2015
• Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme
2007
• Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme
2010
• Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme
2013
• Kotak Mahindra Stock Appreciation Rights Scheme 2015
The disclosures requirements under the Securities and Exchange Board of
India (Share Based Employee Benefits) Regulations, 2014, for the aforesaid ESOP & SARs
Schemes, in respect of the year ended 31st March, 2019, are disclosed on the
Bank's website viz. URL: https://www.
kotak.com/en/investor-relations/financial-results/annual-reports.html
PROMOTER STAKE DILUTION MATTER
In August 2018, your Bank completed its issuance of Perpetual
Non-Convertible Preference Shares (PNCPS) resulting in dilution of promoter stake to
19.70% of the paid-up capital of the Bank. However, the Reserve Bank of India (RBI)
communicated to the Bank that the PNCPS issuance does not meet their promoter dilution
requirement. The Bank has, by way of abundant caution, in December 2018, filed a writ
petition with the Hon'ble Bombay High Court to validate its position. The writ
petition is pending.
CORPORATE GOVERNANCE AND BUSINESS RESPONSIBILITY REPORT
Pursuant to Regulation 27 of the SEBI (Listing Obligations and
Disclosure Requirements) Regulations, 2015 (SEBI LODR Regulations), a separate section
entitled ‘Report on Corporate Governance' has been included in this Annual
Report. The Report of Corporate Governance also contains certain disclosures required
under the Companies Act, 2013. A Business Responsibility Report containing the requisite
details under Regulation 34 of the SEBI LODR Regulations is disclosed on the Bank's
website viz. URL: https://www.kotak.com/en/investor-relations/financial-results/
annual-reports.html
DIRECTORS & KEY MANAGERIAL PERSONNEL
Directors retiring by rotation
Mr. C Jayaram (DIN 00012214) retires by rotation at the Thirty Fourth
Annual General Meeting (AGM) of the Bank and is eligible for reappointment.
Appointment/Re-appointment of Directors
Dr. Shankar Acharya (DIN 00033242) who was Non-Executive Chairman of
the Bank since July 2006, did not seek re-appointment as he completed 70 years of age and
retired by rotation as a Director at the last Annual General Meeting of the Bank held on
19th July 2018. Mr. Prakash Apte (DIN 00196106), who has been on the
Board of the Bank since March 2011 was appointed as part time Chairman of the Bank with
effect from 20th July, 2018.
The Board of Directors of the Bank, at its meeting held on 14th/15th
March, 2019, based on the recommendation of the Nomination and Remuneration Committee
(NRC) and the results of the performance evaluation, re-appointed Mr. Prakash Apte,
part-time Chairman of the Bank, as an Independent Director for a second term from 18th
March, 2019 to 17th March, 2024, subject to necessary approvals. The Board,
based on the recommendation of the NRC, also appointed Mr. Uday Shankar (DIN 01755963) as
an Independent Director of the Bank with effect from 16th March, 2019 for a
period of five years, subject to necessary approvals. Further, the Board recommended
appointment of Mr. K.V.S. Manian (DIN 00031794) & Mr. Gaurang Shah (DIN
00016660) initially as Additional Directors acting as Whole-time Directors of the Bank for
a period of three years with effect from the date of approval of the Reserve Bank of
India, and subject to necessary approval from the shareholders.
As per Section 10-A(2-A) of the Banking Regulation Act, 1949 (B.R.
Act), no director of a banking company, other than its chairman or whole-time director, by
whatever name called, shall hold office continuously for a period exceeding eight years.
In accordance with Section 10-A(2-A) of the B.R. Act and based on the recommendation of
the NRC and the results of the performance evaluation, the Board of Directors of the Bank
at its meeting held on 30th April, 2019 re-appointed Ms. Farida Khambata (DIN
06954123) as an Independent Director of the Bank for a second term i.e. the remaining
period of three years from 7th September, 2019 to 6th September,
2022, subject to necessary approval from the shareholders.
Accordingly, approval of the shareholders for re-appointment of Mr.
Apte & Ms. Khambata through special resolutions and appointment of Mr. Shankar and the
Whole-time directors through ordinary resolutions is being sought at the ensuing AGM of
the Bank. The details of the Directors being appointed/re-appointed are set out in the
Notice of the ensuing AGM of the Bank.
Resignation/Cessation of Directors
Mr. Mark Newman (DIN 03518417), Non-Executive Non-Independent Director,
resigned from the Board of the Bank with effect from 22nd February, 2019.
Mr. Amit Desai (DIN 00310510), ceased to be a director of the Bank with
effect from 17th March, 2019 on completion of his eight years tenure pursuant
to the provisions of Section 10-A(2-A)(i) of the Banking Regulation Act, 1949.
Your Directors place on record their appreciation for the valuable
advice and guidance rendered by Mr. Mark Newman and Mr. Amit Desai, during their tenure as
Directors of the Bank.
Declaration from Independent Directors
The Board has received declarations from the Independent Directors as
per the requirement of Section 149(7) of the Companies Act, 2013 and the Board is
satisfied that the Independent Directors meet the criteria of independence and fulfill the
conditions as mentioned in Section 149(6) of the Companies Act, 2013 and are independent
of the management.
Board Evaluation
The Nomination and Remuneration Committee (NRC) of the Bank's
Board has formulated the criteria for performance evaluation of the Directors and the
Board as a whole which broadly covers the Board role, Board/Committee membership, practice
& procedure and collaboration & style. The performance of the Committees of the
Board is evaluated on the criteria viz. composition & quality, process & procedure
and the terms of reference.
The NRC of the Bank's Board engaged an external professional
services firm to facilitate the self-evaluation process of the Board, its committees,
Chairman and individual directors.
A Board effectiveness assessment questionnaire designed for the
performance evaluation of the Board, its Committees, Chairman and individual directors
(including Independent directors) in accordance with the criteria set and covering various
aspects of performance including structure of the board, meetings of the board, functions
of the board, role and responsibilities of the board, governance and compliance,
evaluation of risks, grievance redressal for investors, conflict of interest, stakeholder
value and responsibility, relationship among directors, director competency, board
procedures, processes, functioning and effectiveness was circulated to all the directors
of the Bank for the annual performance evaluation.
Based on the assessment of the responses received to the questionnaire
from the directors on the annual evaluation of the Board, its Committees, the Chairman and
the individual directors, the Board Evaluation Report was placed before the meeting of the
Independent Directors for consideration. Similarly, the Board at its meeting assessed the
performance of the Independent Directors. The Directors noted that the results of the
performance evaluation of the Board & its Committees, Chairman and individual
directors indicated a high degree of satisfaction amongst the directors. In line with the
last year's suggestions of the directors, changing market dynamics & emerging
demographic status of the customers, it was felt to actively consider bringing on the
Board a director with digital and/or IT expertise to guide the Bank to the next level.
Accordingly, the Board has appointed Mr. Uday Shankar, Director who has been driving the
digital initiatives of Star India and has expertise in the field especially in
understanding the customers' digital needs. Some of the suggestions this year for
improving the performance of the Board & Committees were viz. enhanced oversight and
opportunities for improvement & functioning of some committees, continuing education
of the Board on new developments from governance prospective and Independent directors
meeting with the Chairman individually once a year. Accordingly, it is proposed to convene
every year a meeting of the Independent Directors with the Chairman individually and also
continue to educate the Board on new developments from governance prospective and enhance
their understanding of relevant risks, regulatory & industry issues. Further, for
improving the functioning of some of the committees, steps have been taken to enhance
their scope.
Key Managerial Personnel (KMPs)
The following officials of the Bank continue to be the "Key
Managerial Personnel" pursuant to the provisions of Section 203 of the Companies Act,
2013:
• Mr. Uday Kotak, Managing Director & CEO
• Mr. Dipak Gupta, Joint Managing Director
• Mr. Jaimin Bhatt, President & Group Chief Financial Officer
• Ms. Bina Chandarana, Company Secretary
Appointment & Remuneration of Directors & KMPs
The appointment and remuneration of Directors of the Bank is governed
by the provisions of Section 35B of the Banking Regulation Act, 1949. The NRC of the
Bank's Board has formulated criteria for appointment of Senior Management personnel
and the Directors. Based on the criteria set it recommends to the Board the appointment of
Directors and Senior Management personnel.
The NRC reviews the range of skills, experience and expertise on the
Board and identify its needs. After a detailed search, a master list of candidates is
prepared. The NRC then shortlists the candidates from the master list based on the
selection criteria viz. qualifications, knowledge, experience, skills, expertise, fit
& proper status, positive attributes as per the suitability of the role, independent
status and various regulatory/ statutory requirements as may be required of the candidate.
After detailed discussions and deliberations NRC recommends the candidate to the Board.
Recognizing the skill set requirement at the Board, NRC went through the aforesaid process
for selection of the new director on the Board this year and recommended the appointment
of Mr. Uday Shankar who has been driving the digital initiatives of Star India and has
expertise in the field especially in understanding the customers' digital needs.
The Reserve Bank of India (‘RBI') vide its circular
no.DBOD.No.BC.72/29.67.001/2011-12 dated 13th January 2012 has issued the
Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Other Risk
Takers of Private Sector Banks on Compensation Policy which inter alia cover the
following:
• Proper balance between fixed pay and variable pay;
• Variable pay not to exceed 70% (Seventy Per Cent) of the fixed
pay in a year;
In accordance with the aforesaid RBI Circular, the Board of the Bank
has adopted a Compensation Policy for its Whole-time Directors, Chief Executive Officer of
the Bank and other employees which includes issue of stock appreciation rights as a form
of variable pay, linked to the Bank's stock price, payable over a period of time. The
salient features of the Compensation Policy are as follows:
• Objective is to maintain fair, consistent and equitable
compensation practices in alignment with Kotak's core values and strategic business
goals.
• Applicable to all employees of the Bank. Employees classified
into 3 groups: o Whole-time Directors/Chief Executive Officer o Risk Control and
Compliance Staff o Other categories of Staff
• Compensation structure broadly divided into Fixed, Variable and
ESOPs o Fixed Pay – Total cost to the Company i.e. Salary, Retirals and Other
Benefits o Variable Pay – Linked to assessment of performance and potential based on
Balanced Key Result Areas (KRAs), Standards of Performance and achievement of targets with
overall linkage to Bank budgets and business objectives. The main form of incentive
compensation includes
– Cash, Deferred Cash/Incentive Plan and Stock Appreciation
Rights. o ESOPs – Granted on a discretionary basis to employee based on their
performance and potential with the objective of retaining the employee.
• Compensation Composition – The ratio of Variable Pay to
Fixed Pay and the ratio of Cash v/s Non Cash within Variable pay outlined for each
category of employee classification.
• Any variation in the Policy to be with approval of the
Nomination & Remuneration Committee.
• Malus and Clawback clauses applicable on Deferred Variable Pay.
• Ensuring no personal hedging strategies by employees which
undermine risk alignment effects as part of their remuneration.
The details of the remuneration paid to the Non-Executive Chairman,
Executive and Non-Executive Directors of the Bank for the year ended 31st
March, 2019 is provided in the Corporate Governance Report annexed to this Report.
The Non-Executive Chairman of the Bank receives a fixed amount of
remuneration as recommended by the Board and approved by the shareholders of the Bank and
RBI, from time to time. He also receives remuneration by way of sitting fees for attending
meetings of the Board or Committees thereof.
RBI vide its circular no. DBR.No.BC.97/29.67.001/2014-15 dated June 1,
2015 has issued guidelines on payment of compensation to the Non-Executive Directors
(NEDs) of private sector banks which inter-alia specifies the following:
• The Board of Directors of the Bank (in consultation with the
Nomination & Remuneration Committee) needs to formulate and adopt a comprehensive
compensation policy for NEDs (other than part-time non-executive Chairman).
• Maximum amount of profit related commission not to exceed
र 10 lakh per annum for each director of the Bank.
Accordingly, in line with the aforesaid RBI circular and pursuant to
the relevant provisions of the Companies Act, 2013, the Board of the Bank has adopted a
compensation policy for the NEDs (excluding the part-time Non-Executive Chairman). The
salient features of the Compensation Policy are as follows:
• Compensation structure broadly divided into: o Sitting fees o
Re-imbursement of expenses o Commission (profit based)
• Amount of sitting fees and commission to be decided by the Board
from time to time, subject to the regulatory limits.
• Overall cap on commission for each director र 10 lakh per
annum.
• NEDs not eligible for any stock options of the Bank.
Remuneration paid to the KMPs is in line with the Compensation Policy
of the Bank which is based on the RBI Guidelines.
Disclosures pursuant to Rule 5 of Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014
1. Ratio of the remuneration of each director to the median
remuneration of the employees for the financial year:
| Directors |
Title |
Ratio |
| Mr. Uday Kotak |
Managing Director & CEO |
54.53x |
| Mr. Dipak Gupta |
Joint Managing Director |
54.36x |
| Dr. Shankar Acharya * |
Non-Executive Chairman |
- |
| Mr. Prakash Apte * |
Non-Executive Chairman |
- |
| * Refer Note 3 |
|
|
2. Percentage increase in remuneration of each director, Chief
Financial Officer, Chief Executive Officer, Company Secretary or Manager, if any, in the
financial year:
| Directors/KMP |
Title |
% increase in remuneration |
% increase in remuneration excluding SARs |
| Mr. Uday Kotak |
Managing Director & CEO |
10.99 |
10.99 |
| Mr. Dipak Gupta |
Joint Managing Director |
12.85 |
12.85 |
| Dr. Shankar Acharya * |
Non-Executive Chairman |
- |
- |
| Mr. Prakash Apte * |
Non-Executive Chairman |
- |
- |
| Mr. Jaimin Bhatt |
Group CFO |
8.42 |
7.31 |
| Ms. Bina Chandarana |
Company Secretary |
1.24 |
2.90 |
* Refer Note 3
3. Percentage increase in the median remuneration of employees
in the financial year:
For employees who were in employment for the whole of FY 2017-18 and FY
2018-19 increase in the median remuneration is 11.19%.
4. Number of permanent employees on the rolls of Bank at the end
of the year: 41,753
5. Average percentile increase already made in the salaries of
employees other than the managerial personnel in the last financial year and its
comparison with the percentile increase in the managerial remuneration and justification
thereof and point out if there are any exceptional circumstances for increase in the
managerial remuneration:
For employees other than managerial personnel who were in employment
for the whole of FY 2017-18 and FY 2018-19 the average increase is 11.16% and 10.61%
excluding SARs.
Average increase for managerial personnel is 9.66% and 9.76% excluding
SARs.
6. Affirmation that the remuneration is as per the remuneration
policy of the Bank:
The Bank is in compliance with its Compensation Policy.
Notes:
1) Remuneration includes Fixed pay + Variable paid during the year +
perquisite value as calculated under the Income Tax Act, 1961. Remuneration does not
include value of Stock Options.
2) Stock Appreciation Rights (SARs) are awarded as variable pay. These
are settled in cash and are linked to the average market price/closing market price of the
Bank's stock on specified value dates. Cash paid out during the year is included for
the purposes of remuneration.
3) Dr. Shankar Acharya retired as a Non-Executive Chairman of the Bank
on 19th July, 2018 & Mr. Prakash Apte, a Non-Executive Independent Director
of the Bank, was appointed as a Non-Executive Chairman of the Bank with effect from 20th
July, 2018. Accordingly, disclosure with respect to their ratio of remuneration/percentage
increase in remuneration is not made.
4) The Non-Executive Directors of the Bank, other than the
Non-Executive Chairman receive remuneration in the form of sitting fees for attending the
Board/ Committee meetings and in the form of an annual profit based commission. The
Non-Executive Chairman gets sitting fees for attending meetings and gets a remuneration
approved by the shareholders and RBI.
SECRETARIAL AUDITOR
Pursuant to Section 204 of the Companies Act, 2013 (‘Act'),
your Bank has appointed Ms. Rupal D. Jhaveri, a Company Secretary in Practice, as its
Secretarial Auditor. The Secretarial Audit Report for the financial year ended 31st
March, 2019 as required under Section 204 of the Act and Regulation 24A of the SEBI
(Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed to this
Report. Your Bank is in compliance with the applicable Secretarial Standards issued by The
Institute of Company Secretaries of India and approved by the Central Government under
Section 118(10) of the Companies Act, 2013 for FY 2018-19.
Kotak Mahindra Life Insurance Company Limited ('KLI'), the Bank's
material unlisted subsidiary has got its secretarial audit done and there are no
reservations or adverse remarks or disclaimers made in the Secretarial Audit Report for
the financial year ended 31st March, 2019. The Secretarial Audit Report of KLI
is annexed to this Report.
ANNUAL RETURN
Pursuant to Section 134(3)(a) and Section 92(3) of the Companies Act,
2013 read with Rule 12(1) of the Companies (Management and Administration) Rules, 2014,
the Annual Return of the Bank as on 31st March, 2019 once prepared shall be
disclosed on the Bank's website viz. URL:
https://www.kotak.com/en/investor-relations/financial-results/annual-reports.html
An extract of the Annual Return as on 31st March, 2019 in
Form MGT-9 is annexed to this Report.
DEPOSITS
Being a banking company, the disclosures required as per Rule 8(5)(v)
& (vi) of the Companies (Accounts) Rules, 2014, read with Section 73 and 74 of the
Companies Act, 2013 are not applicable to your Bank.
AUDITORS
Messrs S.R. Batliboi & Co. LLP, Chartered Accountants, statutory
auditors of your Bank, retire on the conclusion of the Thirty fourth Annual General
Meeting of the Bank. They have been auditors of the Bank for last four financial years.
Pursuant to the guidelines issued by the Reserve Bank of India (RBI), an audit firm is
allowed to continue as the statutory auditor of a bank for a continuous period of four
years only. Accordingly, it is proposed to appoint, subject to the regulatory approvals,
Messrs Walker Chandiok & Co. LLP, Chartered Accountants (Registration No.
001076N/N500013), as the statutory auditors of the Bank in place of Messrs S.R. Batliboi
& Co. LLP, Chartered Accountants, who have completed four years as the statutory
auditors. The necessary application has been made to RBI and approval is awaited. The
appointment of auditors along with the relevant details is proposed to the members in the
Notice of the current i.e. the Thirty fourth Annual General Meeting for a period of two
years from the conclusion of the Thirty fourth Annual General Meeting until the conclusion
of the Thirty sixth Annual General Meeting of the Bank, subject to the annual approval of
RBI.
INTERNAL FINANCIAL CONTROLS
The Board of Directors confirms that your Bank has laid down set of
standards, processes and structure which enables to implement internal financial controls
across the organization with reference to financial statements and that such controls are
adequate and are operating effectively. During the year under review, no material or
serious observation has been observed for inefficiency or inadequacy of such controls.
IMPLEMENTATION OF IND AS
The Ministry of Finance, Government of India has vide its press release
dated 18th January, 2016 outlined the roadmap for implementation of
International Financial Reporting Standards (IFRS) converged Indian Accounting Standards
(Ind AS) for Scheduled commercial bank (excluding RRBs), Non-banking Financial Companies
and Insurance companies. RBI has advised Banks vide circular no. RBI/2015-16/315DBR.BP.BC.
No.76/21.07.001/2015-16 to follow the Ind AS from 1st April, 2018 as notified
under the Companies (Indian Accounting Standards) Rules, 2015 subject to any
guideline/direction issued in this regard. Subsequently, RBI through its first monetary
policy statement for FY 2018-19 on 5th April, 2018, deferred Ind AS
implementation for the Scheduled commercial bank (excluding RRBs) by one year i.e. the
implementation of Ind AS will begin from 1st April, 2019 onwards. Further, RBI
through vide circular no. DBR.BP.BC.No.29/21.07.001/2018-19 dated 22nd March
2019, deferred the implementation of Ind AS for scheduled commercial banks till further
notice.
As per Reserve Bank of India (RBI) directions, your Bank has taken
following steps so far:
Submitted Standalone Proforma Ind AS financial statements to RBI on
a quarterly basis effective FY 2018-19, as required.
Formed Steering Committee for Ind AS implementation. The Steering
Committee comprises of representatives from Finance, Risk, Operations and Treasury. The
Committee oversees the progress of Ind AS implementation in the Bank, and provides
guidance on critical aspects of the implementation such as Ind AS technical requirements,
systems and processes, business impact, people and project management. The Committee
closely review's progress of Ind AS implementation.
The Bank has identified gaps in IT Systems and the changes required
to automate Ind AS. The Bank is in advanced stages for Ind AS implementation.
The Bank will continue to liaise with RBI and industry bodies on
various aspects pertaining to Ind AS implementation.
RELATED PARTY TRANSACTIONS
All the Related Party Transactions that were entered into during the
financial year were on arm's length basis and were in ordinary course of business.
Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies
(Accounts) Rules, 2014, there are no Related Party Transactions to be reported under
Section 188(1) of the Companies Act, 2013, in form AOC-2.
All Related Party Transactions are placed before the Audit Committee
for its review and approved on a quarterly basis. An omnibus approval of the Audit
Committee is obtained for the Related Party Transactions which are repetitive in nature.
Further, all Related Party Transactions are reviewed by the statutory auditors of the
Bank. Also, during the year, the Bank had engaged the services of an external auditor for
verification of the Related Party Transactions, its disclosure and validation of the
process followed by the Bank.
All Related Party Transactions as required under Accounting Standards
AS-18 are reported in Note 25 of Schedule 17 – Notes to Accounts of the Consolidated
financial statements and Note 7 of Schedule 18B – Notes to Accounts of the Standalone
financial statements of your Bank.
The Bank's Policy on dealing with Related Party Transactions is
available on the Bank's website viz. URL:
https://www.kotak.com/en/investor-relations/governance/policies.html
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
Pursuant to Section 186(11) of the Companies Act, 2013, loans made,
guarantees given, securities provided or acquisition of securities by a banking company in
the ordinary course of its business are exempted from the disclosure requirement under
Section 134(3)(g) of the Companies Act, 2013.
WHISTLE BLOWER POLICY / VIGIL MECHANISM
Your Bank is committed to its "Vision Statement" of upholding
its Global Indian Financial Services Brand creating an ethos of trust across all
constituents, developing a culture of empowerment and a spirit of enterprise thereby
becoming the most preferred employer in the financial services sector.
Consistent with the Vision Statement, your Bank is committed to
maintain and provide to all its employees and directors highest standards of transparency,
probity and accountability. The Kotak Group endeavours to develop a culture where it is
safe and acceptable for all employees and directors to raise / voice genuine concerns in
good faith, and in a responsible as well as effective manner.
A vigil mechanism has been implemented through the adoption of
Whistleblower Policy with an objective to enable any employee or director or vendor, raise
genuine concern or report evidence of activity by the Bank or its employee or director or
vendor that may constitute: Instances of corporate fraud; unethical business conduct; a
violation of Central or State laws, rules, regulations and/or any other regulatory or
judicial directives; any unlawful act, whether criminal or civil; malpractice; serious
irregularities; impropriety, abuse or wrong doing; deliberate breaches and non-compliance
with the Bank's policies; questionable accounting/audit matters/financial
malpractice. The concerns can be reported online on the website viz. URL:
https://cwiportal.com/kotak which is managed by independent third party.
Safeguards to avoid discrimination, retaliation, or harassment, and
confidentiality have been incorporated in the policy. All employees and directors have
access to the Chairman of the Audit Committee in appropriate and exceptional
circumstances. Further, the Chairman of the Audit Committee has access rights to the
whistle blower portal.
The Policy has been uploaded on the Bank's intranet as well as
website viz. URL: https://www.kotak.com/en/investor-relations/governance/ policies.html
and regular communication is made for sustained awareness.
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Your Bank has constituted a Board Corporate Social Responsibility
Committee (CSR Committee). The CSR Committee presently consists of Prof. S.
Mahendra Dev, Mr. C. Jayaram and Mr. Dipak Gupta.
Your Bank's CSR Committee drives the CSR programme of the Bank.
Your Bank has a Board approved CSR policy, charting out its CSR approach. This policy
articulates the Bank's aim to positively contribute towards economic, environmental
and social well-being of communities through its CSR interventions. The core CSR focus
areas outlined are:
• Education
• Vocational skills and livelihood
• Preventive healthcare and sanitation
• Reducing inequalities faced by socially and economically
backward groups
• Sustainable development
• Relief and rehabilitation
• Clean India
• Sports
The Bank's CSR Policy is available on the Bank's website:
https://www.kotak.com/en/about-us/corporate-responsibility.html
Pursuant to the provisions of Section 135, Schedule VII of the
Companies Act, 2013 (the Act), read with the Companies (Corporate Social Responsibility)
Rules, 2014 the report of the expenditure on CSR by the Bank is as under:
The average net profit u/s 198 of the Bank for the last three financial
years preceding 31st March, 2019 is र4,813.64 crore.
The prescribed CSR expenditure required u/s 135, of the Act for FY
2018-19 is र9,627 lakh.
The CSR expenditure incurred from 1st April, 2018 to 31st
March, 2019 u/s 135 of the Companies Act, 2013 amounts to र3,655 lakh as against
र2,640 lakh CSR Expenditure incurred in FY 2017-18. The unspent CSR expenditure
amount for FY 2018-19 is र 5,972 lakh.
CSR expenditure of र3,655 lakh as a percentage of average net
profit u/s 198 of the Bank at र4,813.64 crore is 0.76%.
The Bank's CSR programmes and expenditures are approved by the
Board CSR Committee and the Board. The Bank's CSR programmes and expenditure are
guided by the vision of creating long-term benefits for the society. The Bank has been
building its CSR capabilities on a sustainable basis and is committed to gradually
increasing its CSR spending in the coming year for its long-term projects. The Bank
identifies suitable NGO partners for carrying out its CSR programmes. It undertakes CSR
programmes that are scalable, sustainable and have the potential to be replicated across
locations and create a sustainable and measurable impact in communities.
Most of the CSR programmes undertaken are in the area of education,
healthcare, livelihood, vocational skill development, sports and other areas such as
relief and rehabilitation and environmental sustainability etc. The Bank's CSR
footprint has been consistently increasing over the years. The Bank is committed to
stepping-up its CSR programmes and expenditure in the years ahead.
The Bank's CSR expenditure in FY 2018-19 of र3,655 lakh,
which is over 38% higher than the previous financial year. In FY 2016-17, the Bank's
CSR expenditure was र1,733 lakh, which increased to र2,640 lakh in FY 2017-18
– an increase of over 52% over the previous financial year.
One of the reasons for Bank CSR expenditure's underspend is the
NGOs' inability to utilise large CSR expenditure allocated under the Bank's CSR
Programmes.
Your Bank does not consider "administrative overheads" as
part of its CSR Expenditure.
The details of CSR Programmes and Expenditure u/s 135 of the Companies
Act, 2013, for FY 2018-19, are annexed to this report.
RISK MANAGEMENT POLICY
Your Bank has a Group Enterprise wide Risk Management (ERM) framework
supported by appropriate policies and processes for management of Credit Risk, Market
Risk, Liquidity Risk, Operational Risk and various other Risks. Details of identification,
assessment, mitigations, monitoring and the management of these Risks are mentioned in the
Management Discussion and Analysis section appended to this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE
EARNINGS AND OUTGO
The provisions of Section 134(3)(m) of the Companies Act, 2013 read
with Rule 8(3) of the Companies (Accounts) Rules, 2014 are not applicable to your Bank.
EMPLOYEES
The employee strength of your Bank, standalone, was over 41,500 and
along with its subsidiaries was over 60,000 as of 31st March, 2019.
146 employees employed throughout the year were in receipt of
remuneration of र102 lakh or more per annum and 40 employees employed for part of
the year were in receipt of remuneration of र8.5 lakh or more per month.
Culture and values drive have been enhanced through various
interactions and employee communication platforms in the organization. Your Bank continued
to reiterate this through cross functional meets conducted by senior business leaders for
employees at mid management level under the "Meet 5" initiative. It has also
enhanced the focus on mental and physical wellbeing of the employees through mobile first
platform launched for managing, tracking and facilitative on various health and wellness
related requirements of the employees.
Your Bank has continued on the Gender Diversity agenda.
• A differentiated talent acquisition strategy to increase women
employee base across various suitable roles has helped us to continue adding 24% women
amongst all new hires in the Bank. While continuing with our philosophy of providing equal
opportunities, an aggressive push in this area will help us achieve a better balance in
gender diversity.
• Prevention of Sexual Harassment (POSH): Bank continues with the
belief on zero tolerance towards sexual harassment at workplace and continues to uphold
and maintain itself as a safe and non-discriminatory organization. To achieve the same
Kotak reinforces the understanding and awareness of Prevention of Sexual Harassment of
Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. Bank has formulated
Internal Complaints Committee (ICC) at three regions for reporting any untoward instance.
Any complaints pertaining to sexual harassment are diligently reviewed and investigated
and treated with great sensitivity. The ICC members have been trained in handling and
resolving complaints and have also designed an online e-learning POSH Awareness module
which covers the larger employee base.
Following is a summary of sexual harassment complaints received and
disposed off during the year 2018-19:
| No. of complaints received |
27 |
| No. of complaints disposed off * |
26 |
* In respect of one pending case, enquiries were in progress at the
close of the year. All the cases pertaining to the previous year which were pending at the
beginning have been closed.
As Bank enters in its next phase of growth and expansion of footprint
across urban and rural India, Bank and its subsidiaries continued to carry out several
initiatives to attract and retain a pool of highly skilled and motivated employees who are
aligned to the firm's vision of becoming the most trusted financial services
provider.
In accordance with the provisions of Rule 5 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014 the names and other
particulars of the employees are set out in the annexure to the Directors' Report. In
terms of the proviso to Section 136(1) of the Companies Act, 2013, the Directors'
Report is being sent to all shareholders excluding the aforesaid annexure. The annexure is
available for inspection at the Registered Office of your Bank. Any shareholder interested
in obtaining a copy of the said annexure may write to the Company Secretary at the
Registered Office of your Bank.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors, based on the representations received from the
operational management, confirm in pursuance of Section 134(5) of the Companies Act, 2013,
that:
(i) your Bank has, in the preparation of the annual accounts for the
year ended 31st March, 2019, followed the applicable accounting standards along
with proper explanations relating to material departures, if any;
(ii) they 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 your Bank as at 31st
March, 2019 and of the profit of your Bank for the financial year ended 31st
March, 2019;
(iii) they have taken proper and sufficient care to the best of their
knowledge and ability, for the maintenance of adequate accounting records in accordance
with the provisions of the Act for safeguarding the assets of your Bank and for preventing
and detecting fraud and other irregularities;
(iv) the annual accounts have been prepared on a going concern basis;
(v) they have laid down internal financial controls to be followed by
the Bank and that such internal financial controls are adequate and are operating
effectively; and
(vi) they have devised proper systems to ensure compliance with the
provisions of all applicable laws and that such systems are adequate and operating
effectively.
ANNEXURES
Following statements/reports/certificates are set out as Annexures to
the Directors' Report:
• Extract of Annual Return under Section 134(3)(a) of the
Companies Act, 2013 read with Rule 12 (1) of Companies (Management & Administration)
Rules, 2014.
• Secretarial Audit Report pursuant to Section 204 of the
Companies Act, 2013 and Regulation 24A of the SEBI (Listing Obligations and Disclosure
Requirements) Regulations, 2015.
• Details of CSR activities and spends under Section 135 of the
Companies Act, 2013.
• Certificate from the auditors regarding compliance of conditions
of corporate governance as stipulated in para E of Schedule V of the Securities and
Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,
2015.
ACKNOWLEDGEMENTS
Your Directors would like to place on record their gratitude for the
valuable guidance and support received from the Reserve Bank of India, Securities and
Exchange Board of India, Insurance Regulatory and Development Authority and other
Government and Regulatory agencies. Your Directors acknowledge the support of the members
and also wish to place on record their appreciation of employees for their commendable
efforts, teamwork and professionalism.
| For and on behalf of the Board of Directors |
|
| Prakash Apte |
Place: Mumbai |
| Chairman |
Date: 31st May, 2019 |