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IDFC First Bank Ltd.

BSE: 539437 | NSE: IDFCFIRSTB |

Represents Equity.Intra - day transactions are permissible and normal trading is done in this category
Series: EQ | ISIN: INE092T01019 | SECTOR: Banks - Private Sector

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Annual Report

For Year :
2021 2019 2018 2017 2016 2015

Director’s Report

Your Board of Directors are pleased to present the Seventh Annual Report of IDFC FIRST Bank Limited (‘IDFC FIRST Bank’ or the ‘Bank’) together with the Audited Financial Statements for the financial year ended March 31, 2021.

FINANCIAL HIGHLIGHTS

('' in crore)

Particulars

FY 2021

FY 2020

Deposits

88,688

65,108

Borrowings

45,786

57,397

Investments

45,412

45,405

Advances

100,550

85,595

Total Assets / Liabilities

163,144

149,200

Total Income

18,222

18,030

Profit before Depreciation and Tax

805

(2,073)

Net Profit

452

(2,864)

Appropriations

Transfer to Statutory Reserve

114

-

Transfer to Capital Reserve

149

166

Transfer to Special Reserve

24

-

Transfer from Investment Reserve

335

-

Dividend paid (includes tax on dividend)

-

-

Balance in profit and loss account carried forward

(3,729)

(3,560)

Capital adequacy ratio (Basel III)

13.77%

13.38%

Gross NPA %

4.15%

2.60%

Net NPA %

1.86%

0.94%

Return on Assets

0.28%

(1.79%)

STATE OF AFFAIRS OF THE BANK

The Bank has successfully diversified its business mix and added new revenue streams after the Merger. Now it has expanded its reach to serve new customer segments both on the retail as well as wholesale side of the business. The achievements during the FY 2020-21 are mentioned below -

1. Strong Growth in Retail Assets:

• Retail Book increased 29% Y-o-Y to '' 73,673 crore as on March 31, 2021 from '' 57,310 crore as on March 31, 2020.

• Retail Book constitutes 63% of Funded Loan Assets as on March 31, 2021 compared to 54% as on March 31, 2020. Including the Priority Sector Lending (‘PSL’) buyout portfolio, where the underlying assets are retail loans, the retail assets contribution to overall funded assets stood at 67% as of March 31, 2021.

• Wholesale Book decreased by 14% to '' 33,920 crore as on March 31, 2021 from '' 39,388 crore as on March 31, 2020.

• Within Wholesale Book, the Infrastructure loans

decreased by 27% to '' 10,808 crore as on March 31, 2021 from '' 14,840 crore as on March 31, 2020.

2. Strong Growth in Retail Liabilities:

• The Total CASA Deposits increased to '' 45,896 crore as on March 31, 2021 from '' 20,661 crore as on March 31, 2020, Y-o-Y increase of 122%.

• CASA Ratio improved to 51.75% as on March 31, 2021 from 31.87% as on March 31, 2020.

• Strong CASA growth of '' 25,235 crore during FY21 and '' 5,333 crore during Q4 FY21.

• Retail Deposits (Retail CASA and Retail Term Deposits) increased to '' 63,894 crore as on March 31, 2021 from '' 33,924 crore as on March 31, 2020, Y-o-Y increase of 88%.

• IDFC FIRST Bank Fixed Deposit program was assigned highest safety rating of ‘FAAA’ by CRISIL.

• Bank consciously reduced Certificate of Deposits (‘CD’) to '' 5,964 crore as on March 31, 2021 from '' 7,111 crore as on March 31, 2020, a Y-o-Y reduction of 16%, as CD are short term institutional borrowing in nature, and replaced them with Retail

7. Franchisee:

• As on March 31, 2021, the Bank has built a national footprint through the operation of 596 branches (out of which 371 are Urban Branches and 225 are Rural Branches) across many cities in India, 655 Corporate Business Correspondent (‘BC’) branches, 592 ATMs, 85 Recyclers, 3 Central Processing Centers and 1 Clearing Hub.

Points of Presence comparison chart:

Particulars

FY 2020-21

FY 2019-20

Urban Bank Branches

371

295

Rural Bank Branches

225

169

ATMs1

592

356

Recyclers

85

-

Asset Service Branches

151

128

Rural BC Branches (IDFC FIRST Bharat Limited)

384

380

Other BC Branches

271

272

’Excluding white label ATMs

FD and CASA money, thus strengthening and diversifying the liabilities significantly.

3. Strong growth in Core Earnings:

• Strong NII Growth: For the full year, total Net Interest Income (‘NII’) increased by 21% to '' 7,380 crore in FY21 from '' 6,076 crore in FY20.

• Strong NIM improvement: The Net Interest Margin (‘NIM’) for the full year FY21 was at 4.98% as compared to 3.91% in FY20.

• Strong growth in Total Income (NII Fees and Other Income Trading Gain): The total income for the full year increased by 24% to '' 10,207 crore in FY21 from '' 8,237 crore in FY20.

• Core Pre-provision Operating Profit (PPOP Net of treasury income and impact of interest on interest reversal): For the full year, the Core PPOP grew by 11% to '' 1,964 crore in FY21 from '' 1,764 crore in FY20.

• Provision: For the full year, Total Provisions stood at '' 2,638 crore in FY21 as compared to '' 4,754 crore in FY20.

• Profit After Tax: The Net Profit for the full year FY21 was '' 452 crore as compared to Net Loss of '' 2,864 crore in FY20.

4. Asset Quality of the Bank:

• Bank’s Gross NPA ratio as of March 31, 2021 stood at 4.15% as compared to 2.60% as of March 31, 2020.

• Bank’s Net NPA ratio as of March 31, 2021 stood at 1.86% as compared to 0.94% as of March 31, 2020.

• Provision Coverage Ratio (PCR) was 56.23% as of March 31, 2021 as compared to 64.53% as of March 31, 2020.

5. Asset Quality on Retail Loan Book:

• Retail Asset Gross NPA ratio stood at 4.01% as of March 31, 2021 as compared to 1.77% as of March 31, 2020.

• Retail Asset Net NPA ratio stood at 1.90% as of March 31, 2021 as compared to 0.67% as of March 31, 2020.

6. Capital Adequacy:

• With Preferential Issue of '' 2,000 crore (approx.) during June 2020, our Bank availed an insurance for an emerging COVID-19 situation, that positioned itself for strong growth going forward.

• Capital Adequacy Ratio stood at 13.77% with CET-1 Ratio at 13.27% as of March 31, 2021.

• The Bank has raised equity capital of '' 3,000 crore (approx.) through Qualified Institutions Placement (‘QIP’) on April 06, 2021, including this, the Capital Adequacy Ratio stands at 16.32% with CET-1 ratio at 15.62%, as on March 31, 2021.

• The Bank offers a wide gamut of products to cater to the needs of customers from all segments which can be viewed on our website: www.idfcfirstbank.com.

UPDATE ON IMPACT OF COVID-19

Towards the end of 2020 and early 2021, India saw considerable decrease in new COVID-19 cases. But major Pandemics have multiple waves of infection and being aware of the same, the Business Continuity Management (‘BCM’) team continued to monitor and create awareness among staff and management on the related threat to the Bank’s services and its customers. In the later weeks of February 2021, India saw the 2nd wave of the COVID-19 Pandemic hit the country.

The continued and proactive review by the BCM team on the evolving nature of the pandemic helped the Bank take timely actions and minimize the impact of the 2nd wave.

Initiative undertaken to combat 2nd wave of COVID-19 Pandemic -

• Proactive & Inclusive Communication: The

Bank continues its communication with its staff on the Pandemic, creating awareness on the threat, precautions to take, the Bank’s Pandemic Assistance Program, government guidelines/restrictions and the Bank’s strategy to address the ongoing situation. For this multiple modes of communications are employed - electronic (SMS, E-mail, Screensavers) and physical (Standees/posters etc.) to reach the staff. Further, managers are encouraged to have frequent sessions with staff to understand and address any issues considering that the staff has been working remotely for most parts of the Pandemic.

• COVID-19 Policies & Assistance Programs: The

Bank last year implemented various policies targeted towards employee health & safety like the Work from

Home Policy & Quarantine Policy. Both these policies were activated & implemented before the lockdown in India, thus ensuring Bank was well prepared to address the effects of the Pandemic and the Lockdowns. The 21 days paid Quarantine Leaves ensured infected employee recovers well and do not infect other staff or customers.

Further, as Pandemic started having impact on our staff, the Bank came out with a “COVID-19 Assistance Program” to help its staff and their families. The program addressed multiple issues affecting staff -Reimbursement of the cost of testing & vaccination, a 24x7 Doctor Helpline to allay their doubts/concerns, discounted Pricing for Home Isolation Packages and hospitalization assistance for employees and their family on best effort basis. The Bank also launched countrywide vaccination drive for its staff and their dependents thus ensuring staff and families are safe.

• Safe & Secure Operating Environment: The

government came out with specific guidelines on keeping bank premises safe and secure last year. The Bank implemented these guidelines and ensured that our premises are sanitized and deep cleaned frequently so that they are safe and secure both for our staff and our customers. Specialized in-house and external partners are involved in ensuring the same daily. Further, branches are closed for pre-defined periods whenever there is a positive COVID-19 case in the branch and fully sanitized. Our Bank is fully compliant to government laid down guidelines on use of mask, social distancing and relevant controls across our offices/branches in the country.

• Business Continuity & Course Correction: The

Business Continuity Program stood up well against the Pandemic last year. The Pandemic plan has been further enhanced with the learnings e.g. like the Bank’s continuity strategy has embraced the remote working and split site operations as a primary strategy, Bank’s branches & team operate per changing nature of the operating environments and government directives seamlessly with staff on rotation. The same continues now as we see the impact of the 2nd wave of COVID-19 Pandemic.

• Sprucing Up Technology Infrastructure: Our

technology infrastructure has been the backbone of the Bank’s fight against the Pandemic. It provided the remote access platform that helped critical teams to perform business activities from the secure confines of their homes and ensure continuity of critical business functions. The remote access technology supporting the Bank has been further enhanced over the course of the last year to ensure the Bank can support more staff in the remote operating model. 1

guides and provides resources to help address the challenges of the Pandemic, keeping in front the customer viz. CUSTOMER FIRST!

CSR Initiatives: We have undertaken 5 key initiatives in response to the severe second wave of COVID-19 that has impacted the marginalized across urban and rural India. In order to emphasise urgency for COVID-19 vaccination, and to clear misconceptions relating to it, the bank reached out to over five million of its customers in semi-urban and rural locations digitally using animated films. In our other programs, we provided Oxygen Concentrators to rural hospitals, Cash Relief support to those who lost their bread-winner to the deadly disease, mask distribution and also initiated a livelihood program to help families earn a living despite lockdown restrictions by means of mask-making.

The Bank continues to monitor the evolving environment of the Pandemic (potential 3rd wave) with the help of its BCM team and will take necessary steps and do course correction as required in the interests of its customers and its staff!

DIVIDEND

The Board of Directors did not recommend any dividend on equity shares for the FY 2020-21, in absence of distributable profits, in terms of the RBI Guidelines.

In accordance with Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, as amended (‘SEBI Listing Regulations’), our Bank has formulated a Dividend Distribution Policy, which ensures a fair balance between rewarding its Shareholders and retaining enough capital for the Bank’s future growth.

This Policy is available on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

PREPAREDNESS ON IMPLEMENTATION OF INDIAN ACCOUNTING STANDARDS (‘IND-AS’)

The Reserve Bank of India (‘RBI’) vide Circular RBI/2018-2019/146 DBR. BP.BC.No.29/21.07.001/2018-19 dated March 22, 2019 has decided to defer the implementation of IND-AS for banks till further notice.

The Bank has made considerable progress on IND-AS implementation and in fact, since the Bank is an associate company of IDFC Limited (holding company of IDFC Financial Holding Company Limited, Promoter) which is a Non-Banking Finance Company (‘NBFC’) that falls under the ‘IND-AS Road map’ mandatorily applicable from April 01, 2018. Accordingly, the Bank has been preparing and submitting special purpose ‘Fit for Consolidation’ consolidated financials under IND-AS to IDFC Limited with the transition date as April 01, 2017. Under the RBI guidelines, banks are not allowed to early adopt IND-AS and should be guided by the RBI guidelines. Accordingly, the general purpose financial statements of the Bank presented in the Annual Report are not under IND-AS.

Further, the Bank also submits quarterly Standalone

Proforma financials in the format as prescribed by the RBI. These submissions are reviewed by the management and the Audit Committee of the Bank before submission to the RBI. The working group of the Bank prepares quarterly proforma IND-AS financials as required by the RBI.

The implementation of IND-AS is expected to result in significant changes to the way the Bank prepares and presents its financial statements. The areas that are expected to have significant accounting impact on the application of IND-AS are summarized below:

1. Financial assets (which include advances and investments) shall be classified under amortized cost, fair value through other comprehensive income (a component of Reserves and Surplus) or fair value through profit/ loss categories on the basis of the nature of the cash flows and the intention of holding the financial assets.

2. Interest will be recognized in the income statement using the effective interest method, whereby the coupon, fees net of transaction costs and all other premiums or discounts will be amortized over the life of the financial instrument.

3. The impairment requirements of IND-AS 109, Financial Instruments, are based on an Expected Credit Loss (ECL) model that replaces the incurred loss model under the extant framework. The Bank will be generally required to recognize either a 12-Month or Lifetime ECL, depending on whether there has been a significant increase in credit risk since initial recognition. IND-AS 109 will change the Bank’s current methodology for calculating the provision for standard assets and nonperforming assets (NPAs). The Bank will be required to apply a three-stage approach to measure ECL on financial instruments accounted for at amortized cost or fair value through other comprehensive income. Financial assets will migrate through the following three stages based on the changes in credit quality since initial recognition:

Stage 1: 12 Months ECL - For exposures which have not been assessed as credit-impaired or where there has not been a significant increase in credit risk since initial recognition, the portion of the ECL associated with the probability of default events occurring within the next twelve months will need to be recognized.

Stage 2: Lifetime ECL - For credit exposures where there has been a significant increase in credit risk since initial recognition but are not credit-impaired, a lifetime ECL will need to be recognized.

Stage 3: Lifetime ECL - Credit Impaired Financial assets will be assessed as credit impaired when one or more events having a detrimental impact on the estimated future cash flows of that asset have occurred. For financial assets that have become credit impaired, a lifetime ECL will need to be recognized.

4. Accounting impact on the application of IND-AS at the transition date shall be recognized in Equity (Reserves and Surplus) as and when it becomes statutorily applicable to the Bank.

SHARE CAPITAL

Authorised Share Capital

In order to meet Bank’s growth objectives, business expansion plans and to further strengthen its financial position, the Bank felt the need to have adequate Authorised Capital in order to infuse additional funds in the form of further capitalization and to generate long term resources by issuing securities.

Pursuant to approval of the Board of Directors of the Bank at their meeting held on May 01, 2020, and in accordance with the consent of the shareholders and other requisite approvals, the Authorised Share Capital of the Bank was increased to '' 75,38,00,00,000 (Rupees Seven Thousand Five Hundred Thirty Eight Crore only) divided into 7,50,00,00,000 (Seven Hundred Fifty Crore) equity shares of '' 10 each and 38,00,000 (Thirty Eight Lakh) preference shares of '' 100 (Rupees One Hundred only) each, by creation of additional 2,17,50,00,000 (Two Hundred Seventeen and Fifty Lakh) equity shares of '' 10 each and the consequent alteration of its Memorandum of Association. Further, Reserve Bank of India had vide its letter dated May 10, 2020, acknowledged the proposed increase in Authorised Share Capital and consequent amendment to be carried out in the Memorandum of Association of the Bank, subject to compliance with relevant statutes and circulars/ instructions/ guidelines issued by RBI from time to time.

As on March 31, 2021, the Authorised Share Capital of the Bank was '' 75,38,00,00,000 comprising of 7,50,00,00,000 equity shares of '' 10 each and 38,00,000 preference shares of '' 100 each.

Paid-up Equity Share Capital

Issue of Equity Shares on Preferential basis (‘Preferential Issue’)

Our Bank has grown steadily on its business and financial parameters during the recent years. Our Bank is one of India’s fastest growing private sector banks with an expanding presence across the country.

Basis the approval of the Board of Directors of the Bank at their meeting held on May 01, 2020 and by virtue of special resolution passed by the shareholders of the Bank through postal ballot on June 03, 2020, the Allotment, Transfer and Routine Matters Committee had at its meeting held on June 12, 2020, approved the issue and allotment of 86,24,40,704 (Eighty-Six Crore Twenty-Four Lakh Forty Thousand Seven Hundred and Four) equity shares of face value of '' 10 each fully paid-up, at a price of '' 23.19 per Equity Share (including premium of '' 13.19 per share), aggregating to ~ '' 2,000 crore on a preferential basis, the offer/issue price being determined in accordance with the applicable provisions of the Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements) Regulations, 2018, as amended (‘SEBI ICDR Regulations’).

Qualified Institutions Placement (‘QIP’)

Basis approval of the Board of Directors of the Bank at their meeting held on February 18, 2021 and by virtue of special resolution passed by the shareholders of the Bank through postal ballot on March 21, 2021, the Capital Raising Committee of the Board (the ‘Capital Raising Committee’) had at its meeting held on April 06, 2021 approved the issue and allotment of 52,31,03,660 (Fifty-Two Crore Thirty-One Lakh Three Thousand Six Hundred Sixty) equity shares of face value of '' 10 each to Qualified Institutional Buyers (‘QIBs’) at an issue price of '' 57.35 per Equity Share (including a premium of '' 47.35 per share) aggregating to ~ '' 3,000 crore. Further, the list of allottees who had been allotted more than five percent (5%) of the equity shares in the QIP Issue were as below:

Name of the Investors/ Allottees

No. of Equity Shares allotted

% of total Equity Shares offered in the QIP Issue

Bajaj Allianz Life Insurance Company Ltd.

6,26,85,260

11.98

Baillie Gifford Emerging Markets Equities Fund

5,95,74,979

11.39

Baillie Gifford Pacific Fund a Sub Fund of Baillie Gifford Overseas Growth Funds

46,792,068

8.95

BNP Paribas Arbitrage - ODI

45,074,080

8.62

City of New York Group Trust

44,606,692

8.53

Baillie Gifford Emerging Markets Growth Fund a Sub Fund of Baillie Gifford Overs

35,524,397

6.79

HDFC Life Insurance Company Limited

34,873,580

6.67

TATA AIA Life Insurance CO LTD-Whole Life MID Cap Equity Fund-ULIF 009 04/01/07

30,514,380

5.83

Both, the Preferential Issue and the QIP was made pursuant to applicable provisions of the Companies Act, 2013, read with relevant rules made thereunder, in accordance with the guidelines, rules and regulations of the Securities and Exchange Board of India (‘SEBI’), including SEBI ICDR Regulations, SEBI Listing Regulations, the relevant provisions of the Banking Regulation Act, 1949, the rules, circulars, directions and guidelines issued by the RBI, and subject to the MCA Circulars issued in December 2020. The Bank has ensured to comply with all legal and statutory formalities.

Post the above QIP Issue, the issued, subscribed and paid-up equity share capital of our Bank as on April 06, 2021 was '' 61,98,95,35,150 consisting of 6,19,89,53,515 equity shares of '' 10 each.

Allotment of Equity Shares pursuant to exercise of Stock Options

During FY 2020-21, 35,06,135 equity shares of '' 10 each were issued and allotted to the eligible employees of the Bank on exercise of Options granted under IDFC FIRST Bank Limited Employee Stock Option Scheme 2015 (‘IDFC FIRST Bank ESOS-2015’).

As on March 31, 2021, the issued, subscribed and paid-

up equity share capital of our Bank was '' 56,75,84,98,550 comprising 5,67,58,49,855 equity shares of '' 10 each.

Subsequent to the year under review and as on date of this report, the Bank has allotted 29,13,740 equity shares of '' 10 each to the allottees upon exercise of stock options pursuant to IDFC FIRST Bank ESOS-2015. Post the said allotment, the paid-up Equity Share Capital of the Bank stands at 620,18,67,255 equity shares of '' 10 each, aggregating to '' 6201,86,72,550.

Our Bank has not issued any equity shares with differential voting rights.

CAPITAL ADEQUACY

Currently, the Bank is required to maintain a minimum total Capital Adequacy Ratio of 10.875%, of which minimum Tier 1 is 8.875% including Capital conservation buffer.

Our Bank is well capitalised and has a Capital Adequacy Ratio under Basel III as at March 31, 2021 of 13.77% (as against the RBI minimum requirement of 10.88%) & with Tier-I Capital Adequacy Ratio being 13.27%.

Capital Adequacy Ratio of the Bank, including additional equity capital of '' 3,000 crore raised through QIP on April 6, 2021 and calculated on figures as on March 31, 2021, was strong at 16.32% with CET-1 Ratio at 15.62%.

At such Capital Adequacy, our Bank shall be one of the highest CET-1 capitalized banks in the country, which is far higher than the regulatory requirements.

At high levels of Capital Adequacy, our Bank will continue to enjoy the highest levels of confidence from the Indian financial ecosystem including capital market participants, depositors and our customers.

With the strong opportunities in India (India is an emerging economy and an underserved and under-penetrated market), the strong asset track record (combined with Capital First and IDFC Bank) combined with robust liability franchise, our Bank is well placed to grow its business in the future. Also, the capital raise does give the buffer on account of unforeseen circumstances on account of COVID-19.

As a Bank, it is our endeavor to be strong custodians of public depositors/ shareholders and to further strengthen the balance sheet immensely.

RATINGS

Credit rating details for 80CCF Long Term Infrastructure Bonds, Private Placement Bonds and other instruments of IDFC FIRST Bank is available on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

Our Bank is rated ‘FAAA’ by CRISIL for '' 50,000 crore Fixed Deposit Program, which is the highest level of safety rating by CRISIL.

During the FY 2020-21, our Bank has not issued any Senior Unsecured Redeemable Long-Term Bonds in the nature of Non-Convertible Debentures and/ or non-equity regulatory capital instrument.

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 are not applicable to our Bank.

As per the applicable provisions of the Banking Regulation Act, 1949, details of the Bank’s deposits have been included under Schedule 3 - Deposits, in the preparation and presentation of the financial statements of the Bank.

LOANS, GUARANTEES OR ACQUISITION OF SECURITIES

Pursuant to Section 186 (11) of the Companies Act, 2013, the provisions of Section 186 of the Companies Act, 2013, except sub-section (1), do not apply to a loan made, guarantee given or security provided or any investment made by a banking company in the ordinary course of business. The particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements as per the applicable provisions of the Banking Regulation Act, 1949.

PERFORMANCE AND CONTRIBUTION OF SUBSIDIARY AND ASSOCIATE COMPANIES

IDFC FIRST Bank has one wholly owned Subsidiary Company, namely IDFC FIRST Bharat Limited (‘IDFC FIRST Bharat‘).

IDFC FIRST Bharat is acting as a Business Correspondent (‘BC’) for distribution of the products of IDFC FIRST Bank and has given an added momentum to the financial inclusion plan of the Bank.

During FY 2020-21, IDFC FIRST Bharat has sourced loans worth '' 6,220 crore, of which '' 4,162 crore is in Joint Liability Group Loans (‘JLG’), '' 555 crore is in Micro Enterprises Loans (‘MEL’), '' 1,110 crore is in Micro Housing Loan (‘MHL’), '' 206 crore is in Two Wheeler Loans, '' 17 crore is in Housing Loan and '' 95 crore is in Loan Against Property products as a BC to IDFC FIRST Bank. During the year consumer durable and personal loan products, were launched and '' 71 crore and '' 4 crore respectively were disbursed. The year-end Assets Under Management (‘AUM’) of IDFC FIRST Bharat as of March 31, 2021 has increased to '' 7,811 crore from '' 5,908 crore as on March 31, 2020.

IDFC FIRST Bank’s policy for determining material subsidiaries is available on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

In accordance with the provisions of Section 129(3) of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014, the Bank has prepared its consolidated financial statements, which forms part of this Annual Report.

Further, pursuant to Section 136(1) of the Companies Act, 2013, the Annual Report of the Bank, containing therein its standalone and consolidated financial statements has been hosted on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

In addition thereto, the Annual Report of IDFC FIRST Bharat containing therein its audited financial statements has also been hosted on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

IDFC FIRST Bank has only one Associate Company as on March 31, 2021, viz Millennium City Expressways Private Limited, in which it holds 29.98% equity stake.

The highlights on performance of the Subsidiary and Associate Company and their contribution to the overall performance of the Bank can be referred to in Form AOC-1, appended as ANNEXURE 1.

PROMOTER

Pursuant to the RBI Guidelines for ‘Licensing of New Banks in the Private Sector’ dated February 22, 2013, the Promoter - IDFC Financial Holding Company Limited (‘IDFC FHCL’) is required to hold a minimum of 40% of the total paid-up voting equity capital of the Bank which shall be locked in for a period of five years from the date of commencement of business of the Bank i.e. from October 01, 2015. Further, the shareholding by IDFC FHCL in the Bank in excess of 40% of the total paid-up voting equity capital was required to be brought down to 40% within three years from the date of commencement of business of the Bank. Also, in the event of the Bank raising further voting equity capital during the first five years from the date of commencement of business, IDFC FHCL should continue to hold 40% of the enhanced total voting equity capital of the Bank for a period of five years from the date of commencement of business of the Bank. Accordingly, as and when equity shares were allotted by IDFC FIRST Bank pursuant to the ESOP Scheme or by way of any other allotment, IDFC FHCL used to purchase new shares for maintaining 40% shareholding in the Bank.

The lock-in restrictions on IDFC FHCL for holding minimum 40% of the total paid-up voting equity capital of the Bank ceased to be applicable with effect from October 01, 2020. However, pursuant to applicable provisions of law, 34,49,76,282 equity shares of the Bank allotted to IDFC FHCL during their subscription of preferential issue is locked-in for 3 years i.e. with effect from June 26, 2020 upto June 25, 2023.

As on March 31, 2021, IDFC FHCL held 2,26,89,37,489 equity shares in Bank constituting 39.98% of the total paid-up voting equity capital of the Bank. As on April 06, 2021 (post QIP), the shareholding of IDFC FHCL was 36.60% of the total paid-up voting equity capital of the Bank. As on date of this report, the equity shareholding of IDFC FHCL remains same.

EMPLOYEES

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 may be obtained by the shareholders by writing to the Head - Legal and Company Secretary of our Bank.

Disclosures pertaining to remuneration and other details as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is appended as ANNEXURE 2.

EMPLOYEE STOCK OPTION SCHEME

The Employee Stock Option Scheme (‘IDFC FIRST Bank ESOS - 2015’/ ‘ESOS’) was framed with an object of encouraging higher participation on the part of employees in the Bank’s financial growth and success. An effective stock option scheme enables retention of talent and aligning employee interest to that of the Shareholders.

There were 23,41,93,359 stock options outstanding at the beginning of FY 2020-21. During FY 2020-21, 4,21,32,000 stock options were granted to the eligible employees under IDFC FIRST Bank ESOS-2015.

Further, 1,30,19,110 stock options had lapsed/ forfeited, and 35,06,135 stock options were exercised during the year ended March 31, 2021. Accordingly, 25,98,00,114 stock options remained outstanding as on March 31, 2021. All stock options vests in a graded manner and are required to be exercised within a specific period in accordance with IDFC FIRST Bank ESOS-2015 and Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014, as amended (‘SEBI SBEB Regulations’).

The Bank has used the intrinsic value method to account for the compensation cost of Stock Options to employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share on the date, prior to the date of the grant, exceeds the exercise price on the Option. IDFC FIRST Bank ESOS - 2015 is administered by the Nomination and Remuneration Committee (‘NRC’) of the Board of the Bank.

There has been no material change in IDFC FIRST Bank ESOS - 2015 during FY 2020-21 and the said IDFC FIRST Bank ESOS - 2015 is in compliance with the SEBI SBEB Regulations.

The details and disclosures with respect to ESOS as required under SEBI SBEB Regulations and circulars issued thereunder, have been uploaded on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

Further, disclosure as per the ‘Guidance Note on Accounting for Employee Share-based Payments’ issued by the Institute of Chartered Accountants of India, are appearing in the Notes to the Standalone Financial Statements of IDFC FIRST Bank, forming part of this Annual Report.

DIRECTORS AND KEY MANAGERIAL PERSONNEL

Appointment & Cessation

All appointments of Directors are made in accordance with the relevant provisions of the Companies Act, 2013 and the Rules framed thereunder, the SEBI Listing Regulations, the Banking Regulation Act, 1949 and the rules, guidelines and circulars issued by the RBI from time to time.

The NRC conducts due diligence before appointment of Directors and ensures adherence to ‘Fit and Proper’ criteria, as prescribed by RBI.

The Bank received instructions from Department of Financial Services, Ministry of Finance, Government of India nominating Dr. Sanjay Kumar (DIN 08764419) as a Government Nominee Director on the Board of the Bank in place of Ms. Anindita Sinharay (DIN 07724555). Based on the recommendation of the NRC, the Board of Directors of the Bank had appointed Dr. Sanjay Kumar as a Government Nominee Director (Additional Director) of the Bank with effect from June 22, 2020 and accordingly Ms. Anindita Sinharay ceased to be a Government Nominee Director with effect from June 22, 2020.

The shareholders at 6th AGM of the Bank held on July 30,

2020 approved the appointment of Dr. Sanjay Kumar as a Government Nominee Director (Non-Executive NonIndependent Director), with effect from June 22, 2020.

During the year under review, Dr. Rajiv Lall (DIN 00131782) tendered his resignation as Part-Time Non-Executive Chairman from the Board of IDFC FIRST Bank effective from September 04, 2020 citing his prolonged personal health issues.

Pursuant to Reserve Bank of India Circular Ref:DBOD. No.BC.24/08.139.001/2002-03 dated September 9, 2002 on ‘Implementation of Recommendations of the Consultative Group of Directors of Banks/ Financial Institutions’ (‘RBI Circular’), and in view of attaining an age of 70 years, Mr. Anand Sinha (DIN 00682433) ceased to be an Independent Director of the Bank with effect from February 02, 2021.

The Bank had received a communication dated March 25, 2021 from Department of Financial Services, Ministry of Finance of Government of India (‘GoI’), mentioning that GoI holds one (1) seat on the Board of the Bank and since, the GoI has been minority shareholder in Bank and is not involved in day to day operation of the Bank, it has been decided to withdraw its Board representation from the Board of the Bank. Accordingly, the Board vide circular resolution dated March 25, 2021 noted and approved the cessation of Dr. Sanjay Kumar as a Government Nominee Director on the Board of the Bank with effect from March 25, 2021.

Subsequent to the year under review, based on the recommendation of the NRC, the Board at its meeting held on April 30, 2021, approved the appointment of Mr. S. Ganesh Kumar (DIN 07635860) as an Additional Director in the category of Independent Director of the Bank for a period of five (5) consecutive years, effective from April 30,

2021 to hold office up to April 29, 2026 (both days inclusive), subject to approval of the shareholders of the Bank and other applicable statutory/ regulatory approvals. Further, on May 08, 2021, the Board of Directors on the recommendation of the NRC, approved the re-appointment of Mr. Pravir Vohra (DIN 00082545) as an Independent Director of the Bank for a second term of five (5) consecutive years, commencing from August 01, 2021 up to July 31, 2026 (both days inclusive), subject to approval of the shareholders of the Bank and other applicable statutory/ regulatory approvals.

Further, the Board of Directors of the Bank at its meeting held on June 16, 2021, based on the recommendation of the NRC and performance evaluation, as applicable, have approved the re-appointment of Mr. V. Vaidyanathan (DIN 00082596) as the Managing Director & Chief Executive Officer (‘MD & CEO’) for a period of three years with effect from December 19, 2021, subject to the approval of the shareholders and the Reserve Bank of India. The approval of the shareholders in this regard is being sought at the ensuing AGM of the Bank.

The details of the Director being re-appointed is set out in the Notice of the ensuing AGM of the Bank.

Brief profiles of all the Directors of the Bank are available on the Bank’s website at www.idfcfirstbank.com under the ‘Board of Directors’ section.

None of the Directors of the Bank are disqualified in accordance with Section 164 of the Companies Act, 2013.

Further, the Bank had received declaration from all the Independent Directors (‘IDs’), at the time of appointment and also at the first meeting of the Board of Directors held in FY 2020-21, that they meet the criteria of independence specified under sub-section (6) of Section 149 of the Companies Act, 2013, read with Rule 5 of the Companies (Appointment and Qualification of Directors) Rules, 2014 and Regulation 16(1) (b) of the SEBI Listing Regulations, for holding the position of ID and that they shall abide by the ‘Code for Independent Directors’ as per Schedule IV of the Companies Act, 2013. In the opinion of the Board, the IDs possess the requisite integrity, experience, expertise and proficiency required under all applicable laws and the policies of the Bank.

Further, all the IDs of the Bank have complied and affirmed to abide by Rule 6 (Creation and Maintenance of Databank of Persons Offering to become Independent Directors) of the Companies (Appointment and Qualification of Directors) Rules, 2014, as amended, and have also declared their enrollment in the databank of Independent Directors maintained by Indian Institute of Corporate Affairs (‘IICA’).

Further, it is reported by M/s. Makarand M. Joshi & Co., Practicing Company Secretaries, Bank’s Secretarial Auditor that during the financial year under review, the Board of Directors of the Bank is duly constituted with proper balance of Executive Director, Non-Executive Directors and Independent Directors. The changes in the composition of the Board of Directors that took place during the period under review were carried out in compliance with the provisions of the Companies Act, 2013, and other applicable RBI Regulations laws.

Further, as per the SEBI Listing Regulations, the Bank has received Certificate from M/s. Bhandari & Associates, Practicing Company Secretaries that none of the Directors on the Board of the Bank have been debarred or disqualified from being appointed or continuing as directors of Companies by the Securities and Exchange Board of India/ Ministry of Corporate Affairs or any such other statutory authority.

FRAMEWORK FOR APPOINTMENT OF DIRECTORS

The Bank has in place a framework for Board Diversity, Fit & Proper Criteria and Succession Planning for appointment of Directors on the Board of the Bank.

FAMILIARISATION PROGRAMMES FOR BOARD MEMBERS

At the time of appointment, all Directors of our Bank are familiarized with their roles, responsibilities, rights and duties along with a brief overview of our Bank’s operations in a nutshell.

The Board members are further provided with necessary documents, reports and internal policies to enable them to familiarize with the Bank’s procedures and practices.

Periodic presentations are made at the Board and Committee meetings on business and performance of the Bank, global business environment, business strategy and associated risks, responsibilities of the Directors etc.

Detailed presentations on the Bank’s business and updates thereon were made at the meetings of the Board and Committees held during the year.

The details of the said programmes are available on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

BOARD EVALUATION

The Board of Directors (‘Board’) has carried out an annual evaluation of the Board, Board Committees, and Individual Directors pursuant to the provisions of the Companies Act, 2013 and the SEBI Listing Regulations for the financial year 2020-21.

The detailed process indicating the manner in which the annual evaluation has been carried out pursuant to the SEBI Listing Regulations and Companies Act, 2013 is provided in the Corporate Governance Report, which forms part of this Annual Report.

NUMBER OF MEETINGS OF THE BOARD

The Board met thirteen (13) times during FY 2020-21 viz., May 01, 2020, May 22, 2020, July 24, 2020, July 28, 2020, August 28, 2020, September 11, 2020, October 08, 2020, October 31, 2020, January 09, 2021, January 30, 2021, February 18, 2021, March 22, 2021 and March 31, 2021; details of which are given in the Corporate Governance Report, which forms part of this Annual Report. The maximum interval between any two consecutive meetings did not exceeded 120 days.

BOARD COMMITTEES

In compliance with various regulatory requirements, several Board-level Committees have been constituted to delegate matters that require greater and more focused attention.

Details on the constitution, brief terms of reference, meetings held and attendance of all the Board-level Committees are given in the Corporate Governance Report which forms part of this Annual Report.

Dr. (Mrs.) Brinda Jagirdar

Chairperson | Independent Director

Mr. Sanjeeb Chaudhuri

- Member | Independent Director

Mr. Pravir Vohra

- Member | Independent Director

Mr. S. Ganesh Kumar

- Member | Independent Director

Mr. Sunil Kakar

Member | Non-Executive Non-Independent Director

Mr. V. Vaidyanathan

- Member | MD & CEO

Corporate Social Responsibility (CSR) Committee

The CSR Committee met three (3) times during FY 2020-21 on May 07, 2020, October 30, 2020 and January 28, 2021.

Further, the CSR Committee comprises of the following members as on the date of this report:

A brief overview of some of the Board-level Committees is furnished below:

Audit Committee

The Audit Committee met six (6) times during FY 2020-21 i.e. on May 21, 2020, May 29, 2020, July 28, 2020, September 11, 2020, October 30, 2020, and January 30, 2021.

All recommendations made by the Audit Committee during the year were accepted by the Board.

Further, the Audit Committee comprises of the following members as on the date of this report:

Mr. Aashish Kamat

- Chairman | Independent Director

Mr. Pravir Vohra

- Member | Independent Director

Mr. Sanjeeb Chaudhuri

- Member | Independent Director

Mr. Sunil Kakar

Member | Non-Executive Non-Independent Director

Nomination and Remuneration Committee (NRC)

The NRC is constituted in compliance with the RBI Guidelines, Section 178 of the Companies Act, 2013 and the SEBI Listing Regulations.

The NRC met five (5) times during FY 2020-21 on May 21, 2020, July 27, 2020, August 28, 2020, October 31, 2020 and January 28, 2021.

Further, the NRC comprised of the following members as on the date of this report:

Mr. Hemang Raja

- Chairman | Independent Director

Mr. Aashish Kamat

- Member | Independent Director

Dr. (Mrs.) Brinda Jagirdar

- Member | Independent Director

Mr. Vishal Mahadevia

Member | Non-Executive Non-Independent Director

Remuneration Policy

The Bank has formulated and adopted the Remuneration Policies for the (i) Non-Executive Part-time Chairman and Non-Executive Directors; (ii) Whole-time / Executive Directors, Material Risk Takers, Key Managerial Personnel, Senior Management Personnel & Control Function Staff; and (iii) employees of the Bank (‘the Policies’), in terms of the relevant provisions of Section 178 of the Companies Act, 2013, the relevant Rules made thereunder, the SEBI Listing Regulations relating to Corporate Governance and the Guidelines issued by the RBI, in this regard.

During the year, the said Policies were reviewed and approved by the NRC and the Board.

Our Bank also has a process in place for identification of independence, qualifications and positive attributes of its Directors. The NRC ensures a transparent nomination process to the Board of Directors with diversity of gender, thought experience, knowledge and perspective in the Board.

The said Policies have been hosted on the website of the Bank at www.idfcfirstbank.com. under the ‘Investors’ section in terms of the SEBI Listing Regulations.

Stakeholders’ Relationship and Customer Service Committee (SRCSC)

The SRCSC met four (4) times during FY 2020-21 i.e. on May 07, 2020, July 24, 2020, October 30, 2020, and January 28, 2021.

Further, the SRCSC comprised of the following members as on the date of this report:

Mr. V. Vaidyanathan

- Chairman | MD & CEO

Dr. (Mrs.) Brinda Jagirdar

- Member | Independent Director

Mr. Hemang Raja

- Member | Independent Director

The CSR Policy of the Bank is available on the Bank’s website

at www.idfcfirstbank.com under the Investors section.

The CSR initiatives of the Bank in FY 2020-21 were implemented through various implementation agencies/ partners. In order to achieve impact and scale, the CSR activities undertaken during the year mainly focused on areas: [a] Livelihoods, [b] Health and Sanitation, [c] Education, [d] Women Empowerment, and [e] Others (COVID-19 Relief).

The amount spent for CSR contribution by the Bank for FY 2020-21 was '' 19.62 crore.

Annual Report on CSR activities as required under the Companies (Corporate Social Responsibility Policy) Rules, 2014, as amended from time to time, has been appended as ANNEXURE 3 and forms part of this Report.

KEY MANAGERIAL PERSONNEL

As on the date of this report, the following officials of the Bank are the ‘Key Managerial Personnel’ pursuant to the provisions of Section 203 of the Companies Act, 2013:

Mr. V. Vaidyanathan

Managing Director & Chief Executive Officer Mr. Sudhanshu Jain

Chief Financial Officer & Head - Corporate Centre

Mr. Satish Gaikwad

Head - Legal & Company Secretary

INTERNAL FINANCIAL CONTROLS

The Bank has adequate internal controls and processes in place with respect to its financial statements that provide reasonable assurance regarding the reliability of financial reporting and preparation of financial statements. These controls and processes are driven through various policies, procedures and certifications which also ensure the orderly and efficient conduct of the Bank’s business, including adherence to Bank’s policies, safeguarding of assets, prevention and detection of frauds and errors, accuracy and completeness of the accounting records, and the timely preparation of reliable financial information. The controls and processes are being reviewed periodically. The Bank has a mechanism of testing the controls and processes at regular intervals for their design and operating effectiveness to ascertain the reliability and authenticity of financial information.

INFORMATION / CYBER SECURITY FRAMEWORK

IDFC FIRST Bank since its inception has put in place a robust Information/ Cyber Security Framework. Our Bank being a green field setup, has Information Security woven into our banking platform and seamlessly merges both culturally and technologically. A dedicated team of security professionals are part of the Information Security Group (‘ISG’) who govern the Information Security practices in the Bank. Our Bank has put in place state of the art security technologies including several industries ‘firsts’ technology solutions and adopted ‘defense in depth’ approach & industry best practices as part of our security framework and architecture.

This year Bank onboarded several new core cyber defense technologies to improve upon our defense and response capabilities in line with our overall Cyber Defense Strategy. While such technologies are in various stages of maturity, the use of Artificial Intelligence (‘AI’) / Machine Learning (‘ML’) is at its core to identify early signs of exploits and automated response and remediation will ensure identified issues are addressed promptly.

Overall banking industry including our bank experienced challenges associated with the pandemic conditions and work from home strategy. At our bank, secure practices were deployed very quickly with almost real time transition of teams to work from home, without any significant downtime or security lapses. Bank continued to maintain and upkeep its compliance posture to standards such as ISO 27001 ISMS (Information Security Management System), PCI DSS and regulatory requirements. Given the changing threat landscape and the continuation of the pandemic conditions, the attempt is to progressively move towards maturity of proactive and adaptive platforms for automated detection, response and recovery.

INTERNAL OMBUDSMAN

In compliance with regulatory guidelines, the Bank has appointed Mr. Dayanand P. Kasabe, a senior retired Central Banker as Internal Ombudsman for a period of 3 years with effect from December 03, 2018, as per the Internal

Ombudsman Scheme, 2018 to enhance our Bank’s customer grievance redressal mechanism and to improve service delivery.

STATUTORY AUDITORS

In terms of the ‘Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)’ dated April 27, 2021 (‘RBI Guidelines’) issued by RBI, banks shall appoint the Statutory Auditors for a continuous period of three (3) years, subject to the firms satisfying the eligibility norms each year and the approval of RBI on an annual basis.

B S R & Co. LLP, Chartered Accountants (Firm Registration No. 101248W/W-100022) have been the Statutory Auditors of the Bank for two (2) years i.e. FY 2019-20 and FY 2020-21. Hence, they may continue as Statutory Auditors for one (1) more year i.e. from the conclusion of the 7th Annual General Meeting (‘AGM’) till the conclusion of the 8th AGM to be held in 2022, subject to the approval of RBI. Accordingly, on the basis of the recommendation of the Audit Committee of the Board (‘ACB’), the Board of Directors (‘the Board'') has recommended the re-appointment of B S R & Co. LLP as one of the Joint Statutory Auditors for a period of one (1) more year to the RBI for approval.

Further, in terms of the RBI Guidelines and the Bank’s Policy for Appointment of Statutory Auditors, our Bank is required to appoint two (2) Statutory Auditors. Accordingly, the Board, on the recommendation of the ACB, has recommended to the RBI for approval, the name of MSKA & Associates, Chartered Accountants (Firm Registration No. 105047W) as the first preferred firm, to act as the Joint Statutory Auditors of the Bank, for a period of one (1) year. The Board has also recommended the appointment of MSKA & Associates, Chartered Accountants as Joint Statutory Auditors of the Bank for a period of three (3) years to hold office from the conclusion of the 7th AGM until the conclusion of the 10th AGM of the Bank, for the approval of the shareholders at the ensuing AGM, subject to the approval of RBI on an annual basis. MSKA & Associates shall act as the Joint Statutory Auditors of the Bank along with B S R & Co. LLP till the conclusion of the 8th AGM and thereafter act as Joint Statutory Auditors of the Bank with such other new joint Statutory Auditor(s) who will be appointed by the Bank subject to prior approval from RBI and approval of the shareholders of the Bank.

AUDITORS’ REPORT

There were no qualifications, reservations, adverse remarks or disclaimers made by the Statutory Auditors in their report for the financial year ended March 31, 2021.

SECRETARIAL AUDIT

Pursuant to the provisions of Section 204 of the Companies Act, 2013 read with Rule 9 of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Bank had appointed M/s. Makarand M. Joshi & Co., Practicing Company Secretaries to undertake the Secretarial Audit of the Bank for the financial year ended March 31, 2021.

The Bank provided all assistance and facilities to the Secretarial Auditors for conducting their audit.

The Secretarial Audit Report is appended as ANNEXURE 4 to this report.

There were no qualifications, reservations, adverse remarks or disclaimers made by the Secretarial Auditors in their report for the financial year ended March 31, 2021.

CONCURRENT AUDIT

Our Bank has a regular and well-defined process of concurrent audits for important functions such as treasury, trade finance operations, retail operations, wholesale operations, information technology, data center, etc. in line with the extant regulatory guidelines. Reputed Chartered Accountant / CERT-IN certified firms carry out these Concurrent Audits. Key findings of these audits are placed before the Audit Committee of the Board on a quarterly basis.

REQUIREMENT FOR MAINTENANCE OF COST RECORDS

The Bank is not required to maintain cost records as specified by the Central Government under Section 148(1) of the Companies Act, 2013.

AWARDS AND RECOGNITIONS

Best Private Bank - Digital Innovation & Services 2019 by Asian Private Banker

This award recognised our Bank as one which has embraced the digital wave, its impact on the wealth management business, and the opportunities afforded by emergent technologies. This win also recognised our digital capabilities and convenience our technology brought to banking.

Three Asset Triple A Awards 2020 for Treasury, Trade, SSC and Risk

Our Bank secured 2 awards in Payments and Collection solutions category for India and 1 award for Treasury and Working Capital Domain in the NBFC segment. These awards corroborate with our ideology of client focus, cocreating innovative and client centric solutions.

‘Most Transformed New Bank in India 2020’ by Capital Finance International (CFI)

With an uptick during the “COVID-19 Quarter” (Q4-2020) coupled with strong corporate governance policies aligned with international best practices, and focus on transparent client engagement, IDFC FIRST Bank won the Most Transformed New Bank (India) in 2020 at the CFI Awards. The CFI.co judging panel bestowed this honour on IDFC FIRST Bank on recognizing its high-growth performance and prospects.

ET Best BFSI Brand in Private Banking Category

At the 4th edition of ET Best BFSI Brands, IDFC FIRST Bank was chosen as one of the Best BFSI Brands of 2021 in the Private Bank Category. The award was based on the parameters of innovation, trust, legacy, customer centricity and performance - all key tenets of the Bank’s core values and philosophy.

INSTANCES OF FRAUD, IF ANY, REPORTED BY THE AUDITORS OR THE MANAGEMENT

No offence of fraud was reported by the Auditors of the Bank under Section 143(12) of the Companies Act, 2013. The details of provisioning pertaining to Fraud Accounts during the year under review are provided in Note No. 18.16 to the Standalone Financial Statements as at March 31, 2021.

RISK MANAGEMENT FRAMEWORK

Our Bank promotes a strong risk culture throughout the organization. A strong risk culture is designed to help reinforce the Bank’s resilience by encouraging a holistic approach to management of risk & return and an effective management of risk, capital and reputational profile.

Consequent to the amalgamation of erstwhile Capital First Group with IDFC Bank, effective December 18, 2018, Bank has re-aligned its key policies and Risk Framework forming an overall Risk Framework of the merged entity. Our Bank operates within an effective Risk Management Framework to actively manage all the material risks faced by the Bank, in a manner consistent with the Bank’s risk appetite. Our Bank aims to establish itself as an industry leader in the management of risks and strive to reach the efficient frontier of risk and return for the Bank and its shareholders. The Board has ultimate responsibility for the Bank’s Risk Management Framework. It is responsible for approving the Bank’s risk appetite, risk tolerance and related strategies and policies. The Board is assisted by Risk Management Committee of the Board (‘RMC’) and is supported by various management committees as part of the Risk Governance framework to ensure that Bank has sound system of risk management and internal controls. The RMC assists the Board in relation to the oversight and review of the Bank’s risk management principles and policies, strategies, appetite, processes and controls.

The RMC of the Board reviews risk management policies of the Bank pertaining to credit, market, liquidity and operational risks. The Committee also reviews the Risk Appetite & Enterprise Risk Management framework, Internal Capital Adequacy Assessment Process (‘ICAAP’) and Stress Testing. ICAAP & Stress Testing requires the Bank to undertake rigorous, forward-looking assessment of risks by identifying severe events or changes in market conditions which could adversely impact the Bank.

Our Bank has in place a Board approved Risk Management Policy. The Policy aims at establishing a risk culture and governance framework to enable identification, measurement, mitigation and reporting of risks within the Bank in line with the Bank’s risk appetite, risk - return tradeoff and the escalation & accountability framework.

Our Bank manages its capital position to maintain strong capital ratios well in excess of regulatory and Board approved minimum capital adequacy at all times. The strong Tier I capital position of the Bank is a source of competitive advantage and provides assurance to regulators, credit rating agencies, depositors and shareholders. Capital management practices are designed to maintain a risk

reward balance, while ensuring that businesses are adequately capitalized to absorb the impact of stress events including pandemic risks.

Our Bank has rigorously adhered to the RBI mandated prudential norms on provisioning including on the basis of evaluation of impact arising out of the fallout of COVID-19 on the underlying portfolio, which is aimed at preserving and protecting shareholders value. Our Bank continued to proactively work on the resolution of the stressed asset portfolio and has further reduced the position. Our Bank has also de-risked the portfolio by diversifying the credit portfolio across non-infrastructure sectors and focused on increasing shorter-tenure and granular exposures. With these measures, we have sought to reduce the concentration risk in the portfolio.

RELATED PARTY TRANSACTIONS

All the related party transactions that were entered into during the financial year were on arm’s length basis and in the ordinary course of business of the Bank. IDFC FIRST Bank have always been committed to good corporate governance practices, including matters relating to related party transactions.

All the related party transactions are placed before the Audit Committee for approval. Prior omnibus approval is obtained from the Audit Committee for foreseen related party transactions. Prior omnibus approval is also obtained for unforeseen related party transactions subject to their value not exceeding '' 1 crore per transaction. The required disclosures are made to the Audit Committee on a quarterly basis for all the related party transactions.

Further, in terms of Regulation 23(9) of the SEBI Listing Regulations, the Bank submits the disclosure of Related Party Transactions, on consolidated basis, in a prescribed format, as specified under relevant Accounting Standards, on half yearly basis to the Stock Exchanges and update its website accordingly.

Pursuant to the provisions of Companies Act, 2013 and the Rules made thereunder, SEBI Listing Regulations and in the back-drop of the Bank’s philosophy on such matters, the Bank has in place a Board approved policy on related party transactions. The said policy is also uploaded on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section. Since all related party transactions entered into by the Bank were in the ordinary course of business and on arm’s length basis, Form AOC-2 as prescribed under Section 134(3)(h) of the Companies Act, 2013 is not applicable to the Bank.

MANAGEMENT DISCUSSION AND ANALYSIS REPORT

The Management Discussion and Analysis Report for the year under review, as required by Regulation 34(2)(e) of the SEBI Listing Regulations, forms part of this Annual Report.

CORPORATE GOVERNANCE

Your Directors ensure the Bank’s prosperity by collectively

directing its affairs, whilst meeting the appropriate interests of its Shareholders and other Stakeholders.

Our Bank is committed to achieve the highest standards of Corporate Governance. A separate section on Corporate Governance standards followed by our Bank and the relevant disclosures, as stipulated under the SEBI Listing Regulations, Companies Act, 2013 and Rules made thereunder forms part of this Annual Report.

A Certificate from the Secretarial Auditors of the Bank, M/s. Makarand M. Joshi & Company, Practicing Company Secretaries, confirming compliance to the conditions of Corporate Governance as stipulated under the SEBI Listing Regulations is enclosed at the beginning of the Corporate Governance Report and forms part of this Annual Report.

CEO & CFO CERTIFICATION

Certificate issued by Mr. V. Vaidyanathan, Managing Director & CEO and Mr. Sudhanshu Jain, Chief Financial Officer & Head - Corporate Centre of the Bank, in terms of Regulation 17(8) of the SEBI Listing Regulations, for the year under review was placed before the Board of Directors and forms part of this Annual Report.

BUSINESS RESPONSIBILITY REPORT

The Business Responsibility Report, in terms of Regulation 34(2)(f) of the SEBI Listing Regulations, describing the initiatives taken by IDFC FIRST Bank from an environmental, social and governance perspective is hosted on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section and constitutes a part of this Annual Report.

VIGIL MECHANISM/ WHISTLE BLOWER POLICY

The Bank has implemented a Whistle Blower Policy in compliance with the provisions of the SEBI Listing Regulations, Companies Act, 2013 and RBI notification on Introduction of ‘Protected Disclosures Scheme for Private Sector and Foreign Banks’. Pursuant to this policy, the Whistle Blowers can raise concerns relating to reportable matters (as defined in the policy) such as breach of IDFC FIRST Bank’s Code of Conduct, employee misconduct, fraud, illegal unethical imprudent behavior, leakage of Unpublished Price Sensitive Information, corruption, safety and misappropriation or misuse of Bank funds/ assets etc.

Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower to those who avail such mechanism and also provides for direct access to the Chairman of the Audit Committee, in exceptional cases.

The Audit Committee reviews the functioning of the Vigil Mechanism from time to time. None of the Whistle Blowers has been denied access to the Audit Committee of the Board. The Whistle Blower Policy is available on the Bank’s website at www.idfcfirstbank.com under ‘Investors’ section. The Whistle Blower Policy is communicated to the employees and is also posted on the Bank’s intranet.

In addition to the above, the Bank has formulated a Vigilance Policy for effectively managing the risks faced by the Bank on account of corruption, malpractices and frauds.

PREVENTION OF SEXUAL HARASSMENT OF WOMEN AT THE WORKPLACE

Our Bank has an Internal Committee to investigate and inquire into sexual harassment complaints in line with The Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013.

Our Bank has in place a policy on Anti-Sexual Harassment, which reflects the Bank’s zero-tolerance towards any form of prejudice, gender bias and sexual harassment at the workplace. Our Bank has set up an Internal Committee (‘IC’) to receive and redress complaints of sexual harassment. Our Bank undertakes ongoing trainings to create awareness on this policy.

During the year under review i.e. FY 2020-21, four (4) sexual harassment complaints were filed, out of which three (3) complaints were closed during the year. One (1) complaint was received in the month of February 2021 and was subsequently resolved within the timelines.

During FY 2020-21, employees were given online training in order to understand the Policy on Prevention of Sexual Harassment and framework for reporting and resolving instances of sexual harassment, details of which have been mentioned in the Business Responsibility Report, which is hosted on the Bank’s website at www.idfcfirstbank.com under ‘Investors’ section.

SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS/ COURTS/ TRIBUNALS

There were no significant and material orders passed by the regulators or courts or tribunals impacting the going concern status or the operations of the Bank.

MATERIAL CHANGES AND COMMITMENTS AFFECTING THE FINANCIAL POSITION OF THE BANK

There are no material changes and commitments, affecting the financial position of the Bank between the end of the financial year of the Bank i.e. March 31, 2021 and the date of the Board Meeting in which the Directors’ Report was approved i.e. June 16, 2021.

CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO

The provisions of Section 134(3)(m) of the Companies Act,

2013 read with Rule 8(3) of the Companies (Accounts) Rules,

2014 relating to conservation of energy and technology absorption are given as under:

Detailed initiatives taken for conservation of energy has been mentioned in the Business Responsibility Report, which is hosted on the Bank’s website at www.idfcfirstbank.com under the ‘Investors’ section.

Also, our Bank has been increasingly using information technology in its operations, for more details, please refer Management Discussion and Analysis Report, which forms part of this Annual Report.

Further, Foreign Exchange earnings and outgo are part of the normal banking business of the Bank.

ANNUAL RETURN

Pursuant to Section 92(3) read with Section 134(3)(a) of the Companies Act, 2013, the Annual Return as on March 31, 2021 is available on the Bank’s website on https://www.idfcfirstbank.com/investors/annual-report.

DIRECTORS’ RESPONSIBILITY STATEMENT

Pursuant to the requirement under Section 134(5) of the Companies Act, 2013, it is hereby confirmed that:

a. in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;

b. the Directors had 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 March 31, 2021 and of the profit of the Bank for that period;

c. the Directors had 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 assets of the Bank and for preventing and detecting fraud and other irregularities;

d. the Directors had prepared the annual accounts on a going concern basis;

e. the Directors had laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively; and

f. the Directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

GREEN INITIATIVE

To support the ‘Green Initiative’, shareholders who have not updated their e-mail addresses are requested to update the same with their respective Depository Participants (DPs), in case shares held are in electronic form or communicate their e-mail address to the Registrar and Share Transfer Agent i.e. KFin Technologies Private Limited or to the Bank, in case shares are held in physical form, so that future communications can be sent to shareholders in electronic mode. Note on Green Initiative forms part of the 7th AGM Notice.

Stock Exchanges (‘National Stock Exchange of India Limited’ & ‘BSE Limited’), Depositories, Rating Agencies, Unique Identification Authority of India (‘UIDAI’), National Payments Corporation of India (‘NPCI’), The Clearing Corporation of India Limited (‘CCIL’), Indian Banks’ Association (‘IBA’), Fixed Income Money Market and Derivatives Association of India (‘FIMMDA’) and all other regulatory agencies and associations with which the Bank interacts.

Your Directors sincerely acknowledge the commitment and hard work put in by all employees of the Bank through its transformational journey. Their valuable contribution has enabled the Bank to make significant progress towards achieving its objective of becoming a diversified universal Bank, with a focus on retail banking.

ACKNOWLEDGMENT

Your Directors take this opportunity to express their deep and sincere gratitude to our Customers, Business Partners, Business Correspondents and Vendors for the trust and confidence reposed by them in the Bank. We would like to thank our Shareholders, Bondholders, Investors and Financial Institutions for their co-operation and assistance during the year under review.

Your Directors would like to place on record their appreciation for the support received from IDFC Group, Government of India, State Governments, various Ministries, Reserve Bank of India (‘RBI’), Securities and Exchange Board of India (‘SEBI’), Insurance Regulatory and Development Authority of India (‘IRDA’), Financial Intelligence Unit-India (FIU-IND),

For and on behalf of the Board of Directors of IDFC FIRST Bank Limited

Hemang Raja V. Vaidyanathan

Date: June 16, 2021 Director Managing Director & CEO

Place: Mumbai DIN: 00040769 DIN: 00082596

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Reporting: The overall progress of the Pandemic continues to be reported periodically to the management, the Board and their advice is taken from time to time. As required, the management assesses,

Director’s Report