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AU Small Finance Bank Ltd.

BSE: 540611 | NSE: AUBANK |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE949L01017 | SECTOR: Banks - Private Sector

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Annual Report

For Year :
2021 2019 2018 2017

Director’s Report

• Capital Adequacy Ratio increased to 23.37% as on 31st March 2021 vis-a-vis 21.99% as on 31st March 2020.

• Deposits continue to scale driven by increasing brand awareness, granular deposits, branch expansion and improved digital offerings. CASA ratio improved to 23% in FY 2020-21 from 14% in FY 2019-20 and overall cost of funds reduced by 86 bps to 6.83% in FY 2020-21 from 7.69% in FY 2019-20.

• Gross NPA and Net NPA was 4.25% and 2.18% respectively as on 31st March 2021 as compared to 1.68% and 0.81% respectively as on 31st March 2020, mainly due to impact on borrowers of COVID-19 pandemic and lockdowns during FY 2020-21.

Analysis of overall performance have been covered in detail in Management Discussion & Analysis section of the Annual Report.

Business Overview

Your Bank has made significant strides in its journey over past four years to become a retail focused, tech-led, preferred, trusted Bank. During FY 2020-21, the Bank expanded distribution and opened 37 new bank branches and entered newer states and union territories viz. Jammu & Kashmir, West Bengal, Telangana, Odisha and Karnataka. The Bank has its presence in 15 states & 2 UTs, having total 744 touch points (552 bank branches, 177 BCBOs & 15 BCs) and 343 ATMs as on 31st March 2021. The Bank is committed in bringing more unbanked and underbanked people in the ambit of formal banking channels by offering seamless banking experience.

Your Board of Directors have pleasure in presenting the Twenty-Sixth Annual Report covering Business and Operations together with the Audited Financial Statements for the financial year ended 31st March 2021.

In a year heightened by uncertainty, Your Bank posted a credible performance, registered growth in key performance parameters.

A. Financial Performance & State of Bank''s Affairs

The summary of the financial performance of your Bank for FY 2020-21 is presented below:

(''in crore)

YoY

For the year ended

Growth (%)

31st March 2021

31st March 2020

Total Income

28.24%

6401.60

4,991.98

Interest Income

15.50%

4950.05

4,285.89

Other Income

105.57%

1451.55

706.09

Interest Expenditure

8.74%

2584.61

2,376.94

Operating Expenses (excluding depreciation)

16.91%

1554.06

1,329.25

Profit before Depreciation, Provisions and Tax

76.00%

2262.93

1,285.79

Depreciation

17.77%

104.37

88.62

Provision for Income Tax

20.33%

287.82

239.19

Other Provisions and Write-offs

147.20%

700.06

283.20

Net Profit

73.49%

1170.68

674.78

Appropriations

Transfer to Statutory Reserve

292.67

168.70

Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961

77.00

67.00

Transfer to Capital Reserve

28.87

6.93

Transfer to Investment Fluctuation Reserve

(31.65)

90.43

Dividend (including tax/cess thereon) pertaining to previous year paid during the year

0.00

26.44

Dividend (in '') (Per Equity Share)

-

-

Surplus carried over to Balance Sheet

2691.10

1,887.32

Earnings Per Share (EPS) (in '')

(After excluding Exceptional Items not annualised)

Basic (in '')

38.19

22.78

Diluted (in '')

37.86

22.32

Key Performance Indicators

Your Bank witnessed growth and consistent performance in FY 2020-21. The key financial indicators for performance

are as follows:

• Profit Before Tax for FY 2020-21 (including sale of investment of Aavas Financiers Limited) increased to ''1,458.51 crore vis-a-vis ''913.97 crore for FY 2019-20 registering YoY growth of 59.58%. Earnings Per Share (EPS) has increased to ''38.19 compared to ''22.78 last year.

• Net Profit After Tax (including sale of investment of Aavas Financiers Limited) grew by 73.49% to ''1,170.68 crore for FY 2020 - 21 vis-a-vis ''674.78 crore for FY 2019-20.

• Balance sheet size grew by 22.42% YoY to ''51,591.31 crore as on 31st March 2021 vis-a-vis ''42,143.07 crore as on 31st March 2020 driven by core profits, sale of investment of Aavas Financiers Limited and Capital Issuance via QIP route and assets growth.

Leveraging skills in the small ticket secured retail lending segment and focusing on retail deposits base, Bank continue to offer the wide range of products and services to cater to the evolving needs of its customers. The Bank''s customer base crossed the milestone of 2 million customers during FY 2020-21.

Despite the difficult circumstances during FY 2020-21 due to COVID-19 pandemic, there was an increase in branch deposits, higher customer traction with a 38% annual growth in aggregate deposits and CASA ratio was at 23% as of 31st March 2021. During the year, Bank raised capital and maintained healthy capital adequacy ratio of 23.37% and Tier-I ratio at 21.53% which was well above minimum requirements of 15% and 7.5%, respectively.

Assets Under Management (AUM) of the Bank increased by 22% to ''37,712 crore as on 31st March 2021 vis-a-vis ''30,893 crore as on 31st March 2020, primarily driven by growth in the retail assets under management.

Your Bank is constantly innovating for making banking simple by providing integrated and tailor-made solutions for its customers with tech-led approach, faster digital adoption, at low cost, supported by robust IT, risk management, governance structure, products, processes, policies, and systems in place.

The key business developments and segment wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

B. Credit Rating:

The details of credit rating obtained by the Bank in respect of debt instruments issued by it and outstanding as on 31st March 2021 along with outlook is given here under:

Nature of Debt Instrument

Nature of Term

CRISIL

India Ratings

ICRA

CARE

Fixed Deposits*

Long Term

FAA /Stable

-

-

-

Non-Convertible Debentures

Long Term

AA- /Stable

AA-/Stable

AA- /Stable

-

Subordinated Debt/Tier II Bonds

Long Term

AA- /Stable

AA-/Stable

AA- /Stable

-

Bank Loans

Long Term

-

AA- /Stable

AA- /Stable

AA- /Stable

Certificate of Deposits

Short Term

A1

A1

-

A1

*CRISIL vide their communication dated 3rd December 2020 has assigned “FAA /Stable” Rating for the Fixed Deposit Program of ''40,000 crore (Rupees Forty Thousand crore).

C. Dividend

The Board of Directors of the Bank have adopted a Dividend Distribution Policy in terms of Regulation 43A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Reserve Bank of India (RBI) guidelines with an objective to appropriately reward shareholders through dividends for reposing their confidence in the Bank while retaining the capital required for supporting future business growth. The Bank proposes Dividend in compliance with the Dividend Distribution Policy of the Bank and RBI guidelines in this regard. The Policy of the Bank is disclosed on the website https://www.aubank.in/investors/secretarial-policies.

The Board of Directors have not recommended any dividend for FY 2020-21, hence no record date is kept for the purpose of dividend.

D. Change in Nature of Business

During the year under review, there has been no change in the nature of business of the Bank. Further, information on the business overview and outlook and state of the affairs of the Bank is covered under the Management Discussion & Analysis section of the Annual Report.

During the year under review, Shareholders have approved the Employees Stock Option Scheme 2020 (ESOP 2020) consisting of 50,00,000 ESOPs through postal ballot on 23rd December 2020.

Presently, following are the Employee Stock Option Schemes:

• Employee Stock Option Scheme 2015 - Plan A (ESOP 2015 - Plan A)

• Employee Stock Option Scheme 2015 - Plan B (ESOP 2015 - Plan B)

• Employee Stock Option Scheme 2016 - (ESOP 2016)

• Employee Stock Option Scheme 2018 - (ESOP 2018)

• Employee Stock Option Scheme 2020 - (ESOP 2020)


E. Transfer to Reserves

In terms of RBI regulations and other applicable regulations, the Bank has transferred the following amounts to various reserves during the financial year ended 31st March 2021.

Transfer to Reserves

Amount transferred to

Amount ('' in crore)

Statutory Reserve

292.67

Transfer to Special Reserve U/s 36 (1) (viii)

77.00

Transfer to Capital Reserve

28.87

Transfer to Investment Fluctuation Reserve

(31.65)

The Board of Directors has not proposed to transfer any amount to general reserve for the financial year ended 31st March 2021.

F. Transfer to the Investor Education and Protection Fund (IEPF)

In terms of Section 124 and 125 of the Companies Act, 2013 read with applicable rules as amended from time to time, dividends that are unpaid or unclaimed for a period of 7 (seven) years from the date of transfer to unpaid dividend account are required to be transferred to the IEPF. Further, the equity shares of the Bank for which dividend has not been paid or claimed for seven consecutive years or more shall also liable to be transferred to the IEPF, in accordance with the IEPF rules.

There was no such unclaimed/unpaid dividend or shares liable to be transfered to the IEPF for the year under review. The Bank has disclosed the details of unclaimed dividend amounts lying with the Bank on its website at https://www.aubank.in/investors/investor-services.

G. Deposits

Being a Banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014 are not applicable. The details of the deposits received and accepted by your Bank as a banking company have been disclosed in the financial statements for the financial year ended 31st March 2021.

H. Inclusion In ‘Futures & Options'' Segment and Bank Nifty Index of NSE

During the year under review, the National Stock Exchange (NSE) vide its Circular no. NSE/FAOP/47161 dated 29th January 2021, notified that future & options (F&O) contracts of AU Small Finance Bank Limited will be available for trading with effect from 26th February 2021. Accordingly, the F&O contracts on securities of the Bank were available from said date for trading. Further, from 31st March 2021, your Bank has also been included in Bank Nifty Index.

I. Capital Structure & Fund Raising

During the period under review, there has been no change in the authorised share capital of the Bank. The Board of Directors has allotted 30,90,063 equity shares pursuant to exercise of ESOP under different ESOP Schemes.

Further, considering significant opportunities available in retail and MSME financing and keeping in mind growth projections, the Bank decided to raise further capital from the market. Accordingly, the Board of Directors in its meeting dated 2nd May 2020 approved the raising of equity capital up to ''2,500 crore (Rupees Two Thousand Five Hundred crore only) through Qualified Institutions Placement (QIP), or any other alternative permissible mode. The same was approved by the shareholders in the Annual General Meeting held on 21st July 2020.

Accordingly, pursuant to provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the Companies Act 2013, the Bank successfully completed Qualified Institutions Placement (QIP) of 50,00,000 equity shares of face value of ''10 each at an issue price of ''1,251 per Equity Share (including a security premium of ''1,241 per Equity Share) on subscription by Qualified Institutional Buyers (QIB) aggregating to ''625.50 crore.

With respect to disclosure under Regulation 32(7A) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the funds raised through QIP issue during the year has been fully utilised for the intended object as mentioned in the private placement document and there was no deviation or variation in utilisation of the said funds.

Pursuant to the above allotments of equity shares, the total issued and paid-up equity share capital of the Bank increased by ''8.09 crore to ''312.21 crore as on 31st March 2021 as compared to ''304.12 crore as on 31st March 2020.

During the year, Bank has sold 49,62,374 Equity Shares at a total consideration of ''737.18 crore held in Aavas Financiers Limited, thereby making Bank well capitalised for its business expansion needs.

Further, the Bank has redeemed total Non-Convertible Debentures (NCDs) of ''481.67 crore during the FY 2020-21. Accordingly, total outstanding NCDs stood at ''1,175 crore as on 31st March 2021 against ''1,656.67 crore as on 31st March 2020.

J. Employee Stock Option Schemes

Your Bank has formulated different Employee Stock Option Schemes (Schemes), which have been duly approved by the shareholders of the Bank. The Schemes have been devised in accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014 as amended from time to time.

The grants in the schemes are approved by the Nomination and Remuneration Committee based on the pre-determined criteria. In terms of Compensation Policy of the Bank, employees are granted options as part of Annual Performance Review of their performance and at the time of hiring. Several factors including scale, designation, performance, grades, period of service, criticality of role and their contribution for the Bank''s overall performance is taken into consideration for deciding number of options to be granted to the employees.

During the year under review, with the approval of shareholders at the Annual General Meeting held on 21st July 2020, modifications have been carried out in the Employees Stock Option Scheme 2015 Plan A & B, Employees Stock Option Scheme 2016 & Employees Stock Option Scheme 2018 w.r.t. ‘Section 8 - Change in Capital Structure or Corporate Action clause''.

The details of vesting of various schemes are as follows:

ESOP Scheme & Plan Vesting Period % of vesting of

options

ESOP 2015 - Plan A 1 year from the date of grant or at the time of IPO whichever is later 20%

Expiry of 1 year from 1st vesting 30%

Expiry of 2 years from 1st vesting 50%

Total 100%

ESOP 2015 - Plan B 1 year from the date of grant or at the time of IPO whichever is later 20%

Expiry of 1 year from 1st vesting 30%

Expiry of 2 years from 1st vesting 50%

Total 100%

ESOP 2016 Options granted under this scheme would vest after one year but not later than six

years from the date of grant of options 100%

ESOP 2018 Options granted under this scheme would vest after one year but not later than six 100%

years from the date of grant of options

ESOP 2020 Options granted under this scheme would vest after one year but not later than six 100%

years from the date of grant of options

Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018 and ESOP 2020.

The Brief Details of Existing ESOP Schemes as on 31st March 2021 is given below:

Particulars

ESOP Plan A 2015

ESOP Plan B 2015

ESOP Scheme 2016

ESOP Scheme 2018

ESOP Scheme 2020

Date of Shareholders Approval

31st August 2015

31st August 2015

10th October 2016

07th August 2018

23rd December 2020

Total Number of Options approved

38,36,058

49,33,194

21,00,000

49,33,200

50,00,000

Total Number of Options outstanding at the Beginning of the period

14,11,428

12,43,496

7,97,337

42,83,256

Total No. of Options granted (during FY 2020-21)

38,702®

10,30,758®

9,95,960

4,48,138

1,17,177

Source of shares

Primary

The Pricing Formula

10.11

33.37

Market price linked#

Market price linked

Market price linked

Options Vested (during FY 2020-21)

2,19,202®

10,46,612®

3,62,612

9,08,691

-

Options Exercised (during FY 2020-21)

12,84,094

11,47,527

3,06,738

3,51,704

-

Total No. of shares arising as a result of exercise of Option

12,84,094

11,47,527

3,06,738

3,51,704

-

Particulars

ESOP Plan A 2015 ESOP Plan B 2015 ESOP Scheme 2016 ESOP Scheme 2018 ESOP Scheme 2020

Options lapsed/ Forfeited (during FY 2020-21) (Available for re-issue)

- 49,329 1,48,883

Total No. of Options exercisable at the end of the

1,66,036

11,14,154 1,81,774 6,67,735

-

year

Total No. of options outstanding at the end of the year

1,66,036

11,26,727 14,37,230 42,30,807

1,17,177

Variation in terms of Options

Modification in ESOP

Schemes w.r.t. ‘Change in Capital Structure or

No

Corporate Action clause’ was done vide Shareholders approval obtained in the Annual General Meeting dated 21st July 2020 in compliance of SEBI (Share Based Employee Benefits) Regulations, 2014. There is no impact of amendment carried out in the schemes for the employees to whom

options were granted.

Money realised on exercise of Options (during FY 2020-21)

(in '')

1,29,82,190

3,82,92,976 4,29,43,320 23,05,66,640

Total No. of Options granted to Senior Management Personnel (SMPs)

Please refer Note 1

Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year

NIL

NIL NIL NIL

NIL

Identified employees who are granted options, 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

NIL NIL NIL

NIL

Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options

Refer Note 2

Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS

Refer Note 2

Weighted average share/ exercise price of the shares exercised during the year (in '')

10.11

33.37 140.00 655.57*

**

Weighted average fair values

Please refer Schedule 18 and point no. 7 to Notes to accounts to

of the outstanding options (in '')

Audited Financial Results for FY 2020-21

@ Mr. Uttam Tibrewal was granted 38,702 ESOPs under ESOP Scheme 2015 - Plan A & 10,18,758 ESOPs under ESOP Scheme 2015 - Plan B on 27th October 2017 at exercise price of ''10.11 & ''33.37 each, respectively. The RBI pursuant to its letter dated 5th February 2021 intimated to the Bank that the ESOPs granted to Mr. Uttam Tibrewal pertains to the period prior to his appointment as the Whole-Time Director of the Bank and thus, the approval of RBI is not required, and the Board of Directors of the Bank may take appropriate decision in this regard subject to adherence to statutory norms, as applicable. The Board of Directors in its meeting held on 27th March 2021 approved exercise of said ESOPs granted to Mr. Uttam Tibrewal and the grant date stands good from 27th October 2017, vesting period and exercise of the said ESOPs remains unimpacted. The said ESOPs which were not included in ESOP granted during FY 2017-18, are shown under options granted, vested and exercisable in the above table.

Proposal for Variable Pay for Mr. Uttam Tibrewal, Whole-time Director in form of Performance Bonus and ESOPs for FY 2019-20 was submitted to RBI for approval. RBI vide its letter dated 3rd May 2021 did not acceded the proposal and the proposal was reconsidered by the NRC & Board and the same is pending with RBI for its approval.

# Pricing for ESOP Scheme 2016 was changed from fixed price of ''140 to market linked price with the approval of shareholders obtained in the Annual General Meeting held on 19th July 2019.

* 2,56,969 ESOPs were allotted at the exercise price of ''664, 10,314 ESOPs were allotted at the exercise price of ''643, 237 ESOPs were allotted at the exercise Price of ''622, 500 ESOPs were allotted at the exercise Price of ''589, 81,208 ESOPs were allotted at the exercise price of ''630, 1,576 ESOPs were allotted at the exercise price of ''668 and 900 ESOPs were allotted at the exercise price of ''724 under ESOP Scheme 2018. ** No Options were exercisable under ESOP scheme 2020 in FY 2020-21.

Note 1

Following are the total number of stock options that have been granted to Senior Management Personnel (SMPs) during the financial year ended 31st March 2021:

S.No.

Name

Designations

No. of ESOP granted in ESOP 2016@

No. of ESOP granted in ESOP 2020@

1

Mr. Deepak Jain*

Chief Operating Officer

20,107

0

2

Mr. Rishi Dhariwal

Group Head Branch Banking

14,526

0

3

Mr. Bhaskar Vittal Karkera

Chief of Wheels

16,981

0

4

Mr. Manoj Tibrewal

Group Head - Distribution, Enterprise Salary & Merchant Acquiring

10,221

0

5

Mr. Vimal Jain*

Chief Financial Officer

9,487

0

6

Mr. Yogesh Jain

Chief of Staff

12,211

0

7

Mr. Mayank Markanday**

Chief Risk Officer

10,311

0

8

Mr. Vivek Tripathi

Chief of Strategy - Commercial Banking

11,060

0

9

Mr. Ankur Tripathi

Chief Information Officer

10,231

0

10

Mr. Pankaj Sharma

National Business Manager - SBL MSME

6,185

0

11

Mr. Aalekh Vijayvargiya

National Credit Manager SBL (MSME)

9,521

0

12

Mr. Shantanu Prasad

Chief of Treasury & Wholesale Liability

6,686

0

13

Mr. Ashok Kumar Khandelwal

Chief Compliance Officer

5,485

0

14

Mr. Vikrant Jethi

Chief of Collections

10,573

0

15

Mr. Naveen Vashisht

National Business Manager Wheels Used

7,411

0

16

Mr. Aditya Sharma

Chief Technical & Legal Officer - Mortgages

9,830

0

17

Mr. Shoorveer Singh Shekhawat

Chief of Products & Communication-Liabilities

8,695

0

18

Mr. Vijendra Singh Shekhawat

President - Core Market Banking, Rajasthan

6,763

0

19

Mr. Alok Gupta***

Chief Risk Officer

0

20,000

20

Mr. Sachin Kumar Jain

National Credit Manager Wheels

5,751

0

21

Mr. Raj Kumar Sharma

National Collection Manager Wheels

7,920

0

22

Mr. Shekhar Shukla

Chief of Operations-Liabilities

8,727

0

23

Mr. Yogesh Soni

Chief of Branch Banking Operations

6,880

0

24

Mr. Prince Tiwari

Chief of Financial Institutions Group (FIG) & Investor Relations (IR)

10,543

0

25

Mr. Sultan Ram Jat

Senior Vice President Retail Banking

7,115

0

26

Mr. Avinash Sharan

Circle Manager Branch Banking - North

8,527

0

27

Mr. Manmohan Parnami

Company Secretary

4,680

0

28

Mr. Abhinav Garg

National Product & Communication Manager Wheels

5,437

0

29

Mr. Sumit Sharma

National Collection Manager SBL-HL

7,370

0

30

Mr. Akhil Kumar Patni

National Product & Communication Manager Secured Business Loans

3,749

0

31

Mr. Vikas Chowdhry

Lead Operations - Retail Assets & SBL

4,646

0

@ESOPs granted under ESOP 2016 and ESOP 2020 at an exercise price of ''614 and ''929, respectively.

*Mr. Deepak Jain and Mr. Vimal Jain was elevated as Chief Operating Officer and Chief Financial Officer respectively w.e.f. 1st April 2020. **Mr. Mayank Markanday was Chief Risk Officer of the Bank till 31st March 2021 and he is designated as Chief of Credit Card Business & Merchant Solution Group w.e.f. 1st April 2021.

***Mr. Alok Gupta was designated as Chief Risk Officer of the Bank w.e.f. 1st April 2021.

ramcuiars or1 marcn 2U21

Risk-free interest rate (%) 5.84% - 6.12%

Expected life (years) 3 years - 5.5 years

Expected volatility (%) 41.72% - 42.29%

Expected dividend rate (%) 0%

The Bank measures the cost of ESOP using the intrinsic value method. Had the Bank used the fair value model to determine compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:

Note 2

The Securities and Exchange Board of India (SEBI) has prescribed two methods to account for stock grants; namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options grants to the employees. The Bank also calculates the fair value of options at the time of grant, using Black- Scholes pricing model with the following assumptions:

('' in crore)

Particulars

Year ended 31st March 2021

Year ended 31st March 2020

Profit after tax as reported

1170.68

674.78

Add: ESOP cost using intrinsic value method (net of tax)

57.46

17.76

Less: ESOP cost using fair value method (net of tax)

92.81

51.64

Profit after tax (adjusted)

1135.33

640.90

Earnings Per Share

Basic

- As reported

38.19

22.78

- Adjusted for ESOP cost using fair value method

37.04

21.64

Diluted

- As reported

37.86

22.32

- Adjusted for ESOP cost using fair value method

36.72

21.20

('' in crore)

Particulars

As on

31st March 2021

As on

31st March 2020

Stock options outstanding (gross)

188.76

104.14

Deferred compensation cost outstanding

29.35

21.52

Stock options outstanding (net)

159.41

82.62

In accordance with SEBI circular no. CIR/CFD/POLICY CELL/2/2015 dated 16th June 2015 necessary disclosures are made in Schedule 18 - Notes forming part of the financial statements for FY 2020-21 and are included in the annual report and also disclosed on the website of the Bank at https://www.aubank.in/reports.

K. Board of Directors and Key Managerial Personnel

During the year under review, following changes took place in the Board of Directors and Key Managerial Personnel of the Bank:

1. Shareholers vide resolution passed through postal ballot dated 22nd January 2020 approved the appointment of Mr. Raj Vikash Verma as Independent Director of the Bank for second term for a period of three years effective from 30th January 2021. Further, shareholders vide resolution passed through postal ballot dated 28th October 2020 has

approved his appointment as Part-Time Chairman on 23rd December 2020 subject to approval of RBI for a period of 2 (Two) years with effect from 8th April 2021. RBI vide its letter dated 8th April 2021 has approved reappointment of Mr. Raj Vikash Verma as Part-time Chairman of the Bank for a period of 2 (two) years w.e.f. 8th April 2021.

Mr. Raj Vikash Verma''s vast and diversified experience of over ~40 years in fields of Finance, Economics, Banking, Regulatory Compliances, Housing & Mortgage Finance and the Real Estate Sector shall help the Bank to build a strong foundation on which it can profitably and sustainably scale its operations. Further, his regulatory experience shall benefit the Bank in enhancing the qualitative and quantitative matters that should be looked by the Board and Committees of Board.

2. Mr. Narendra Ostawal, Non-executive Director expressed his desire to step down from the Board due

to his other engagements. The Board of Directors in their meeting dated 28th October 2020 accepted his resignation with effect from close of business hours on 28th October 2020. Your directors place on record sincere appreciation for his contribution to the Bank during his tenure and conveys best wishes for his future endeavours.

3. With the approval of the shareholders obtained at 25th Annual General Meeting of the Bank, Mr. Mankal Shankar Sriram (M S Sriram) and Mr. Pushpinder Singh were appointed as Independent Directors for a period of 3 years i.e. up to 20th October 2022 and Mr. Kannan Gopalaraghavan Vellur (V G Kannan) was appointed as Independent Director for a period of 3 years i.e. upto 21st January 2023.

Mr. M S Sriram has vast experience in financial inclusion, microfinance, understanding of rural economy, co-operatives , Agriculture and Agriculture Finance and his inclusion on Board shall strengthen the Bank''s ability to increase credit flow at the bottom of the pyramid and further deepen the impact of its financial inclusion initiatives. Mr. Pushpinder Singh''s expertise in banking technology will greatly aid the Bank''s aspiration of becoming customer-centric and technology driven Bank in the rapidly changing digital-banking infrastructure, with emergence of newer technologies and payment systems. Mr. Kannan is a banking industry veteran with over 38 years of experience in Banking & Financial Services (BFSI) sector and he is acknowledged an authority in credit, treasury, risk and investment management in the Banking sector.

The Board of Directors of the Bank is of the opinion that Mr. M S Sriram, Mr. Pushpinder Singh and Mr. V G Kannan are persons of integrity and has relevant experience and expertise for appointment as Independent Directors of the Bank.

4. Pursuant to the section 152 of Companies Act, 2013, Mr. Sanjay Agarwal, Managing Director & CEO retired at the previous Annual General Meeting and shareholders approved his re-appointment. Further, Mr. Uttam Tibrewal, Whole Time Director of the Bank shall retire at the ensuing Annual General Meeting and being eligible for reappointment, offers himself for re-appointment.

With the approval of the Board of Directors, the proposal for re-appointment of Mr. Sanjay Agarwal, Managing Director & CEO and Mr. Uttam Tibrewal, Whole Time Director was submitted to Reserve Bank of India, for a period of 3 years with effect from 19th April 2020. The said proposal was approved by Reserve Bank of India.

5. Mr. Vimal Jain, Chief of Finance and Accounts has been elevated as Chief Financial Officer with effect from 1st April 2020, by the Board on

the recommendation of Audit Committee and Nomination and Remuneration Committee.

6. Mr. Deepak Jain, Chief Financial Officer has been elevated as Chief Operating Officer by the Board of Directors and designated as Key Managerial Personnel in terms of section 2(51) of the Companies Act, 2013 with effect from 1st April, 2020 on the recommendation of the Nomination and Remuneration Committee.

During the year, no other changes took place in the Board of Directors or in Key Managerial Personnel of the Bank. The composition of the Board of Directors and Key Managerial Personnel of the Bank was compliant with the applicable regulatory norms.

Further, none of the Directors have been debarred from holding office as Director by virtue of any order of the SEBI or any other authority.

L. Code of Conduct for Directors including Independent Directors and SMPs

The Board of Directors of the Bank adopted the Code of Conduct for the Directors and Senior Management Personnel (SMPs) of the Bank in compliance of Regulation 17(5) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the code of conduct sets forth the guiding principles for orderly & fair conduct by Board Directors and SMPs. For FY 2020-21, all Board members and SMPs have affirmed the compliance with the code and a declaration to this effect signed by the Managing Director & CEO forms part of Corporate Governance Report annexed with Board''s Report as Annexure - I. The Bank''s Code of Conduct for Directors and SMPs is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

M. Number of Meetings of Board

During the period under review, eleven (11) Board meetings were convened and duly held on the following dates:

2nd May 2020

• 15th December 2020

30th May 2020

• 28th January 2021

23rd July 2020

• 27th February 2021

5th September 2020

• 12th March 2021

24th October 2020 28th October 2020

• 27th March 2021

The intervening gap between the said meetings were in accordance with the provisions of Companies Act, 2013, relevant Rules made thereunder, Secretarial Standard-I Issued by Institute of Company Secretaries of India and provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The dates of Board

meetings and details of attendance of each director have been disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

Committees of the Board

The Bank believes that Board Committees are crucial to promote best Corporate Governance within the Bank. Accordingly, the Bank has constituted various Board Committees to improve the Board efficiency and to support in decision making. The constitution of these Committees is in acquiescence of provisions of the Companies Act, 2013, the relevant rules made thereunder, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Banking Regulation Act, 1949, the Articles of Association of the Bank and other guidelines issued from time to time. The details of the Board Committees of the Bank are disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

Meeting of Independent Directors

Your Bank conducted a separate meeting of Independent Directors on 1st May 2020 and 12th March 2021 without the presence of the Non-Independent Directors and members of Management of the Bank.

The Independent Directors in the said meetings discussed about the flow of information to the Board, its Committees, Governance, Compliance, and other areas of improvements. Further, performance of Non-Independent Directors, the Board as a whole and the Chairman was also evaluated.

Familiarisation Programme for Independent Directors

Pursuant to Regulation 25(7) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and RBI guidelines, various familiarisation programme were organised during FY 2020-21 for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank''s business, and its operations for better understanding of their roles, rights and responsibilities for effective contribution in growth of the Bank. Details of familiarisation programme attended by Board members during FY 2020-21 are disclosed on the website of the Bank under https://www.aubank.in/ investors/secretarial-policies.

The detail about familiarisation programme and other training programme is disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

N. Declaration of Independence

In accordance with provisions of sections 149(6) and 149(7) of the Companies Act, 2013, Schedule IV and Regulation 16 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all the

Independent Directors have submitted the declaration of independence, confirming that they meet the criteria of independence. In terms of Regulation 25 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Board has examined the veracity of declarations submitted by respective Board members. The Board opined that Independent Directors appointed during the financial year are having requisite integrity, expertise, specialised knowledge, experience, and the proficiency.

The Independent Directors have complied with the Code applicable for Independent Directors as stipulated under schedule IV of the Companies Act, 2013. Further, all the Independent Directors have registered themself in the Independent Director Databank and paid the relevant fees. All the compliances of rule 6 (1) & (2) of the Companies (Appointment and Qualifications of Directors) Rules, 2014 have been complied with.

O. Compensation Policy for Directors, Key Managerial Personnel, Senior Management Personnel and Other Employees

In accordance with the provisions of section 178(3) of the Companies Act, 2013 read with rules made thereunder, RBI guidelines and on the recommendation of the Nomination and Remuneration Committee, the Bank has formulated and adopted a comprehensive compensation policy for its Directors, Key Managerial Personnel, Senior Management Personnel, and other Employees.

The objectives of the Compensation policy along with the other details has been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I and disclosure in this regard have been made in schedule to notes to accounts of the audited financial statements for FY 2020-21.

Criteria for Appointment of Director & Senior Management Personnel

The proposal for appointment of Directors is put up to the Nomination and Remuneration Committee along with requisite documents/disclosures received in the prescribed format for his/her proposed candidature as director.

The Nomination and Remuneration Committee carry out the fit and proper assessment after ascertaining the veracity of documents being submitted, experience and qualifications required for the post and if deem fit, recommends the profile for appointment to Board of Directors for their approval.

The Nomination and Remuneration Committee and the Board ensures that the remuneration to be paid to the proposed appointee is in accordance with the compensation policy and RBI guidelines issued in this regard.

During the FY 2020-21, as a part of Annual review, the Board of Directors reviewed the Compensation Policy, which regulates the appointment of Directors, Key Managerial Personnel, Senior Managerial Personnel, and other employees of the Bank.

The terms of reference of the Nomination and Remuneration Committee, Compensation Policy and evaluation process has been detailed in Corporate Governance Report annexed with Board''s Report as Annexure-I. The Compensation Policy of the Bank is disclosed on the website of the Bank at https://www. aubank.in/investors/secretarial-policies

Evaluation of the Directors, the Board and Committees

The description and details of evaluation process has been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

P. Statutory Auditors and their Report

M/s. S. R. Batliboi & Associates LLP (Firm Registration No. 101049W/E300004) was appointed as the Statutory Auditors for a period of four (4) years by the shareholders of the Bank at the Twenty Second (22nd) Annual General Meeting held on 27th September 2017, to hold office from the conclusion of the 22nd Annual General Meeting till the conclusion of the 26th Annual General Meeting of the Bank, in accordance with the provisions of the Companies Act, 2013.

There are no qualifications, reservations or adverse remarks made by M/s. S.R. Batliboi & Associates LLP, Chartered Accountants, Statutory Auditors of the Bank, in their report on the financial statements for the FY 2020-21. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

Further, as the tenure of the M/s. S. R. Batliboi & Associates LLP is ending at the conclusion of 26th Annual General Meeting of the Bank, the Board of Directors at its meeting held on 8th July 2021 on the recommendation of the Audit Committee has proposed the appointment of Deloitte Haskins and Sells, Chartered Accountants (Registration no. 117365W) and G. M. Kapadia & Co., Chartered Accountants (Registration no. 104767W) as the Joint Statutory Auditors (SAs) of the Bank for a period of three (3) years from the conclusion of 26th Annual General Meeting until the conclusion of 29th Annual General Meeting of the Bank to be held in the calendar year 2024, subject to the approval of the shareholders and the Reserve Bank of India. Reserve Bank of India has approved the appointment of the above SAs for FY 2021-22.

The Statutory Auditors have confirmed their eligibility under Section 141 of the Companies Act, 2013. Further,

as required under the relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and they hold a valid certificate issued by the Peer Review Board of ICAI.

Q. Secretarial Auditors and their Report

In compliance with the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board in its meeting held on 2nd May 2020, upon recommendation of the Audit Committee, appointed M/s. V.M. & Associates, Company Secretaries (Registration No. P1984RJ039200) to undertake the Secretarial Audit of the Bank for the financial year ended 31st March 2021.

During the year under review, no frauds have been reported by the Secretarial Auditors, and there were no observations or qualifications made by the Secretarial Auditors in their Report. The Secretarial Audit Report for FY 2020-21 annexed with Board''s Report as Annexure-IV.

R. Loans, Guarantees and Investments under Section 186

Pursuant to Section 186(11) of Companies Act, 2013, loans made, guarantees given or securities provided or acquisition of securities by a banking company are carried out in its ordinary course of business and are exempted from disclosure requirement in the Annual Report. Hence, there is no disclosure being made herein in this regard.

S. Related Party Transactions

During the year under review, no related party transaction has been entered by the Bank with the related parties as falling under the purview of Section 188 of the Companies Act, 2013. Audit Committee of the Board has given omnibus approval for related party transactions of repetitive nature. All transactions with related parties, were in the ordinary course of the business and on an arm''s length basis. No transaction has been entered that could lead to potential conflict of interest between the Bank and related parties. All the transactions entered by the Bank with related parties were reported to the Audit Committee and accordingly, required disclosures are made to the Committee for review.

Hence, pursuant to Section 134(3)(h) of the Companies Act, 2013 read with Rule 8 (2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the year ended 31st March 2021.

older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, the bank successfully reduces the demand for new desktops and laptops even with our growing workforce.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

Your Bank is continuously improving its product offerings and operations through the adoption of technological advancements. The bank has observed a strong growth in the adoption of IOS and Android based Mobile banking, Internet banking, TAB-based account opening and Account opening through digital channels. The bank has channelised its efforts towards digitising the banking services in a user-friendly manner that empowers our customers to carry out their tasks in a hassle free, paper free manner that also saves their time. Bank has also enriched our customer''s experience by integrating different payment platforms and providing most of banking services for customers delight.

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

Through the advent of digital banking and mobile based initiatives, your bank has been able to not only enrich the customer experience, but also provide cost effective products & services by focussing on bringing down the transaction cost. Your bank also makes use of efficient end point devices and IT Hardware that makes optimal electric consumption while providing high performance.

III) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a) The details of technology imported: Nil

b) The year of import: Nil

c) Whether the technology been fully absorbed: Nil

d) If not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV) Expenditure incurred on Research and Development

Since financial services is being primarily covered under Service Sector, hence the said point is not directly applicable on Banking Industry.

(c) Foreign Exchange Earnings and Outgo

During the year ended 31st March 2021, the foreign exchange earnings of the Bank was '' 0.57 crore and foreign exchange outgo was ''1.08 crore.

Your Bank has in place a Board approved Policy on Related Party Transactions & Materiality, which provide for the process, procedure and steps required for approval of related party transactions, in compliance of applicable requirements of appropriate reporting and disclosure of transactions between the Bank and related parties.

The Policy on Related Party Transactions & Materiality as approved by the Board is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

T. Material Changes and Commitments, if any, affecting the Financial Position of the Bank

There are no material changes and commitments affecting the financial position of the Bank which have occurred between the end of the financial year i.e., 31st March 2021 and the date of this Report.

The world has endured a year of the unexpected onslaught by the COVID-19 virus, with a significant macroeconomic impact all over the world, the second wave had hit India in April-2021 and it is observed that Business environment shall take some time to get back to normalcy with expectation that vaccination drive will bring back positivity in Economic & Business outlook faster. It is acknowledged that Government of India & State Governments and Reserve Bank of India are taking all requisite initiatives in this regard.

U. Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

With each step we take into a more digital world, your bank is committed for maintaining a balance between growth and optimal utilisation of resources. Your bank is also focused towards undertaking initiatives for absorption of technology with conservation of energy.

(a) Conservation of Energy

Being a responsible institution, your bank is committed towards saving energy and performing business operations in a sustainable manner. Your Bank has undertaken several energy conservation initiatives by upgrading its systems and by engaging technological innovations for it''s IT Systems.

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipments

Your bank strives to employ the best practices of Energy Conservation in Facility Management through robust planning, administration, and maintenance. Your bank uses energy efficient LED lights in branches, offices and uses maximum

of natural light in the office premises during the daytime.

Your bank also makes use of IT hardware that meets the Environmental Safeguard Agency''s (EPA) Power Star Advisory to minimise electricity consumption in the bank. This optimisation of resources also extends to machines such as workstations, desktops, laptops, and notebooks. Additionally, your bank also uses machines with multi-core processors that elevate a machine''s performance without drawing on too much energy, which in turn results in higher efficiency and performance enhancement.

Your bank is also driving a digital revolution in the banking sector through the effective use of Paperless Two-Wheeler Lending Process. To achieve this digitisation, the bank uses a Tab-based system thereby eliminating the need of paper for documentation of any kind. Your Bank has also introduced Instant Account Opening facility through WhatsApp and other digital channels. This has helped your bank to adopt a smooth, user-friendly approach of account opening. Such digital initiatives have gone a long way to help your bank reduce the carbon footprint and moving closer to its goal of digital excellence.

Using power supervision technology and guidelines

Your bank uses devices with the latest Operating System that work on Advanced Settings Power Use Interface (ACPI) to increase computational efficiency and reduce energy consumption. Using a machine in the power-saving configuration means that it will automatically switch to energy saving mode once left idle for certain amount of time.

Using Cloud based technology and virtualised info center

Your bank strives to channelise its efforts and investment towards infrastructure development in the digital space. Your bank makes use of virtual machines and cloud-based technologies to create a virtual ecosystem. This not only reduces dependency on physical servers thereby reducing operational wattage and space, but also means that the new, energy efficient, reliable, and vastly advanced cloud-based systems are put into place to enhance the user experience.

Recycling systems and supplies

Your bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards. The bank also employs a coherent system of recycling slightly

V. RISK MANAGEMENT

Over quite some time, the finance industry witnessed significant transformations due to advancements in technologies, business model transformations, changing regulatory standards, and many other external and internal factors. Risk is the most critical element for the Bank and in the banking industry this element became even more critical considering the Bank being custodian of public deposits. The nature of Risk in a Banking Industry has a wide array which evolves around Credit Risk, Market Risk, Liquidity Risk, Operational Risk, IT and Cyber Security Risk, and other risks. Your bank has adopted a multi-layered risk management process to identify, assess, monitor, and manage risks through the effective use of processes, information, and technology.

The good risk management practices of the bank have facilitated navigating through pandemic times and its Enterprise Risk Management (ERM) framework has helped us strategically benchmark its practices across different business lines to best-in-class levels.

The Risk Management Process is monitored by risk management policies and the delegation matrix approved by Board of Directors. The Board is supported by an experienced executive management team, Board Committees and Board Delegated Committees as part of the Risk Governance Framework. The Board has an oversight of the management''s efforts to balance growth and prudent risk management, while creating value for stakeholders.

Pursuant, to Regulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Bank has constituted a Risk Management Committee and as mandated by the regulatory provisions, Bank has appointed Chief Risk Officer (CRO), who administers the risk associated key verticals through dedicated divisions i.e., Credit Risk, Market Risk, Operational Risk, Fraud Risk, Information Security Risk and other Risks under the aegis of the Board approved risk management policies and in accordance with the approval and responsibility delegation matrix. The CRO has unhindered access to the Risk Management Committee of the Board. The details of the Risk Management Committee and its terms of reference are set out in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

The Risk Management framework is a layered structure and broadly consists of the following aspects for effective risk management across the Bank.

(a) Credit Risk Management

Risk: Credit risk arises from business operations that give rise to actual, contingent, or potential claims against any counterparty, borrower, or obligor. The goal of credit risk management is to strengthen underwriting norms, focus on good asset quality

The Asset Liability Management (ALM) Policy of the Bank stipulates a broad framework for liquidity risk management to ensure that the Bank is in a position to meet its liquidity obligations as well as to withstand a period of liquidity stress from bank-level factors, market-wide factors or a combination of both. The Board approved policy captures the risk appetite around the liquidity and market risk of the Bank and helps to put in place defined governance structure in consonance with the Bank''s Risk Appetite.

The Asset Liability Management Committee (ALCO)/ Investment Committee (IC) of the Bank oversees the framework for identification, measurement and management of market risk, interest rate risk and liquidity risk in the Bank and ensures compliance with established internal and regulatory prudential limits and operate within the approved risk appetite by the Board.

(d) IT Risk Management

Risk: Your Bank is growing with digitisation and aimed at leveraging digital technology to provide a best-in-class experience for its customers while simultaneously enhancing productivity and improve on IT risk management. Risk of cyber-attacks on your Bank''s systems arises among others from computer viruses, malicious or destructive code, phishing attacks, denial of service or information, application vulnerability and other security breaches resulting in disruption of its services or theft or leak of sensitive internal data or customer information.

Mitigation: The Bank has established a robust information and cyber security framework for securing its IT infrastructure and systems. IT Steering Committee and Information Security Risk Management committee reports to Board-level IT Strategy & Information Systems Security Committee. This committee reviews and monitors IT security infrastructure and vigilance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer (CISO) is responsible for monitoring the information security risks covering all aspects of data security for the Bank who reports to Chief Risk Officer (CRO). Cyber Security Operation Center (CSOC) with qualified professionals is reporting to CISO for monitoring of real-time cyber security glitches. Your Bank has also deployed advanced controls at various layers to ensure that cyber security risk in minimised.

Further, your Bank has a cyber security management framework, a combination of technologies, processes and practices designed to protect networks, computers, programmes and data from cyber-attacks, damage, or unauthorised access.

and concentrations at individual exposures as well as at the portfolio level.

Mitigation: Credit Committee and Credit Risk & NPA Management Committee (CRNPAC) overseas and reviews the credit risk and is responsible for formulation of standards, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentration, standards for loan collateral, portfolio management, loan review mechanism, risk concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. Further, Bank has in place credit appraisal models for appraising cases including risk assessment, checks and balances. The Board Delegated Credit committees submit their updates to Risk Management Committee of the Board at regular intervals. All aspects of credit risk are governed by the Credit Risk Management Policy and other Policies. The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit risk within our Bank. Your Bank has laid down prudential limits and caps on various aspects to control the magnitude of credit risk. Loan administration and monitoring is carried out through Portfolio Profiling, Early Warning Framework, Rapid Portfolio Review, and Annual Monitoring of High Value Customers.

(b) Operational Risk Management

Risk: Operational risks arise from inadequate and/ or missing controls in internal processes, people, and systems or from external events or a combination of all the four.

Mitigation: The Bank has the Board delegated Operational Risk Management Committee (ORMC) to review and advise on implementation of measures for risk mitigation which further reports to Risk Management Committee of the Board. The Bank follows an integrated risk approach, where operational risks and its monitoring folds into Chief Risk Officer (CRO) and ORMC. The Bank has in place a board approved Operational Risk Management Policy which includes a comprehensive Operational Risk Management Framework for documenting, assessing, and periodic monitoring of various risks and controls linked to various processes across all business verticals.

Your Bank has Risk Containment Unit (RCU) that is guided by a Board approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to the Audit Committee and the Board and fraud cases in excess of ''1 crore or more are specifically reported and dealt by the Special Committee for Fraud Monitoring (SFMC) of the Board. The Bank is continuously strengthening its systems,

operational practices and processes, procedures, controls, and review mechanism so that fraud-prone areas are sanitised against internal and external breaches and by continuously monitoring that these control measures are operating effectively.

Your Bank has in place a comprehensive Business Continuity Management (BCM) plan, policy, and procedures in place to ensure continuity of critical operations of the Bank in the event of any disaster/ incident affecting business continuity. The Bank''s business continuity programme is developed considering the criticality of the functions performed and the systems have been designed to minimise the operational, financial, legal, and other material consequences arising from such a disaster and focus is on ensuring faster recovery of/ minimising impact on the IT systems of the Bank. We hereby report that the Bank''s Business Continuity Management was operating effectively throughout the year and no fraud case of ''1 crore or more was reported during period under review.

Your Bank has responded to the COVID-19 pandemic adequately through robust Business continuity management, by promptly catering to customer and other stakeholder''s requirements without fail. Your Bank has been constantly working to simplify the business processes to become even more customer centric during these tough times. Further, Your Bank has Cyber Crisis Management Plan in place to address any disruption due to cyber events.

(c) Market Risk, Liquidity and Asset Liability Management

Risk: Market Risk for the Bank originates from investment and trading in securities, which are undertaken both for the customers and on a proprietary basis. The market risk management framework of the Bank sets benchmark for market risk exposures, the performance of portfolios vis-a-vis the market risk limits and comparable benchmarks, which provide guidance to optimise the risk-adjusted rate of return of the Bank''s investment portfolio. Liquidity risk refers to Bank''s inability to fund an increase in assets or withdrawal of liabilities and meet both expected and unexpected cash & collateral obligations at reasonable cost without adversely impacting its financial condition.

Mitigation: Market risk management is guided by well-defined policies, guidelines, processes and systems for the identification, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk management of its trading and investment portfolios.

(e) Reputation Risk Management

Risk: Reputation risk can impact the Bank''s ability to attract or retain customers and expose it to litigation and regulatory action.

Mitigation: Your Bank communicates with its stakeholders regularly through appropriate engagement mechanisms to address stakeholder expectations and assuage their concerns, if any. There is Zero tolerance for knowingly engaging in any activities that are not consistent with values, Code of Conduct, or policies of the Bank.

(f) Compliance Risk management

Risk: Unprecedented changes in laws, regulations and regulatory policies can increase the risks of non-compliance and regulatory actions in the form of penalties, fines, restrictions, or other sanctions in case of regulatory failures.

Mitigation: The Bank has a dedicated Compliance Department that continuously monitors new developments and updates the Bank''s Board and senior management about its implications. The Bank has a strong compliance culture and have well-articulated policies with regard to code of conduct, Vigil Mechanism, AML& KYC, and engagement with third party vendors.

I n the overarching risk management framework, the relevant risk and mitigates have been covered under Management Discussion & Analysis section of the Annual Report.

W. Corporate Social Responsibility

Over the years, the Bank has pioneered in its Corporate Social Responsibility (‘CSR'') initiatives. The objective of the Bank''s CSR initiatives is to improve the quality of life of communities and create long-term value for all stakeholders. In compliance of the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Bank has a CSR Committee and Board approved CSR policy to provide guidelines for carrying out CSR activities. The Bank''s flagship CSR programmes are designed for bringing positive change and to address critical development issues in areas of education, sports, development, women empowerment, and Financial & Digital literacy in areas of its operations.

Considering the global pandemic of COVID-19 in 2020-21, the Bank has contributed substantial amount of its CSR allocation for health and safety initiatives. During the year under review, the Bank has reached out to the lives of over 13.91 lakh people through innovative initiatives in drinking water, education, livelihood, sports, amongst others.

AD. Business Responsibility Report

Pursuant to Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 a Business Responsibility Report (BRR) is required to be published by the Top 1000 listed companies based on market capitalisation. The BRR describes the initiatives taken by the Bank from environmental, social and governance perspective in the format prescribed under SEBI Circular No. CIR/CFD/CMD/10/2015 dated 4th November 2015 and the same has been disclosed in the Business Responsibility Report annexed with Board''s Report as Annexure-V and disclosed on the website of the Bank at https://www.aubank.in/reports.

AE. Social Environmental and Management System

The Social Environmental and Management System (SEMS) is a set of policies and procedures that helps in setting guiding principles for identifying and managing financial institution''s exposure to the environmental and social risks of its customers. The Bank endeavours to benchmark itself with the best of corporates in India and continued its focus to implement best Environmental, Social and Governance (ESG) practices in its operations with responsible lending approach. The procedures and decision-making process of the SEMS are systematically incorporated at each stage of appraisal and monitoring. Awareness is also created among vendors and customers to comply with applicable social and environmental laws to inculcate right practices in their operations.

AF. Particulars of Employee Remuneration

The ratio of the remuneration of each Director to the median employee''s remuneration and other details in terms of sub-section 12 of Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, annexed with Board''s Report as Annexure-III.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended is given in an Annexure and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the annual report is being sent to the Members excluding the aforesaid Annexure. The Annexure is available for inspection upto the date of Annual General Meeting at the registered office of the Bank and any Member interested in obtaining a copy of the Annexure may write to the Company Secretary of the Bank at investorrelations@aubank.in.

AG. Management Discussion and Analysis

The Management Discussion and Analysis Report for FY 2020-21 is covered in a separate section forming part of the Annual Report.

Pursuant to the amendment in CSR provisions of the Companies Act, 2013 and rules made thereunder that came into force on 22nd January 2021, Bank has classified its CSR allocation into ongoing projects and transferred ''3.46 crore into Unspent Corporate Social Responsibility Account and such amount shall be spent by the Bank in pursuance of the Corporate Social Responsibility Policy for its CSR obligations within a period of 3 financial years.

The terms of reference of CSR committee have been disclosed in the Corporate Governance Report and a detailed breakup of expenditure carried out and other details related to CSR activities has been disclosed in the Corporate Social Responsibility Report annexed with Board''s Report as Annexure-II. The CSR Policy is disclosed on the website of the Bank at https://www.aubank.in/ investors/secretarial-policies.

X. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Bank has in place a Policy on Prevention and Redressal Against Sexual Harassment. The primary objective of the said policy is to provide all safeguards to employees from sexual harassment at the workplace. Bank has zero tolerance towards sexual harassment at workplace and persists to uphold and maintain its work environment safe and secure. Your Bank has constituted Internal Complaints Committee in compliance of the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to review, investigate and take suitable actions on complaint and there is a Board level Disciplinary Committee that reviews the decisions taken by Internal Complaints Committee.

The disclosure required under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 is provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

Y. Subsidiary & Associate Companies

The Bank does not have any company which is its subsidiary or associate. Hence, the details of this clause are not applicable to the Bank. Accordingly, the Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

Z. Material Orders Passed by Regulators or Courts or Tribunals

During the period under review, no material orders have been passed by the Regulators/Courts/Tribunals which would impact the going concern status of the Bank and its future operations.

AA. Internal Controls System & their Adequacy

Your Bank has an effective internal control system in line with the risk appetite of the Bank and aligned to the scale, size, and complexity of its operations. The scope and authority of the risk based internal audit function is defined in the Internal Audit Policy of the Bank which is duly approved by the Board.

The audit function essentially validates the compliances of Bank''s processes and operations with regulatory guidelines, accounting procedures and Bank''s own internal rules and guidelines.

The internal audit function provides independent assurance to the Board of Directors and Audit Committee on the quality and effectiveness of the Bank''s internal control, risk management and governance systems and processes.

Proper internal controls were in place and operating effectively for the period under review. Further, in compliance with the requirements of Companies Act, 2013, statutory auditors have issued an opinion with respect to the adequacy of the internal controls over financial reporting of the Bank and the operating effectiveness of such controls, details of which may be referred to in the Auditor''s Report attached to the audited financial statements of FY 2020-21.

AB. Cost Records

The provisions for maintenance of cost records as specified by the Central Government under section 148(1) of the Companies Act, 2013 are not applicable to the Bank.

AC. Corporate Governance

The Bank''s activities are carried out in accordance with good corporate governance practices and the Bank is constantly striving to make them better with the time. The Bank believes that Governance framework and good practices helps in creating right culture and in turn enhances long-term sustainable value for all its stakeholders. Bank adheres to the Corporate Governance requirements set out by the SEBI.

The Corporate Governance Report for FY 2020-21 along with certificate issued by CS Manoj Maheshwari, Partner M/s V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed with Board''s Report as Annexure-I.

AH. Annual Return

In accordance with the provisions of Section 134(3) read with Section 92(3) of the Companies Act, 2013, the Annual Return for the financial year ended on 31st March ; 2021 in the prescribed form MGT-7 is disclosed on the

website of the Bank at https://www.aubank.in/reports.

AI. Whistle Blower Policy & Vigil Mechanism

The details have been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

Whistle Blower Policy & Vigil Mechanism as approved by Board is disclosed on the website of the Bank at https:// www.aubank.in/investors/secretarial-policies.

i AJ. Anti-bribery and Anti-corruption Policy

The Bank follows a ‘zero-tolerance approach'' to bribery, corruption and other wrong practices. The Bank is resolute to act professionally, fairly, and with integrity in its dealings and operations. The Bank has a Board approved Anti-Bribery and Anti-Corruption Policy laying down the principles for carrying out banking business in an honest j and ethical manner. The said policy is disclosed on the r website of the Bank at https://www.aubank.in/reports.

AK. Compliance of Secretarial Standards issued j by ICSI

The Bank has complied with the provisions prescribed in Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI).

AL. Status of Ind AS Implementation.

; As per RBI circular RBI/2015-16/315 DBR.BP.BC.

; No.76/21.07.001/2015-16 dated 11th February 2016

l Implementation of Indian Accounting Standards (Ind AS), Banks are advised that scheduled commercial banks (excluding RRBs) shall follow the Indian Accounting Standards as notified under the Companies (Indian ; Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the Reserve Bank in this ; regard. Banks in India currently prepare their financial l statements as per the guidelines issued by RBI, the Accounting Standards notified under section 133 of the Companies Act, 2013 and generally accepted accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian Accounting Standards (Ind AS), which were based on convergence with the International Financial Reporting Standards (IFRS), for scheduled commercial banks, insurance companies and non-banking financial companies (NBFCs). In March 2019, RBI deferred the implementation of Ind AS for banks till further notice as the recommended legislative amendments were under consideration of Government of India. The Bank had undertaken preliminary diagnostic analysis of the GAAP differences

between Indian GAAP vis-a-vis Ind AS and shall proceed for ensuring the compliance as per applicable requirements and directions in this regard and the Bank is submitting Proforma Ind AS Financial Statements to RBI on a quarterly basis.

Directors Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, the Board of Directors hereby confirm that:

1) In the preparation of the annual accounts for the year ended 31st March 2021, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2) We 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 the Bank as on 31st March 2021 and of the profit of the Bank for the year ended on that date.

3) We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the Bank''s assets and for preventing and detecting fraud and other irregularities.

4) We have prepared the annual accounts on a going concern basis.

5) We have laid down internal financial controls to be followed by the Bank and ensured that such internal financial controls are adequate and were operating effectively.

6) We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgment and Appreciation

The Board places on record its gratitude to the Government of India, various State Governments, RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, Bankers, Lenders, Debenture Trustees, Registrar & Share Transfer Agent, Vendors, Service Providers and others for their continued support and faith reposed in the Bank. The Board would also like to thank the BSE Limited, the National Stock Exchange of India Limited, National Securities Depository Limited, Central Depository Services (India) Limited and the Credit Rating Agencies for their continued cooperation.

The Board hereby convey its sincere thanks to the Shareholders, Debenture/Bond Holders and esteemed customers of the Bank for their unstinted patronage.

The Board also expresses its deep appreciation for the dedication and commitment of the employees at all levels for their strong work ethics, professionalism, reinforcing customer centricity, and commendable progress made in challenging environment during the year.

For and on behalf of the Board of Directors AU SMALL FINANCE BANK LIMITED

Sd/- Sd/-

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole Time Director

DIN: 00009526 DIN:01024940

Date: 8th July, 2021 Date: 8th July, 2021

Place: Jaipur Place: Mumbai

CIN: L36911RJ1996PLC011381

Registered Office: 19-A, Dhuleshwar Garden,

Ajmer Road, Jaipur - 302001, Rajasthan

Director’s Report