Kotak Mahindra Bank Directors Report, Kotak Mahindra Reports by Directors
Kotak Mahindra Bank
BSE: 500247|NSE: KOTAKBANK|ISIN: INE237A01028|SECTOR: Banks - Private Sector
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Directors Report Year End : Mar '14    « Mar 13
The Directors present their Twenty Ninth Annual Report together with
 the audited accounts of your Bank for the year ended 31st March 2014
 (A) Kotak Mahindra Bank Limited - Consolidated financial highlights:
                                   31st March 2014      31st March 2013
                                         Rs. crore            Rs. crore
 Total income                            17,268.29            15,950.27
 Total expenditure, excluding 
 provisions and contingencies            13,263.82            12,622.93
 Operating Proft                          4,004.47             3,327.34
 Provisions and contingencies, 
 excluding provision for tax                308.97               183.18
 Proft before tax                         3,695.50             3,144.16
 Provision for taxes                      1,183.96               939.95
 Profit after tax                         2,511.54             2,204.21
 Less: Share of minority interest            62.17                49.33
 Add: Share in profit of 
 Associates                                  15.62                33.58
 Consolidated profit for the Group        2,464.99             2,188.46
 Earnings per Equity Share:
 Basic (Rs.)                                 32.19                29.44
 Diluted (Rs.)                               32.14                29.33
 (B) Kotak Mahindra Bank Limited - Standalone financial highlights:
                                   31st March 2014     31st March 2013
                                         Rs. crore           Rs. crore
 Total Income                            10,166.83            9,203.16
 Total expenditure, excluding 
 provisions and contingencies             7,589.68            7,046.55
 Operating Profit                         2,577.15            2,156.61
 Provisions and contingencies, 
 excluding tax provisions                   304.70              184.55
 Profit before tax                        2,272.45            1,972.06
 Provision for taxes                        769.93              611.34
 Profit after tax                         1,502.52            1,360.72
 Add: Surplus brought forward from 
 the previous year                        3,016.60            2,162.79
 Amount available for 
 appropriation                            4,519.12            3,523.51
 Statutory Reserve under Section 
 17 of the Banking Regulation 
 Act, 1949                                  375.63              340.18
 General Reserve                             75.13               68.04
 Transfer to / (from) Investment 
 Reserve Account                           (41.10)               10.52
 Transfer to Capital Reserve                  0.40                0.00
 Transfer to Special Reserve                 32.00               28.50
 Proposed Dividend                           63.08               52.38
 Corporate Dividend Tax                       8.69                7.29
 Surplus carried to Balance
 Sheet                                    4,005.29            3,016.60
 Your Directors are pleased to recommend a dividend of Rs. 0.80 per equity
 share (previous year Rs. 0.70 per equity share), entailing a payout of 
 Rs. 71.77 crore including dividend distribution tax (previous year Rs. 
 59.67 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.
 Pursuant to the approval granted by the Members at an Extraordinary
 General Meeting held on 9th May 2013 and receipt of other necessary
 approvals, in May 2013 your Bank allotted 2,00,00,000 equity shares of
 Rs.5 each to Caladium Investment Pte Ltd. (earlier known as Heliconia Pte
 Ltd.), an affliate of Government of Singapore Investment Corporation
 Pte Ltd. (GIC) on preferential basis at a price per equity share of
 Rs.648 for a total consideration of Rs.1296 crore.
 During the year, your Bank has allotted 37,01,975 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. 3,85,15,55,005
 comprising of 77,03,11,001 equity shares of Rs. 5 each as on 31st March
 Your Bank is well capitalised and has a Capital Adequacy Ratio (''CAR'')
 under Basel III as at 31st March 2014 of 18.8% with Tier I being 17.8%.
 At a consolidated level the CAR was 18.9% under Basel III.
 During the year, your Bank has not issued any capital under Tier II. As
 on 31st March 2014, outstanding Unsecured, Redeemable Non-Convertible,
 Subordinated Debt Bonds were Rs. 482 crore and outstanding Unsecured,
 Non-Convertible, Redeemable Debt Capital Instruments Upper Tier II
 stood at Rs. 405.62 crore.
 Consumer Banking
 Your Bank continued to expand its footprint across India and as at 31st
 March 2014 had 605 branches and 1103 ATMs, covering 354 locations. Of
 the 168 new branches commissioned this year, 94 were in rural and
 semi-urban locations. Your Bank added over six hundred twenty thousand
 new customers this year across core banking products of savings and
 checking accounts, term deposits, overdrafts and non-resident accounts.
 Your Bank rolled out several initiatives aimed at offering a superior
 and differentiated customer experience. Some key ones are
 Products & Services
 - Your Bank launched a new savings bank proposition for minors called
 Kotak Junior. Under the proposition, the child gets a personalized
 Junior Card and there is a regular investment from her account towards
 Recurring Deposit /Systematic Investment Plan for her future goals.
 There is a mandatory linked account of the Guardian who can opt for
 convenience of a standing instruction for automatic transfer of fund
 from his account to the minor''s account.
 - Your Bank has launched the Recurring Deposit product which completes
 the suite of deposit offerings. This product offers a systematic
 savings avenue to help build corpus for achieving short/ medium term
 - A new platform, JIFI, was launched to enable banking on social
 networking sites including Facebook and Twitter. The platform enables
 digital natives to open accounts and transact payments on social
 networking sites that they are familiar and comfortable with. The
 account gives the customer loyalty points for his social as well as
 transactional behavior which can be redeemed for gift & discount
 vouchers from popular online shopping sites. This account also offers a
 feature packed Debit Card.
 - Your Bank has introduced differentiated cards with additional
 features. These include the Infnite Debit Card, a top end Visa product
 for Wealth customers, Signature Debit Card for Privy Optima customers
 and a Multi-Currency Travel Card - a prepaid card that can be used
 globally. As per RBI mandate, your Bank completed the launch of Chip
 Debit Cards successfully. We were among the few banks to offer chip
 cards on all debit card variants and also issue chip cards as default
 cards to select segment of customers.
 - Third Currency Chest in Ahmedabad - Your Bank has set up its third
 Currency Chest in Ahmedabad in February 2014. This unit will facilitate
 effective cash management services in Ahmedabad and parts of Gujarat.
 Business Lines
 a) Non Resident Business
 Your Bank continues to deliver innovative products and services in its
 endeavor to become a preferred banker amongst the NRI community
 globally.  Some of the key initiatives taken this year are:
 1.  Launch of NRI Tax Saver TD & FCNR (B) Deposit in Singapore Dollars
 2.  Launched of attractive high-yielding structures against FCNR (B)
 3.  Launch of Max Yield NRO Term Deposit to enable NRI customers
 residing in select countries to avail lower TDS benefit under the Double
 Taxation Avoidance Agreement (DTAA), between India and the overseas
 4.  Click2Remit service compliant with the regulatory requirement under
 Section 1073 of the Dodd-Frank Wall Street Reform and Consumer
 Protection Act of United States effective 28th October 2013.
 5.  Launched of ''Missed Call'' & ''SMS to call'' service for NRI
 6.  Introduction of a toll-free service for NRI customers in 5
 additional geographies: UK, Canada, Singapore, Australia and Hong Kong.
 7.  Entered into an agreement with Overseas Chinese Banking Corporation
 (OCBC, Singapore) facilitating NRIs and PIOs to open Bank accounts with
 your Bank in India.
 8.  Tied up with Al Zamil exchange house, Saudi Arabia for NRI customer
 referrals. This alliance has been initiated to facilitate the existing
 customers of the exchange house.
 9.  As a platform to reach out to the overseas Indian community and
 global business partners, your Bank participated in various
 international business forums such as Pravasi Bhartiya Diwas
 (PBD)-2014, Regional PBD, Sydney, AIA Diwali Mela – New York, TIE
 Conference – California, Dilwale Dilliwale (One of the biggest Indian
 community event in Canada)– Toronto.
 b) Priority Banking Business
 Privy League, the program for the affluent and mass affluent customer
 segment, now services approximately 1.25 lakh households and
 businesses.  Your Bank strengthened the Privy League proposition by
 launching ''Smart Home'', an exclusive offering for program customers. A
 premium call back service KPRIVY, was launched which enhanced the
 service delivery for the program customers. The Priority Banking
 business piloted sourcing new accounts on a Tablet, which offers
 clients a quick & paperless account opening experience.
 c) Consumer Assets Business
 Your Bank has continued to grow the product lines under the Consumer
 Assets business.
 Credit Card: Your Bank''s credit card business has issued 4.33 lac cards
 by March 2014 and is in its sixth year of operations. The premium range
 of our products – VISA Signature and VISA Platinum have driven the
 spends growth in the portfolio and it contributes to 57% of spends,
 while accounting for 30% of customer base. The Credit card business has
 clocked total spends of Rs.2437 crore for the year at 59% growth Y-o-Y
 with a book size of Rs.488.3 crore. As per RBI data on electronic
 payments released for November 2013, total credit card spends for the
 industry has grown by 25% for April to November 2013 period over last
 Salaried Personal Loan: Your Bank''s Salaried Personal Loan business
 offers salaried individuals personal loans with a tenure of upto 60
 months. It has disbursed loans of Rs.390 crore in FY 2013-14 in its 3rd
 year of operations. This year the business has grown by 56% with a SOH
 of Rs. 510 crore as of March 2014. The total customer base stands at
 11000 customers.
 Home Finance: Home Finance business has shown a decent growth during
 the year with strong demand from both Tier I and Tier II cities despite
 a highly volatile market. 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.
 d) Business Banking Assets (BBA): Your Bank through its BBA division
 offers secured and unsecured Business loans, Loans against Property &
 Working Capital Finance to self-employed professionals /
 non-professionals and Small Enterprises. The growth in your Bank''s BBA
 business was robust during the financial year ended 31st March 2014 with
 its book growing by 20.7%. Your Bank continues to maintain its best in
 class portfolio quality through it effective and efficient risk
 management and recovery policies and practices. Capitalizing on the
 retail branch network your Bank managed to expand its product offering
 in over 300 Branches.
 Wholesale Banking
 Your Bank consolidated its franchise across customer segments by
 focusing towards serving customised requirements through an array of
 financial products and services driven through best-in-class technology
 Your Bank also continued to work towards ensuring a healthy portfolio
 through a volatile economic as well as a tough credit scenario in the
 last financial year. The financial year saw a stable demand on credit
 Over the past year, the Transaction Banking Group has focused 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 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 has introduced the
 following key initiatives to serve customers better:
 - Service Hubs: To move the trade services closer to the customers,
 your Bank has set up service hubs in trade centric locations – Tirupur,
 Rajkot, Jodhpur, Indore, Faridabad, Kanpur and Ludhiana. This has
 helped reducing the processing time of export and import transactions.
 Global Bulk Payment Solution: Your Bank has launched a convenient way
 of handling multiple payments of repetitive nature with less paper work
 and better operational control through its Global Bulk Payment Solution
 platform. This facility enables customers to upload flees containing the
 details of several cross-border payments (in USD) to be remitted to
 various recipients across the globe, thereby eliminating the
 transaction level paper work and reducing the overall cost for
 Multiple Currency EEFC & SFC accounts: To help export- import customers
 manage the FX flows in a more efficient manner, your Bank has started
 operations in currencies such as Swedish Kroner (SEK), Hong Kong Dollar
 (HKD), South African Rand (ZAR) and Danish Kroner (DKK). Thus, the
 total number of currencies handled by your Bank has increased to 13.
 Tax Payment: Your Bank offers a ''Comprehensive Statutory Payment
 Solution'' to its Customer via direct integration with Tax authorities,
 payment aggregators and various partner banks. Your Bank has developed
 a Government Business Module (GBM) for its customers to process payment
 of Direct (CBDT) / Indirect Taxes (CBEC) through Net Banking and Branch
 channel. Currently, your Bank has been empanelled as Agency Bank for
 collecting tax for a) Delhi VAT & CST, Gujarat VAT & CST, b) Andhra
 Pradesh all Commercials taxes, c) Punjab VAT & CST, d) Bihar VAT & CST
 and e) Odisha VAT & CST.
 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. Your
 Bank has been adjudged the Best Domestic Trade Bank in India by Trade
 & Forfeiting 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 (turnover less than or equal to
 USD 100 mn). These awards stand testimony to your Bank''s focused
 approach towards Transaction Banking and Client Centric solutions.
 Commercial Banking
 Commercial Vehicles & Construction Equipment
 The Commercial Vehicles (CV) and Construction Equipment (CE) sectors
 have witnessed continued slow down since 2011-12 which persisted this
 year.  This is the longest period of cyclical slow down ever witnessed
 in the CV sector. CV sales, across segments dropped on a reduced base.
 The CE sector witnessed lower off take, elongated payment cycles and
 the drop in the investment rate hit the sector hard. In the light of
 these factors, your Bank''s strategy was to sharply focus on receivables
 management during the year. Indications are that the CV sector may have
 bottomed out as indicated by the slight improvement in freight rates in
 Q4 and operator confidence improving. On a macro level, the GDP growth
 in 2014-15 is expected to be better than the previous year. Given this,
 the CV sector is expected to grow (with a lag) towards the latter half
 of 2014-15. Emphasis on infrastructure growth and project clearances
 should pave the way for a revival in the CE sector as well. Your Bank
 is positioned to accelerate growth in these segments should a
 sustainable turnaround be seen.
 Agri Business
 Some of the salient developments in the Agri Business are as follows:
 - Direct customer lending through retail agri loans portfolio has
 increased 39% Y-o-Y indicating the continuing robustness in the Agri
 - The Agri Business reached a presence in 100 locations that cover over
 300 districts in 17 states.
 - The Corporate Agri team exclusively handled their first Inter Bank
 Participation Certificate transaction of Priority sector qualifying SME
 loans amounting to Rs.99.7 crore from Citi Bank. They also handled the
 frst exclusively managed inward remittance from an International Equity
 fund for a stake buy of Rs. 92 crore in their MFI client.
 - The newly started small ticket business loans focused on micro SME
 clients in small towns has crossed 400 contracts with nil delinquency.
 - The new specialised Agriculture Financing branches were opened in the
 4 metros of Navi Mumbai, Jaipur, Chennai & Hyderabad in the APMC
 markets. 3 of the branches were inaugurated by the Executive
 Director/Regional Directors of Reserve Bank of India (RBI) indicating
 their significance to the Financial Inclusion mandate of the RBI.
 - The Agri business also had a significant focus on liability products
 in the liability branches run by the Agri team Emerging Corporate Group
 - The Emerging Corporate Group expanded to new locations to partner
 with SMEs, and launched knowledge forums and engagement initiatives
 with promoters of SMEs.
 - The group participates in India''s growth by partnering some of the
 best small and medium enterprises (SMEs)
 Asset Reconstruction
 The retail recoveries of credit card, business loans, personal and
 mortgage loans have been robust with respect to the portfolios
 purchased from other banks and NBFCs. The recoveries were further
 enhanced due to CIBIL reporting and scoring of borrower rating by the
 retail credit rating agencies. The corporate recoveries continue to be
 challenging with the economy being sluggish and the exit from few large
 accounts expected to happen through the sale of assets.
 Your Bank is expecting several special situation opportunities in the
 coming financial year and it will be in a position to invest in such
 opportunities, in the coming years.
 Your 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 - standardized 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 on relationships with offshore banks towards improving quality
 and international reach for its customers.
 RBI vide circular DBOD.BP.BC.No.41/21.04.141/2013-14 dated 23rd August
 2013 on Investment portfolio of banks - Classification, Valuation and
 Provisioning, as a one-time measure permitted banks to transfer SLR
 securities from Available For Sale (AFS)/Held For Trading (HFT)
 category to Held To Maturity (HTM) category at valuation rates
 prevailing on 15th July 2013, provided the transfer happened before
 30th September, 2013. Your Bank has not transferred any SLR security
 from AFS/HFT category to HTM category. The Bank''s SLR securities in HTM
 category as at 31st March 2014 were 11.43% of net demand and time
 liabilities (NDTL). As permitted under the same circular, your Bank has
 opted to distribute the net depreciation on the AFS and HFT portfolios
 over the last three quarters during the financial year 2013-2014.
 Accordingly, your Bank has recognised Rs. 175.08 crore in the Profit and
 Loss Account for the year ended 31st March 2014 respectively.
 Human Resources
 Your Bank has continued its investment in its Human Capital. The talent
 management programme has become an integral part of overall performance
 management process in the Bank. Your Bank believes in driving
 businesses through its core values. Through organizational values and
 talent management process we aim to provide long term, sustained and
 meaningful career to employees across the organization. Our talent
 management philosophy not only caters to the needs of the top talent
 but also recognises the handholding and specific support or development
 that is required by talent all across the Bank.
 The Kotak Probationary officer (KPO) programme has now been established
 as a sustainable source of quality resources who have been pre-trained
 to become specialist bankers with managerial skills. The KPO programme
 will help us meet our staffing needs in a regular and timely manner.
 As we grow and evolve further as an organization, leadership
 development remains a key focus area in our organizational learning
 initiative. Areas like managing and developing teams, self-development,
 service delivery and strategy were some other areas wherein we
 continued our investment. We also recognise that functional training is
 key to equip employees with strong domain knowledge and your Bank has
 continued in its focus and commitment towards developing strong
 functional competencies in its employees.
 Your Bank has a robust e-learning platform and employees of all
 divisions get their basic training imparted through this platform and
 benefit from the same. This year your Bank introduced mandatory annual
 e-learning certifications starting with Anti-Money Laundering and Know
 your Customer Norms for all consumer bank employees with a focus to
 ensure employee alertness and awareness in the changing environment.
 Engaging employees in knowledge development, K Factor, the 6th Annual
 Consumer Bank quiz was held and got participation from 5000 employees,
 an increase of 15% over the last year.
 This year, your Bank had a major focus in the area of digitization. An
 upgraded Mobile Banking platform was launched which received much
 customer appreciation. Its capability extends across the gamut of
 banking including payments, credit cards, depository and investment
 Your Bank''s website was upgraded providing esthetically designed
 screens and ease of navigation. New banking functions were added to
 provide a wider range of self service options especially in the area of
 fxed deposits and bill payments. Your Bank has tied up with IRCTC to
 allow customers to book train tickets using Kotak net banking. An
 online fully automated platform has been launched for personal loans
 whereby the customer can apply for a loan, get to know eligibility, as
 well as get in principle approval based on his data.
 Simultaneously, security on the internet was emphasized with improved
 password generation mechanisms. We have also added the digital
 signature facility to the Bank''s statements. With the launch of a new
 alert system it is now possible for us to send alerts to customers in
 real time on their transactions both on ATM and POS terminals. These
 initiatives enhance the security and authenticity of our proposition
 In our endeavor to enhance our customer''s banking experience we have
 launched kiosk banking, which is a self- service banking terminal that
 can fulfill non-cash banking requirements such as printing account
 statements, requests for cheque books, transfer of funds, information
 on products and so on We have also enhanced our multi lingual
 interactive voice recognition capability in telephone banking to
 include 4 regional languages, namely Hindi, Marathi, Gujarati and
 Your Bank has introduced a Visa Intellilink Reporting System which
 gives corporate clients the ability to access and control spends on
 their corporate cards.
 Your Bank also started initiatives in the area of analytics to better
 understand customer preferences and needs. A world class system, Unica
 from IBM, was implemented and leveraged to launch several customer
 campaigns for cross sell and targeted product offers.
 Governance and Control was an area of concentration, with systems being
 deployed for bank-wide credit management, automated concurrent audits,
 budgeting and regulatory reporting. Your Bank deployed a best in class
 risk control and aggregation system called GLEMS from Tata Consultancy
 Services Limited which enables it to evaluate customer risk better and
 gives a single view of the entire customer relationship with all
 associated parameters across the lending businesses of the Kotak group.
 Service Quality
 - The Banking Codes and Standard Board of India along with CRISIL
 surveyed and rated 48 banks for the first time on different aspects such
 as Information Dissemination, Transparency, Customer Centricity,
 Grievance Redressal and Customer Feedback. Your Bank has been assigned
 high rating with a total score of 85, ranking second among the 19
 private sector banks and third among all banks on level of compliance.
 - Your Bank has obtained the ISO 10002:2004 Certification for Complaints
 Management in the Consumer Bank for the third year in a row. Your Bank
 is only the second bank and fourth organization in India to achieve
 this certification.
 - Your Bank is one of very few in India, that uses Twitter as a
 customer support channel, with over 85% of our tweets being replies to
 customers.  Your Bank is the first bank in the country to reach the
 milestone of 1 lac followers on Twitter.
 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.
 The overall macro-economic environment for the Indian economy in FY
 2014 continued to stay on a relatively weak footing, even though some
 improvements were seen with respect to the twin deficit problems – both
 the fiscal and the current account. The financial markets witnessed
 turbulence in the early part of the year, mostly as a reaction to the
 talks of the Quantitative Easing (''QE'') withdrawal by the US Federal
 reserve, leading to some sharp depreciation pressures on the INR and
 also a sharp increase in the government security yields. On the other
 hand, the economy continued to witness relatively high inflation levels,
 mainly on account of higher food prices. After being in a narrow range
 in the early part of the financial year, USD/INR witnessed significant
 depreciation pressure from around mid-May as the US Fed announced its
 intention to scale back its bond purchases. INR depreciated sharply
 between 23rd May 2013 (quoting at 55.58/USD) to the highs of 68.83/USD
 on 28th August 2013. The equity markets were volatile in FY 2014 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 continued to focus
 on cost control and containing credit losses, while improving its
 positioning in the car finance market by scaling up the business.
 Kotak Securities Limited, the stock broking company continued to face
 challenges due to shift in mix from the cash segment towards
 low-yielding derivative segment with cash segment being less than 10%
 of the total traded market volumes. The broking industry faces over
 capacity causing pressure on realization rates.
 Kotak Mahindra Capital Company Limited successfully completed 17
 marquee transactions across various product formats, including FPO of
 Power Grid Corporation of India Limited and Engineers India Limited
 that hit the Indian capital markets in FY 2014.
 Average Assets under management (AAUM) of Kotak Mahindra Asset
 Management Company increased by 14.19%, higher than the industry growth
 of 12.83%.
 Kotak Mahindra Old Mutual Life Insurance Limited continued to adjust to
 the changes in industry and environment and further improved its
 distribution strength. The Company continues to demonstrate consistent
 growth in a challenging and competitive environment.
 The overall profitability of the International subsidiaries improved
 during the year owing to robust revenues from asset management,
 proprietary investments and advisory income.
 During the year, a new subsidiary of the Bank viz. Kotak Mahindra Asset
 Management (Singapore) Pte. Ltd. was incorporated in Singapore with the
 principal objective of carrying on asset management activity out of
 Singapore for International investors.
 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 2014, 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 : and will also be available for
 inspection by any member at the Registered Office of your Bank.
 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 2014.
 Options granted during the year  Series 40 - 10,07,160 options
                                  Series 41 - 60,000 options
                                  Series 42 - 24,000 options
                                  Series 43 - 50,000 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            84,19,532 options
 Options Vested during the year   31,38,334 options
 Options exercised during the 
 year                             37,01,975 options
 Total number of shares arising 
 as a result of exercise of 
 options                          37,01,975 equity shares of Rs. 5 each
 Options lapsed                   5,05,047 options
 Options granted during the year  11,41,160 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.
 Total number of options in force Outstanding options - 53,53,670 
 Details of options granted 
 during the year to :                      Name of Senior         No. of 
                                           Management Personnel  granted
 (i) Senior management personnel
                                  Series 41 Mr. Dipak Gupta       60,000
                                  Series 42 Mr. C. Jayaram        24,000
 (ii) Any other employee who 
 receives a grant in any one      Nil 
 year of options amounting to 
 5% or more of options granted 
 during that year
 (iii) Identified employees who 
 were granted option, during      Nil 
 any one year, equal to or 
 exceeding 1% of the issued 
 capital (excluding outstanding 
 warrants and conversions) of 
 the Company at the time of
 Diluted Earnings Per Share (EPS)
 pursuant to issue of shares      * The diluted Earnings Per Share (EPS)
 on exercise of options calculated  pursuant to issue of shares on 
 in accordance with AS-20           exercise of options calculated in
 Earning Per Share                  accordance with AS-20 is Rs. 32.14 
                                    (Consolidated) and Rs. 19.56
 Where the company has calculated
 the employee                     * Had your Bank (on Consolidated 
                                    basis)  followed the fair value 
                                    method for accounting
 compensation cost using the 
 intrinsic value of stock options,  the stock option compensation 
                                    expense would have been higher by 
                                    Rs. 33.83 crore 
 the difference between the 
 employee compensation cost so      with consequent lower Consolidated
                                    profits before tax. On account of the
                                    same the
 computed and the employee
 compensation cost that shall       diluted EPS of your Bank 
                                    (Consolidated) would have been less 
                                    by Rs. 0.30 per share.
 have been recognized if it had
 used the fair value of the
 options, shall be disclosed. The
 impact of this difference on     * Had your Bank (on Standalone basis)
                                    followed the fair value method for
 profits and on EPS of the Company
 shall also be disclosed.           the stock option compensation 
                                    expense would have been higher by Rs.
                                    22.19 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. 0.19 per share.
 Weighted - average exercise
 prices and weighted - average    * The weighted average price of the 
                                    stock options exercised is Rs. 544.55
                                    and the Weighted Average fair value 
 fair values of options shall be    is Rs.715.40.
 disclosed separately for options  
 whose exercise price either 
 equals or exceeds or is less than
 the market price of the stock.
 *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          A. Stock price
 used during the year to estimate
 the fair values of options,      
 including the following weighted
 - average information:              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 live 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 
                                     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 
                                  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 9 of Schedule 18B of 
                                  the notes to accounts to the 
                                  Standalone financial statement of your 
 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
 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.
 Your Bank has inaugurated its new Corporate Office at Bandra Kurla
 Complex, Mumbai. The Board of Directors at its meeting held on 14th
 March 2014, approved the change of Registered Office of the Bank from
 its earlier location at 36-38A Nariman Bhavan, 227, Nariman Point,
 Mumbai - 400 021, to 27BKC, C 27, G Block, Bandra Kurla Complex, Bandra
 (E), Mumbai – 400 051 with effect from 31st March 2014.
 Mr. N. P. Sarda, the Non-Independent Director of the Bank, retires by
 rotation at the Twenty Ninth Annual General Meeting and is eligible for
 The Board of Directors of the Bank, at its meeting held on 9th May
 2014, has re-appointed Mr. Uday Kotak as Executive Vice-Chairman and
 Managing Director for the period from 1st January 2015 to 31st December
 2017, subject to the approval of the shareholders and of the Reserve
 Bank of India.  Mr. Dipak Gupta has been re-appointed as Whole-time
 Director of the Bank designated as Joint Managing Director for the
 period from 1st January 2015 to 31st December 2017 subject to the
 approval of the shareholders and of the Reserve Bank of India. The
 approval of the shareholders in this regard is being sought at the
 ensuing Annual General Meeting of the Bank.
 The term of Mr. C. Jayaram as Whole-time Director of the Bank
 designated as Joint Managing Director expires on 31st December 2014.
 Mr. Jayaram would retire on the expiry of his term.
 In terms of Section 139 of the Companies Act, 2013, every Company is
 required to appoint Auditors for a term of 5 years subject to their
 appointment being ratified at every Annual General Meeting. However,
 pursuant to the guidelines issued by the Reserve Bank of India, an
 audit form is allowed to continue as the Statutory Central Auditor of a
 bank for a continuous period of four years only.
 Messrs S. B. Billimoria & Co., Chartered Accountants, were appointed as
 auditors of your Bank from the financial year 2011-12 onwards. They have
 already completed three years as the statutory auditors of the Bank and
 would retire on the conclusion of Twenty Ninth Annual General Meeting.
 They are eligible for re-appointment subject to the approval of Reserve
 Bank of India and the shareholders, for a period of one year. 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 current
 financial year 2014-15. You are requested to re-appoint the auditors for
 the current financial year and to fix their remuneration.
 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
 The employee strength of your Bank along with its subsidiaries as of
 31st March 2014 was over 26,500 as compared to around 23,500 employees
 a year ago.
 Your Bank standalone had over 16,000 employees as of 31st March 2014.
 162 employees employed throughout the year and 17 employees employed
 for part of the year were in receipt of remuneration of Rs. 60 lacs or
 more per annum.
 With a young and largely professionally qualified employee base (average
 age of 31 years and 45% CA/ MBAs/ Post Graduates) your Bank continues
 to attract talent across all its businesses and hierarchy. In the last
 one year your Bank has made substantial investments in strengthening
 our frontline talent pipeline through tie-ups with educational
 institutes for pre-trained good quality Manpower.
 Productivity, Service Quality and development of key competencies such
 as People Development continue to be the focus areas for which your
 Bank has partnered with top academic institutions as well as renowned
 industry experts. A significant intervention was also planned and
 implemented for career & succession planning particularly in the Branch
 Leadership roles.
 Your Bank continues to ensure values alignment and ethical behavior by
 all its resources in all their dealing with internal and external
 stakeholders through linkage of the form’s core values with all key
 Human Resource processes.
 With continued emphasis on employee engagement, the Bank along with most
 of its subsidiaries undertook an organization wide engagement study
 which had close to 90% participation and feedback received on various
 parameters have formed the basis of action plans across various work
 Diversity initiatives in the Bank were given an impetus by setting up
 of a team of internal women to address women issues at workplace,
 mass-mentoring programs with senior women leaders, revision of the
 Policy for Sexual Harassment at workplace and tie ups for hiring
 differently baled candidates.
 As we enter our next phase of growth and expansion of our footprint
 across urban and rural India, the Bank and its subsidiaries continued
 to carry out several initiatives to attract and retain a pool of highly
 skilled and motivated employees who are aligned to the firm’s vision of
 becoming the most trusted financial services provider.
 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 there under, 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.
 The Directors, based on the representations received from the
 operational management, confirm in pursuance of Section 217(2AA) of the
 Companies Act, 1956 and Section 134(5) of the Companies Act, 2013,
 (i) your Bank has, in the preparation of the annual accounts for the
 year ended 31st March 2014, 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 judgments 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 2014 and of the profit of your Bank for the
 financial year ended 31st March 2014;
 (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;
 (iv) the annual accounts have been prepared on a going concern basis;
 (v) they have laid down internal financial controls to be followed by
 the Bank and that such internal financial controls are adequate and are
 operating effectively; and
 (vi) they have devised proper systems to ensure compliance with the
 provisions of all applicable laws and that such systems are adequate
 and operating effectively.
 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: 9th May 2014
Source : Dion Global Solutions Limited
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