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South Indian Bank

BSE: 532218|NSE: SOUTHBANK|ISIN: INE683A01023|SECTOR: Banks - Private Sector
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« Mar 15
Notes to Accounts Year End : Mar '16
1.  Sale and transfers to/ from HTM Category
 
 During the current year, the value of sales/transfers of securities
 to/from HTM category (excluding one-time transfer of securities and
 sales to RBI under OMO auctions) was within 5% of the book value of
 investments held in HTM category at the beginning of the year.
 
 2.  Derivatives
 
 The bank uses forward exchange contracts to hedge against its foreign
 currency exposures relating to the underlying transactions and firm
 commitments. The bank has not entered into any derivative instruments
 for trading / speculative purposes either in Foreign Exchange or
 domestic treasury operations. Bank does not have any Forward Rate
 Agreement or Interest Rate Swaps.  The notional principal amount of
 foreign exchange contracts classified as trading on March 31, 2016
 amounted to Rs.4,705.11 crore (Previous Year Rs.19,452.70 crore). For
 these trading contracts, on March 31, 2016, marked to market position
 was asset of Rs.46.80 crore (Previous Year Rs.140.63 crore) and
 liability of Rs.46.76 crore (Previous Year Rs.140.70 crore). The
 notional principal amount of foreign exchange contracts classified as
 hedging on March 31, 2016 amounted to Rs.1,444.51 crore (Previous Year
 Rs.1,072.48 crore).
 
 3. Details of Single Borrower Limit (SGL), Group Borrower Limit (GBL)
 exceeded by the Bankr
 
 During the year ended 31 March, 2016 and 31 March, 2015, the Bank''s
 credit exposure to single borrower and group borrowers was within the
 prudential exposure limits prescribed by RBI.
 
 4.  Overseas Assets, NPAs and Revenue - Nil
 
 24.  Off-balance Sheet SPVs sponsored
 
 The Bank has not sponsored any special purpose vehicle which is
 required to be consolidated in the consolidated financial statements as
 per accounting norms.
 
 5. Drawdown from Reserves
 
 a) The Bank has drawn down Rs.10.05 crore (Previous Year Rs.6.79 crore)
 from Investment Reserve Account in accordance with RBI guidelines on
 ''Prudential Norms for Classification, Valuation and Operation of
 Investment Portfolio by banks''.
 
 b) During the previous year, in accordance with the requirements of
 Schedule II of the Companies Act 2013, the Bank has re- assessed the
 useful lives of the fixed assets and an amount of Rs.9.38 crore (net of
 taxes) has been drawn from the Revenue and Other Reserve in respect of
 assets whose useful life is nil as at April 1, 2014.
 
 6.  Disclosures on Remuneration
 
 a) Information relating to the composition and mandate of the
 Nomination & Remuneration Committee.
 
 Composition.
 
 The Nomination & Remuneration committee of the Board consists of three
 members of which one member from Risk Management Committee of the Board
 facilitate effective governance of compensation.
 
 The roles and responsibilities of the Nomination & Remuneration
 Committee inter-alia includes the following:
 
 - Scrutinizing the declarations received from persons to be appointed
 as Directors as well as from the existing Directors seeking
 re-appointment and make references to the appropriate authority/persons
 to ensure compliance with the requirements indicated by Reserve Bank of
 India vide their directive dated May 23, 201 1 on Fit & Proper Criteria
 of the Banks.
 
 - To devise a Succession Planning Policy for the Board and Senior
 Management.
 
 - To formulate a Nomination policy of the Board to guide the Board in
 relation to appointment/re-appointment/ removal of Directors.
 
 - To identify persons who are qualified to become Directors/ KMPs and
 who may be appointed in senior management as defined in the Succession
 Policy in accordance with the criteria laid down and to recommend to
 the Board their appointment and/ or removal.
 
 - To formulate the criteria for evaluation of Independent Directors and
 the Board/Committees.
 
 - To devise a policy on Board diversity.
 
 - To carry out any other function as is mandated by the Board from time
 to time and / or enforced by any statutory notification, amendment or
 modification, as may be applicable.
 
 - To perform such other functions as may be necessary or appropriate
 for the performance of its duties.
 
 - To oversee the framing, review and implementation of Bank''s overall
 compensation structure and related polices on remuneration packages
 payable to the WTDs/MD & CEO and other staff including performance
 linked incentives, perquisites, Stock option scheme etc. with a view to
 attracting, motivating and retaining employees and review compensation
 levels vis-a-vis other Banks and the industry in general.
 
 - The Committee shall work in close coordination with the Risk
 Management Committee of the Bank, in order to achieve effective
 alignment between remuneration and risks. The Committee will also
 ensure that the cost/income ratio of the Bank supports the remuneration
 package consistent with maintenance of sound capital adequacy ratio.
 
 - With respect to the Performance Linked Incentive Schemes, the
 Committee is empowered to:
 
 (i) Draw up terms and conditions and approve the changes, if any, to
 the Performance Linked Incentive schemes;
 
 (ii) Moderate the scheme on an ongoing basis depending upon the
 circumstances and link the same with the recommendations of Audit
 Committee;
 
 (iii) Coordinate the progress of growth of business vis -a- vis the
 business parameters laid down by the Board and Audit Committee and
 effect such improvements in the scheme as considered necessary;
 
 (iv) On completion of the year, finalize the criteria of allotment of
 marks to ensure objectivity/equity.
 
 - The Committee shall also function as the Compensation Committee as
 prescribed under the SEBI (Share Based Employee Benefits) Regulations,
 2014 and is empowered to formulate detailed terms and conditions of the
 Scheme, administer, supervise the same and to allot shares in
 compliance with the guidelines and other applicable laws.
 
 - To obtain necessary clearances and approvals from regulatory
 authorities, appoint Merchant Bankers and do such other things as may
 be necessary in respect of the Employees Stock Option Scheme.
 
 - To oversee the administration of Employee benefits, such as,
 provident fund, Pension Fund, Gratuity, Compensation for absence on
 Privilege/Sick/Casual Leave etc., which are recognized in accordance
 with Accounting Standard-15 (revised) specified in the Companies
 (Accounting Standards) Rules, 2006.
 
 - The Committee may suggest amendments to any stock option plans or
 incentive plans, provided that all amendments to such plans shall be
 subject to consideration and approval of the Board;
 
 - Any other matters regarding remuneration to WTDs/MD & CEO and other
 staffs of the Bank as and when permitted by the Board.
 
 - To conduct the annual review of the Compensation Policy.
 
 - To fulfill such other powers and duties as may be delegated to it by
 the Board.
 
 b) Information relating to the design and structure of remuneration
 processes and the key features and objectives of remuneration policy.
 
 The Bank has formed the compensation policy based on the Reserve Bank
 of India guidelines vide its Circular No. DBOD.  No.BC.72/29.67.001/201
 1-12 dt. January 13, 2012.
 
 The fixed remuneration and other allowances including retirement
 benefits of all subordinate, clerical and officers up to the rank of
 General Manager (Scale VII) is governed by the industry level wage
 settlement under Indian Banks Association (IBA) pattern. In respect of
 officers above the cadre of General Manager, the fixed remuneration is
 fixed by Board / Committee.
 
 Further, the compensation structure for the Whole Time Directors (WTDs)
 / Managing Director & Chief Executive Officers (MD & CEO) of the bank
 are subject to approval of Reserve Bank of India in terms of Section 35
 B of the Banking Regulation Act, 1949. The payment of compensation also
 requires approval of the shareholders of the Bank in the General
 Meeting pursuant to clause 95 of Articles of Association of the Bank
 read with Section 197 of the Companies Act, 2013.
 
 c) Description of the ways in which current and future risks are taken
 into account in the remuneration processes. It should include the
 nature and type of the key measures used to take account of these
 risks.
 
 The Board of Directors through the NRC shall exercise oversight and
 effective governance over the framing and implementation of the
 Compensation Policy. Human Resource Management under the guidance of MD
 & CEO shall administer the compensation and Benefit structure in line
 with the best suited practices and statutory requirements as
 applicable.
 
 d) Description of the ways in which the bank seeks to link performance
 during a performance measurement period with levels of remuneration.
 The factors taken in to account for the annual review and revision in
 the variable pay and performance bonus are:
 
 - The performance of the Bank
 
 - The performance of the business unit
 
 - Individual performance of the employee
 
 - Other risk perceptions and economic considerations.
 
 Further, the Bank has not identified any employee as risk taker for
 the purpose of variable pay under this compensation policy.
 
 e) A discussion of the bank''s policy on deferral and vesting of
 variable remuneration and a discussion of the bank''s policy and
 criteria for adjusting deferred remuneration before vesting and after
 vesting.
 
 - Where the variable pay constitutes a substantial portion of the fixed
 pay, i.e., 50% or more, an appropriate portion of the variable pay,
 i.e., 40% will be deferred for over a period of 3 years.
 
 - In case of deferral arrangements of variable pay, the deferral period
 shall not be less than three years. Compensation payable under deferral
 arrangements shall vest no faster than on a pro rata basis.
 
 - The Board may adopt principles similar to that enunciated for WTDs /
 CEOs, as appropriate, for variable pay-timing, m''alus / clawback,
 guaranteed bonus and hedging.
 
 - Employee Stock Option Scheme / Employee Stock Option Plan as may be
 framed by the Board from time to time in conformity with relevant
 statutory provisions and SEBI guidelines as applicable will be excluded
 from the components of variable pay.
 
 f) Description of the different forms of variable remuneration (i.e.,
 cash, shares, ESOPs and other forms) that the bank utilizes and the
 rationale for using these different forms.
 
 Variable pay means the compensation as fixed by the Board on
 recommendation of the Committee, which is based on the performance
 appraisal of an employee in that role, that is, how well they
 accomplish their goals. It may be paid as:
 
 (i) Performance Linked Incentives to those employees who are eligible
 for incentives.
 
 (ii) Exgratia for other employees who are not eligible for Performance
 linked Incentives.
 
 (iii) Bonus for those staff members who are eligible for bonus under
 the Payment of Bonus Act, 1965
 
 (iv) Any other incentives, by whatever name called having the features
 similar to the above.
 
 7.  Securitisation Transactions
 
 The Bank has not done any securitisation transactions during the year
 ended 31 March, 2016 and 31 March, 2015.
 
 8.  Credit Default Swaps
 
 The bank has not taken any transactions in credit default swaps during
 the year ended March 31, 2016 and March 31, 2015.
 
 9.  Letter of Comfort (LoCs) issued by Banks:
 
 The Bank has not issued any reportable Letter of Comfort during the
 year ended March 31, 2016 and March 31, 2015 respectively.
 
 10.  Unhedged Foreign Currency Exposure
 
 The Bank has in place a policy on managing credit risk arising out of
 unhedged foreign currency exposures of its borrowers.  The objective of
 this policy is to maximize the hedging on foreign currency exposures of
 borrowers by reviewing their foreign currency product portfolio and
 encouraging them to hedge the unhedged portion. In line with the
 policy, assessment of unhedged foreign currency exposure is a part of
 assessment of borrowers and is undertaken while proposing limits or at
 the review stage.
 
 Further, the Bank reviews the unhedged foreign currency exposure across
 its portfolio on a periodic basis. The Bank also maintains incremental
 provision towards the unhedged foreign currency exposures of its
 borrowers in line with the extant RBI guidelines. The Bank has
 maintained provision of Rs.10.07 crore (Previous Year Rs.15.12 crore)
 and additional capital of Rs.8.42 crore (Previous Year Rs.17.10 crore)
 on account of Unhedged Foreign Currency Exposure of its borrowers as at
 March 31, 2016.
 
 11. Qualitative Disclosure around LCR
 
 The Bank measures and monitors the LCR in line with the Reserve Bank of
 India''s circular dated June 9, 2014 on Basel III Framework on
 Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk
 Monitoring Tools and LCR Disclosure Standards. The LCR guidelines aim
 to ensure that a bank maintains an adequate level of unencumbered High
 Quality Liquid Assets (HQLAs) that can be converted into cash to meet
 its liquidity needs for a 30 calendar day time horizon under a
 significantly severe liquidity stress scenario. At a minimum, the stock
 of liquid assets should enable the bank to survive until day 30 of the
 stress scenario, by which time it is assumed that appropriate
 corrective actions can be taken. Banks are required to maintain High
 Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by
 January 1, 2019. However, with a view to providing transition time, the
 guidelines mandate a minimum requirement of 70% w.e.f. January 1, 2016
 and a step up of 10% every year to reach the minimum requirement of
 100% by January 1, 2019. The adequacy in the LCR maintenance is an
 outcome of a conscious strategy of the Bank towards complying with LCR
 mandate ahead of the stipulated time lines.  The monthly average LCR of
 the bank for the quarter March 2016 is 143.94%.
 
 The Bank has been maintaining HQLA primarily in the form of SLR
 investments over and above mandatory requirement, regulatory
 dispensation allowed upto 2% of NDTL in the form of borrowing limit
 available through Marginal Standing Facility (MSF) and 5% of NDTL as
 Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). From
 February 2016 onwards, RBI has allowed Banks to reckon an additional 3%
 of NDTL as FALLCR. Level 1 asset contributes to 97.99% of the total
 high quality liquid assets of the bank of which the major contribution
 is from the Government securities.
 
 The principal components of the estimated cash out flows which could
 arise in next 30 days are retail deposits (59.36%) and unsecured
 wholesale funding (27.75%). The bank intends to fund the short term
 cash outflows from extremely liquid Government securities and funding
 for estimated cash outflows considered in LCR computation substantially
 flows from this source.
 
 Bank has only forward contract as derivative exposure. The bank is
 managing its liquidity from the centralized fund management cell
 attached to Treasury Department, Mumbai.
 
 12.  Intra-Group Exposure - Nil.
 
 13.  Inter-bank participation with risk sharing
 
 The aggregate amount of participation purchased by the Bank, shown as
 advances as per regulatory guidelines, outstanding as of March 31, 2016
 was ''689 crore (Previous Year: Nil).
 
 B: Other Disclosures 
 
 1.  Fixed Assets
 
 a) Premises of the Bank were revalued as on March 31, 2011 in
 accordance with the policy formulated by the Bank based on RBI
 guidelines by professionally qualified independent valuers empanelled
 by the Bank using the indices based on current market price. The
 written down value of the premises has been increased from Rs.192.31
 crore to Rs.326.18 crore and the resultant appreciation in the value
 amounting to Rs. 133.87 crore has been credited to revaluation reserve
 during 2010-11.
 
 b) The software capitalized under Fixed Asset (Net of depreciation) was
 Rs.24.86 crore (PY Rs.13.34 crore) as at March 31, 2016.
 
 Notes:
 
 (i) Discount rate is based on the prevailing market yields of Indian
 Government securities as at the balance sheet date for the estimated
 term of obligations.
 
 (ii) Expected rate of return on plan assets is based on the average
 long term rate of return expected on investments of the funds during
 the estimated term of the obligations.
 
 (iii) The estimates of future salary increases, considered in actuarial
 valuation, take account the inflation, seniority, promotion and other
 relevant factors.
 
 h) Compensation for absence on Privilege / Sick / Casual Leave
 
 The charge on account of compensation for privilege / sick / casual
 leave has been actuarially determined and an amount of Rs.25.27 crore
 (Previous year Rs.18.98 crore) has been debited to Profit and Loss
 account.
 
 The above information is as certified by actuary and relied upon by the
 auditor.
 
 14.  The Bank has not received any intimation from Suppliers regarding
 their status under the Micro, Small and Medium Enterprises Development
 Act, 2006 and hence disclosures, if any, relating to amounts unpaid as
 at the year-end together with interest paid/ payable as required under
 the said Act have not been given.
 
 15.  Segment reporting
 
 Business Segments have been identified and reported taking into
Source : Dion Global Solutions Limited
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