DIRECTORS' REPORT Your Directors have pleasure in presenting the 69th Annual Report of The Ratnakar Bank Limited (the Bank) along with the audited statement of accounts for the year ended March 31, 2012. DIVIDEND The Bank's progress towards 'Transformation' aims to create a vibrant New Age entity with a high degree of competitiveness and professionalism leading to a higher growth business. This growth will be the result of creating size and scale with robust controls in the key market segments that we operate in. All of these will need significant and continuous investments in infrastructure, processes, branches, technology etc. especially in the initial years. While the Bank has successfully raised capital in early 2011, there is a need to continue reinvesting our earnings so as to be able to achieve scale, size and earnings momentum in a timely manner. At this stage of transformation there is a need to balance the short and long term interests of the shareholders. For the longer term, in a high growth entity, retained earnings have a multiplier effect on the market value of the organization and hence the share price. This reinvestment of earnings is a key component of delivering a higher "total return to shareholders". Taking all these factors into account, the Directors are pleased to recommend a 50% growth in dividend from 2% last year to 3% for FY12. This dividend shall be subject to the approval of shareholders in Annual General Meeting and subject to tax on dividend to be paid by the Bank. Total outgo on this account, inclusive of taxes, will be Rs. 7.48 crore. CAPITAL ADEQUACY RATIO (CAR) The Bank's Capital Adequacy Ratio (CAR) as on March 31, 2012 is at a comfortable level of 23.20% (CAR as on March 31, 2011 was 56.41%). The Bank's business has grown significantly during the year which has helped the Bank in the efficient deployment of capital. NET WORTH Net Worth of the Bank as at March 31, 2012 was Rs. 1,130.99 crore comprising of paid-up equity capital of Rs. 214.95 crore and reserves of Rs.916.04 crore (excluding revaluation reserve, investment reserve and intangible assets). MANAGEMENT DISCUSSION AND ANALYSIS The past year has been a challenging year for the world economy. The looming Eurozone sovereign debt crisis and slower than expected recovery in the US economy cast its shadow on the year. While the concerns about a crisis had abated somewhat during the year, the recent developments suggest a worsening situation in the Eurozone. The US economic recovery continues to remain uneven and brittle. Similarly, growth risks have surfaced in emerging and developing economies (EDEs) too. Domestically, the state of the economy is a matter of growing concern. Though inflation has moderated in recent months, it remains sticky and above the tolerance level, even as growth has slowed significantly. Concerns over the fiscal deficit situation, the current account deficit and deteriorating asset quality loom large. GDP growth moderated to 6.1% during Q3 of FY12 from 6.9% in Q2 and 8.3% in the corresponding quarter of 2010-11. This was mainly due to moderation in industrial growth from 2.8% in Q2 to 0.8% in Q3. The GDP further dropped drastically to 5.30% during Q4 of FY12, lowest in three years mainly driven by manufacturing sector negative growth of -0.3%. The services sector held up relatively well (with growth being 8.7% in both Q2 and Q3 of 2011-12). Overall, GDP growth during FY12 slowed to 6.5% from 8.4% in FY11. Inflation in 2011-12 evolved broadly along the trajectory projected by the Reserve Bank. The March 2012 inflation at 6.9% was close to the Reserve Bank's indicative projection of 7.0%. On the exchange rate front, the rupee has come under severe pressure due to several external as well as internal factors and has been one of the weakest performers in the emerging market economies. The currency volatility has impacted domestic liquidity and inflation adversely. The fourth Financial Stability Report (FSR) was released by RBI in December 2011. According to the assessment made in the report, the domestic financial system remained robust, though risks to stability increased in the recent period. That the financial system remained robust was evidenced by a series of macro-financial stress tests, which assessed the resilience of the banking system to adverse macroeconomic developments. Stress tests also revealed that banks' capital adequacy remained above regulatory requirements, even under severe stress scenarios. The Reserve Bank instituted a systemic risk survey (SRS) to supplement its assessment of systemic risks through wider consultation. The findings of the SRS also reaffirmed the stability of the system. However, according to the survey, deterioration in asset quality was identified as one of the major risks faced by banks. Going into FY13, the global outlook also appears to be somewhat uncertain with all eyes on some of the Eurozone developments, growth in the US and Chinese economies. Continuing softness in the Eurozone economies have built expectations about further quantitative easing. On the domestic front, a weaker monsoon is likely to impact agricultural growth negatively and recent Industrial growth numbers suggest challenging conditions going ahead though softening oil and commodity prices could help the country's financial position as well as inflation somewhat. The economy is dealing with higher current account deficit, reduced savings and investment rate, persistent high inflation and tighter inter-bank liquidity although offset by a weaker rupee. Concrete and positive macro-economic as well as commercial policy decisions would be required to be taken to prop the economy for sustaining an above 6% GDP growth rate. Such headwinds are likely to further impact adversely the credit environment requiring a cautious approach to growth and customer selection for banks, including us. This environment will require banks such as ours to focus on cost containment and factors that enhance productivity to remain competitive. BUSINESS PERFORMANCE During FY12, the Bank focused on diversification of resources, advances growth, new client acquisition, CASA mobilization, credit recoveries and designing new products and services. We believe that we have made substantial progress on all the parameters of this strategy. We have significantly improved our funding profile, asset quality and profitability. The Provision Coverage Ratio (PCR) for the Bank is a healthy at 79.9% providing the necessary credit cushion in the present economic scenario. Deposits And Borrowings Deposits of the Bank increased from Rs. 2,042.16 crore as at March 31, 2011 to Rs.4,739.33 crore as at March 31, 2012, registering a growth of 132%. High interest rate environment led to an industry-wide shift in customer behaviour in favour of term deposits. This bias towards term deposits coupled with tighter liquidity conditions resulted in rise in rates of interest on deposits and consequent increase in cost of deposits. Deregulation of interest rate during the year also led to increase in the savings account deposit rates offered by some Banks. The Bank raised the rate of interest on savings deposit from 4% to 5.5% in November 2011. This helped the Bank to increase its savings deposits balances. Concerted efforts at increasing the CASA Balances have led to increase in CASA deposit balances of the Bank by 44% during FY12. The Bank's deposit mobilization efforts have widened significantly during the year which includes corporate clients, Financial Institutions, Mutual funds, Insurance companies, government/public sector entities, local bodies and Banks. The Bank has also been able to use its asset refinancing capabilities very well. Overall, the Bank has been able to establish good track-record with depositors and lenders alike with strong financial performance and stringent liquidity discipline which has helped the Bank to fund its growth optimally. Advances Net Advances increased from Rs. 1,905.17 crore as of March 31, 2011 to Rs. 4,132.27 crore as on March 31, 2012, registering a growth of 117%. This increase was possible due to an all-round increase in advances of the Bank in Corporate & Institutional Banking, Commercial Banking, Agri & Financial Inclusion and Retail Banking businesses. The Bank has started several new client relationships and is serving its client base with introduction of more products and services. The Bank is now providing rupee as well as foreign currency facilities to clients, both on and off-balance sheet. The Bank offers products to suit the needs of large corporates, micro, small and medium enterprises, agricultural and allied sectors as well as retail customers. Revenue And Profit Growth The Bank's Net Total Income has increased from Rs. 113.74 crore in FY11 to Rs. 253.93 crore in FY12, a jump of 123%. During this period, the net profit increased from Rs. 12.33 crore to Rs. 65.73 crore. The growth of business has led to increase in net interest income. Diversifying the revenue streams from clients and enhancing the granularity and stability of revenues is a key focus area for the Bank. To this end, the Business Groups work closely with each other so as to offer wide range of services to the customers. The Bank is seeking to be a comprehensive service provider to its clients and to this end it is upgrading its products and technology capabilities. The Bank has earned significantly higher fee revenues during FY12. To this end, the Bank has been offering to its customers trade finance as well as non-fund based products, direct banking channel products, remittance services, demat services, insurance and mutual funds. Management of Asset Quality: Key for Balance Sheet Strength During the year, the Gross NPA and Net NPA ratios have reduced-Gross NPA from 1.12% to 0.80% and Net NPA from 0.36% to 0.20%. These results were achieved through judicious management of credit as well as aggressive and focused efforts on NPA management and recovery. The Provision Coverage Ratio (PCR) for the Bank is a healthy at 79.9% providing the necessary cushion in the present economic scenario. Priority Sector Advances Our focus on Priority Sector advances is a consequence of the larger commitment towards developing a sustainable Financial Inclusion strategy. This strategy aims to create value across the rural/ semi urban areas directed at micro enterprises, agriculture and related supply chains and households. We believe that there is a tremendous opportunity in providing financial access to over 60% of the population, which is either under-banked or unbanked. Towards this, the Bank is strategically committed and uniquely positioned to bank the base of the pyramid in a commercially sustainable manner. A dedicated vertical has been created in the Bank called 'Agriculture & Financial Inclusion'. This is covered later in this report under a separate section on 'Agri & Financial Inclusion'. This vertical is responsible for harnessing the opportunity from the large network of rural and semi-urban branches of the Bank. Our Priority Sector Advances are driven by this business group and consist of pre and post-harvest credit, crop loans, agri-equipment loans, agri-infrastructure schemes, livestock besides lending to small, medium and micro enterprises. The Bank fully met its Priority Sector Lending Targets for FY12 and over-achieved crop loan targets for the State of Maharashtra at Rs. 30.65 crore as against the target of Rs. 27.83 crore. Priority Sector Advances of the Bank surged from Rs. 500.19 crore to Rs. 834.03 crore as at March 31, 2012 and formed 43.44% of the Adjusted Net Bank Credit (ANBC) against the mandated target of 40%. Of this, credit to agriculture witnessed a robust growth. Total Agriculture Advances of the Bank recorded a growth of 103% over the previous year and rose to Rs. 415.20 crore comprising 21.62% of ANBC as on March 31, 2011 against a mandated target of 18%. Outstanding Credit to SC/ ST out of total Priority Sector Credit is Rs. 74 crore spread over 1,09,995 accounts. Actual recovery in such accounts was Rs. 11.65 crore, which was 95.00% of demand. UPDATE ON VARIOUS AREAS OF OPERATIONS OF THE BANK Taking forward the Transformation exercise, which the Bank had embarked on in 2010, the Bank has made significant progress in terms of building the organisational capabilities to deliver a 'NEW AGE' bank to its customers, employees and other stakeholders. The Bank has a well-defined business strategy, high quality talent and customer-segment focused product offerings with enhanced credit and operational processes. During the year, the Bank has covered a significant distance in its transformation journey and made progress in various areas of operations. Some of the areas where considerable work has happened during the year have been: Business Focus The Bank has made significant progress on the business front bringing in specialization in terms of formation of Corporate and Institutional Banking, Commercial Banking, Retail Banking, Agriculture & Financial Inclusion and Financial Markets verticals, yet retaining a 'Branch centric' business organization and delivery model. The Bank has resourced these verticals with the right talent to significantly grow the business of the Bank. The activities and developments under different verticals are discussed as below: Corporate & Institutional Banking (CIB) As part of building focus on specific businesses, the Bank commenced a business vertical focused on coverage of large corporates, institutions and government/ public bodies. The CIB team provides complete coverage of select clients including assets, liabilities, non-fund businesses as also fee based services. CIB teams with high quality professionals have been set up in Mumbai, Delhi and Bangalore currently and these have visibly grown this franchise during the year. The Bank has acquired several new clients spanning top and emerging private corporates as well as established public sector entities. Commercial Banking Commercial Banking continued to be one of the critical business drivers of the Bank's business. The vertical has managed to get asset and liability business of its client segment as well as tapped cross sell opportunities. With an intention to develop granular portfolio, and with a specific view to dispense speedier credit to the smaller end of the spectrum, a dedicated sub-segment called 'Business Banking' was formed during the year, which focused on "pre-approved product programmes", whereby regular working capital/ term loan facilities are sanctioned for companies upto Rs. 35 crore turnover. The Bank has launched many products to cater to this fast-growing sector. Retail Banking Our Retail Banking business, being the face of the Bank, plays a significant role in meeting the 'Transformation' objectives of the Bank. Most of the initiatives taken in this business were aimed towards increasing the productivity of the business as well as developing products and services in line with New Age banks. The significant ones amongst these are the following- Branch Banking/ Distribution • Increase in the branch footprint from 100 to 108 and increase in ATMs from 33 to 103. This is being increased further in the current financial year. • The Bank acquired 39,712 new customer relationships in this financial year, a growth of 24% over the last year base. This was achieved by restructuring the branches to create a new Sales organization that was responsible for new customer acquisition. • The Bank branches have now been graded in terms of potential and co-existence with other business units to harness best the potential of the branch location and present to the market a ONE Bank approach. This will promote cross sales across our business units. • Insurance business revenue grew by 94% over last year. We partner with Kotak Life and Bajaj Allianz General Insurance as distributors for this business. This area will receive further impetus, going forward. Customer Service • Introduction of a Navratna Program aimed at providing relationship banking to key customers of the Bank. • Induction of the Branch Customer Service managers responsible for improving customer experience to the customers and cross selling. • Taking valuable feedback from the customers through monthly meetings conducted at all retail branches. • Launch of a first stage CRM system that helps the Bank track customer relationships at the branches. This will be further enhanced to capture all customer interactions shortly. Electronic Banking • Revamping the website of the Bank to modern standards towards usability and enhanced experience. This website has been useful for inducting new talent into the Bank, other than providing information to existing and potential customers. • Introduction of Internet Banking with full suite of services including interfacing with payment gateways. Our customers can now transact online, view their accounts, purchase merchandise and services and also make direct tax and utility payments on the net. • Introduction of 'Phone Banking' for better customer connect. Customers can now call in for any queries that they may have on their account. An outbound unit has also been set up for on boarding new customers to the Bank and taking valuable feedback. • Launch of Platinum and Classic Debit cards in association with Visa. These cards are both for domestic and international use. With this our customers can reach 95,000 ATMs locally and 850,000 ATMs internationally. In addition they can access 13 million Visa merchants' establishments worldwide. • SMS banking is now live and customers can access their account by sending a simple SMS to the Bank. Products • Introduction of the Ratna range of products that serve the needs of different segments from a Low Frills account to the high end Savings Product called Ratna Max Savings. • The Bank increased the savings account interest rate to 5.5% post deregulation which helped balances in Savings grow by 20%. • Launch of Exceed Business banking offering, a unique charge structure to our premium current account customers. This service also offers cash management, trade and foreign exchange services. • A 3-in-1 Trading Account was launched in collaboration with IIFL to offer equity and commodity trading platforms. Branding • During the year the Bank issued new brand guidelines upgrading the presentation of the brand in the branches, signages and branch marketing material. The upgraded branding makes our Bank brand standout amongst competition. This has been implemented in new branches and incrementally across the older branches of the Bank as well. • The Bank is also embarking upon a branding strategy that will aim at rejuvenating the brand and making it more relevant to the new segments and markets that we are entering. Agri & Financial Inclusion As has been explained earlier, the Bank is strategically committed to Financial Inclusion and is positioning itself as a core part of 'financial ecosystem' at a village/ community level to create an economically viable business model. The Bank believes in including all stakeholders of the rural/ semi-urban environment to come under a formal banking channel facilitating the efficient delivery of services. In FY12, the Bank increased its BC network to 195 and provided direct funding to around 15,000 low income borrowers in the category of small and marginal farmers and women micro-entrepreneurs through its direct micro lending business. This was expanded to 15 semi-urban and rural branches in FY12. The Bank also established relationships with high quality microfinance institutions which enabled thousands of new clients to get direct access to the Bank where there is presence of the Bank or its network partners and also indirectly through other financial services providers who closely work with the community. The Bank has also made advances in the area of on-field technologies deployed at the village level and all transactions enabled in the villages either through a BC or by Bank staff are executed through a mobile phone based transaction platform. The Bank has adopted a 'One Bank' approach in reaching out to the financially excluded communities utilizing its strong relationship capital with corporates to increase flow of credit to the agriculture sector. The Bank rolled out products for supply chain finance and financing of post-harvest funding requirements of farmers through various innovative structures. Treasury & Financial Markets The Financial Markets vertical significantly increased its scale and scope during the last financial year. The core parts of Treasury viz. Sales, Trading and Asset Liability Management functions were strengthened with the induction of experienced professionals. The focus of the group continued to be management of liquidity and ALM; increase of counterparty lines from banks, mutual funds and insurance companies; effective management of the Cash and Statutory reserve requirements; deployment of Bank's liquidity in high grade securities, and managing the Bank's interface with the professional interbank market. The group also successfully raised liabilities/ resources for the Bank from an array of banks and financial institutions including insurance companies and mutual funds. The Bank is also gradually building a Debt Capital Markets franchise with strong distribution and structuring capabilities to cater to the needs of their clients. The Bank's Short Term Certificate of Deposits programme carry the highest credit rating on the short terms rating scale of [ICRA]A1+ by ICRA Limited reflecting a very strong degree of safety and lowest credit risk. Fixed Income & Money Market As the Bank's business base increased significantly during the year, the trading and investment portfolios have also been ramped up balancing the objectives of credit quality, liquidity, risk and yield optimization. The Bank's Net Investments have increased from Rs. 892.48 crore as on March 31, 2011 to Rs. 2,333.83 crore as on March 31, 2012. During the same period the Government securities portfolio has increased from Rs. 504.48 crore to Rs.1,430.80 crore, and the Non-SLR securities portfolio has increased from Rs. 388.00 crore to Rs. 903.03 crore. The Bank has strengthened its Treasury back-office functions and invested in the setting up of a mid-office group, essential to ramp up growth and increase the sophistication of the Bank's Treasury business. Foreign Exchange Consequent to obtaining its Authorised Dealer (Category I) license from the Reserve Bank of India, the Bank commenced its Forex business during the financial year both in the interbank and the merchant areas. Seasoned professionals with strong domain expertise have been hired to build up necessary infrastructure, systems and processes enabling roll out of foreign exchange business. The Bank expects to significantly increase its Forex business in the coming years. BANKING OPERATIONS Risk Management Strategy The Bank's risk management strategy is based on a clear understanding of various risks, disciplined risk assessment and measurement procedures and continuous monitoring. Risk is managed through a framework of policies approved by Board of Directors and supported by an independent risk function that ensures that the Bank operates within its risk parameters. The risk management function attempts to anticipate vulnerabilities at the transaction level or at the portfolio level, as appropriate, through quantitative and qualitative examination of the embedded risks. The Bank continues to focus on refining and improving its risk measurement systems not only to ensure compliance with regulatory requirements, but also to ensure better risk adjusted return and optimal capital utilization keeping in view the business objectives. The Bank has introduced effective risk management by separating business and risk management functions. During the year, the credit policies of the Bank have been revised; documentation made more risk robust; credit administration processes have been redesigned and specialization of risk function has been brought. The reporting and information system have been strengthened to provide meaningful and timely information to control individual and portfolio level risks. Greater focus is being provided to special-mention accounts and credit recoveries which has already shown results in the form of increased recoveries and reduced NPAs. Risk Management Structure The Board of Directors at the apex level sets the overall risk appetite and philosophy for the Bank. The Bank's risk management processes are guided by well-defined policies appropriate for various risk categories viz. credit risk, market risk, operational risk and liquidity risk. The Risk Management Committee (RMC), which is subcommittee of the Board prescribes risk management policies, processes, systems and monitors entire gamut of risks faced by the Bank. It is supported by Asset Liability Management Committee (ALCO), Management Credit Committee (MCC) and Operational Risk Management Committee (ORMC). ALCO is responsible for managing the Liquidity Risk, Interest Rate Risk, Currency Risk, Funding policy, Pricing of deposits and advances. MCC is responsible for Credit approvals, Credit Risk, Concentration Risk, Implementation of credit policy and framework and ORMC takes care of Operational and Internal Control Risk. Risk Management Policy Risk Management Policy of the Bank provides a summary of Bank's principles regarding risk taking and risk management. The principles are based on best practices. The Bank has developed an elaborate risk strategy in terms of policy guidelines, for managing and monitoring various risks. In order to provide ready reference and guidance to various functionaries dealing with risk management function, the Bank has in place Asset Liability Management Policy, Commercial Credit Policy, Investment Policy, Equity Investment Policy, Recovery Policy, Stress Testing Policy, KYC and AML Policy, Risk Based Internal Audit Policy, etc. duly approved by the Board. Risk Management: Implementation and Monitoring System The identification, measurement, mitigation and monitoring of potential risks in all activities and products is done through detailed analysis and vetting the same by operational level risk committees and task forces. Portfolio level risk is assessed with the help various portfolio analysis reports on credit, market, liquidity and interest rate risk and also risk profiling on the basis of parameters prescribed by RBI. The same are reviewed by Board/ RMCB/ risk committees/ senior management on an ongoing basis. Bank's Compliance with New Capital Adequacy Framework (NCAF) i.e. Basel II The Bank has implemented Basel II Guidelines with effect from March 31, 2009. The Bank is following Standardized Approach for Credit Risk, Standardized Duration Approach for Market Risk and Basic Indicator Approach for Operational Risk while computing Capital Adequacy Ratio (CAR). The Bank computes CAR on parallel basis under Basel I and Basel II as per the RBI guidelines. The Bank is implementing an Internal Credit Rating System which will be equipped to provide data on 'migration of rating', 'calculation of PD & LGD' etc. so as to facilitate a smooth transition to Internal Rating Based Approach (IRBA) for credit risk evaluation. In compliance with Pillar II guidelines under Basel II norms, the Bank has formulated 'Policy on Internal Capital Adequacy Assessment Process (ICAAP)'. The policy defines the process to assess internal capital in relation to various risks the Bank is exposed to. The Bank prepares ICAAP Document which includes capital adequacy assessment and projections of capital requirement for the ensuing years, along with the plans and strategies for meeting the capital requirement. The Bank has adhered to disclosure norms as stipulated in the guidelines of RBI to meet Pillar III requirements of Basel II norms. The Bank has framed 'Disclosure Policy' and has adhered to the policy guidelines. The Bank views the implementation of Basel II norms as strategic, forward looking process to adopt the best practices in risk management with a focus on creating value. Operations and Technology The Bank has operationalized its first 'National Operating Centre' (NOC) at Mumbai to centralize back-end operations across the Bank. Additionally, all foreign exchange Trade Finance operations have been centralized. The Bank has created a Hub & Spokes model for Wholesale Operations. The Bank is in the process of introducing robust Standard Operating Procedures to maintain impeccable client service standards and competitive Turn Around Time (TAT's). The Bank is also in the process of upgrading its Core Banking System (CBS) to Finacle, a platform from Infosys, which holds a leadership position in the market. We are one of the first few banks to implement the latest version of this package. This system will enable the Bank to have a 360 degree view of the customer relationships improving customer experience and loyalty. This will also help the Bank to launch new products and services and reduce operational costs by increasing productivity. The new CBS is expected to go live by end of third quarter of FY 2012-13. In addition, the technology infrastructure has been enhanced to ensure high level of security. We have also invested in upgrading our communications network to reduce downtime of branch services. Internal Audit and Controls The Bank has Internal Audit and Vigilance Department and Compliance which are responsible for independently evaluating the adequacy of all internal controls and ensuring operating and business units adhere to internal processes and procedures as well as to regulatory and legal requirements. To ensure independence, the audit department directly reports to the Bank's Audit Committee of the Board. To mitigate operational risks, the Bank has put in place extensive internal controls including restricted access to the Bank's computer systems, appropriate segregation of front and back office operations and strong audit trails. The Audit Committee of the Board also reviews the performance of the audit and compliance functions and reviews the effectiveness of controls and compliance with regulatory guidelines. In addition, in line with the Reserve Bank of India guidelines, the Bank follows a Risk Based Internal Audit approach, wherein each branch is risk-assessed, basis which frequency of audit is determined and audited. The methodology, the risk assessment matrices and the overall audit plan is reviewed and approved by the Audit committee of the Bank. Certain activities of the Bank also get covered under the system of concurrent audit. As part of internal audit, the Bank also conducts Revenue Audits, short/ surprise inspection, Information Security Audit. The results of these inspections/ audits are also reviewed by the Audit Committee of Board. The Vigilance department of the Bank, which reports to Chief Vigilance Officer, is actively involved in preventive measures, which are essential for avoiding recurrence of frauds in the Bank. In addition, while every loss does not necessarily become the subject of vigilance, willful negligence and/ or reckless decisions that lead to potential or otherwise damage to the Bank, are handled by Vigilance. Customer Service Customer-centricity has been an inherent strength of the Bank and the Bank assigns paramount importance to this aspect in all its dealings, products and service offerings. In order to continuously enhance service standards, several initiatives are being undertaken by the Bank. There are Customer Service Committees at various levels in the Bank that play a significant role in driving the service culture of the Bank effectively. Feedback from customers is accorded highest priority and reviewed periodically by the Customer Service Standing Committee of the Bank. The recommendations of the Customer Service Standing Committee are deliberated upon by the Customer Service Committee of the Bank's Board. The Bank follows a rigorous grievance redressal process that is well encapsulated in its Grievance Redressal Policy. The Bank enjoys a healthy record of complaint management. The Bank is also a member of the Banking Codes and Standards Board of India (BCSBI) and has been actively participating in all the initiatives of BCSBI including customer education workshops and seminars. Know Your Customer (KYC)/ Anti-Money Laundering (AML) Measures The Bank complies with the KYC/ AML guidelines of the RBI and towards that end has significantly enhanced its KYC/ AML policy in July 2011 with the approval of the Board. This was to ensure better client acquisition and monitoring of risks to insulate the Bank from fraudulent activities in the market place. In addition, the Bank reviewed all its existing and newly acquired accounts against this new policy. This led to corrective action being taken in a proactive manner. The Policy is in accordance with the PMLA 2002 (Prevention of Money Laundering Act, 2002) and RBI/ IBA (Reserve Bank of India/ Indian Banks' Association) guidelines. Accordingly, various regulatory reporting requirements as set out by the Financial Intelligence Unit of the Government of India are complied with by the Bank. The Bank has a robust transaction monitoring process in place that is implemented under an adequately staffed KYC AML team. Further, the Bank's staff is being imparted training on KYC/ AML aspects on a regular basis. Senior level executives of the Bank also attend periodic workshops/ seminars organized by Financial Intelligence Unit (FIU), RBI, IBA and NIBM (National Institute of Bank Management) to enhance their awareness in these aspects. Human Resources The Bank realises that it is the development of the employees which initiates any real and successful transformation in an organization. This, simply put, is adding new capabilities and developing competencies across the board in order to support the Bank's strategy to become a New Age Bank. Accordingly, PARIVARTAN, an employee development initiative aimed at engaging employees and building capabilities at every level was launched. Employees are regularly updated with the current business and organizational realities and they undergo several Transformational Training and Product Training initiatives. The Bank has successfully conducted more than 1500 man days of training. The Bank has also revived its in-house magazine, Ratnakar Vartapatra. It is getting published periodically and keeps all employees posted on the progress being made by the Bank as well as conveys the priorities of the Bank. The Bank has also implemented a Human Resource Information System (HRIS) this year for better management of human resources. The Bank's employee base increased from 907 as of March 31, 2011 to 1,328 as of March 31, 2012. Addition of over 400 employees reflects the growth objectives of the Bank and the Bank's climb towards becoming an employer of choice. Employees in the Bank are attracted towards growth and learning opportunities. Employees Stock Option Plan (ESOP) The underlying philosophy of Ratnakar Bank Employee Stock Option Plan ESOP 2010 is to enable the present and future employees to share the value that they help to create for the Bank over a period of time. Joining ESOP's are granted based on the primacy of the role to the Bank as well as experience, domain knowledge, current ability, future potential and expertise of the candidate. Performance ESOPs are given after periodic evaluation of the employee against individual and overall performance of the Bank during the review period. The scheme has helped your Bank to attract high quality talent and make new hires a true partner in the growth of the Bank and simultaneously inculcates a sense of belonging/ ownership among the senior management team. The Plan has been designed and implemented in such a way that an equity component in the compensation goes a long way in aligning the objectives of an individual with those of the Bank. During the year, the ESOP was broad based to include long serving employees of the Bank to make them partners in the growth of the Bank. More details of the ESOP are given in the notes to accounts in the attached financial statements. DIRECTORS In order to reflect the transforming profile of the Bank, Mr. Jairaj Purandare and Mr. P Sudhir Rao were appointed as Additional Directors on the Board of Bank. Mr. Jairaj Purandare has been appointed on the Board of the Bank as Additional Director with effect from September 16, 2011. Mr. Purandare, a Chartered Accountant by qualification and ex-Regional Managing Partner PricewaterhouseCoopers Private Limited is a leading regulatory and tax advisor in the country. He was previously Chairman of Ernst & Young (E & Y) in India. Prior to joining E & Y, he was the Country Head of the Tax & Regulatory practice of Arthur Anderson India. He has extensive experience in Foreign Investment Consulting/ Establishment of Joint Ventures, International Tax, Transfer Pricing and Mergers & Acquisitions. He has significant expertise in advising clients on various issues in the Financial Services, Power and Media Industries. He advises clients on investment proposal to regulatory authorities including the Foreign Investment Promotion Board, Ministry of Finance and Reserve Bank of India. Mr. P. Sudhir Rao, has been appointed as Additional Director on the Board with effect from January 30, 2012. Mr. Rao, a Chartered Accountant (India) and Chartered Management Accountant (London), is promoter of IndusAge Advisors, offering comprehensive target industry research, corporate finance including private placement of debt and equity, funding strategic alliances and joint ventures, corporate structuring, business valuation services and formulating strategies. He is currently associated with over 25 companies in India, nurturing early/ growth stage enterprises and assisting listed entities in the areas of Strategic direction, Business Research and Revenue Management, Performance and Capital Management and Stakeholder Relations as also providing India-entry services. He is also Founder Director of Karvy Investor Services Ltd. that is involved in providing Investor Services. As Additional Director and as per provisions of Section 260 of the Companies Act, 1956 Mr. Purandare and Mr. Rao will hold office as a Director up to date of ensuing Annual General Meeting. The Bank has received Notice pursuant to provisions of Section 257 of the Companies Act, 1956 from members, signifying their intention to propose Mr. Purandare and Mr. Rao for appointment as a Director. During the year w.e.f. October 11, 2011, Mr. Subrata Das was appointed as RBI Additional Directors on the Board of Bank by Reserve Bank of India in place of Mr. Murali Radhakrishnan and Mr. T. B. Satyanarayan who were appointed as RBI Additional Directors on the Board of Bank in the month of February 2009. Accordingly, Mr. Murali Radhakrishan and Mr. T. B. Satyanarayan ceased to be the directors of the Bank. The Board would like to place on record its sincere appreciation for the valuable contribution made by Mr. Murali Radhakrishan and Mr. T. B. Satyanarayan. Mr. S. N. Minche completed continuous eight years as Director on the Board of the Bank as on June 20, 2012. In accordance with provisions of Banking Regulation Act, 1949 he was due to retire and thus, retired as Director on the Board of the Bank w.e.f June 21, 2012. The Board would like to place on record its sincere appreciation for the valuable contribution made by Mr. S. N. Minche during his tenure as Director of the Bank. In accordance with the provisions of the Companies Act, 1956 and the Articles of Association of the Bank, Mr. B. D. Arwade and Mr. G. V. Godbole would retire by rotation and being eligible, offer themselves for reappointment at the AGM. The Board of Directors recommends appointment/ reappointment of all the above Directors at the ensuing AGM. CORPORATE GOVERNANCE Philosophy The Bank's philosophy on corporate governance is aimed at supporting the top management of the Bank in the efficient conduct of its business and meeting its obligations towards its stakeholders. The Bank is committed to transparent and merit-based organisation and ensures fairness transparency and responsiveness in all transactions. Board of Directors i. Constitution The Board of Directors is constituted in accordance with the provisions of the Companies Act, 1956, Banking Regulation Act, 1949 and Articles of Association of the Bank. The Board consists of eminent persons with considerable professional expertise in banking, finance, agriculture and other related fields. Their eminence, experience and professional credentials lends itself to our Board being independent, professional and participative in the strategy formulation and direction setting for the Bank thus adding value to its growth objectives. The Board is comprised of eight non-executive directors, one director appointed as Additional Director by Reserve Bank of India (RBI) and one Executive Director (i.e. Managing Director & Chief Executive Officer). The names of directors as of March 31, 2012 and their attendance during the review year at Board/ Committee are given under the heading of Attendance of Directors. ii. Committee of Directors: The Board functions either as a full Board or through various committees to oversee specific operational areas. The Board has constituted eleven Committees of Directors to take decisions or advise the Board on certain operational areas in the best interests of the Bank. These committees monitor activities falling within their term of reference. CORPORATE SOCIAL RESPONSIBILITY The Bank strives to proactively encourage community growth and development thereby contributing in building a sustainable future. The Bank has supported Concern India Foundation (a registered, non-profit, public charitable trust working towards the objective of 'Helping People Help Themselves'), as part of its fund raising initiatives by participating in the Corporate Challenge in Standard Chartered Mumbai Marathon (SCMM) 2012. Ratnakar Bank had registered team members and contributed on behalf of the team towards this cause promoted by Concern India Foundation. The Bank supports Psychoanalytic Therapy & Research Centre (PTRC), a public charitable trust that does some very unique and good work in the area of supporting emotionally disturbed children and adults. This organization is making an impact in the field of mental health, endeavouring to provide care as well as training. The Bank has started an initiative on Gender Diversity at workplace. It is an important initiative driven by the Gender Diversity Committee of the Bank and has been first piloted in Mumbai as well as Kolhapur. It is conducted by an external agency named Sakhya along with many other employees of the Bank. The mission of Sakhya is to establish gender equality and justice in society. They work on women empowerment and self-reliance in order to bring changes in society to make it a more favourable work place for women. The Bank has also introduced a program named "Payroll Giving" under which an employee by giving a small amount with each pay cheque and contributes towards the betterment of the community depending upon their capacity. The Bank also provided financial aid to various organization and individuals working in the field of social, religious, medical and sports activities. Disclosures The Bank has not entered into any materially significant transactions, which could have a potential conflict of interest with the Bank, with its promoters, directors, management or relatives etc., other than the transactions entered into normal course of business. STATUTORY DISCLOSURE Particulars of employees As required by the provisions of Section 217(2A) of the Companies Act, 1956 and rules framed thereunder the names and other particulars of the employees are set out in the Annexure to the Directors' Report. Conservation of energy and technology absorption The particulars to be disclosed under Section 217 of the Companies Act, 1956 relating to conservation of energy and technology absorption are not applicable to the Bank. The Bank uses information technology in its operations and is making significant investment in this area. Directors' Responsibility Statement The Board of Directors hereby declares and confirms that: i. The applicable accounting standards have been followed in the preparation of the annual accounts and there have been no material departures; ii. Accounting policies have been selected, and applied consistently and reasonably, and prudent judgements and estimates have been made so as to give a true and fair view of the state of affairs of the Bank and of the Profit and Loss of the Bank for the financial year ended March 31, 2012; iii. Proper and sufficient care has been taken for the maintenance of adequate accounting records, in accordance with the provision of the Companies (Amendment) Act, 2000, for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities; iv. The annual accounts have been prepared on a going concern basis Comments on the Auditors' Report There are no observations/ qualifications in the Auditors' report. Auditors The auditors, M/s. P. G. Bhagwat, Chartered Accountants, will retire at the ensuing Annual General Meeting (AGM). They had been statutory auditors of the Bank for the last four years, which is the maximum term of appointment of auditors permitted by RBI. As recommended by the Audit Committee, the Board has proposed the appointment of M/s. S. R. Batliboi & Co. (Registration no. 301003E), Chartered Accountants as statutory auditors for FY 2012-13. M/s. S. R. Batliboi & Co. has confirmed that their appointment, if made, will be in compliance with provisions of Sections 224 and 226 of the Companies Act, 1956. The Board places on record their sincere appreciation of the professional services rendered by M/s P.G. Bhagwat, as Statutory Auditors of the Bank and request the members to consider the appointment of M/s. S. R. Batliboi & Co. as Statutory Auditors of the Bank as mentioned above. Prospects The Directors expect a sustained level of growth of business of the Bank in the coming year while the Bank continues with various transformation initiatives through the year. Acknowledgment The Board is also grateful to the Government of India, RBI, IBA, other regulatory authorities, rating agency, financial institutions, banks and correspondents in India and abroad for their valuable and unflinching support as well as cooperation and guidance to the Bank from time to time. The shareholders of the Bank have been Key Partners in progress. The Board of Directors appreciates their support and is grateful for their support and confidence that they have placed in the Board of Directors and management of the Bank. The Bank's customers have always supported the Bank in all its endeavours. The Bank would like to take this opportunity to express sincere thanks to its valued clients and customers for their continued patronage in a year when the Bank has seen a substantial transformation. The Bank has taken in the recent years a number of initiatives on the technology and business fronts. Successful translation of these initiatives into business and earnings growth has been primarily due to the staff of the Bank, which has embraced the philosophy of change to help the Bank emerge as a modern and customer-centric bank. We are grateful to our people for their continued commitment and dedication towards the Bank. The Board appreciates the healthy relationship with the Officer's Association and Employee Union, which has facilitated in the growth and development of Bank and has created a positive environment in the Bank. For and on behalf of the Board S. G. Kutte Chairman Place: Mumbai Date: July 25, 2012 |