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Kotak Mahindra Bank Directors Report, Kotak Mahindra Reports by Directors
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Kotak Mahindra Bank
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Download Annual Report PDF Format 2013 | 2012 | 2011 | 2010
Directors Report Year End : Mar '13    Mar 12
To the Members of KOTAK MAHINDRA BANK LIMITED
 
 The Directors present their Twenty Eighth Annual Report together with
 the audited accounts of your Bank for the year ended 31st March 2013.
 
 FINANCIAL HIGHLIGHTS
 
 (A) Kotak Mahindra Bank Limited - Consolidated financial highlights:
 
                                      31st March 2013  31st March 2012
                                      Rs. crore        Rs. crore
 
 Total income                              15,950.27        13,013.82
 
 Total expenditure, excluding 
 provisions and contingencies              12,622.93        10,258.58
 
 Operating Profit                           3,327.34         2,755.24
 
 Provisions and contingencies, 
 excluding provision for tax                  183.18            98.70
 
 Profit before tax                          3,144.16         2,656.54
 
 Provision for taxes                          939.95           806.01
 
 Profit after tax                           2,204.21         1,850.53
 
 Less: Share of minority interest              49.33            52.84
 
 Add: Share in profit of Associates            33.58            34.55
 
 Consolidated profit for the Group          2,188.46         1,832.24 
 
 Earnings per Equity Share:
 
 Basic (Rs.)                                   29.44            24.81
 
 Diluted (Rs.)                                 29.33            24.67
 
 (B) Kotak Mahindra Bank Limited - Standalone financial highlights:
 
                                      31st March 2013  31st March 2012
                                      Rs. crore        Rs. crore
 
 Total Income                              9,203.16         7,157.58
 
 Total expenditure, excluding 
 provisions and contingencies              7,046.55         5,502.57
 
 Operating Profit                          2,156.61         1,655.01
 
 Provisions and contingencies, 
 excluding tax provisions                    184.55            55.08
 
 Profit before tax                         1,972.06         1,599.93
 
 Provision for taxes                         611.34           514.88
 
 Profit after tax                          1,360.72         1,085.05
 
 Add: Surplus brought forward 
 from the previous year                    2,162.79         1,494.52
 
 Amount available for appropriation        3,523.51         2,579.57 
 
 Appropriations:
 
 Statutory Reserve under Section 17 
 of the Banking Regulation Act, 1949         340.18           271.27
 
 General Reserve                              68.04            54.26
 
 Transfer to / (from) Investment 
 Reserve Account                              10.52            14.52
 
 Transfer to Capital Reserve                      -             0.02
 
 Transfer to Special Reserve                  28.50            25.00
 
 Proposed Dividend                            52.38            44.49
 
 Corporate Dividend Tax                        7.29             7.22
 
 Surplus carried to Balance Sheet          3,016.60         2,162.79
 
 DIVIDEND
 
 Your Directors are pleased to recommend a dividend of Rs. 0.70 per
 equity share (previous year Rs. 0.60 per equity share), entailing a
 payout of Rs. 59.67 crore including dividend distribution tax (previous
 year Rs. 51.71 crore). The dividend would be paid to all the
 shareholders, whose names appear on the Register of Members/Beneficial
 Holders list on the Book Closure date.
 
 CAPITAL
 
 During the year, your Bank has allotted 59,19,516 equity shares arising
 out of the exercise of Employees Stock Options granted to the employees
 and whole-time directors of your Bank and its subsidiaries.
 
 Post allotment of equity shares as aforesaid, the issued, subscribed
 and paid-up share capital of your Bank stands at Rs. 373,30,45,130
 comprising of 74,66,09,026 equity shares of Rs. 5 each as on 31st March
 2013.
 
 Your Bank is well capitalised and has a Capital Adequacy Ratio (''CAR'')
 under Basel II as at 31st March 2013 of 16.05% with Tier I being
 14.71%. At a consolidated level the CAR was 17% under Basel II.
 
 During the year, your Bank has not issued any capital under Tier II. As
 on 31st March 2013, outstanding Unsecured, Redeemable, Non-Convertible,
 Subordinated Debt Bonds were Rs. 560.70 crore and outstanding
 Unsecured, Non-Convertible, Redeemable Debt Capital Instruments. Upper
 Tier II stood at Rs. 136 crore.
 
 The Board of Directors at its meeting held on 11th April 2013 had
 approved subject to necessary approvals, issue of 2,00,00,000 equity
 shares of Rs. 5 each for an issue price of Rs. 648, to Heliconia Pte
 Ltd., an affiliate of Government of Singapore Investment Corporation
 Pte Ltd. (GIC) on preferential basis. Members'' approval is sought by
 way of Special Resolution at the Extraordinary General Meeting
 scheduled to be held on 9th May 2013.  
 
 OPERATIONS
 
 Your Bank scaled up the momentum on network expansion including a much
 wider coverage in semi-urban and rural India and now has 437
 full-fledged branches and 961 ATMs, covering 255 locations. Your Bank
 added over six hundred thousand new customers this year across core
 banking products of savings and checking accounts, term deposits,
 overdrafts and non-resident accounts.
 
 Your Bank''s decision to respond to the opportunity presented by
 deregulation on interest rates on savings account last year and offer
 higher rates to our customers extended the gains this year as well in
 the form of an accelerated growth in the savings book.
 
 Your Bank rolled out several initiatives aimed to offer superior and
 differentiated customer experience. Some key ones are:
 
 A) Products
 
 - Your Bank launched a special Savings Program for Women under the
 title ''Silk''. This program has been designed to systematically improve
 the acquisition rates of women-held accounts. The decision to launch
 these accounts was taken basis the distinctly better behavior of the
 existing women-held accounts. This program provides a host of
 additional features and benefits, including rewards on debit card
 spends, discounts on gold and lockers and lifestyle benefits. Your Bank
 has acquired approx. 30,000 customers under this program.
 
 - Your Bank has also launched a white labeled solution for Personal
 Finance Management called Kotak Money Watch. This portal would also be
 developed to have community features and have educational content about
 finance for the user.
 
 - Privy League, the program for the affluent and mass affluent
 customer segment, was revamped and extended to branch customers, non-
 individual customers and non-resident customers. Your Bank now services
 approx. 40,000 Households and Businesses under this program.
 
 - Your Bank made significant progress in the enrolments under NPS
 (New Pension System) product. Your Bank is now the corporate agent to
 more than 119 corporates and facilitates registration of their
 employees to this program. Your Bank is the first POP (point of
 presence) to offer online PRAN (Permanent Retirement Account Number)
 generation facility.
 
 - General Insurance: Your Bank has enhanced the bouquet of products
 offered under General Insurance through the corporate tie up with Tata
 AIG General Insurance. New products introduced are in the health,
 travel and motor insurance space and would be offered to customers
 through the network of bank branches and corporate salary channel.
 
 - Trade and Retail FCY: Your Bank enhanced the Trade and Forex
 Services proposition during the year with launch of ''GTA'' (Global Trade
 Account), an exclusive current account that caters to the requirement
 of the exporters and importers with a simplistic and transparent tariff
 structure. The same was well received by the customers.
 
 - Another customer friendly initiative aimed at providing total
 transparency in FX dealings, was the launch of forex platform ''FX
 LIVE'', which offers complete flexibility and convenience to the clients
 in tracking FCY rates.
 
 B) Process
 
 - Savings Account Instakit : Your Bank now offers instant account
 opening to savings account customers through InstaKit. This initiative
 has reduced the end to end delivery time by 2 to 3 days in customer''s
 ability to transact on a new account and has also brought in cost
 saves.
 
 - Currency Chest- Your Bank set up its second Currency Chest in
 Delhi. This unit will facilitate effective cash management services for
 all branches in the NCR and service all business divisions of your
 Bank.
 
 - Your Bank launched complete online application for Saving Account,
 Privy & Term Deposit . The customer gets the account number
 instantaneously and also has the option to fund the account from
 existing account.
 
 - Your Bank also launched paperless account opening using the Tablet.
 The pilot was launched in 3 cities with about 30 sales members and will
 be rolled out to larger audience this year.
 
 C ) Technology
 
 Your Bank was in the forefront of technology enhancement across
 multiple dimensions. Some of the key initiatives being:
 
 1.  POS (Point of Service) systems for collections for Business Loans:
 This technology enables online acknowledgment to customers for money
 collected off-location and a confirmation of the same through sms. All
 transactions so done can be monitored centrally.
 
 2.  Switch Upgrade: We have migrated our Cards Switch from BASE24 to
 Electra Switch which enables us to have more features on ATMs, superior
 interface and direct connectivity with National Financial Switch of
 NPCI (National Payments Corporation of India).
 
 3.  Debit Card enabled for online transaction: We have enabled our
 Debit Card to be used online for e-commerce.
 
 4.  Net Banking - Revamp of screens of Investment, Demat, Billpay: This
 has made usage compatible with browsers like Internet Explorer, Opera,
 Google Chrome, Safari and Mozilla.
 
 5.  Immediate payment System through USSD platform of NPCI : This
 enables our customer to do IMPS (Interbank Mobile Payment Service)
 transaction, Balance Inquiry, and last 3 transactions inquiry by using
 any mobile handset.
 
 6.  Cash Deposit Machine: This machine enables customer to deposit cash
 without waiting in the queue at teller counters. Customer account gets
 credited real time and receipt is issued. Machine has features of card
 enabled usage and card less usage when customer does not come in
 person.
 
 7.  Tax Collection Platform: This module has enabled tie up with
 various State Governments to collect tax online from our customers.
 Currently we have integrated for collecting tax for Delhi VAT & CST,
 Gujarat VAT & CST, Andhra Pradesh all commercials taxes and Punjab VAT
 & CST.
 
 8.  Courtesy Callback on IVRS: This feature enables customers to leave
 a call back on IVRS (on the same number as the call-in number or on a
 different mobile number (System gives a prompt if the wait time is more
 than 45 seconds). IVRS will call the customer back as soon as a
 Customer Care Officer is available.
 
 9.  Cheque Deposit Kiosk: This machine enables customer to deposit
 cheques through a self service mode and issues acknowledgement in the
 form of a scanned image of the cheque. Machine also does validation of
 account details online.
 
 D) Service Quality
 
 - Your Bank has achieved the ISO 10002:2004 Certification for
 Complaints Management System in Consumer Banking - Retail Liabilities,
 Retail Assets and Credit Cards. Your Bank is only the second bank and
 fourth organization in India to achieve this certification. This
 endorses our commitment to customer service by building a world class
 Complaints Management System and adopting global standards prescribed
 in this regard.
 
 - Your Bank''s Service Quality improvement program - SPiRiT- Bank on
 great service was nominated in the Qimpro Awards 2011-12. The
 initiative qualified for the finals of the Qimpro Convention under the
 Innovation category and was very well received.
 
 - Your Bank has started the annual customer satisfaction tracking by
 an external accredited market research agency, IMRB, to track our
 customers'' satisfaction and loyalty levels.
 
 - Your Bank has been monitoring the mention of Kotak Bank in the
 online space and respond to customer queries through social channel of
 facebook & twitter. Your Bank plans to enhance its presence multi-fold
 in the social media in the coming year.
 
 E) Business Lines
 
 a) Non Resident Business
 
 Your Bank continues to put a significant focus on reaching out to the
 NRI community and succeeded in establishing itself as important player
 in this customer segment. Some of the noteworthy achievements /
 initiatives are:
 
 1.  Kotak NRI Banking won 2 prestigious awards at the Banking & Payment
 Asia trailblazer awards 2013, Singapore:
 
 a.  Click2Remit - Winner in the Product excellence in P2P payments
 category.
 
 b.  Privy league program for NRIs - Winner in the Service excellence in
 mass affluent Banking category.
 
 2.  Launched 3 tier Privy offerings for affluent customers with round
 the clock dedicated service desk with an industry first loyalty reward
 program which matches the requirement of this segment and encourages
 customer to primarily transact through your Bank.
 
 3.  Launched Platinum Signature Credit Card for NR customers.
 
 4.  Launched online account opening which integrates money transfer
 service - Click2remit.com.
 
 5.  Launched FCNR deposits in CHF (Swiss francs) currency and Rupee
 Advantage Plan for tenure of 5 years.
 
 6.  Your Bank entered into a strategic partnership with Foreign Banks
 like Bank of Nova Scotia in Canada for facilitating NRIs and PIOs to
 open Bank accounts with Kotak Bank and to facilitate inward remittances
 to India. Further, through its tie-up with CIMB, Malaysia, it has set
 up platform which facilitates Indians in Malaysia to remit money back
 to its account in India.
 
 7.  As a platform to reach out to the Overseas Indian Community and
 Global Business Partners, your Bank participated at various
 International Business Forums like Pravasi Bhartiya Diwas (PBD)-2013,
 Global Organization of People of Indian Origin (GOPIO) - 2013, India
 Mauritius Business Round Table - Mauritius, Confederation of Indian
 Industries (CII) & GOPIO Business Delegation to Kenya, American
 Association of Physicians of Indian Origin (AAPI) Annual Convention-
 California, North American Telugu Association (NATA) Convention -
 Houston etc.
 
 b) Priority Banking Business
 
 This business launched few innovative products for its customers under
 the ''Smart Series'', namely ''Smart Overdraft facility'', an asset product
 for Salaried customers, that provides unsecured overdraft facility up
 to Rs. 15 Lakhs and ''Smart Equity'' in association with the Kotak
 Securities Business.
 
 c) Corporate Salary Business
 
 Your Bank continued to make significant progress in the Corporate
 Salary segment, with its Salary2Wealth proposition, and acquired
 reasonable presence in many of the top Private companies, PSUs &
 Government undertakings. Further deepening the relationship in the
 Defense segment, your Bank also signed an MOU with the Indian Navy
 (besides the MOU signed in the previous financial year with the Indian
 Army) for offering the Salary2Wealth proposition to navy personnel.
 
 d) Retail Institutional & Government Banking Business
 
 Your Bank has gained significant momentum in the Retail Institutional
 and Government Banking Business and grew the CASA book by 75% over last
 financial year largely driven by our ability to offer customized
 solutions to client''s diverse banking needs. This included innovative
 offerings for Municipal Corporations, Housing Development Authorities,
 Embassies including agency business.
 
 e) Consumer Assets Business
 
 Your Bank made significant progress across all product lines in the
 Consumer Assets business.
 
 Credit Card: Your Bank''s credit card business has issued 3.30 lac cards
 by March 2013 and is in its fifth year of operations. Customer spends
 per card across all variants of cards have been amongst the top three
 in industry. The premium range of our products - VISA Signature and
 VISA Platinum have driven the spend growth in the portfolio and it
 contributes to 45% of the spend while accounting for 30% of customer
 base. This has reaffirmed the customer acceptability of the product.
 Credit card business clocked 85% growth in the spends in the year with
 a book size of Rs. 326 crore. Industry credit card spends has also
 shown sign of growth. As per RBI data on electronic payments released
 for January 2013, total credit card spends till January for this
 financial year showed a growth of 28%.
 
 Home Finance: Home Finance business has shown a significant growth
 during the year with strong demand from both Tier I and Tier II cities.
 Capitalizing on Cross Sell Opportunities through bank branches and
 continued focus on Self Employed segment led to a sustained growth
 during the year. The year witnessed very low losses on account of
 efficient and effective recovery and collection processes and policies
 adopted.
 
 Business Loans: Your Bank offers secured and unsecured Business loans,
 Loans against Properties & Working Capital Finance to self- employed
 professionals / non-professionals and Small Enterprises. This Business
 continued to witness robust growth. Your Bank successfully bought out a
 business loan portfolio of MNC bank to the tune of Rs. 700 crores. Your
 Bank continues to maintain its best in class portfolio quality through
 its effective and efficient risk management and recovery policies and
 practices. Capitalizing on the retail branch network your Bank managed
 to expand its product offerings across many new locations.
 
 F) Human Resources
 
 Your Bank has strengthened its investment in overall talent
 development. Your Bank has put in place a robust talent management
 programme to identify, nurture and provide growth opportunities for
 talent across levels and roles. Our talent management philosophy not
 only focuses on the top talent but also includes talent that needs
 handholding and specific support to be back on track to deliver
 superior performance.
 
 The Kotak Probationary Officer programme that was started last year has
 grown in strength and is now in a position to ensure regular supply of
 trained and specialist bankers who have been imparted managerial skills
 as well as core banking knowledge and skills. Encouraged by its
 success, we look forward to other similar initiatives in future.
 
 Leadership Development has been a priority for your Bank. Your Bank has
 tied up with leading management institutes for developing leaders
 across levels to improve their domain knowledge, strategic thinking and
 leadership skills.
 
 Your Bank continued its focus of building franchise with reputed large
 corporate as well as renowned mid-market customers. At the same time,
 your Bank deepened its presence in existing customers, both large
 corporate as well as mid-market. This was enabled by your Bank''s
 continued push towards customizing product offerings coupled with some
 of the best technology solutions.
 
 Your Bank continued to maintain a healthy business portfolio through a
 tough credit environment where some corporates and industries
 experienced stress. The year saw stable growth of credit demand across
 the business segments targeted by your Bank. Your Bank worked towards
 enhancing its products as well as technology platforms to build further
 customer efficiency and delight.
 
 Over the past year, the Transaction Banking Group has focussed on
 reinforcing your Bank as the Best Domestic Bank in this area. Driven by
 innovation, leveraged on robust technology and specialized product
 solutions, your Bank has been able to consistently add value to
 transaction banking clients across Cash Management & Trade Services.
 This has helped its clients achieve optimized working capital &
 liquidity management benchmarks. Conscious competition benchmarking,
 highly evolved process and product parameters, continuous client
 feedback & customized solutions have enabled your Bank to cater to the
 needs of ever-changing industry landscape .
 
 Your Bank''s in-depth understanding of client requirements and ability
 to deliver tailored solutions in both Trade & Cash Management
 businesses, has been acknowledged by industry''s leading agencies. We
 have been adjudged the Best Domestic Trade Bank in India by Trade &
 Forfaiting Review and Best Local Cash Management Bank in India by
 Asiamoney (the Asiamoney awards are based on scores formed from a
 corporate survey conducted by Asiamoney (less than or equal to USD 100
 mn.)).These awards stand testimony to your Bank''s focussed approach
 towards Transaction Banking and Client Centric solutions.
 
 The macro economic conditions have a significant correlation with the
 Commercial Vehicle (CV) and Construction Equipment Sectors (CE). With
 the GDP growth dropping significantly, the sales of CV and CE showed a
 sharp decline from the previous year. Heavy Commercial Vehicles (HCV)
 category fell by 22%, Light Commercial Vehicles (LCV) by 17% and CE by
 9%. Only Small Commercial Vehicles (SCV) has shown growth of 20%.
 Combined with this, the diesel price hikes adversely affected operator
 earnings. The emphasis therefore was on strengthening the collection
 mechanisms particularly on increasing customer contacts, using
 technology (like hand held devices) to improve collection efficiency
 and transparency. The task of building distribution for LCVs and SCVs
 (which started in the previous year) continued during the year
 resulting in improved numbers. HCV and CE numbers saw decline (in line
 with the market trends). Working Capital lines to CV and CE customers
 and Dealer Funding has grown during the year.
 
 The financial year saw an erratic and underperforming monsoon season
 across various parts of the country. This had an impact on the prices
 of most agriculture commodities especially like cotton, wheat, soya,
 pulses, maize, oil seeds which are seeing new increases in prices. The
 opening of exports of the major commodities like paddy, wheat and
 cotton also added to the price rise of these commodities. The overall
 commodity price rise impacted the fortunes of the farmers and agro
 processing segments where food prices have increased which while
 impacting retail inflation has not shown much demand destruction.
 
 However the impact of the economic slowdown is being slowly felt with
 slowdown in the sales of tractors and impacting housing and commercial
 projects in the tier III cities and below. Real estate prices did not
 show the price rise that have been seen the last 4 years in the rural
 towns.
 
 The Agri business of your Bank however continued to grow and will show
 another year of Y-o-Y (year on year) increase of over 35% in portfolio
 size despite a slight slowdown in tractor loans portfolio. Repayment
 behaviour was less sluggish compared to the stresses seen in the
 corporate and commercial vehicles segments.
 
 Your Bank closely monitored the states and territories impacted by low
 rains and focussed on funding for cash crops and crops that are more
 resistant to shortage of water. Focus has also been to lend to
 scientifically developed agri projects such as floriculture and for
 warehouse construction and for allied activities such as dairy &
 poultry projects where adequate backup arrangements have been set up.
 
 Your Bank continues to deepen its presence in the tier III and lower
 tier cities and their outreach areas which show demand for loans for
 agriculture and agro processing and agri trading activities. Demand for
 working capital continues as commodity prices continue to rise as agro
 processors see the need to hold stocks on account of shortfall in
 arrivals.
 
 The RBI''s initiatives have been to bring the twin banking initiatives
 of priority sector lending and financial inclusion closer with more
 focus on the smaller farmers and micro enterprises in the non-urban
 markets. To achieve this, the regulator has issued fresh norms for
 lending to the priority sector. Your Bank in response to this,
 accelerated the setting-up of rural branches with a lending focus for
 the priority segments into under banked and unbanked towns. In this
 year 46 such rural branches were launched across states. Your Bank saw
 promising growth in demand for agri loans from these branches.  Your
 Bank during the year acquired significant amount of retail NPA
 portfolios comprising of mortgage loans, credit card dues, personal
 loans, small business loans etc., from various banks and institutions.
 In the coming year as well we expect good opportunities in buying the
 retail NPA Portfolios.  Although the general level of NPAs in the
 banking system has gone upsignificantly, the sale of NPA portfolio''s
 from banks and institutions have been sluggish for corporate loans. The
 resolutions of corporate NPAs through sale of properties have been
 sluggish for the year, as for the sale of large properties there were
 very few bidders, we however expect the situation may ease during this
 financial year.
 
 Bank''s Treasury actively contributes to your Bank by way of:
 
 - Proprietary Trading: The various proprietary trading desks actively
 trade in products such as Fixed Income, Money Markets, Derivatives,
 Foreign Exchange and Bullion.
 
 - Customer Transactions:
 
 - Facilitating access to foreign currency markets through cash &
 derivatives products and providing fine market rates to Clients for
 Remittance and Trade transactions.
 
 - Client solutions - standardised and structured, pertaining to Debt
 Capital Markets including Syndication of Loans, Bonds, Mezzanine
 financing, Promoter funding and acquisition financing and
 Securitisation.
 
 - Balance Sheet Management: The Balance Sheet Management Unit (BMU)
 manages the Asset Liability mismatches, Interest rate & Liquidity gaps
 and implementation of Funds Transfer Pricing between various business
 units. The Correspondent Banking Division within Treasury actively
 builds upon relationships with offshore banks towards improving quality
 and international reach for its customers.
 
 During the year, your Bank continued its strategy of upgrading the
 foundation technology to ensure scalability and augmented
 functionality. Last year, the Core Banking system was upgraded. This
 year the Switch which drives ATMs was upgraded. The new State of the
 Art system will enable high volumes and will also provide a large
 number of enhanced functions such as RTGS/NEFT on the ATMs.
 
 Improved productivity through automation of internal processes was a
 focus area. Straight Through Processing was enabled for Trade Finance
 operations, resulting in decreased manpower needs. Most reconciliation
 processes within your Bank were automated, leading to improved
 operational accuracy and speed. Also, internal budgeting functions were
 automated to provide granular, and up-to-date information.
 
 Keeping abreast of Information Security changes, your Bank implemented
 innovative solutions for Distributed Denial of Services and Web
 Application Firewalls to protect against threats from Internet access.
 Your Bank was also recognized by the Data Security Council of India
 (DSCI) by being conferred the DSCI Excellence Award for Security in
 your Bank.
 
 SUBSIDIARIES
 
 Your Bank''s subsidiaries are established players in the different areas
 of financial services, viz. car finance, investment banking, stock
 broking, asset management and life insurance.
 
 FY 13 was a challenging year for the Indian economy as a whole with
 various macro-economic concerns like GDP growth, fiscal and current
 account deficit, volatility in global financial market, overall weak
 demand conditions in the global arena and the overall political
 scenario. Thus, the Indian economy showed signs of a twin deficit
 problem with a worsening fiscal and a higher current account deficit.
 Rupee-dollar exchange rates remained volatile in FY13 with a range of
 50.72-57.16. The equity markets were also volatile due to shift of
 investor preference towards debt, commodities and realty. The
 subsidiaries continued focus on cost control, maintaining market share
 and containing credit losses.
 
 Kotak Mahindra Prime Limited, the car finance company faced pressure of
 maintaining the margins in the retail car finance business during the
 year.  Kotak Securities Limited, the stock broking company continued to
 face challenges due to reduction in average daily volumes for the cash
 segment.  Further, the mix has changed significantly from cash segment
 towards low-yielding derivative segment. The company also continues to
 face intense competition in the market from existing players. Kotak
 Mahindra Capital company Limited dominated the IPO market, managing the
 four largest IPO issuances to hit the markets during the year. These
 include: Bharti Infratel, PC Jeweller, CARE Ratings, and Speciality
 Restaurants. There have been some important changes in the regulation
 pertaining to the mutual fund industry like revision in expenses
 charged to mutual fund schemes, separate option for direct investors,
 Single plan structure for mutual fund schemes etc. Kotak Mahindra Asset
 Management Company Limited has improved the asset mix under management
 during the year, in terms of future earning potential. Kotak Mahindra
 Old Mutual Life Insurance Limited continued to demonstrate consistent,
 value-based growth in a challenging and competitive environment. Post
 ULIP guidelines; the Company has shifted focus from ULIP linked
 products to traditional products and an increasing trend towards
 long-term selling. In this competitive environment, the company is also
 aggressively pursuing cost reduction strategies. The India dedicated
 funds witnessed outflows during the year reflecting investor''s
 preference for diversified country exposures. This coupled with the
 weak Indian markets resulted in the international subsidiaries
 reporting low net profit for the current year.
 
 The various activities of the subsidiaries are outlined in the
 Management Discussion and Analysis section appended to this Report.
 
 In terms of the general exemption granted by the Central Government
 vide its General Circular No.2/2011 dated 8th February 2011 under
 Section 212(8) of the Companies Act, 1956, Annual Report which consists
 of the financial statements of your Bank on standalone basis as well as
 consolidated financial statements of the group for the year ended 31st
 March 2013, has been sent to all the members of your Bank. It does not
 contain Annual Reports of your Bank''s subsidiary companies. Your Bank
 will make available full Annual Report (including the Annual Reports of
 all subsidiaries) upon request by any member of your Bank. These Annual
 Reports will be available on your Bank''s website viz. URL :
 http://ir.kotak.com/annual-reports and will also be available for
 inspection by any member at the Registered Office of your Bank.
 
 EMPLOYEE STOCK OPTION SCHEME
 
 The stock options granted to the employees currently operate under
 Kotak Mahindra Equity Option Scheme 2007 (Scheme 2007). The
 disclosures below are in respect of the year ended 31st March 2013.
 
 Options granted during the year Series 34 - 12,94,890 options
 
 Series 35 - 53,340 options
 
 Series 36 - 34,020 options
 
 Series 37 - 7,500 options
 
 Series 38 - 11,800 options
 
 Series 39 - 15,30,000 options
 
 Pricing Formula The Exercise Price shall be a price, as may be
 determined by the Board / ESOP / Compensation Committee, equivalent to
 or discounted up to 50% of the ''Average Market Price''. The ''Average
 Market Price'' for this purpose would mean the average of the closing
 price of Equity Shares of your Bank, during two weeks period prior to
 the date of the meeting of Board / ESOP / Compensation Committee at
 which ''Plan Series'' under the Scheme is approved, on the Stock
 Exchange, where there was highest trading volume during the said two
 week period, on which the Equity Shares of your Bank are listed. ''Plan
 Series'' means a documented plan framed by Board / ESOP / Compensation
 Committee for each tranche of grant of Options, to all Eligible
 Employees, at a specific Exercise Price (which is determined by the
 Board / ESOP / Compensation Committee for the purpose of that
 particular Plan Series) and other terms and conditions as mentioned in
 that Plan Series. The Board / ESOP / Compensation Committee under
 special circumstances decides that the Exercise Price shall be Rs. 5
 per share. In such cases, the immediately succeeding Directors'' Report
 / Corporate Governance Report shall carry details of the same.
 
 Options in force at the beginning of the year 1,17,85,693 options
 
 Options Vested during the year 49,74,715 options
 
 Options exercised during the year 59,19,516 options
 
 Total number of shares arising as a result of exercise of 59,19,516
 equity shares of Rs. 5 each options
 
 Options lapsed 3,78,195 options
 
 Variation of terms of options No variations made in the terms of the
 options granted under Scheme 2007.
 
 Money realized by exercise of options Exercise amount received: Rs.
 173,30,47,383.50
 
 Total number of options in force Outstanding options - 84,19,532
 options
 
 Details of options granted during the year to :
 
 (i) Senior management personnel
 
                   Name of Senior           No. of options
                   Management Personnel     granted
 
 Series 35         Mr. Dipak Gupta              53,340
 
 Series 36         Mr. C. Jayaram               34,020
 
 (ii) Any other employee who receives a grant in any one year of options
 amounting to 5% or more of options granted during that year
 
 Nil
 
 (iii) Identified employees who were granted option, during any one
 year, equal to or exceeding 1% of the issued capital (excluding
 outstanding warrants and conversions) of the Company at the time of
 grant
 
 Nil
 
 Diluted Earnings Per Share (EPS) pursuant to issue of shares on
 exercise of options calculated in accordance with AS-20 Earnings Per
 Share
 
 *The diluted Earnings Per Share (EPS) pursuant to issue of shares on
 exercise of options calculated in accordance with AS-20 is Rs. 29.33
 (Consolidated) and Rs. 18.24 (Standalone).
 
 Where the company has calculated the employee compensation cost using
 the intrinsic value of stock options, the difference between the
 employee compensation cost so computed and the employee compensation
 cost that shall have been recognized if it had used the fair value of
 the options, shall be disclosed. The impact of this difference on
 profits and on EPS of the Company shall also be disclosed.
 
 *Had your Bank (on Consolidated basis) followed the fair value method
 for accounting the stock option compensation expense would have been
 higher by Rs. 40.50 crore with consequent lower Consolidated profits
 before tax. On account of the same the diluted EPS of your Bank
 (Consolidated) would have been less by Rs. 0.37 per share.  *Had your
 Bank (on Standalone basis) followed the fair value method for
 accounting the stock option compensation expense would have been higher
 by Rs. 24.28 crore with consequent lower Standalone profits before tax.
 On account of the same the diluted EPS of your Bank (Standalone) would
 have been less by Rs. 0.22 per share.
 
 Weighted average exercise prices and weighted average fair values of
 options shall be disclosed separately for options whose exercise price
 either equals or exceeds or is less than the market price of the stock.
 
 *The weighted average price of the stock options exercised is Rs.
 609.59 and the weighted average fair value is Rs. 211.57.
 
 *Note: Above figures are derived by considering the options granted and
 exercised by employees of your Bank and its subsidiaries.
 
 A description of the method and significant assumptions used during the
 year to estimate the fair values of options, including the following
 weighted average information:
 
 A.  Stock price
 
 It is the closing market price on the National Stock Exchange of India
 Limited prior to the meeting of the Board in which the options are
 granted.
 
 B.  Volatility
 
 Volatility is a measure of the amount by which a price has fluctuated
 or is expected to fluctuate during a period. The measure of volatility
 used in the Black-Scholes option-pricing model is the annualized
 standard deviation of the continuously compounded rates of return on
 the stock over a period of time.  Accordingly, daily volatility of your
 Bank''s stock price on the NSE for the period corresponding to the
 respective expected life of the different vesting, prior to the grant
 date has been considered.
 
 C.  Risk free interest rate
 
 The risk-free interest rate being considered for the calculation is the
 interest rate applicable for maturity equal to the expected life of the
 options based on the zero-coupon yield curve for Government Securities
 as on the date of the respective grant.
 
 D.  Time to Maturity/Expected Life of options
 
 The minimum life of a stock option is the vesting period and the
 maximum life is vesting period plus the exercise period. The Expected
 life of the options has been calculated as the average of the two
 extremes - the minimum life and the maximum life. Since each vest has
 been considered as a separate grant, the expected life has been
 calculated for each vesting separately.
 
 E.  Dividend yield
 
 The dividend yield for each grant has been derived by dividing the
 dividend per share by the market price per share.
 
 Weighted average information in respect of above assumptions has been
 provided in note 10 of Schedule 17 of the notes to accounts to the
 Consolidated financial statement of your Bank.
 
 Weighted average information in respect of above assumptions has been
 provided in note 8 of Schedule 18B of the notes to accounts to the
 Standalone financial statement of your Bank.
 
 CORPORATE GOVERNANCE AND BUSINESS RESPONSIBILITY REPORT
 
 Pursuant to Clause 49 and 55 of the Listing Agreement with the Stock
 Exchanges, separate sections entitled ''Report on Corporate Governance''
 and ''Business Responsibility Report'' have been included in this Annual
 Report.
 
 Your Bank has implemented number of recommendations given in the
 Corporate Governance Voluntary Guidelines 2009 by the Ministry of
 Corporate Affairs and is examining the possibility of implementing the
 remaining recommendations.
 
 DIRECTORS
 
 Mr. Asim Ghosh and Mr. Prakash Apte retire by rotation at the Twenty
 Eighth Annual General Meeting and are eligible for re-appointment.
 
 Dr. Sudipto Mundle resigned as a Director of your Bank with effect from
 1st February 2013 in view of his appointment as a Member of the
 Fourteenth Finance Commission, Govt. of India. Your Directors place on
 record their appreciation for the valuable advice and guidance rendered
 by him during his tenure as a Director.
 
 Prof. S. Mahendra Dev was appointed as an Additional Director of your
 Bank with effect from 15th March 2013. Pursuant to the proviso to
 Section 260 of the Companies Act, 1956, he holds office as a Director
 up to the date of this Annual General Meeting but is eligible to be
 appointed as a Director.  In terms of Section 257 of the Companies Act,
 1956, your Bank has received notice in writing from a member along with
 requisite deposit of Rs. 500/- proposing candidature of Prof. S.
 Mahendra Dev for his appointment as a Director.
 
 Prof. S. Mahendra Dev, Ph.D. from the Delhi School of Economics, aged
 55 years is currently Director and Vice Chancellor, Indira Gandhi
 Institute of Development Research (IGIDR), Mumbai, India. He was
 Chairman of the Commission for Agricultural Costs and Prices (CACP),
 Govt. of India, Delhi.  He was Director, Centre for Economic and Social
 Studies, Hyderabad for 9 years during 1999 to 2008. He has done his
 Post-doctoral research at Yale University and was faculty member at the
 Indira Gandhi Institute of Development Research, Mumbai for 11 years.
 He has been a member of several government committees including the
 Prime Minister''s Task Force on Employment and Rangarajan Commission on
 Financial Inclusion. He has received honors for eminence in public
 service. He is the Chairman of the Committee on Terms of Trade on
 Agriculture constituted by the Ministry of Agriculture, Govt. of India.
 He is also member of the newly constituted Expert Panel on poverty
 estimates chaired by Dr. C. Rangarajan.
 
 During the year, your Bank was awarded as one of the six Best Managed
 Boards 2012,under Aon Hewitt-Mint Best Managed Boards Study.
 
 AUDITORS
 
 Messrs S. B. Billimoria & Co., Chartered Accountants, auditors of your
 Bank, retire on the conclusion of Twenty Eighth Annual General Meeting
 and are eligible for re-appointment subject to the approval of Reserve
 Bank of India and the shareholders. As recommended by the Audit
 Committee of the Board, the Board of Directors has proposed the
 appointment of Messrs S. B. Billimoria & Co., Chartered Accountants as
 the Statutory Auditors for the financial year 2013-14. You are
 requested tore-appoint the auditors for the current financial year and
 to fix their remuneration.
 
 STATUTORY INFORMATION
 
 The Companies (Disclosure of Particulars in the Report of Board of
 Directors) Rules, 1998, are not applicable to your Bank, however, your
 Bank has been increasingly using information technology in its
 operations.
 
 EMPLOYEES
 
 The employee strength of your Bank along with its subsidiaries as of
 31st March 2013 was over 23,500 as compared to around 22,000 employees
 a year ago.
 
 Your Bank standalone had over 13,500 employees as of 31st March 2013.
 152 employees employed throughout the year and 24 employees employed
 for part of the year were in receipt of remuneration of Rs. 60 lacs or
 more per annum.
 
 The average age of our employees is 31 years. Close to 40% of our
 employee base is professionally qualified with a healthy mix of CAs,
 MBAs and other post graduates.
 
 The Bank has won several awards and accolades for its products,
 services, technology platform and for people processes. We have been
 adjudged Top 10 in APAC (Asia Pacific) Top Companies For Leaders - 2011
 in a study conducted by Aon Hewitt in partnership with Fortune and RBL
 Group. We also continue to be amongst Top 25 Best Employers in India
 consistently from 2007 till date as adjudged by the Aon Hewitt Best
 Employers Study.
 
 The above awards were testimony to the various best practices adopted
 in the Bank in the areas of Talent acquisition, Development, Employee
 engagement and Diversity.
 
 In the last one year substantial investments continue to be made in
 training and developing of employees across levels to improve
 productivity, service quality, personal effectiveness and supervisory
 capability. We have also tied up top academic institutions for
 structured leadership development programs and customized courses.
 
 A continued area of focus for the bank and its subsidiaries last year
 was of aligning all resource to the core values of the firm and
 ensuring ethical behaviour by all its resources in all their dealing
 with internal and external stakeholders. Value based training programs
 and communication on values with linkages to existing products/
 processes was stepped up year. Identification and exhibition of correct
 values and behaviours was woven into critical human process such as
 Talent Review and Performance Management.
 
 In order to enhance timely mitigation of risk and effective grievance
 resolution at the workplace, the Bank provides all employees with an
 online anonymous whistle-blowing and grievance redressal platform.
 
 The Bank and its subsidiaries continued to carry out several
 initiatives and innovative processes which have helped in building a
 pool of highly committed and motivated employees who are aligned to the
 vision of the organization and consistently excel in delivering best in
 class products and services to our customers.
 
 In accordance with the provisions of Section 217(2A) of the Companies
 Act, 1956 and the rules framed thereunder, the names and other
 particulars of employees are set out in the annexure to the Directors''
 Report. In terms of the provisions of Section 219(1)(b)(iv) of the
 Companies Act, 1956, the Directors'' Report is being sent to all
 shareholders excluding the aforesaid annexure. The annexure is
 available for inspection at the Registered Office of your Bank. Any
 shareholder interested in obtaining a copy of the said annexure may
 write to the Company Secretary at the Registered Office of your Bank.
 
 DIRECTORS'' RESPONSIBILITY STATEMENT
 
 The Directors, based on the representations received from the
 operational management, confirm in pursuance of Section 217(2AA) of the
 Companies Act, 1956, that:
 
 (i) your Bank has, in the preparation of the annual accounts for the
 year ended 31st March 2013, followed the applicable accounting
 standards along with proper explanations relating to material
 departures, if any;
 
 (ii) they have selected such accounting policies and applied them
 consistently and made judgements and estimates that are reasonable and
 prudent so as to give a true and fair view of the state of affairs of
 your Bank as at 31st March 2013 and of the profit of your Bank for the
 financial year ended 31st March 2013;
 
 (iii) they have taken proper and sufficient care to the best of their
 knowledge and ability, for the maintenance of adequate accounting
 records in accordance with the provisions of the Act for safeguarding
 the assets of your Bank and for preventing and detecting fraud and
 other irregularities; and
 
 (iv) the annual accounts have been prepared on a going concern basis.
 
 ACKNOWLEDGEMENTS
 
 Your Directors would like to place on record their gratitude for the
 valuable guidance and support received from the Reserve Bank of India,
 Securities and Exchange Board of India, Insurance Regulatory and
 Development Authority and other Government and Regulatory agencies.
 Your Directors acknowledge the support of the members and also wish to
 place on record their appreciation of employees for their commendable
 efforts, teamwork and professionalism.
 
 For and on behalf of the Board of Directors
 
 Dr. Shankar Acharya                                Place: Mumbai,
 
 Chairman                                           Date: 2nd May 2013
Source : Dion Global Solutions Limited
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