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Bandhan Bank Ltd.

BSE: 541153 | NSE: BANDHANBNK |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE545U01014 | SECTOR: Banks - Private Sector

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Annual Report

For Year :
2019 2018 2017

Director’s Report

To The Members,

The Directors take great pleasure in presenting the Fifth Annual Report of your Bank''s business and operations together with the audited accounts for the financial year (''FY'') ended March 31, 2019.

Financial Performance of the Bank

The financial highlights for the financial year under review, are presented below:

Summary of Financial Performance (Rs. In Crore)

Particulars

For year ended

As on March 31, 2019

As on March 31, 2018

Deposits:

43,231.62

33,869.00

- Savings Bank Deposits

14,008.04

9,209.39

- Current Account Deposits

3,609.69

2,414.53

- Term Deposits

25,613.89

22,245.08

Advances (Net):

39,643.39

29,713.04

- Cash credits, overdrafts and loans repayable on demand

975.84

1,149.39

- Term loans

38,667.55

28,563.65

Total Assets/Liabilities

56,441.71

44,310.06

Net Interest Income

4,496.10

3,032.24

Non-Interest Income:

1,063.05

706.18

Operating Expenses (excluding depreciation) Profit before Depreciation, Provisions and Tax

Depreciation

1,732.79

3,826.36

78.17

1,222.39

2,516.03

85.92

Provisions

735.14

374.21

Profit before Tax

3,013.05

1,061.55

1,951.50

2,055.90

Provision for Tax

710.34

Profit After Tax

1,345.56

Balance in Profit & Loss Account brought forward from previous year

2,057.60

1,048.43

Appropriations:

487.87

87.85

Transfer to Statutory Reserve

336.39

Transfer to Investment Fluctuation Reserve

-

Transfer to Capital Reserve

5.94

-

Dividend Paid (Including Dividend Distribution Tax)

143.80

3,283.64

16.36

-

Balance carried over to Balance Sheet

2,057.60

EPS (Basic)

12.26

EPS (Diluted)

16.34

12.26

The Bank commenced its banking business with effect from August 23, 2015 with 501 branches across India. In a span of about three years, the Bank has expanded its presence significantly in metro, urban, semi-urban and rural areas. As on March 31, 2019, its network consisted of 4,000 banking outlets, of which 71 per cent are in rural & semi urban areas, demonstrating your Bank''s commitment to financial inclusion. To further the cause of financial inclusion, the Bank has augmented its Doorstep Service Centres (''DSCs'') from 2,764 on March 31, 2018 to 3,014 as on March 31, 2019. With the expanding network of branches and DSCs, the number of customers grew during the FY 2018-19 from 1.30 crore to 1.65 crore with a corresponding growth in total deposits by 27.64 per cent to Rs.43,231.62 crore, of which Rs.17,617.73 crore (40.75 per cent) was Current Account and Savings Account (''CASA'') deposits.

During FY 2018-19, your Bank enhanced shareholders'' value by increasing its total income by 39.91 per cent to Rs.7,707.10 crore as against the total income for FY 2017-18 of Rs.5,508.48 crore.

The profit after tax (''PAT'') as at the end of the financial year was Rs.1,951.50 crore an increase of 45.02 per cent over the previous year of Rs.1,345.56 crore. Further Return on Average Equity (''ROAE'') was 19.00 per cent in FY 2018-19 against 25.98 per cent in FY 2017-18. Return on Average Asset (''ROAA'') was 4.23 per cent in FY 2018-19 against 4.06 per cent in FY 2017-18. The Bank''s basic earnings per share (''EPS'') increased from Rs.12.26 to Rs.16.36, and diluted earnings per share from Rs.12.26 to Rs.16.34 for FY 2017-18 and FY 2018-19, respectively. The net interest margin (''NIM'') was 10.43 per cent in FY 2018-19 against 9.69 per cent in FY 2017-18.

The Reserve Bank of India (''RBI'') has mandated Priority Sector Lending (''PSL'') of 40 per cent of advances for all the Banks. For your Bank, this was an opportunity to leverage on its primary strength as it continues to focus on financial inclusion by providing various financial services to the underserved. During FY 2018-19, your Bank''s PSL went up from Rs.28,211 crore (net of IBPC of Rs.2,425.81 crore) on March 31, 2018 to Rs.37,888.15 crore (net of IBPC of Rs.4,541.45 crore) on March 31, 2019 of which Rs.28,895 crore was sold to other banks falling short of PSL targets by way of Priority Sector Lending Certificate (''PSLC'') (as against the previous year of Rs.16,454 crore). At the end of FY 2018-19, PSL as a proportion of the gross advances of Rs.40,234.63 crore was 94.17 per cent (after IBPC & including PSLC).

Under the Small Enterprises Loan (''SEL'') scheme loans between Rs.1 lakh and Rs.10 lakh, are offered for income generating activities of small enterprises, which are described as enterprises with equipment investments below Rs.25 lakh. SEL has helped your Bank to enhance its objective of financial inclusion with significant increase in lending to small enterprises. As on March 31, 2019 total SEL loan outstanding was Rs.1,497.36 crore from 84,787 customers as against Rs.1,639 crore from 86,089 customers as on March 31, 2018. The Bank ventured into Gold Loan business during FY 2017-18 with operations at 57 branches in Eastern India. As on March 31, 2019, its outstanding gold loan book stood, at Rs.128.28 crore from 22,619 customers as against Rs.43.1 crore from 8,205 customers as on March 31, 2018. Your Bank has also forayed into the distribution of third- party products/services, which are made available through designated bank branches. The business segment began as a pilot during FY 2017-18 and at present, the Bank distributes mutual funds, standalone health insurance, general insurance and life insurance products. As on March 31, 2019, the Bank distributes mutual funds through 400 branches across various metro and urban locations and 60 semi-urban branches. Currently, your Bank is distributing standalone health insurance products across all branches. The response for the products has been encouraging. The Bank recognises microbanking activities as its core area and strives to perform better in this particular area. However, at the same time your Bank also explores business opportunities in other areas too, with a view to diversify its business risks. Your Bank is also aware of the need for providing best possible services to its ever increasing number of customers particularly those at the bottom of the pyramid. While your Bank uses technology at its optimum level for quality customer services, your Bank also maintains relationship with the customers and addresses the grievances, if any, in a structured and satisfactory manner.

Dividend

Your Bank has a dividend policy that, inter alia, balances the objectives of appropriately rewarding shareholders and retaining capital to maintain a healthy capital adequacy ratio. Pursuant to Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (''SEBI LODR''), the Board of Directors of the Bank have adopted a dividend distribution policy, which is in line with the parameters prescribed by SEBI for distribution of dividend.

The policy is available on the Bank''s website: https://www. bandhanbank.com/pdf/Dividend-Policy.pdf. In line with this policy and in recognition of the financial performance during FY 2018-19 and the promising future prospects, while retaining capital to maintain a healthy capital adequacy ratio to meet prudential and growth requirements, your Directors are pleased to recommend a dividend of Rs.3 per equity share of Rs.10 each fully paid-up (30%) for financial year 2018-19, as against a dividend of Rs.1 per equity share of Rs.10 each fully paid-up (10%) for the financial year 2017-18, for approval by the shareholders at the 5th Annual General Meeting (''AGM'') of the Bank. The dividend shall be subject to tax on distribution of dividend to be paid by the Bank. This reflects overall confidence in your Bank''s ability to consistently grow earnings over a period of time.

In terms of the provisions of Section 124(5) of the Companies Act, 2013 (the ''Act''), the Bank is not required to transfer the unclaimed dividend amount to the Investors Education and Protection Fund as of yet, since the Bank has declared the dividend only for the financial year 2017-18.

Transfer to Reserves

In line with the RBI regulations, the Bank has transferred an amount of Rs.487.87 crore to the statutory reserve during the financial year ended March 31, 2019.

Issuance of Equity Shares & Capital Adequacy Ratio

During the financial year 2018-19, your Bank has issued 2,77,911 equity shares of Rs.10 each pursuant to exercise of stock options by the eligible Employees of the Bank aggregating to Rs.27,79,110.

Post allotment of aforesaid equity shares, the issued, subscribed and paid-up share capital of your Bank stood at Rs.11,93,08,28,550 comprising 1,19,30,82,855 equity shares of Rs.10 each fully paid-up.

Your Bank has not issued any equity shares with differential voting rights during the financial year.

Your Bank''s capital adequacy ratio (CAR), calculated in line with the RBI Circular on Capital Adequacy Framework, stood at 29.20 per cent on March 31, 2019, well above the minimum regulatory requirements of 10.875 per cent, out of which Tier 1 Capital Ratio was 27.88 per cent and Tier 2 Capital Ratio was 1.32 per cent.

Proceeds from Public Issues:

During the previous year ended March 31, 2018 the Bank has raised capital of Rs.3,662.40 crore through Initial Public Offer (''IPO'') by issuing 9,76,63,910 Equity shares of Rs.10 each. Pursuant to Regulation 32 of the SEBI LODR, your Bank hereby confirms that there has been no deviation in the use of IPO proceeds from the objects stated in the prospectus.

The funds raised through IPO has been fully utilised and statement of the utilisation of the IPO proceeds as on March 31, 2019 is as under:

Particulars

Amount (Rs. in Crore)

Gross proceeds of IPO issue- A

3,662.40

Less: Public issue expenses- B

65.37

Net proceeds from Public issue- C = (A-B)

3,597.03

Less: Amounts utilised for the purpose received- D

3,597.03

Balance E = (C-D)

NIL

Rating of Various Debt Instruments

Instrument

Rating (As on March 31, 2019)

Rating

Agency

Amount (Rs. In crore)

Unsecured Subordinated

Non-Convertible

Debenture

CARE AA- Stable*

CARE

Ratings

160

[ICRA]AA &

ICRA

Term Loans From Banks

[ICRA]AA &

ICRA

80

Certificate of Deposit

[ICRA]A1

ICRA

3,000

*/& Under Rating Watch with Developing Implications

During the year, ICRA has re-affirmed the short-term rating of [ICRA]A1 (pronounced ICRA A one plus) for the certificates of deposit programme of your Bank, which has been enhanced to Rs.3,000 crore from Rs.1,500 crore.

Performance and Financial Position of the Subsidiaries

Your Bank did not have any subsidiaries, associates or Joint Venture Companies during the financial year 2018-19.

Scheme of Amalgamation

In terms of the Guidelines for Licensing of New Banks in the Private Sector issued by the RBI on February 22, 2013 (Licensing Guidelines) and Licensing conditions, Bandhan Financial Holdings Limited (BFHL or the NOFHC), the holding company of the Bank was required to bring its excess shareholding to 40% of the paid-up voting equity capital of the Bank within three years from the commencement of operation of the Bank, i.e., by August 22, 2018. The Bank and NOFHC have been exploring various options/opportunities to bring the shareholding to the prescribed level. In view of this, the Board of Directors of the Bank at its meeting held on January 07, 2019, after considering the report of the Audit Committee, have considered and approved scheme of amalgamation of GRUH Finance Limited (''Transferor Company) into and with Bandhan Bank Limited (Transferee Company or the Bank) and their respective Shareholders and Creditors under Sections 230 to 232 and other applicable provisions of the Companies Act, 2013, the Companies (Compromises, Arrangements and Amalgamations) Rules, 2016 and other relevant provisions under applicable law (Scheme), subject to receipt of applicable regulatory and statutory approvals.

The Scheme contemplates the amalgamation of Transferor Company into and with the Transferee Company and the dissolution without winding up of the Transferor Company pursuant thereto. The share exchange ratio for the amalgamation of the Transferor Company into and with the Transferee Company shall be 568 (five hundred and sixty-eight) fully paid-up equity shares of face value of Rs.10 each of the Transferee Company for every 1,000 (one thousand) fully paid-up equity shares of Rs.2 each of the Transferor Company (share exchange ratio).

The appointed date for the Scheme shall be January 01, 2019, or such other date as may be mutually agreed between the Transferor Company and Transferee Company and is the date with effect from which the Scheme shall be operative. A copy of the Scheme setting out the rationale and other information along with various documents as prescribed under SEBI Circular ref. no. CFD/DIL3/CIR/2017/21 dated March 10, 2017 are available on the website of the Bank and can be accessed at https://www.bandhanbank.com/Scheme-Amalgamation-Gruh-Finance-Limited.aspx.

On the effectiveness of the Scheme, the shareholding of NOFHC in the Bank would be reduced from current 82.26% to 61% (approx.) of the paid-up voting equity share capital of your Bank post issue of voting equity shares to the shareholders of the Transferor Company in terms of the share exchange ratio.

Your Bank has made necessary applications to various authorities seeking approval on the Scheme of Amalgamation, the status of the same is given herein below:

- Reserve Bank of India vide its letter dated March 14, 2019 conveyed it''s ''No-objection'' for the voluntary amalgamation of GRUH Finance Limited into and with the Bank.

- BSE Limited vide letter dated April 03, 2019, has issued its observation letter as required under Regulation 37 of the SEBI LODR with no adverse observation to the proposed Scheme.

- National Stock Exchange of India Limited vide letter dated April 03, 2019, has issued its observation letter as required under Regulation 37 of the SEBI LODR with no-objection to the proposed Scheme.

- The Competition Commission of India (''CCI'') by way of its letter dated April 15, 2019 intimated that, at its meeting held on April 15, 2019, it had considered the proposed combination Comb Reg no. (C-2019/03/651) pursuant to the Scheme and approved the same under sub-section (1) of Section 31 of the Competition Act, 2002.

- The Bank has also filed the Company Application in relation to the Scheme with the Hon''ble National Company Law Tribunal, Kolkata bench on April 04, 2019. The Company Application has been heard on April 23, 2019 and stood adjourned for further hearing on May 06, 2019.

In terms of Regulation 38 of the SEBI LODR read with Rule 19(2) and Rule 19A of the Securities Contracts (Regulation) Rules, 1957, your Bank is required to bring the public shareholding to the level of at least 25% within three years of listing of equity shares on the stock exchanges ,i.e., by March 2021. With a view to further facilitate listed entities to comply with the minimum public shareholding (MPS) requirements, the Securities and Exchange Board of India (SEBI) has by way of its circular dated February 22, 2018 bearing reference number SEBI/HO/CFD/CMD/CIR/P/43/2018 (SEBI Circular), prescribed the various methods to comply with the MPS requirements. However, the methods prescribed under the SEBI Circular does not include amalgamation as an express method to comply with MPS requirements. On the effectiveness of the Scheme of Amalgamation, the public shareholding in the Bank would increase from current 17.74% to 39% (approx.). Accordingly, your Bank had made an application to SEBI, seeking approval for adoption of the proposed Scheme of Amalgamation as a method to comply with the norms of MPS as required under Rule 19(2)(b) of the Securities Contracts (Regulation) Rules, 1957. Pursuant to the Bank''s application to SEBI, SEBI has by way of its letter dated April 03, 2019, conveyed its approval for adoption of the Scheme of Amalgamation as a method under clause (ix) of the Annexure to the SEBI Circular to comply with the MPS norms, subject to compliance with the terms and conditions specified therein.

Board of Directors

As on March 31, 2019, the Board of your Bank consisted of twelve Directors out of which nine are Independent Directors, one Nominee Director (Non-executive) of Caladium Investment Pte. Ltd, one Non-Executive Non-Independent Director and one Managing Director and CEO.

Appointments

Dr. Allamraju Subramanya Ramasastri

Pursuant to the recommendation of the Nomination and Remuneration Committee (''NRC''), the Board of Directors of the Bank approved the appointment of Dr. Allamraju Subramanya Ramasastri (DIN: 06916673) as an Additional Director (Independent) of the Bank, with effect from August 08, 2018. Pursuant to the provisions of Section 161 of the Act, he continues to hold office as an Additional Director of the Bank, up to the date of the ensuing Annual General Meeting (''AGM'') or the last date on which the AGM should have been held, whichever is earlier. Your Bank has received a notice in writing from a member proposing the candidature of Dr. Ramasastri as a Director on the Board of the Bank. Further, the NRC and the Board of Directors of the Bank have also recommended his appointment as an Independent Director, not liable to retire by rotation, to the Shareholders at the ensuing AGM for a period of three years with effect from August 08, 2018.

Dr. Anup Kumar Sinha

Pursuant to the recommendation of the NRC, the Board of Directors of the Bank approved the appointment of Dr. Anup Kumar Sinha (DIN: 08249893) as an Additional Director (Independent) of the Bank, with effect from January 07, 2019. Pursuant to the provisions of Section 161 of the Act, he continues to hold office as an Additional Director of the Bank, up to the date of the ensuing AGM or the last date on which the AGM should have been held, whichever is earlier. Your Bank has received a notice in writing from a member proposing the candidature of Dr. Sinha as a Director on the Board of the Bank. Further, the NRC and the Board of Directors of the Bank have also recommended his appointment as an Independent Director, not liable to retire by rotation, to the Shareholders at the ensuing AGM for a period of three years with effect from January 07, 2019.

Additionally, pursuant to the recommendation of NRC, the Board of Directors of the Bank at its meeting held on January 07, 2019 have also approved the appointment of Dr. Anup Kumar Sinha as Non-Executive Part-Time Chairman of the Bank for a period of three years with effect from January 07, 2019. The Board also approved the remuneration of Rs.24 lakh per annum (consolidated) in addition to sitting fees and reimbursement of other expenses for attending meetings of the Board and Committees and traveling and official expenses for performing his duty as Non-Executive Part-time Chairman of the Bank, subject to approval of the Shareholders. The appointment and remuneration of Dr. Sinha as the Non-Executive Part-time Chairman of the Bank has been pursuant to approval of the RBI.

Mr. Santanu Mukherjee

Pursuant to the recommendation of the NRC, the Board of Directors of the Bank approved the appointment of Mr. Santanu Mukherjee (DIN: 07716452) as an Additional Director (Independent) of the Bank, with effect from January 07, 2019. Pursuant to the provisions of Section 161 of the Act, he continues to hold office as an Additional Director of the Bank, up to the date of the ensuing AGM or the last date on which the AGM should have been held, whichever is earlier. Your Bank has received a notice in writing from a member proposing the candidature of Mr. Mukherjee as a Director on the Board of the Bank. Further, the NRC and the Board of Directors of the Bank have also recommended his appointment as an Independent Director, not liable to retire by rotation, to the Shareholders at the ensuing AGM for a period of three years with effect from January 07, 2019.

Re-appointment

Dr. Holger Dirk Michaelis

In terms of the provisions of Section 152 of the Act, out of the two Non-Executive Non-Independent Directors, Dr. Holger Dirk Michaelis (DIN: 07205838), Nominee Director, being longest in office, shall retire at the ensuing AGM and being eligible, offers himself for re-appointment.

Ms. Thekedathumadam Subramani Raji Gain

Ms. Thekedathumadam Subramani Raji Gain (DIN: 07256149) was appointed as an Independent Director of the Bank with effect from August 06, 2015 for a period of three years. Accordingly, pursuant to the recommendation of NRC, the Board of Directors at their meeting held on July 18, 2018 had approved the re-appointment of Ms. Gain as an Independent Director of the Bank for a period of four years with effect from August 06, 2018, which is subject to approval of Shareholders of the Bank by way a special resolution. Your Bank had received a notice in writing from a member proposing the re-appointment of Ms. Gain as a Director on the Board of the Bank. Further, the NRC and the Board of Directors of the Bank have also recommended her re-appointment as an Independent Director, not liable to retire by rotation, for the approval of Shareholders at the ensuing AGM, for second term of four years with effect from August 06, 2018, by way of special resolution.

Relevant details including the profiles of the above named persons setting out their accomplishments are appended to the Explanatory Statement accompanying the Notice for the AGM and report on Corporate Governance forming part of this Annual Report.

Shareholders Approved Appointments

During the financial year 2018-19, pursuant to recommendations of the NRC and the Board of Directors of the Bank, the Shareholders of the Bank at its fourth AGM held on July 19, 2018 had approved the following appointments:

- Mr. Ranodeb Roy (DIN: 00328764), Non-Executive Non-Independent Director, who retired by rotation and being eligible, offered himself for re-appointment, was re-appointed by the Shareholders.

- Mr. Chandra Shekhar Ghosh (DIN: 00342477) was re-appointed as Managing Director & CEO of the Bank, for a period of three years with effect from July 10, 2018. The RBI vide its letter dated July 04, 2018 had approved the re-appointment of Mr. Ghosh as Managing Director & CEO of the Bank for a period of three years with effect from July 10, 2018 till July 09, 2021.

- Mr. Harun Rasid Khan (DIN: 07456806) was appointed as an Independent Director of the Bank for a period of three years with effect from March 27, 2018, not liable to retire by rotation.

- Mr. Snehomoy Bhattacharya (DIN: 02422012) was re-appointed as an Independent Director of the Bank, with effect from July 09, 2018 for a period of four years, not liable to retire by rotation.

- Prof. Krishnamurthy Venkata Subramanian (DIN: 00487747) was re-appointed as an Independent Director of the Bank, with effect from July 09, 2018 for a period of five years, not liable to retire by rotation. However, Prof. Subramanian resigned from the Board which was effective from January 04, 2019.

- Mr. Chintaman Mahadeo Dixit (DIN: 00524318) was re-appointed as an Independent Directors of the Bank, with effect from July 09, 2018 for a period of two years, not liable to retire by rotation.

- Mr. Sisir Kumar Chakrabarti (DIN: 02848624) was re-appointed as an Independent Director of the Bank, with effect from April 01, 2018 for a period of three years, not liable to retire by rotation.

- Mr. Bhaskar Sen (DIN: 03193003) was re-appointed as an Independent Director of the Bank, with effect from April 01, 2018 for a period of three years, not liable to retire by rotation.

- Ms. Georgina Elizabeth Baker (DIN: 06601316) was appointed as a Nominee Director (Non-executive Director -category Professional) of International Finance Corporation and IFC FIG Investment Company I (jointly) on the Board of the Bank with effect from July 26, 2016. Ms. Baker ceased to be a Director of the Bank with effect from August 31, 2018, pursuant to withdrawal of her nomination by IFC.

- Dr. Holger Dirk Michaelis (DIN: 07205838) was appointed as a Nominee Director (Non-executive Director - category Professional) of Caladium Investment Pte. Ltd. on the Board of the Bank with effect from February 12, 2016.

Cessations

Dr. Ashok Kumar Lahiri

Dr. Ashok Kumar Lahiri (DIN: 07234290), Non-Executive Part-time (Independent) Chairman of the Bank, had demitted from the office with effect from the close of business hours on April 09, 2018, due to his difficulties in discharging the duties satisfactorily as he was simultaneously a Member of the Fifteenth Finance Commission.

Thereafter, Pursuant to the recommendation of the NRC, the Board of Directors of the Bank approved the appointment of Mr. Harun Rasid Khan (DIN: 07456806) as the Non-Executive Part-time Chairman of the Bank with effect from June 05, 2018 subject to approval of the RBI. Due to non-receipt of the RBI approval and increasing commitment of Mr. Khan in his other work areas, the Bank submitted an application under Section 10B of the Banking Regulation Act, 1949 with the RBI for appointment of Dr. Anup Kumar Sinha as Non-Executive Part-time Chairman of the Bank on the basis of recommendation of the NRC and the Board. In terms of the approval received from the RBI and the recommendation of the NRC, the Board at their meeting held on January 07, 2019 approved the appointment of Dr. Anup Kumar Sinha as Non-Executive Part-time Chairman of the Bank for a period of three years with effect from January 07, 2019.

Mr. Pravir Kumar Vohra

Mr. Pravir Kumar Vohra (DIN: 00082545) who was appointed as an Additional Director (Independent) of the Bank, not liable to retire by rotation, with effect from June 05, 2018 for a period of three years, had resigned from the office with effect from June 25, 2018 due to conflict of his responsibilities with another opportunity he was considering in the financial services sector.

Mr. Boggarapu Sambamurthy

Mr. B. Sambamurthy (DIN: 00246211), Independent Director, ceased to be a Director of the Bank with effect from July 09, 2018, due to completion of his tenure of three years as an Independent Director as approved by the Shareholders.

Ms. Georgina Elizabeth Baker

Ms. Georgina Elizabeth Baker (DIN: 06601316), Nominee Director, International Finance Corporation (IFC) and IFC FIG Investment Company I (jointly) ceased to be a Director of the Bank with effect from August 31, 2018, pursuant to withdrawal of her nomination by IFC.

Prof. Krishnamurthy Venkata Subramanian

Prof. Krishnamurthy (DIN: 00487747), Independent Director of the Bank, tendered his resignation from the office of Director of the Bank with effect from December 23, 2018 vide his communication dated January 04, 2019 due to his appointment as the Chief Economic Advisor (CEA) to the Government of India. Accordingly, in terms of the provisions of Section 168(2) of the Act, Prof. Krishnamurthy ceased to be a Director of the Bank with effect from January 04, 2019.

The Board places on record its sincere appreciation for the valuable services rendered by Dr. Ashok Kumar Lahiri, Mr. B. Sambamurthy, Prof. Krishnamurthy Venkata Subramanian, Ms. Georgina Elizabeth Baker and Mr. Pravir Kumar Vohra during their association with the Bank in the capacity of Chairman / Directors.

Apart from the above, no other Director was appointed or has resigned during the year under review.

Key Managerial Personnel

Mr. Chandra Shekhar Ghosh, Managing Director & CEO, Mr. Sunil Samdani, Chief Financial Officer and Mr. Indranil Banerjee, Company Secretary of the Bank are the Key Managerial Personnel as per the provisions of the Act and rules made thereunder.

Meetings of the Board and Board Committees

The Board met thirteen times during the Financial Year 2018-19, viz., on April 09, 2018, April 27, 2018, June 04, 2018, June 05, 2018, July 18, 2018, August 08, 2018, October 10, 2018, October 31, 2018, November 14, 2018, January 07, 2019, January 10, 2019, February 26, 2019 and February 27, 2019. The details of Board meetings held during the financial year, attendance of Directors at the meetings, etc., have been provided separately in the Report on Corporate Governance forming part of this Annual Report.

The Bank currently has following nine Board Committees, additionally the meeting of Independent Directors was also held during the financial year:

1. Audit Committee

2. Nomination & Remuneration Committee

3. Risk Management Committee

4. Customer Service Committee

5. Corporate Social Responsibility Committee

6. Stakeholders Relationship Committee

7. IT Strategy Committee

8. Special Committee for monitoring High Value Frauds

9. Committee of Directors

The details with respect to the composition, terms of reference, numbers of meetings held, etc., of these Board Committees are provided in the Report on Corporate Governance forming part of this Annual Report.

Corporate Social Responsibility

Your Bank has constituted the Corporate Social Responsibility (''CSR'') Committee of the Board of Directors, in accordance with the provisions of Section 135 of the Act read with the Companies (Corporate Social Responsibility) Rules, 2014, as amended.

The CSR initiatives of your Bank are undertaken through Bandhan-Konnagar which is a Society Registered under the West Bengal Societies Registration Act, 1960. Various programmes run by Bandhan-Konnagar include targeting the hard core poor (THP), education, health, employment generation. Through the THP programme, assistance is extended to the women who are destitute or below the pyramid section of the society of a designated area where they are brought to the mainstream with support and guidance. The education programme are run through various pre-primary and primary schools across various areas and assisting them to enter the proper education system. The heath programme is attributed to development of awareness and provide basic necessary health support, awareness development for improvement of hygiene and guidance. Through the employing the unemployment programme the basic training is given to the youth who find some way to engage themselves either in running entrepreneurship or engaging in the service after completion of their training. Your Bank''s objective is to help people from economically backward communities join the mainstream society by enabling them to generate sustained income on their own in due course.

The details of CSR activities/projects undertaken during the year is given as Annexure - 1 and forms part of this Board''s Report. The CSR Policy as recommended by the CSR Committee and approved by the Board is available on the Bank''s website: https://www. bandhanbank.com/pdf/CSR-Policy-New-Format.pdf.

Declaration from Independent Directors

The Bank has received necessary declarations from all the Independent Directors under Section 149(6) of the Act and Regulation 16(1)(b) of the SEBI LODR that they meet the criteria of independence laid down thereunder. The Board of Directors of the Bank has reviewed the disclosures of independence submitted by the Independent Directors and is of the opinion that the Independent Directors of the Bank fulfil the conditions specified in the Act and SEBI LODR and are independent of the management.

Familiarisation Programmes for Independent Directors

The familiarising programme for the Independent Directors are disclosed in the Report on Corporate Governance that forms part of this Annual Report.

Board Evaluation

Pursuant to the recommendation of NRC, the Board of Directors of the Bank has approved the Performance Evaluation Policy which laid down evaluation process and criteria for the performance evaluation of all the Directors including Chairman, MD & CEO, Board Level Committees and the Board as a whole. Details of Board Evaluation process and performance evaluation carried out for financial year 2018-19 is included separately in the Report on Corporate Governance forming part of this Annual Report.

Appointment of Directors

Appointment of Directors on the Board of the Bank is guided by the provisions of the Banking Regulation Act, 1949 and the rules framed thereunder, the Companies Act, 2013 and the SEBI LODR. Further, the Board considers various skill sets, practical experience, gender diversity while appointing directors on the Board of the Bank. The details of the same have been included in the Report on Corporate Governance forming part of this Annual Report.

Remuneration Policy

The Board of Directors of the Bank had formulated and adopted compensation policy and HR Policy for Remuneration of Employees of the Bank including the Executive Directors and the remuneration of Non-Executive Directors including the Chairman of the Bank are governed by the respective regulatory provisions. The details of the same have been included in the Report on Corporate Governance forming part of this Annual Report.

Employees Remuneration

As on March 31, 2019, your Bank had 32,342 employees. The statement containing particulars of employees as required under Section 197(12) of the Act read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are appended separately as Annexure - 2(a) and form part of this report. The ratio of the remuneration of each Director to the median remuneration of the employees of the Bank and other details in terms of Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are forming part of this report as Annexure - 2(b).

Employee Stock Options

Your Bank has instituted Employees Stock Option Plans to enable its employees to participate in your Bank''s future growth and financial success. Your Bank provides its employees a platform for participating in important decision making and instilling long-term commitment towards future growth of the Bank by way of rewarding them through stock options. Accordingly, with the approval of the Shareholders of the Bank, the Bank had instituted an Employees Stock Option Scheme (ESOP), i.e., Bandhan Bank Employee Stock Option Plan Series I (''Scheme''). In terms of the Shareholders'' approved Scheme and the remuneration Policy of the Bank, NRC has approved the grant of 22,20,725 Stock Options to the eligible Employees of the Bank at a grant price of Rs.180 per Option in the month of December 2017 under Tranche 1.

The Scheme was approved by the shareholders of the Bank in the general meeting before the Initial Public Offering (''IPO'') of the Bank on March 27, 2018. However, in terms of compliance of Regulation 12 of the SEBI (Share Based Employee Benefits) Regulations, 2014 (''SEBI SBEB'') the Scheme is required to be approved by the shareholders after the IPO of the Bank. Accordingly, your Bank proposes to seek the shareholders approval of the Scheme which was approved by the shareholders before the IPO of the Bank. In view of the above Regulations, your Bank has made no grants under the Scheme after the listing of its equity shares on the stock exchanges pursuant to the IPO. Approval of the Shareholders'' of the Bank is being sought on the Scheme along with granting of additional 5,25,36,327 ESOPs under the Scheme in multiple tranches in terms of the provisions of the SEBI SBEB which is forming part of the AGM Notice.

The Scheme is administrated by the NRC. In terms of the Scheme, the Options would vest not earlier than one year and not later than four years from the date of grant as decided by the Board / NRC. The Options granted shall be equally vested over four years. The exercise period shall be maximum of five years from the date of respective vesting of Options. Further, the source of shares is primary in nature, since your Bank has been issuing new equity shares upon exercise of Options. None of the Directors were

The information pertaining to Employee Stock Options as prescribed under SEBI SBEB read with SEBI Circular dated June 16, 2015 on Requirements specified under the SEBI (Share Based Employee Benefits) Regulations, 2014 is attached as Annexure - 3.

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 Act are not applicable to your Bank.

The details of the deposits received and accepted by your Bank as a banking company are enumerated in the financial statements for the financial year ended March 31, 2019.

Internal Financial Controls, Audit and Compliance

Your Bank has an Internal Audit department and a Compliance department, which independently carry out evaluation of the adequacy of all internal controls. These departments ensure that operating and business units adhere to laid down internal processes and procedures as well as to regulatory and legal requirements. The audit department also proactively recommends improvements in operational processes and service quality. The Bank has put in place extensive internal controls including audit trails, appropriate segregation of front- and back-office operations, post-transaction monitoring processes at the backend to mitigate operational risks. It further ensures independent checks and balances, and adherence to the laid down policies and procedures of the Bank are according to regulatory guidelines. Your Bank has adhered to the highest standards of compliance and governance and has placed controls and appropriate structure to ensure this.

To safeguard independence, the internal audit department reports directly to the Chairman of the Audit Committee of the Board. The Audit Committee of the Board also reviews the performance of the Audit department and Compliance department. It further appraises the effectiveness of controls and compliance with regulatory guidelines. The Board of Directors confirms that there are internal controls in place with reference to the Financial Statements and that such controls are operating effectively.

Related Party Transactions

There were no materially significant transactions with related parties including promoters, Directors, key managerial personnel or relatives of the Directors during the financial year 2018-19, which could lead to a potential conflict of interest between the Bank and these parties. The details of the transactions with related parties, if any, were placed before the Audit Committee from time to time. There were no material individual transactions with related parties, which were not in the ordinary course of business of the Bank, nor were there any transactions with related parties, which were not on arm''s length basis. Accordingly, AOC-2 is not applicable to the Bank. Necessary disclosure as required under the Accounting Standards (AS 18) has been made in the notes to the financial statements to the extent applicable to the Bank.

Your Bank''s Policy on dealing with Related Party Transactions is available on the Bank''s website: https://www.bandhanbank.com/ pdf/RelatedParty-Transactions-Policy.pdf

Particulars of Loans, Guarantees or Investments

In terms of the provisions of Section 186 (11) of the Act, the provisions of Section 186 of Act except sub-section (1), do not apply to any loan made, any guarantee given or security provided or any investment made by a banking company in the ordinary course of its business. However, the particulars of investments made by the Bank are disclosed in the Financial Statements as per the applicable provisions of the Banking Regulation Act, 1949.

Whistle-Blower Policy/Vigil Mechanism

Your Bank has adopted a Whistle-Blower Policy pursuant to which the Bank''s employees can raise their concerns relating to fraud, malpractice or any other activity or event, which is against the interests of the Bank or society as a whole. According to this policy, the Audit Committee has been entrusted with the responsibility of reviewing the complaints received and the action taken thereof. Detailed information on the Vigil Mechanism of the Bank is provided in the Report on the Corporate Governance which forms part of this Annual Report.

Business Responsibility Report

In terms of the provisions of SEBI LODR, a Business Responsibility Report describing the initiatives taken by your Bank from environmental, social and governance perspective is available on the Bank''s website at the link: www.bandhanbank.com

Significant and Material Orders Passed by Regulators or Courts or Tribunals

During FY 2018-19, no significant or material orders were passed by any Regulators or Courts or Tribunals against the Bank impacting its going concern status and operations in future. However, the Reserve Bank of India vide its letter dated September 19, 2018 has imposed two restrictions on the Bank, one is withdrawal of general permission to open new branches whereby the Bank is not permitted to open new branches without the prior approval of the RBI and the other is freezing of remuneration of the MD & CEO at the existing level due to non-compliance of one licensing condition of dilution of excess shareholding of Non-operative Financial Holding Company (''NOFHC'') in the Bank to 40% of the paid-up capital of the Bank, within three years from the commencement of the operations of the Bank. Your Bank has taken initiatives to comply with the only remaining licensing condition and in that regard amalgamation of GRUH Finance Limited into and with the Bank has been approved by the Board by which the existing shareholding of NOFHC in the Bank will be brought down to 61% (approx.). Your Bank along with NOFHC has also initiated several other steps to comply with the only remaining licensing condition at the earliest. Your Bank is constantly in touch with the RBI on the matter.

Statutory Auditors and their Report

The Members of the Bank at the 1st Annual General Meeting held on June 29, 2015 have approved the appointment of S. R. Batliboi & Associates, LLP, Chartered Accountants, (ICAI Firm Registration Number 101049W) as Statutory Auditors of the Bank and was thereafter re-appointed every year with the prior-approval of the RBI and the approval of the Shareholders. However, as per the RBI circular DBS.No.ARS.BC.8/08.91.001/2000-2001 dated January 30, 2001 and DBS.ARS.BC.04/08.91.001/2017-2018 dated July 27, 2017, Statutory Auditors for Private Banks cannot be appointed for more than four years. Hence the term for current Auditors of the Bank will end at the ensuing AGM. Accordingly, on the basis of recommendations of the Audit Committee, the Board of Directors of the Bank have approved the appointment of Deloitte Haskins & Sells, Chartered Accountants (ICAI Firm Registration Number 117365W) as the Statutory Auditors of the Bank for a period of four years from the conclusion of 5th AGM till the conclusion of 9th AGM, subject to approval of Shareholders of the Bank and by the RBI every year as required under the RBI circular dated January 30, 2001 and July 27, 2017 as mentioned above. The approval of the RBI has been received for appointment of Deloitte Haskins & Sells, Chartered Accountants, as the Statutory Auditors of the Bank for the financial year 2019-20, i.e., from the conclusion of 5th AGM till the conclusion of 6th AGM. Accordingly, your Board recommends to the shareholders, the appointment of Deloitte Haskins & Sells, Chartered Accountants (ICAI Firm Registration Number 117365W), as the statutory auditors of your Bank for a period of four years from the conclusion of ensuing AGM till the conclusion of 9th AGM, subject to approval of the RBI on an annual basis.

The Report given by the Auditors on the financial statements of the Bank for the financial year ended on March 31, 2019 forms part of this Annual Report. There has been no qualification, reservation, adverse remark or disclaimer given by the Auditors in their Report. Also, no offence of fraud was reported by the Auditors of the Bank.

Secretarial Auditors and their Report

Pursuant to the provisions of Section 204 of the Act, your Bank has appointed Mr. Deepak Kumar Khaitan, Practicing Company Secretary (C.P. 5207) as Secretarial Auditor to conduct Secretarial Audit of the Bank for the FY 2018-19. Accordingly, the Secretarial Audit Report for FY 2018-19 is annexed to this report as Annexure - 4. There are no reservations, adverse remark or disclaimer in the Secretarial Audit Report except three observations, i.e., first w.r.t. the letter dated September 19, 2018 by Reserve Bank of India, which has been explained above under the head ''Significant and Material Orders Passed by Regulators or Courts or Tribunals'', second w.r.t. the Securities and Exchange Board of India (''SEBI'') approving the Scheme of Amalgamation as a method to comply with Minimum Public Shareholding (''MPS'') requirements, which has also been explained above under the ''Scheme of Amalgamation'' and third w.r.t. SGL bouncing. In this regard, it may be noted that no penalty has been levied on the Bank by the RBI during the year ended March 31,2019 and March 31,2018. However a single instance of SGL bouncing occurred on October 04, 2018 due to security being available in Repo account instead of Primary account with the RBI. A lenient view was taken by the RBI and the monetary penalty was waived off with necessary directions vide letter dated October 25, 2018. Appropriate control measures have been taken by your Bank internally to prevent such recurrence.

No offence of fraud was reported by the Secretarial Auditor of the Bank.

Cost Records

In terms of the provisions of Section 148(1) of the Act read with Rule 3 of the Companies (Cost Records and Audit) Rules, 2014, your Bank is not required to maintain cost records and accordingly is not required to undergo cost audit.

Conservation of Energy, Technology Absorption and Foreign Exchange Earnings and Outgo

Energy and natural resource conservation have been one of the focus area for the Bank and conscious efforts are being made towards improving energy performance, year on year. Some of the steps undertaken by the Bank towards conservation of energy are as under:

- Replacement of CFL and conventional lighting to LED in select premises

- Saving of water through use of Bio-blocks in urinals at Select Large Facilities

- Installations of green locks and AC controllers in air conditioning machines in order to save energy

- Put controls on usage of lifts, ACs, common passage lights and other electrical equipment

Your Bank has used information technology in its operations, details of the same has been provided under section on Information Technology at Bandhan Bank in this Report. The Bank is however, constantly pursuing its goal of technological upgradation in a cost-effective manner for delivering quality customer services.

The Foreign exchange earnings of the Bank for the financial year 2018-19 was Rs.36.49 lakh whereas foreign exchange outgo was of Rs.1.93 crore during FY 2018-2019.

Corporate Governance

Corporate governance is based on the principles of conducting the business with all integrity, fairness, and being transparent with all transactions, making necessary disclosures and decisions, complying with the laws of the land, accountability and responsibility towards the stakeholders and commitment of conducting the business in an ethical manner. Your Bank is committed to achieve the highest standards of Corporate Governance and also adheres to the Corporate Governance requirements set by regulators/applicable laws. A separate section on Corporate Governance standards followed by your Bank and the relevant disclosures, as stipulated under the SEBI LODR, the Act and rules made thereunder is annexed to this Report as Annexure - 5.

A Certificate from CS Deepak Kumar Khaitan, Practicing Company Secretary (C.P. 5207), confirming compliance by the Bank to the conditions of Corporate Governance as stipulated under SEBI LODR, is annexed to the Report on Corporate Governance, which forms part of this Annual Report.

Annual Return

Pursuant to the provisions of Section 134(3)(a) and Section 92(3) of the Act and Rule 12(1) of the Companies (Management and Administration) Rules, 2014, the extract of Annual Return as at March 31, 2019 forms part of this Report as Annexure - 6 and the Annual Return of the Bank as at March 31, 2019 is placed on its website and can be accesses at www.bandhanbank.com.

Management''s Discussions and Analysis

The Management Discussion and Analysis report for the financial year 2018-19 as prescribed under SEBI LODR is enclosed as Annexure - 7 which forms part of this report.

Information Under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Bank has zero tolerance towards any action on the part of any of its employees, which may fall under the ambit of ''sexual harassment'' at workplace and is fully committed to uphold and maintain the dignity of every woman constituent associated with the Bank. It takes all necessary measures to ensure a harassment free workplace and has instituted an Internal Committee for redressal of complaints and to prevent/prohibit sexual harassment, in compliance with the guidelines enumerated in the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013. The Policy provides for protection against sexual harassment of women at workplace and for prevention and redressal of such complaints. All the complaints received, decisions taken and dissemination of action initiated by the Bank placed to the Audit Committee of the Board periodically. Details of the cases filed and resolved during the financial year 2018-19 is given hereunder:

Number of

Number of

Number of

Number of

complaints

complaints

complaints

complaints

pending as at

filed during

disposed of

pending as at

the beginning

the financial

during the

the end of the

of the

year

financial year

financial year

financial year

0

14

14

0

Human Resource Management

Your Bank recognises that the human resource is key to organisational success. Thus, the goal of the Human Resources (''HR'') department is to ensure that the employees are recruited, engaged, retained and motivated to contribute to the Bank''s growth and strategic mission. The HR Department proactively engages with employees at all levels for this purpose. Its vision is to create an environment of learning and superior performance in line with the Bank''s corporate values and aligning the personal aspirations of employees to business imperatives.

The employee engagement initiatives place greater emphasis on learning and development, providing opportunities for staff to seek aspirational roles, streamlining the Performance Management System and introducing performance-linked rewards. A host of programmes are being run to meet the ongoing learning and development needs in the Bank and promote a climate of learning, self-growth and excellence. The learning architecture in your Bank focusses on:

1. Developing tailor-made, competency-mapped programmes for different sets of employees, based on their roles in the Bank

2. Induction/orientation of new hires for acquaintance with the culture of the Bank

3. Training on operational risk, audit, compliance and regulatory aspects for frontline staff

4. People management, customer-centric and compliance-based programmes for employees in leadership roles

Through its 11 residential training centres across the country, and through a wide range of training programmes, your Bank has provided 1,00,060 days of training to its people. The trainings were provided to people across departments and functions, to build their professional competence and improve their skill sets, and thus, enable them to contribute to your Bank''s mission.

Additionally, the Bank continues to engage with leading management institutes for leadership and management development programmes and specialised programmes for employees across senior and mid-management levels of staff.

Your Bank believes that the Performance Management (''PM'') process is a powerful driver of individual and corporate performance. An online PM System (''PMS''), with focus on building transparency in performance assessments, employee ownership of the goals and encouraging dialogue on performance and developmental feedback between the appraisee and appraiser, was introduced in your Bank. Softer behavioural attributes, like the employee''s adherence to values of the organisation, customer focus, accountability, ability to work in a team, and others build a culture conducive to sustainable business performance and promote desired behaviour. Recognising their importance, attention was also paid to such softer behavioural attributes.

Your Bank shall continue to leverage and/or align HR practices to build critical organisational capabilities, build a conducive work environment to enhance and shape employee satisfaction, and enable achievement of the strategic goals.

Risk Management Framework

Managing risk is an integral part of the banking business and your Bank aims at delivering a superior stakeholder value by achieving an appropriate equilibrium between risk and return. Your Bank has put in place an Integrated Risk Management framework that articulates its risk appetite and drills down the same into a limit framework for various risk categories. The risk governance framework ensures oversight, monitoring for vulnerability mapping and an integrated evaluation for effective risk management.

The Board of Directors provides oversight on all the risks assumed by the Bank. The Board has established Committees with specific terms of reference to facilitate focused oversight. At organisational level, overall risk management is assigned to an independent Risk Management Committee of Board (''RMCB''). The Bank''s Risk Committee reviews risk management policies, key risk indicators and the limit frameworks including stress test limits for various risks. Policies approved by the Board of Directors or Committees of the Board from time to time constitute the governing framework for each type of risk. Business activities are undertaken within this policy framework.

The Bank has set up various executive-level committees, having participation from various business and control functions, that are designed to review and oversee matters pertaining to various material risks.

Commitment towards the independence of Risk Management Department of the Bank, headed by a Chief Risk Officer (''CRO''), an employee of rich experience and seniority, to facilitate independent evaluation, monitoring and reporting of various risks is supervised by RMCB on a regular basis and reviewed by the Board on an annual basis. The Bank is in constant endeavour to upgrade its system and processes for establishment of an effective risk management system.

Credit Risk

Credit risk is the risk that arises when a borrower is unable to meet its financial obligation to the lender. All credit risk aspects are governed by Credit Policy and Credit Risk Policy of the Bank. The Credit Risk Management Committee (''CRMC''), chaired by MD & CEO, oversees and reviews the credit risk of your Bank.

The CRMC reports to the RMCB, the apex body for risk management in the Bank.

Your Bank has a uniqueness in terms of the composition of its credit portfolio with the preponderance of the small ticket microbanking portfolio and is also expanding into the General Banking loans, the Bank has various assessment approaches in tandem with the segmental risk profile of borrowers. Credit Underwriting is not part of Business and reports into a separate Underwriting Unit under the Risk Department. For large size loans, credit proposals are approved at the Head Office Credit Committees depending on the delegation of power vested in them. To limit the magnitude of credit risk, prudential limits are laid down on various aspects of credit, benchmark on various ratios, borrower type limits, industry and sectoral limits, among others.

An independent Credit Risk Management Department (''CRMD''), reporting into the CRO, implements the Credit Risk framework.

Market and Liquidity Risk

The Asset-Liability Management Committee (''ALCO''), reporting into the RMCB, functions as the top operational unit for managing the balance sheet within the performance/risk parameters laid down by the Board. It determines the asset liability management strategy in light of the current and expected business environment and reviews positions of the trading groups and the interest rate and liquidity gap positions on the banking book. The ALCO also sets deposit and benchmark lending rates.

Market risk arises largely from the Bank''s statutory reserve management and trading activity and is managed through a well-defined Board-approved Investment Policy and Market Risk Policy that caps risk in different trading desks or/and various securities through trading risk limits/triggers and is supplemented by a Board approved stress testing framework that simulates various market risk scenarios to measure losses and initiate remedial measures.

Liquidity Risk is the risk that a bank may not be able to meet its short term financial obligations due to an asset-liability mismatch or interest rate fluctuations. Your Bank''s framework for liquidity and interest rate risk management is spelt out in its Asset Liquidity-Management policy that is implemented, monitored and periodically reviewed by the ALCO. The Liquidity Coverage Ratio (''LCR'') seeks to ensure that the Bank has an adequate stock of unencumbered High-Quality Liquid Assets (''HQLA'') that can be converted into cash easily and immediately to meet its liquidity needs under a 30-day calendar liquidity stress scenario. Your Bank is maintaining the LCR limit as prescribed by the RBI.

An independent Market Risk Management Department (''MRMD''), reporting into the CRO, implements the Market & Liquidity Risk framework

Operational Risk

Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. To manage operational risks, the Bank has in place a comprehensive operational risk management framework, whose implementation is supervised by the Operational Risk Management Committee (''ORMC''), chaired by MD & CEO and reviewed by the RMCB.

The risk framework employs a judicial mixture of quantitative and qualitative assessment tools to assess the operational risk in products and processes. An independent Operational Risk Management Department (''ORMD''), reporting into the CRO, implements the framework.

The Bank has well laid down processes for management of its day-to-day activities which is approved by Product & Process Change Management Committee (''PCMC'') comprising of senior functionaries of Business and Control groups. The Bank follows established, well-designed controls, which include traditional four eye principles, effective separation of functions, segregation of duties, call back processes, reconciliation, exception reporting and periodic MIS.

Your Bank as a part of its strategy, has outsourced significant portion of its Information Technology Operations, an independent Outsourcing Committee comprising of members of Senior Management oversees the outsourcing risk framework under the guidance of the RMCB.

The Bank undertakes fraud risk assessment to identify and understand risks to its business. The Fraud Prevention and Monitoring Committee (''FPMC''), comprising senior functionaries of the Bank, is responsible for identification of frauds, deliberation, analysis of fraud events, gaps in controls and processes and initiate remedial actions and reports into the Audit Committee of the Board(''ACB'').

Information Security Management

The Bank operates in a highly automated environment and makes use of the latest technologies to support various operations. This throws up operational risks such as business disruption, risks related to information assets, data security, integrity, reliability and availability amongst others. In view of the same, your Bank has established an information security architecture to assess its IT-related vulnerabilities and manage the existing and emerging cybersecurity risks.

The IT Strategy Committee of the Board (''ITSCB'') is the apex body through which the Board keeps an oversight on the entire IT strategy of the Bank, including the cybersecurity strategy. The RMCB and the ACB also monitors the InfoSec aspects from their corresponding angles.

The teams monitor systems from the standpoint of operations, availability and security. In the endeavour towards providing high availability and continuity of services to its customers, including high availability of customer-facing IT systems, the Bank has a Board-approved Business Continuity Plan which includes plans for recovery of its IT systems in the event of any disaster or contingency. The Bank has a Board-approved Information Security and Cyber Security Policy which also incorporates a cyber-crisis management plan. The Bank has used the service of renowned auditing firms to conduct Statutory Audit of IT systems and controls. The Bank has laid down processes for change management, identity management, access management and security operations and these processes are periodically reviewed and refined to keep abreast of emerging risks and to ensure that commensurate controls to mitigate such risks are put in place.

With technology becoming an integral part of the banking industry, the Bank has established an information security architecture to assess its IT-related vulnerabilities and manage the existing and emerging cybersecurity risks. A well-documented Board approved information security policy is put in place. In addition, employees mandatorily periodically undergo information security training and sensitisation exercises.

Information Security (InfoSec) Team, under Chief Information Security Officer (''CISO''), reports into the overall Risk Management Department under CRO. The team follows strategies and procedures for managing the processes, tools and policies necessary to prevent, detect, document and counter threats to digital and non-digital information, and automated processes. InfoSec responsibilities include establishing a set of processes that will safeguard information assets regardless of how the information is structured or whether it is in transit/being processed or is at rest in storage. Your Bank is also building up its own independent 24*7 C-SOC (Cyber Security Operations Centre) for state of the art centralised and consolidated cybersecurity incident prevention, security event monitoring, detection and response capabilities.

Your Bank reaches out to customers through various channels, both brick and mortar like Branches & door step centres and click like Internet Banking, Mobile Banking, UPI as also ATMs. The security of digital channels is very critical given high number of cybersecurity incidents getting reported across the globe. Your Bank has taken up various steps, like two-factor authentications, implementation of transaction limit for digital channels, implementation of data leakage prevention solution, monitoring of transactions for card based transactions to protect its digital channels from misuse by external and internal incidents.

Information Technology at Bandhan Bank

Your Bank has taken giant strides in its IT & Digital Initiatives for the Bank. Information technology has played a key driver in this journey with solutions around the key levers of the Bank. Few key initiatives across Payments, Customer Experience, Operational Efficiency and Channel Upgrades are mentioned below:

Payments

BHIM *99#: This initiative has been introduced to drive digital usage of banking services especially in Rural Areas. This form of mobile banking uses Unstructured Supplementary Service Data (''USSD'') channel and can be used by customers without a smartphone. This application provides basic banking services like Fund Transfer and Balance Enquiry through simple steps.

BHIM App: Your Bank has been listed as an issuer in NPCI and other Bank''s Payment System Player (''PSP'') apps so that customers can send and receive funds to/from Bandhan Accounts using Unified Payments Interface as mode of the transaction.

BHIM Bandhan UPI (Google Play store): Your Bank has launched its own Android UPI Application hosted in Google Play store thereby announcing its arrival as a Payment System Player in the UPI Payment Ecosystem.

Bharat QR Customer App (RuPay Version 2) : Enhancement of the Bharat QR App thereby providing additional features to buyers and sellers while performing QR based payments.

Customer Experience

Chatbot: A software driven automated Question and Answer bot deployed within the Bandhan Bank website as virtual agents. These agents can serve multiple customers at the same time. Customers now receive response to their basic queries through questions asked to the bot using natural English language.

Home Loan Appraisal System: An intelligent scorecard built on credit score algorithms and set of business rules. This utility equips your Bank''s Credit Underwriters to assess the customer quality during the loan review cycle.

Micro Home Loan: Through this solution, your Bank has been able to help customers by providing loans to build houses as part of affordable housing initiative.

Paperless Insurance Claim: Your Bank has established system integration with its insurance partner, HDFC for digitising the insurance claims.

Agri and Term Loans with Kisan Credit Card: Through this solution, your Bank has been able to support farmers through disbursal of Agri and term loans using their Kisan credit card.

Operational Efficiency

Gold Loan Lead Generation: Through this module, all prospective leads are captured and tracked periodically and effectively by the Bank.

De-Dupe: This utility helps Central Processing Unit Team to validate KYC input errors and rectify them as and where required.

Meet2Govern: End-to-End digitisation of the meeting management software through document generation, meeting schedules and effective workflows.

Data Driven Decision: Branch Health Index: An in-house developed Visual Dashboard to analyse branch performance against defined criterias.

Channels Upgrades

Corporate Internet Banking Upgrade:

1. Delivery of Corporate Internet Banking phase II

In Phase II of Corporate Internet Banking, the Bank has introduced the following functionalities:

i) Bulk file upload for inter-bank & intra-bank Fund Transfers

ii) Account-wise transaction limit set-up

iii) Transaction in Cash Credit (CC) & Overdraft (OD) accounts

2. New functionalities in mBandhan application in Android version:

i) VISA, Rupay Offers

ii) Facility to update E-mail ID

iii) Change of language from Hotlist Debit Card to Block Debit Card

iv) Option to create and save Nominee details for TD purposes

v) Apply for a new SB/CA/Loan

vi) Favourite Transactions

vii) Update Limits per transaction/daily limit at customer''s end

viii) Sequence change

ix) ATM PIN regeneration

Material Changes and Commitment Affecting Financial Position of the Bank

There was no material changes and commitments, affecting the financial position of the Bank, which has occurred between the end of the financial year of the Bank, i.e., March 31, 2019 and the date of this Directors'' Report.

Compliance with Secretarial Standards

The Board of Directors affirm that the Bank has complied with the applicable Secretarial Standards issued by the Institute of Companies Secretaries of India (SS1 and SS2) respectively relating to Meetings of the Board, its Committees and the General Meetings.

Directors'' Responsibility Statement

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

i) in the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

ii) they have selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the Bank''s state of affairs as on March 31, 2019, and of its profit for the year ended on that date;

iii) they have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Act for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities;

iv) they have prepared the annual accounts on a going concern basis;

v) they have laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively; and

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

Acknowledgments

The Board of Directors places on record its gratitude to the RBI, other government and regulatory authorities, financial institutions and correspondent banks for their strong support and guidance. The Board acknowledges the support of the shareholders, and also places on record its sincere thanks to its valued clients and customers for their patronage. The Board also expresses its deep sense of appreciation to all employees of the Bank for their strong work ethic, excellent performance, professionalism, teamwork, commitment and initiative, which has led to the Bank making commendable progress in today''s challenging environment. Your Board will continue to ask for more and more improvements as your Bank continues its unique journey by combining microbanking with traditional commercial banking.

For and on behalf of the Board of Directors

Bandhan Bank Limited

Anup Kumar Sinha

Place: Mumbai Non-executive Part-time Chairman

Date: May 02, 2019 (DIN: 08249893)

Director’s Report