1. Share Capital

For the financial year ended March 31, 2023, the total outstanding equity share capital amounts to '173.54 Crore (including forfeited shares), which includes 50,00,000 equity shares issued and allotted at a face value of '10/- per share to CSB ESOS Trust in the financial year 2019-20 as per CSB Employee Stock Option Scheme 2019.

No equity shares were issued in the financial year 2022-23.

The equity shares of Bank were listed and admitted for dealings on BSE Limited (“BSE") and National Stock Exchange Limited (“NSE") with effect from December 4, 2019.

2. Disclosures in terms of Reserve Bank of India Guidelines

Amounts in notes forming part of the financial statements for the year ended March 31, 2023 are denominated in Rupees Crore to conform to extant RBI guidelines on Master Direction on Financial Statements - Presentation and Disclosures issued by Reserve Bank of India dated August 30, 2021, as amended, except where stated otherwise.

b) Draw Down from Reserves - The Bank has not drawn any amount from Reserves.

Appropriation to Reserves

i) Statutory Reserve

As mandated by the Banking Regulation Act, 1949, all banking companies incorporated in India shall create a reserve fund, out of the balance of profit of each year as disclosed in the profit and loss account and before any dividend is declared and transfer a sum equivalent to not less than twenty-five per cent of

such profit. Accordingly, the Bank has transferred an amount of '136.84 Crore from current year Net profit (Previous Year: '114.62 Crore).

ii) Investment Fluctuation Reserve (IFR)

As per RBI circular DBR.No.BP.BC.102/21.04.048/2017-18 dated April 2, 2018, Investment Fluctuation Reserve (IFR) is to be created with an amount not less than the lower of net profit on sale of investments during the year or net profit for the year less mandatory appropriations, until the amount of IFR is at least 2 percent of the HFT and AFS portfolio, on a continuing basis. As on March 31, 2023, the Bank is maintaining an IFR of '59.08 Crores (Previous Year '59.08 Crore) as against the minimum requirement of '22.93 crores (Previous year '59.08 Crores) and is considered it as part of Tier II capital for Capital Adequacy purposes.

iii) Capital Reserve

As per RBI Guidelines, profit/loss on sale of investments in the 'Held to Maturity' category is recognised in the Profit and Loss Account and is thereafter appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit / loss on sale of investments in 'Available for Sale' and 'Held for Trading' categories is recognised in the Profit and Loss Account. Accordingly, an amount of '0.14 Crore (Previous Year: '9.83 Crore) net of tax and appropriation to Statutory reserves has been transferred to Capital Reserve.

iv) Special Reserve

As per the provisions under Section 36(1)(viii) of Income Tax Act, 1961, specified entities like banks are allowed deduction in respect of any special reserve created and maintained, i.e. an amount not exceeding twenty per cent of the profits derived from eligible business computed under the head “Profits and gains of business or profession" is carried to such reserve account. This would be applicable till the aggregate of the amounts carried to such reserve account from time to time exceeds twice the amount of the paid up share capital and general reserves of the entity. During the year, the Bank has transferred an amount of '4.27 Crores (Previous year '4.30 Crores) to Special Reserve.

v) General Reserve

During the year ended March 31, 2023 an amount of '1.19 Crores (Previous year '1.26 Crores) was transferred to the General reserve from revaluation reserve.

vi) Employee Stock Option Reserve

During the year ended March 31,2023, the Bank has recognised '4.87 Cores (Previous year '12.68 Crores) as Employee Stock Option Reserve on account of fair valuation of share linked instruments.

(ii) Qualitative disclosures around LCR

(1) Main drivers of LCR and evolution of contribution of inputs

The LCR standard aims to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario specified by supervisors. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken.

The LCR should be minimum 100% (i.e. the stock of HQLA should at least equal total net cash outflows) on an ongoing basis because the stock of unencumbered HQLA is intended to serve as a defense against the potential onset of liquidity stress.

The LCR position depends upon the level of High Quality Liquid Assets (HQLA) and level of inflows and outflows in 30 days stress horizon computed as per the RBI guidelines in this regard.

(2) The composition of High Quality Liquid Assets (HQLA)

Banks' High Quality Liquid Assets consists of the following

i. Cash including cash reserves in excess of required CRR.

ii. Government securities in excess of the minimum SLR requirement.

iii. Investments in Government securities held within the mandatory SLR requirement, to the extent allowed by RBI under Marginal Standing facility (MSF) which is at present 2 % of NDTL.

iv. Investment in Government Securities held up to 16 % of Net Demand and Time Liabilities (NDTL) permissible under Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR).

v. Level 2A assets -

a. Corporate bonds, not issued by a bank/financial institution/NBFC or any of its affiliated entities, which have been rated AA- or above by an Eligible Credit Rating Agency, subject to a minimum haircut of 15 %.

b. Commercial Papers not issued by a bank/PD/financial institution or any of its affiliated entities, which have a short-term rating equivalent to the long-term rating of AA- or above by an Eligible Credit Rating Agency subject to a minimum hair cut of 15 %.

vi. Level 2 B Assets - These are assets as defined in RBI's LCR guidelines. At present our bank do not have figures to be reported for FY 23.

vii. Cash outflows over the 30 days period - Bank considers Cash outflows from Retail Deposits, secured and unsecured wholesale funding, undrawn committed credit and liquidity facilities subject to applicable run-off factors as prescribed by RBI.

viii. Cash Inflows over the 30 days period - Bank is also looking into the cash inflows within 30 days period arising out of maturing secured lending transactions and other inflows from Retail and small business counterparties, non-financial wholesale counterparties as well as amounts to be received from financial institutions and RBI.

ix. LCR is computed as under -

Total stock of High quality liquid Assets over Total Net Cash outflows.

(3) Intra period changes

The intra period changes are mainly on account of changes in unencumbered excess SLR positions, variations in Level 2A / Level 2B assets, regulatory changes in MSF and FALLCR levels and various components under net cash outflows over the 30 days period.

Other Regulatory Requirements -

a. Currency Mismatch in LCR - The Bank does not have aggregate liabilities denominated in any foreign currency of 5 per cent or more of the Bank's total liabilities and hence LCR in other currencies are not computed.

b. Centralization of liquidity management - Banks' liquidity management and monitoring is centralized. Bank has put in place a Board adopted liquidity management policy in line with RBI regulation and guidelines.

Inflows and outflows are comprehensively captured in the automated LCR system (BASEL).

Bank is required to maintain minimum LCR of 100% on an ongoing basis as per RBI guidelines w.e.f January, 2019. As on 31.03.2023, LCR of the Bank is at 123.18%.

c) Net Stable Funding Ratio

Bank has disclosed NSFR disclosures on its website at the link: https://www.csb.co.in/basel-2basel-3-disclosures.

2.3.6 Additional Details on Investments

a) In respect of Investments in Held to Maturity category, the amount of amortization of excess of acquisition cost over face value is '4.84 Crores (previous year '5.32 Crores) which is netted against Income on Investments (Schedule 13, Item II).

b) Profit on sale of investments under Held to Maturity category amounting to '0.24 Crore (Previous Year '17.52 Crore) has been taken to Profit and Loss account and an amount of '0.14 Crore (Previous Year: '9.83 Crore) net

of tax and appropriation to Statutory reserves has been transferred to Capital Reserve. There was no loss on sale of investments under Held to Maturity category during the year.

c) Provisions for depreciation and diminution on investments in the Available for Sale category investments amounting to '13.95 Crores is debited to Profit & Loss account (Previous year '6.36 Crores).

d) Provisions for depreciation and diminution on investments in the Held for Trading category investments is Nil (Previous year - ' Nil).

e) During the year, the Bank has transferred securities of book value amounting to ' Nil crores (Previous year '424.07 Crores) from Held to Maturity category to Available for Sale category. During the year, the Bank has transferred securities of book value amounting to ' Nil crores (Previous year '509.60 crores) from Available for Sale category to Held to Maturity category.

2.4.5 Divergence in Asset Classification and Provisioning

In terms of the RBI circular no. DBR.BP.BC.No.32/21.04.018/2018-19 dated April 1, 2019 and DOR.ACC.REC. No.74/21.04.018/2022-23 dated October 11, 2022, banks are required to disclose the divergences in asset classification and provisioning consequent to RBI's annual supervisory process in the notes to accounts.

During the year ended 31 March 2023, no divergences have been reported in the RBI's annual supervisory process.

2.4.6 Disclosure of Transfer of Loan Exposures

Details of loans transferred / acquired during the year ended March 31, 2023 under the RBI Master Direction on Transfer of Loan Exposures dated September 24, 2021 are given below:

(i) The Bank has not transferred any Non-Performing Assets(NPA), Special Mention Accounts (SMA) and Loans not in default during the year.

2.5.5 Factoring Exposure

Financing of factoring units under TREDS platform is treated as part of loans and advances and reported under the head “Bills Purchased and Discounted" in Schedule 9 of Balance Sheet. Outstanding amount as on March 31,2023 is '10.25 Crores (Previous year '100.47 Crores).

As per the RBI Guidelines on Management of Intra-Group Transactions and Exposures DBOD.No.BP. BC.96/21.06.102/2013-14 dated February 11, 2014, Group is defined as an arrangement involving two or more entities related to each other through any of the following relationships and a 'group entity' as any entity involved in this arrangement:

i. Subsidiary - Parent

ii. Associate

iii. Joint Venture

iv. Related Party

v. Direct or indirect ownership of 20 percent or more interest in the voting power of the enterprise

vi. Common brand name

vii. Promoters of Bank

viii. Non-Operative Financial Holding Company (NOFHC) of Bank

ix. An entity which has any of the first six relations, as above, with the promoters/NOFHC and their step-down entities

The disclosure is made as per the above definition and hence, exposures to investee company of the promoter of the Bank and its subsidiary is included.

2.5.7 Unhedged Foreign Currency Exposure

The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency exposures and encouraging them to hedge the unhedged portion. The policy framework also articulates the methodologies for ascertaining the amount of unhedged foreign currency exposures, estimating the extent of likely loss, estimating the riskiness of the unhedged position and making appropriate provisions and capital charge as per extant RBI guidelines. In line with the policy, assessment of unhedged foreign currency exposure is a part of credit appraisal while proposing limits or at the review stage. Further, the bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank maintains incremental provisions and additional capital for the unhedged foreign currency exposures of its borrowers in line with the extant RBI Circular RBI/2022-23/131/D0R.MRG.76/00-00-007/2022-23 dated October 11, 2022 as given below;

2.13 Disclosure on Remuneration A. Qualitative Disclosures

Qualitative (a) Information relating to the composition and mandate of the Nomination & Remuneration Committee. ^Discl°^sures (i) Composition

Constitution of the Nomination & Remuneration Committee (NRC/Committee) is as per the extant Reserve Bank of India guidelines, Section 178 of the Companies Act, 2013 and Regulation 19 of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015. The Committee consists of four members. All members of the committee are non-executive directors; of which three members are independent directors. Three members of the committee are currently also members of the Risk Management Committee (RMC) of the Board to facilitate effective governance of compensation, as against the requirement of one member from RMC, mandated as per Reserve Bank of India Circular No. DOR.GOV.REC.8/29.67.001/2021-22 dated April 26, 2021 on "Corporate Governance in Banks - Appointment of Directors and Constitution of Committees of the Board, The Composition of the committee is as under:

Mr. Sharad Kumar Saxena Chairperson Independent Director

Mr. Madhavan Menon Member Non-Executive Director

Ms. Bhama Krishnamurthy Member Independent Director

Ms. Sharmila Abhay Karve Member Independent Director

The Committee comprises of two-thirds independent directors.

(ii) Function and mandate

The Committee inter alia, oversees the framing, review and implementation of compensation policy/programme including employee stock options scheme of the Bank on behalf of the Board.

The Committee should ensure that: -

• the cost/income ratio of the Bank supports the remuneration package consistent with maintenance of sound capital adequacy ratio;

• the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors of the quality required to run the Bank successfully;

• relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and

• remuneration to executive and non-executive directors, Material Risk Takers (MRTs), key managerial personnel and senior management involves a balance between fixed and variable pay (as applicable) reflecting short and long-term performance objectives appropriate to the working of the Bank and its goals.

(b) Information relating to the design and structure of remuneration processes and the key features and objectives of Compensation/ Remuneration policy.

(i) Process

The Bank's remuneration program is based on principles of pay for performance philosophy, meritocracy and fairness. The compensation system also focuses on pay differentiation based on role, competency, relevant work experience, seniority, contribution and availability of talent.

The Committee works in close co-ordination with the Risk Management Committee of the Board to review the compensation practices every year in order to achieve effective alignment between remuneration and risks. The Committee studies the business and industry environment, analyze and categorize the risks and streamline the components of the compensation plan, like proportion of the total variable compensation to be paid to MD & CEO, WTD's /Material Risk Takers (MRTs) and Senior executives to ensure financial stability of the organization.

(ii) Authority to invoke Malus / clawback arrangement

The deferred compensation shall be subject to malus/clawback arrangements in the event of subdued or negative financial performance of the Bank and/or the relevant line of business in any year. The Committee is vested with the powers to invoke the malus/clawback arrangement in line with framework to invoke Malus/Clawback as per the compensation policy, after taking into account relevant statutory and regulatory stipulations as applicable.

The Committee also has the authority to ascertain whether the decision taken by the MD& CEO, Material Risk Takers (MRTs), WTD, Senior executives/ officers (Non IBA Scheme) have brought forth a negative contribution to the Bank.

(iii) Objectives

The policy is a comprehensive one covering all the employees of the Bank and intends to reduce incentives towards excessive risk taking that may arise from the structure of compensation scheme.

The objectives of the compensation policy are four fold:

• To align compensation with prudent risk taken.

• To ensure effective governance of the compensation in the organization.

• To ensure effective supervisory oversight and stakeholder engagement in compensation.

• To attract and retain talent.

The Policy aims to:

• Ensure that compensation is aligned to individual performance as well as to the organizational objectives of the Bank.

• Attract, reward and retain talent to enable the Bank to attain its strategic objectives within the increasingly competitive context in which it operates.

• Inculcate and reinforce a culture of meritocracy and differentiate and reward performance.

• Have a balanced mix of Fixed, Variable (Short-term or Long Term, cash or non-cash) to appropriately reflect the value and responsibility of the role and to drive appropriate behavior and actions in the long term.

• Ensure that the policy is in line with RBI guidelines and promotes effective risk management practices and the company's commitment to compliance and controls.

• Ensure fairness and transparency in reward practices.

The policy covers all aspects of the compensation structure such as fixed pay, perquisites, variable pay in form of cash or non-cash instrument, (share-linked instruments e.g. Employee Stock Option Plan), pension plan, gratuity, guaranteed bonus etc.,

(iv) Key features

• To actively oversee the compensation systems design and operation.

• To monitor and review the compensation system to ensure that the system operates as intended.

• Staff engaged in financial and risk control must be independent, have appropriate authority, and be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the firm.

• Supervisory review of compensation practices must be rigorous and sustained and deficiencies must be addressed promptly with supervisory action.

• The Bank shall disclose clear, comprehensive and timely information about their compensation practices to facilitate constructive engagement by all stakeholders.

(c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks.

(i) Compensation structure- prudent risk taking

The compensation structure may be fixed shall align with prudent risk taking, after ensuring the following: -

• Compensation must be adjusted for all types of risks.

• Compensation outcomes must be symmetric with risk outcomes.

• Compensation payout schedules must be sensitive to the time horizon of risks.

• The mix of cash, equity and other forms of compensation must be consistent with risk alignment. A wide variety of measures of credit, market and liquidity risks may be used for implementation of risk adjustment. The risk adjustment methods should preferably have both quantitative and judgmental elements.

For the purpose of effectively aligning compensation structure with risk outcomes, the functionaries in the institution are arranged under the following four categories.

a) Managing Director & CEO (MD& CEO)/ Whole Time Directors (WTDs) and /Material Risk Takers (MRTs)

b) Risk control and compliance staff- Non IBA scheme

c) Senior Executives / Other Officers - Non IBA scheme

d) Other officers and staff -On IBA scheme

(ii) Malus /Clawback Arrangement/Compensation Recovery

A Malus /clawback arrangement or a compensation recovery is provided in the policy in the case of MD & CEO, WTD's, MRTs and Senior executives/ officers (Non IBA Scheme).

The deferred compensation shall be subject to malus/clawback arrangements in the event of subdued or negative financial performance of the Bank and/or the relevant line of business in any year. The Committee is vested with the powers to invoke the malus/clawback arrangement in line with framework to invoke Malus/Clawback as per the compensation policy, after taking into account relevant statutory and regulatory stipulations as applicable.

A malus arrangement permits the Bank to prevent vesting of all or part of the deferred remuneration, but does not reverse vesting after it has already occurred.

A clawback is a contractual agreement between the employee and the Bank whereby the employee agrees to return previously paid or vested remuneration to the Bank, under certain circumstances. Criteria for the application of malus and clawback, also specify a period during which malus and/ or clawback can be applied, covering at least deferral period.

The Bank has put in place appropriate modalities to incorporate malus/ clawback mechanism in respect of variable pay so as to invoke the malus and clawback clauses that may be applicable on the entire variable pay.

Malus and Clawback clause in relation to variable pay including ESOPs shall apply on all variable pay commencing from the date of payment or grant until completion of the vesting, that is the "Deferral Period.

The concept of "Retention Period” is not being extended to ESOPs; however, the NRC shall have the discretion to extend the application period for Clawback till such period depending upon the Misconduct risks involved.

Malus & Clawback shall survive during the Deferral Period and such other period as stated in the policy irrespective of separation of Key Employees due to any reason including without restriction to the cases of resignation, retirement, early retirement or termination from the Bank.

The Committee will review the performance taking into consideration the macroeconomic environment as well as the internal performance indicators and accordingly decide whether any part /full of the deferred variable pay/ entire variable pay belonging to a financial year/years merits a withdrawal. Committee may decide/frame any other performance criteria/ strategic target, from time to time and to invoke malus and clawback clauses, if situation warrants.

(iii) Limit on variable pay

(a) Managing Director & CEO, WTD's and/Material Risk Takers (MRTs)

As per the policy, Variable pay is at least 50 % of the total compensation in a year and up to a maximum of 300 % of the fixed pay. Subject to performance, variable pay grant shall vary as per final performance rating which takes into account individual, business wise and organization wise performance. The variable pay can be in the form of share-linked instruments, or a mix of cash and share-linked instruments. There shall be a proper balance between cash and share-linked components in the variable pay.

In case variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay; and in case variable pay is above 200%, a minimum of 67% of the variable pay should be via noncash instruments. In the event that an executive is barred by statute or regulation from grant of share-linked instruments, his/her variable pay will be capped at 150% of the fixed pay, but shall not be less than 50% of the fixed pay. Only in cases where the compensation by way of share-linked instruments is not permitted by law/regulations, the entire variable pay can be in cash. Deferral arrangements must invariably exist for the variable pay, regardless of the quantum of pay as per the compensation policy of the Bank.

(b) Senior Executives/Other officers including Risk control and compliance staff- Non IBA scheme As per the policy, the Bank may fix the variable pay for achievement against business parameters for Senior Executives/ other officers other than Employees under IBA scheme. Variable pay may be decided by the Board or Board delegated authorities from time to time during the financial years, subject to any regulatory caps that are prevalent. As per the policy, the Bank may fix variable pay based on individual performance, unit-level/business wise performance as well as the organisation wise performance. Individual performance is assessed based on quantitative and qualitative measures as defined in the balanced scorecard in the Performance Management system of the Bank. Variable pay grant shall vary as per final performance rating which takes into account individual, business wise and organization wise performance as applicable.

Total Variable Pay can be paid in the form of both cash and/or non-cash (ESOPs) instruments as per eligibility and Bank's policy. The proportion of non-cash variable pay may be higher for the Senior Management staff of the Bank. In the case of Risk control and compliance staff, the proportion of variable pay to fixed pay for the aforementioned category of staff is weighted in favour of fixed compensation. The requirement of minimum 50% of total compensation to be paid in the form of variable pay will not be applicable for this category of staff.

(c) Employees under IBA scheme

Performance Linked Variable Pay (PLVP) may be adopted for select categories of the staff on IBA terms who are not otherwise covered under the Annual Performance based Variable Pay. The ESOP scheme may be extended to select categories of employees at the discretion of the Board / Nomination and Remuneration Committee. Grant of ESOP as per the ESOP scheme of the Bank, from time to time.

(iv) Severance pay and guaranteed bonus

As per the policy, severance pay (other than gratuity or terminal entitlements or as entitled by statute) is not paid to any official of the organization except in those cases where it is mandatory by statute.

Guaranteed bonus (joining/sign on bonus) shall only occur in the context of hiring new staff and be limited to first year. Further, guaranteed bonus should be in the form of share-linked instruments only since payments in cash upfront would create perverse incentives. Such bonus will neither be considered part of fixed pay nor part of variable pay.

(v) Hedging

As per the policy, no compensation scheme or insurance facility would be provided by the Bank to employees to hedge their compensation structure to offset the risk alignment mechanism (deferral pay and claw back arrangements) embedded in their compensation arrangement.

(vi) Committees to mitigate risks caused by an individual decision

• In order to further balance, the impact of market or credit risks caused to the Bank by an individual decision taken by a senior level executive, MD & CEO, Deputy Managing Director or a whole time director, the Bank has constituted various committees to take decisions on various aspects:

• Credit limits are sanctioned by committees at different levels and there is an upper limit fixed in credit sanction decisions.

• Investment decisions of the Bank are taken and monitored by Investment committee and there is an upper limit in treasury dealings where individual decisions can be taken.

• Interest rates on asset and liability products for different buckets are decided and monitored by the Asset Liability Committee (ALCO). Bank's exposure to liquidity risk are also monitored by ALCO.

(vii) Compensation of risk control staff

Members of staff engaged in financial and risk control, including internal audit should be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the Bank. Effective independence and appropriate authority of such staff are necessary to preserve the integrity of financial and risk management's influence on incentive compensation.

The mix of fixed and variable compensation for control function personnel should be weighted in favor of fixed compensation. Therefore, the requirement of minimum 50% of total compensation to be paid in the form of variable pay will not be applicable for this category of staff. However, a reasonable proportion of compensation has to be in the form of variable pay, so that exercising the options of malus and/or clawback, when warranted, is not rendered infructuous.

(d) Description of the ways in which the Bank seeks to link performance during a performance

measurement period with levels of remuneration.

(a) Compensation of MD & CEO, Deputy Managing Director, Whole Time Directors and Material Risk Takers

• The fixed compensation is determined based on the industry standards, the exposure, skill sets, talent and qualification attained by the official over his/her career span subject to adherence with statutory requirements. All the fixed items of compensation, including the perquisites, will be treated as part of fixed pay. All perquisites that are reimbursable should also be included in the fixed pay so long as there are monetary ceilings on these reimbursements. Contributions towards superannuation/retiral benefits will be treated as part of fixed pay.

• The variable compensation is fixed based on performance and responsibility in the Bank. The grant of total variable pay shall be based on individual performance, unit-level performance as well as the organizational performance. Individual performance is assessed based on quantitative and qualitative measures as defined in the balanced scorecard in the Performance Management system of the Bank. The Bank's performance is based on the various financial indicators like revenue earned, cost deployed, profit earned, assets quality, owners' wealth creation, compliance, governance and misconduct risk, divergence in Bank's provisioning for Non-Performing Assets and other intangible factors like leadership and employee development. Variable pay is paid purely based on performance. Variable pay grant shall vary as per final performance rating which takes into account individual, business wise and organization wise performance as applicable.

• The variable pay can be in the form of share-linked instruments, or a mix of cash and share-linked instruments. There should be proper balance between the cash and share linked components in the variable pay. Only in cases where the compensation by way of share-linked instruments is not permitted by law/regulations, the entire variable pay can be in cash subject to the limit as prescribed in the compensation policy. Cash-linked Stock Appreciation Rights (CSARs) are also to be treated as share-linked instruments.

• Approval from Reserve Bank of India is to be obtained to decide compensation for MD & CEO, Deputy Managing Director / whole time directors. The payment of compensation also requires approval of the shareholders of the Bank pursuant to the Bank's Articles of Association read with the Section 196 and other applicable provisions of the Companies Act, 2013.

• Grant of share-linked instruments is also subject to approval of the respective scheme by the shareholders of the Bank.

(b) Risk control and compliance staff

Members of staff engaged in financial and risk control, including internal audit should be compensated in a manner that is independent of the business areas they oversee and commensurate with their key role in the Bank.

The grant of total variable pay shall be based on individual performance as well as the organizational performance. Individual performance is assessed based on financial and non-financial measures as defined in the balanced scorecard in the Performance Management system of the Bank.

The requirement of minimum 50% of total compensation to be paid in the form of variable pay will not be applicable for this category of staff. However, a reasonable proportion of compensation has to be in the form of variable pay, so that exercising the options of malus and/or clawback, when warranted, is not rendered infructuous.

Total Variable Pay can be paid in the form of both cash and/or non-cash (ESOPs) instruments as per eligibility and Bank's policy. Non-cash portion of the variable pay (ESOPs) shall be granted to eligible employees and shall be governed as defined in the Bank's ESOP policy.

(c) Senior executives/Other Officers (Non IBA Scheme)

The compensation structure for officers other than on IBA Scheme shall be on a cost to company basis and for employees recruited laterally, as freshers/ at entry level, the same will be fixed in line with the Lateral Recruitment Policy of the Bank. In line with Bank's compensation philosophy, the CTC shall be determined considering the role, market competitiveness, internal pay parity, qualification, level of experience and seniority, skills and capabilities they bring and their last drawn fixed pay. The grant of total variable pay shall be based on individual performance as well as the organizational performance. Individual performance is assessed based on financial and non-financial measures as defined in the balanced scorecard in the Performance Management System of the Bank.

Total Variable Pay can be paid in the form of both cash and/or non-cash (ESOPs) instruments as per eligibility and Bank's policy. The proportion of non-cash variable pay may be higher for the Senior Management staff of the Bank. Non-cash portion of the variable pay (ESOPs) shall be granted to eligible employees and shall be governed as defined in the Bank's ESOP policy.

(d) Compensation paid to Other Officers and staff members on IBA Scheme

The compensation paid to other officials that include Award staff and Officers coming under Scale I to III and Senior executives coming under Scale IV to VII is fixed based on 10^th bipartite settlement / 7^th Joint Note. However, it is the discretion of the Bank either to continue with the existing compensation structure prevailing under IBA scheme or modify the structure partially or fully on need basis or discontinue the existing structure in toto and switch over to different structure which is prevailing in banking industry by keeping in view, various parameters like industry level, peer group status, burden on the Bank, etc.

It is prerogative of the Bank either to utilize the service of IBA in matter of structuring compensation or device the compensation structure on its own based on the prevailing practice in the banking industry. Performance Linked Variable Pay (PLVP) may be adopted for select categories of the staff on IBA terms who are not otherwise covered under the Annual Performance based Variable Pay. The Performance Linked Variable Pay may be based on Employee performance (Balanced Scorecard) defined from time to time.

The ESOP scheme may be extended to select categories of employees at the discretion of the Board / Nomination and Remuneration Committee and form part of the overall performance management program at the discretion of the Board. However, the grant of stock option is as per CSB Employees Stock Option Scheme.

(e) A discussion of the Bank's policy on deferral and vesting of variable remuneration and a discussion of the Bank's policy and criteria for adjusting deferred remuneration before vesting and after vesting.

(i) Deferred compensation and Performance Linkage (Non-IBA)

In case of deferral arrangements of variable pay to MD & CEO, DMD, WTD's and Material Risk Takers (MRTs), the deferral period should be a minimum of three years in the manner as provided in the compensation policy of the Bank. This would be applicable to both the cash and non-cash components of the variable pay. A minimum of 60% of the total variable pay must invariably be under deferral arrangements. If cash component is part of variable pay, at least 50% of the cash bonus should also be deferred. In cases where the cash component of variable pay is under '25 lakhs, deferral requirements would not be necessary. The deferral shall be as per the policy including ESOS policy of the Bank.

Deferral arrangements of variable pay for rest of the officers in the manner as provided in the policy including ESOS policy of the Bank.

Deferred remuneration should either vest fully at the end of the deferral period or be spread out over the course of the deferral period. The first such vesting should be not before one year from the commencement of the deferral period. The vesting should be no faster than on a pro rata basis. Additionally, vesting should not take place more frequently than on a yearly basis to ensure a proper assessment of risks before the application of ex post adjustments. Vesting should not be frontloaded. Bank uses Black-Scholes model to arrive fair value of the share-linked instruments, on the date of grant in line with Reserve Bank of India Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function staff dated November 4, 2019 and SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. Bank will follow the applicable accounting policies specified in regulation 15 of the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, clarification of Reserve Bank of India dated August 30, 2021 on Reserve Bank of India Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function staff dated November 4, 2019 and other relevant guidelines for adjusting deferred remuneration.

(ii) Claw-back and deferral arrangements

The provisions of Malus/claw-back and deferral arrangements applicable to the referred functionaries (all Non IBA Scheme) are as per the compensation policy subject to relevant statutory and regulatory stipulations as applicable.

(f) Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the Bank utilizes and the rationale for using these different forms.

Subject to the policy, Bank uses an optimum mix of cash and share-linked instruments to decide variable compensation structure of MD & CEO, DMD /WTD, Material Risk Takers (MRTs), and senior executives and other officers on Non - IBA Scheme. This is done to align the compensation of senior staff with their performance, risk and responsibility taken in higher assignments. The grant of different forms of variable pay as stated above is subject to relevant statutory and regulatory stipulations as applicable. Other than cash portion of variable pay, the Bank has ESOP as non-cash variable pay for select few senior management staff.

In the case of MD & CEO, DMD /WTD, Material Risk Takers (MRTs), there should be a proper balance between the cash and share linked components in the variable pay. In case variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay; and in case variable pay is above 200%, a minimum of 67% of the variable pay should be via non-cash instruments. Only in cases where the compensation by way of share-linked instruments is not permitted by law/regulations, the entire variable pay can be in cash subject to the maximum limit of pay in the form of cash as specified in the policy.

Payment of variable pay to senior executives and other officers other than on Non - IBA Scheme and staff engaged in financial and risk control shall be made as per the compensation policy of the Bank. Total Variable Pay can be paid in the form of both cash and/or non-cash (ESOPs) instruments as per eligibility and Bank's policy. The proportion of non-cash variable pay may be higher for the Senior Management staff of the Bank. In the case of Risk control and compliance staff, the requirement of minimum 50% of total compensation to be paid in the form of variable pay will not be applicable for this category of staff. However, a reasonable proportion of compensation has to be in the form of variable pay, so that exercising the options of malus and/or clawback, when warranted, is not rendered infructuous.

The grant of total variable pay shall be based on individual performance as well as the organizational performance. Individual performance is assessed based on financial and non-financial measures as defined in the balanced scorecard in the Performance Management system of the Bank.

Variable pay grant shall vary as per final performance rating which takes into account individual, business wise and organization wise performance as applicable.

The Officers in Scale I-VII as well as Award staff come under the purview of IBA Scheme vide 7^th Joint Note / 10^th bipartite settlement Performance Linked Variable Pay (PLVP) may be adopted for select categories of the staff on IBA terms who are not otherwise covered under the Annual Performance based Variable Pay. The Performance Linked Variable Pay may be based on Employee performance (Balanced Scorecard) defined from time to time. The ESOP scheme may be extended to select categories of employees at the discretion of the Board / Nomination and Remuneration Committee and form part of the overall performance management program at the discretion of the Bank. ESOP is used as a compensation as well as a retention tool by Bank, the extent of ESOP will be decided by the Board or its delegated authorities. However, the grant of stock option is as per CSB Employees Stock Option Scheme which is subject to the approval of shareholders of the Bank, from time to time.

B. Quantitative Disclosures

(1) Whole Time Directors and Material Risk Takers.

The quantitative disclosures for the financial year ended March 31, 2023 cover the Bank's Whole Time Directors and Material Risk Takers. The Material Risk Takers are identified in accordance with the revised guidelines on 'Compensation of Whole Time Directors/Chief Executive Officers/Material Risk Takers and Control Function staff, etc., issued by the RBI on November 4, 2019.

Notes pertaining to FY 2022-23

1. Fixed remuneration includes salary, consolidated benefit allowance, gratuity, residential accommodation and Bank's contributions towards National Pension Scheme etc.

2. Fair value is the weighted average fair value of stock options computed using Black-Scholes options pricing model as on the grant date.

3. The Bank, on September 15, 2022, received approval of Reserve Bank of India in terms of Section 35B of the Banking Regulation Act, 1949 for payment of a fixed pay of '1.25 Crore per annum to Mr. Pralay Mondal for his position of Deputy Managing Director, prorated for his period of appointment as Deputy Managing Director with effect from February 17, 2022 up to September 14, 2022.

4. Remuneration paid to Mr. Pralay Mondal for the financial year 2022-23 and disclosed includes payment of fixed pay made in the capacity as 'Deputy Managing Director' for the period upto September 14, 2022 and thereafter from September 15, 2022 onwards, in the capacity as the Managing Director & CEO and payment of variable pay for the period from April 1, 2021 to February 16, 2022, during which he held the position of 'President - Retail, SME, Technology and Operations'. The Bank's recommendation for payment of remuneration to him for the position as the Managing Director & CEO of the Bank with effect from September 15, 2022, is still under consideration of Reserve Bank of India. Pending approval, the Bank paid to Mr. Pralay Mondal for the period from September 15, 2022 onwards, the same remuneration as stands approved by the Reserve Bank of India for the position of Deputy Managing Director, and further provision has been made in the books of accounts for the difference of ?0. 73 crore to be paid subject to the approvals/or in the manner as may be approved by Reserve Bank of India. However, 1,56,389 options granted in FY 2022-23 and 2,50,000 options granted in FY 2021-22, to Mr. Pralay Mondal and disclosed was in the capacity as 'President - Retail, SME, Technology and Operations'.

5. The Bank on November 1, 2022, submitted the application with Reserve Bank of India, being the proposal for payment of variable pay which comprises cash and non-cash components in the form of stock options, all together amounting to ?1,19,74,204/- to Mr. Pralay Mondal for the period he had held the position of Deputy Managing Director from February 17, 2022 to September 14, 2022 and the same has been provided in the books of accounts.

6. The list of MRTs was amended by additions/ deletions in the list with effect from February 28, 2023, and consequential changes were made in the calculation of fixed pay of MRTs with effect from the said date. No variable pay was paid to MRTs since February 28, 2023.

7. Payments of terminal benefits and variable pay (upfront and deferrals) made to Mr. C. VR. Rajendran, ex-Managing Director & CEO of the Bank, during the financial year 2022-2023 were also included as part of the total payments made to MRTs and accordingly, reporting was made at respective places. A similar approach has been followed in the case of the options granted to him in the previous financial year(s).

8. The Bank, on May 30, 2022, received approval of Reserve Bank of India in terms of Section 35B of the Banking Regulation Act, 1949, for payment of variable pay amounting to ?2,10,00,000, all in the form of cash subject to deferrals, to Shri. C. VR. Rajendran, ex-Managing Director &CEO, for the performance period 2021-22.

9. No remuneration/sitting fee was paid to the Non-Executive Non-Independent Directors.

10. Payment of sitting fee to Non-Executive Independent Directors was within the limits as prescribed in Section 197(5) of the Companies Act, 2013 read with rule 4 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

Notes pertaining to FY 2021-22

1. Fixed remuneration includes salary, consolidated benefit allowance, residential accommodation and Bank's contributions towards Provident fund. Leave fare Concession for the FY 2019-20 and for the FY 2020-21, both have been claimed in the FY 2020-21 only.

2. Fair value is the weighted average fair value of stock options computed using Black-Scholes options pricing model as on the grant date.

3. 11 out of 12 MRTs were identified in that position with effect from January 21, 2022.

4. No remuneration/sitting fee was paid to the Non-Executive Non-Independent Directors viz. Mr. Madhavan Menon and Mr. Sumit Maheshwari.

5. Payment of sitting fee to Non-Executive Independent Directors was within the limits as prescribed in Section 197(5) of the Companies Act, 2013 read with rule 4 of Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014.

6. The Bank, on November 24, 2021, received approval of Reserve Bank of India in terms of Section 35B of the Banking Regulation Act, 1949 for revision of fixed pay of Shri. C. VR. Rajendran, Managing Director & CEO from ?2,00,00,000 p.a. to ?2,10,00,000 p.a. with effect from April 1, 2020.

7. The Bank, on November 24, 2021, received approval of Reserve Bank of India in terms of Section 35B of the Banking Regulation Act, 1949 for grant/ payment of variable pay of ?3,67,50,000/-, out of which ?2,45,00,000/- shall be in non-cash form (stock options) and balance in the cash bonus, for the performance period 2020-21 to Mr. C. VR. Rajendran, Managing Director & CEO.

8. The Bank on March 26, 2022, submitted the application with Reserve Bank of India, being the proposal for payment of variable pay amounting to ?2,10,00,000, all in the form of cash, to Shri. C. VR. Rajendran, Managing Director &CEO for the performance period 2021-22 and approval of RBI is awaited.

9. Remuneration paid to Mr. Pralay Mondal disclosed was in the capacity as 'President - Retail, SME, Technology and Operations' and approval of RBI is awaited on the terms and conditions of his appointment as Deputy Managing Director.

2.14.6 Implementation of IFRS converged Indian Accounting Standards (Ind AS)

The Ministry of Corporate Affairs (MCA), Government of India notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. Further, a press release dated January 18, 2016, was issued by the MCA outlining the roadmap for implementation of IFRS converged Ind AS for banks. This roadmap required banks to prepare Ind AS based standalone & consolidated financial statements for the accounting periods beginning April 01, 2018 onwards, with comparatives for the periods ending March 31, 2018 or thereafter. RBI, through its notification dated February 11, 2016, required all scheduled commercial banks to comply with Ind AS for financial statements from the stated periods and also stated that early adoption of Ind AS is not permitted.

Reserve Bank of India (RBI) through press release RBI/2018- 2019/146 DBR.BRBC.No.29/21.07.001/2018-19, dated March 22, 2019, updated all scheduled commercial Banks that legislative amendments recommended by the RBI are under consideration of the Government of India. Accordingly, RBI had decided to defer the implementation of Ind AS till further notice.

The implementation of Ind AS by banks requires certain legislative amendments to make the format of financial statements, prescribed in the Third Schedule to Banking Regulation Act, 1949, compatible with accounts under Ind AS. Considering the amendments needed to the Banking Regulation Act, 1949, as well as the level of preparedness of several banks, RBI, through its Statement on Developmental and Regulatory Policies dated April 05, 2018, had deferred the implementation of Ind AS by a year. The legislative amendments recommended by the Reserve Bank are under consideration of the Government of India. Accordingly, RBI through its notification dated March 22, 2019 deferred the implementation of Ind AS till further notice.

The implementation of Ind AS is expected to result in significant changes to the way the Bank prepares and presents its financial statements. The areas that are expected to have significant impact on application of Ind-AS are summarized below:

1) Financial assets (which primarily include advances and investments) shall be classified under amortised cost, fair value through other comprehensive income (a component of Reserves and Surplus) or fair value through profit/ loss categories based on the nature of the cash flows and intention of holding the financial assets and business model assessment.

2) Interest will be recognized in the income statement using the effective interest method, whereby, fees net of transaction costs and all other premiums or discounts will be amortised over the life of the financial instrument.

3) Stock options will be required to be fair valued on the date of grant and be recognized as staff expenses in the income statement over the vesting period of the stock options.

4) The impairment requirements of Ind-AS 109, Financial Instruments, are based on an Expected Credit Loss (ECL) model that replaces the incurred loss model under the existing reporting framework. The bank will be generally required to recognize either a 12-Month or Lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. Ind-AS 109 will change the Bank's current methodology for calculating the provision for standard assets and non-performing assets (NPA). The Bank will be required to apply a three-stage approach to measure ECL on financial instruments accountant for at amortised cost or fair value through other comprehensive income. Financial assets will migrate through the following three stages based on the changes in credit quality since initial recognition.

Stage 1: 12 months ECL - for exposures which have not been assessed as credit- impaired or where there has not been a significant increase in credit risk since initial recognition, the portion of the ECL associated with probability of default events occurring within the next twelve months will need to be recognized.

Stage 2: Life time ECL - for credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL will need to be recognized.

Stage 3: Life time ECL - Financial assets will be assessed as credit impaired when one or more events having a detrimental impact on the estimated future cash flows of that assets have occurred, For financial assets that have become credit impaired, a lifetime ECL will need to be recognized.

Even though RBI has deferred the implementation , the Bank is gearing itself to bring the necessary systems and processes in place to facilitate the Proforma submission to RBI and seamless transition to Ind AS. With respect to the various instructions from Ministry of Corporate Affairs and Reserve Bank of India (RBI), the actions taken by the Bank are summarized as follows:

• Bank has set up a Steering Committee comprising members from cross-functional areas of the bank to initiate the implementation process.

• Bank is in the process of implementing changes required in existing IT architecture and other processes to enable smooth transition to Ind AS

• As directed by the RBI, the Bank is submitting half yearly Proforma Ind AS financial statements to the RBI within the stipulated timeline

• Training to the employees is imparted in a phased manner

• The Bank will continue its preparedness towards adoption of IND AS as per regulatory requirement and to liaise with RBI and industry bodies on various aspects pertaining to IND AS implementation.

3.4 CSB Employee Stock Option Scheme

Pursuant to the requisite approval of the members on May 4, 2019, the Bank has formulated a stock option scheme called “CSB Employees Stock Option Scheme2019" (“ESOS 2019" or “Scheme"). The scheme is intended to promote the culture of employee ownership and as well as to attract, retain, motivate and incentivize talents in the Bank. The Scheme shall be administered through an employee stock option trust viz., CSB ESOS Trust (“ESOS Trust"/“Trust") in the nature of an irrevocable employee welfare trust in due compliance with the applicable laws. Under the Scheme, the Bank can allot a maximum of 50 lakh shares to the Trust, over a period of time. Under the trust route, the Bank allots shares to the trust and trust will transfer the shares to the eligible employees at the time of exercise of option by eligible employees on meeting terms of grant fixed by the Nomination &Remuneration Committee.

Being a Pre-IPO Scheme, in terms of Regulation 12(1) of the erstwhile Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 (“SEBI SBEB Regulations"), any fresh grant of Options can be made under ESOS 2019 in case such ESOS 2019 is in compliance with the SEBI SBEB Regulations and ratified by

the members of the Bank post IPO. Accordingly, the ESOS 2019 was placed before the members at the Annual General Meeting held on July 20, 2020, post listing of shares on December 4, 2019, for ratification though the ESOS 2019 and as well as the Trust as originally introduced were already in conformity with the SEBI SBEB Regulations and ratification obtained. No options were granted prior to the amendment/ratification of the scheme/listing of shares of the Bank.

The first amendment was made in the Scheme at the Annual General meeting of the Bank held on July 20, 2020, inter alia, to increase the Options Reserve by an additional quantum of 1,16,72,791. The source of corresponding number of shares equivalent to 1,16,72,791 options shall be in the form of (i) fresh issue of shares up to 30,00,000 shares and (ii) secondary acquisition by the Trust up to 86,72,791 shares. With this, the total Options Reserve under ESOS 2019 stood at 1,66,72,791 options. A few other modifications were also made in the scheme as per the prevailing regulations and also to effect change of name of the Bank in the Scheme document.

The second amendment was made in the Scheme at the Annual General meeting of the Bank held on August 12, 2021, permitting vesting of unvested employee stock options after the date of retirement/early retirement as per original Vesting schedule as specified in the Grant Letter, subject to the provision of the applicable laws and at the discretion of the Nomination and Remuneration Committee of the Board.

Post amendments, under the Scheme, the quantum of secondary acquisition is capped at 5 % (Five percent) of the paid-up equity share capital of the Bank as on March 31, 2020, which is line with the statutory ceiling prescribed under the “SEBI SBEB & SE Regulations" and (ii) Acquisition of shares by the Trust in any financial year shall not exceed the ceilings, which is currently 2% of the paid up equity capital as at the end of the previous financial year, prescribed in 'SEBI SBEB &SE Regulations' as amended from time to time.

Vesting Period for any Options granted under this Scheme shall be subject to statutory minimum period of 1 (One) year from the date of Grant during which no Vesting shall be allowed. Subject to this statutory minimum period, any staggered Vesting prescribed for any Grant shall be over a Vesting schedule of minimum of 3 (Three) years and maximum of 10 (Ten) years from the date of Grant. The exercise period in respect of a vested option shall be a period commencing from the relevant vesting date of such option and shall end with the expiry of 10 (Ten) years or such other shorter period as approved by the Committee from the date of grant of such option.

In case of trust route of issuance of ESOPs, the trust on its own will not have funds to be able to acquire the shares from the Bank as the trust is not a business trust and is specifically created with the objective of issuance of ESOPs to the employees. Trust has to find out other avenues for sourcing of fund for purchasing shares from the Bank. In terms of Section 20 of the Banking Regulation Act, 1949, the Bank cannot lend to trust to purchase its own shares. Trust shall not deal in derivatives, and shall undertake only delivery based transactions for the purposes of secondary acquisition and for the purpose of the Plan.

As on March 31,2023, 50,00,000 shares of the Bank were held by CSB ESOS Trust as per the scheme which were allotted to the trust on July 12, 2019. No shares were allotted to the trust in the financial year 2022-23 (Previous year: Nil)

Out of the 7,47,456 options granted in the financial year 2022-23, 3,76,067 options were granted on June 28, 2022 at an exercise price of '196.60 per option, 2,15,000 options were granted on July 21, 2022 at an exercise price of '207.00 per option and 1,56,389 options were granted on September 23, 2022, at an exercise price of '236.45 per option. All the options were granted at market price, to be vested subject to the vesting conditions/ malus and claw back arrangements and be exercised within the period as per the terms of the grant and the Scheme.

The weighted average fair value, based on Black-Scholes model, of options granted during the financial year ended March 31, 2023, was '88.57 (Financial year ended March 31, 2022 was '158.24).

Bank uses Intrinsic Value Method for accounting the value of Options granted under the Scheme up to and including March 31, 2021 and thereafter Fair Value method by using Black-Scholes Model, for accounting the value of Options granted. In case, the Bank uses Intrinsic Value Method for accounting the value of Options granted under the Scheme, the difference between the market price and exercise price will be considered as the value of an Employee Stock Option and shall be expensed over the period of vesting. The market price for this purpose is the latest available closing price on a recognised stock exchange on which the shares of the company are listed on the date immediately prior to the relevant date. If such shares are listed on more than one recognised stock exchange, then the closing price on the recognised stock exchange having higher trading volume shall be considered as the market price which is in line with Securities and Exchange Board of India (Share Based Employee Benefits and Sweat Equity) Regulations, 2021. In case of valuation of options is done by using fair value method by using Black- Scholes Model, the fair value thus arrived at should be recognised as expense beginning with the accounting period for which the approval has been granted and accounting of the options granted shall be made for, accordingly.

The value of option arrived at will be amortised over the period of vesting/ expensed beginning with the accounting period for which approval has been granted, in line with para 42 of GN (a) 18 (Issued 2005) Guidance Note on Accounting for Employee Share-based Payments and further clarification of Reserve Bank of India dated August 30, 2021 on Reserve Bank of India Guidelines on Compensation of Whole Time Directors/ Chief Executive Officers/ Material Risk Takers and Control Function staff dated November 4, 2019. In case, the options granted under the Scheme do not vest on one date but have graded vesting schedule, total options granted shall be segregated into different groups, depending upon the vesting dates and each vesting date should be considered as a separate option grant, and evaluated and accounted for, accordingly.

On applying the fair value based method in Guidance Note on 'Accounting for Employee Share-based Payments' for the options granted up to and including March 31, 2022, the impact on reported net profit and EPS in the financial year ended March 31, 2023 would be as follows:

which the options cannot be exercised. Expected dividends during the estimated expected term of the option are based on recent dividend activity. Expected forfeiture is based on expected exercise behaviour which is based on the historical stock option exercise pattern of the Bank

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 returns on the shares over a period of time. Expected volatility has been computed by considering the historical data on daily volatility in Bank's share price.

3.5 Accounting Standard 17 - Segment Reporting Part A: Business Segments

Business of the Bank is divided into four segments viz. Treasury, Corporate or Wholesale Banking, Retail Banking and Other Banking Operations. The principal activities of these segments and income and expense structure are as follows:

Treasury

Treasury operations include trading and investments in Government and corporate debt instruments, equity and mutual funds, derivative trading and foreign exchange operations on proprietary account and for customers. The income of this segment primarily consists of earnings from the investment portfolio of the Bank, gains and losses on trading operations. The principal expense of the segment consists of interest expense on funds borrowed/utilized and other allocated overheads.

Corporate/Wholesale Banking

This segment provides loans and other banking services to Corporate and other clients where value of individual exposure to the clients exceeds '5 Crore as defined by RBI. Threshold limit has raised from '5 crores to '7.5 crore for fresh exposures and also to existing exposure where incremental exposure exceeds '7.5 crore. Revenue of this segment consists of interest and fees earned on loans to such customers and charges and fees earned from other banking services. Expenses of this segment primarily consist of interest expense on funds utilized and allocated overheads.

Retail Banking

Retail banking constitutes lending and other banking services to individuals/small business customers, other than corporate/wholesale banking customers, identified on the basis of RBI guidelines. Revenue of this segment consists of interest earned on loans made to such customers and charges /fees carried from other banking services to them. The principal expenses of the segment consist of interest expenses on funds borrowed and other expenses.

Additional disclosure of the Digital Banking Segment as a sub-segment within the existing “Retail Banking Segment"- RBI circular RBI/2022-2023/19 DOR.AUT.REC.12/22.01.001/2022-23 dated 07-04-2022

Other Banking Operations

This segment includes para banking activities like third party product distribution and other banking transactions, not covered under any of the above segments. The income from such services and associated costs are disclosed in this segment.

Assumptions

The risk-free interest rate being considered for the calculation is the interest rate applicable for a maturity equal to the expected life of the options based on the zero coupon yield curve for Government Securities. Expected Life of options is the period for which the Bank expects the options to be live. The minimum life of a stock option is the minimum period before which the options cannot be exercised, and the maximum life is the period after

6. $# Payments of terminal benefits, and variable pay (upfront and deferrals) amounting to ' 1.20 crore made to Mr. C. VR. Rajendran, ex-Managing Director & CEO of the Bank, during the financial year 20222023 were also included as part of the total payments made to Key Managerial Personnel. A similar approach has been followed in the case of the options granted to him in the previous financial year(s) and accordingly, 5,78,286 options granted and reported in the Financial year ended March 31, 2022, includes 3,28,286 options granted to him under ESOS 2019, for the performance period 2020-21.

7. Fee income/brokerage received from 3-in-1 tie-up arrangement in the nature of 'referral programme' with IIFL Securities Limited (“IIFL Securities “) and as part of the programme, IIFL Securities will share a part of fee income on a revenue sharing basis of 40% of the brokerage earned from the customers sourced by the Bank.

8. Transactions reported are the transactions with related parties defined and coming under AS 18 - Related Party Disclosures notified under Sections 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 and Companies (Accounting Standards) Amendments Rules 2016, Section 188 of the Companies Act, 2013, Regulation 2(zb), 2 (zc) and 23 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

(c) Material transactions with related parties (Applicable from April 1, 2022)

The following table sets forth, for the periods indicated, the material transactions between the Bank and its related parties, defined in terms of Section 2(76) (v) to (viii) of the Companies Act, 2013 read with Regulation 2(zb), 2(zc) and 23 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“SEBI Listing Regulations"), effective from April 1, 2022.

3. # Includes provision made to the tune of '0.35 crore for the period from October 1, 2022, up to December 31, 2022.

4. * Requisite approvals were obtained for acquisition of gold loan receivables by way of direct assignment transactions/pass through certificates from IIFL Finance Limited during the financial year 2022-23, for a value of transaction/s not exceeding '900 crore at any point of time during the period and value of transaction reported is the difference between the opening balance and closing balance.

5. ^ARequisite approvals were obtained to stay invested in '90.00 Crore non-convertible debentures issued by IIFL Finance Limited, with a coupon rate of 9.50% p.a., acquired through secondary market acquisition, till its maturity date, i.e., May 7, 2022.

6. Since the amendment as disclosed in para-b(2), is effective from April 1, 2022,the disclosure is made in the note with respect to the said transactions from the financial year starting April 1, 2022, only.

7. 0.00 represents insignificant amount

4. Additional Disclosures

4.1 Disclosure of Letter of Comforts (LOCs) issued by Bank

Bank has no subsidiaries and Letter of Comforts issued to subsidiaries as on March 31, 2023 is Nil.

4.2 Proposed Dividend

The Board of Directors have not recommended any dividend for Financial Year 2023 (Year ended March 31, 2022: Nil)

4.3 Provision for Long Term Contracts

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 recorded adequate provision as required under any Law/Accounting Standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements.

4.4 Investor education and protection fund

Since the Bank had not declared any dividends since the financial year 2014-15, no amount was required to be transferred to the Investor Education and Protection Fund (the “Fund") by the Bank for the financial year ended March 31, 2023.

All the unclaimed dividends pertaining to the prior period/ financial years, which remained unclaimed for a period of seven (7) consecutive years or more, were transferred to the Fund in the corresponding previous financial years within the stipulated time and in the manner as prescribed in Section 124(6) of the Companies Act, 2013, read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules, 2016, as amended from time to time.

4.5 Corporate Social Responsibility

Pursuant to Section 135 of the Companies Act, 2013 and Schedule VII of the said Act read with the Companies (Corporate Social Responsibility Policy) Rules, 2014 and further, in accordance with the Corporate Social Responsibility Policy of the Bank, the amount required to be earmarked by the Bank for CSR activities for the financial year 2022-23 was '6.72 crores (Previous year '0.84 crores), being two percent of the average net profits of the Bank as per Section 135(5) of the Companies Act, 2013.

The Bank has successfully utilized the whole of the CSR budget earmarked, for the purpose of undertaking various CSR activities in line with the annual action plan as approved by the CSR Committee and the Board.

4.8 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006 which came into force from 2 October, 2006, certain disclosures are required to be made relating to Micro, Small and Medium enterprises. There have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. The above is based on the information available with the Bank which has been relied upon by the auditors.

Sr. No Disclosures required under the Micro, Small & Medium Development Act, 2006

I Delayed payments due as at the end of each accounting year on account of Principal - Nil and Interest due thereon - Nil

II Total interest paid on all delayed payments during the year under the provisions of the Act - Nil

III Interest due on principal amounts paid beyond the due date during the year but without the interest amounts under this Act - Nil

IV Interest accrued but not due- Nil (Represents interest accrued as at the end of the year but not due as interest is computed at monthly rests from the due date)

V Total Interest Due but not paid - Nil (Represents all interest amounts remaining due together with that from prior year(s) until such date when the interest was actually paid to the small enterprises. Mainly to ascertain the amount of interest disallowable for income tax purposes)

Note: Outstanding dues to those vendors/suppliers who are registered as micro/small enterprise under the Micro, Small and Medium Enterprises Development Act, (MSMED) 2006 and having an Udyam Registration are only counted as qualified MSME for the purpose of the reporting.

4.9 The Code on Social Security, 2020

The Government has formulated four Labour Codes, namely, the Code on Wages, 2019, the Industrial Relations Code, 2020, the Code on Social Security, 2020 and the Occupational Safety, Health and Working Conditions Code, 2020 which are yet to be implemented. The four Labour Codes envisage strengthening the protection available to workers, including unorganized workers in terms of statutory minimum wage, social security and healthcare of workers. As these Labour Codes have not been effective, the impact of these Labour Codes in the financial statement for the year ended March 31, 2023 has not been factored.

4.10 Intermediary Transactions

a) Funds Given

No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the bank to or in any other person(s) or entity(ies), including foreign entities (“Intermediaries"), with the understanding, whether recorded in writing or otherwise, that the Intermediary shall, whether, directly or indirectly lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the bank(“Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the bank other than those in the ordinary course of banking business.

b) Funds Taken.

The bank has not received any fund from any person(s) or entity(ies), including foreign entities (“Funding Parties"), with the understanding, whether recorded in writing or otherwise, that the bank shall, directly or indirectly, lend or invest in other persons or entities identified in any manner whatsoever by or on behalf of the Funding Party (“Ultimate Beneficiaries") or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries than those in the ordinary course of banking business.

4.11 Comparative Figures

The previous year's figures have been regrouped and reclassified wherever necessary to conform to current year's presentation.