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IDBI Bank

BSE: 500116|NSE: IDBI|ISIN: INE008A01015|SECTOR: Banks - Public Sector
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Directors Report Year End : Mar '17    Mar 16

The Bank’s Board of Directors is pleased to present the Report on its business and operations for the financial year ended March 31, 2017

In the financial year 2016-17, the Indian economy’s growth was healthy, buoyed by policy reforms and improving macroeconomic fundamentals. Against this backdrop, your Bank strived to realign its portfolio mix in favour of retail and priority sector lending business. Various critical business enablers such as leveraging on the Bank’s proven IT prowess, innovations in digital products and delivery channels, digitisation of process, capitalising on areas of core competencies such as project advisory and loan syndication business, young and talented human capital, among others has adeptly assisted the Bank to enhance value for all its stakeholders.

Financial Highlights

As on March 31, 2017, your Bank’s aggregate deposits and advances touched Rs.2,68,538 crore and Rs.1,90,826 crore, respectively. Your Bank’s business highlights for the period under review are presented in Table 1.

Table 1 : Key Financials

(In Rs. crore)

As on March 31

2016

2017

Capital

2,058.81

2,058.81

Reserves & Surplus

25,662.97)

20,504.83

Deposits

2,65,719.83)

2,68,538.10

Borrowings

70,591.64)

56,363.98

Other Liabilities & Provisions

11,356.57)

14,302.18

Total Liabilities

3,75,389.82

3,61,767.90

Cash & Balances with RBI

13,822.91

13,346.92

Balances with Banks & Money at Call & Short Notice

9,77763)

19,33716

Investments

92,99713)

92,934.41

Advances

2,15,893.45)

1,90,825.93

Fixed & Other Assets

42,898.70)

45,323.48

Total Assets

3,75,389.82

3,61,767.90

For the period

2015-16

2016-17

Total Income

31,453.46)

31,758.97

Total Expenses (other than provisions)

26,083.39)

27,180.51

Provisions (other than tax)

10,340.82)

13,196.47

Profit/ (Loss) Before Tax

(4,970.75)

(8,618.01)

Provision for Tax*

(1,305.95)|

(3,459.87)

Profit/ (Loss) After Tax

(3,664.80)|

(5,158.14)

* Net of Current Income Tax and Deferred Income Tax

During the year under review, your Bank’s total income amounted to Rs.31,759 crore, comprising interest income of Rs.27,791 crore and other income of Rs.3,968 crore. Total expenditure (excluding provisions and contingencies) stood at Rs.27,180.52 crore with interest expenses at Rs.22,040 crore and operational expenses at Rs.5,141 crore.

However, total provisioning of your Bank increased in view of continued stress on the Bank’s portfolio. The provisions include Rs.13,875.09 crore towards provision for nonperforming assets, bad debts written-off and investments. As a result, your Bank incurred a net loss of Rs.5,158.14 crore during 2016-17.

For each share with face value of Rs.10, Earnings per Share (EPS) during the year stood at ‘ (25.05), while Book Value per Share (excluding Intangible Assets) stood at Rs.55.51 as at end-March 2017. For calculating Book Value per Share, the Government of India capital infusion of Rs.1,900 crore was considered, which is a part of other liability in financials, pending allotment of shares. For the financial year 2016-17, the Board of Directors has not recommended any dividend.

Report on the Performance and Financial Position of Subsidiaries and Joint Venture included in the Consolidated Financial Statement

(In Rs.000s)

Name of the entity

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

Share in profit or loss

As % of consolidated net assets

Amount

As % of consolidated profit or loss

Amount

1

2

3

4

5

Parent : IDBI Bank Ltd. Subsidiaries:

Indian:

95.94%

22,563.65

103.50%

(5,158.14)

1. IDBI Capital Market Services Ltd.

1.39%

326.79

46.07

104.42

-0.28%

-0.28%

-0.75%

13.74

13.95

7.26

2. IDBI Intech Ltd.

0.20%

3. IDBI Asset Management Company Ltd.

0.44%

4. IDBI MF Trustee Company Ltd.

0.01%

1.20

0.00%

0.13

5. IDBI Trusteeship Services Ltd.

0.64%

151.58

-0.84%

41.96

Foreign:

NA

NA

NA

NA

0.30%

70.57

Minority Interests in all subsidiaries

-0.38%

19.01

Associates (Investment as per the equity method)

Indian

NA

NA

1%

-0.52%

1. Biotech Consortium India Ltd.

NA

0.45

2. National Securities Depository Ltd.

NA

26.16

3. NSDL e-Governance Infrastructure Ltd.

NA

NA

-0.72%

36.05

4. North Eastern Development Finance Corporation Ltd.

NA

NA

-0.20%

9.89

Foreign

NA

NA

NA

NA

Joint Ventures

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

Indian

1. IDBI Federal Life Insurance Company Ltd.

1.39%

325.87

-0.50%

24.99

Foreign

NA

NA

NA

NA

TOTAL

100%

23,519.59

100%

(4,983.56)

Elimination

-1.09%

(25728)

0.65%

(32.35)

Net Total

98.91%

23,262.31

100.65%

(5,015.91)

Note: None of the above subsidiaries have any subsidiary

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, 2017 and the date of the Directors’ Report i.e. May 18, 2017.

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

The Bank has adequate internal controls and processes in place with respect to its financial statements which provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements. These controls and processes are driven through various policies, procedures and certifications. The processes and controls are reviewed periodically.

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, 2017, the Capital to Risk-weighted Assets Ratio (CRAR) of your Bank was 10.70% as against the minimum regulatory requirement of 10.25%. Your Bank’s Common Equity Tier 1 (CET 1) ratio was 5.64% as against the minimum applicable CET 1 ratio of 6.75% (including capital conservation buffer i.e. CCB of 1.25%) stipulated by RBI. The Tier-I ratio stood at 7.81% as on March 31, 2017 against the regulatory requirement of 8.25% (including CCB).

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 (i.e. outside periods of stress) which can be drawn down as losses are incurred during stressed period. In line with the transitional arrangements of the regulatory guidelines, the CCB applicable for March 31, 2017 is 1.25% (50% of total CCB of 2.5%). Accordingly, the minimum regulatory requirement of total capital CCB is 10.25% (CRAR CCB). Your Bank has a CRAR ratio of 10.70%. Similarly, your Bank has a CET 1 CCB ratio of 5.64%.

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 that 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

Rebalancing the portfolio mix continued to be the focal point of your Bank’s business strategy. In alignment with its business strategy, your Bank took various measures that targeted the retail and priority sector segment.

Your Bank has been improving its accessibility by strategically expanding its branch and ATM network.

Furthermore, your Bank, being one of the leading players in the digital banking domain, has been embracing latest cutting edge technology to provide digital offerings to seamlessly cater to its customers’ banking and financial requirements. Additionally, your Bank continued to introduce technological innovations which aided in improving its operational convenience and also enhanced efficiency and security of its systems and processes.

Key Business Initiatives

In alignment with the corporate objective of attaining a more balanced business portfolio mix, your Bank continued to take initiatives to promote its retail business. Your bank offers a wide range of products and services encompassing Asset, Liability, Third Party and Capital Market products, among others. Your Bank, through its branches, ATMs and digital channels, offers a wide range of products and services to cater to the continuously evolving as well as emerging customer needs. Your Bank has been fine-tuning its existing products and services as also designing customised products and services across various retail segments to maintain its competitive edge. To increase its accessibility to its retail customers, your Bank has been continuously striving to expand its banking footprints by strategically augmenting its branch and ATM network. As on March 31, 2017, your Bank’s network stood at 1,896 branches (including one overseas branch and one International Banking Unit) and the number of ATMs stood at 3,537.

Your Bank has proactively deployed cutting-edge technology solutions to offer various digital avenues for customers to transact at their convenience. Your Bank’s digital banking channels viz. ATM, internet banking, mobile banking, kiosks, e-lounge facility, etc. are designed to deliver a wide range of banking services in a seamless manner. Apart from being a frontrunner in digital initiatives, your Bank also places utmost importance on security and confidentiality of customer transactions, information and data. In addition to employing highly sophisticated technology to ensure safe and secure environment for the customer while transacting through digital channels, your Bank also sensitises its customers on cyber frauds and its prevention through emails, SMS and inserts sent along with Bank’s statements on a periodic basis.

In adherence to the regulatory guidelines as well as to tap the potential business opportunities, your Bank worked towards building its Priority Sector Lending (PSL) business by taking various initiatives and campaigns.

Your Bank is also leveraging its Business Correspondents (BCs)/ Business Facilitators (BFs) network, in addition to its branch and ATM network, to expand its reach to the priority sector segment, especially in the rural and semiurban areas, thereby building a sustainable PSL portfolio.

In order to ensure inclusive growth in the economy, your Bank has been actively partnering with the policymakers to further the objective of financial inclusion. Through its intervention in four key areas, viz. expanding banking infrastructure, offering appropriate financial products, making intensive use of technology and enhancing financial literacy, your Bank has been ensuring access to appropriate financial products and services needed by most vulnerable sections of the society at an affordable cost in a fair and transparent manner.

Your Bank’s corporate banking portfolio includes exposure to sectors as varied as power, textiles, cement, steel, engineering, construction, paper and paper products, electronics and electrical equipment, sugar, chemicals, automobiles, Non-Banking Financial Companies (NBFCs), among others. Your Bank’s asset products basket for corporate clients includes term loans, working capital (both fund-based and non-fund based), packing credit to exporters, receivables buyout, bill discounting, lending to NBFCs, among others. Your Bank continues to be proactive in extending project appraisal, debt syndication, structuring and advisory services across various sectors. During the year, your Bank received several mandates for appraisal and debt syndication.

While 2016-17 witnessed a number of policy reforms from the Government, the core sector industries and infrastructure sector continued to face marginal profitability and liquidity constraints, thus, leading to persistence of stress. Since your Bank has historically been a major lender for these industrial sectors, the stress in the corporate advances portfolio of the bank continued during the year. However, the Bank had initiated necessary measures for resolution of these stressed assets within the available regulatory framework like Strategic Debt Restructuring (SDR), Scheme for Sustainable Structuring of Stressed Assets (S4A), 5/25 structuring, etc. under the aegis of Joint Lenders Forum (JLF). With the recent amendments to Banking Regulation Act and revised guidelines on JLF mechanism issued by RBI, the Bank expects to have expeditious resolution of these stressed assets in the current year.

Your Bank conducts its Trade Finance (TF) business through its full-fledged Authorised Dealer TF Centres and retail TF branches. Your Bank continued to show impressive growth and set new service standards by working closely with its customers to create customer solutions in TF business. As part of your Bank’s on-going digital transformation, IDBI eTrade Portal - an innovative online facility - was revamped to enable its customers to avail a basket of facilities in a paperless mode and hassle-free manner.

Your Bank acts as an agent for Central and State Governments to manage their receipts and payments. Besides being authorised to collect various Central Government taxes, your Bank also has the mandate for collecting electronic payment of railway freight charges and Commercial Tax and other Government receipts for 23 State Governments and four Union Territories.

Your Bank has received in-principle approval for Bharat Bill Payment System (BBPS) - an RBI mandated system - which aims at offering integrated and interoperable bill payment system in the country.

Your Bank became the first public sector bank to open its IFSC Banking Unit (IBU) at India’s first and only International Financial Services Centre (IFSC) at Gujarat International Finance Tec-City (GIFT). Your Bank, through its GIFT IBU branch and its overseas branch at the Dubai International Financial Centre (DIFC), Dubai, offers a wide range of corporate banking services to meet its Indian clients’ fund requirements for their Indian operations as well as overseas ventures.

Your Bank, in its endeavour to be a socially responsible entity, appreciates the importance of Corporate Social Responsibility (CSR) activities and has put in place a Board-approved CSR policy with effect from April 1, 2014 in compliance with Companies Act, 2013. Your Bank’s CSR activities embody its commitment to contribute to the sustainable social and economic development of the society. Your Bank, through its diverse CSR activities, contributed towards providing improved access to health services, promoting education for children, promoting gender equality, promotion and installation of renewable energy systems, promotion of sports, enhancement of livelihood opportunities, advancement of vocational and employable skills and holistic development of villages by undertaking planned interventions.

The detailed descriptive of the Bank’s initiatives undertaken during the year is contained 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 focussed governance in the important functional areas of your Bank.

As on March 31, 2017, the Board comprised of nine Directors, including Managing Director and CEO (MD & CEO), two Deputy Managing Directors (DMDs), two Non-Executive Directors and four Independent Directors. Shri Kishor Kharat, 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 and Ms. Neeru Abrol as Independent Directors constituted the Board as on March 31, 2017. The strength of 9 (nine) 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 fifteen sub-committees, namely, Audit Committee of the Board, Remuneration Committee, Executive Committee, Nomination Committee, Stakeholders’ Relationship Committee, HR Steering Management Discussion and Analysis 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, Wilful Defaulters’ Review Committee and Information Technology Committee, to oversee various functional aspects of your Bank’s business and operations.

Corporate Governance

Your Bank is committed to adopting the best corporate governance practices. It believes that effective corporategovernance 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 capitalisation 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 the Managing Director & CEO or the Deputy Managing Directors 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

The RBI, vide its letter dated May 05, 2017, has initiated Prompt Corrective Action (PCA) for your Bank in view of its high net Non-Performing Assets (NPA) and negative Return on Assets (ROA). The Bank is taking necessary actions to comply with the RBI’s directive in this regard.

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 Director s is sincerely grateful to the Government of India, Reserve Bank of India(RBI), Securities and Exchange Board of India (SEBI), Insurance Regulatory and Development Authority of India(IRDA) and all other statutory/ regulatory authorities for their valuable co-operation 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 periodic 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. During the financial year, the Bank has received various recognition and accolades for its excellence in the banking domain. The Board is thankful to all such organisations/ agencies for formally recognising the Bank’s efforts. 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 18, 2017

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