MANAGEMENT DISCUSSION & ANALYSIS

Global Economic Scenario:

The world economy is still struggling to regain momentum amidst dropping commodity prices, feeble aggregate demand, and increasing financial market volatility in major economies. Growth continues to be subdued in advanced economies and also there is considerable divergence of performance across emerging markets and developing economies, the overall growth remains below potential.

Recently OECD in it's assessment of macro-economic situation observed that global trade growth remains very subdued. Many emerging market economies (EMEs) have lost momentum, with sharp downturns in some, especially commodity producers. The recovery in the advanced economies remains modest, with growth held back by slow wage advances and subdued investment. Low commodity prices and accommodative monetary policies continue to offer support in many economies, although interrupted by periods of tightened and volatile financial conditions. All this culminates in growth rates much weaker than anticipated in the past and well below br-crisis norms. Moreover, such a prolonged period of slow growth has not helped the longer-run supply-side potential of economies, via the scarring effect of extended unemployment, foregone investment and the adverse impact of weak trade growth on productivity.

The Global economy grew by 2.4 percent in 2015 as per World Bank estimate versus the projected growth of 2.8 percent as per June 2015 World Bank report. The World Bank as per it's June 2016 report is revising its 2016 global growth forecast down to 2.4 percent from the 2.9 percent pace projected in January 201 6. The move is due to sluggish growth in advanced economies, stubbornly low commodity prices, weak global trade, and diminishing capital flows. Commodity-exporting emerging market and developing economies have struggled to adapt to lower prices for oil and other key commodities. Growth in these economies is projected to advance at a meager 0.4 percent pace this year, whereas growth in commodity importers has been more resilient. Projections are subject to substantial downside risks, including additional growth disappointments in advanced economies or key emerging markets and rising policy and geopolitical uncertainties.

Indian Scenario:

India's growth story has largely remained positive on the backing of domestic absorption. The country has registered a robust and steady pace of economic growth in 2015-16 with a GDP growth of 7.6 per cent, making the country one of the fastest growing major economy in the world. The growth numbers for the last fiscal came on the back of a strong 7.9 per cent growth in the last quarter of the fiscal and reinforces India's position as the world's fastest-growing large economy.

Other macroeconomic parameters like inflation, fiscal deficit and current account balance have exhibited distinct signs of improvement during the period. Wholesale price inflation has been in negative territory for more than a year and has turned positive in April 2016 and showing some upmove. The consumer prices inflation has declined to nearly half of what it was a few years ago. But, the exports have been affected due to weak growth in advanced and emerging economies and imports have also declined mainly due to reduced prices of crude oil, trade and current account deficits continue to be moderate.

Growth in agriculture has slackened because of the two successive years of less than-normal monsoon rains. In 2015, India received a monsoon rainfall which was only 86% of the long term average rainfall. The forecast for the 2016 monsoon is optimistic and is estimated at 106% of long period average realising which the economy can get a major boost. However there are no signs of revival for saving and investment rates yet. Like most other currencies in the world, the rupee has debrciated vis-à-vis the US dollar even though with less magnitude.

Going forward, growth in 2016-17 may not pick up dramatically from the levels achieved in 2015-16 as the possibility of slow global economic growth and financial sector uncertainties still loom large. With the brvalent overall macroeconomic scenario, and assuming a normal level of rains in 2016-17, we can expect the Indian economy to register growth in excess of 7 per cent for the third year in succession.

Indian Banking Industry:

It has not been great year for the banking industry on account of various factors such as economic scenario, stressed asset quality, poor credit growth etc. The industry performance remained subdued as it experienced a slowdown in balance sheet growth. The concerns over asset quality are led by sharp increase in gross non-performing assets (NPAs). Poor earnings growth by companies, slow pace of investments, risk aversion of banks due to rising bad loans, and availability of alternative funding sources for corporates pulled down credit growth during the year.

The industry have responded to the above situation by initiating measures to ensure prompt recovery procedures and clean the portfolios with write-offs and provisions. The Reserve Bank of India has also facilitated rectification through a number of well-thought-out initiatives. The focus is on restricting incremental non-performing assets through early detection, monitoring, corrective action plans, shared information and disclosures which can help the Industry to keep future incidence at comfortable levels. RBI has issued guidelines on a 'Scheme for Sustainable Structuring of Stressed Assets' (S4A) to further strengthen the Bank's ability to deal with stressed assets. The S4A envisages determination of the sustainable debt level for a stressed borrower, and bifurcation of the outstanding debt into sustainable debt and equity/quasi-equity instruments which are expected to provide upside to the lenders when the borrower turns around.

As the global markets become more competitive and volatile, commercial success will depend on the ability to operate and scale up in an uncertain environment with effective risk management. Technology and analytics will become the cornerstones of improved risk management in the country.

The year 2016 will be critical for the Indian banking industry as innovative products and strategies have to roll out successfully to drive digitization ahead. The industry is likely to witness the roll out of innovative banking models like Payments Banks and Small Finance Banks.

Review of Bank's Business Performance:

Despite a challenging environment, your Bank recorded strong performance during FY 201 5-1 6

The total Business of the Bank increased by 1 2.41 % to Rs. 1 37261.85 Cr for the year ended 31st March 2016.

The Bank's CASA has shown sustained growth and the retail deposit forms the 97.94% of the total deposit of the Bank. The Bank's SME segment has grown by 17.45% during the year. The Bank's focus on building granularity continues to be on track with corporate advances now forming 33.43 % of total advances. The Net Worth of the Bank increased to Rs. 8091.22 Cr as on 31.3.201 6. The Capital Adequacy Ratio (CRAR) of the Bank, computed as per Basel III guidelines, stands at a very comfortable level of 1 3.93 % as on 31.3.2016.

The Bank has posted a net profit of Rs. 475.65 Cr for the year ended March 31, 2016. Total income for the year grew by 2.81% to Rs. 8531.07 Cr and Other Income stood at Rs. 786.38 Cr. Net Interest Margin (NIM) of the Bank stood at 3.14%.

The total deposits of the Bank increased by 11.78 % to Rs. 791 71.71 Cr and advances of the Bank stood at Rs. 58090.14 Cr. CASA of your Bank increased by 1 9.28% from Rs. 21 549.57 Cr to Rs. 25704.84 Cr.

The NRI business of the Bank witnessed robust overall growth of 25.69% to reach Rs. 32597.09 Cr on 31.03.2016. In advance front, SME has grown from Rs. 1 291 7.84 Cr to Rs. 1 51 72.07 Cr showing a growth of 17.45%. Return on Average Assets stood at 0.57% and return on Equity of the Bank is 6.01% now.

Gross NPA stood at 1 667.77 Cr and Net NPA stood at 950.01 Cr as on 31.03.201 6. Gross NPA as percentage to Gross Advances was 2.84% and Net NPAs as a percentage to Net Advance was 1.64%. PCR (Provision Coverage Ratio) including written off assets stood at 72.05%.

The allotment of bonus shares in the ratio of one equity share of the Bank for every one share held having a face value of Rs. 2/- each was made on 10th July 2015 to those shareholders of the Bank as on 09th July 2015 being the record date. The Bank allotted 85,79,45,206 fully paid up Equity Shares as bonus shares which also includes One Global Depositary share (GDS) issued as bonus for every GDS held to the existing holders as on the record date.

The Bank continued to expand its footprint and has 1252 branches and 1516 ATMs as on 31.03.201 6. The Bank also has its Rebrsentative office at Abudhabi, UAE and an IFSC Banking Unit (IBU) in Gujarat International Finance Tec-City (GIFT City)

Agri Business:

Your Bank continued to give special emphasis on lending to Agriculture and allied activities and committed to bring prosperity to the farming community in the country. During the year total agricultural advances of the Bank increased to Rs.10704.13 Cr including RIDF investments as on 31.03.2016, constituting 19.41% of ANBC against the required level of 18%. In line with the agriculture policies of the Government, Bank is giving added thrust in sectors like warehouse receipt financing, plantation sector, animal husbandry, hitech farming, Agri Marketing Infrastructure while continuing lending under Kisan Credit Card and Interest Subvention schemes.State specific agriculture lending policies were formulated for Punjab, Rajasthan and Madhya Pradesh based on the field level studies.

In the coming Financial Year, your Bank is re-aligning the strategies to focus more on Agri Business in emerging and existing markets on the strength of new Agri Relationship Model. Bank has in place a dedicated team of Agri Relationship Managers in selected locations and development officers in potential clusters pan India. We are committed to contribute towards rural development through special emphasis on lending to small & marginal farmers.

Priority Sector lending

Renewed focus in lending to MSMEs and Agri Business helped your Bank to fulfill its priority sector lending requirement. During the year, your Bank pursued various strategies to increase theflow of credit to agriculture, MSME, weaker section etc. Priority sector credit increased from Rs. 20870.27 crores as at 31.03.2015 to 22171.28 crores as at 31.03.2016 which stands at 40.20% of ANBC against the required level of 40%. Advances to weaker section stands at Rs. 7291.16 Cr as on 31.03.2016 constituting 13.22% of ANBC against the mandatory target of 10%.

Corporate & Institutional Banking Business:

Corporate & Institutional Banking Business provides combrhensive banking solutions to large corporates, mid corporates, emerging local clients, large companies and financial institutions. Your Bank offers an array of banking products and services covering working capital, term finance, trade finance, CMS, specialized corporate finance products, structured financial services, foreign exchange, syndication services and electronic banking products. Over the years Federal Bank has made significant strides into these client segments. The business model was restructured by strengthening and institutionalising relationship banking during the year.

During the FY 2015-16, this business grew strongly by about 32% to reach Rs. 21946 Cr. We were able to add brstigious new clients to the portfolio using innovative product offerings with quick turnaround times. Our focus in Wholesale remained on the well-rated companies bringing higher rigor to our client selection process and more robustness to our credit underwriting processes.

Credit Health Management:

The whole Life Cycle Health Management of the entire credit portfolios of the Bank is taken care of through the varied credit monitoring exercises. The brservation of asset quality is ensured by identifying warning signals at the earliest possible instance. Identifying early warning signals and sector & group specific issues, gathering and analysing information from external and internal sources, disseminating such information to all stakeholders and initiating corrective actions form the crux of the actions.The activities are aimed at the upkeep of the credit quality through properly defined systems, procedures and practices. The stressed accounts are identified early and brscription and implementation of corrective action plans are brought in wherever required. This end to end monitoring of all Loans & Advances disbursed across the Bank ensures credit discipline.

Your Bank actively participates in Consortium Meetings, Joint Lenders Forum (JLF), Corporate Debt Restructuring (CDR) meetings and other Industry level gatherings. Collection and dissemination of information to Credit Information Bureaus are properly utilized for administration of credit at all levels.Bank is in the process of implementing a system based Loan Management System (LMS) for real time management of the credit portfolio and for making the entire exercises more system oriented.

Digital Centre of Excellence:

Our constant endeavour is to enhance customer experience, improve efficiencies by adopting leaner and cost effective operations and drive revenue by increasing the depth as well as the sbrad of customer engagement, delivering consistent experience to the here and now digital age customer across the platforms.

Innovations will help in digitising internal and external processes. All digital programs of your bank are designed to orbit around the core theme SIMPLE.

Your bank have been working with promising start ups helping them fine tune their ideas, developing it into commercially viable propositions, and buying the end products that are innovative. 'Launchpad' our dedicated start up service outlets provide a breeding ground for future entrebrneurs on the one side and a great opportunity for us to keep abreast of the change winds.

Digital program helped your bank to improve operational efficiency and it is a major outcome that we expect. At one side it's reducing the cost and the other side its increasing the revenue.

When Digital offers help to customers to conduct their banking transactions simpler faster and friendlier, there is need for meeting the customer needs on qualitative personalised financial service. Keeping this in mind, bank is committed to continue to give services to our esteemed customers with the warmth of human touch. Our digital programs are naturally hovering around the theme - Digital at the fore, human at the core.

While moving fast on the digital programs, your bank is giving adequate attention on security aspects and our digital platforms are fully complied with all technical and regulatory security measures. This enables our customers to use our digital channels confidently. Thus our digital offers are a blend of authority to the client and control with the Bank.

Your Bank has introduced Missed Call Banking Services for Funds Transfer, Mobile recharge, Mini Statement and Balance Inquiry. Bank is proactive on the customer requirements and introduced the missed call banking service during the Chennai Flood to help customers to recharge their mobiles with a simple missed call. The mobile banking solution, FedMobile, is enriched with features with addition of billers including Electricity, Telecom, Gas, Insurance, Mutual Funds etc. The add-ons made in FedMobile includes limit enhancements, Scheduled payments, Inbox facility, refer a friend, customer feedback & ratings which made the mobile banking solution one among the best in the industry. Bank has also introduced Card to Card Funds transfer through ATM, online platform to get Car loans and Biometric Authentication for Account opening which are continuously improving the experience of our customers. 20% additional customers have started using our internet banking platform. The usage of FedMobile increased 1 3 times during the last financial year. 39% of our new customers are currently using the digital channels and we aim to improve this to 65% by the end of this year. Our interventions with start ups in the form of startup studios, sandbox etc will be continued and leveraged in the innovation mission.

Unified Payment Interface (UPI) was launched by National Payments Corporation of India with Reserve Bank of India's vision of migrating towards a 'less-cash' and more digital society. UPI will enable application in mobiles for instant online payment like utility bills, school fees, over-the-counter payments and online shopping. The Unified Payment Interface allows payments to be initiated by the payer, or even by the payee. NPCI has approved our Bank for UPI-PSP App and we will join the first batch of Banks that are offering this service. Our Bank is approved by RBI for Bharat Bill Payment System (BBPS). We are also joining Electronic Toll Collection (ETC) Program of NPCI and NHAI.

Financial Inclusion:

Financial Literacy-At Federal Bank, we believe that business exists in the society and any business requires social sanction for its survival and growth and organizations should have a social commitment. Our Financial Literacy scheme has the following variants devised for the different category of people in the society:

• Financial Literacy Campaigns

• Federal Ashwas Financial Literacy Centres (FAFLCs)

Financial Literacy Campaigns:Your Bank is implementing Financial Inclusion as per various models, of which, providing financial literacy is the first and foremost one. Financial literacy programmes intend to provide basic banking knowledge to people across various corners of the life. The financial literacy classes are organized and conducted by the branches in the rural / semi-urban area. The Bank has currently 181 rural branches that conduct financial literacy campaigns to the general public and school children for providing basic banking knowledge to them. In the financial year, our officials have conducted 176 classes in Schools, particularly those in Semi-Urban and rural areas covering around 6400 individuals and students are made aware of various financial services through power point brsentation, printed comics, role plays, interactions, bank visit, quiz etc.

Federal Ashwas Financial Literacy Centres (FAFLCs):Federal Ashwas is our initiative to provide free, unbiased, fair and coordinated financial education through financial literacy classes and credit counselling. With wide extensive support, Federal Ashwas Financial Literacy Centres seek to help the public understand finance and banking needs better and arrive at informed decisions, so that they become completely equipped to face any financially challenging moments/ crisis in their lives. We also seek to guide them on the dangers of incurring excessive debt and borrowing from the informal sources of credit. Ashwas Centres has turned out to be effective financial literacy and credit counselling centres in rural and semi urban areas. Federal Bank has currently 22 Federal Ashwas Financial Literacy Centres pan India with 19 centres functioning in the state of Kerala and the one each in Tamil Nadu, Maharashtra & Karnataka. We have very erudite and vibrant counsellors at FAFLCs who utilize every opportunity to educate and counsel the needy at the time of their financial crisis. The Financial Literacy campaigns are targeted imparting knowledge to the following groups

1. School Children

2. Self Help Groups

3. Farmers' Clubs

4. Recreational Clubs

5. Residents' Associations

6. Grama Panchayaths

7. NGOs

Around 1450 literacy camps were undertaken by these centres during the financial year 201 5-16 which has benefitted more than 78,000 people.

Your Bank in collaboration with leading NBFC - MFI, Janalakshmi Financial Services Pvt. Ltd. (JFS)has launched the general purpose reloadable Federal Janajeevan brpaid cards. The initiative to tie up with JFS for tapping the potential of urban financially excluded markets is the first of its kind. JFS is appointed as the Business Correspondent of Federal Bank. JFS has issued these co-branded brpaid cards to its micro finance customers in 25 cities in states of Delhi, Haryana, Punjab, Rajasthan, Uttar Pradesh and Uttarakhand. The loan amount sanctioned to the JFS customers is loaded into the Federal Janajeevan brpaid cards of the individual customers. The key features of Federal Janajeevan card is access to essential banking services - account balance inquiry and cash withdrawal, usage at all ATMs and merchant locations accepting Visa Card. These cards are PIN protected with a validity of 2 years, maximum load value of Rs. 50,000/- and maximum withdrawal amount per day is Rs. 10,000/-. We have issued more than 8 Lakhs cards with a total card load amount of nearly Rs. 2300 Crores.

Your Bank offers Pradhan Mantri Jan Dhan Yojana (PMJDY) accounts to the general public (mainly to weaker section & low income household groups), with an objective to ensure access to financial services, namely Banking Savings & Deposit Accounts, Remittance, Credit, Insurance, Pension in an affordable manner. The main attraction of the scheme is zero-balance bank account with RuPay debit card, in addition to accidental insurance cover of Rs. 1 lakh and life insurance cover of Rs. 30,000/-. Till date the bank has opened more than 4.29 Lakhs accounts with an outstanding balance of around Rs. 139 Crores.

Bank has also launched Overdraft facility to the PMJDY account holders (maximum of Rs. 5,000/-) to meet their exigencies without insisting on security, purpose or end use of the credit.

Your Bank is actively participating in the Social Security Schemes (Pradhan Mantri Suraksha Bima Yojana, Pradhan Mantri Jeevan Jyoti Bima Yojana and Atal Pension Yojana) launched by the Government of India on 09th May, 201 5. The PMSBY and PMJJBY schemes provide low cost insurance benefits to the general public for the death or disability due to accident and for death due to any reason respectively. Atal Pension Yojana (APY) is the government backed pension scheme provided to unorganised sector. Bank could help 80 families of our deceased customers who joined the low cost insurance schemes (PMJJBY and PMSBY) by settling claims amounting to Rs. 1.60 Crores.

Alternate Delivery Channels: Your Bank is actively propagating alternative delivery channels for customer convenience. During Fy 15- 16, Federal Bank has deployed 75 Cash Deposit machines across the country. Your bank has launched co-branded credit card with SBI cards.

Foreign Exchange Business:

The Bank have two 'A' category branches and seventy eight (78) 'B' category branches/offices for handling foreign exchange business as on 31st March 2016 Entire Foreign Exchange / Trade Finance Transactions are centralised to extend timely and efficient service to forex clients and improve effectiveness of the designated branches. SWIFT operations are also centralized to make it more faster and reliable communication with major banks all over the world.

In the Trade Finance segment, export credit facilities are provided both in rupee and in foreign currency for br-shipment and post-shipment activities of the exporters. Credit facilities are mainly extended for export of cashew, sea foods, garments, minerals, coir, spices, other food products, leather, rubber, pharmaceutical products, gems and jewellery among others.

Credit facilities, such as Letter of Credit, SBLC, Guarantees etc., extended to import goods mainly comprises among others, chemicals, timber, raw cashew nuts, paper and electronic items, machinery etc. Your Bank also arranges Buyer's Credit from overseas banks for import customers at competitive rates. With the opening of IBU Branch in GIFT City (Gujarat International Financial Tec City) your bank is also extending buyer's credit to importers.

The Bank conducted regular one-on-one meetings with exporters/ importers at Zonal levels to assess the financial position of the units, support additional credit requirements and to strengthen the relationship and also acquiring new relationships. Updates on daily forex market movements are sent to clients on a regular basis. The Bank has been giving much thrust to the development of forex business and is continuously endeavoring to improve the operating skills of the personnel through meetings, interactions and training programmes. Your Bank is also in forefront in conducting FEDAI training programmes for banking fraternity in Kerala. This enabled the designated branches to improve their operating efficiency substantially. The Bank periodically updates and codifies the RBI/ FEDAI instructions applicable for forex business, in the form of combrhensive guidelines/ circulars for the benefit of its operating staff.

The Bank continues to be a member of the Technical committees of FEDAI on Trade and Remittances and Forex Market/Policy. Your Bank has a Foreign Exchange Cell attached to Treasury Department at Mumbai catering to all the requirements of the branches. The Bank has published a Citizen Charter for forex facilities and publishes the exchange rate of various currencies on a daily basis in the banks website for the benefit of the public.

International Financial Service Centre Banking Unit (IBU) at GIFT CITY, Gujarat - Our First International Banking Arm

Your Bank opened its first International Financial Services Centre (IFSC) Banking Unit (IBU) on 09.11.2015 in Gujarat International Finance Tec-city (GIFT City), Gandhinagar, Gujarat, which is the second IBU set up by a bank in India. IFSC in GIFT City is conceptualized and designed on par with other global financial centers in Hong Kong, Dubai and Singapore. GIFT City unit enables the Bank to get access to cheaper foreign currency finance and enhance its trade finance and treasury activities. With the opening of IBU, Bank is now able to extend Buyers Credit to its Customers who import goods into India as well as to such customers of other Banks, to provide credit facilities to Wholly Owned Subsidiaries (WOS))/Joint Ventures (JV) of Indian companies registered abroad, to extend credit facilities to overseas entities abroad including those owned by non-resident Indians, to extend External Commercial Borrowings to resident corporates, to undertake treasury activities like overseas money market operations, investments in overseas securities and transactions in derivatives and structured products, accepting deposits from overseas entities. Presence of IBU gives more visibility to the Bank and it enables to establish banking relationship with international clients across the globe.

Human Resources:

Your Bank is committed towards providing positive work environment which is conducive, flexible and enriched. Every effort is taken to foster progressive approaches which instill much significance towards collaborative and professional work relationships, while upholding the importance of individual contributions. The mission of HR in your Bank is to ensure 360 degree support to every employee by taking care of his professional as well as personal development, physical and mental wellbeing and improved quality of life, thereby achieving business and individual goals.

Vision of HR

The vision of HR is to attract, recruit, train, manage, retain, promote and motivate right personnel who are able to carry the corporate goals with clarity and conviction. HR foresees the need to acquire, develop and locate the personnel in order to fulfill the corporate requirements and meet the institutional objectives.

HR Configuration

The realization that HR has a greater role to play in business growth has lead to formulation of strategies in alignment with the business. The strategic decision making is assigned to various top level committees rather than restricting to individuals. The total Human Capital of the Bank is 11760 after induction of 1295 new entrants in various positions during the financial year under consideration. The average age of the employees of your Bank is 37 years. The current male female ratio of the Bank is 61:39.

Employee Engagement

Your Bank believes that an engaged employee is passionate and productive of his work and ensures that there are newer initiatives and engagement programs to keep the motivation on. Engagement activities rolled out include MILAN - a mega get together that witnessed the coming together of the entire Federal Family at their respective regions with stage set for entertainments, games, music, dance and recognition programs like Federal Mangalyaan, Talent Time and other exciting events. Every employee feel to be proud of part of Federal Bank where each one strive to deliver the best - to the best of their ability, to the best of their skills - to shape up an organisation which is the best place to work in.

FAME, engaging employees the digital way

FAME, is a first of its kind employee mobile application jointly designed & developed by HR & IT Team of the Bank to embrace the digital change. FAME, the next generation people initiative for internal and employee communication is looked upon as a real differentiator in the Digital World where digitalization is the paradigm tool for driving efficiency and cost effectiveness. Through this Application, employees have full access to real-time information like Employee Profile, Branch Profile, Business Dashboard, Learning Platform, HRMS, Announcements/Messages, HR Helpdesk, Apbrciation Forum, Birthdays, Photo/Video Gallery, Corporate Discount Platform, Feedback/Surveys, & many more.

Employee and Industrial Relations

With amicable and cordial industrial relations climate, Bank could concentrate on its business developmental efforts with co-ordinated and collective involvement of all sections of employees. There has been effective discipline management with more thrust to compliance. The Employees' Grievance Redressal Forum is restructured and an external expert having exposure in grievance redressal and HR functions has joined as a member of the Grievance Redressal Forum.

Communication

Your Bank ensures that each and every employee is appraised about every update and happening in the organization along with the business positions and goals to be achieved. Regular communication channels including intranet, email news letters, other communications, blogs, social media including Facebook, Whatsapp, etc are used to keep the communication dynamic and trendy.

The top executives of the Bank lead by MD & CEO reach each and every employee through a Big Call which is scheduled particularly in every quarter and whenever felt necessary. This platform gave an open avenue for any employee to directly interact with top management and bring to their notice any ideas or concerns they feel like communicating.

Business Linkage

Human resource strategy of the bank is developed to support the business and human resource management planning is recognized as a fundamental part of the business planning process. The HR has designed the man power planning function by initiating negotiations with business verticals on the requirement of adequate man power as per the business strategy and the business target from a function based on factual figures of work load in each branch/office.

HR is an integral part of all the business review meetings conducted at Zones, Network and Corporate level. HR plays the role of strategic and supportive player in all the business plans and strategies during business reviews.

Administration & Welfare

The proactive role of the HR in foreseeing the necessities of business and employees mark your institution special as an employee friendly one. Through educating and promoting the use of technological products and channels, the essence of digital growth is ensured among the employees. To ensure the quality of the workforce, regular trainings & periodic assessments are being done in the organisation. Online Quizzes on various banking topics are conducted on a frequent basis involving all the cross sections of the employees, including the executives. To meet consistent growth with Quality, Bank adopted the TQM or Total Quality Management concept. All employees are guided by a Code of Ethics Policy that outlines the dos and don'ts of conducting business.

The bank also charted and implemented various engagement programs which cements together families and communities of different profiles within the institution. Some of the major engagement activities like team sports events, were aimed at strengthening relationships between team members so that they can find the comfort of working in a homely environment with a sense of belonging. A program christened, We Rise and Fly High, exclusively for women empowerment was conducted in different branches throughout the Bank during the year. Merit Evening is conducted to honour the children of the employees of our bank who were able to score exemplary achievements in academics. Sparsh, the workshop for children of employees helps in providing them ample opportunities to develop the ability to function as a team, live life better, improve communication and leadership skills.Making many sighs into smiles, FedCradle, the crèche facility for the little kids of employees who is working in and around Aluva came as a real relief to many. The smiles transformed to the pride of Federals with its up gradation from the primary role of a babysitting to play school. This endeavour has successfully completed two years.

To build proprietorship in Individuals, every employee is made a partner through ESOP or employee stock option scheme which is sbrad to all levels. Every employee is given a feel that they are the owners of the Bank and running the organization in a good stead is the responsibility of each and every individual.

Diya - lending a helping hand

Your Bank has implemented a unique Welfare Scheme that could create a marked difference in meeting any unexpected liabilities in case of an unexpected demise of an employee. Christened Diya, this is an initiative to cater to the immediate financial needs of the family grieved by the unfortunate loss of our colleagues. In the event of an untimely demise of a colleague; a nominal contribution from every serving employee along with a contribution from the Bank will be pooled and handed over to the bereaved family immediately by the Bank.

Talent Management

Your Bank has structured an integrated Talent Management Systems to align strategic human resources with the organizational goals and to attract and retain the best talent in the organization. Bank has a well defined career advancement and succession planning policy based on the competency/role matching, identified in the role directory. Human resources planning and deployment frameworks have been decentralized to Zones to support the needs of the Regions and branches. Workforce planning, recruitment, and On-boarding activities are aligned with long term goals and objectives of the Bank.

Performance Management System

Your Bank has introduced a combrhensive, realistic method of performance management system in a thoughtful and coherent manner with active engagement of employees. The process includes setting clear and specific expectations, goals, periodic assessment, providing ongoing feedback to focus on elements of overall performance of individuals as well as Business objectives. Performance Management is considered a continuous process and all new inductees and new appraisers are oriented on the nuances of the system during their training sessions.

Performance assessment for FY16 was conducted in the organization through People Review & Management Committees for all confirmed officers from Scale II onwards. Performance Review Management Committees are constituted to have a focused, fact based and combrhensive assessment of performance by a panel of senior executives. Areas of strength and improvement are contemplated.

Learning & Development activities 2015-16

Training philosophy of the Bank is based on 70:20:10 learning model where 70% of learning happens on the job, 20% happens through research or /learning programs. With the intention to refine the existing practices in Training and Development, Training Need Analysis Conclave was conducted in the Bank, and from the key deliverables of conclave, coupled with thoughts/insights provided by Academic Council and top team of the Bank, a Master Learning Plan ( MLP) had been documented. Federal Manipal School of Banking (FMSB) is an exclusive partnership between Federal Bank and Manipal Global Education services to develop Bankers of tomorrow. Through this arrangement, we groom potential candidates by providing high end Banking training so as to develop first day, first hour productivity in Federal Bank. Federal NIIT University Centre of Banking is an exclusive partnership between Federal Bank and NIIT University to develop, groom and transform young talents into professional Bankers, having an exceptional flair for relationship banking and sales. The candidates would undergo various modes of experiential and activity based learning to develop themselves into future leaders, to augment the relationship banking and sales portfolios of the Bank.

Leadership Development programs

Leadership development programs were designed for different levels of employees to develop a leadership pipeline in the organization. This helped in generating desired attributes which are integrated to various people processes. The programs were extended to officers in leadership positions across the organization ranging from business heads to branch heads.

Talent pool creation

To bring in specialization in various banking activities and to have a ready to deploy pool of experts, talent pool creation was focused in areas like credit, foreign exchange, treasury, and risk and branch management. This was done through external and internal certification programs and also class room programs like Samrudhi, which included both class room and self-learning component run over a period of 4 months where self-learning was done through various E Learning modules.

Certification Programs-Internal & External

To develop the capability of people and thereby enhancing organization capability, a process of continuous learning was identified as the right way of imparting knowledge. With this in mind, bank embarked upon various certification programs roping in external expertise for Foreign Exchange. Officials from selected branches and departments were chosen for an online certification on foreign exchange conducted by one of the leading financial E-Learning company. These officials are groomed as foreign exchange experts to take forward the Bank's long term business focus in this area. The main highlight of the program is the bi-weekly video conferencing by subject experts which helps the participants to understand the nuances of foreign exchange and to come out successfully in the certification process.

In addition, we have launched an Internal Certification Program (ICP) developed by internal experts for credit and general banking with specified levels mandated for specific category of employees and is linked to their PMS and career progression. With this program we expect to bring in more expertise in respective areas in all levels of employees across the organization.

E-Learning

We have used advanced E Learning tools for promoting self-learning inside the organization. The bank has built its learning strategy to facilitate learning process across all levels through weekly online quizzes, internal assessment tests, internal/external classroom trainings, internal certification programs and personalized e-learning modules. Online assessment tests were conducted before and after the training program to measure the effectiveness, new joiners were introduced into a monthly assessment test covering major aspects of banking, helped in linking them to the learning culture of the bank in the initial level of their career itself. Thus we could create 2,21,498 man hours of learning, roughly works out to an average 2 days of class room learning to all employees of the bank.

Training Activity Highlights 2015-16

• 6232 employees were trained during FY2015-/16 IN 348 Programmes.

• 257 employees were given external trainings including foreign trainings at USA, Germany, Indonesia etc.

• FKDC conducted a brstigious international training programme for employees from OMAN exchange.

• Full day Behavioural sessions were conducted for officers in Samrudhi-1, Samrudhi-2 and I MEX FTPO which covered team building skills, leadership quality and being good HR line manager.

• Two day behavioural programmes were conducted for sub staff at regional centres which would help them in developing the right attitude, self-confidence, customer service and caring for the organisation.

• One week intensive credit programmes were conducted at the basic level for above 280 officers which would give them the necessary skills to handle branch level credit.

International Banking Business:

During FY 16, NRI business of Your Bank wintnessed robust overall growth of 25.69%. Total NRI deposits of the bank stood at Rs. 32597.09 Cr on 31st March 2016. The NR CASA grew by 27%. NRI client base of the Bank touched One Million. The Abu Dhabi Rebrsentative Office and the officers in GCC countries continue to be the main force in bringing new NRI clients to our fold. 63% of Bank's NRI customers are in the age group of 21-40, indicating a healthy addition of young NRIs to the franchise.

The year 2015-16 witnessed decent growth in the inward personal remittances handled by your Bank. Rs. 55500 Crore, rebrsenting 12.5% of the total personal remittances received by the country was routed through your Bank. The Bank started 5 new Rupee remittance tie ups in FY16, of which 3 were from GCC and 2 were from outside GCC. All Rupee remittance arrangements from Non GCC countries have online remittance option.

During FY 16, the Bank received approval of Central Bank of the UAE to open Bank's second Rebrsentative Office outside India at Dubai, which is expected to be opened in the first half of this fiscal.

In November 2014, Bank had opened Federal Experience Centre, a world class lounge for HNI customers just outside Cochin International Airport. During FY 1 6, the lounge was used by 3126 HNIs, mostly NRIs.

Bank started offering FCNR deposits and Inward & Outward remittance facilites in New Zealand Dollar during FY16.

Integrated Treasury Operations:

Your Bank's Integrated Treasury Operations, involve maintenance of Statutory Reserve requirements, Balance Sheet Management, trading in Money Market instruments, Bonds and Debentures,

Equity and Foreign Exchange. The Bank has established dedicated and full-fledged dealing desks for various segments like Foreign Exchange, Interbank and Merchant Trading, Currency Futures, Interest Rate Futures, Money Market, Government Securities, Bonds and Debentures, Certificates of Deposit, Commercial Paper, Interest Rate Swaps and Equity in the Bank's dealing room in Mumbai.

For marketing treasury / Forex products, a dedicated team has been formed with focus on increasing the fee income. Your Bank has taken a slew of initiatives to enhance treasury operational capabilities viz. providing Web based G-sec (Government Securities) trading platform to CSGL (Constituent Subsidiary General Ledger) clients, revamping the Research & Analytics desk and imparting new skills through specialised training programmes.

Bank has engaged specialized agencies to assist Treasury to redesign and enhance the Treasury analytical capabilities and impart specialised skills to its employees. Your Bank's Treasury is brparing to launch full fledged currency options desk in the current financial year and move into warehousing of risks in the options book, as to be able to serve clients looking for derivative solutions to hedge their exposures.

Information & Technology:

Your Bank has introduced an innovative Mobile Application, FedBook Selfie,this year for opening SB account with Federal Bank from Anywhere, Anytime.

FedBook Selfie:

FedBook Selfie app is an innovative product, first of its kind in the Banking Industry. Using Selfie application customers have the convenience of opening a Savings Bank account, with Federal Bank, on their own, from anywhere, anytime using their mobile device. They can make their first transfer to their account, then and there. The transferred amount will reflect in their mobile passbook instantly. The app downloaded to open the Selfie account, after opening the account, turns itself to a digital passbook. Customer will from there onwards see only his digital passbook with all his account details. Selfie App provides positive customer experience and maximizes customer convenience. Real time validations are integrated in the App to ensure KYC compliance and reduced account opening turnaround time.

Benefits of this innovation are:

• Enhanced customer experience in account opening.

• Instant availability of account number in less than 3 minutes.

• Facilitates instantaneous funds of transfer to the newly opened account.

• Instant updating of mobile passbook to reflect the transaction.

• Helps to eliminate failure of account-opening due to incomplete opening form or mismatches in KYC.

• 100% compliance due to automation of KYC checks (PAN, Aadhaar etc.).

Missed Call Banking

Federal Bank introduced Missed Call Banking with the first service as balance enquiry. Recently bank also introduced mobile recharging through Missed Call. Once the customer registers for the facility, a missed call will recharge any phone including a third party phone based on the registration details.

Mobile Banking

FedMobile is Federal Bank's Mobile Banking application. This Convenient and Secure app has now been provided with a new User Interface for enhanced customer experience. Features which are available in the new App are Easy Registration process, Online activation of Beneficiary, Search beneficiary option in Fund Transfer, Reset PIN facility, Funds Transfers (Intra Bank, NEFT & IMPS), Mobile Recharge, Data Card or DTH Recharge and School Fee payment. FedMobile App is available across multiple mobile operating systems (OS).

Inspection and Audit:

The year under review witnessed qualitative intervention of the Audit function towards maintaining and improving effectiveness of the various operational functions and processes in your Bank. The intervention indeed was made effective through adoption of a well defined policy, manual and periodical communications on aspects covered under audit. During the year the Audit Policy covering all types Audit were reviewed and were approved by the Audit Committee of the Board and by the Board of Directors. All entities including the wholly owned Subsidiary of the Bank and all outsourced activities fall within the ambit of audit.

The Bank in compliance of the requirements of Section 1 38 of the Companies Act 2013 has designated the Head of Inspection and Audit Department as Internal Auditor.

The policy, procedures and processes on Audit in force in the Bank greatly meet and are aligned to the Basel III expectations and guidelines on Bank Audits. The internal audit function of your Bank is progressively focused on achieving Bank's vision and mission through optimized use of Governance, Risk and Compliance. The execution of audit at various operating units was in tandem with the Audit Plan approved by the Audit Committee of the Board. Details of the Audit Plan and Achievement against the plan are enlisted below.

Over the years, the scope and coverage of internal Audit has moved on to a level wherein it is used as a tool towards evaluation of the adequacy and effectiveness of the risk management systems and internal control systems in the Bank. The process of internal audit embodies assurances to the stakeholders on the prompt corrective actions on the commission of lapses incidental to the operational procedures and processes. The Risk Based Internal Audit architecture of your Bank, in place increasingly meets these objectives. Through RBIA, a composite Risk Rating of each and every Branch of the Bank is arrived at towards ascertaining frequency of Audit and Risk Monitoring. The composite Risk Rating is the aggregate of the risk rating under Business Risk and Control Risk. The frequency of Audit was based on the Composite Risk ratings which are categorized into Low, Medium, High, Very High and Extremely High. The frequency of audit ranges from six months to 18 months.

Management Audit

Management Audit in the Bank focuses on assessing the compliance and effectiveness of the processes, procedures, exercise of delegation of Authority etc in Head Office Departments, Zonal Offices, National and Regional Credit Hubs, Asset Recovery Branches, Credit Monitoring Cells, Currency Chest etc. During the year under review, Management Audit were conducted at 85 Offices and at all Currency Chests of the Bank.

Concurrent Audit

Concurrent Audit, carried out with the primary objective of real-time substantive checking has been in place in 261 Branches and 13 Offices of the Bank during the year under review covering 62 per cent of the total business of the Bank comprising 57 per cent of Deposits and 68 per cent of Advances of the Bank. The position is against the Regulatory requirement of coverage of 50 per cent of Deposits and 50 per cent of Advances under the scope of Concurrent Audit. Apart from Branches, Concurrent Audit is carried out at National and Regional Credit Hubs, Treasury Department, IBD, Depository Division, Asset Recovery Department and Operations Department.

IS Audit

In an increasingly complex Banking environment, your Bank has endeavored to put in a robust system of Information Systems Audit meeting highest level of security standards towards protecting the interest of customers. IS Audit is conducted by CISA certified Officers from within the Bank apart from 199 Chartered Accountants with CISA / DISA qualification. All critical IT infrastructures in the Bank are subjected to IS Audit by Information Security Professionals from reputed external Audit Firms. Critical Information System Assets are subjected to Vulnerability Assessment and Penetration Testing (VAPT) every quarter.

Off-site Audit

Bank has developed off-site audit as an effective monitoring tool towards achieving higher level of compliance. Off-site audit covers a variety of scenarios with focus on identifying omission and or commission of lapses / aberrations on servicing of loan / advance accounts, revenue leakage, security updation in loan accounts, temporary overdrafts etc. Bank has evolved a system of generating reports at periodic intervals on critical areas of operations and analyzing such reports for prompt corrective action. Of late, off site audit is increasingly developing as the most viable channel of audit holding tremendous promises for the future. Recognizing this opportunity, your Bank has also embarked on plans to leverage the scope and possibilities of off-site audit as the vital tool of audit of the Bank.

Digitization of Audit Function

The Inspection and Audit function of your Bank is carried out in an automated on-line system developed in-house by the Bank. The system provides for inter-aliaon-line reporting of comments and observations, risk rating of Branches, monitoring and follow -up towards rectification.

Legal Compliance:

The rising global competition and the advancements in internet and mobile technology have led to the introduction of innovative technology products and delivery channels, which have increased the legal risks faced by the Banks. Legal Department of your Bank formulates processes and controls that can effectively manage and mitigate the legal risks emanating from day to day business transactions of the Bank. The Bank has a well laid down system to ensure defect free documentation so as to minimize the menace of legal risk associated with the operational risk.

New products and schemes introduced by the Bank invariably undergo legal vetting by the department for ensuring legal compliance and proper analysis of legal risks involved. The department is rendering professional and expert advice on various legal issues associated with the Bank. With the strong objective of making the bank a zero customer complaint bank, strenuous efforts are being made to reduce the number of suits/complaints filed against the Bank before different courts/consumer forums.

The fortnightly publication of "Legal Decisions Affecting Banks" circulated by the department based on verdicts rendered by Subrme Court/various High Courts/Tribunals and Educational Series christened as "Legal Spectrum" are very informative and well accepted. Legal Department, a repository of statutes, brings to the notice of offices/branches relevant amendments/modifications made to statutes from time to time. The Department also publishes "Legal Tweets", which explains a particular legal position in a nut-shell. The Department has been extending faculty assistance to Federal Knowledge and Development Centre on legal topics. With a view of imparting awareness on latest developments/ amendments in law and to strengthen the knowledge base of the legal officers of the Bank, the department is conducting Biennial Conference of Legal Officers where legal luminaries address the participants on contemporary topics.

Marketing:

Your Bank has always been at the forefront of technological innovation and adaption. The financial year saw the Bank go the digital way in its marketing forays. More was done on the digital and online space than in the conventional media. The campaigns that the Bank ran on Facebook and Twitter were remarkably successful. A campaign on the Fedselfie (A Do-It-Yourself Account Opening App which was introduced to the Banking World by Federal Bank) was promoted through conventional channels as well as through digital media. Facebook, Twitter and Youtube were used extensively to showcase the Bank's products and services as well as technological and digital capabilities.

In the state of Tamil Nadu, a road show was rolled out which helped the Brand entrench itself better in that State, which is one of the focus states of the Bank. The Public Relations efforts of the Bank ensured that all its product launches, customer-facing activities and brand building efforts were reported in all the important newspapers of the country in English and various regional languages too.

Managing Customer touch points:

Your Bank is always keen on Customer Convenience and Delight. Your Bank, with the purpose of enhancing Customer experience in branches, provided fine interiors that are on par with all good banks in the country and standardized furnishing with spacious elegant customer lobbies & centralized air-conditioning. The security aspect has been given utmost importance with modern equipments like Close Circuit TV, sensors, and infra-red cameras. Your Bank has started online real time remote security and surveillance of ATM and branches. The Bank is progressively equipping its branches with Fake Note Detectors, Note Sorting machines and Currency Authenticating machines in compliance with Regulatory guidelines. Your bank has opened currency chests at Attingal (Thiruvananthapuram) and Kalletumkara (Thrissur). The Currency chest at Kalletumkara (Thrissur) is the first Mega Currency chest in Private sector banks in the state of Kerala.

Risk Management:

The Risk Management philosophy of the Bank is to take risk by choice rather than by chance. Some of the major risks Bank takes on in its normal operations are credit risk, market risk, operational risk including information security related risks, liquidity risk, interest rate risk among others. Board of Directors oversees and approves the risk policies and strategies to establish an integrated risk management framework and control system in the Bank. Risk Management Committee (RMC) of the Board oversees management of various risks implicit in business, systems and processes. Executive level committees ensure effective implementation of risk policies of Credit, Market and Operational risks respectively. Risk management framework is subjected to review and upgradation on an ongoing basis, in tune with Regulatory guidelines and best practices in the industry. Integrated Risk Management Department controlled by a Chief General Manager cum Chief Risk Officer coordinates various risk management functions of your bank.

Macro level factors such as slowdown in economic growth, imbalances in the economy, stress of certain sectors etc are few causative factors of credit risk for a bank. Bank has a centralized credit risk management division independent of its business functions to manage its credit risk. Appropriate credit approval processes, risk mitigation, post- disbursement monitoring and timely remedial actions are part of credit risk management. Loan Policy of the Bank contains operational guidelines documenting the lending philosophy of the Bank, articulating management of diversified credit portfolio, and various aspects of credit dispensation and credit administration. Segment wise and borrower category wise exposure limits fixed by the Bank takes care of the issue of risk concentration. A research team functions within the risk department for analysing various sectors and industries and to capture the up-to-date market information.

Bank uses various retail score cards for ensuring right customer selection. Credit Bureau scores are an important criteria for retail underwriting. Bank is also continuously reviewing and validating its credit rating models for its appropriateness and brdictability. Bank has implemented sector specific rating models sourced from CRISIL duly complying with the IRB requirements. Migration studies and default rate analysis based on the credit risk rating provide input for policy decisions on credit flow, pricing and monitoring of credit portfolios. Credit risk management in the Bank, through its various policies, risk assessing tools and risk mitigating measures ensures robust credit growth with superior asset quality.

Market Risk Management

Bank has a well developed framework, comprising Board approved policies and established practices, for management of market risk. Various tools like stress testing, duration, modified duration, VaR, etc are used to measure and control interest rate risk, liquidity risk and other market related risks. Bank has established an independent onsite Mid Office at the floor of the Treasury Department as part of Market Risk Division, which reports directly to the Head of the Risk Department and functions as the risk control unit for its Treasury activities. The Mid-Office scrutinizes the treasury deals and transactions from the point of view of market risk management. Detailed policies are put in place for the conduct of business exposed to market risk and also for effective management of all market risk exposures. The policies and practices also take care of monitoring and controlling of liquidity risk arising out of its banking book, trading book and off balance sheet exposures.

Asset Liability Management of the Bank in respect of all its assets and liabilities is carried out on a daily basis to eliminate the possibility of any risk eventuality in this area. Base Rate and interest sbrads are fixed after careful analysis of market rates and trends, costs and risk brmiums. As at 31st March 2016, Bank was in full readiness to migrate to MCLR based pricing of fresh loans and renewals with effect from 01st April 2016.

Operational Risk Management

Bank has a combrhensive framework comprising of policies, processes and systems for management and measurement of operational risks. Operational risk is primarily managed by brscribing adequate controls and mitigation measures, which are being reviewed and updated on a regular basis, to suit the changes in business practices, structure and risk profile. Bank is identifying and assessing operational risk through Risk and Control Self Assessments (RCSA) and monitoring of Key Risk Indicators (KRI). New products and processes or any modifications to existing products and processes are vetted to identify and understand the nature and degree of the risks the Bank would be exposed and checks and controls are implemented to mitigate the risks. Bank has also put in place a fraud brvention framework, whereby various transactions are monitored by dedicated teams from the angle of fraud risk and AML.

Compliance with Basel framework

Bank is using Standardized Approach for credit risk, Basic Indicator Approach for operational risk and Standardized Duration Approach in respect of market risk for computation of capital charge under Basel guidelines. Bank is gearing up with data build up and system requirements for migrating to advanced approaches.

Capital Adequacy Ratio of the Bank as on 31/03/2016 under Basel III norms stands at 1 3.93%. Bank's common equity capital level of 1 3.36% offers good cushion for further expansion and growth in asset portfolio and compliance with the requirements of Basel III norms. Capital adequacy ratio at consolidated Bank level stands at 14.27%.

RBI guidelines on Basel III demands building of capital and liquidity buffers in phases and seeks to enhance the minimum core capital, introduce a capital conservation buffer, and brscribe a countercyclical buffer. Bank has complied with the guidelines for regulatory capital under Basel III norms and is fully brpared for moving on to complete Basel III compliance as per the implementation schedule brscribed by RBI. Bank has also complied with the Liquidity Coverage Ratio (LCR) brscribed under Basel III norms. The LCR ratio of the Bank as on 31.03.2016 stood  at 130.65%

Capital Management Framework

Bank conducts Internal Capital Adequacy Assessment Process (ICAAP) to identify, assess and monitor risks that the Bank identifies as significant. ICAAP is aimed to ensure that Bank maintains capital commensurate to its risk profile and improves upon its risk management systems and framework on an ongoing basis. It involves realistic assessment of level of risks inherent in the business operations of the Bank and setting aside capital adequate to cover all such risks. Bank has a Board approved stress testing policy that covers various extreme but plausible stress scenarios for various risk streams. The ICAAP process assess its capital and profit impact under each of such scenario to help the senior management take strategic business decisions. Capital planning, in order to ensure that Bank is adequately capitalized for the period ahead and has sufficient buffers to withstand stress conditions, is also part of ICAAP.

Business Continuity Management Programme

Bank has put in place a combrhensive bank-wide Business Continuity Management System (BCMS) to ensure continuity of critical operations of the Bank covering all identified disasters. In terms of the Business Continuity Management Policy approved by the Board, Business Continuity Plan (BCP) Committees have been formed in Head Office, Zonal Offices and Branches. A Central Crisis Management Team (CCMT) is created to take responsibility and act swiftly in case of any breakdown/ failure of critical systems, occurrence of natural disasters/ accidents or any other events affecting business continuity situation. The Bank's Business continuity program is developed considering the criticality of the systems used. Periodic drills and tests are conducted to cover all aspects of the business continuity programme.

Information Security

Bank has established a robust information security framework for securing its IT infrastructure and systems. The Bank has an information systems security team functioning at the Head Office, which is responsible for formulation and periodic review of information systems security policies and practices as well as promoting information security awareness among staff and customers of the Bank. Bank has received ISO 27001 accreditation for its critical IT areas including Data Centre, DR Site, ATM Switch etc. Bank implemented an in-house security operation centre (SOC) at its DC and DR locations. The security information and event management (SIEM) solution provides a holistic view of the Bank's information technology (IT) security.

Regulatory Compliance:

Compliance Department in your Bank is ensuring the best practice of compliance across various levels of the Bank. The Compliance Policy of the Bank has been formulated to make compliance function adequately enabled, strengthened and independent. The policy helps to ensure the effective monitoring and co-ordination of the compliance functions in the Bank. The Policy is reviewed periodically and suitable changes are made to fall in line with the guidelines issued by the Regulators from time to time. The Compliance Manual which contains the compliance functions of each and every unit in the Bank serves as a guidance material for branches/offices. It is combrhensively updated to stay contemporary. Your bank has well laid-down procedure and online mechanism to monitor the compliance functions. Compliance Monitoring Officers have been nominated in all branches/offices to monitor the compliance functions and to develop a robust compliance culture in the bank. Bank is focusing on employee education through circulars, frequent contact session, online quizzes etc, to sensitize them of the need for a strong compliance culture and also striving to develop a robust/dynamic compliance culture in the Bank. For all matters related to compliance, the department is functioning as focal point for regulators like RBI, SEBI, IRDA, etc.

Retail Business

Resident Savings deposits of your Bank has registered a growth of 16 % Y-o-Y to reach a figure of Rs. 11 224 Cr. The total Resident Retail liability book reached a figure of Rs. 41 502 Cr being 52% share of total deposits. Acquisition of Corporate Salary accounts from our existing SME and Corporate clients have been one of the focus areas and this is showing results in terms of large number of Salary accounts getting opened during the fiscal.

The Retail loan book of the Bank reached Rs. 17331 Cr forming 29.48% of the total advances of the Bank. The total Retail Advances excluding Gold Loan have grown 1 7.61% year-on-year. Despite the volatility in the gold market, the bank has been able to manage the portfolio without any loss being incurred. Housing loans increased to Rs. 7876.10 Cr, registering a growth of 14.95%. During the year, Bank introduced Fed-E-Credit, the Bank's first such offering on a digital platform. The Bank is also giving greater focus to Pre-Approved loans where by customers with satisfactory track record are extended loans for personal purposes without the need for too much of documents. The Bank has introduced Group Personal Loans targeting employees of institutions/ companies with good credentials. The bank has also introduced, Fed Premia, a Premium personal loan product targeted at High Income Salaried and Self Employed Professionals.

Bank has also given focus on offering need based investment and insurance solutions to customers. Sale of Life Insurance, General Insurance and Health products has shown a growing trend during the year. Through offer of Investment products like Mutual Funds, the bank has been able to grow its AUM by 22 % to reach Rs. 1 50 Crores. Offering of online investment products of Geojit and IIFL has also got the necessary focus with a good number of customers being acquired under this portfolio. Bank received 2nd position for the maximum number of Demat Accounts opened under Bank Category at the NSDL Star Performer Awards 2015. Your Bank has participated in all the three Sovereign Gold Bond tranches launched by Government of India through RBI during the financial year. Our customers invested in Sovereign Gold Bonds aggregating into quantity of 38.67 kgs worth Rs. 10.40 Crs.

SME Business

Your Bank could achieve a growth of 1 7.45% during the foregoing year despite the adverse economic conditions and lull in various brdominant sectors, in comparison to the muted performance by competitor banks.

Tie-up with the world's 4th largest vehicle manufacturer, M/S Hyundai Motors India limited, for financing their dealers pan India, was a brstigious achievement which confirmed your Bank's acceptability among major corporate houses. Entry into a dealer funding relationship with three wheeler manufacturer M/s. Atul Auto Ltd, based in Ahmedabad established Bank's reach in Gujarat. Tie-up arrangements with all major automobile companies like M&M, TATA, Ashok Leyland have made your Bank a favourite financier among the dealer community.

Launch of Federal Easy Business Loan scheme, loaded with operational & assessment flexibility improved Bank's reach among Micro & Small business community who do not maintain proper accounting of their business activities and ensured needy & timely finance to this sector.

Easy & speedy procedure in discounting Contractors bills under BDS scheme run by GoK has made your Bank the most brferred among the contractors of Kerala and has established it as the undisputed market leader in this portfolio. SME Credit Plus, a br-approved standby line of credit for existing reputed Working Capital borrowers, which enabled them to meet their contingency needs on time was a milestone in the working capital lending of the bank. The product has made your Bank more endearing to the borrowers.

Digitrans - acronym of 'digital solutions for the transport sector', was launched with the intention of extending the fruits of digital revolution for the-benefit of the common man and to increase Bank's reach among the masses. The first product under the scheme was a cashless ticketing solution for the private bus operators in the state of Kerala, through use of brpaid cards. The product launched in Kochi/ Kozhikode in association with M/s Technovia Info Solutions Pvt Ltd, has made your bank a pioneer in the field. Active participation in the project - 'SavariGiriGiri' launched by District collector, Kozhikode, intended to address the transport woes of the student community in the district, through smart cards also reaffirmed the social commitment of the Bank. An exclusive scheme for financing Commercial vehicles was introduced to augment the vehicle finance portfolio by ensuring speedy credit delivery, with special focus on educational institution buses.

As a further step towards the digital cause, your bank has Introduced Campus Wallet in association with M/s Chillar Payment Solution for schools, which enables students to make payments within campus using their ID cards and make payments in our educational institutions totally digital.

Service Quality

Increased competition, highly educated customers, and increase in standard of living forced Banks to review their customer service strategy. With all banks providing uniform products and services, quality is one aspect that is going to be the decisive factor for the Bank as well as the customer.

Your Bank initiated a Quality movement from 2012 with the following objectives:

• Ensure standardization of look, feel & customer experience

• Raise the averages at all branches pan-bank with regards to customer experience

• Ensure uniformity and brdictability across the Bank's touch points.

• Create system, processes and procedures capable inherently of continuous improvement

• Standardization of customer communication

A process team has been deployed to create an in-house capability to improve all customer critical processes on the go. The team is also equipped with sound measures to evaluate various customer touch points with respect to quality and improve them dynamically.

Customer Grievance

** One Ombudsman Award pending from 2012, Appeal rejected by AA(Appellate Authority). Suit filed with High Court and stay has been obtained.

42 complaints outstanding were received during the last two weeks of the FY. Out of the complaints, 37% are process related (FedNet, other channel facilities, account opening), 15% loan related, 16% deposit related, 17% ATM related, 11% service charges related and 4% relates to various other areas. Of the total complaints registered during the FY, 6% relates to Banking Ombudsman.

Strategic Planning:

From Planning and Budgeting to Monitoring of Business Performance and Cost Management, from Management Information systems to Business Analytics, the key enablers for business development are handled by Corporate Planning department of your bank. The Bank is currently having a good geographical reach with 1252 branches and 1516 ATMs sbrad across the length and breadth of the country. With the brsence in key centres, your bank continues to build its business with granularity.

Analytics and MIS wings, aim to leverage the partially exploited potential residing in our huge information base, derive dependable insights from this data, and thereby contribute to the business growth of your bank. The team provides many reports to various stake holders for business development, monitoring and risk management. Online Systems are in place for branches, enabling them for deepening Relationship and cross selling. Next best products for each of the individual customer is brdicted through analytical models and provided to the branches centrally.

Knowledge sharing has become an essential part of the organizations success. The ultimate goal of Knowledge sharing is to distribute the right content to the right people at right time. To accomplish this goal, your Bank has a weekly magazine on internal changes and updates on the processes and procedures christened as Federal Digest. This knowledge initiative, which was launched few years back has become an important medium for knowledge transfer.

With the performance score card, field level functionaries progress were monitored more scientifically and systematically. Apart from this, your bank has used Revenue Point Index System to track the performance of individual units based on performance in terms of revenue.

Strategic Cost Management Cell in your bank looking at various avenues to optimize cost on an ongoing basis. Various initiatives intending to increase people productivity and minimizing other operating cost are in place so as to obtain efficiency in operations. To list a few initiatives like ATM outsourcing and co-branding has helped your Bank to reduce the running cost on ATMs by 60%, various digital drives like green pin, channel migrations etc will have its role in cost optimizations in the coming days.

Stressed Asset Management:

While sustained brssure on asset quality due to continued economic slowdown affected the Indian banking industry significantly, your Bank managed to maintain GNPA at Rs. 1667.77 Cr at the end of FY 2015-16. Gross NPA as a percentage of gross advances ratio of the Bank stood at 2.84% and Net NPA as a percentage of net advances ratio of the Bank stood at 1.64%. The provision coverage ratio (including technical write offs) stood at a healthy 72.05%.

Despite having some major slippages during FY 2015-16 mainly due to delinquencies in corporate accounts, your Bank managed its NPA portfolio through prompt steps for resolution by considering and exercising options such as actions under SARFAESI Act, compromise settlements, LokAdalats, Sale of NPAs to ARCs etc.

Provision Coverage Ratio

As on 31 March 2016, the Bank held a total provision of Rs. 700.50 Cr. As per the RBI directive, banks should hold minimum provision coverage of 70% including technically written off accounts. As on 31 March 201 6, the provision coverage ratio of the Bank, including technically written off accounts is 72.05%.

Transaction Monitoring & Fraud Prevention

Your Bank is having a fully equipped Transaction Monitoring & Fraud Prevention Department with state of the art monitoring tools. The transactions in Core Banking, various online Channels and those related to Money Laundering are monitored by the Transaction Monitoring team. We have started 24x7 monitoring from this fiscal to take immediate remedial action on suspicious transactions happening in late hours. Department is also conducting sample verification of KYC documents to ensure that branches are complying with the KYC instructions.

Corporate Social Responsibility:

Your Bank is an organisation that believes in socially responsible growth. For Federal Bank, reaching out to people who need assistance is part of the values passed down by the Founder Shri K P Hormis. With a strong CSR policy, Federal Bank tries to make its mark in the socially driven projects across the country, especially in the areas of Promotion of Education, Employment Enhancing Vocational Training, Social Development & Skill Building, Healthcare, Gender Equality and Empowering Women, Environmental Sustainability, Promotion of Sports, Contributions to Central/State run developmental programs, Protection of National Heritage, Art and Culture, Rural Development Projects and activities as permitted under Companies Act, 2013. Overview of some of the programs undertaken during FY 2016.

Federal Skill Academy

As part of the Corporate Social Responsibility initiatives, Bank started the Federal Skill Academy on Founder's Day to impart quality technical education to merit oriented candidates coming from economically underprivileged background. Placement assistance was also provided and candidates who came out successful in the interviews have been shortlisted for offers at leading organizations like ESSENCO, Bluestar, Bosch, Santrupti Engineers Pvt Ltd etc. The students during the three month certification course underwent a rigorous training program in soft skills improvement and technical skills along with industry exposure to attain the IAPMO Certification which is recognized worldwide

Assistive Technology Center - NISH (National Institute of Speech and Hearing)

Federal Bank had partnered with National Institute of Speech and Hearing (NISH)-Thiruvananthapuram to set up an Assistive Technology Center at NISH for people having difficulties in speech and hearing. The Centre for Assistive Technology and Innovation (CATI) at NISH strives to meet the Assistive Technology needs of persons with disability, especially the accommodation and accessibility needs of students and clients of NISH. NISH-CATI envisages creating a full-fledged NISH Assistive Technology Program (NATP) comprising need assessment, device demo, lending, training, financing, reutilisation, service, and research, to provide AT solutions for the education, employment, and independent living of persons with disability. This centre will be developed on the lines of such centres in US universities and AT provider facilities.

• Bandhan - Adoption of Schools: Through Bandhan, Bank could adopt and associate with more than 1 200 needy schools where in the first phase were supplied with drinking water facility as a CSR initiative. Later many projects were launched to improve sanitation, infrastructure and other facilities to the adopted schools. Last year we had constructed/renovated close to 60 toilets as well as provided clean drinking water to the adopted schools. The project was done in alignment with the Swacch Bharat/Vidyalaya mission of the Government. The activity would be continued this year as well to build more toilets/ parks/ setting up computer labs/ libraries/provide clean drinking water to the adopted schools those lack primary facilities.

• SEED - Student Empowerment for Environment Development: To build awareness amongst student fraternity to conserve the earth's natural resources, Federal Bank along with Mathrubhumi launched the SEED Programme. SEED (Student Empowerment for Environmental Development) is an initiative aimed at sbrading the message of ecological conservation. Schools carry out simple but effective steps in environment protection like Planting & Protection of saplings, Agricultural Activities, Bio-diversity conservation, Energy Conservation, Conservation of Water bodies, Cleanliness & protection of public health, Reduce, Reuse and Recyle Plastic waste and intervention in local area environmental issues through SEED Police. Bank is supporting this noble cause for the last four years.

• Palathulli - Rain water Harvesting Environment conservation is one of the priority areas where your Bank has invested its CSR funds and Palathulli is a unique endeavor aimed at improving ground water levels through innovative means. The project in which we have partnered with leading media house Malayala Manorama aims to address drought related issues through systematically allowing rain water to seep in to the soil to improve water table. The project was implemented through a holistic partnership consisting of different communities in the public, private and education sector. As awareness building is one of the core activities that ensure success of any program, we used our wide Branch network (595) in Kerala to promote the importance of Palathulli program in educational institutions, local bodies, local Offices.

• Assistance to Autistic Youth - Ensuring Self Sufficiency: Federal Bank is providing financial assistance to Shraddha Charitable Trust, Mumbai which is a registered non-profit vocational workshop founded in 1998, empowers and rehabilitates severely autistic and mentally challenged young adults and enables them to earn a living. Shraddha adopts a pioneering and creative approach where young adults with autism and developmental delay are encouraged and assisted to take small steps towards self-sufficiency. By handcrafting and selling tastefully designed and internationally apbrciated eco-friendly products, Shraddha provides a means of livelihood and support for those that are often assumed to lead a dependent life.

• Federal Bank Speak for Kerala & Speak for Karnataka: Bank has launched a state-wide student debating competition in Kerala and under the auspices of Federal Bank Hormis Memorial Foundation Trust in the year 2014-15. This youth engagement initiative, which lasted for four months attended by more than 40000 students, provided platform for the college students in Kerala and Karnataka, right from the block level upwards, to showcase their reasoning talents that take them forward in the path of self development. The event gave a unique opportunity to college students to prove their mettle and nurture their debating, communication skills and thereby increase their self confidence. The winner of the Grand Finale was awarded with the "Federal Bank - Kerala Youth of the Year 201 5-1 6' Trophy and Federal Bank - Karnataka Youth of the Year 2015-16' Trophy, respectively, apart from Scholarships.

Federal Bank Hormis Memorial Foundation

Federal Bank Hormis Memorial Foundation Trust provides scholar-ships to needy students for pursuing professional courses for the last many years. During the year 2015-16 year the trust offered assistance to 100 meritorious students, 20 students each in the categories - Medicine, Engineering, BSc (Agri), BSc. (Nursing) & MBA. The Foundation Trust under the patronage of Federal Bank hosts a popular series of annual lectures by eminent personalities on contemporary issues of relevance for general enlightenment and edification of the masses. The Hormis Memorial Lecture Series was instituted for the purpose of creating a window for society to learn about the developments in various fields (primarily Finance and Banking) right from the luminaries who were thought leaders in such fields.During the year 201 5-1 6, 14th Annual lecture was delivered by Shri. Raghuram Rajan, Hon. Governor, Reserve Bank of India on the topic 'Financial Sector Reforms in India: The Past and the Future'.