1. SIGNIFICANT ACCOUNTING POLICIES AND NOTES FORMING PART OF THE ACCOUNTS FOR THE YEAR ENDED MARCH 31, 2016 1.1 Background YES BANK Limited (the ‘Bank’ or ‘YES BANK’) is a private sector bank promoted by the late Mr. Ashok Kapur and Mr. Rana Kapoor. YES BANK Limited is a publicly held bank engaged in providing a wide range of banking and financial services. YES BANK Limited is a banking company governed by the Banking Regulation Act, 1949. The Bank was incorporated as a limited company under the Companies Act, 1956 on November 21, 2003. The Bank received the licence to commence banking operations from the Reserve Bank of India (‘RBI’) on May 24, 2004. Further, YES BANK was included to the Second Schedule of the Reserve Bank of India Act, 1934 with effect from August 21, 2004. 1.2 Basis of brparation The financial statements have been brpared in accordance with requirements brscribed under the Third Schedule (Form A and Form B) of the Banking Regulation Act, 1949. The accounting and reporting policies of the Bank used in the brparation of these financial statements conform to Generally Accepted Accounting Principles in India (Indian GAAP), the guidelines issued by the Reserve Bank of India (RBI) from time to time, the accounting standards notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014 to the extent applicable and practices generally brvalent in the banking industry in India. The Bank follows the accrual method of accounting and the historical cost convention. The Ministry of Corporate Affairs (MCA) has notified the Companies (Accounting Standards) Amendment Rules, 2016 vide its notification dated March 30, 2016. The Bank is of the opinion that the said notification read with Rule 3(2) of the Companies (Accounting Standards) Rules, 2006 will be applicable to accounting periods commencing on or after the date of notification i.e. April 1, 2016. Hence, the said notification has not been considered in the brparation of these financial statements. 18.3 Use of estimates The brparation of financial statements requires the management to make estimates and assumptions that are considered while reporting amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and income and expenses during the reporting period. Management believes that the estimates used in the brparation of the financial statements are prudent and reasonable. Future results could differ from these estimates. Any revision to accounting estimates is recognized prospectively in current and future periods. 1.4 Significant accounting policies 1.4.1 Revenue recognition Revenue is recognized to the extent it is probable that the economic benefits will flow to the Bank and the revenue can be reliably measured. Interest income is recognized in the profit and loss account on accrual basis, except in the case of nonperforming assets. Interest on non-performing assets is recognized upon realization as per the prudential norms of the RBI. Revenue in certain structured transactions where interest income is partially receivable in advance is recognized when due. Loan processing fee is accounted for upfront when it becomes due. Dividend income is recognized when the right to receive payment is established. Commission on guarantees issued by the Bank is recognized as income over the period of the guarantee Commission on Letters of Credit (‘LC’) issued by the Bank is recognized as income at the time of issue of the LC. Income on non-coupon bearing discounted instruments is recognized over the tenure of the instrument on a straight line basis. In case of coupon bearing discounted instruments, discount income is recognized over the tenor of the instrument on yield basis. In case of Bonds and Pass Through Certificates, brmium on redemption, if any, is amortised over the tenure of the instrument on a yield basis. Revenue from financial advisory services is recognized in line with milestones achieved as per terms of agreement with clients which is reflective of services rendered. Other fees and commission income are recognized on accrual basis. 1.4.2 Investments Classification and valuation of the Bank’s investments are carried out in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 1, 2015 and Fixed Income Money Market and Derivative Association (FIMMDA) guidelines FIMCIR/2015-16/31/March 31, 2016. Accounting and Classification Investments are recognized using the value date basis of accounting. In compliance with RBI guidelines, all investments, are categorized as “Held for trading” (‘HFT’), “Available for sale” (‘AFS’) or “Held to maturity” (‘HTM’) at the time of its purchase. For the purpose of disclosure in the balance sheet, investments are classified as disclosed in Schedule 8 (‘Investments’) under six groups (a) government securities (b) other approved securities (c) shares (d) bonds and debentures (e) subsidiaries and joint ventures and (f) others. a) Cost of acquisition Costs such as brokerage pertaining to investments, paid at the time of acquisition are charged to the profit and loss account as per the RBI guidelines. b) Basis of classification Securities that are held principally for resale within 90 days from the date of purchase are classified under the HFT category. Investments that the Bank intends to hold till maturity are classified under the HTM category, or as per RBI guidelines. Securities which are not classified in the above categories are classified under the AFS category. c) Transfer between categories Reclassification of investments from one category to the other, if done, is in accordance with RBI guidelines. Transfer of scrips from AFS / HFT category to HTM category is made at the lower of book value or market value. In the case of transfer of securities from HTM to AFS / HFT category, the investments held under HTM at a discount are transferred to AFS / HFT category at the acquisition price and investments placed in the HTM category at a brmium are transferred to AFS/ HFT at the amortized cost. Transfer of investments from AFS to HFT or vice- aversa is done at the book value. Debrciation carried, if any, on such investments is also transferred from one category to another. d) Valuation Investments categorized under AFS and HFT categories are marked to market (MTM) on a periodical basis as per relevant RBI guidelines. Net debrciation, if any, in the category under the classification mentioned in Schedule 8 (‘Investments’) is recognized in the profit and loss account. The net apbrciation, if any, in the category under each classification is ignored, except to the extent of debrciation brviously provided. The book value of individual securities is not changed consequent to periodic valuation of investments. Investments received in lieu of restructured advances are valued in accordance with RBI guidelines. Any diminution in value on these investments is provided for and is not used to set off against apbrciation in respect of other performing securities in that category. Investments classified under the HTM category are carried at their acquisition cost and any brmium over the face value, paid on acquisition, is amortised on a straight line basis over the remaining period to maturity. Amortization expense of brmia on investments in the HTM category is deducted from interest income in accordance with RBI Circular DBR.No.BP. BC.6/21.04.141/2015-16 dated July 1, 2015. Where in the opinion of management, a diminution, other than temporary in the value of investments classified under HTM has taken place, suitable provisions are made. Treasury Bills, Commercial Paper and Certificates of deposit being discounted instruments, are valued at carrying cost. The market/ fair value applied for the purpose of periodical valuation of quoted investments included in the AFS and HFT categories is the market price of the scrip as available from the trades/ quotes on the stock exchanges and for Subsidiary General Ledger (‘SGL’) account transactions, the prices as periodically declared by Primary Dealers Association of India jointly with FIMMDA. The market/ fair value of unquoted government securities included in the AFS and HFT category is determined as per the prices published by FIMMDA. Further, in the case of unquoted bonds, debentures, pass through certificates and brference shares, valuation is carried out by applying an appropriate mark-up (reflecting associated credit risk) over the Yield to Maturity (‘YTM’) rates of government securities. Such mark up and YTM rates applied are as per the relevant rates published by FIMMDA. Units of Venture Capital Funds (VCF) held under AFS category are valued using the Net Asset Value (NAV) shown by VCF as per the financial statement. The VCFs are valued based on the audited results once in a year. In case the audited financials are not available for a period beyond 18 months, the investments are valued at Rs. 1 per VCF. Quoted equity shares are valued at their closing price on a recognized stock exchange. Unquoted equity shares are valued at the book value if the latest balance sheet is available, else, at Rs. 1 per company, as per relevant RBI guidelines. At the end of each reporting period, security receipts issued by the asset reconstruction company are valued in accordance with the guidelines applicable to such instruments, brscribed by RBI from time to time. Accordingly, in cases where the cash flows from security receipts issued by the asset reconstruction company are limited to the actual realization of the financial assets assigned to the instruments in the concerned scheme, the Bank reckons the net asset value obtained from the asset reconstruction company from time to time, for valuation of such investments at each reporting date. Investments in quoted Mutual Fund (MF) Units are valued as per Stock Exchange quotations. Investments in un-quoted MF Units are valued on the basis of the latest re-purchase price declared by the MF in respect of each particular Scheme. e) Accounting for repos / reverse repos Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) including liquidity adjustment facility (LAF) with RBI are treated as collateralized borrowing and lending transactions respectively in accordance with RBI master circular No. DBR.No.BP. BC.6/21.04.141/2015-16 dated July 1, 2015. The first leg of the repo transaction is contracted at the brvailing market rates. The difference between consideration amounts of first and second (reversal of first) leg reflects interest and is recognized as interest income/expense over the period of transaction. f) Profit/Loss on sale of Investments Profit/Loss on sale of Investments in the HTM category is recognized in the profit and loss account and profit thereafter is appropriated (net of applicable taxes and statutory reserve requirements) to Capital Reserve. Profit/Loss on sale of investments in HFT and AFS categories is recognized in the Profit and Loss account. g) Accounting for RIDF In accordance with RBI circular DBR.BP.BC. No.31/21.04.018/2015-16 dated July 16, 2015, the Bank has classified deposits placed with NABARD/ SIDBI/NHB for meeting shortfall in Priority Sector Lending under ‘Other Assets’, which were earlier included under ‘Investments’. Similarly, interest income on such deposits has been classified under the head ‘Interest Earned - Others’, which was hitherto included under ‘Interest Earned- Income on Investments’. Figures for the brvious year have also been regrouped to conform to current period’s classification. The above change in classification has no impact on the profit of the Bank for the year ended March 31, 2016 and March 31, 2015. 1.4.3 Advances Advances are classified as performing and non-performing based on the relevant RBI guidelines. Advances are stated net of specific loan loss provisions, interest in suspense, inter-bank participation certificates issued and bills rediscounted. Specific loan loss provisions in respect of non-performing advances are made based on management’s assessment of the degree of impairment of the advances, subject to the minimum provisioning level brscribed in relevant RBI guidelines. As per the RBI guidelines a general provision is made on all standard advances based on the category of advances as brscribed in the said guidelines. The Bank also maintains additional general provisions on standard exposure based on the internal credit rating matrix as approved by the Board of the Bank. These provisions are included in Schedule 5 - ‘Other liabilities & provisions - Others’. In respect of restructured standard and non performing advances, provision is made for the brsent value of principal and interest component sacrificed at the time of restructuring the assets, based on the RBI guidelines. Amounts recovered against debts written off in earlier years and provisions no longer considered necessary based on the current status of the borrower are recognised in the profit and loss account. 1.4.4 Transactions involving foreign exchange Monetary foreign currency assets and liabilities are translated at the balance sheet date at rates notified by the Foreign Exchange Dealers’ Association of India (‘FEDAI’). Foreign exchange contracts are stated at net brsent value using LIBOR/SWAP curves of the respective currencies. The resulting profits or losses are recognized in the profit and loss account. Premia/discounts on foreign exchange swaps, that are used to hedge risks arising from foreign currency assets and liabilities, are amortized over the life of the swap. Income and expenditure in foreign currency are accounted for at exchange rates brvalent on the date of the transaction. In accordance with AS 11 ‘The Effects of changes in Foreign Exchange Rates’, contingent liabilities in respect of outstanding foreign exchange forward contracts, derivatives, guarantees, endorsements and other obligations are stated at the exchange rates notified by FEDAI corresponding to the balance sheet date. Income and expenditure items of integral foreign operations (rebrsentative offices) are translated at daily closing rates Both monetary and non-monetary foreign currency assets and liabilities of non-integral foreign operations are translated at closing exchange rates notified by FEDAI at the Balance Sheet date and the resulting profit / loss arising from exchange differences are accumulated in the Foreign Currency Translation Account until remittance or the disposal of the net investment in the non-integral foreign operations in accordance with AS - 11. 1.4.5 Earnings per share The Bank reports basic and diluted earnings per equity share in accordance with Accounting Standard(AS) 20, “Earnings per Share” notified under section 133 of the Companies Act 2013, read together with paragraph 7 of the Companies (Accounts) Rules 2014. Basic earnings per equity share have been computed by dividing net profit after tax for the year by the weighted average number of equity shares outstanding for the period. Diluted earnings per equity share have been computed using the weighted average number of equity shares and dilutive potential equity shares outstanding during the period except where the results are anti dilutive. 1.4.6 Accounting for derivative transactions Derivative transactions comprises forward rate agreements, swaps and option contracts. The Bank undertakes derivative transactions for market making/trading and hedging onbalance sheet assets and liabilities. All market making/ trading transactions are marked to market on a periodic basis and the resultant unrealized gains/losses are recognized in the profit and loss account. Derivative transactions that are undertaken for hedging are accounted for on accrual basis except for the transaction designated with an asset or liability that is carried at market value or lower of cost or market value in the financial statements, which are accounted similar to the underlying asset or liability. The Bank follows the option brmium accounting framework brscribed by FEDAI SPL- circular dated December 14, 2007. Premium on option transaction is recognized as income/ expense on expiry or early termination of the transaction. Mark to market (MTM) gain/loss (adjusted for brmium received/ paid on option contracts) is recorded under ‘Other Income’. The amounts received/paid on cancellation of option contracts are recognized as realized gains/losses on options. Charges receivable/payable on cancellation/ termination of foreign exchange forward contracts and swaps are recognized as income/ expense on the date of cancellation/ termination under ‘Other Income’. The requirement for collateral and credit risk mitigation on derivative contracts is assessed based on internal credit policy. Overdues if any, on account of derivative transactions are accounted in accordance with extant RBI guidelines. As per the RBI guidelines on ‘Prudential Norms for Off-balance Sheet Exposures of Banks’ a general provision is made on the current gross MTM gain of the contract for all outstanding interest rate and foreign exchange derivative transactions. 1.4.7 Fixed assets Fixed assets are stated at cost less accumulated debrciation, amortization and accumulated impairment losses. Cost comprises the purchase price and any cost attributable for bringing the asset to its working condition for its intended use. Fixed assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. An asset’s recoverable amount is the higher of an asset’s net selling price and its value in use. If such assets are considered to be impaired, the impairment is recognised by debiting the profit and loss account and is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. 1.4.8 Retirement and employee benefits Leave salary The employees of the Bank are entitled to carry forward a part of their unavailed/unutilized leave subject to a maximum limit. The employees cannot encash unavailed/unutilized leave. The Bank has computed the compensated absence provision as per revised AS 15 – Employee Benefits. Gratuity The Bank provides for gratuity, a defined benefit retirement plan, covering eligible employees. The plan provides for lump sum payments to vested employees at retirement or upon death while in employment or on termination of employment for an amount equivalent to 15 days’ eligible salary payable for each completed year of service if the service is more than 5 years. The Bank accounts for the liability for future gratuity benefits using the projected unit cost method based on annual actuarial valuation. The Bank recognizes the actuarial gains and losses during the year in which the same are incurred. Provident fund In accordance with law, all employees of the Bank are entitled to receive benefits under the provident fund, a defined contribution plan in which both the employee and the Bank contribute monthly at a br determined rate. Contribution to provident fund are recognized as expense as and when the services are rendered The Bank has no liability for future provident fund benefits other than its annual contribution. 1.8.9 Leases Leases where the lessor effectively retains substantially all risks and benefits of ownership are classified as operating leases. Operating lease payments are recognized as an expense in the profit and loss account on a straight line basis over the lease term. 1.4.10 Income taxes Tax expense comprises current and deferred tax. Current tax comprises of the amount of tax for the period determined in accordance with the Income Tax Act, 1961 and the rules framed there under. Deferred income taxes reflects the impact of current year timing differences between taxable income and accounting income for the year and reversal of timing differences of earlier years. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences between the carrying values of assets and liabilities and their respective tax bases, and operating loss carry forwards. Deferred tax assets and liabilities are measured using the enacted or substantively enacted tax rates at the balance sheet date. Deferred tax assets are recognized only to the extent there is reasonable certainty that the assets can be realized in future. In case of unabsorbed debrciation or carried forward loss under taxation laws, all deferred tax assets are recognized only if there is virtual certainty of realization of such assets supported by convincing evidence. Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the amount that is reasonably/virtually certain to be realized. 1.4.12 Provisions and contingent assets/liabilities A contingent liability is a possible obligation that arises from past events whose existence will be confirmed by the occurrence or non-occurrence of one or more uncertain future events beyond the control of the company or a brsent obligation that is not recognized because it is not probable that an outflow of resources will be required to settle the obligation. A contingent liability also arises in extremely rare cases where there is a liability that cannot be recognized because it cannot be measured reliably. The Bank does not recognize a contingent liability but discloses its existence in the financial statements The Bank creates a provision when there is a brsent obligation as a result of a past event that probably requires an outflow of resources and a reliable estimate can be made of the amount of the obligation. Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate. If it is no longer probable that an outflow of resources would be required to settle the obligation, the provision is reversed. Contingent assets are not recognized in the financial statements. However, contingent assets are assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the asset and related income are recognized in the period in which the change occurs. 1.4.13 Employee Stock Compensation Cost Measurement of the employee share-based payment plans is done in accordance with the Guidance Note on Accounting for Employee Share-based Payments issued by Institute of Chartered Accountants of India (ICAI) and SEBI (Share Based Employee Benefits) Regulations, 2014. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Compensation cost is measured by the excess, if any, of the fair market price of the underlying stock (i.e. the last closing price on the stock exchange on the day brceding the date of grant of stock options) over the exercise price. The exercise price of the Bank’s stock option is the last closing price on the stock exchange on the day brceding the date of grant of stock options and accordingly there is no compensation cost under the intrinsic value method. 1.4.14 Cash and Cash equivalent Cash and cash equivalents include cash in hand, balances with RBI, balances with other banks and money at call and short notice. 1.5.1 Capital 1.5.1.1 Equity Issue During the financial year ended March 31, 2016, the Bank has issued 2,795,543 shares pursuant to the exercise of stock option aggregating to Rs. 739,511 thousands. During FY 2014-15, the Bank has issued 53,492,272 equity shares of Rs. 10 each for cash pursuant to a Qualified Institutions Placement (QIP) at Rs. 550 aggregating to Rs. 29,420,750 thousands. The Bank accreted Rs. 28,713,354 thousands (net of share issue expenses of Rs. 172,473 thousands) as brmium, on account of QIP. The Bank also issued 3,610,200 shares pursuant to the exercise of stock option aggregating to Rs. 808,240 thousands. 1.5.1.2 Capital Reserve Profit on sale of investments in the Held to Maturity category is credited to the Profit and Loss Account and thereafter appropriated to capital reserve (net of applicable taxes and transfer to statutory reserve requirements). During the year Rs. 734,827 thousands (brvious year: Rs. 262,447 thousands) was transferred to Capital Reserve. 1.5.1.3 Investment Reserve The Bank has transferred Nil to Investment Reserve (Previous year: Rs. 124,099 thousands) (net of applicable taxes and transfer to statutory reserve requirements) on provisions for debrciation on investments credited to Profit and Loss Account 1.5.5.4 Currency Futures The Bank had dealt in exchange traded currency forwards (Futures) during the financial year ended March 31, 2016. As on March 31, 2016, the open contracts on the exchange were NIL. The Bank had dealt in exchange traded currency forwards (Futures) during the financial year ended March 31, 2015. As on March 31, 2015, the open contracts on the exchange were to the tune of USD 5,023 thousand (Rs. 315,608 thousand) for April 2015 expiry. 1.5.5.5 Disclosures on risk exposure in derivatives As per RBI Master circular DBR.BP.BC.No.23/21.04.018/2015- 16 dated July 1, 2015, the following disclosures are being made with respect to risk exposure in derivatives of the Bank: a) Purpose: The Bank uses Derivatives including Forwards & swaps for various purposes viz. hedging its currency and interest rate risk in its balance sheet, customer offerings and proprietary trading. The management of these products and businesses is governed by the Market Risk Policy, Investment Policy, Derivatives Policy, Derivatives Appropriateness Policy, Hedging Policy and ALM policy. b) Structure: The Board of Directors of the Bank have constituted a Board level sub-committee, the Risk Monitoring Committee (‘RMC’) and delegated to it all functions and responsibilities relating to the risk management policy of the Bank and its supervision there of. c) As part of prudent business and risk management practice, the Bank has also instituted a combrhensive limit and control structure encompassing Value-at-Risk (VAR), Sensitivity, Greeks, Stop loss & credit limits for derivative transactions including a robust suitability and appropriateness framework. The Bank has an elaborate internal reporting mechanism providing regular reports to the RMC as well as Top management of the Bank. Such a structure helps the Bank to monitor and mitigate market risk across FX, interest rates as well as credit risk, operational risk, reputational risk and legal risk. d) The Bank has an independent Middle Office and Market Risk, which are responsible for monitoring, measurement and analysis of derivative related risks, among others. The Bank has a Credit Risk Management unit which is responsible for setting up counterparty limits and also a treasury operation unit which is responsible for managing operational aspects of derivatives control function and settlement of transactions. The Bank is subject to a concurrent audit for all treasury transactions, including derivatives, a monthly report of which is periodically submitted to the Audit & Compliance Committee of the Bank. e) In addition to the above, the Bank independently evaluates the potential credit exposure on account of all derivative transactions, wherein risk limits are specified separately for each product, in terms of both credit exposure and tenor. As mandated by the Credit Policy of the Bank, the Bank has instituted an approval structure for all treasury/derivative related credit exposures. Wherever necessary, appropriate credit covenants are stipulated as trigger events to call for collaterals or terminate a transaction and contain the risk. f) The Bank reports all trading positions to the management on a daily basis. The Bank revalues its trading position on a daily basis for Management and Information System (‘MIS’) and control purposes and records the same in the books of accounts on a monthly basis. g) For derivative contracts in the banking book designated as hedge, the Bank documents at the inception of the relationship between the hedging instrument and the underlying exposure, the risk management objective for undertaking the hedge and ALCO monitors all outstanding hedges on a periodical basis. Further the Bank’s ‘Hedging Policy’ has stipulated conditions to ensure that the Hedges entered into are effective. h) Refer Note 18.4.6 for accounting policy on derivatives. 1.6.2 Disclosure of penalties imposed by RBI During the financial year ended March 31, 2016, there were no penalties imposed on the Bank. For the financial year ended March 31, 2015 RBI had imposed penalty of Rs. 1000 thousand for non compliance with the RBI guidelines pertaining to discipline in current account opening and quarterly exchange of information amongst banks under Multiple / Consortium banking and Rs. 10 thousand on account of deficiencies in services in providing facility for adjudication and exchange of mutilated notes. 1.6.3 Fees/ Remuneration received from banc assurance Bank has earned Rs. 564,960 thousands from banc assurance business during year ended March 31, 2016 (brvious year: Rs. 357,876 thousands). 1.6.4 Concentration of Deposits As at March 31, 2016, the deposits of top 20 depositors aggregated to Rs. 131,000,940 thousands (brvious year: Rs. 120,505,557 thousands) (excluding certificate of deposits, which are tradable instruments), rebrsenting 11.73% (brvious year: 13.22%) of the total deposit base. 1.6.5 Concentration of Advances As at March 31, 2016 the top 20 advances aggregated to Rs. 276,325,913 thousands (brvious year Rs. 234,026,685 thousands), rebrsenting 13.79% (brvious year 14.24%) of the total advances. For this purpose, advance is computed as per definition of Credit Exposure in RBI Master Circular on Exposure Norms DBR.No.Dir.BC.12/13.03.00/2015-16 dated July 1, 2015. 1.6.6 Concentration of Exposures As at March 31, 2016 the top 20 exposures aggregated to Rs. 287,740,912 thousands (brvious year Rs. 261,110,589 thousands), rebrsenting 13.24% (brvious year 14.35%) of the total exposures. Exposure is computed as per definition of Credit and Investment Exposure in RBI Master Circular on Exposure Norms DBR.No.Dir.BC.12/13.03.00/2015-16 dated July 1, 2015. 1.6.7 Overseas Assets, NPAs and Revenue For the year ended March 31, 2016 and March 31, 2015, the Bank has not earned any revenue from overseas branches. The Bank does not have any assets or NPA from overseas branches as at March 31, 2016 and March 31, 2015. The Bank has commenced its operation, pursuant to RBI approval, in International Finance Service Center (IFSC) Banking Unit in Gujarat International Finance Tec City (GIFT) and the business transaction from the same is considered as a part of Indian Operations. 1.6.8 Sponsored SPVs The Bank has not sponsored any SPV and hence there is no consolidation due to SPVs in Bank’s books. 1.7.1 Staff retirement benefits The following table sets out the funded status of the Gratuity Plan and the amounts recognized in the Bank’s financial statements as of March 31, 2016 and March 31, 2015: 1.7.6 ESOP disclosures Statutory Disclosures Regarding Joining Stock Option Scheme: The Bank has Five Employee Stock Option Schemes viz. Joining Employee Stock Option Plan II (JESOP II), Joining Employee Stock Option Plan III (JESOP III), YBL ESOP (consisting of two sub schemes JESOP IV/ PESOP I) YBL JESOP V/PESOP II (Consisting of three sub schemes JESOP V/ PESOP II/PESOP II -2010). The schemes include provisions for grant of options to eligible employees of the Bank and its subsidiaries/affiliates. All the aforesaid schemes have been approved by the Board Remuneration Committee and the Board of Directors and were also approved by the members of the Bank. All these schemes are administered by the Board Remuneration Committee. JESOP II and JESOP III were in force for employees joining the Bank up to March 31, 2006 and March 31, 2007 respectively. YBL JESOP V is in force for employees joining the Bank from time to time. Under JESOP V, 50% options vest takes place at the end of three years and remaining 50% at the end of five years from the date of Grant. PESOP I, PESOP II and PESOP II - 2010 are Performance Stock Option Plans. Under PESOP I, 25% of the options granted would vest at the end of each year from the date of grant. Under PESOP II, 30% of the granted options vest at the end of first year, 30% vest at the end of second year and balance 40% vest at the end of third year. Under YBL PESOP II – 2010, 30% of the granted options vest at the end of the third year, 30% vest at the end of the fourth year and balance 40% vest at the end of the fifth year. Further, grants under PESOP II had been discontinued with effect from January 20, 2010. Options under all the aforesaid plans are granted for a term of 10 years (inclusive of the vesting period) and are settled with equity shares being allotted to the beneficiary upon exercise 1.8 Other Disclosures 1.8.1 Disclosure on Remuneration a. Information relating to the composition and mandate of the Nomination & Remuneration Committee - The Board of Directors of the Bank through its Nomination and Remuneration Committee (N&RC) shall exercise oversight & effective governance over the framing and implementing of the Compensation policy. The BRC shall comprise a minimum of 3 Board members, of which two would be independent directors, besides the MD & CEO. Composition of the Nomination & Remuneration Committee (N&RC) of the Bank as on March 31, 2016 is as follows: Mr. Brahm Dutt, Independent Director (Chairman) Ms. Radha Singh, Non-Executive Chairperson Mr. Mukesh Sabharwal, Independent Director The roles and responsibilities of the Nomination and Remuneration Committee (N&RC) are as under- To review the current Board composition, its governance framework and determine future requirements and making recommendations to the Board for approval; To examine the qualification, knowledge, skill sets and experience of each director vis-a-vis the Bank’s requirements and their effectiveness to the Board on a yearly basis and accordingly recommend to the Board for the induction of new Directors; To review the composition of the existing Committees of the Board and to examine annually whether there is any need to have a special committee of directors to meet the business requirements of the Bank and accordingly recommend to the Board for formation of a special committee; To scrutinize nominations for Independent/ Non Executive Directors with reference to their qualifications and experience and making recommendations to the Board for appointment/ filling of vacancies; To identify persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal; To formulate criteria for evaluation of performance of independent directors and the board of directors; To carry out evaluation of every director’s performance; To determine whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors; To validate ‘fit and proper’ status of all Directors on the Board of the Bank in terms of the Guidelines issued by the RBI or other regulatory authorities; To develop and recommend to the Board Corporate Governance guidelines applicable to the Bank for incorporating best practices; To implement policies and processes relating to Corporate Governance principles; To formulate the criteria for determining qualifications, positive attributes and independence of a director; To devise a Policy on Board diversity; To recommend to the Board a policy relating to, the remuneration for the directors, key managerial personnel and other employees; To review the Bank’s overall compensation structure and related polices with a view to attract, motivate and retain employees and review compensation levels vis-à-vis other Banks and the industry in general; To ensure the following while formulating the policy on the aforesaid matters; (a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors, key managerial personnel and senior management of the quality required to run the Bank successfully; (b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks; and (c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long- term performance objectives appropriate to the working of the Bank and its goals; To formulate and determine the Bank’s policies on remuneration packages payable to the Directors and key managerial personnel including performance/achievement bonus, perquisites, retirals, sitting fee, etc.; To consider grant of Stock Options to employees including employees of subsidiaries and administer and supervise the Employee Stock Option Plans; To function as the Compensation Committee as brscribed under the SEBI (Share Based Employee Benefits) Regulations, 2014 and is authorized to allot shares pursuant to exercise of Stock Options by employees; To perform any other function or duty as stipulated by the Companies Act, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges and any other regulatory authority or under any applicable laws as may be brscribed from time to time. b. Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy- The Bank has framed Compensation and benefit policy based on the guidelines contained in the RBI circular DBOD No. BC.72/29.67.001/2011-12 dated January 13, 2012 which is approved by the Nomination and Remuneration Committee on January 7, 2013. The remuneration of MD&CEO/ Wholetime Directors will be in accordance with the above mentioned circular and shall be reviewed basis RBI guidelines issued from time to time and approved by N&RC before obtaining Regulatory approvals. The compensation philosophy of the Bank is aligned to the organizational values aimed at encouraging Professional Entrebrneurship and reinforcing a strong culture promoting meritocracy, performance, potential and prudent risk taking. The Bank’s Remuneration policy is to position its pay structure competitively in relation to the market to be able to attract and retain critical talent. The compensation strategy clearly endeavors to differentiate performance significantly and link the same with quality and quantum of rewards. The Bank also strives to create long term wealth creation opportunities through stock option schemes. Human Capital Management shall review the policy annually or as required, based on changes in statutory, regulatory requirements and industry practices pertaining to Compensation and Benefits. c. Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks The broad factors taken into account for the Annual Review /revision of Fixed Compensation (TCC) & Performance Bonus are: 1. Individual performance based on the Annual Performance Review (APR) process of the Bank. 2. Business Unit performance in terms of financial outcomes, productivity, etc. 3. Consideration of all types of risk factors and shall be symmetrical with risk outcomes as well as sensitive to the time horizon of risk. 4. Profitability of the Bank. 5. Industry Benchmarking and consideration towards cost of living adjustment/inflation The Bank subscribes to a ‘Sum-of-Parts’ compensation methodology, which is reflective of the Bank’s commitment and philosophy of creating and sharing value with its employee partners. The sum-of-parts compensation comprises: Fixed Compensation Variable Compensation in the form of Performance Bonus Employee Stock Option Plans (ESOP) The Board of Directors of the Bank through its Nomination and Remuneration Committee (N&RC) shall exercise oversight & effective governance over the framing and implementing of the Compensation policy. Human Capital Management under the guidance of MD & CEO shall administer the Compensation and Benefits structure in line with Industry practices and statutory requirements as applicable from time to time. d. Description of the ways in which the Bank seeks to link performance during a performance measurement period with levels of remuneration and a discussion of the bank’s policy and criteria for adjusting deferred remuneration before vesting and after vesting. The Bank ensures that the compensation remains adjusted for all types of risk, symmetrical with risk outcomes as well as sensitive to the time horizon of risk. Further, the compensation in all forms will be consistent with the risk alignment. One of the key factors to be considered for the Annual Review /revision of Fixed Compensation (TCC) & Performance Bonus includes individual performance based on the Annual Performance Review (APR) process of the Bank. The evaluation on risk management parameters is an integral part of the Annual Performance Review process, forming part of Key Result Areas of the executives with suitable weightage. The inputs for assessment on these parameters will be independently provided by the Risk Management function of the Bank. For the services pertaining to FY 2015-16 where variable pay is 50% or more, 40-60% shall be deferred over minimum period of 3 years. In the event of a negative contribution, deferred compensation shall be subject to appropriate malus/claw back arrangements as decided by the Board Remuneration Committee. Guaranteed bonus shall not be a part of the compensation plan. The compensation for executives in Risk Control and Compliance functions shall be independent of the business areas they oversee. The Bank shall not provide any facility or funds or permit employees to insure or hedge their compensation structure to offset the risk alignment effects embedded in their compensation arrangement. e. Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the Bank utilizes and the rationale for using these different forms. The Bank subscribes to a ‘Sum-of-Parts’ compensation methodology, which is reflective of the commitment and philosophy of creating and sharing value with the employee partners. The sum-of-parts compensation for executives comprises: Fixed Compensation (Total Cost to Company - TCC) - Includes value of perquisites. Variable compensation in the form of Performance /Deferred Bonus – Variable pay shall be in the form of Performance Bonus which will be calculated as a percentage of Fixed Pay. The evaluation on risk management parameters is an integral part of the Annual Performance Review process, forming part of Key Result Areas of the executives with suitable weightage. The inputs for assessment on these parameters will be independently provided by the Risk Management function of the Bank. Employee Stock Options Plans – These are formulated on a mid to long term basis by the Bank in accordance with SEBI and other Regulatory guidelines. The grant of ESOP shall be under approval from MD & CEO, which shall be subsequently ratified by the Board Remuneration Committee. f. Quantitative Disclosures on Remuneration for MD & CEO and other risk takers There were 4 meetings of the Nomination & Remuneration Committee held during the year Liquidity Coverage Ratio (LCR): The Bank measures and monitors the LCR in line with the Reserve Bank of India’s circular dated June 09, 2014 on “Basel III Framework on Liquidity Standards - Liquidity Coverage Ratio (LCR), Liquidity Risk Monitoring Tools and LCR Disclosure Standards” as amended for “Prudential Guidelines on Capital Adequacy and Liquidity Standards” dated March 31, 2015. The LCR guidelines aims to ensure that a bank maintains an adequate level of unencumbered High Quality Liquid Assets (HQLAs) that can be converted into cash to meet its liquidity needs for a 30 calendar day time horizon under a significantly severe liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to survive until day 30 of the stress scenario, by which time it is assumed that appropriate corrective actions can be taken. Banks are required to maintain High Quality Liquid Assets of a minimum of 100% of its Net Cash Outflows by January 1, 2019. However, with a view to provide transition time, the guidelines mandate a minimum requirement of 60% w.e.f. January 01, 2015 and a step up of 10% every year to reach the minimum requirement of 100% by January 01, 2019. The adequacy in the LCR maintenance is an outcome of a conscious strategy of the Bank towards complying with LCR mandate ahead of the stipulated timelines. The maintenance of LCR, both on end of period and on a average basis, has been on account of multiple factors viz. increase in excess SLR, existing eligibility in Corporate Bond Investments, increase in Retail deposits and increase in non callable deposits. The Bank has not been maintaining HQLA in FCY given the lack of regulatory options as well as limited callable FCY liabilities. Further the Bank has a very limited exposure to liquidity on account of its Derivatives portfolio. Further, the Bank believes that all inflows and outflows which might have a material impact under the liquidity stress scenario have been considered for the purpose of LCR. Board of Directors of the Bank has empowered ALCO (Top Management Executive Committee) to monitor and strategize the Balance Sheet profile of the Bank. In line with the business strategy, ALCO forms an Interest Rate/ Liquidity view for the bank with the help of the economic analysis provided by the in-house economic research team of the bank. ALCO of the Bank channelizes various business segments of the Bank to target good quality asset and liability profile to meet the Bank’s profitability as well as Liquidity requirements with the help of robust MIS and Risk Limit architecture of the Bank. Funding strategies are formulated by the Balance sheet management group (BSMG) in accordance with the ALCO guidance. The objective of the funding strategy is to achieve an optimal funding mix which is consistent with prudent liquidity, diversity of sources and servicing costs. Accordingly, BSMG of the Bank estimates daily liquidity requirement of the various business segments and manages the same on consolidated basis. With the help of Structural and Daily Liquidity Statement brpared by the Bank, BSMG evaluates current and future liquidity requirement and takes necessary action. The Bank has been maintaining HQLA primarily in the form of SLR investments over and above mandatory requirement; Corporate NCDs issued by non financial entities with rating AA- and above apart from regulatory dispensation allowed upto 7% of NDTL (additional 3% effective February 16) in the form of borrowing limit available through Marginal Standing Facility (MSF) and Facility to Avail Liquidity for Liquidity Coverage Ratio (FALLCR). SLR investments as well as Corporate Bond portfolio of the Bank considered for HQLA is also well diversified across various instruments and Liquid Asset Type Mix and should provide the Bank with adequate and timely liquidity. Average LCR for the quarter ended March 31, 2016 is 83.9%, which is comfortably above RBI brscribed minimum requirement of 70%. LCR for the quarter end March 31, 2015 had been computed based on the guidelines applicable at that point in time. Subsequently there have been amendments in the RBI guidelines w.e.f April 2015. Hence, LCR computed based on 3 months average for March 15 is not comparable with those reported for the current financial year based on 12 months average. Further for the FY 2016, the Bank has considered nil Operation Deposit pending approval from RBI. 1.8.7 Unhedged Foreign Currency Exposure of Bank’s Customer The Bank has in place a policy on managing credit risk arising out of unhedged foreign currency exposures of its borrowers. The objective of this policy is to maximize the hedging on foreign currency exposures of borrowers by reviewing their foreign currency product portfolio and encouraging them to hedge the unhedged portion. In line with the policy, assessment of unhedged foreign currency exposure is a part of assessment of borrowers and is undertaken while proposing limits or at the review stage. Additionally, at the time of sanctioning limits for all clients, the Bank stipulates a limit on the unhedged foreign currency exposure of the client (as a % of total foreign currency exposure sanctioned by the Bank) after considering factors such as internal rating of the borrower, size, possibility of natural hedging, sophistication of borrower and maturity of borrower’s financial systems, relative size of unhedged foreign currency exposure with respect to total borrowings of the client, etc. Further, the Bank reviews the unhedged foreign currency exposure across its portfolio on a periodic basis. The Bank also maintains incremental provision towards the unhedged foreign currency exposures of its borrowers in line with the extant RBI guidelines. The Bank has maintained provision of Rs. 586,868 thousands (brvious year of Rs. 443,939 thousands) and additional capital of Rs. 2,485,686 thousands (brvious year of Rs. 1,483,954 thousands) on account of Unhedged Foreign Currency Exposure of its borrowers as at March 31, 2016. 1.8.8 Provisioning pertaining to Fraud Accounts The Bank has reported 35 cases of fraud in the Financial year ended March 31, 2016 amounting to Rs. 16,011 thousands. The Bank has expensed off/ provided for the expected loss arising from these frauds and does not have any unamortized provision 1.8.9 Dues to Micro and Small Enterprises Under the Micro and Small Enterprises Development Act, 2006 which came into force from October 02, 2006, certain disclosures are required to be made relating to Micro and Small enterprises. On the basis of information and records available with the management and confirmation sought by the management from suppliers on their registration with the specified authority under the said Act, there have been no reported cases of delays in payments to micro and small enterprises or of interest payments due to delays in such payments. 1.8.10 Securitization Transactions The Bank has not done any securitization transactions during the year ended March 31, 2016 and March 31, 2015. 1.8.11 Letter of comfort The Bank has not issued any letter of comfort during the year ended March 31, 2016 and March 31, 2015. 1.8.13 Software Capitalized under Fixed Assets The Bank has capitalized software under Fixed Asset amounting to Rs. 484,105 thousands and Rs. 200,409 thousands during the financial year ended March 31, 2016 and March 31, 2015 respectively. 1.8.14 Provision for Long Term contracts The Bank has a process whereby periodically all long term contracts (including derivative contracts) are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) in the books of account and disclosed the same under the relevant notes in the financial statements. 1.8.15 Prior period comparatives Previous year’s figures have been regrouped where necessary to conform to current year classification. For S. R. BATLIBOI & CO. LLP For and on behalf of the Board of Directors Chartered Accountants YES BANK Limited ICAI Firm Registration No: 301003E per Viren H. Mehta Partner Membership No: 048749 Rana Kapoor Managing Director & CEO (DIN:00320702) Radha Singh Non Executive Chairperson(DIN:02227854) M R Srinivasan Director (DIN: 00056617) Vasant V. Gujarathi Director (DIN: 06863505) Rajat Monga Chief Financial Officer Shivanand R. Shettigar Company Secretary Date : April 27, 2016 Place : Mumbai |