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ಕಂಪನಿಯ ಮೊದಲ ಕೆಲ ಅಕ್ಷರಗಳನ್ನು ದಾಖಲಿಸಿ ಕ್ಲಿಕ್ ಮಾಡಿ

DCB Bank Ltd. ಖಾತೆಯ ಉಪಯುಕ್ತ ಮಾಹಿತಿ

Mar 31, 2023

4.3 Disclosures on risk exposure in derivatives:a) Qualitative DisclosuresManagement of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Mid Office. Exposure reports are submitted to the Treasurer as well as the CRO and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back-to-back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net marked to market (''MTM'') is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

Provisioning

The Bank conforms to the RBI guidelines with regard to provisioning requirements. Overdue receivables representing crystallised positive mark-to-market value of a derivative contract are treated as non-performing assets, if these remain unpaid for 90 days or more. Full provision is made for the entire amount of overdue and future receivables relating to positive marked to market value of non-performing derivative contracts.

5.7 The Bank continues to monitor the developments/impact including those arising from COVID-19 pandemic.

Under the circumstances, as at March 31, 2023, on a prudent basis, the Bank holds a contingency provision of '' 52.12 crore towards possible impact of Covid-19 on standard restructured and stressed assets. As on March 31, 2023, in addition to the above, the Bank holds Floating Provision amounting to '' 136.88 crore, besides provisions for Standard Assets and specific Non-Performing Assets.

5.8 Disclosures on Resolution Framework for COVID 19 related Stress as per RBI circular DOR.No.BP. BC.3/21.04.048/2020-21 dated August 06, 2020 (Resolution Framework 1.0) and RBI circular DOR.STR. REC.11/21.04.048/2021-22 dated May 05, 2021 (Resolution Framework 2.0)

(B) Qualitative Disclosures

The Bank maintains Liquidity Coverage Ratio (LCR) which is a ratio of High-Quality Liquid Assets (HQLA) to Expected Net Cash Outflow over the next 30 calendar days, as per the RBI guidelines. Banks, in India, are required to meet the minimum required level of 100% LCR.

The LCR is being computed and monitored on daily simple average basis. The objective of the LCR is to ensure that the Bank maintains an adequate level of unencumbered 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 specified by supervisors. Further 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.

The numerator, High Quality Liquid Assets comprises mainly of excess SLR securities, cash, excess CRR balances, Marginal Standing Facility (''MSF'') to the extent of 2 per cent with effect from January 01, 2022 of Net Demand and Time Liabilities (''NDTL'') as guided by the RBI Circular and Facility to Avail Liquidity for Liquidity Coverage Ratio (''FALLCR'') up to 15 per cent of NDTL till April 17, 2022 and 16 per cent of NDTL thereafter, as guided by the RBI Circular dated April 18, 2022. The denominator i.e. cash outflow over next 30 days comprises mainly of the deposit maturities and other cash outflows net of cash inflows in next 30 day period. As a part of its strategy to manage the liquidity requirements, the Bank has been consistently investing in SLR securities of about 2% to 5% of its NDTL, over and above the regulatory SLR requirement.

HQLA of the Bank comprises of mainly Level-1 assets as per the RBI guidelines i.e. government securities apart from cash, Standing Deposit Facility (SDF) and excess CRR.

The major source of funding for the Bank is deposits from customers. The Bank does not rely on interbank borrowings. However, long term refinance from SIDBI, NABARD and NHB is availed against eligible loan assets. Further, the Bank has committed lines of credit from select public and private sector banks.

The Bank does not have any derivative exposure other than the forward contracts entered by the Bank which does not affect LCR of the Bank significantly.

Apart from computing the LCR in the domestic currency, the Bank is also required to compute LCR in the currency in which aggregate liabilities denominated in that currency amount to 5 per cent or more of the Bank''s total liabilities. To comply with the said requirement, the Bank computes the LCR in USD as the dollar denominated liabilities are more than 5% of the Bank''s total liabilities. During the financial year 2022-23, the cash inflows in next 30 days denominated in the USD were usually higher than the cash outflows in next 30 days denominated in USD.

The liquidity management of the Bank is centralized at Treasury. Treasury Front Office shall, depending upon the expected outflows and inflows for the day, decide to borrow or lend to maintain optimal liquidity. Treasury Back Office monitors the expected inflows and outflows by way of maintaining a register which records the expected outflows and inflows that are informed in advance by the branches as well as by Treasury Front Office before making any investment. For this purpose, branches are required to inform the Treasury Back Office in advance of any expected large flows above '' 5 crore. Also, Treasury Back Office takes into account the deposits that are scheduled to mature in order to arrive at the expected cash outflows for that particular day. As a part of effective liquidity management, the Bank always maintains excess SLR securities which can be pledged to meet the shortfall in intraday liquidity, if any.

Pursuant to the RBI guidelines on NSFR dated May 17, 2018, the Bank has adopted and complied with the Basel III standards pertaining to NSFR from October 01, 2021. NSFR aims to improve the resilience of banks by promoting long-term funding stability. It mandates banks to maintain a stable funding profile vis-a-vis the composition of their assets and off-balance sheet activities. It reduces the probability of erosion of a bank''s liquidity position due to disruptions to its regular sources of funding. The NSFR guidelines of RBI stipulate the applicable Required Stable Funding ("RSFâ) factor for each category of asset and Available Stable Funding ("ASFâ) factor for each type of funding source. NSFR represents the ratio of the bank''s ASF to RSF. The breakdown of the bank''s ASF and RSF amounts after applying the respective ASF or RSF factors are provided in the "weighted amountâ column of the NSFR disclosure format.

The Available Stable Funding (ASF) is primarily driven by the total regulatory capital as per Basle III Capital Adequacy guidelines stipulated by RBI and deposits from retail customers, small business customers and nonfinancial corporate customers. Under the Required Stable Funding (RSF), the primary drivers are unencumbered performing loans with residual maturities of one year or more, excluding loans to financial institutions.

10.4 Details of Large Exposures Framework limits exceeded by the Bank

As per regulatory guidelines, with effect from April 1, 2019 in case of single counterparty, the sum of all the exposure values of a bank to a single counterparty must not be higher than 20 percent of the bank''s available eligible capital base at all times. In exceptional cases, Board of bank may allow an additional 5 percent exposure of the bank''s available eligible capital base. In case of group of connected counterparties, the sum of all the exposure values of a bank to a group of connected counterparties must not be higher than 25 percent of the bank''s available eligible capital base at all times.

The eligible capital base for this purpose is the effective amount of Tier 1 capital fulfilling the criteria defined in Master Circular on Basel III - Capital Regulation /Master Direction on ''Basel III Capital Regulations'' as per the last audited balance sheet.

During the years ended March 31, 2023 and March 31, 2022, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines under Large Exposure Framework.

10.7 Factoring Business

The outstanding receivables acquired by the Bank under factoring business were '' 681.13 crore as at March 31, 2023 (Previous year: '' 450.49 crore).

10.8 Unhedged Foreign Currency Exposure (UFCE)

In accordance with the RBI guidelines on banks'' exposures to entities with Unhedged Foreign Currency Exposure (''UFCE''), the Bank has put in place a mechanism to seek information from its borrowers and to evaluate the currency induced credit risk. In the case of listed entities, the Bank obtains information relating to unhedged positions based on the latest available audited / reviewed financial statements; whilst in the case of unlisted / private companies, the Bank obtains the aforesaid information based on the latest available audited financial statements (not exceeding a financial year) so as to estimate the extent of likely loss and to provide for incremental capital or to recognize incremental provision in accordance with the aforesaid guidelines. Further, as per the above-mentioned guidelines, the Bank obtains audited and certified UFCE information from the statutory auditors of the borrowers on an annual basis. In the case of smaller entities i.e. entities with exposure to banking industry of less than '' 25 crore and as identified by the Bank as having any foreign exchange exposure, the Bank recognizes an incremental provision at 10 basis points on all such exposures.

11 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH THE RBI GUIDELINES

11.1 Employee Benefits (Accounting Standard 15)

The contribution to Employees'' Provident Fund included under "Payments to and Provisions for Employeesâ in Schedule 16 amounted to '' 20.97 crore for the year ended March 31, 2023 (Previous year '' 16.05 crore).

During the year, the Bank has contributed '' 1.17 crores (previous year '' 1.00 crores) to the National Pension Scheme for employees who had opted for the scheme.

The Bank has a gratuity trust approved by Income Tax Department namely "DCB Bank Limited Staff Gratuity Fundâ. Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of '' 20.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely "DCB Bank Limited Staff Gratuity Fundâ in Government securities (CY about 53%, PY about 51%), high rated corporate bonds (CY about 32%, PY about 33%), units of mutual funds/ insurance companies (CY about 7%, PY about 6%) and others (CY about 8%, PY about 10%) set up as dedicated funds for management of gratuity funds.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

The contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is '' 3.64 crore (Previous year: '' 9.66 crore).

The estimates of future salary increases, considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

In computing the above information, certain estimates have been made by the Bank''s management which have been relied upon by the auditors.

11.2 Earnings Per Share (âEPSâ)

The Bank reports basic and diluted earnings per equity share in accordance with AS-20, "Earnings per Shareâ. The dilutive impact is due to stock options granted to employees by the Bank.

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments, including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held on September 11, 2006 had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of shareholders was obtained at the Extraordinary General Meeting held on December 15, 2006 in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination and Remuneration Committee of the Board did not grant any options.

Method used for accounting for ESOP

RBI, vide its clarification dated August 30, 2021 on Guidelines on Compensation of Whole Time Directors / Chief Executive Officers / Material Risk Takers and Control Function Staff, advised Banks that the fair value of share-linked instruments on the date of grant should be recognised as an expense for all instruments granted after the accounting period ending March 31, 2021. Accordingly, the Bank has valued its stock options granted after March 31, 2021 using the fair value method under its Employee'' Stock Options Plan. The fair value of the stock options is estimated on the date of grant using Black-Scholes model and is recognised as employee cost over the vesting period.

Fair value Methodology

The fair value of options used to compute proforma net income and earnings per equity share have been estimated using the binomial option-pricing model for options granted upto March 31, 2021. The Bank estimated the volatility based on the historical share prices.

The fair value of the stock options granted after March 31, 2021 is estimated on the date of grant using Black-Scholes model and is recognised as employee cost over the vesting period. Accordingly, the Bank has recognised '' 1.88 crore during the financial year 2022-23 (Previous year '' 0.42 crore).

There were no options granted during the year ended March 31, 2023.

The Bank has adopted CSAR as an instrument under the aegis of the compensation policy. This is in addition to the ESOP Plan of the Bank. Both the instruments are considered under non-cash components for variable pay in the Bank. The Board has vide its resolution dated September 17, 2022 approved the Plan envisaging Grant of not exceeding 10,000,000 CSARs to Employees in one or more tranches, from time to time, with each such CSAR conferring a right upon the CSAR Grantee to receive Appreciation as per terms of the Plan and grants made under the Plan.

The maximum number of CSARs that may be granted to an eligible Employee and in aggregate under the Plan shall vary depending upon the designation, role, criticality and the appraisal process. However, the maximum number of CSARs granted per employee shall not exceed 3,000,000 CSARs at any time under the Plan.

CSAR granted under the Plan would vest subject to minimum Vesting Period of 1 year but not later than the maximum Vesting Period of 4 years from the Grant Date of such CSARs. Subject to the minimum and maximum Vesting Periods stated above and provisions of acceptance of the grant, the Committee shall prescribe the Vesting schedule of CSARs granted under the Plan. Vesting shall be no faster than on a pro rata basis (i.e. vesting shall not be front loaded). Additionally, vesting shall not take place more frequently than on a yearly basis.

The Bank introduced the CSAR scheme (CSARGRANT2022-1) under the Board approved DCB Bank CSAR Plan 2022 which was approved vide its resolution dated September 17, 2022.

The Board has approved a CSAR grant of 1,170,786 units on October 15, 2022.

Method used for accounting for CSARs

The Bank has valued its CSARs units using the fair value method under its CSAR Plan. The fair value of the CSARs units is estimated on the date of grant using Black-Scholes model and is recognised as employee cost over the vesting period with a recognition of corresponding liability. This liability is remeasured at each balance sheet date up to and including the vesting date with changes in fair value recognised in the profit and loss account in ''Payments to and Provision for Employees''.

Fair value Methodology

There were 1,170,786 units granted during the year ended March 31, 2023. The Bank has recognised '' 1.11 crore during the financial year 2023.

1. Revenue i.e. Total Revenue includes inter-segment revenue of '' 786.45 crore in FY 2022-23 (Previous year '' 596.54 crore). Inter-segment revenue represents the transfer price received from and paid to the treasury unit respectively. Excluding this, the revenue for the Bank is '' 4,609.66 crore in FY 2022-23 (Previous year: '' 3,964.81 crore).

2. Includes Capital and Reserves.

3. Excluding depreciation and provision for taxes.

4. Income, expense, assets and liabilities have been either specifically identified with individual segment or allocated to segments on a systematic basis or classified as unallocated.

5. Inter-segment transactions have been generally based on transfer pricing measures as determined by the Management.

6. The RBI vide its circular dated April 07, 2022 on establishment of Digital Banking Units (DBUs), has prescribed reporting of Digital Banking Segment as a sub-segment of Retail Banking Segment. The Bank does not have any DBUs, hence no Digital Banking Segment disclosures have been made.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting

is done based on geographic segments.

The lease rents are paid by the Bank for premises leased for its business operations. The above contingent rents have been determined based on terms of individual lease agreements over the lease period. The terms of renewal/purchase options and escalation clauses are those normally prevalent in similar agreements. There are no undue restrictions or onerous clauses in the agreements.

11.9 Revaluation of Fixed Assets

The Bank revalued its owned premises as at December 31, 2022 which resulted in a revaluation gain of '' 78.10 crore which has been credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life.

During the financial year 2022-23 an amount of '' 6.51 crore (Previous year: '' 6.03 crore) has been charged to the Profit and Loss Account and this amount has been transferred from Revaluation Reserve to "Balance in Profit and Loss Accountâ.

11.10 Contingent Liabilities Description of Contingent Liabilities:
Sr. No.	Contingent Liability (*)	Brief Description
1.	Claim against the Bank not acknowledged as Debts	An amount of '' 34.79 crore (Previous year: '' 35.49 crore) is outstanding as at March 31, 2023, as claims against the Bank not acknowledged as Debts, including '' 19.50 crore (Previous year: '' 19.50 crore) being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. The Bank is a party to various taxation matters in respect of which appeals are pending and various legal proceedings in the normal course of business. The Bank has reviewed and classified these items as possible obligations based on legal opinion/judicial precedents/assessment and does not expect the outcome of these proceedings to have a materially adverse effect on the Bank''s Financial Statements. (Also refer note 15 on pending litigation cases)
2.	Liability on account of outstanding forward exchange and derivative contracts	An amount of '' 3,441.63 crore (Previous year: '' 1,778.27 crore) is outstanding as at March 31, 2023. The Bank enters into foreign exchange contracts, currency options/swaps and interest rate futures on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. These forward contracts are subject to revaluation on a daily basis and Mark to Market impact is recognised in the Financial Statements. Interest rate futures are standardized, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date. The amount in contingent liability represents notional principal amount of various financial instruments which the bank undertakes in its normal course of business. With respect to transactions entered by customers, the Bank generally takes off-setting positions in the inter-bank markets which results into higher number of outstanding contracts. The same also leads to representation of large gross notional principal of the portfolio, while the actual credit/market risk is much smaller.
3.	Guarantees given on behalf of constituents, Acceptances, Endorsements and Others	An amount of '' 1,430.59 crore (Previous year: '' 1,409.65 crore) is outstanding as at March 31, 2023. As part of its commercial banking activity, the Bank issues documentary credit and guarantees on behalf of its customers. Guarantees generally represent irrevocable assurances that the Bank will make payments in the event of the customer failing to fulfil its financial or performance obligations.
4.	Other items for which the Bank is contingently liable.	An amount of '' 190.64 crore (Previous year: '' 1,838.68 crore) is outstanding as at March 31, 2023. These include: a) Securities purchased and sold under Repo and Reverse Repo transactions done by the Bank and includes also remaining to be settled on the date of financial statements b) Liability in respect of capital commitments relating to fixed assets and undrawn commitments in respect of investments c) Credit enhancements relating to the sale of mortgage loan d) Amount transferred to RBI under Depositor Education and Awareness Fund (DEA Fund) e) Securities bought/sold and remaining to be settled on the date of financial statements.

The Bank has an "Integrated Complaints Management Systemâ in which complaints are logged and addressed. Complaints are reviewed on a regular basis to ensure timely response to customers.

The Bank has taken measures to reduce complaints across categories (reduced by 9%). The Bank has developed systems in order to make customer interface services automated/system driven. The Bank shall continue to improve processes in order to bring in faster resolutions and efficiency.

As compiled by the Management and relied upon by the auditors.

12.4 Letters of Comfort (LoC) / Letters of Undertaking (LoU)

The Bank has stopped issuing any fresh LoU in line with the RBI guidelines dated March 13, 2018 in this regard. Outstanding LoU as on March 31, 2023 was '' NIL (Previous year: '' NIL).

12.5 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises. 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. The above is based on the information available with the Bank which has been relied upon by the auditors.

12.8 Income from Marketing and distribution

The Bank has received fees of '' 47.54 crores (Previous year: '' 31.39 crore) with respect to marketing and distribution function (excluding bancassurance business) during the financial year 2022-23.

12.9 Implementation of IFRS converged Indian Accounting Standards (Ind AS)

The Ministry of Corporate Affairs (MCA), Government of India has notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. Further, a Press Release was issued by the MCA on January 18, 2016 outlining the roadmap for implementation of Indian Accounting Standards (IND AS) converged with International Financial Reporting Standards (IFRS) for banks. As per earlier instructions, banks in India were required to comply with the IND AS for financial statements for accounting periods beginning from April 1, 2018 onwards, with comparatives for the periods ending March 31, 2018 or thereafter. On April 05, 2018, the RBI had announced deferment of implementation date by one year with IND AS being applicable to banks for accounting periods beginning April 01, 2019 onwards. On March 22, 2019, the RBI has announced deferment of the implementation of IND AS by banks till further notice.

13 OTHER MATTERS

13.1 Disclosure of penalties imposed by RBI

During the year ended March 31, 2023, RBI had imposed penalty of '' 0.024 crore on the Bank, for violation of the RBI guidelines on "Monitoring of Availability of Cash in ATMs,â on account of "Cash Outâ, at Banks ATM throughout the FY 2022-23.

During the year ended March 31, 2022, RBI had imposed penalty of '' 0.001 crore on the Bank on March 30, 2022, for violation of the RBI guidelines on "Monitoring of Availability of Cash in ATMs,â on account of "Cash Outâ, at one of Banks ATM during the month of November 2021.

13.2 Corporate Social Responsibility (CSR)

The Bank was required to spend '' 8.80 crore (Previous year: '' 9.60 crore) during the financial year 2022-23 towards Corporate Social Responsibility (CSR), in accordance with Companies Act, 2013.

The Bank has spent an amount of '' 8.85 crore (Previous year: '' 9.66 crore) in respect of CSR activities across the country.

None of the CSR expenditure incurred by the Bank is to entities controlled by related parties identified by the Bank as per Accounting Standard 18, Related Party Disclosures.

13.3 Remuneration

a) Qualitative disclosures

Nomination and Remuneration Committee (NRC)

The Nomination and Remuneration Committee of the Board consists of Independent Directors with one

member from the Risk Management Committee of the Board.

The main mandate of the Nomination & Remuneration Committee of the Board are:

â¢ Deciding the size and composition of the Board and appointment of persons for the same.

â¢ Recommending to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

â¢ Evaluation of every director''s performance and making recommendations for remuneration for NonExecutive Directors, Senior Management and the Key Managerial Personnel (KMP) of the Bank.

â¢ Approving the ESOP and creation, subscription and allotment of shares to the eligible employees under this approved ESOP.

â¢ Review appointments, promotions, demotions, terminations and review performance appraisals of CEO, KMP and Senior Management of the Bank.

â¢ Review and approve succession plans Board, KMP and Senior Management.

Design and Structure /Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy. The Bank''s objective is to maintain a Compensation Policy that the Bank is able to attract, retain talent and motivate talent to perform at high standards. It facilitates a performance culture in the Bank. The compensation will be risk aligned taking into account, the long term performance of the Bank. The Compensation Policy is aligned with the statutory and regulatory guidelines.

This Policy is applicable to all employees of the Bank including;

â¢ Whole Time Directors (WTDs)

â¢ Managing Director & Chief Executive Officer (MD & CEO)

â¢ Material Risk Takers (MRTs): Material Risk Takers as defined as those employees whose actions have a material impact on the risk exposure of the Bank.

â¢ Risk, Compliance and Control employees

â¢ Other categories of employees: All employees in support and other management functions including front line employees.

Compensation structure consisting of:

i) fixed pay including perquisites, contributions towards superannuation/retiral benefits,

ii) variable pay in cash and equity linked instruments including ESOP/ CSARs.

Risk adjustments in remuneration

In general, the review of Risk Management framework shall be an integral part of the annual performance review applicable to all employees. The methodologies for adjusting remuneration to risk and performance will be consistent with the general risk management and corporate governance framework of the Bank. A wide variety of measures of credit, market, liquidity and other risks shall be taken into consideration in implementation of risk adjustment, such that no risks over the accepted risk appetite of the Bank are being taken against the interest of the Bank.

Performance linked variable compensation

The Bank aims to align pay structure across levels in the annual rewards exercise (Compensation Revision) carried out keeping the following considerations, namely performance of the bank, individual and business unit, alignment of risks with the remuneration, encouraging rewards based on the long term contributions to the bank, cost/ income ratio of the bank, capital adequacy ratio, employee turnover on account of increased demand of talent in the industry and other related factors.

Malus/ Clawback clause is an integral part of the compensation Policy and is applicable as a risk adjustment/ alignment measure, wherein Malus permits the Bank to prevent vesting in full or in part of the amount of a deferred remuneration for an employee. Clawback is an agreement between the employee and the Bank in which the employee agrees to return previously paid or vested remuneration to the Bank. Conditions for Malus/ Bank have been specified in the Bank''s Compensation Policy.

In alignment to the RBI Guidelines applicable from April 01, 2020, the Bank has a policy on deferral and vesting of variable pay for applicable categories of employees as follows:

Deferral of Variable Pay: A minimum of 60% of the total variable pay shall be under deferral arrangements. At least 50% of the cash bonus shall be deferred. However, in cases where the cash component of variable pay is under '' 25 lakhs, deferral would not be required.

Period of Deferral Arrangement: This would be applied to both the cash and equity linked components of the variable pay. The deferral period shall be for a minimum period of three years.

Vesting: The vesting shall be no faster than on pro-rata basis. Vesting shall not take place more frequently than on a yearly basis to ensure a proper assessment of risks before the application of any adjustments.

Limit on Variable pay: At least 50% of the total compensation shall be variable. Variable pay shall be limited to a maximum of 300% of the fixed pay. Where the variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay shall be via equity linked instruments; and in case the variable pay is above 200%, a minimum of 67% of the variable pay shall be via equity linked instruments. In an event that an employee is barred by statute/ regulation from grant of equity linked instruments, their variable pay shall be capped at 150% of the fixed pay.

13.4 Disclosure on remuneration to Non-Executive Directors

The Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its committees. An amount of '' 1.40 crore (Previous year: '' 1.31 crore) was paid as sitting fees to the NonExecutive Directors during the year.

13.5 Proposed Dividend

The Board of Directors have recommended a dividend of '' 1.25 per share (12.5%) for the year ended March 31, 2023 subject to approval of the shareholders in the ensuing Annual General Meeting.

Dividend paid during the year, represents dividend ('' 1.00 per equity share) for the year ended March 31, 2022 paid pursuant to approval of shareholders at Annual General Meeting held on June 22, 2022

13.6 Disclosure under Rule 11(e) of the Companies (Audit & Auditors) Rules, 2014

The Bank, as part of its normal business, grants loans and advances (including loans against third party deposits or other margins / security), makes investment, provides guarantees (including against margin / guarantees received from third parties / banks) to and accepts deposits and borrowings from its customers, other entities and persons. These transactions are part of Bank''s normal banking finance business, which is conducted ensuring adherence to regulatory requirements.

Other than the transactions described above

(a) No funds have been advanced or loaned or invested (either from borrowed funds or share premium or any other sources or kind of funds) by the Bank to or in any other person(s) or entity(ies), including foreign entities ("Intermediariesâ) with the understanding, whether recorded in writing or otherwise, that the Intermediary shall lend or invest in other persons or entities identified by or on behalf of the Bank ("Ultimate Beneficiariesâ) or provide any guarantee, security or like on behalf of the Ultimate Beneficiaries.

(b) The Bank has not received any funds from any person(s) or entity(ies) ("Funding Partyâ) with the understanding, whether recorded in writing or otherwise, that the Bank shall, whether, directly or indirectly, lend or invest in other persons or entities identified by or on behalf of the Funding Party ("Ultimate Beneficiariesâ) or provide any guarantee, security or the like on behalf of the Ultimate Beneficiaries.

13.7 As per the MCA notification dated August 05, 2022 Government has notified the Companies (Accounts) Fourth Amendment Rules, 2022. As per the amended rules back-up of the books of account/other books & papers maintained in electronic mode, including at a place outside India, shall be kept in servers physically located in India on a daily basis.

The Bank''s servers are physically located in India and back up is done on a daily basis. Thus the Bank is compliant with the requirements of the above notification.

13.8 The MCA vide its notification dated March 24, 2021 had introduced the concept of audit trails by inserting proviso to rule3(1) of the Companies (Accounts) Rules, 2014. It was provided that for the FY. commencing on or after April 01, 2021, every company which uses accounting software for maintaining its books of account, shall use only such accounting software which has a feature of recording audit trail of each and every transaction, creating an edit log of each change made in books of account along with the date when such changes were made and ensuring that the audit trail cannot be disabled. However, the applicability was deferred by 1 year by amending the same vide Companies (Accounts) Second Amendment Rules, 2021. The new date of applicability was April 01, 2022. Yet again, the MCA has amended the proviso vide Companies (Accounts) Second Amendment Rules, 2022 and has deferred the applicability by 1 more year. Hence the provision of audit trail is now applicable w.e.f. April 01, 2023.

The Bank uses various software as its accounting software and the management has taken steps to be compliant with requirements of Audit trail functionality from April 01, 2023.

14 Net overnight open position outstanding as on March 31, 2023 was '' 3.15 crore (Previous year: '' 2.56 crore).

15 The Bank''s pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Management believes that the possibility of an outflow of resources embodying economic benefits in these cases is possible but not probable and hence no provision is required in these cases. However, a contingent liability has been disclosed with respect to these cases. Refer note 11.10 for details on contingent liabilities.

16 The Bank has a process whereby periodically all long-term contracts (including derivative contracts) are assessed for material foreseeable losses. The Bank reviews and ensures that adequate provision as required under any law / accounting standards for material foreseeable losses on such long-term contracts (including derivative contracts) has been made in the books of account. There were no such contracts for which there were any material foreseeable losses for the year ended March 31, 2023.

17 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

18 These are the notes appended to and forming part of the financial statements for the year ended March 31, 2023.

Mar 31, 2022

3.3 Sale and Transfers to / from HTM Category

During the years ended March 31, 2022 and March 31, 2021, the Bank has not sold and transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. The 5% threshold referred to above does not include one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per the extant RBI guidelines, sale of securities to the RBI under liquidity management operations of RBI like Open Market Operations (OMO) and the Government Securities Acquisition Programme (GSAP) and sale of securities or transfer to AFS / HFT consequent to the reduction of ceiling on SLR securities under HTM.

4.3 Disclosures on risk exposure in derivatives: a) Qualitative DisclosuresManagement of Risk in Derivatives Trading

All limits are monitored on a daily basis by the Bank''s Treasury Back Office and Mid Office. Exposure reports are submitted to the Treasurer as well as the CRO and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

Provisioning

The Bank conforms to the RBI guidelines with regard to provisioning requirements. Overdue receivables representing crystallised positive mark-to-market value of a derivative contract are treated as nonperforming assets, if these remain unpaid for 90 days or more. Full provision is made for the entire amount of overdue and future receivables relating to positive marked to market value of non-performing derivative contracts.

5.9 India is steadily coming out of disruptions caused by Covid-19 pandemic. The extent to which any new wave of Covid-19 will impact the Bank''s operations is dependent on future developments.

Under the circumstances, as at March 31, 2022, on a prudent basis, the Bank holds a contingency provision of '' 70.41 crore towards possible impact of Covid-19 on standard restructured and stressed assets. As on March 31, 2022, in addition to the above, the Bank holds Floating Provision amounting to '' 121.72 crore, besides provisions for Standard Assets and specific Non-Performing Assets.

5.10 Disclosures on Resolution Framework for COVID 19 related Stress as per RBI circular DOR.No.BP. BC.3/21.04.048/2020-21 dated August 06, 2020 (Resolution Framework 1.0) and RBI circular DOR.STR. REC.11/21.04.048/2021-22 dated May 05, 2021 (Resolution Framework 2.0)

The Bank maintains Liquidity Coverage Ratio (LCR) which is a ratio of High-Quality Liquid Assets (HQLA) to Expected Net Cash Outflow over the next 30 calendar days, as per the RBI guidelines. Banks were required to meet the minimum required level of 100% LCR with effect from April 01, 2021.

The numerator, High Quality Liquid Assets comprises mainly of excess SLR securities, cash, excess CRR balances, Marginal Standing Facility (''MSF'') to the extent of 3 per cent till December 31, 2021 and 2 per cent from January 01, 2022 of Net Demand and Time Liabilities (''NDTL'') as guided by the RBI Circular and Facility to Avail Liquidity for Liquidity Coverage Ratio (''FALLCR'') up to another 15 per cent of NDTL while the denominator i.e. cash outflow over next 30 days comprises mainly of the deposit maturities and other cash outflows net of cash inflows in next 30 day period. As a part of its strategy to manage the liquidity requirements, the Bank has been consistently investing in SLR securities of about 2% to 5% of its NDTL, over and above the regulatory SLR requirement.

HQLA of the Bank comprises of mainly Level-1 assets as per the RBI guidelines i.e. government securities apart from cash and excess CRR.

The Bank does not have any derivative exposure other than the forward contracts entered by the Bank which does not affect LCR of the Bank significantly.

Apart from computing the LCR in the domestic currency, the Bank is also required to compute LCR in the currency in which aggregate liabilities denominated in that currency amount to 5 per cent or more of the Bank''s total liabilities. To comply with the said requirement, the Bank computes the LCR in USD as the dollar denominated liabilities are more than 5% of the Bank''s total liabilities. During the financial year 2021-22, the cash inflows in next 30 days denominated in the USD were usually higher than the cash outflows in next 30 days denominated in USD.

Pursuant to the RBI guidelines on NSFR dated May 17, 2018, DCB Bank has been subjected to the Basel III NSFR standards from 1st October 2021. NSFR aims to improve the resilience of banks by promoting long-term funding stability. It mandates banks to maintain a stable funding profile vis-a-vis the composition of their assets and off-balance sheet activities. It reduces the probability of erosion of a bank''s liquidity position due to disruptions to its regular sources of funding. The NSFR guidelines of RBI stipulate the applicable Required Stable Funding ("RSFâ) factor for each category of asset and Available Stable Funding ("ASFâ) factor for each type of funding source. NSFR represents the ratio of the bank''s ASF to RSF. The breakdown of the bank''s ASF and RSF amounts after applying the respective ASF or RSF factors are provided in the "weighted amountâ column of the NSFR disclosure format.

10.4 Details of Large Exposures Framework limits exceeded by the Bank

During the years ended March 31, 2022 and March 31, 2021, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines under Large Exposure Framework.

10.7 Factoring Business

The outstanding receivables acquired by the Bank under factoring business were '' 450.49 crore as at March 31, 2022 (Previous year:'' 107.32 crore).

10.8 Unhedged Foreign Currency Exposure (UFCE)

11 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH THE RBI GUIDELINES

11.1 Employee Benefits (Accounting Standard 15)

The contribution to Employees'' Provident Fund included under "Payments to and Provisions for Employeesâ in Schedule 16 amounted to '' 16.05 crore for the year ended March 31, 2022 (Previous year '' 14.13 crore).

During the year, the Bank has contributed '' 1.00 crore (previous year '' 0.85 crore) to the National Pension Scheme for employees who had opted for the scheme.

All the plan assets are invested by the gratuity trust namely "DCB Bank Limited Staff Gratuity Fundâ in Government securities (CY about 51%, PY about 52%), high rated corporate bonds (CY about 33%, PY about 35%), units of mutual funds/ insurance companies (CY about 6%, PY about 8%) and others (CY about 10%, PY about 5%) set up as dedicated funds for management of gratuity funds.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

The contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is '' 9.66 crore (Previous year: '' 8.96 crore).

In computing the above information, certain estimates have been made by the Bank''s management which have been relied upon by the auditors

11.2 Earnings Per Share (âEPSâ)

The Bank reports basic and diluted earnings per equity share in accordance with AS-20, "Earnings per Shareâ. The dilutive impact is due to stock options granted to employees by the Bank.

11.3 Employeesâ Stock Option Plan

Method used for accounting for ESOP

There were 120,700 stock options exercised during the year ended March 31, 2021.

Fair value Methodology

1. Revenue i.e. Total Revenue includes inter-segment revenue of '' 596.54 crore in FY 2021-22 (Previous year '' 620.53 crore). Inter-segment revenue represents the transfer price received from and paid to the treasury unit respectively. Excluding this, the revenue for the Bank is '' 3,964.81 crore in FY 2021-22 (Previous year: '' 3,904.04 crore).

2. Includes Capital and Reserves.

3. Excluding depreciation and provision for taxes.

4. Income, expense, assets and liabilities have been either specifically identified with individual segment or allocated to segments on a systematic basis or classified as unallocated.

5. Inter-segment transactions have been generally based on transfer pricing measures as determined by the Management.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

11.8 Revaluation of Fixed Assets

The Bank revalued its owned premises as at December 31, 2016 which resulted in a revaluation gain of '' 208.69 crore which has been credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life.

During the financial year 2021-22 an amount of '' 6.03 crore (Previous year: '' 6.03 crore) has been charged to the Profit and Loss Account and this amount has been transferred from Revaluation Reserve to "Balance in Profit and Loss Accountâ.

11.9 Contingent Liabilities Description of Contingent Liabilities:
Sr. No.	Contingent Liability (*)	Brief Description
1.	Claim against the Bank not acknowledged as Debts	An amount of '' 35.49 crore (Previous year: '' 44.04 crore) is outstanding as at March 31, 2022, as claims against the Bank not acknowledged as Debts, including '' 19.50 crore (Previous year: '' 28.50 crore) being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. (Also refer note 15 on pending litigation cases)
2.	Liability on account of outstanding forward exchange and derivative contracts	An amount of '' 1,778.27 crore (Previous year: '' 2,944.87 crore) is outstanding as at March 31, 2022. The Bank enters into foreign exchange contracts, currency options/swaps and interest rate futures on its own account and for customers. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate futures are standardized, exchange-traded contracts that represent a pledge to undertake a certain interest rate transaction at a specified price, on a specified future date.
3.	Guarantees given on behalf of constituents, Acceptances, Endorsements and Others	An amount of '' 1,409.65 crore (Previous year: '' 1,335.47 crore) is outstanding as at March 31, 2022. As part of its commercial banking activity, the Bank issues Letters of Credit and Guarantees on behalf of its customers.
4.	Other items for which the Bank is contingently liable.	An amount of '' 1,838.68 crore (Previous year: '' 1,525.44 crore) is outstanding as at March 31, 2022. These include liability on account of repo and reverse repo transaction, credit enhancement relating to the sale of mortgage loan portfolio undertaken by the Bank, capital commitments and the unclaimed liabilities where amount due has been transferred to Depositor Education and Awareness Fund (DEAF) with RBI.
* Also refer Schedule - 12.

The Bank has an "Integrated Complaints Management Systemâ in which complaints are logged and addressed. Complaints are reviewed on a regular basis to ensure timely response to customers.

In Q1 FY2021-22, Covid-19 second wave impacted India. The Covid-19 disruptions & restrictions somewhat resulted in delays in response to customers and had some impact on service levels. The Bank regularly takes measures to improve process & systems to enhance customer service.

As compiled by the Management and relied upon by the auditors.

12.4 Letters of Comfort (LoC) / Letters of Undertaking (LoU)

The Bank has stopped issuing any fresh LoU in line with the RBI guidelines dated March 13, 2018 in this regard. Outstanding LoU as on March 31, 2022 was '' NIL (Previous year: '' NIL).

12.5 Small and Micro Industries

12.8 Income from Marketing and distribution

The Bank has received fees of '' 31.39 crore (Previous year: '' 27.73 crore) with respect to marketing and distribution function (excluding bancassurance business) during the financial year 2021-22.

12.9 Implementation of IFRS converged Indian Accounting Standards (Ind AS)

The Ministry of Corporate Affairs (MCA), Government of India has notified the Companies (Indian Accounting Standards) Rules, 2015 on February 16, 2015. Further, a Press Release was issued by the MCA on January 18, 2016 outlining the roadmap for implementation of Indian Accounting Standards (IND AS) converged with International Financial Reporting Standards (IFRS) for banks. As per earlier instructions, banks in India were required to comply with the IND AS for financial statements for accounting periods beginning from April 01, 2018 onwards, with comparatives for the periods ending March 31, 2018 or thereafter. Progressing towards IND AS, the Bank had prepared pro forma financials as on June 30, 2017 as per extant regulatory guidelines and submitted the same to the RBI. On April 05, 2018, the RBI had announced deferment of implementation date by one year with IND AS being applicable to banks for accounting periods beginning April 01, 2019 onwards. In preparation for the same, the Bank has been submitting quarterly pro-forma financials to the RBI from quarter ended June 30, 2018. On March 22, 2019, the RBI has announced deferment of the implementation of IND AS by banks till further notice; however, the Bank continues to submit to the RBI proforma financials on half year basis.

13 OTHER MATTERS

13.1 Disclosure of penalties imposed by RBI

During the year ended March 31, 2021, RBI vide its letter dated October 28, 2020 had directed the Bank to pay a penalty of '' 0.22 crore for violation of RBI guidelines, directions etc. in respect of Para Banking activities. The Bank paid the penalty on October 29, 2020.

13.2 Corporate Social Responsibility (CSR)

The Bank was required to spend '' 9.60 crore (Previous year: '' 9.14 crore) during the financial year 2021-22 towards Corporate Social Responsibility (CSR), in accordance with Companies Act, 2013.

The Bank has spent an amount of '' 9.66 crore (Previous year: '' 9.15 crore) in respect of CSR activities across the country.

None of the CSR expenditure incurred by the Bank is to entities controlled by related parties identified by the Bank as per Accounting Standard 18, Related Party Disclosures.

13.3 Remuneration

a) Qualitative disclosures

Nomination and Remuneration Committee (NRC)

The Nomination and Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

The main mandate of the Nomination & Remuneration Committee of the Board are:

â¢ Deciding the size and composition of the Board and appointment of persons for the same.

â¢ Recommending to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

â¢ Evaluation of every director''s performance and making recommendations for remuneration for NonExecutive Directors, Senior Management and the Key Managerial Personnel (KMP) of the Bank.

â¢ Approving the ESOP and creation, subscription and allotment of shares to the eligible employees under this approved ESOP.

â¢ Review appointments, promotions, demotions, terminations and review performance appraisals of CEO, KMP and Senior Management of the Bank.

â¢ Review and approve succession plans Board, KMP and Senior Management.

Design and Structure /Objectives of Compensation Policy

This Policy is applicable to all employees of the Bank including;

â¢ Whole Time Directors (WTDs)

â¢ Managing Director & Chief Executive Officer (MD & CEO)

â¢ Material Risk Takers (MRTs): Material Risk Takers as defined as those employees whose actions have a material impact on the risk exposure of the Bank.

â¢ Risk, Compliance and Control employees

â¢ Other categories of employees: All employees in support and other management functions including front line employees.

Compensation structure consisting of:

i) fixed pay including perquisites, contributions towards superannuation/retiral benefits,

ii) variable pay in cash and equity linked instruments including ESOP.

Risk adjustments in remuneration

Performance linked variable compensation

In alignment to the RBI Guidelines applicable from April 01, 2020, the Bank has a policy on deferral and vesting of variable pay for applicable categories of employees as follows:

Period of Deferral Arrangement: This would be applied to both the cash and equity linked components of the variable pay. The deferral period shall be for a minimum period of three years.

** Fair value of stock options computed using Black-Scholes options pricing model as on the grant date.

# Includes Perquisites and Contribution to Provident Fund.

13.4 Disclosure on remuneration to Non-Executive Directors

The Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its committees. An amount of '' 1.31 crore (Previous year: '' 1.35 crore) was paid as sitting fees to the Non-Executive Directors during the year.

13.5 Proposed Dividend

The Board of Directors have recommended a dividend of '' 1.00 per share (10%) for the year ended March 31, 2022 subject to approval of the shareholders in the ensuing Annual General Meeting.

Considering the situation developing around Covid-19 in the country and related uncertainty that it creates, the Board of Directors of the Bank had considered it prudent not to propose any dividend for the year ended March 31, 2021.

13.6 Disclosure under Rule 11(e) of the Companies (Audit & Auditors) Rules, 2014

Other than the transactions described above

14 Net overnight open position outstanding as on March 31, 2022 was '' 2.56 crore (Previous year: '' 0.45 crore).

16 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 ensured that adequate provision

as required under any law / accounting standards for material foreseeable losses on such long-term contracts (including derivative contracts) has been made in the books of account.

17 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

Pursuant to the requirements of ''Master Direction on Financial Statements - Presentation and Disclosures'' issued by RBI dated August 30, 2021, recoveries from written off accounts hitherto included as part of ''Other Income'' have been classified as a credit to ''Provision and Contingencies'' and ''Provision for Depreciation on Investments'' hitherto classified as part of ''Provisions and Contingencies'' have been reclassified as part of ''Other Income''; there is no change in the Net Profit for the period.

18 These are the notes appended to and forming part of the financial statements for the year ended March 31, 2022.

Mar 31, 2019

1.1 Sale and Transfers to / from HTM Category

During the years ended March 31, 2019 and March 31, 2018, the Bank has not sold and transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. The 5% threshold referred to above does not include one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per the extant RBI guidelines, sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and sale of securities or transfer to AFS / HFT consequent to the reduction of ceiling on SLR securities under HTM.

1.2 RBI circular DBR.No.BP.BC.113/21.04.048/2017-18 dated June 15, 2018 granted banks an option to spread provisioning for mark to market losses on investments held in AFS and HFT. The circular stated that the provisioning requirement for quarter ending June 30, 2018 may be spread equally over up to four quarters, commencing with the quarter ending June 30, 2018. The Bank had not availed the said option.

2.1 Disclosures on risk exposure in derivatives:

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bankâs market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bankâs Treasury Back Office and Mid Office. Exposure reports are submitted to the Treasurer as well as the Assistant CRO and any limit excesses are brought to the notice of the management immediately for further action. Policies for Hedging Risk

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net marked to market (âMTMâ) is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

Provisioning

3.1 Movement of Technical/Prudential write-offs

Technical/Prudential write-offs is the amount of non-performing loans which are outstanding in the books of the branches, but have been written-off (fully or partially) at the Head Office level.

Movement in Technical/Prudential write-offs is set out below:

3.2 Divergence in the asset classification and provisioning

The divergence observed by RBI for FY 2017-18 in respect of the Bankâs asset classification and provisioning under the extant prudential norms on Income Recognition, Asset Classification and Provisioning (IRACP) was within the threshold as per RBI Circular DBR.BP.BC. No.63/21.04.018/2016-17 dated April 18, 2017 and subsequent circular DBR.BP.BC.No.32/21.04.018/2018-19 dated April 01, 2019 on âDivergence in the asset classification and provisioningâ and accordingly no disclosures are required to be given. There was no divergence observed by the RBI for FY 2016-17.

3.3 Disclosures on the scheme for sustainable Structuring of Stressed Assets (S4A), as at March 31, 2019

There were no accounts during the year where S4A has been applied (Previous year: NIL).

3.4 Disclosures on Flexible Structuring of Existing Loans

There were no borrowers taken up for flexibility structuring during the year (Previous year: NIL).

3.5 Disclosures on change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period)

There were no accounts during the year where Bank has decided to effect change in ownership (Previous year: NIL).

3.6 Disclosures on change in Ownership of Projects Under Implementation (accounts which are currently under the stand-still period)

There were no project loan accounts during the year where Bank has decided to effect change in ownership (Previous year: NIL).

3.7 Details of financial assets (including written off accounts) sold to Securitisation / Reconstruction Company for Asset

Reconstruction

The Bank has sold certain assets to an asset reconstruction company (ARC) in terms of the guidelines issued by the RBI. For the purpose of the valuation of the underlying security receipts issued by the underlying trusts managed by ARC, the security receipts are valued at their respective NAVs as advised by the ARC. The details of the assets sold are given in the table below:

(B) Qualitative Disclosures

The Bank maintains Liquidity Coverage Ratio (LCR) which is a ratio of High Quality Liquid Assets (HQLA) to Expected Net Cash Outflow over the next 30 calendar days, as per the RBI guidelines. Banks were required to meet the minimum required level of 100% LCR with effect from January 1, 2019 with transition provisions which permitted banks to start with minimum LCR of 60% with effect from January 1, 2015 incremented by 10% thereafter at every January 1. For the period January 1, 2018 to December 31, 2018 the required minimum was 90% and for the period beginning January 1, 2019 the minimum LCR is 100%.

The Liquidity Coverage Ratio (LCR) as on March 31, 2019 was 105.81%. (80.31% as on December 31, 2018). In the past quarters till September 30, 2018, the Bank had been consistently classifying certain deposits in a particular manner for the purpose of computing LCR. This was based on specific terms and conditions contained in the deposit receipts issued to customers at the time of such deposits. During Q3 FY2018-19, the Bank received instructions from RBI to re-classify the deposits referred above to a higher outflow category for the purpose of computing daily average LCR. Therefore, the LCR for Q3 2018-19 and for Q4 2018-19 is lower compared to previous quarters. As on March 31, 2019 the Bank has achieved the minimum stipulated LCR of 100% and expects to improve and sustain this ratio further in the coming months.

The LCR is being computed and monitored on daily average basis. The objective of the LCR is to ensure that the Bank maintains an adequate level of unencumbered 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 specified by supervisors. Further 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.

The numerator, High Quality Liquid Assets comprises mainly of excess SLR securities, cash, excess CRR balances, Marginal Standing Facility (âMSFâ) to the extent of 2 per cent of Net Demand and Time Liabilities (âNDTLâ) and government securities up to another 13 per cent of NDTL while the denominator i.e. cash outflow over next 30 days comprises mainly of the deposit maturities in next 30 day period and other cash outflows net of cash inflows in next 30 day period. As a part of its strategy to manage the liquidity requirements, the Bank has been consistently investing in SLR securities of about 2% to 5% of its NDTL, over and above the regulatory SLR requirement. HQLA of the Bank comprises of mainly Level-1 assets as per the RBI guidelines i.e. government securities apart from cash and excess CRR.

The major source of funding for the Bank is deposits from customers. The Bank does not rely significantly on interbank borrowings. However, long term refinance from SIDBI, NABARD and NHB is occasionally availed against eligible assets. Further, the Bank has committed lines of credit from a select public and private sector banks.

The Bank does not have any derivative exposure other than the forward contracts entered by the Bank which does not affect LCR of the Bank significantly.

Apart from computing the LCR in the domestic currency, the Bank is also required to compute LCR in the currency in which aggregate liabilities denominated in that currency amount to 5 per cent or more of the Bankâs total liabilities. To comply with the said requirement, the Bank computes the LCR in USD as the dollar denominated liabilities are more than 5% of the Bankâs total liabilities. During the financial year 2018-19 and 2017-18, the cash inflows in next 30 days denominated in the USD were usually higher than the cash outflows in next 30 days denominated in USD.

The liquidity management of the Bank is centralised at Treasury. Treasury Front Office shall, depending upon the expected outflows and inflows for the day, decide to borrow or lend to maintain optimal liquidity. Treasury Back Office monitors the expected inflows and outflows by way of maintaining a register which records the expected outflows and inflows that are informed in advance by the branches as well as by Treasury Front Office before making any investment. For this purpose, branches are required to inform the Treasury Back Office in advance of any expected large flows above Rs. 5 crore. Also, Treasury Back Office takes into account the deposits that are scheduled to mature in order to arrive at the expected cash outflows for that particular day. As a part of effective liquidity management, the Bank always maintains excess SLR securities which can be pledged to meet the shortfall in the intraday liquidity, if any.

Note: Advances reported above include both funded and non-funded loan exposure with limits or outstanding whichever is higher, for other than fully drawn term loans and NPAs. In case of fully drawn term loans and NPAs, the outstanding amount has been considered for this purpose. The Advances figure above also includes non-inter bank credit exposure on derivatives including forward exchange contracts.

Note: Exposures reported above include both funded and non-funded exposures [including advances and investments (other than SLR Investments)] with limits or outstanding whichever is higher, for other than fully drawn term loans and NPAs. In case of fully drawn term loan and NPAs, the outstanding amount has been considered for this purpose. The exposure figure above also includes non-inter bank credit exposure on derivatives including forward exchange contracts.

4.1 Credit Default Swaps

The Bank has not transacted in credit default swaps during the year ended March 31, 2019 (Previous year: NIL).

4.2 Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2019 and March 31, 2018, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

5.1 Unsecured Advances

Details of advances included in Schedule 9 where intangibles like rights, licenses, authorisations, etc. are charged to the Bank as collateral:

6 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH THE RBI GUIDELINES

6.1 Employee Benefits (Accounting Standard 15)

The contribution to Employeesâ Provident Fund included under ââPayments to and Provisions for Employeesâ in Schedule 16 amounted to Rs. 12.81 crore for the year ended March 31, 2019 (Previous year Rs. 11.19 crore).

During the year, the Bank has contributed Rs. 0.72 crores (previous year Rs. 0.68 crores) to the National Pension Scheme for employees who had opted for the scheme.

The Bank has a gratuity trust approved by Income Tax Department namely âDCB Bank Limited Staff Gratuity Fundâ. Every employee who has completed 5 years or more of service gets gratuity on separation at half monthâs last drawn salary for each completed year of service, subject to a cap of Rs. 20.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely âDCB Bank Limited Staff Gratuity Fundâ in Government securities (CY about 51%, PY about 50%), high rated corporate bonds (CY about 33%, PY about 34%), units of mutual funds/ insurance companies (CY about 12%, PY about 12%) and others (CY about 4%, PY about 4%) set up as dedicated funds for management of gratuity funds.

Estimated rate of return on plan assets is based on the Bankâs expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

The contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs. 7.41 crore (Previous year: Rs. 6.62 crore).

In computing the above information, certain estimates have been made by the Bankâs management which have been relied upon by the auditors.

6.2 Earnings Per Share (âEPSâ)

The Bank reports basic and diluted earnings per equity share in accordance with AS-20, âEarnings per Shareâ. The dilutive impact is due to stock options granted to employees by the Bank.

6.3 Employeesâ Stock Option Plan

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

Activity in options outstanding under Employees Stock Option Plan

Fair value Methodology

The fair value of options used to compute proforma net income and earnings per equity share have been estimated using the binomial option-pricing model. The Bank estimated the volatility based on the historical share prices.

The expected volatility was determined based on historical volatility data; historical volatility includes data since listing.

The weighted average fair value of options granted during the year ended March 31, 2019 is Rs. 62.86 (Previous year Rs. 48.39).

In computing the above information, certain estimates/assumptions have been made by the Bankâs management which have been relied upon by the auditors.

Impact of Fair Value Method on Net Profit and EPS

Had the compensation cost for the Bankâs stock option plans outstanding been determined based on the fair value approach, the Bankâs net profit and earnings per share would have been as per the proforma amounts indicated below:

1. Revenue i.e. Total Revenue includes inter segment revenue of Rs. 773.39 crore in FY 2018-19 (Previous year Rs. 621.92 crore). Intersegment revenue represents the transfer price received from and paid to the treasury unit respectively. Excluding this, the revenue for the Bank is Rs. 3,391.65 crore in FY 2018-19 (Previous year: Rs. 2,723.26 crore)

2. Includes Capital and Reserves.

3. Excluding depreciation and provision for taxes

4. Income, expense, assets and liabilities have been either specifically identified with individual segment or allocated to segments on a systematic basis or classified as unallocated.

5. Inter-segment transactions have been generally based on transfer pricing measures as determined by the Management.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

6.4 Related Party Transactions

Related Parties in terms of AS-18 on âRelated Party Disclosuresâ are disclosed below:

Mr. Murali M. Natrajan : Key Management Personnel

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

6.5 Deferred Tax

a. At each Balance Sheet date, the Bank re-assesses unrecognised Deferred Tax Assets. The Bank recognises previously unrecognised Deferred Tax Assets to the extent that it has become reasonably certain that sufficient future taxable income will be available against which such Deferred Tax Assets can be realised.

b. The composition of Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL) is as under:

6.6 Revaluation of Fixed Assets

The Bank revalued its owned premises as at December 31, 2016 which resulted in a revaluation gain of Rs. 208.69 crore which has been credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life.

During the financial year 2018-19 an amount of Rs. 6.06 crore (Previous year: Rs. 6.07 crore) has been charged to the Profit and Loss Account in line with requirements of the Guidance Note on Accounting for Depreciation in Companies in the Context of Schedule II to the Companies Act, 2013 issued by the Institute of Chartered Accountants of India and this amount has been transferred from Revaluation Reserve to âBalance in Profit and Loss Accountâ.

6.7 Change in accounting estimates

As per the requirements of Accounting Standard (AS) 10 â Property, Plant and Equipment, the Bank has reviewed useful life of all its fixed assets. Based on the review, the Bank has identified certain class of assets, wherein based on the experience of the Bank, the useful life of the assets is higher than those estimated in earlier periods and vice versa, accordingly the Bank has revised useful life of certain identified class of assets, due to which depreciation charge for the financial year 2018-19 is lower by Rs. 13.71 crore.

7.1 Floating Provisions

The Bank has put in place a Board approved Floating Provision policy in accordance with the RBI guidelines. Movement in floating provision is set out below:

7.2 Provisioning Coverage Ratio

In accordance with the RBI guidelines, the Bankâs Provisioning Coverage Ratio at March 31, 2019 is 78.77% (Previous year: 75.72%).

7.3 Depositor Education and Awareness Fund (DEAF)

In accordance with the guidelines issued by the RBI, the Bank transfers the amount to the credit of any account which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years to the DEAF.

Details of amounts transferred to DEAF are set out below:

7.4 Unhedged Foreign Currency Exposure(UFCE)

In accordance with the RBI guidelines on banksâ exposures to entities with Unhedged Foreign Currency Exposure (âUFCEâ), the Bank has put in place a mechanism to seek information from its borrowers and to evaluate the currency induced credit risk. In the case of listed entities, the Bank obtains information relating to unhedged positions based on the latest available audited / reviewed financial statements; whilst in the case of unlisted / private companies, the Bank obtains the aforesaid information based on the latest available audited financial statements (not exceeding a financial year) so as to estimate the extent of likely loss and to provide for incremental capital or to recognise incremental provision in accordance with the aforesaid guidelines. Further, as per the above-mentioned guidelines, the Bank obtains audited and certified UFCE information from the statutory auditors of the borrowers on an annual basis. In the case of smaller entities i.e. entities with exposure to banking industry of less than Rs. 25 crore and as identified by the Bank as having any foreign exchange exposure, the Bank recognises an incremental provision at 10 basis points on all such exposures.

7.5 Letters Of Comfort (LoC) / Letters of Undertaking (LoU)

The Bank has stopped issuing any fresh LoU in line with the RBI guidelines dated March 13, 2018 in this regard. Outstanding LoU as on March 31, 2019 was NIL (Previous year: Rs. 105.88 crore).

7.6 Small and Micro Industries

Notes:

1 Out of 128 frauds as at March 31, 2019, there were 102 cases pertaining to card transactions of the Bankâs customers.

2 During the financial year 2018-19, the Bank incurred frauds amounting to Rs. 24.73 crore in its loan portfolio in respect of certain borrowers, which has been fully provided for, net of recoveries.

8 OTHER MATTERS

8.1 Disclosure of penalties imposed by RBI

RBI, vide its Order dated February 25, 2019 had directed the Bank to pay a penalty of Rs. 2 crore in terms of Section 35, 35A, 46 and 47A of the Banking Regulation Act, 1949, for contravention of regulatory guidelines issued by RBI on Time bound implementation and strengthening of SWIFT related operational controls. The Bank paid the penalty on March 11, 2019.

No penalties were imposed by RBI on the Bank during the financial year ended March 31, 2018.

8.2 Corporate Social Responsibility (CSR)

The Bank was required to spend Rs. 6.34 crore (Previous year: Rs. 4.91 crore) during the financial year 2018-19 towards Corporate Social Responsibility (CSR), in accordance with Companies Act, 2013.

The Bank has spent an amount of Rs. 3.87 crore (Previous year: Rs. 1.77 crore) in respect of CSR activities across the country.

None of the CSR expenditure incurred by the Bank is to entities controlled by related parties identified by the Bank as per Accounting Standard 18, Related Party Disclosures.

CSR projects and programmes undertaken by the Bank

CSR projects and programmes focused on water and the protection of sources of water; recycling; waste management; renewable energy and measures to offset the impact of climate change through tree plantation and watershed development. On the ground activities namely were: watershed development and rejuvenation of semi-arid and degraded land, installation of waterless urinals to arrest wastage of clean water and prevent discharge of polluting detergents and cleaning chemicals into the waste water, roof-top rain water harvesting and installation of non-electric bio-sand water filters in village schools at locations starved of potable water, tree plantation to rejuvenate buffer areas around forests; sanctuaries and streams, desilting and rejuvenation of tanks for the benefit of village communities and tribal hamlets. In all watershed development projects, community mobilization and their contribution by way of âshram-daanâ (voluntary contribution by way of physical labour) by the project beneficiaries has been a notable feature. The communities and DCB Bank have collaborated in the creation of water trenches, ponds, percolation tanks, bunds in drought prone water starved villages. Other activities include climate change mitigation and improving the micro-climate, promotion of renewable energy with the installation of solar street lights in remote tribal village communities lacking in electric grid supply, propagation of best practices such as alternatives to plastic bags and reducing the use of plastic products, dissemination and communication about climate change mitigation and sustainability projects through audio visuals and a record setting solo motorcycle ride to the four corners of India. The Bankâs message of saving water and promoting the use of eco-friendly alternatives to harmful plastic. The solo ride set an India record for the fastest solo woman motorcycle rider to cover all four corners of India â a journey of 15,219 kilometers completed in 29 days.

Employee volunteering under the banner of âDCB Socialâ, had participants spearhead CSR activities such as cleanup of lakes, locality focused waste management, restoration of natural habitat and green cover and the creation of nature parks. Tree plantation, tree count, promotion of economically valuable fruit trees were amongst the activities driven by employees. 729 DCB Bank employee volunteers contributed to CSR activities. In essence, the Bankâs CSR projects involve the communities to bring about sustainable development and mitigation of climate change, because as a nation we are in an extreme water stress situation, in need of immediate and urgent attention. The above details of CSR projects and programmes have been compiled by the Management and relied upon by the auditors.

8.3 Remuneration

a) Qualitative disclosures

Nomination and Remuneration Committee (NRC)

The Nomination and Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

The main objectives of the Nomination & Remuneration Committee of the Board are:

- Deciding the size and composition of the Board and appointment of persons for the same.

- Recommending to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

- Evaluation of every directorâs performance and making recommendations for remuneration for Non-Executive Directors and the Key Managerial Personnel.

- Approving the ESOP and creation, subscription and allotment of shares to the eligible employees under this approved ESOP.

- Review appointments, promotions, demotions, terminations and review performance appraisals of CEO and direct reportees.

- Review and approve succession plans for CEO, CFO and Company Secretary and CEOâs direct senior management reportees.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bankâs compensation practices.

The Bankâs objective is to maintain a Compensation Policy that:-

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bankâs risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Boardâs Nomination and Remuneration Committee.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision report on Range of Methodologies for Risk and Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

The Bank ensures that there is proper risk alignment with the compensation of MD & CEO and other Whole Time Directors such that no undue risks are being taken against the interest of the Bank. In general, the review of Risk Management framework is the integral part of the annual performance review applicable to all employees.

The Risk Management Committee of the Bank through its representative on the NRC shall independently provide inputs for assessment under risk alignment.

Performance linked variable compensation

An annual Rewards Exercise (Compensation Revision) is done for alignment of compensation structure across levels keeping the following considerations, namely; performance of the bank, alignment of risks with the rewards, encouraging rewards based on the long term contributions to the bank, cost/ income ratio of the bank, employee turnover on account of increased demand of talent in the industry and other related factors. Annually, the NRC reviews and approves the reward approach presented by the Management.

Variable pay for all Whole Time Directors (WTDâ) / Managing Director (''MDâ) & Chief Executive Officer (''CEOâ) and other employees shall not exceed 70% of fixed pay, The variable pay offered will be linked to the Bankâs performance and could be reduced in whole/part during a year of poor performance. Where Variable Pay exceeds 50% (substantial pay) of the fixed pay, 60% of the entire variable pay for the respective year will be paid upfront and vesting of remaining 40% will be deferred over the next 3 years in equal proportions.

For all employees including WTD and MD & CEO, in the event of negative contributions of the Bank and/ or the relevant line of business in any year, the unvested deferred Variable Pay (performance bonus/ performance payout) shall be subjected to malus/ clawback arrangements in part /full amount.

8.4 Disclosure on remuneration to Non-Executive Directors

The Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its committees. An amount of Rs. 1.20 crore (Previous year: Rs. 0.76 crore) was paid as sitting fees to the Non-Executive Directors during the year.

8.5 Proposed Dividend

The Board of Directors have recommended a dividend of Rs. 1.00 per share (10%) for the year ended March 31, 2019 subject to approval of the shareholders in the ensuing Annual General Meeting.

According to the revised AS 4 - âContingencies and events occurring after the balance sheet dateâ as notified by the Ministry of Corporate Affairs through amendments to Companies (Accounting Standards) Amendment Rules, 2016, the Bank has not accounted proposed dividend (including tax) as a liability for the year ended March 31, 2019. However, the Bank has reckoned proposed dividend in determining capital funds in computing capital adequacy ratio at March 31, 2019.

Dividend paid during the year, represents dividend (Rs. 0.75 per equity share) for the year ended March 31, 2018 paid pursuant to approval of shareholders at Annual General Meeting held on June 02, 2018.

9 DRAW DOWN FROM RESERVES

The Bank has drawn down Rs. 1.02 crore from Investment Reserve Account towards depreciation on investment in AFS and HFT categories in terms of RBI guidelines during the financial year 2018-19 (Previous year: Rs. 2.91 crore ).

10 Net overnight open position outstanding as on March 31, 2019 was Rs. 1.01 crore (Previous year: Rs. 0.80 crore).

11 The Bankâs pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Management believes that the possibility of an outflow of resources embodying economic benefits in these cases is possible but not probable and hence no provision is required in these cases. However, a contingent liability has been disclosed with respect to these cases. Refer note 11.9 for details on contingent liabilities.

12 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 ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long-term contracts (including derivative contracts) has been made in the books of account.

13 Previous yearâs figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

14 These are the notes appended to and forming part of the financial statements for the year ended March 31, 2019.

Mar 31, 2017

1. ACCOUNTING FOR PROVISIONS, CONTINGENT LIABILITIES AND CONTINGENT ASSETS

Provisions are recognized when there is a present legal or statutory obligation as a result of past events leading to probable outflow of resources, where a reliable estimate can be made of the amount required to settle the obligation.

Contingent Liabilities are recognized only when there is a possible obligation arising from past events due to occurrence or non-occurrence of one or more uncertain future events, not wholly within the control of the Bank, or where there is a present obligation arising from a past event which is not recognized as it is not probable that an outflow of resources will be required to settle the obligation or a reliable estimate of the amount of the obligation cannot be made. When there is a possible obligation or a present obligation in respect of which the likelihood of outflow of resources is remote, no provision or disclosure is made.

Contingent assets are not recognized in the financial statements.

2. EMPLOYEE SHARE BASED PAYMENTS

Measurement and disclosure of employee share-based employment plans is done in accordance with the Securities and Exchange Board of India ( Share Based Employee Benefits) Regulations, 2014 / Guidance Note on Accounting for the Employee Share-based Payments issued by The Institute of Chartered Accountants (âICAI'') of India. The Bank measures compensation cost relating to employee stock options using the intrinsic value method. Deferred compensation expense is amortized over the vesting period of the option.

3. EARNINGS PER SHARE

Basic earnings per share is calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year.

For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effect of dilutive potential equity shares.

4 CASH AND CASH EQUIVALENTS

Cash and cash equivalents include cash in hand and ATMs, balances with the Reserve Bank of India, balances with other banks and money at call and short notice (including effect of changes in exchange rates on cash and cash equivalents in foreign currency).

5. LEASES

Leases where the Less or effectively retains substantially all risks and benefits of ownership of the leased item 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.

6. SEGMENT REPORTING

As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate/Wholesale Banking, Retail Banking and Other Banking Operations.

Treasury Operations includes all financial markets activities undertaken on behalf of the Bank''s customers, proprietary trading, maintenance of reserve requirements and resource mobilization from other banks and financial institutions.

Corporate/Wholesale Banking includes lending, deposit taking and other services offered to corporate customers.

Retail Banking includes lending, deposit taking and other services offered to retail customers.

Other Banking Operations includes para banking activities like third party product distribution, merchant banking, etc.

7 SUB-ORDINATED DEBT THROUGH PRIVATE PLACEMENT OF BONDS

During the year the Bank raised Rs,150.00 crore (Previous year: Rs,86.60 crore) of subordinated debt. The subordinated debts raised through private placement of bonds are Unsecured Redeemable Non-Convertible Basel III Compliant Subordinated Tier II bonds in the nature of Debenture to augment capital adequacy.

8 Sale and Transfers to / from HTM Category

During the years ended March 31, 2017 and March 31, 2016, the Bank has not sold and transferred securities to or from HTM category exceeding 5% of the book value of investment held in HTM category at the beginning of the year. The 5% threshold referred to above does not include one-time transfer of securities to/from HTM category with the approval of Board of Directors permitted to be undertaken by banks as per the extant RBI guidelines, sale of securities under pre-announced Open Market Operation (OMO) auction to the RBI and sale of securities or transfer to AFS / HFT consequent to the reduction of ceiling on SLR securities under HTM.

9 Disclosures on risk exposure in derivatives: a) Qualitative Disclosures

Management of Risk in Derivatives Trading

All limits are monitored on a daily basis by the Bank''s Treasury Back Office and Mid Office. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net marked to market (âMTMâ) is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

10. Disclosures on the scheme for sustainable Structuring of Stressed Assets (S4A), as at 31st March, 2017

There were no accounts during the year where S4A has been applied.

11. Disclosures on Flexible Structuring of Existing Loans

There were no borrowers taken up for flexibility structuring during the year.

12. Disclosures on Strategic Debt Restructuring Scheme (accounts which are currently under the stand-still period)

There were no accounts during the year where SDR has been invoked.

13. Disclosures on change in Ownership outside SDR Scheme (accounts which are currently under the stand-still period)

There were no accounts during the year where Bank has decided to effect change in ownership.

14. Disclosures on change in Ownership of Projects Under Implementation (accounts which are currently under the stand-still period)

There were no project loan accounts during the year where Bank has decided to effect change in ownership.

15. Details of financial assets (including written off accounts) sold to Securitisation / Reconstruction Company for Asset Reconstruction

16. Working funds have been considered as the average of total monthly assets (excluding accumulated losses, if any) as reported to the Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the financial year.

17. For the purpose of this ratio, Operating Profit is net profit for the year before provisions and contingencies.

18. Assets have been considered as the average of total monthly assets (excluding accumulated losses, if any) as reported to the Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949.

19. For the purpose of this ratio, employees have been considered as the average of the total employees at the end of each month of the year.

20. For the purpose of this ratio, business per employee has been recorded as deposits plus advances (excluding interbank deposits).

(B) Qualitative Disclosures

The Bank maintains Liquidity Coverage Ratio (LCR) which is a ratio of High Quality Liquid Assets (HQLA) to expected net cash outflow over the next 30 calendar days, as per the RBI guidelines. The requirements start with minimum LCR of 60% with effect from January 1,

2015, reaching the minimum required level of 100% by January 1, 2019. The LCR requirement effective January 1, 2017 is 80%.

The objective of the LCR is to ensure that the Bank maintains an adequate level of unencumbered 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 specified by supervisors. Further 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.

The numerator, High Quality Liquid Assets comprises mainly of excess SLR securities, cash, excess CRR balances, Marginal Standing Facility (âMSFâ) to the extent of 2 per cent of Net Demand and Time Liabilities (âNDTLâ) and government securities up to another 9 per cent of NDTL while the denominator i.e. cash outflow over next 30 days comprises mainly of the deposit maturities in next 30 day period and other cash outflows net of the cash inflows in next 30 day period. As a part of its strategy to manage the liquidity requirements, the Bank has been consistently investing in SLR securities of about 2% to 4% of its NDTL, over and above the regulatory SLR requirement.

In compliance with the RBI guidelines, the Bank has started computing LCR from January 2015 onwards. The aforementioned table provides the quarterly LCR computation for the four quarters of the Financial Year 2016-17. The LCR is being monitored on daily basis effective January 01, 2017. Accordingly, daily average figures are reported for the last quarter of the FY 2016-17 while for the first three quarters, the monthly average figures are reported.

HQLA of the Bank comprises of mainly level 1 assets as per the RBI guidelines i.e. government securities apart from cash and excess CRR.

The major source of funding for the Bank is deposits from customers. The Bank does not rely significantly on interbank borrowings. However, refinance from NABARD and NHB is occasionally availed against the eligible assets. Further, the Bank has committed lines of credit from a few public sector banks.

The Bank does not have any derivative exposure other than the forward contracts entered by the Bank which does not affect LCR of the Bank significantly.

Apart from computing the LCR in the domestic currency, the Bank is also required to compute LCR in the currency in which aggregate liabilities denominated in that currency amount to 5 per cent or more of the Bankâs total liabilities. To comply with the said requirement, the Bank computes the LCR in USD as the dollar denominated liabilities are more than 5% of the Bankâs total liabilities. During the financial year 2016-17, the cash inflows in next 30 days denominated in the USD were usually higher than the cash outflows in next 30 days denominated in USD.

The liquidity management of the Bank is centralised at Treasury. Treasury Front Office shall, depending upon the expected outflows and inflows for the day, decide to borrow or lend to maintain optimal liquidity. Treasury Back Office monitors the expected inflows and outflows by way of maintaining a register which records the expected outflows and inflows that are informed in advance by the branches as well as by Treasury Front Office before making any investment. For this purpose, branches are required to inform the Treasury Back Office in advance of any expected large flows above Rs,5 crore. Also, Treasury Back Office takes into account the deposits that are scheduled to mature in order to arrive at the expected cash outflows for that particular day. As a part of effective liquidity management, Bank always maintains excess SLR securities which can be pledged to meet the shortfall in the intraday liquidity, if any.

21. Credit Default Swaps

The Bank has not transacted in credit default swaps during the year ended March 31, 2017 (Previous year: NIL).

22. Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

During the years ended March 31, 2017 and March 31, 2016, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

23 Unsecured Advances

Details of advances included in Schedule 9 where intangibles like rights, licenses, authorisations, etc. are charged to the Bank as collateral:

As per directions from the RBI, these advances are treated as Unsecured Advances in Schedule 9.

24 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH THE RBI GUIDELINES 11.1 Employee Benefits (Accounting Standard 15)

The contribution to employees Provident Fund included under Payments to and Provisions for Employees in Schedule 16 amounted to Rs,9.24 crore for the year ended March 31, 2017 (Previous year Rs,7.08 crore).

The Bank has a gratuity trust approved by Income Tax Department namely âDCB Bank Limited Staff Gratuity Fundâ. Every employee who has completed 5 years or more of service gets gratuity on separation at half monthâs last drawn salary for each completed year of service, subject to a cap of Rs,10.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely âDCB Bank Limited Staff Gratuity Fundâ in Government securities (CY about 52%, PY about 50%), high rated corporate bonds (CY about 31%, PY about 24%), units of mutual funds/ insurance companies (CY about 13%, PY about 13%) and others (CY about 4%, PY about 13%) set up as dedicated funds for management of gratuity funds.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

The contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs,5.91 crore (Previous year: Rs,4.74 crore) .

In computing the above information, certain estimates have been made by the Bank''s management which have been relied upon by the auditors.

25 Earnings Per Share (âEPSâ)

The Bank reports basic and diluted earnings per equity share in accordance with AS-20, âEarnings per Shareâ. The dilutive impact is due to stock options granted to employees by the Bank.

Dilution of equity is on account of 5,661,866 (Previous year 4,136,326) stock options.

26 Employeesâ Stock Option Plan

Any Option granted pursuant to the Plan shall become exercisable in full upon the retirement of the employee.

Method used for accounting for ESOP

*Includes 46,200 (Previous year: 113,250) employee stock options exercised, pending for allotment.

The weighted average share price in respect of options exercised and allotted during the year ended 31 March, 2017 is Rs,121.32 (Previous year Rs,109.55).

There were 2,423,800 stock options exercised during the year ended March 31, 2016.

Fair value Methodology

The various assumptions considered in the pricing model for ESOPs granted during the year ended March 31, 2017 and March 31, 2016 were:

The expected volatility was determined based on historical volatility data; historical volatility includes data since listing.

The weighted average fair value of options granted during the year ended 31 March, 2017 is Rs,30.96 (Previous year Rs,47.04).

In computing the above information, certain estimates/assumptions have been made by the Bankâs management which have been relied upon by the auditors.

Impact of Fair Value Method on Net Profit and EPS

27. Revenue i.e. Total Revenue includes inter-segment revenue of Rs,595.13 crore (Previous year Rs,679.25 crore). Inter-segment revenue represents the transfer price received from and paid to the treasury unit respectively. Excluding this, the revenue for the Bank is Rs,2,325.60 crore (Previous year: Rs,1,918.92 crore).

28. Includes Capital and Reserves.

29. Excluding depreciation and provision for taxes.

30. Income, expense, assets and liabilities have been either specifically identified with individual segment or allocated to segments on a systematic basis or classified as unallocated.

31. Inter-segment transactions have been generally based on transfer pricing measures as determined by the Management.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

32 Related Party Transactions

Related Parties in terms of AS-18 on âRelated Party Disclosuresâ are disclosed below:

Mr. Murali M. Natrajan : Key Management Personnel

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

33 Deferred Tax

a. At each Balance Sheet date, the Bank re-assesses unrecognized Deferred Tax Assets. The Bank recognises previously unrecognized deferred tax assets to the extent that it has become reasonably certain that sufficient future taxable income will be available against which such deferred tax assets can be realised.

b. The composition of Deferred Tax Assets (DTA) and Deferred Tax Liabilities (DTL) is as under:

34 Revaluation of Fixed Assets

The Bank revalued its owned premises as at December 31, 2016 which resulted in a revaluation gain of Rs,208.69 crore which has been credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life.

During the financial year 2016-17 an amount of Rs,2.41 crore (Previous year: Rs,2.37 crore) has been charged to Profit and Loss Account in line with requirements of the Guidance Note on Accounting for Depreciation in Companies in the Context of Schedule II to the Companies Act, 2013 issued by the Institute of Chartered Accountants of India and this amount has been transferred from Revaluation Reserve to âBalance in Profit and Loss Accountâ.

35 Provisioning Coverage Ratio

In accordance with the RBI guidelines, the Bankâs Provision Coverage Ratio at March 31, 2017 is 73.80% (Previous year: 77.55%).

36 Unhedged Foreign Currency Exposure(UFCE)

In accordance with the RBI guidelines on banksâ exposures to entities with Unhedged Foreign Currency Exposure (âUFCEâ), the Bank has put in place a mechanism to seek information from its borrowers and to evaluate the currency induced credit risk. In the case of listed entities, the Bank obtains information relating to unhinged positions based on the latest available audited / reviewed financial statements; whilst in the case of unlisted / private companies, the Bank obtains the aforesaid information based on the latest available audited financial statements (not exceeding a financial year)so as to estimate the extent of likely loss and to provide for incremental capital or to recognize incremental provision in accordance with the aforesaid guidelines. Further, as per the above-mentioned guidelines, the Bank obtains audited and certified UFCE information from the statutory auditors of the borrowers on an annual basis. In the case of smaller entities i.e. entities with exposure to banking industry of less than Rs,25 crore and as identified by the Bank as having any foreign exchange exposure, the Bank recognizes an incremental provision at 10 basis points on all such exposures.

37 Letters of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2017 aggregate Rs,102.31 crore (Previous year: Rs,76.28 crore). In the Bankâs assessment, no financial impact is likely to arise.

38 Small and Micro Industries

39 OTHER MATTERS 13.1 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2017 (Previous year: NIL).

40 Corporate Social Responsibility (CSR)

The Bank was required to spend Rs,2.87 crore (Previous year: Rs,1.01 crore) during the financial year 2016-17 towards Corporate Social Responsibility (CSR), in accordance with Companies Act, 2013.

The Bank has spent an amount of Rs,0.98 crore (Previous year: Rs,0.41 crore) in respect of its CSR activities which focused on Water and protection of water sources. The activities namely were: rain water harvesting and usage of natural bio water filters in village schools in water starved areas. Another initiative is the creation of water reservoirs, trenches and ponds in water starved locations in tribal villages. None of the CSR expenditure incurred by the Bank is to entities controlled by related parties identified by the Bank as per Accounting Standard 18, Related Party Disclosures.

41 Remuneration

a) Qualitative disclosures

Nomination and Remuneration Committee

The Nomination and Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

The main objectives of the Nomination & Remuneration Committee of the Board are:

- Deciding the size and composition of the Board and appointment of persons for the same.

- Recommending to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees.

- Evaluation of every directorâs performance and making recommendations for remuneration for Non-Executive Directors and the Key Managerial Personnel.

- Approving the ESOP and creation, subscription and allotment of shares to the eligible employees under this approved ESOP.

- Review appointments, promotions, demotions, terminations and review performance appraisals of CEO and direct reports.

- Review and approve succession plans for CEO, CFO and Company Secretary and CEOâs direct senior management reportees.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy.

The Bank''s objective is to maintain a Compensation Policy that:-

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination and Remuneration Committee.

The Nomination and Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration and risks.

Risk adjustments in remuneration

The Bank shall ensure that there is proper risk alignment with the compensation of MD & CEO and other Whole Time Directors such that no undue risks are being taken against the interest of the Bank. In general, the review of Risk Management framework shall be the integral part of the annual performance review.

The Risk Management Unit of the Bank shall independently provide inputs for assessment under these areas.

Performance linked variable compensation

The variable compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance. Variable compensation of all Whole Time Directors (âWTD'') / Chief Executive Officer (âCEO'') will not be more than 70% of the fixed compensation. Any variable compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred variable compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilises performance payout / bonus as the form of variable remuneration. The Bank shall give performance payouts to promote a healthy financial performance by its staff.

42 Disclosure on remuneration to Non-Executive Directors

The Non-Executive Directors are paid remuneration by way of sitting fees for attending meetings of the Board and its committees. An amount of Rs,0.80 crore (Previous year: Rs,0.74 crore) was paid as sitting fees to the Non-Executive Directors during the year.

43 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2017 and in the previous year.

44 Net overnight open position outstanding as on March 31, 2017 was Rs,(5.50) crore (Previous year: Rs,13.59 crore).

45 The Bankâs pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Management believes that the possibility of an outflow of resources embodying economic benefits in these cases is possible but not probable and hence no provision is required in these cases. However, a contingent liability has been disclosed with respect to these cases. Refer note 11.9 for details on contingent liabilities.

46 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 ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long-term contracts (including derivative contracts) has been made in the books of account.

47 The Board of Directors have recommended a dividend of Rs,0.50 per share (5.00%) for the year ended March 31, 2017 (Previous year: NIL) subject to approval of the members in the ensuing Annual General Meeting.

48 Previous yearâs figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

49 These are the notes appended to and forming part of the financial statements for the year ended March 31, 2017.

Mar 31, 2015

1 CAPITAL

1.1 During the financial year 2014-15, the Bank issued 30,432,136 equity shares to Qualified Institutional Investors at Rs. 82.15 per share. Net of issue costs of Rs. 5.39 crore, this resulted in an increase of Rs. 30.43 crore in Share Capital and Rs. 214.18 crore in Securities Premium Account.

1.1 Sale and Transfers to / from HTM Category

Other than one-time transfer of securities to / from HTM category permitted by the RBI at the beginning of the accounting year and sale to the RBI under pre-announced Open Market Operations (''OMO'') auctions, the Bank has not carried out any sale and transfer of securities to / from HTM category during the financial year 2014-15.

1.2 Disclosures on risk exposure in derivatives:

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bank''s Treasury Back Office and Mid Office. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back-to-back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

5.7 Details of financial assets (including written off accounts) sold to Securitization / Reconstruction Company for Asset Reconstruction

The Bank has sold certain assets to an asset reconstruction company (ARC) in terms of the guidelines issued by the RBI. For the purpose of the valuation of the underlying security receipts issued by the underlying trusts managed by ARC, the security receipts are valued at their respective NAVs as advised by the ARC. The details of the assets sold are given in the table below:

2 BUSINESS RATIOS

1. Working funds have been considered as average of total monthly assets (excluding accumulated losses, if any) as reported to the Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the financial year.

2. Assets have been considered as average of total monthly assets (excluding accumulated losses, if any) as reported to the Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949.

3. For the purpose of this ratio, employees have been considered as the average of the total employees at the end of each month of the year.

4. For the purpose of this ratio, business per employee has been recorded as deposits plus advances (excluding interbank deposits).

(B) Qualitative Disclosures

Effective January 1, 2015, the Bank maintains Liquidity Coverage Ratio (LCR) which is a ratio of High Quality Liquid Assets (HQLA) to expected net cash outflow over the next 30 calendar days, as per RBI guidelines. The requirements start with minimum LCR of 60% with effect from January 1, 2015 and reach the minimum required level of 100% by January 1, 2019.

The objective of the LCR is to ensure that the Bank maintains an adequate level of unencumbered 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 specified by supervisors. Further 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.

The numerator, High Quality Liquid Assets comprises mainly of excess SLR securities, cash, excess CRR balances and government securities up to another 5 per cent of Net Demand and Time Liabilities (NDTL'') while the denominator i.e cash outflow over next 30 days comprises mainly of the deposit maturities in next 30 day period and other cash outflows net of the cash inflows in next 30 day period. As a part of its strategy to manage the liquidity requirements, the Bank has been consistently investing in SLR securities of about 2% to 4% of its NDTL, over and above the regulatory SLR requirement.

In compliance with the above guidelines, the Bank has started computing LCR from January 2015 onwards. The aforementioned table provides the LCR computation for the three months period i.e January 2015 to March 2015.

HQLA of the Bank comprises of mainly level 1 assets as per RBI guidelines i.e. government securities apart from cash and excess CRR.

The major source of funding for the Bank is the deposits from customers. The Bank does not rely significantly on interbank borrowings. However, refinance from NABARD and NHB is occasionally availed against the eligible assets. Further, the Bank has committed lines of credit from a few public sector banks.

The Bank does not have any derivative exposures other than the forward contracts entered by the Bank which does not affect LCR of the Bank significantly.

Apart from computing the LCR in the domestic currency, the Bank is also required to compute LCR in the currency in which aggregate liabilities denominated in that currency amount to 5 per cent or more of the Bank''s total liabilities. To comply with the said requirement, the Bank computes the LCR in USD as the dollar denominated liabilities are more than 5% of the Bank''s total liabilities. During the three months of reporting, the cash inflows in next 30 days denominated in the USD were usually higher than the cash outflows in next 30 days denominated in USD.

The liquidity management of the Bank is centralised at Treasury. Treasury Front Office shall, depending upon the expected outflows and inflows for the day, decide to borrow or lend to maintain optimal liquidity. Treasury Back Office monitors the expected inflows and outflows by way of maintaining a register which records the expected outflows and inflows that are informed in advance by the branches as well as by Treasury Front Office before making any investment. For this purpose, branches are required to inform the Treasury Back Office in advance of any expected large flows above Rs. 5 crore. Also, Treasury Back Office takes into account the deposits that are scheduled to mature in order to arrive at the expected cash outflows for that particular day. As a part of effective liquidity management, Bank always maintains excess SLR securities which can be pledged to meet the shortfall in the intraday liquidity, if any.

10.4 Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2015 and March 31, 2014, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

11 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH THE RBI GUIDELINES 11.1 Employee Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund included under Employee cost amounted to Rs. 5.87 crore for the year ended March 31, 2015 (Previous year Rs. 4.83 crore).

The Bank has a gratuity trust approved by Income Tax Department namely "DCB Bank Limited Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of Rs. 10.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees. Reconciliation of opening and closing balance of the present value of the defined benefit obligation for gratuity benefits is given below:

Experience adjustment

All the plan assets are invested by the gratuity trust namely DCB Bank Limited Staff Gratuity Fund in Government securities (CY about 30%, PY about 30%), high rated corporate bonds (CY about 48%, PY about 48%), units of mutual funds/ insurance companies (CY about 16%, PY about 13%) and others (CY about 6%, PY about 9%) set up as dedicated funds for management of gratuity funds.

The estimates of future salary increases, considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

The contribution expected to be paid to the plan during the annual period beginning after the Balance Sheet date is Rs. 2.33 crore.

11.2 Earnings Per Share (''EPS'')

The Bank reports basic and diluted earnings per equity share in accordance with AS-20, "Earnings per Share". The dilutive impact is due to stock options granted to employees by the Bank.

11.3 Employees'' Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments, including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held on September 11, 2006 had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of shareholders was obtained at the Extraordinary General Meeting held on December 15, 2006 in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank granted the following options.

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

Activity in options outstanding under Employees Stock Option Plan

Fair value Methodology

The fair value of options used to compute proforma net income and earnings per equity share have been estimated using the binomial option-pricing model. The Bank estimated the volatility based on the historical share prices.

The various assumptions considered in the pricing model for ESOPs granted during the year ended March 31, 2015 were:

11.4 Segment Information

Part A: Business Segments

1. Revenue i.e. Total Revenue includes inter segment revenue of Rs. 649.04 crore (Previous year Rs. 564.43 crore). Inter Segment revenue represent the transfer price received from and paid to the treasury unit respectively. Excluding this, the revenue for the Bank is Rs. 1,588.14 crore (Previous year: Rs. 1,266.92 crore).

2. Excluding depreciation and provision for taxes

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

11.5 Related Party Transactions

Related Party Transactions in terms of AS-18 on "Related Party Disclosures" are disclosed below.

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

Financial Year 2014-15

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 6.01 crore*

* The above includes perquisite value of stock options exercised of Rs. 1.24 crore. This perquisite value of stock options includes Rs. 0.40 crore, for options exercised and pending for allotment.

Financial Year 2013-14

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 3.77 crore*

* The above includes increment arrears of Rs. 0.32 crore and bonus for FY 2012-13 of Rs. 0.60 crore which is paid in the FY 2014-15.

11.6 Deferred Tax

a. At each Balance Sheet date, the Bank re-assesses unrecognised Deferred Tax Assets. The Bank recognises previously unrecognised deferred tax assets to the extent that it has become reasonably certain that sufficient future taxable income will be available against which such deferred tax assets can be realised.

11.7 Contingent Liabilities

Description of Contingent Liabilities:

Sr. No. Contingent Liability (*) Brief Description

1. Claim against the Bank not An amount of Rs. 44.85 crore is outstanding as at March 31, 2015 (Previous year: Rs. 44.46 crore), acknowledged as Debts as claims against the Bank not acknowledged as Debts, including Rs. 30.00 crore being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. (Also refer para 17 on pending litigation cases)

2. Liability on account of An amount Rs. 1,172.27 crore is outstanding as at March 31, 2015 (Previous year: outstanding forward Rs. 1,281.64 crore). The Bank enters into foreign exchange contracts on its own account and for exchange and derivative customers and currency options/swaps on a pure hedge basis. Forward exchange contracts contracts are commitments to buy or sell foreign currency at a future date at the contracted rate.

3. Guarantees given on An amount Rs. 1,204.16 crore is outstanding as at March 31, 2015 (Previous year: behalf of constituents, Rs. 1,179.34 crore). As a part of its commercial banking activity, the Bank issues Letters of Acceptances, Credit and Guarantees on behalf of its customers. Endorsements and Others

4. Other items for which the An amount Rs. 35.28 crore is outstanding as at March 31, 2015 (Previous year: Rs. 15.60 crore). Bank is contingently liable These include liability on account of credit enhancement relating to the sale of mortgage loan portfolio undertaken by the Bank and the unclaimed liabilities where amount due has been transferred to Depositor Education and Awareness Fund (DEAF) with RBI.

*Also refer Schedule Â 12.

12.3 Provisioning Coverage Ratio

In accordance with the RBI guidelines, the Bank''s Provision Coverage Ratio at March 31, 2015 is 74.66% (March 31, 2014: 80.54%).

12.4 Depositor Education and Awareness Fund (DEAF)

In accordance with the guidelines issued by the RBI, the Bank transfers the amount to the credit of any account which has not been operated upon for a period of ten years or any deposit or any amount remaining unclaimed for more than ten years to the DEAF.

12.5 Unhedged Foreign Currency Exposure (UFCE)

In accordance with the RBI guidelines on banks'' exposures to entities with Unhedged Foreign Currency Exposure (''UFCE''), the Bank has put in place a mechanism to seek information from its borrowers and to evaluate the currency induced credit risk. In the case of listed entities, the Bank obtains information relating to unhedged positions based on the latest available audited / reviewed financial statements; whilst in the case of unlisted / private companies, the Bank obtains the aforesaid information based on the latest available audited financial statements (not exceeding a financial year) so as to estimate the extent of likely loss and to provide for incremental capital or to recognise incremental provision in accordance with the aforesaid guidelines. Further, as per the above-mentioned guidelines, the Bank obtains audited and certified UFCE information from the statutory auditors of the borrowers on an annual basis. In the case of smaller entities i.e. entities with exposure to banking industry of less than Rs. 25 crore and as identified by the Bank as having any foreign exchange exposure, the Bank recognises an incremental provision at 10 basis points on all such exposures.

12.8 Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2015 aggregate Rs. 83.26 crore (previous year: Rs. 187.88 crore). In the Bank''s assessment, no financial impact is likely to arise.

12.9 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises. 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. The above is based on the information available with the Bank which has been relied upon by the auditors.

13 OTHER MATTERS

13.1 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2015 (Previous year Rs. 1 crore).

13.2 Changes in accounting estimates

Effective April 1, 2014, Bank has changed the estimated useful life of certain group of assets such as office equipment, electrical fittings and furniture and fixtures in accordance with the recommended useful life as per Part C of Schedule II to the Companies Act, 2013. Pursuant to the transitional provisions under the aforesaid guidelines, the carrying amount of fixed assets amounting to Rs. 6.12 crore where, the remaining estimated useful life as on the effective date is "nil" has been adjusted through retained earnings on approval from the Reserve Bank of India. Further, pursuant to the aforesaid change in the estimated useful life of fixed assets, an additional charge on depreciation amounting to Rs.2.79 crore has been debited through the Profit and Loss Account.

13.3 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 31, 2009 which resulted in a revaluation gain of Rs. 52.02 crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 1.19 crore has been accounted as depreciation and reduced from the Revaluation Reserve. (Previous year: Rs. 1.19 crore).

13.5 Remuneration a) Qualitative disclosures

Remuneration Committee

The Nomination & Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bank''s compensation practices.

The Bank''s objective is to maintain a Compensation Policy that:-

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination & Remuneration Committee.

The Nomination & Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration and risks.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision Report on Range of Methodologies for Risk and Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

Performance linked variable compensation

The variable compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance. Variable compensation of all Whole Time Directors (WTD'') / Chief Executive Officer (''CEO'') will not be more than 70% of the fixed compensation. Any variable compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred variable compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilises performance payout / bonus as the form of variable remuneration. The Bank shall give performance payouts to promote a healthy financial performance by its staff.

15 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2015 and in the previous year except the following:

Effective April 1, 2014 the Bank has changed the estimated useful life of a certain group of assets in line with the recommended useful life as per Part C of Schedule II to the Companies Act, 2013. As per para 7 (b) of Notes to Part C, where the remaining useful life of an asset as on the effective date is nil, the carrying amount of the asset should be recognised in the retained earnings. Such carrying amount as on April 1, 2014 for the Bank was Rs. 6.12 crore. The Bank has adjusted this carrying amount from retaining earnings on approval from the Reserve Bank of India (''RBI'').

16 Net overnight open position outstanding as on March 31, 2015 was Rs. 15.44 crore (March 31, 2014: Rs. 11.04 crore).

17 The Bank''s pending litigations comprise of claims against the Bank by the clients and proceedings pending with Income Tax authorities. The Bank has reviewed all its pending litigations and proceedings and has adequately provided for where provisions are required and disclosed the contingent liabilities where applicable, in its financial statements. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results. Refer para 11.7 for details on contingent liabilities.

18 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 ensured that adequate provision as required under any law / accounting standards for material foreseeable losses on such long term contracts (including derivative contracts) has been made in the books of account.

19 In view of the Bank''s past losses as computed under section 198 of the Companies Act, 2013 the requirements of Section 135 (5) relating to CSR spends as per the Bank''s CSR policy were not applicable for the year ended 31 March 2015.

20 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

21 These are the notes appended to and forming part of the financial statements for the year ended March 31, 2015.

Mar 31, 2014

1. As on 31.03.2014 As on 31.03.2013 (Rs. in 000''s) (Rs. in 000''s)

I. Claims against the bank not acknowledged as debts 444,614 451,346

II. Liability for partly paid investments - -

III. Liability on account of outstanding forward exchange and derivative contracts

(a) Forward Contracts 12,816,430 31,504,363

(b) Interest Rate Swaps and Currency Swaps - -

(c) Foreign Currency Options - -

IV. Guarantees given on behalf of constituents

(a) In India 6,810,379 6,206,499

(b) Outside India 2,484,134 4,645,814

V. Acceptances, Endorsements and other obligations 2,498,837 1,801,463

VI. Other items for which

1 CAPITAL

2. Sale and Transfers to / from HTM Category

Other than oneÂtime transfer of securities to / from HTM category permitted by the RBI at the beginning of the accounting year, oneÂtime transfer permitted in terms of the RBI circular DBOD.BP.BC.No.41/21.04.141/2013Â14 dated August 23, 2013 on "Investment portfolio of banks Â Classification, Valuation and Provisioning" and sale to the RBI under preÂannounced Open Market Operations (''OMO'') auctions, the Bank has not carried out any sale and transfer of securities to / from HTM category during the financial year 2013Â14.

3. Disclosures on risk exposure in derivatives: a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in setting up of the limits and laying down of the risk assessment and monitoring methods.

The policies of the Bank include setting limits upon the notional principal value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bank''s Treasury Back Office and Mid Office. Exposure reports are submitted to the

Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back-to-back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the residual MTM, if any, is accounted in the Profit and Loss Account on a monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

4. Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2014 and March 31, 2013, the Bank has not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL) and Group Borrower Limit (GBL).

5. COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES

5.1 Staff Retirement Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund amounted to Rs.4.83 crore for the year ended March 31, 2014 (Previous year Rs.4.28 crore).

The Bank has a gratuity trust approved by Income Tax Department namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of Rs.10.00 lakhs for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely "Development Credit Bank Ltd. Staff Gratuity Fund" in Government securities (CY about 35%, PY about 35%), high rated corporate bonds (CY about 55%, PY about 55%), Money Market Instruments (CY about 1%, PY about 1%) and units of mutual funds/ insurance companies (CY about 9%, PY about 9%) set up as dedicated funds for management of gratuity funds.

The estimates of future salary increases, considered in actuarial valuation, takes into account inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Estimated rate of return on plan assets is based on the Bank''s expectation of the average longÂterm rate of return expected on investments of the Fund during the estimated term of the obligations.

As the contribution expected to be paid to the plan during the annual period beginning after the balance sheet date is based on various internal/ external factors, a best estimate of the contribution is not determinable.

5.2 Employees'' Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments, including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held on September 11, 2006 had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of shareholders was obtained at the Extraordinary General Meeting held on December 15, 2006 in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank did not grant any options.

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

Activity in options outstanding under Employees Stock Option Plan

Fair value Methodology

The fair value of options used to compute preformed net income and earnings per equity share have been estimated using the binomial option- pricing model. The Bank estimated the volatility based on the historical share prices. There was no option granted during the year ended March 31, 2014.

5.3 Segment Reporting

Part A: Business Segments

As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate Banking, Retail Banking and Other Banking Operations.

Treasury Operations includes all financial markets activities undertaken on behalf of the Bank''s customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions.

Corporate Banking includes lending, deposit taking and other services offered to corporate customers.

Retail Banking includes lending, deposit taking and other services offered to retail customers.

Other Banking Operations includes para banking activities like third party product distribution, merchant banking, etc.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

5.4 Related Party Transactions

Related Party Transactions in terms of AS-18 on "Related Party Disclosures" are disclosed below.

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

Financial Year 2013-14

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs.3.77 crore*

* The above includes increment arrears of Rs.0.32 crore and bonus for FY 2012-13 of Rs.0.60 crore which will be paid in the FY 2014-15.

Financial Year 2012-13

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs.3.12 crore

5.5 Deferred Tax

a. In accordance with AS-22 on "Accounting for Taxes on Income", the Bank has recognised Deferred Tax Assets on such timing differences where there is a virtual certainty based on contracts and arrangements in place that such deferred tax assets can be reversed. Deferred Tax Assets have been recognised on unabsorbed depreciation and restricted to the extent of deferred tax liability arising on account of timing difference arising between book depreciation and tax depreciation and Special Reserve created and maintained u/s 36(1)(viii) of the Income Tax Act, 1961.

5.6 Provisions, Contingent Liabilities and Contingent Assets Description of Contingent Liabilities

Sr. No. Contingent Liability (*) Brief Description

1. Claim against the Bank not acknowledged An amount of Rs.44.46 crore is outstanding as at March 31, 2014, as claims as Debts against the Bank not acknowledged as Debts, including Rs.30.00 crore being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

2. Liability on account of outstanding The Bank enters into foreign exchange contracts on its own account and forward exchange and derivative contracts for customers and currency options/ swaps on a pure hedge basis. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate.

3. Guarantees given on behalf of As a part of its commercial banking activity, the Bank issues Letters of Credit constituents, Acceptances, Endorsements and Guarantees on behalf of its customers. and Others

4. Other items for which the Bank is These include liability on account of credit enhancement relating to the sale of contingently liable. mortgage loan portfolio undertaken by the Bank.

* Also refer Schedule Â 12.

6. Provisioning Coverage Ratio

In accordance with the RBI circular, the Bank''s Provision Coverage Ratio at March 31, 2014 is 80.54% (previous year: 85.71%).

7. Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2014 aggregate Rs.187.88 crore (previous year: Rs.418.28 crore). In the Bank''s assessment, no financial impact is likely to arise.

8. Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises. 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.

9 OTHER MATTERS

9.1 Disclosure of penalties imposed by RBI

RBI, vide its Speaking Order dated July 12, 2013 had directed the Bank to pay a penalty of Rs.1 crore in terms of Section 47 A(1)(c) read with Section 46(4)(i) of the Banking Regulation Act, 1949, for non compliance of RBI instructions. The Bank paid the penalty on July 17, 2013.

No penalties were imposed by the RBI on the Bank during the year ended March 31, 2013.

9.2 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 31, 2009 which resulted in a revaluation gain of Rs.52.02 crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs.1.19 crore has been accounted as depreciation and reduced from the Revaluation Reserve for the year ended March 31, 2014 (Previous year: Rs.1.19 crore).

9.3 Remuneration

a) Qualitative disclosures Remuneration Committee

The Nomination & Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation Policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bank''s compensation practices.

The Bank''s objective is to maintain a Compensation Policy that:-

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination & Remuneration Committee.

The Nomination & Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration and risks.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision Report on Range of Methodologies for Risk and Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

Performance linked variable compensation

The Variable Compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance.

Variable Compensation of all Whole Time Directors (''WTD'') / Chief Executive Officer (''CEO'') will not be more than 70% of the Fixed Compensation. Any Variable Compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred variable compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilises performance payout / bonus as the form of variable remuneration. The Bank shall give performance payouts to promote a healthy financial performance by its staff.

9.5 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2014. (Previous year: Nil)

9.6 Net overnight open position outstanding as on March 31, 2014 was Rs. (11.04) crore (Previous year Rs.11.16 crore).

10 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

10 These are the Notes appended to and forming part of the Financial Statements for the year ended March 31, 2014. the bank is contingently liable 156,004 156,004

TOTAL 25,210,398 44,765,489

Mar 31, 2013

1 CAPITAL

1.1 During the financial year 2012Â13, the Bank issued 9,300,000 equity shares on preferential basis at Rs. 43.68 per share. Net of issue costs, this resulted in an increase of Rs. 9.30 crore in Share Capital and Rs. 30.93 crore in Share Premium Account.

In connection with this issue, the Bank has incurred share issue expenses aggregating to Rs. 0.39 crore. The Bank has utilized the share premium account for meeting the said share issue expenses.

2.1 Sale and transfers to / from HTM Category

Other than one-time transfer of securities to / from HTM category permitted by the RBI at the beginning of the accounting year and sales to the RBI under pre-announced OMO auctions, the Bank had not carried out any sales and transfers of securities to / from HTM category during the financial year 2012-13.

2.2 Disclosures on risk exposure in derivatives:

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Bank''s market risk unit plays a key role in sanctioning of the limits and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principle value of product specific gaps, maximum tenor, overall outstanding and the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Bank''s Treasury and Settlements Department. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back to back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit and Loss Account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the net MTM if any is accounted in the Profit and Loss Account on monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

Coupon payments on IRS are settled on a net basis for individual trades on settlement date. Interest income is recognized on settlement date. The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

Note:

1 Currency derivative includes currency options and cross currency swaps.

2 The above does not include MTM on transaction done to hedge interest bearing asset or liability as these are not marked to market but accounted on accrual basis.

3 Credit exposure is calculated as per the Current Exposure method.

4 Since the portfolio of currency derivatives is a completely hedged book (including transaction done to hedge interest bearing asset or liability), the Bank has not computed the PV01 for these derivatives.

5 The Bank has computed maximum and minimum of PV01 for the year based on balances at the end of every month.

6 Foreign exchange forward contracts have not been included in the above disclosure.

7 The amount of notional principal shown above is converted as per the closing rate of FEDAI for outstanding foreign currency items.

1. Includes interest capitalisation of Rs. 1.23 crore (Previous year: Rs. 1.50 crore).

2. Includes addition to NPAs net off provisions on such NPAs and additional provision on existing NPAs.

3. Includes interest capitalisation of Rs. NIL (Previous year: Rs. 0.05 crore).

4. Includes floating provision of Rs. 1.08 crore (Previous year: NIL).

1. Working funds have been considered as average of total assets (excluding accumulated losses, if any) as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949 during the 12 months of the financial year.

2. Assets have been considered as average of total assets (excluding accumulated losses, if any) as reported to Reserve Bank of India in Form X under Section 27 of the Banking Regulation Act, 1949.

3. For the purpose of this ratio, employees have been considered as the average of the total employees at the end of each month of the year.

4. For the purpose of this ratio, business per employee has been recorded as deposits plus advances (inter bank deposits have been excluded).

Note: Advances reported above include both funded and nonÂfunded loan exposure with limits or outstanding whichever is higher, for other than term loans and NPAs. In case of term loans and NPAs, the outstanding amount has been considered for this purpose. The Advances figure above also includes nonÂinter bank credit exposure on derivatives including forward exchange contracts.

Note: Exposures reported above include both funded and nonÂfunded exposures [including advances and investments (other than SLR Investments and deposits placed with NABARD, SIDBI & NHB)] with limits or outstanding whichever is higher, for other than term loans and NPAs. In case of term loan and NPAs, the outstanding amount has been considered for this purpose. The exposure figure above also includes nonÂinter bank credit exposure on derivatives.

3.1 Details of Single Borrower Limit (SBL) / Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its capital funds to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board.

During the years ended March 31, 2013 and March 31, 2012, the Bank had not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Single Borrower Limit (SBL).

During the years ended March 31, 2013 and March 31, 2012, the Bank had not exceeded the prudential exposure limits as laid down by the RBI guidelines for the Group Borrower Limit (GBL).

4 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES

4.1 Staff Retirement Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund amounted to Rs. 4.28 crore for the year ended March 31, 2013 (Previous year Rs. 4.22 crore).

The Bank has a gratuity trust approved by Income Tax Department namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half month''s last drawn salary for each completed year of service, subject to a cap of Rs. 10.00 lakh for employees who joined after April 1, 2006 and without any such limit for other employees.

All the plan assets are invested by the gratuity trust namely "Development Credit Bank Ltd. Staff Gratuity Fund" in Government securities (CY about 35%, PY about 34%), high rated corporate bonds (CY about 55%, PY about 58%), Money Market Instruments (CY about 1%, PY about 0%) and units of mutual funds/ insurance companies (CY about 9%, PY about 8%) set up as dedicated funds for management of gratuity funds. The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors, such as supply and demand in the employment market.

Estimated rate of return on plan assets is based on our expectation of the average long-term rate of return expected on investments of the Fund during the estimated term of the obligations.

With respect to defined benefit plans, the Bank is yet to determine the contributions expected to be paid to the plans during the annual period beginning April 1, 2013.

4.2 Earnings Per Share (''EPS'')

The Bank reports basic and diluted earnings per equity share in accordance with ASÂ20, "Earnings per Share". The dilutive impact is due to stock options granted to employees by the Bank.

4.3 Employees'' Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and /or the Nomination Committee to grant such number of equity shares and/or equity linked instruments including options of the Bank not exceeding 4% of the Issued Capital or 60,00,000 Equity Shares of the Bank. The Shareholders, at the Annual General Meeting held in September 2006, had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of Shareholders was obtained at the ExtraÂOrdinary General Meeting held on 15th December, 2006, in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank granted the following options:

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

4.4 Segment Reporting

Part A: Business Segments

As per the RBI guidelines on Segment Reporting, the Bank has classified its activity into Treasury Operations, Corporate Banking, Retail Banking and Other Banking Operations.

Treasury Operations includes all financial markets activities undertaken on behalf of the Bank''s customers, proprietary trading, maintenance of reserve requirements and resource mobilization from other banks and financial institutions.

Corporate Banking includes lending, deposit taking and other services offered to corporate customers.

Retail Banking includes lending, deposit taking and other services offered to retail customers.

Other Banking Operations includes para banking activities like third party product distribution, merchant banking, etc.

Part B: Geographic Segments

The Bank does not have overseas branches and the operations are entirely domestic. Therefore, no separate reporting is done based on geographic segments.

4.5 Related Party Transactions

Related Party Transactions in terms of ASÂ18 on "Related Party Disclosures" are disclosed below:

The details of transactions entered into with the Key Management Personnel of the Bank are as under:

Financial Year 2012-13

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 3.12 crore

Financial Year 2011-12

Mr. Murali M. Natrajan : Managing Director

Managerial Remuneration : Rs. 2.86 crore

4.6 Deferred Tax

a. In accordance with ASÂ22 on "Accounting for Taxes on Income", the Bank has recognized Deferred Tax Assets on such timing differences where there is a virtual certainty based on contracts and arrangements in place that such deferred tax assets can be reversed. Deferred Tax Assets have been recognized on unabsorbed depreciation and restricted to the extent of deferred tax liability arising on account of timing difference arising between book depreciation and tax depreciation.

5.1 Provisioning Coverage Ratio

In accordance with RBI circular, the Bank''s Provision Coverage Ratio at March 31, 2013 is 85.71% (previous year: 91.17 %).

5.2 Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2013 aggregate to Rs. 418.28 crore (previous year: Rs. 189.31 crore). In the Bank''s assessment, no financial impact is likely to arise.

5.3 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act 2006, certain disclosures are required to be made relating to Micro, Small and Medium Enterprises. 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. The above is based on information provided by the Bank which has been relied upon by the auditors.

5.4 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2013.

During the year ended March 31, 2012, RBI vide its letter dated April 26, 2011 had directed the Bank to pay a penalty of Rs. 10 lakh. The penalty had been imposed in terms of provisions under section 47 A(1)(b) read with sec 46(4)(i) of the Banking Regulations Act, 1949 for contravention of statutory and regulatory guidelines in few derivative contracts entered into by the Bank during FY 06-07 & 07-08. The Bank has since paid the penalty vide pay order dated May 05, 2011.

6.1 Changes in accounting policies

a) Consequent to migration of treasury software to new integrated solution, the Bank changed the accounting policy to compute profit or loss on sale of investment without utilizing depreciation. Consequently, profit/(loss) on sale of investments under Schedule-14 and provision for investments under provision & contingencies for the year was lower by Rs. 0.28 crore. There is no impact on overall profit after tax during the year.

b) Consequent to migration of treasury software to new integrated solution, the Bank changed the methodology for calculating premium amount on HTM security from each transaction level on FIFO basis to overall security level on a weighted average cost basis. This Premium is amortized over the remaining maturity period of the security on a straight-line basis. Consequently, profit after tax for the year was higher by Rs. 0.19 crore.

6.2 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 2009 which resulted in a revaluation gain of Rs. 52.02 crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 1.19 crore has been accounted as depreciation and reduced from the Revaluation Reserve for the year ended March 31, 2013 (Previous Year: Rs. 1.19 crore).

6.3 Unamortized Pension and Gratuity Liabilities

Consequent on the re-opening of pension option to employees of Public Sector Banks and enhancement in gratuity limits following the amendment to Payment of Gratuity Act, 1972, the RBI vide its circular DBOD.No.BP.BC.80/21.04.018/2010-11 dated February 9, 2011 permitted banks to amortize over a period of five years beginning with the financial year ending March 31, 2011 the expenditure incurred by them on re-opening of pension option as well as enhancement in gratuity limits as aforesaid, subject to certain conditions.

The Bank does not have any unamortized Pension and Gratuity Liabilities in its books as on March 31, 2013.

6.4 Remuneration

a) Qualitative disclosures Remuneration Committee

The Nomination & Remuneration Committee of the Board consists of Independent Directors with one member from the Risk Management Committee of the Board.

Objectives of Compensation Policy

The Bank has put in place a Board approved Compensation policy.

An important objective of the Compensation Policy is to provide all relevant internal and external parties with appropriate information and transparency thereby promoting a thorough understanding of the Bank''s compensation practices.

The Bank''s objective is to maintain a Compensation Policy that:Â

- Is able to attract, retain talent and motivate them to perform at high standards.

- Facilitates a performance culture in the Bank by balancing a mix of fixed pay with variable pay.

- Supports the Bank''s risk management practices and takes into account long-term performance of the Bank.

- Is compliant with regulatory requirements and is approved by the Board''s Nomination & Remuneration Committee.

The Nomination & Remuneration Committee of the Board works in close coordination with the Risk Management Committee of the Board to ensure effective alignment of remuneration & risks.

Risk adjustments in remuneration

The methodologies for adjusting remuneration to risk and performance are consistent with the general risk management and corporate governance framework. Risk adjustments take into account the nature of the risks involved and the time horizons over which they could emerge. The Bank is adhering to the guidelines mentioned in the Basel Committee on Banking Supervision Report on Range of Methodologies for Risk & Performance Alignment of Remuneration and Financial Stability Board (FSB) Implementation standards on sound compensation practices.

Performance linked variable compensation

The Variable Compensation offered is linked to the Bank''s performance and could be even zero during a year of poor performance.

Variable Compensation of all WTD / CEO will not be more than 70% of the Fixed Compensation. Any Variable Compensation above 50% of the Fixed Compensation is to be deferred over a period of 3 years. The same will vest at 40%, 30% and 30% at the end of 1st, 2nd and 3rd year. The Bank reserves the right to prevent any deferred variable compensation from vesting in a year of negative performance. The deferred Variable Compensation shall lapse if the employment is terminated prior to vesting.

The Bank utilizes Performance Payout / Bonus as the form of variable remuneration. The Bank shall give Performance Payouts to promote a healthy financial performance by its staff.

7 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2013. (Previous year: Nil)

8 Net overnight open position outstanding as on March 31, 2013 was Rs. 11.16 crore (Previous year Rs. 12.73 crore).

9 Previous year''s figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

10 These are the Notes appended to and forming part of the Financial Statements for the year ended March 31, 2013.

Mar 31, 2011

A. Description of Contingent Liabilities

Sr. Contingent Liability (*) Brief Description No.

1. Claim against the Bank not acknowledged as Debts. An amount of Rs. 123.06 Crore is outstanding as at 31/03/2011, as claims against the Bank not acknowledged as Debts, including Rs. 109.13 Crore being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. Of this, claims amounting to Rs. 17.93 Crore, for which relief was granted to the Bank, has been appealed against by the Income Tax Department. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

2. Liability on account of outstanding forward The Bank enters into foreign exchange contracts on its own account and for customers and exchange and derivative contracts currency options/swaps on a pure hedge basis. The Bank also enters into Interest rates swaps on its own account. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specificprice within a specified time period or at a specified future time.

3. Guarantees given on behalf of constituents, As a part of its commercial banking activities, the Bank issues Letters of Credit and Acceptances, Endorsements and Others Guarantees on behalf of its customers.

4. Other items for which the Bank is contingently liable. These include purchase and sale of securities on trade date basis where the settlement is guaranteed by the Clearing corporation of India Limited/ Stock Holding Corporation of India Limited.

*Also refer Schedule Ã 12.

10.2 Floating Provisions

There are no floating provisions during the year ended March 31, 2011 or in the previous financial year.

10.3 Provisioning Coverage Ratio

In accordance with RBI circular, the Banks Provision Coverage Ratio at March 31, 2011 is 87.64% (previous year: 70.04%).

10.6 Letters Of Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2011 aggregate to Rs. 266.83 Crore (previous year: Rs. 23.02 Crore). In the Banks assessment no financial impact is likely to arise.

11 OTHER MATTERS

11.2 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2011 as well as in the previous financial year.

11.3 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 2009 which resulted in a revaluation gain of Rs. 52.02 Crore which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 2.50 Crore has been accounted as depreciation and reduced from the Revaluation Reserve for the year ended March 31, 2011.

13 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2011.

14 During the financial year 2009-10 the Bank issued 23,725,835 shares to Qualifed Institutional Investors @ Rs. 34.14 per share. Net of issue costs, this resulted in an increase of Rs. 23.73 Crore in Share Capital and Rs. 54.61 Crore in Share Premium Account.

In connection with the QIP issue, the Bank has incurred share issue expenses aggregating to Rs. 2.66 Crore. It includes expenses related to commission & brokerage which is higher than the limit prescribed under Section 13 of the Banking Regulation Act, 1949. In this connection, the Bank has written to the Reserve Bank of India seeking its approval, which is awaited. The Bank has utilized the share premium account for meeting the said share issue expenses.

15 Net overnight open position outstanding as on March 31, 2011 is Rs. 1.44 Crore (Previous year Rs. 0.40 Crore).

16 Previous years figures have been regrouped / reclassified, wherever considered necessary, in order to make them comparable with figures for the current year.

17 These are the Notes appended to and forming part of the Financial Statements for the year ended March 31, 2011.

Mar 31, 2010

I. BACKGROUND

Development Credit Bank Limited ("DCB" or "the Bank"), incorporated in fviumbai, India is a publiciy held banking company engaged in providing banking and financial services. DCB is a banking company governed by the Banking Regulation Act, 1949.

1. SHARE CAPITAL ft RESERVES

1.1 During the financial year 2009-10 the Bank issued 23,725,835 shares to Qualified Institutional InvestorsÃÂ® Rs. 34.14 per share. Net of issue costs, this resulted in an increase of Rs. 23.73 Cr. in Share Capital and Rs. 54.61 Cr. in Share Premium Account.

2. SUBORDINATED DEBT THROUGH PRIVATE PLACEMENT OF BONDS

During the year the Bank raised Rs, 65 Cr. of subordinated debt. The subordinated debts raised through private placement of bonds are Unsecured Redeemable Non-Convertible Subordinated Tier II bonds in the nature of Promissory Notes to augment capital adequacy.

3. Disclosures on risk exposure in derivatives

a) Qualitative Disclosures

Management of Risk in Derivatives Trading

The Banks market risk unit plays a key role in sanctioning of the limits, and laying down of the risk assessment and monitoring methods. The policies of the Bank include setting limits upon the notional principle value of product specific gaps, maximum tenor, overall outstanding and also the setting-up of counter party-wise, tenor-wise limits.

All limits are monitored on a daily basis by the Banks Treasury and Settlements Department. Exposure reports are submitted to the Treasurer as well as the Head-Market Risk and any limit excesses are brought to the notice of the management immediately for further action.

Policies for Hedging Risk

All transactions undertaken by the Bank for trading purposes are classified under the Trading Book. All other transactions are classified as a part of the Banking Book. The Banking Book includes transactions concluded for the purpose of providing structures to customers on a back to back basis. It also consists of transactions in the nature of hedges based on identification of supporting trades, with appropriate linkages done for matching amounts and tenor within the approved tolerance limits.

The accounting for all derivative trades is done for the Notional amount on the trade date. The valuation of all outstanding trades is done category wise. The valuation for outstanding trades under the Trading portfolio is done on a daily basis and the net MTM is accounted in the Profit & Loss account. The valuation for outstanding trades under the hedged portfolio is done on a monthly basis and the net MTM if any is accounted in the Profit & Loss account on monthly basis. Valuation of the outstanding hedged Forex Options is done on a monthly basis and the net MTM is zero as all customer trades are hedged on identical basis with counter party banks.

Coupon payments on IRS are settled on a net basis for individual trades on settlement date. Interest income is recognized on settlement date.

The MTM position on all outstanding trades of individual corporate customers is reported on a monthly basis to Credit Risk department for exposure monitoring.

4 Details of Single Borrower Limit (SBL)/Group Borrower Limit (GBL) exceeded by the Bank

As per regulatory guidelines, the Bank should restrict its exposure to 15% of its net-worth to any Single Borrower, defined as Single Borrower Limit and 40% as Group Borrower Limit. Additionally, the Bank can lend 5% to infrastructure projects and a further 5% with the specific approval of its Board. During the year ended March 31, 2010 the Bank had extended an exposure of Rs. 120.00 Cr. to Simplex Infrastructure Ltd. with the specific approval of its Board of Directors, which is within the overall limits prescribed above, though exceeding the basic limit of 15% and the additional limit of 5% for infrastructure projects. There was no exposure exceeding the GBL in FY 2009-10 and no exposure exceeding the SBL and GBL during the previous financial year ended March 31,2009.

5 COMPLIANCE WITH ACCOUNTING STANDARDS, READ WITH RBI GUIDELINES

5,1 Staff Retirement Benefits (Accounting Standard 15 Revised)

The contribution to employees Provident Fund amounted to Rs. 3.37 Cr. for the year ended March 31, 2010 (Previous year Rs. 4.37 Cr.),

The Company has a gratuity trust approved by Income Tax Department namely "Development Credit Bank Ltd. Staff Gratuity Fund". Every employee who has completed 5 years or more of service gets gratuity on separation at half months last drawn salary for each completed year of service, subject to a cap of Rs. 3.50 lakhs for employees who joined after 01.04.2006 and without any such limit for other employees.

5.2 Employees Stock Options

The Shareholders of the Bank had approved an ESOP plan Phase I in November 2005, enabling the Board and/or the Nomination Committee to grant such number of equity shares and/or equity linked instruments including options of the Bank not exceeding 4% of the Issued Capital or 6,000,000 Equity Shares of the Bank, The Shareholders, at the Annual General Meeting held in September 2006, had approved an additional 3% of the Issued Capital, aggregating the total Equity Share Capital reserved for all ESOPs to 7% of the Issued Capital from time to time. As the shares of the Bank were subsequently listed, confirmation of Shareholders was obtained at the Extra-Ordinary General Meeting held on 15th December, 2006, in line with the guidelines of the Securities & Exchange Board of India. Pursuant thereto, during the year the Nomination Committee of the Bank granted 1,700,000 options under Sub Plan 1 at a price of Rs. 23.60 per option on June 19, 2009, 592,000 options under Sub Plan 2 at a price of Rs. 41.50 per option on October 12, 2009 and 649,500 options under Sub Plan 2 at a price of Rs. 38.90 per option on January 14,2010.

Under the stock option scheme, options vest in a graded manner over a 5 year period, with 40% at the end of the 3rd year from the date of the grant, 30% at the end of the 4th year from the date of the grant and 30% at the end of the 5th year from the date of the grant for Sub Plan 1 & 30% at the end of the 2nd year from the date of grant, 30% at the end of the 3rd year from the date of the grant, 20% at the end of the 4th year from the date of the grant and 20% at the end of the 5th year from the date of the grant for Sub Plan 2.

Mr. Murali M. Natrajan, MD & CEO has been granted 17,00,000 options. Per terms of his appointment duly approved by the Board of Directors - 50% of these options shall vest in him and shall be exercisable after completing one year from the date of grant. Balance 50% shall vest in accordance with vesting schedule of Sub Plan 1 as mentioned above.

Method used for accounting for ESOP

The Bank has applied the intrinsic value method to account for the compensation cost of ESOP to the employees of the Bank. Intrinsic value is the amount by which the quoted market price of the underlying share exceeds the exercise price of the options.

5.3 Segment Reporting

Part A: Business Segments

As per the RBI guidelines on Segment reporting the Bank has classified its activity into Treasury operations. Corporate Banking. Retail Banking, and other

Banking operations.

Treasury operations includes all financial markets activities undertaken on behalf of the Banks customers, proprietary trading, maintenance of reserve requirements and resource mobilisation from other banks and financial institutions.

Corporate Banking includes lending, deposit taking and other services offered to corporate customers. Retail Banking includes lending, deposit taking and other services offered to retail customers.

5.4 Related Party Transactions

Related Party Transactions in terms of AS-18 on "Related Party Disclosures" are disclosed below, List of Related Parties and details of transactions entered into with them during the year Associate

Platinum Jubilee Investments Ltd.

As per para 4.5 of the Master circular on "Disclosure in Financial Statements - Notes to Accounts" dated 1 st July, 2009, where there is only one entity in any category of related party, banks need not disclose any details pertaining to that related party other than the relationship with that related party.

Since Platinum Jubilee Investments Ltd. is the only entity in the category of associates, details pertaining to the same are not disclosed.

The details of transactions entered into with the Key Management Personnel of the Bank are as under: Financial Year 2009-10

Mr. Murali M. Natrajan Managing Director (from 29 April 2009)

Managerial Remuneration : Rs. 1.69 Cr.

Financial Year 2008-09

Mr. GautamVir Managing Director (till January 15, 2009)

Managerial Remuneration Rs. 1.03 Cr.

5.5 Deferred Tax

a. In accordance with AS-22 on "Accounting for Taxes on Income" issued by the Institute of Chartered Accountants of India, the Bank-has recognized Deferred Tax Assets on such timing differences where there Is a virtual certainty based on contracts and arrangements in place that such deferred tax assets can be reversed. Deferred Tax Assets have been recognized on unabsorbed depreciation to the extent of deferred tax liability arising on account of timing difference arising between book depreciation and tax depreciation,

5.6 Provisions, Contingent Liabilities and Contingent Assets

Description of Contingent Liabilities

Sr. No. Contingent Liability (*) Brief Description 1. Claim against the Bank not An amount of Rs. 114.39 Cr. is outstanding as at 31/03/2010, as claims against the Bank not acknowledged as Debts. acknowledged as Debts, including Rs. 92,83 Cr. being in the nature of a contingent liability on account of proceedings pending with Income Tax authorities. Of this, claims dmounting to Rs. 29.04 Cr., for which relief was granted to the Bank, has been appealed against by the Income Tax Department. The Bank does not expect the outcome of these proceedings to have a materially adverse effect on its financial results.

2. Liability on account of outstanding The Bank enters into foreign exchange contracts on its own account and for customers and currency forward exchange and derivative options/swaps on a pure hedge basis. The Bank also enters into Interest rates Swaps on its own contracts account. Forward exchange contracts are commitments to buy or sell foreign currency at a future date at the contracted rate. Currency swaps are commitments to exchange cash flows by way of interest/principal in two currencies, based on ruling spot rates. Interest rate swaps are commitments to exchange fixed and floating interest rate cash flows. A foreign currency option is an agreement between two parties in which one grants to the other the right to buy or sell a specified amount of currency at a specific price within a specified time period or at a specified future time.

3.Guarantees given on behalf As a part of its commercial banking activities, the Bank issues Letters of Credit and Guarantees on of constituents, Acceptances, behalf of its customers. Endorsements and Others

4.Other items for which the Bank is These include purchase and sale of securities on trade date basis where the settlement is guaranteed contingently liable. by the Clearing corporation of India Limited/Stock Holding Corporation of India Limited.

* Also refer Schedule- 12.

6 Floating Provisions

There are no floating provisions during the year ended March 31, 2010 or in the previous financial year.

7 Provisioning Coverage Ratio

In accordance with RBI circular dated December 1, 2009, the Banks Provision Coverage Ratio at March 31, 2010 is 70.04% (previous year: 56.21%)

8 LettersOf Comfort

The Bank has issued letters of comfort to other banks. Outstanding letters of comfort as on March 31, 2010 aggregate to Rs. 23.02 Cr. (previous year: Rs. 162.35 Cr.). In the Banks assessment no financial impact is likely to arise.

9 OTHER MATTERS

9.1 Disclosure of penalties imposed by RBI

No penalties have been imposed by the RBI on the Bank during the year ended March 31, 2010 as well as in the previous financial year.

9.2 Revaluation of Fixed Assets

The Bank revalued its owned premises as at March 2009 which resulted in a revaluation gain of Rs. 52.02 Cr. which was credited to Revaluation Reserve as at that date. The Bank computes depreciation on such revalued premises over its estimated remaining useful life and accordingly an amount of Rs. 1.22 Cr. has been accounted as depreciation and reduced from the Revaluation Reserve in the year ended March 31, 2010.

10 INCOME FROM BANCASSURANCE BUSINESS

Fees/remuneration received in respect of bancassurance business undertaken during the year was Rs. 11.99 Cr. (previous year: Rs. 15.58 Cr.)

11 DRAW DOWN FROM RESERVES

The Bank has not undertaken any draw down of reserves during the year ended March 31, 2010.

12 Net overnight open position outstanding as on March 31, 2010 is Rs. 0.40 Cr. (Previous year Rs. 1.20 Cr.).

13 Previous years figures have been regrouped/reclassified, wherever considered necessary, in order to make, them comparable with figures for the current year.

14 These are the Notes appended to and forming part of the Financial Statements for the period ended March 31, 2010.

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