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You can view the entire text of Notes to accounts of the company for the latest year

BSE: 532187ISIN: INE095A01012INDUSTRY: Finance - Banks - Private Sector

BSE   ` 1516.15   Open: 1524.00   Today's Range 1512.10
-6.30 ( -0.42 %) Prev Close: 1522.45 52 Week Range 1333.90
Year End :2017-03 

(b) authority levels for review of limit breaches and to take appropriate actions in such events. As part of the Derivatives Policy, the Bank has a Product Suitability and Customer Appropriateness Policy, which is used to classify customers on the basis of their need for various derivative products and their competence in understanding such products and the attendant risks involved.

Risk Management Department of the Bank is responsible for measuring, reporting and monitoring risk arising from derivatives transactions. It functions independent of Treasury business and undertakes the following activities:

- Monitors derivatives operations against prescribed policies and limits on a daily basis;

- Daily review of product-wise profitability and activity reports for derivatives operations;

- Daily submission of MIS and details of exceptions to the Top Management;

- Monitoring effectiveness of derivative deals identified as hedges against the terms of the hedging instruments and underlying hedged risk; and

- Collaterals are generally kept as cash or cash equivalent for securing derivative transactions.

The Risk Management function applies a host of quantitative tools and methods such as Value at Risk, PV01, stop-loss limits, counterparty limits, deal size limits and overnight position limits. The Bank undertakes derivative transactions for hedging customers’ exposure. hedging the Bank’s own exposure. as well as for trading purposes, wherever permitted by RBI. The customers use these derivative products to hedge their forex and interest rate exposures.

Note 1: There were no outstanding currency and interest rate futures as on March 31, 2017.

Note 2: Marked to Market positions include interest accrued on the swaps.

Note 3: Credit exposure is computed based on the current exposure method.

Note 4: Based on the absolute value of PV01 of the derivatives outstanding as at the year end.

Note 5: Based on the PV01 of the outstanding derivatives.

Note 6: PV01 for Currency Derivatives and Interest Rate Derivatives are presented in absolute terms.

However, total net PV01 shall remain smaller as Currency Derivatives and Interest Rate Derivatives positions net off each other.

1) Recoveries include sale to SC/RC.

2) In terms of RBI circular DBOD.BRBC.No.98/21.04.132/2013-14 dated February26, 2014, in respect of assets sold to SC/RCs, during the last quarter of the year ended March 31, 2015, the loss on sale arrived at by deducting sale consideration and provisions held as on the date of sale from the outstanding amount, is being amortized over a period of two years. Accordingly, the Bank has charged to the Profit and Loss account an amount ofRs, 96.26 crores (previous yearRs, 128.36 crores) during the year ended March 31. 2017.

1) The above includes one account that had an outstanding balance of Rs, 356.00 crores as of March 31, 2016, which was fully repaid before March 31, 2017. The provision amount computed by RBI on this account amounted to Rs, 142.40 crores.

2) SI. No.11 does not include the impact of additional provision ofRs, 73.05 crores, towards a standard asset. The impact on net profit after tax due to this provision amounts to Rs, 47.77 crores.

3) Above divergences pointed out by the RBI have been provided for or repaid in the year ended March 31. 2017.

(a) This does not include SRs issued by Trusts that were closed and the outstanding SRs were cancelled and written off in the books of the Bank.

(b) SRs amounting to Rs, 11.00 crores (previous yearRs, 0.01 crores) issued by Trusts more than 8 years ago, and written off in the books of the Bank are held in physical form with Nil value.

7 During the year, there has been no individual purchase / sale of non-performing financial assets from / to other banks (previous year Nil).

8 During the year, there was no sale of assets through securitization except sale of assets to SC / RC (previous year Nil).

9 Provision on Standard Assets:

In accordance with RBI guidelines, general provision on standard assets is made at the following rates:

(a) At1%on standard advances to Commercial Real Estate Sector;

(b) At0.25%onstandarddirectadvancestoSMEandAgriculture; and

(c) At 0.40% of the balance outstanding in other standard assets.

Standard assets provision also includes additional provision made pursuant to RBI instructions including provisions towards restructured standard assets.

10.Unhedged Foreign Currency Exposure (UFCE) of Clients:

Foreign exchange risk is the risk of loss arising out of adverse movements in foreign exchange rates affecting both on-balance sheet and off-balance sheet exposures. The forex positions that are not effectively hedged either by way of natural hedge or through derivatives / forward contracts expose a client to the risk of loss due to volatility in the forex rates. The Bank assesses the risk arising out of such UFCE of the clients at the time of credit appraisal and monitors the same at regular intervals. The provision for standard assets as of March 31. 2017. included an amount of Rs, 45.69 crores (previous year Rs, 27.24 crores) towards UFCE. Further, capital held under Basel III Capital Regulations, as of March 31, 2017, includes an amount of Rs, 128.57 crores (previous yearRs, 52.47 crores) on account of UFCE, computed at the applicable risk weights.


(1) Working funds are reckoned as the average of total assets as per the monthly returns in Form X filed with RBI during the year.

(2) Returns on Assets are computed with reference to average working funds.

(3) Business per employee (deposits plus gross advances) is computed after excluding Inter-bank deposits.

11 Liquidity Coverage Ratio (LCR):

Liquidity Coverage Ratio (LCR) aims in ensuring the Bank to maintain an adequate level of unencumbered High Quality Liquid Assets (HQLAs) to meet its liquidity needs convertible into cash under significantly severe liquidity stress scenario lasting for 30 days horizon period. LCR measures the Bank’s potential to stand under combined idiosyncratic and market-wide liquidity stress condition. where the Bank experiences accelerated withdrawal of deposits from retail as well wholesale depositors. partial loss of secured funding. increase in collateral requirements and unscheduled draw down of unused credit lines.

LCR is the ratio of unencumbered HQLAs to Net Cash Outflows over the next 30 calendar days. From Jan 1. 2017 onwards. RBI guidelines mandate computation of LCR on daily average basis. which hitherto were measured on month-ends. The following table presents the minimum LCR to be maintained. in terms of RBI guidelines.

The Bank maintains HQLA in terms of Cash. unencumbered excess SLR. proportion of statutory SLR as allowed by RBI. excess statutory cash reserve and high rated corporate bonds issued by entities other than financial institutions. For the purposes of LCR computation, the Bank has considered all inflows and outflows that may have a quantifiable impact under the liquidity stress scenario.

Induslnd Bank has computed LCR on a daily basis from Jan 01. 2017 onwards for domestic and overseas operations. The previous quarters reflect LCR computed based on average of month end values. Based on simple average calculated on daily observations in domestic currency. LCR of the Bank. at consolidated level. for the quarter ended March 31. 2017 worked out to 94.61%.

12 Single borrower limit and Group Borrower Limit:

During the year ended March 31, 2017, the Bank’s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI except in case of Vodafone Mobile Services Limited / Vodafone India Limited, where the single borrower limit was exceeded. This exposure has been approved by the Board of Directors of the Bank as it was within the prudential limit.

During the year ended March 31, 2016, the Bank’s credit exposures to single borrowers and group borrowers were within the prudential limits prescribed by RBI except in case of Vodafone Mobile Services Limited, where the single borrower limit was exceeded. This exposure has been approved by the Board of Directors of the Bank as it was within the prudential limit.

13 Unsecured advances:

The Bank has not extended any project advances where the collateral is an intangible asset such as a charge over rights, licenses, authorizations, etc. (previous year Nil). The Unsecured Advances of Rs, 14,291.58 crores (previous yearRs, 10,515.54 crores) as disclosed in Schedule 9B (iii) are without any collateral or security.

14 Contingent Liabilities:

The Bank’s pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed as contingent liabilities where applicable, in its financial statements. Claims against the Bank not acknowledged as debts comprise of tax demands of Rs, 165.18 crores (previous year of the 159.24 crores) in respect of which the Bank is in appeal and the legal cases sub judice of Rs, 357.50 crores (previous yearRs, 489.35 crores). The Bank carries a provision of Rs, 4.48 crores (previous yearRs, 4.48 crores) against cases sub judice. The amount of contingent liabilities is based on management’s estimate, and no significant liability is expected to arise out of the same.

15 The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account.

16 Overseas Asset, NPAs and Revenue:

During the year. the Bank earned a revenue of Rs, 82.01 crores through overseas assets (previous year Nil). The overseas assets as at March 31. 2017 amounted to Rs, 1,717.17 crores (previous year Nil) and there were no NPA (previous year Nil). Assets for this purpose is defined to include client advances.

17 The Bank does not have any Off-Balance Sheet SPVs (which are required to be consolidated as per accounting standards) (previous year Nil).

18 There is no delay in transferring amounts to Investor Education and Protection Fund by the Bank (previous year Nil).

19 Corporate Social Responsibility (CSR):

The Bank has spent an amount of Rs, 33.81 crores (previous year Rs, 27.32 crores) towards CSR initiatives through various projects in the areas of Rural Development and Inclusiveness, Environment Sustainability, Preventive Healthcare, Education and Sports. Of the total CSR spends, an amount of Rs, 21.16 crores (previous yearRs, 22.30 crores) was incurred towards capital expenditure.

20 Drawdown from Reserves:

The Bank has not undertaken any drawdown from reserves during the year ended March 31. 2017. There has been no drawdown from the reserves during the year ended March 31, 2016, except towards share issue expenses incurred for the equity share capital raised through a Qualified Institutions Placement (QIP) and a Preferential Allotment, which have been adjusted against the share premium account in terms of Section 52 of the Companies Act, 2013.

21 Credit default swaps:

The Bank has not undertaken any transactions in Credit Default Swaps (CDS) during the year (previous year Nil).

22 Pursuant to RBI circular FMRD.DIRD. 10/14.03.002/2015-16 dated May 19, 2016, the Bank has, with effect from October 3, 2016, considered its repo and reverse repo transactions under Liquidity Adjustment Facility (LAF) and Marginal Standing Facility (MSF) of RBI as collateralized borrowings and lending, as the case may be. Figures for the previous periods have been regrouped / reclassified to conform to current period’s classification. The above regrouping / reclassification has no impact on the profit of the Bank for the year. As of March 31, 2017, Money at Call and Short Notice in Schedule 7(l)(ii) included an amount of Rs, 6,300 crores on account of reverse repo transactions under LAF. Consequent to the regrouping, an amount of Rs, 2,840 crores of repo transaction under LAF as of March 31, 2016 is reported as Borrowings in Schedule 4(l)(i). Further, for the year ended March 31, 2016 Income from Investments [Schedule 13(2)] has been reported higher by Rs, 286.39 crores and Interest on Balance with RBI and Other Inter-Bank Funds [Schedule 13(3)] by Rs, 4.69 crores, and correspondingly, the Interest on RBI / Inter-Bank Borowings [Schedule 15(2)] has been reported higher by of the 291.08 crores.

23 In March 2017, the Bank made an announcement of entering into an agreement with Infrastructure Leasing and Financial Services Ltd., (IL&FS) the Promoter Shareholders of IL&FS Securities Services Ltd., (ISSL) to acquire 100% of ISSL. The proposed transaction is conditional on definitive agreements and approvals including regulatory approvals, and as such, does not have any bearing on the current financial results or the financial position of the Bank as at March 31, 2017.

24. Employee Stock Option Scheme (ESOS):

25 The shareholders of the Bank approved Employee Stock Option Scheme (ESOS) on September 18, 2007. ESOS enables the Board and / or the HR and Remuneration Committee to grant such number of stock options of the Bank not exceeding 7% of the aggregate number of issued and paid up equity shares of the Bank, in line with the guidelines of the Securities & Exchange Board of India (SEBI). The options vest within a maximum period of five years from the date of grant of option. The exercise price for each grant is decided bythe Compensation Committee, which is normally based on the latest available closing price. Upon vesting, the options have to be exercised within a maximum period of five years. The stock options are equity settled where the employees will receive one equity share per stock option.

26 Recognition of expense:

The Bank follows the intrinsic value method to recognize employee costs relating to ESOS, in accordance with the Guidance Note on “Accounting for Employee Share-based Payments” issued bythe ICAI. Excess of fair market price over the exercise price of an option at the grant date. is recognized as a deferred compensation cost and amortized on a straight-line basis over the vesting period of such options. The compensation so recognized in respect of which exercise of options is outstanding is shown as Employee Stock Options Outstanding on the face of the Balance Sheet.

The fair market price is the latest available closing price on the stock exchange on which the shares of the Bank are listed. prior to the date of the meeting of the Compensation Committee in which stock options are granted. Since shares are listed on more than one stock exchange, the exchange where the Bank’s shares have been traded highest on the said date is considered for this purpose.

Expected volatility is a measure of the amount by which the equity share price is expected to fluctuate during a period. The measure of volatility used in Black-Scholes option pricing model is the annualized standard deviation of the continuously compounded rates of return on the share over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in the closing equity share price on the National Stock Exchange of India Limited (NSE), over a prior period equivalent to the expected life of the options. till the date of the grant.

The weighted average fair value of options granted during the year 2016-17 is Rs, 441.07 (previous year ' 382.98).

27. Disclosures - Accounting Standards:

28 Employee Benefits(AS-15)


Gratuity is a defined benefits plan. The Bank has obtained qualifying insurance policies from two insurance companies. The following table summarizes the components of net expenses recognized in the Profit and Loss account and funded status and amounts recognized in the Balance Sheet, on the basis of actuarial valuation.

Contributions expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs, 24.00 crores.

Provident Fund:

The guidance note on implementing AS 15, Employee Benefits (revised 2005) states that benefits involving employer established provident funds, which require interest shortfalls to be recompensed are to be considered as defined benefits plans.


Fixed Assets, tax paid in advance / tax deducted at source (net of provisions), stationery and stamps, nonbanking assets acquired in satisfaction of claims, and others which cannot be allocated to any segments, have been classified as unallocated assets; Depreciation on Fixed Assets has been classified as unallocated expenses. The unallocated liabilities include share capital, employee stock option outstanding, reserves and surplus. proposed dividend and others.

Geographic Segments:

The business operations of the Bank are largely concentrated in India. Activities outside India are restricted to resource mobilization in the international markets and lending to a few overseas entities through the IFSC Banking Unit at the GIFT City Gujarat. Since the Bank does not have material earnings emanating from foreign operations. the Bank is considered to operate only in domestic segment.

29 Related party transactions (AS-18):

The following is the information on transactions with related parties:

Key Management Personnel

Mr. Romesh Sobti, Managing Director


Induslnd Marketing and Financial Services Private Limited


ALF Insurance Services Private Limited (till February 24, 2016 on which date the liquidator had repaid the entire share capital; vide an order issued by the High Court of Madras on June 14, 2016 the subsidiary has been liquidated pursuant to a voluntary winding up and the name has been struck off the Companies Register).

In accordance with RBI guidelines, details pertaining to the related party transactions have not been provided as there is only one related party in each of the above categories.

(Compiled by management and relied upon by auditors)

30 Proposed Dividend:

The Board of Directors, in their meeting held on April 19, 2017, have proposed a final dividend of Rs, 6.00 per equity share amounting to Rs, 431.95 crores, inclusive of corporate dividend tax. The proposal is subject to the approval of shareholders at the Annual General Meeting. In terms of Accounting Standard 4 - Contingencies and Events occurring after the Balance Sheet Date, this proposed dividend is not recognized as a liability on March 31, 2017 and accordingly, the said amount ofof the 431.95 crores has not been considered as an appropriation from the Profit and Loss Account for the year ended March 31, 2017.

Appropriation towards proposed dividend during the year ended 31 March, 2017 amounting to Rs, 0.46 crores disclosed on the face of the Profit and Loss Account represents the dividend pertaining to shares allotted from April 1,2016 till the record date for declaration of dividend for the year ended March 31,2016.

31 Letters of Comfort:

The Bank has not issued any letters of comfort (previous year Nil).

32 Disclosure on Remuneration:

Nomination and Remuneration Committee:

The Board of Directors, in their meeting held on October 12,2016, approved the merger of the ‘Nomination Committee’ and the ‘HR and Remuneration Committee’, to constitute the ‘Nomination & Remuneration Committee’ (NRC). The NRC presently comprises five members, four of whom are Independent Directors. The Chairman of the NRC is also the Chairman of the Risk Management Committee of the Board. On Remuneration aspects, the mandate of the Nomination and Remuneration Committee is to establish, implement and maintain remuneration policies, procedures and practices that help to achieve effective alignment between remuneration and risks. The Committee is also mandated to oversee framing, implementation and review of the Bank’s Compensation Policy as per the RBI guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Risk Takers and Control function staff. The Committee is also required to ensure that the cost to income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio. The Nomination and Remuneration Committee reviews compensation policies of the Bank with a view to attract, retain and motivate employees.

Compensation Policy:

The Compensation Policy is formulated by the Board in alignment with the RBI guidelines and covers all components of compensation including fixed pay, variable pay, perquisites, retirement benefits as Provident Fund and Gratuity, Long term incentive plans and Employee Stock Options.

The key objectives of the policy are:

(i) Benchmark employee compensation for various job positions and skills with that of the market.

(ii) Maintain an optimal balance between fixed and variable pay.

(iii) Pay for ‘Position, Performance and Person’.

(iv) Build employee ownership and long term association through long term incentive plans (ESOPs). Some of the important features of the Compensation Policy are as follows:

(i) The Bank has identified “Risk Takers and Risk Controllers” separately. Risk Takers includes all employees in Grades Senior Vice President 3 (SVP3) and above belonging to the business line functions of Corporate & Commercial Banking Group, Global Markets Group, Transaction Banking Group, Consumer Banking and Consumer Finance Division, whose functioning and decisioning impacts the Bank materially on tangible financial performance aspects of revenues, costs, and profits. Risk Controllers are employees in Grades SVP3 and above belonging to the business support functions of Chief Operating Officer (Operations, Finance & Accounts, Information Technology, Secretarial, etc.), Chief Risk Officer (Credit, Risk, Financial Restructuring & Reconstruction Group, Credit Quality Loan Assurance Review), Human Resources, Inspection and Audit, Investor Relations, Marketing, etc., who support the business line functions through back office processes and activities and their functioning does not have a revenue impact through business generation on the Bank’s financial performance.

(ii) The Nomination & Remuneration Committee will oversee the framing, implementation and review of the Compensation Policy.

(iii) In respect of WTDs / CEO / Risk Takers / Control function staff of the Bank, the Compensation policy provides for a reasonable annual increase in fixed pay in line with the market benchmarks. Their individual increments are linked to their annual performance rating and increment percentages at various performance rating levels, are decided on the basis of the financial performance of the Bank. Exceptions are restricted to a select few high performers to reward performance, motivate and retain critical employees.

(iv) The quantum of overall variable pay to be disbursed in a year for all eligible employees including the Risk Takers and Risk Controllers as defined above would vary from year to year on the basis of the financial performance of the Bank measured through various parameters such as Net Interest Margin, Net Interest Income, Return on Assets, Profit After Tax and Return on Equity.

(v) Employee Compensation is linked to performance. Increments and variable pay are linked to their annual performance rating. Annual Performance Rating for an employee is arrived on the basis of tangible performance against pre-set Key Results Areas (KRAs) / measurable objectives set at the beginning of the financial year.

(vi) The individual variable pay is linked to the annual performance rating, and based on variable pay grids that outline variable pay as a percentage of Annual Guaranteed cash at various rating levels for a grade band. Exceptional increments and variable pay may be paid to select high performers, but in no case they would violate the stipulated RBI guidelines. The Bank also makes a distinction between Risk Takers and Risk Controllers and incorporates separate parameters on variable pay for these segments in its Compensation policy.

(vii) The individual variable pay would not exceed 70% of the fixed pay. Wherever variable pay exceeds a substantial portion of fixed pay as defined by the Bank, (currently set at 65% of fixed pay), the variable pay will be deferred over a period of 3 years in a ratio to be decided by the management in accordance with the RBI guidelines.

(viii) The Bank will implement malus / claw-back arrangements with the concerned employees in case of deferred variable pay as defined above. The criteria would be negative contributions to the bank and / or relevant line of business in any year. As applicable, Malus arrangement would lay down policies to adjust deferred remuneration before vesting and claw-back arrangement would lay down policies to adjust deferred remuneration after vesting.

(ix) The Compensation Policy does not provide for guaranteed bonus or sign on bonus in cash. However, in case of select critical hires, sign on bonus can be granted in form of pre-hiring ESOPs (a one-time grant made at the time of joining). The Compensation Policy does not provide for severance pay for any employee of the Bank. irrespective of the reasons for severance.

(x) Retirement benefits in the form of Provident Fund and Gratuity are as per the Bank’s HR policies which are in line with the statutory norms.

(xi) Perquisites are laid down in HR Policies of the Bank.

(xii) At present, the Bank uses cash based form of variable compensation. Cash based form of variable compensation is easy to administer and leads to an instant reward to the concerned employees.

(xiii) ESOPs do not form a part of the variable pay and are kept outside the computation of total compensation of an employee. They are very selectively granted to attract and retain employees. ESOPs are not granted with a defined periodicity. ESOP grant criteria include grade of the employee, criticality of the position in terms of business contribution, market value of the position, and performance & behavioral track record of the employee.

Disclosure on remuneration to Non-Executive Directors:

The Non-Executive Directors are paid Sitting Fees for attending meetings of the Board and its Committees at the rate of Rs, 1.00.000/- per Board meeting. at the rate of Rs, 50,000/- per meeting of the Audit Committee of the Board. and at the rate of Rs, 20,000/- per meeting in respect of all the other Committees. An amount of Rs, 1.11 crores was paid as sitting fees to the Non-Executive Directors during the year ended March 31, 2017 (previous year Rs, 0.98 crores). In accordance with RBI guidelines and the approval accorded at the 22nd Annual General Meeting, an amount ofRs, 0.84 crores (previous year Nil) has been paid as remuneration to Non-Executive Directors during the year ended March 31, 2017.

33. The Micro, Small and Medium Enterprises Development Act, 2006 that came into force from October 2, 2006, provides for certain disclosures in respect of Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or interest payments due to delays in such payments.

34. In terms of the clarification received from the Reserve Bank of India, the disclosure of details relating to Specified Bank Notes (SBNs) as per Notification No. G.S.R. 308(E) dated March 30, 2017 issued by the Ministry of Corporate Affairs (MCA) is not applicable to the banking companies.

35. Previous year’s figures have been regrouped / reclassified wherever necessary.