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BSE: 500116ISIN: INE008A01015INDUSTRY: Finance - Banks - Public Sector

BSE   ` 42.65   Open: 43.25   Today's Range 42.50
43.30
-0.50 ( -1.17 %) Prev Close: 43.15 52 Week Range 41.50
77.15
Year End :2018-03 

Directors’ Report

The Bank’s Board of Directors is pleased to present the Report on its business and operations for the financial year ended March 31, 2018.

India’s economic milieu in the financial year 2017-18 was characterized by conducive policy environment which aided in strengthening its macroeconomic fundamentals. Banking industry, especially in an economy like India, is a critical enabler for ensuring sustainable economic growth. Growth in the Indian economy is, inter alia, contingent upon widening and deepening of the banking penetration, and this, in turn, requires a more robust public sector banking framework, considering their dominance. However, the year proved to be a difficult one for the banking sector due to various factors. The performance of your Bank can be considered reasonable given this difficult banking sector environment.

Table 1: Key Financials

(In Rs, crore)

As on March 31, 2017

As on March 31, 2018

Capital

2,058.81

3083.86

Reserves & Surplus

20,504.83

18,125.87

Deposits

2,68,538.10

2,47,931.61

Borrowings

56,363.98

63,185.53

Other Liabilities & Provisions

14,408.75

17,986.77

Total Liabilities

3,61,874.47

3,50,313.64

Cash & Balances with RBI

13,346.92

13,163.69

Balances with Banks & Money at Call & Short Notice

19,337.16

20,522.40

Investments

92,934.41

91,606.06

Advances

1,90,825.93

1,71,739.95

Fixed & Other Assets

45,430.05

53,281.54

Total Assets

3,61,874.47

3,50,313.64

For the period

2016-17

2017-18

Total Income

31,799.20

30,035.41

Total Expenses (other than provisions)

27,180.52

22,130.90

Provisions (other than tax)

13,236.70

20,497.05

Profit/ (Loss) Before Tax

(8,618.02)

(12,592.53)

Provision for Tax*

(3,459.88)

(4,354.61)

Profit/ (Loss) After Tax

(5,158.14)

(8,237.92)

* Net of Current Income Tax and Deferred Income Tax

Financial Highlights

As on March 31, 2018, your Bank’s aggregate deposits and advances touched Rs, 2,47,931.61 crore and Rs, 1,71,739.95 crore, respectively. Your Bank’s business highlights for the period under review are presented in Table 1.

During the year under review, your Bank’s total income amounted to Rs, 30,035.41 crore, comprising interest income of Rs, 23,026.53 crore and other income of Rs, 7,008.88 crore. Interest expenses stood at Rs, 17,386.21 crore and operational expenses at Rs, 4,744.69 crore, accounting for total expenditure (excluding provisions and contingencies).

Total provisioning of your Bank increased in view of continued stress in the Bank’s corporate loan portfolio. The provisions include Rs, 22,118.86 crore towards provision for non-performing assets, bad debts written-off and investments. As a result, your Bank incurred a net loss of Rs, 8,237.92 crore during FY 2017-18.

Report on the Performance and Financial Position of Subsidiaries and Joint Venture included in the Consolidated Financial Statement as on March 31, 2018

Name of the entity

Net Assets, i.e., total assets minus total liabilities

Share in profit or (loss)

As % of consolidated net assets

Amount (In Rs, crore)

As % of consolidated profit or (loss)

Amount (In Rs, crore)

1

2

3

4

5

Parent : IDBI Bank Ltd.

95.37%

21,209.73

101.86%

-8,237.92

Subsidiaries:

Indian:

1. IDBI Capital Market Services Ltd.

1.45%

321.46

-0.16%

12.73

2. IDBI Intech Ltd.

0.21%

47.50

-0.04%

3.01

3. IDBI Asset Management Company Ltd.

0.51%

112.44

-0.10%

8.01

4. IDBI MF Trustee Company Ltd.

0.01%

1.42

0.00%

0.22

5. IDBI Trusteeship Services Ltd.

0.78%

173.49

-0.45%

36.45

Foreign:

NA

NA

NA

NA

Minority Interests in all subsidiaries

0.39%

85.96

-0.20%

16.51

Associates (Investment as per the equity method)

Indian

1. Biotech Consortium India Ltd.

NA

NA

-0.01%

0.42

2. National Securities Depository Ltd.

NA

NA

-0.33%

26.85

3. North Eastern Development Finance Corporation Ltd.

NA

NA

-0.17%

13.95

Foreign:

NA

NA

NA

NA

Joint Venture (as per proportionate consolidation/ investment as per the equity method)

Indian

1. IDBI Federal Life Insurance Company Ltd.

1.68%

374.33

-0.60%

48.45

Foreign

NA

NA

NA

NA

TOTAL

100%

22,240.36

100%

-8,087.83

Elimination

-1.49%

-332.41

0.55%

-44.57

Net Total

98.51%

21,907.96

100.55%

-8,132.40

While the Earnings per Share (EPS) during the year was negative due to the losses, the Book Value per Share (excluding intangible assets) stood at Rs, 39.01 as at end-March 2018. In view of the losses incurred, the Board of Directors have not recommended any dividend for the year.

Material changes and commitments, if any, affecting financial position of IDBI Bank which have occurred during the end of financial year and the date of Board Report.

There are no material changes and commitments affecting the financial position of the Bank which have occurred between the end of the financial year of the Bank, i.e. March 31, 2018 and the date of the Directors’ Report.

The details in respect of adequacy of internal financial controls with reference to the financial statements.

According to Section 143(3) (i) of Companies Act 2013, with effect from financial year 2015-16, the report of the Statutory Auditors shall state whether the Bank has adequate Internal Financial Control (IFC) system in place and the operating effectiveness of such controls, in the context of the financial statements. IFCs as referred to in Section 143 (3) (i) of Companies Act relates to Internal Financial Controls over Financial Reporting (IFC-FR). The Bank’s Management is responsible for establishing and maintaining internal financial controls based on the internal control over financial reporting criteria established by the Bank considering the essential components of internal control stated in the Guidance Note on Audit of IFC-FR issued by the Institute of Chartered Accountants of India. These responsibilities include the design, implementation and maintenance of adequate internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of its business, including adherence to Bank’s policies, the safeguarding of its assets, the prevention and detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely preparation of reliable financial information, as required under the Companies Act, 2013, the Banking Regulation Act, 1949 and the guidelines issued by the Reserve Bank of India.

With a view to put in place IFC-FR framework, the Bank has appointed a Consultant to provide compliance with respect to the documentation, certification and reporting process of controls across all Business Verticals/ Departments. For the financial year 2017-18, the Consultant has validated base framework and also submitted the internal compliance certificate for the quarters ended June 2017, September 2017, December 2017 and March 2018 after validation of all processes and testing the same.

Capital Adequacy

Your Bank computes regulatory capital requirement for credit, market and operational risks as prescribed under the Pillar 1 guidelines of the Basel III framework.

As on March 31, 2018, the Capital to Risk-weighted Assets Ratio (CRAR) of your Bank was 10.41% as against the minimum regulatory requirement of 10.875%. Your Bank’s “Common Equity Tier 1 (CET 1) Capital Conservation Buffer (CCB) ratio” was 7.42% as against the minimum applicable ratio of 7.375% stipulated by the RBI. The “Tier 1 Capital Conservation buffer (CCB) ratio” stood at 7.73% as on March 31, 2018 against the regulatory requirement of 8.875%. Basel guidelines have introduced a mandatory Capital Conservation Buffer (CCB) with effect from March 31, 2016. CCB is designed to ensure that banks build up buffers during normal times which can be drawn down as losses are incurred during stressed periods. In line with the transitional arrangements of the regulatory guidelines, the CCB applicable for March 31, 2018 is 1.875%. Accordingly, the minimum regulatory requirement of “Total Capital CCB” is 10.875% as on March 31, 2018. Your Bank has a Board-approved policy on Internal Capital Adequacy Assessment Process (ICAAP) in line with the Pillar 2 norms of the Basel III framework, which enables the Bank to internally assess and quantify those risks which are not covered under Pillar 1 as well as develop appropriate strategies to manage risks under normal and stress conditions. Your Bank has adopted a Disclosure Policy in accordance with the Pillar 3 requirements under the Basel norms and accordingly, publishes disclosures on the Bank’s website at the end of each quarter.

Business Strategy

During the year, the Bank launched Project Nishchay to drive its strategic transformation through focused interventions in four major areas, viz. (i) Asset Utilization, (ii) Revenue Maximization, (iii) Operating Cost Rationalization, and (iv) Manpower Planning.

As a part of its comprehensive turnaround strategy, your Bank has been working towards realignment of its business mix in favour of retail and priority sector lending business while limiting growth in its corporate loan book, especially in large corporate segment. This strategy has been adopted in pursuance with a capital light business model as it would facilitate the Bank to reduce its Risk Weighted Assets (RWAs) as also help in improving the quality of the balance sheet. With a view to optimizing its capital, your Bank has significantly reduced the RWAs by 18% during FY 2017-18 by reducing exposure to low-rated corporate clients, ensuring incremental exposure in regulatory retail portfolio, enhancing cash security margin wherever feasible, data cleaning, etc. Simultaneously, the Bank has adopted a comprehensive action plan and road map for reduction of Non-Performing Assets (NPAs), which involves strengthening the overall structure, defining clear-cut policy guidelines, emphasizing on timely data availability/ analysis-based activity monitoring and structured review, case-specific strategy-based recovery action for large value accounts and persistent, timely, action-based approach to retail accounts. This will aid in further reduction in the capital requirement of the Bank going forward. The Bank has also embarked on divestment of its non-core assets, including sale of its stakes in certain associates and Joint Ventures and sale of its residential and commercial properties which were not being optimally utilized, to augment its capital base.

Your Bank has also taken several measures to augment its revenue streams by enhancing retail asset growth, improving retail liabilities and enhancing fee income. In alignment with this objective, the Bank has been proactively enhancing its capabilities in terms of improved customer service, field sales excellence and analytics driven sales.

As a corollary to revenue maximization for boosting its bottom-line, your Bank has been working towards rationalization of its operating costs. The Bank has identified a number of areas with significant potential for higher efficiency such as overheads expenses, rent reduction, ATM rationalization, streamlining of IT processes and reduction of outsourcing expenses.

To support this overarching strategy, your Bank has ensured that the retail business segment and credit monitoring and recovery teams are adequately staffed. Furthermore, measures are being taken to revamp the governance in your Bank. Additionally, the Bank has been leveraging its core strengths, that is, strong brand equity, efficient retail operations, excellent customer service, robust IT platform, among others, to achieve its business objectives.

During the year, the Government recapitalized Public Sector Banks (PSBs), including your Bank. Your Bank has furnished a Board-approved undertaking to the Government whereby it will meet certain milestones in a defined timeframe, for which necessary steps are being taken.

The infusion of capital by the Government is contingent upon performance of PSBs on the reform agenda. All PSBs, including your Bank, are striving towards aligning their business strategy to become more responsive and responsible banks.

Underlying its strategic initiatives, your Bank continues to remain committed towards its customers with a number of customer-centric initiatives. The Bank is also committed to the PSB Reforms Agenda aimed at Enhanced Access and Service Excellence (EASE) unveiled by the Government during the year and is taking the necessary steps towards its implementation. The EASE framework centres around six themes, viz. (i) Customer Responsiveness, (ii) Responsible Banking, (iii) Credit Off-Take, (iv) PSBs as Udyami Mitra, (v) Deepening Financial Inclusion & Digitalization and (vi) Ensuring Outcomes - HR. Your Bank has ensured that these themes are central to the various initiatives being taken by it and the progress on these fronts is monitored and evaluated on a regular basis.

Key Business Initiatives

In keeping with its intended positioning as a full-service new generation commercial bank, your Bank continues to target a broad-based retail business portfolio. In order to foster its retail business to ensure a more balanced business mix, your Bank offers an array of products and services to cater to the full spectrum of its customers’ requirements. Taking into consideration the emerging and evolving customer needs and trend, your Bank constantly launched new products and services as also fine-tuned its existing array of products, services and processes to remain competitive.

Your Bank served its customers through its network of 1,916 branches, 3,779 ATMs and 58 e-lounges. The physical network was also supplemented by a range of digital offerings to extend the convenience of transacting at any time and any place to its customers.

Your Bank has been leveraging its IT capabilities to offer financial products and services embedded with state-of-the-art technology and security features to seamlessly cater to the ever-increasing needs and demands of its customers. Your Bank is continuously embracing technological improvements to ensure highest level of user experience by guaranteeing operational convenience and enhanced efficiency. Your Bank also assigns highest significance to security and confidentiality of customers’ information and transaction details. Furthermore, proactive measures are also undertaken to sensitise customers on a periodic basis about the potential cyber threats as also to promote safe and secure banking practices.

Recognising the potential of the priority sector segment and business potential therein, your Bank has been increasingly strengthening its Priority Sector Lending (PSL) portfolio, thereby also adhering to the RBI’s mandate. Your Bank is also leveraging its network of Business Correspondents (BCs)/ Business Facilitators (BFs) in an effort to increase penetration in rural and semi-urban areas and thereby, ensuring wide-spread financial inclusion while simultaneously placing emphasis on its PSL business.

Your Bank has been actively furthering the Government’s agenda of ensuring inclusive growth in the economy by ensuring access to financial products and services needed by the marginalized sections of the society at an affordable cost in a fair and transparent manner. The agenda of financial inclusion is addressed through interventions in three key areas viz., offering appropriate financial products, making intensive use of technology and enhancing financial literacy. Furthermore, the Bank has also proactively participated in various social security schemes of Government of India. Simultaneously, your Bank has placed utmost importance on promoting financial literacy. Financial literacy has been identified as a pre-requisite for effective financial inclusion and an integral part of the Pradhan Mantri Jan-Dhan Yojana (PMJDY) in order to let the beneficiaries make best use of the financial services being made available to them.

Your Bank conducts its Trade Finance (TF) business through its full-fledged Authorized Dealer TF centres and Retail TF branches in various locations pan-India. In a bid to ensure greater customers convenience, various initiatives have been undertaken to automate operations which has also helped your Bank to increase its productivity and efficiency.

Your Bank also acts as an agent for Central Government and State Governments to manage their receipts and payments through its best-in-class technology platform. Your Bank is authorized to collect Central Government taxes (direct and indirect), Government receipts, electronic payment of Railway freight charges, EPFO subscription, collect stamp duty, offer Small Saving Schemes, extend Aadhaar-based authentication of Life Certificate for pensioners, among other services.

Your Bank is authorized to facilitate Utility Bill Payments using Bharat Bill Payment System (BBPS) - an RBI mandated system - aimed at offering integrated and interoperable bill payment system in India.

Your Bank has put in place a Board-approved CSR policy with effect from April 2014 in compliance with the Companies Act, 2013, underscoring your Bank’s inclination towards being a socially and environmentally responsible entity. Your Bank, through its planned interventions, has significantly contributed towards providing improved access to health services, promoting education for children, ensuring environmental sustainability, promoting gender equality, enhancement of livelihood opportunities, advancement of vocational & employable skills and holistic development of villages, among others.

The detailed descriptions of the Bank’s initiatives undertaken during the year are outlined in the Management Discussion and Analysis section of the Annual Report.

Board of Directors

Your Bank’s Board of Directors is broad-based and its constitution is governed by the provisions of the Banking Regulation Act, 1949, the Companies Act, 2013, the Articles of Association of your Bank and the requirements of Corporate Governance, as envisaged in SEBI (LODR) Regulations, 2015. The Board functions directly as well as through various Board Committees constituted to provide focused governance in the important functional areas of your Bank.

As on March 31, 2018, the Board comprised of ten Directors, including Managing Director and CEO (MD & CEO), two Deputy Managing Directors (DMDs), two Non-Executive

Directors and five Independent Directors. Shri Mahesh Kumar Jain, MD & CEO, Shri K. P. Nair and Shri G. M. Yadwadkar, DMDs, Shri Pankaj Jain and Shri Praveen Garg, Central Government official Nominees as Non-Executive Directors, Shri S. Ravi, Shri Ninad Karpe, Shri Gyan Prakash Joshi, Dr. Ashima Goyal and Shri Bhuwanchandra B. Joshi as Independent Directors constituted the Board as on March 31, 2018. During May 2018, Shri S. Ravi and Shri Ninad Karpe, Independent Directors resigned from the Board while Shri Praveen Garg, Government Nominee Director was replaced by Shri Sudhir Shyam by Government of India. To fill the 2 (two) vacancies of Independent Directors, the Board has appointed Shri Samaresh Parida and Shri N. Jambunathan as Additional Directors with effect from May 19, 2018. The present strength of 10 (ten) Directors on the Board, as against the composition for maximum strength of 13 Directors provided under Article 116(1) of the Articles of Association, meets the requirement provided under Article 114(a) of the Articles of Association.

Apex Committees

The Board has a total of fifteen committees to oversee various functional aspects of your Bank's business and operations. The committees are Audit Committee of the Board, Remuneration Committee, Executive Committee, Nomination Committee, Stakeholders’ Relationship Committee, HR Steering Committee, Frauds Monitoring Committee, Recovery Review Committee, Risk Management Committee, Independent Directors’ Committee, Corporate Social Responsibility Committee, Non-Cooperative Borrowers’ Review Committee, Customer Service Committee, Willful Defaulters Review Committee and Information Technology Committee.

Corporate Governance

Your Bank is committed to adopting best corporate governance practices. It believes that effective corporate governance is not just a requirement for regulatory compliance, but also a facilitator for enhancement of stakeholders’ value. The details of your Bank’s corporate governance practices are given in this Annual Report as a separate section under Corporate Governance Report.

Business Responsibility Report

The Securities and Exchange Board of India (SEBI), vide its notification dated December 22, 2015, has mandated the inclusion of Business Responsibility (BR) Report as part of the Annual Report for Top 500 listed entities based on market capitalization at BSE and NSE. The BR Report should describe initiatives taken by the listed entity from an environmental, social and governance perspective. The Bank’s Business Responsibility Report has been hosted on the website of the Bank (www.idbi.com).

Statement under Section 134 of the Companies Act, 2013 read with Rule 5 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014

There were no personnel in your Bank’s services, during the financial year under review, who received remuneration over Rs, 1.02 crore annually. Besides, there were no personnel in the service of the Bank for a part of the year who received remuneration in excess of Rs, 8.50 lakh per month. Further there was no personnel employed throughout the financial year or part thereof who was in receipt of remuneration at a rate, which in the aggregate, was in excess of that drawn by Managing Director & CEO or Deputy Managing Director of the Bank and who held by himself or along with his spouse and dependent children, not less than 2% of the equity shares of the Bank.

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. However, your Bank has been increasingly using information technology in its operations.

RBI’s Prompt Corrective Action (PCA)

The RBI, vide its letter dated May 05, 2017, initiated PCA for your Bank in view of its high net Non-Performing Assets (NPA) and negative Return on Assets (ROA). The Bank has been taking necessary actions to comply with the RBI’s directive in this regard. The Bank has also put in place a comprehensive turnaround strategy to improve its financial position. Furthermore, in compliance with the RBI directive with regard to restriction on fresh corporate exposure except for cases under Joint Lenders’ Forum (JLF) mechanism, the Bank has reviewed its internal credit policy and has been working towards limiting its corporate exposure.

Directors’ Responsibility Statement

The Board of Directors, hereby, declares and confirms that:

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

b. The Directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit and loss of the Bank for that period;

c. The Directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of this Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities;

d. The Directors had prepared the annual accounts on a going concern basis;

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

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

Acknowledgements

Your Bank’s Board of Directors is sincerely grateful to the Government of India, Reserve Bank of India (RBI) and all other statutory/ regulatory authorities for their valuable cooperation and guidance. The Board also acknowledges, with gratitude, the co-operation and support received from various State Governments and other banks/ financial institutions. The Board thanks various multilateral institutions and international banks/ institutions for their support. The Board takes this opportunity to put on record its deep sense of gratitude to its loyal shareholders and customers for extending their support during the year, and looks forward to their continued association in the years ahead. The Board appreciates the sincere and devoted services displayed by its entire staff and highly values their commitment towards the Bank.

[K.P. Nair] [Mahesh Kumar Jain]

Deputy Managing Director Managing Director & CEO

Place: Mumbai

Date: May 25, 2018