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Your Directors are pleased to present the Twelfth Annual Report on business and operations of your Bank together with the audited accounts for the year ended March 31, 2016.
BUSINESS OVERVIEW AND OUTLOOK
Your Bank performed well in Financial Year (FY) 2015–16 with a net profit of Rs. 2,539.4 Crores which is an increase of 26.6% from FY 2014–15. Your Bank showed continued acceleration and momentum in building a strong liability franchise with CASA ratio at 28.1% at the end of FY 2015–16. Your Bank has also completed its Retail Assets Product Suite and remains focused on increasing diversification in advances by growing the Retail and SME book. In terms of Human Capital strength, your Bank has achieved a significant milestone in FY 2015– 16 reaching the 15,000 mark.
Your Bank has continued to maintain best–in–class Asset Quality with a Net NPA ratio of 0.29% amidst a volatile environment, owing to its prudent risk management practices.
Your Bank’s branch network stood at 860 branches and 1609+ ATMs (including Bunch Note Acceptors) as on March 31, 2016. Your Bank is also in the process of commissioning its single largest National Centralised Operations Management & Service Delivery facility in Ambattur, Chennai. Your Bank has adopted an ‘Alliances, Relationships & Technologies – ART’ approach to Digitized Banking by building strong relationships with financial technology firms and leveraging their innovations to provide a superior Banking experience.
STATE OF THE AFFAIRS OF THE BANK
FY 2015–16 was a significant year in your Bank’s lifecycle. Your Bank continued on its consistent performance with PAT growing to Rs. 2,539.4 Crores from Rs. 2,005 Crores showing a Y–o–Y growth of 26.6%.
In FY 2015–16, your Bank raised Rs. 315 Crores (Approx. USD 50 Million) through the issue of Green Infrastructure Bonds to International Finance Corporation (IFC), Washington which is the first investment by IFC in an Emerging Markets GREEN BOND issue in the World. Your Bank also signed the loan agreement with Overseas Private Investment Corporation (OPIC), the U.S. Government’s Development Finance Institution for supporting small business growth in India. The loan facility with OPIC was increased from the original amount of USD 200 Million at the time of signing the Memorandum of Understanding (MoU) to USD 245 Million now.
Your Bank signed a Technical Assistance agreement with Asian Development Bank, Manila, Philippines for a grant of USD 1 Million to finance capacity building activities related to the Rural Financial Inclusion and Farmer Access to Markets Project of YES BANK and to which YES BANK will contribute USD 2 Million.
Your Bank signed an MoU for a USD 50 Million loan from IFC, Washington, to be used exclusively to lend to women–owned businesses. This project is part of the Women Entrepreneurs Opportunity Facility (WEOF), the first–of–its–kind global facility dedicated to expanding access to capital for approximately 100,000 women entrepreneurs.
Your Bank was the first bank in India to commence the operations at International Financial Services Centre (IFSC) at GIFT City, Gujarat. Setting up of an IFSC in India has been the vision of Hon’ble Prime Minister of India, as this would be a major game changer for the financial services sector in India. A banking unit at GIFT IFSC (IBU) is equivalent to a foreign branch and is a significant development in overall augmentation of your Bank’s business model whereby Bank will be in a position to provide comprehensive solutions for its client’s foreign currency banking requirements. The opening of an IBU has boosted YES BANK’s Cross Border Trade offerings, External Commercial Borrowings, Foreign Currency loans/syndications and offshore M&A funding business among others. Your Bank is pleased to report that business momentum at IBU has been building up well with and given the positive feedback from clients, we expect significant ramp–up of business volumes at our IBU in the time to come.
Further information on the Business overview and outlook and State of the affairs of the Bank is discussed in detailed in the Management Discussion & Analysis. There is no change in the nature of business of the Bank for the year under review.
Your Bank is rewarding its shareholders by way of consecutive cash dividends considering the consistent financial performance of your Bank and promising future prospects while retaining capital to maintain a healthy Capital Adequacy Ratio and to support future growth. In view of the excellent financial performance of your Bank and in continuance of the earlier trends of cash dividends, the Board of Directors have recommended Dividend at a rate of Rs. 10 per equity share of Rs. 10 each for the year ended March 31, 2016 for approval by the Shareholders at the 12th Annual General Meeting as against Rs. 9 per equity share of Rs. 10 each for the previous year ended March 31, 2015. This dividend shall be subject to tax on dividend to be paid by the Bank. This increase reflects our confidence in the Bank’s stability to consistently grow earnings over time.
TRANSFER TO RESERVES
As per requirement of RBI regulations, the Bank has transferred the following amounts to various reserves during Financial Year ended March 31, 2016 :
CAPITAL RAISING & CAPITAL ADEQUACY RATIO (CAR)
During the year, your Bank has allotted 27,95,543 equity shares arising out of the exercise of Employees Stock Options. Post allotment of equity shares as aforesaid, the issued, subscribed and paid–up share capital of your Bank stands at Rs. 420.53 Crores comprising of 420,531,641 equity shares of Rs. 10 each as on March 31, 2016.
Your Bank has not issued any equity shares with differential voting rights during the year.
During the year, your Bank has raised Rs. 315 Crores by way of issue of ‘Senior Unsecured Redeemable Long Term Green Infra Bonds’ and Rs. 3,899.2 Crores by way of issue of ‘Nonconvertible, Redeemable, Unsecured, BASEL III compliant Tier 2 Bonds’.
In line with the RBI circular on Capital Adequacy Framework, your Bank has computed capital charge for operational, market and credit risk and its Capital Adequacy Ratio as per Basel III accord as at March 31, 2016.
Your Bank is well capitalized with a Capital Adequacy Ratio of 16.5% as at March 31, 2016; of which Tier I Capital Ratio was 10.7% and Tier II Capital Ratio was 5.8%.
Being a banking company, the disclosures required as per Rule (8)(5)(v)&(vi) of the Companies (Accounts) Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable to your Bank.
AWARDS AND RECOGNITIONS
During the year under review, your Bank was recognized in various ways/by various institutions and some of the awards presented to the Bank are listed below:
YES BANK was recognized as ‘Bank of the Year – India – 2015’, by the world’s leading, The Banker magazine (part of the Financial Times Group, UK) at a ceremony in London. This is the most prestigious worldwide recognition awarded to Banks.
YES BANK won multiple awards in the prestigious Business Today – KPMG India’s Best Banks Survey in January 2016. This is the 7th year in a row, where YES BANK has been recognized by Business Today in its annual Banking survey. The awards include:
Best Mid Sized Bank (Overall)
Best Mid Sized Bank – Quality of Assets
Best Mid Sized Bank – Growth
Most Improved Bank
YES BANK was adjudged ‘Strongest Bank in India by Balance Sheet 2015’ by The Asian Banker Magazine, Singapore. This is the 3rd time in the last 4 years that YES BANK has received this recognition. YES BANK won multiple awards at the Asian Banking and Finance Wholesale Banking Awards 2015 held in Singapore including:
Cash Management Bank of the Year – India
Trade Finance Bank of the Year – India
YES BANK received ‘Pioneer in Banking and Financial
Services’ award at ASSOCHAM Africa–India Champion in Biz Awards 2015.
YES BANK was recognized with the prestigious ‘ET Best Corporate Brand – 2016’ award by The Economic Times publication.
YES BANK was recognized in the Top 10 Brands in the Paul Writer Mumbai Hot 50 List: Won the ‘Excellence in Social Media’ and ‘Best Initiative in Financial Inclusion’ Awards at the Retail Banker International Asia Trailblazer Awards 2015.
Adjudged as ‘Most Promising Brand’ at the Economic Times Most Promising Brands Awards at Mumbai, 2015.
YES BANK was recognized as the ‘Best Corporate/ Institutional Digital Bank’ in India at the Global Finance World’s Best Digital Banks Awards 2015. YES BANK was also recognized as Asia Pacific winner in the category of Best Information Security Initiatives.
YES BANK continued its leadership for the 5th consecutive year on the Carbon Disclosure Leadership Index (CDLI) of CDP. YES BANK scored 98 points out of a maximum of 100 points making it a joint 3rd on the India Leader board of CDP.
YES BANK is finalist for the Asia Sustainability Reporting Awards 2015 (Singapore), in the categories ‘Asia’s Best Sustainability Report’ and ‘Asia’s Best Community Reporting’.
YES BANK was awarded the Special CSR Recognition at the CREDAI Conclave 2015 held during 15 to 17 of December, 2015.
YES BANK received the ‘Outstanding Business Sustainability Achievement Award’ at the prestigious Karlsruhe Sustainable Finance Awards, Germany. This is the 3rd year in a row that YES BANK has received this global recognition.
YES BANK won the ‘Golden Peacock Environment Management Award’ at the 17th World Congress on Environment Management, and became the only Company to receive this prestigious award for the 2nd time.
YES BANK received the ‘Golden Peacock Award for Sustainability 2015’, at the 15th London Global Convention hosted by the Institute of Directors.
EMPLOYEES STOCK OPTION SCHEME
Your Bank has instituted Stock Option Plans to enable its employees to participate in your Bank’s future growth and financial success. Your Bank provides its employees a platform for participating in important decision making and instilling long term commitment towards future growth of the Bank by way of rewarding them through Stock Options. The Stock Option Schemes also enable the Bank to hire the best talent for its senior management and key positions.
The Bank has Four Employee Stock Option Schemes viz.:
Joining Employee Stock Option Plan II (JESOP II);
Joining Employee Stock Option Plan III (JESOP III);
YBL ESOP (consisting of two sub schemes JESOP IV/ PESOP I); and
YBL JESOP V/PESOP II (consisting of three sub schemes JESOP V/ PESOP II/PESOP II –2010).
The Employee Stock Option Plans are administered by the Nomination & Remuneration Committee of the Board of the Bank.
During the year, all new grants have been made in YBL JESOP V/PESOP II scheme. Options under all the aforesaid plans are granted for a term of 10 years (inclusive of the vesting period) and are settled with equity shares being allotted to the beneficiary upon exercise.
No stock options were issued to the Directors of your Bank.
Various details including option movement during the year under Schemes i.e. JESOP II, JESOP III, YBL ESOP and YBL JESOP V/PESOP II respectively are as follows:
As on March 31, 2016, your Bank has one Subsidiary, YES Securities (India) Limited (YSIL).
Performance and financial positions of YSIL
YES Securities (India) Limited successfully completed its second full financial year of operations in March 2016. As on March 31, 2016, YSIL has 52,471 clients. Clients are offered 3 products from the group – A Current/ Savings Account and a Demat account from your Bank, and a Trading account from YSIL. With a view to provide customers with mobile access to its services, YSIL has launched the YES INVEST mobile application for smart phones – Android, Apple and Blackberry Systems. During FY 2015–16, YSIL has earned a total revenue of Rs. 2,445 Lakhs as against Rs. 443 Lakhs in the previous year. YSIL has incurred a loss of Rs. 976 Lakhs in FY 2015–16. YSIL monthly retail trading volume grew by 2.5 times to 293 Crores between April 2015 to March 2016 and the total turnover for the year stood at Rs. 2,318 Crores. The total trading volume from the institutional segment for the year ended March 31, 2016 was Rs. 127 Crores.
BOARD OF DIRECTORS & KEY MANAGERIAL PERSONNEL
Mr. Ajai Kumar
During the year under review, Mr. Ajai Kumar was appointed as Additional Director of the Bank with effect from January 29, 2016, to hold office as Non–Executive Non–Independent Director, liable to retire by rotation. He was earlier associated with the Bank as Strategic Advisor. Mr. Ajai Kumar will hold office as Additional Director of the Bank upto the date of this Annual General Meeting (AGM). Your Bank has received notice in writing from a member proposing the candidature of Mr. Ajai Kumar as Non–Executive Non–Independent Director of the Bank at the ensuing AGM.
The relevant details including profile of Mr. Ajai Kumar is included separately in the Notice and report on Corporate Governance forming part of the Annual Report.
Mr. Ashok Chawla
Mr. Ashok Chawla was appointed as Additional Director of the Bank with effect from March 5, 2016, to hold office upto the date of this AGM. In terms of provisions of Section 149 of the Companies Act, 2013, it is proposed to appoint Mr. Ashok Chawla as an Independent Director, for a period of five (5) years. Your Bank has received notice in writing from a member proposing the candidature of Mr. Ashok Chawla as Independent Director of the Bank at the ensuing AGM.
The relevant details including profile of Mr. Ashok Chawla is included separately in the Notice and report on Corporate Governance forming part of the Annual Report.
Further, the Bank has made an application to the Reserve Bank of India for appointment of Mr. Ashok Chawla as Non Executive Part Time Chairman on the Board of the Bank with effect from October 30, 2016. The said appointment would be made upon the expiry of term of current Non–Executive Chairperson, which would expire on October 29, 2016.
Mr. Ravish Chopra, Independent Director of the Bank, has resigned from the office of the Director with effect from March 30, 2016 on personal grounds due to his preoccupation with other engagements.
Further, Mr. Ajay Vohra, Independent Director of the Bank, on completion of continuous period of eight years, would vacate the office as a Director of the Bank with effect from April 28, 2016 in terms of the provisions of Section 10–A (2–A) of the Banking Regulation Act, 1949.
The Board places on record its appreciation for the valuable services rendered by Mr. Ravish Chopra and Mr. Ajay Vohra during their tenure as Directors of the Bank. Considering the above changes, your Bank will have Ten (10) Directors consisting of Five (5) Independent Directors, Four (4) Non–Executive Directors and Managing Director & Chief Executive Officer (MD & CEO).
Retirement by Rotation
In terms of Section 152 of the Companies Act, 2013, Mr. M. R. Srinivasan, being director liable to retire by rotation, shall retire at the ensuing AGM and being eligible for reappointment, offers himself for re–appointment.
Key Managerial Personnel
Mr. Rana Kapoor, MD & CEO, Mr. Rajat Monga, Chief Financial Officer and Mr. Shivanand R. Shettigar, Company Secretary of the Bank are the Key Managerial Personnel as per the provisions of the Companies Act, 2013 and rules made thereunder.
None of the Key Managerial Personnel has resigned or appointed during the year under review.
Declaration by Independent Directors
The Bank has received necessary declaration from each independent director under Section 149(7) of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (‘Listing Regulations’), that they meet the criteria of independence laid down in the Companies Act, 2013 and Listing Regulations.
Familiarization Program for Independent Directors
The various programs undertaken for familiarizing Independent Directors with the functions and procedures of the Bank are disclosed in the Corporate Governance Report.
Number of meetings of the Board
Regular meetings of the Board are held to discuss and decide on various business policies, strategies and other businesses. The schedule of the Board/Committee meetings to be held in the forthcoming financial year is being circulated to the Directors in advance to enable them to plan their schedule for effective participation in the meetings. Due to business exigencies, the Board has also approved several proposals by circulation from time to time.
The Board met four (4) times during FY 2015–16 viz. on April 22, 2015, July 29, 2015, October 29, 2015 and January 29, 2016. Detailed information on the meetings of the Board are included in the report on Corporate Governance, which forms part of this Annual Report.
Additionally, several Committee meetings were held including Audit Committee meeting, which met six (6) times during the year.
Committees of the Board
The Bank has several Committees which have been established as a part of the best corporate governance practices and are in compliance with the requirements of the relevant provisions of applicable laws and statutes.
The Bank has following Committees of the Board:
Risk Monitoring Committee
Board Credit Committee
Fraud Monitoring Committee
Nomination and Remuneration Committee
Stakeholders Relationship Committee
Corporate Social Responsibility Committee
IT Strategy Committee
Service Excellence, Branding and Marketing Committee
Board Committee on Willful Defaulters & Non Cooperative
Capital Raising Committee
Committee of Independent Directors
The details with respect to the compositions, powers, roles, terms of reference, etc. of relevant committees are given in the report on Corporate Governance of the Bank which forms part of this Annual Report.
Corporate Social Responsibility Committee
In compliance with Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Bank has established Corporate Social Responsibility (CSR) Committee and statutory disclosures with respect to the CSR Committee and an Annual Report on CSR Activities forms part of this Report as Annexure 1.
Performance Evaluation of the Board
In terms of the provisions of the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, your Bank has had laid down criteria for performance evaluation of Directors, Chairperson, MD & CEO, Board Level Committees and Board as a whole and also the evaluation process for the same.
The performances of the members of the Board, the Board level committees and Board as a whole were evaluated at the meeting of the Committee of the Independent Directors and the Board of Directors held on April 26, 2016.
Corporate governance is an ethically driven business process that is committed to values aimed at enhancing an organization’s brand and reputation. This is ensured by taking ethical business decisions and conducting business with a firm commitment to values, while meeting stakeholders’ expectations. Your Bank is committed to achieve the highest standards of Corporate Governance and also adheres to the Corporate Governance requirements set by the Regulators/ applicable laws. Accordingly, your Board functions as trustees of the shareholders and seeks to ensure that the long term economic value for its shareholders is achieved while balancing the interest of all the stakeholders.
A separate section on Corporate Governance standards followed by your Bank and the relevant disclosures, as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Companies Act, 2013 and rules made there under is enclosed as an Annexure to this report.
A Certificate from M/s. BNP & Associates, Practicing Company Secretaries, conforming compliance to the conditions of Corporate Governance as stipulated under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, is annexed to this Report.
MANAGEMENT DISCUSSION AND ANALYSIS
The Management Discussion and Analysis Report for the year under review as stipulated in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is presented in a separate section forming part of this Annual Report.
The Bank has put in place a ‘Whistle Blower Policy’ in compliance with the provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and erstwhile Clause 49 of the Listing Agreement entered with the Stock Exchanges, the Companies Act, 2013, other applicable laws and in accordance with principles of good corporate governance. This policy also incorporates suggestions of the Protected Disclosure Scheme for Private Sector and Foreign Banks, instituted by Reserve Bank of India. In line with the ‘Whistle Blower Policy’, a Whistle Blower can raise concerns relating to Reportable Matters (as defined in the said policy) such as breach of Bank’s Code of Conduct, fraud, bribery, corruption, employee misconduct, illegality, health & safety, environmental issues and wastage/misappropriation of bank funds/assets, etc. However, a Whistle Blower can’t use Whistle Blower Policy to report his/her personal grievances.
Accordingly, the Bank has implemented a web–based ‘Corporate Whistle Blower Initiative’ (CWI) portal, which is an independent online reporting service aimed at facilitating secure and confidential communication between the Bank and Whistle Blower.
Further, the mechanism adopted by the Bank encourages the Whistle Blower to report genuine concerns or grievances and provides for adequate safeguards against victimization of Whistle Blower who avails of such mechanism and also provides for direct access to the Chairman of the Audit Committee of the Board, in exceptional cases.
The functioning of the Vigil Mechanism is reviewed by the Audit Committee of the Board from time to time. None of the Whistle Blowers have been denied access to the Audit Committee of the Board. The details of the Whistle Blower Policy is explained in the report on Corporate Governance and also available on the website of the Bank (www.yesbank.in).
RISK MANAGEMENT POLICY
The Board of Directors of the Bank has overall responsibility for Risk Management. The Board oversees the Bank’s Risk and related control environment, approves and reviews the policies designed as part of overseeing the Risk Management practices. The Board ensures that comprehensive policies, systems and controls are in place to identify, monitor and manage material risks at a Bank–wide level, with clearly defined risk limits.
The Board has put in place Five Board level committees viz. Risk Monitoring Committee (RMC), Audit Committee (AC), Fraud Monitoring Committee (FMC), Board Committee on Willful Defaulters & Non Co–operative Borrowers (BCWDNCB) and Board Credit Committee (BCC), to deal with risk management practices, policies, procedures and have adequate oversight on various risks, the Bank is exposed to. Further, these Committees have also put in place various management committees such as, Asset Liability Committee, Credit Committee, Investment Committee, Outsourcing Management Committee, Information Security Council, IT Apex council, Reputational Risk Management Committee, Enterprise Risk and Capital Committee and Operational Risk Management Committee for day to day management and oversight over various risks. Each Management Committee has a standardized agenda.
The Risk events, potential threats, performance of the Bank vis–à–vis Risk Limits and Risk Appetite, Risk Profile dashboard covering key risk indicators, etc. are presented to the Committees, with QoQ/YoY trends highlighted, as applicable. Regular reporting MIS are also prepared by Risk verticals for Top Management perusal and necessary action.
The Risk Architecture of the Bank is based on Three Lines of Defence as given below:
Business, Operations and Technology team as first line of defence having the overall responsibility of the management and mitigation of the Risk.
Control functions such as Compliance, Risk Management, Fraud Containment Unit, Legal as second line of defence to ensure day to day management of risk such as identification of risk, assessment of risk, monitoring of risk, putting in place processes & policies, providing guidance to business & operations team on management of risks.
Internal & Statutory Audit as Third Line of Defence for independent assurance.
Further, in order to ensure successful implementation of the Three Lines of Defence model and establish a strong Risk Culture in the Bank, the Risk Management Unit also conducts various trainings for business units, on specific areas of relevance to the business units.
Mandatory trainings are also in place for all employees in the Bank to reduce Conduct Risk. The roles and responsibilities of Bank employees clearly articulate Risk Management Key Performance Indicators.
The Bank has Risk Management Department (RMD) under the Chief Risk Officer (CRO) is delegated with responsibilities of managing the risk – including risk assessment, measurement, control and reporting – by the Risk Monitoring Committee (RMC) of the Board.
The Risk Management department consists of various teams such as Credit Risk Unit, General Legal Counsel and Risk Control Units. Credit Risk Unit is responsible for evaluating, rating and underwriting credit under respective Credit Risk Heads. Risk Control Units such as Market Risk, Operational Risk, Enterprise Risk, Information Security, Portfolio Analytics Unit, Credit Risk Control Unit, Credit Mid Office, Credit Intelligence & Analytics and Risk Containment Unit are responsible for independent review, monitoring and reporting of all risk control parameters and take appropriate corrective actions where necessary. These units under the supervision of Chief Risk Control Officer (CRCO) are also responsible for ensuring compliance to internal policies and regulatory guidelines.
The Bank also has a Risk Appetite framework in place that is an articulation and allocation of the quantum of risk YES BANK is willing and able to assume in its exposures and business activities in pursuit of its strategic objectives and desired returns. The Bank’s expansive Risk Appetite framework covers financial and risk–based parameters and the status of the same is monitored on a quarterly basis and reported to the Top Management, Management Committees and the RMC & Board. The Risk Appetite framework is complemented by risk limits across material risks of the Bank.
The Bank conducts a comprehensive Internal Capital Adequacy Assessment Process (ICAAP) exercise as a consultative exercise involving business/operational and risk units of the Bank, on an annual basis. The Risk Management strategy of the Bank is laid down in the ICAAP document. The Risk units perform identification and assessment of risks through discussions with business units to identify all relevant material risks in their sphere of operation to which the Bank is, or may be exposed to, based on forward–looking strategic business plans and projection. The consolidation of the material risks from all business verticals provides a comprehensive view of risks for the Bank, as part of the ICAAP and form the ‘Risk Universe’ for the Bank.
The ICAAP framework and policy are updated annually based on changes in Bank’s risk profile, capital, business requirements and latest RBI guidelines/ developments on Risk Management. The ICAAP is an integral part of the management and decision making process in the Bank.
LOANS, GUARANTEES OR INVESTMENTS IN SECURITIES
Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given or securities provided or acquisition of securities by a Banking company in the ordinary course of its business are exempted from disclosure requirements under Section 134(3)(g) of the Companies Act, 2013.
CONTRACTS OR ARRANGEMENTS WITH RELATED PARTIES
All related party transactions that were entered during the financial year were in the ordinary course of the business of the Bank and were on arm’s length basis. There were no materially significant related party transactions entered by the Bank with Promoters, Directors, Key Managerial Personnel or other persons which may have a potential conflict with the interest of the Bank.
All Related Party Transactions are placed before the Audit Committee for approval. Prior omnibus approval for normal banking transactions is also obtained from the Audit Committee for the related party transactions which are of repetitive nature as well as for the normal banking transactions which cannot be foreseen and accordingly the required disclosures are made to the Committee on quarterly basis in terms of the approval of the Committee.
The policy on materiality of Related Party Transactions and also on dealing with Related Party Transactions as approved by the Audit Committee and the Board of Directors is uploaded on the website of the Bank and the link for the same is https://www.yesbank.in/ investor–relations/corporate governance. html.
Since all related party transactions entered into by the Bank were in the ordinary course of business and were on an arm’s length basis, form AOC–2 is not applicable to the Bank.
CONSOLIDATED FINANCIAL STATEMENTS
Pursuant to Section 129 of the Companies Act, 2013, the Bank has prepared a consolidated financial statement of the Bank and also of its Subsidiary, YES Securities (India) Limited, in the same form and manner as that of the Bank which shall be laid before the ensuing 12th Annual General Meeting of the Bank along with the laying of the Bank’s Financial Statement under sub–section (2) of Section 129 i.e. Standalone Financial Statement of the Bank.
Further, pursuant to the provisions of Accounting Standard (‘AS’) 21, Consolidated Financial Statements notified under section 133 of the Companies Act, 2013, read together with Rule 7 of the Companies (Accounts) Rules, 2014 issued by the Ministry of Corporate Affairs, the Consolidated Financial Statements of the Bank along with its subsidiary for the year ended March 31, 2016 forms part of this Annual Report.
INTERNAL FINANCIAL CONTROL SYSTEMS AND THEIR ADEQUACY
Your Bank has implemented adequate procedures and internal controls which provide reasonable assurance regarding reliability of financial reporting and preparation of financial statements. The Bank also ensures that internal controls are operating effectively.
(a) Statutory Auditors
M/s. S. R. Batliboi & Co., LLP, Chartered Accountants will complete a term of four (4) years at the ensuing AGM and accordingly, in terms of RBI Circular DBS.ARS. BC.7/08.91.001/2000–2001 dated January 30, 2001, they will retire at the conclusion of the 12th Annual General Meeting.
In terms of Section 139 of the Companies Act, 2013 read with Companies (Audit & Auditors) Rules, 2014, the Board of Directors has recommended the appointment of M/s. B. S. R. & Co., LLP, Chartered Accountants as Statutory Auditors of the Bank for a period of 4 years, subject to the approval of the Reserve Bank of India, to hold office from the conclusion of the ensuing 12th AGM till the conclusion of 16th AGM on remuneration to be decided by the Board or Committee thereof.
The Bank has received the consent from the Auditors and confirmation to the effect that they are not disqualified to be appointed as the Auditors of the Bank in terms of the provisions of the Companies Act, 2013 and rules made there under. The Shareholders are requested to consider and approve the appointment of the Statutory Auditors of the Bank.
(b) Secretarial Auditors and Secretarial Audit Report
Pursuant to Section 204 of the Companies Act, 2013, your Bank had appointed M/s. Mehta & Mehta, Practicing Company Secretaries, Mumbai as its Secretarial Auditors to conduct the secretarial audit of the Bank for FY 2015–16. The Bank provided all assistance and facilities to the Secretarial Auditor for conducting their audit. The Report of Secretarial Auditor for FY 2015–16 is annexed to this report as Annexure 2.
There is no Audit Qualifications in the Statutory Auditors Report and in the Secretarial Audit Report as annexed elsewhere in this Annual Report.
BUSINESS RESPONSIBILITY REPORT
As stipulated in SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Business Responsibility Report describing the initiatives taken by the Bank from environmental, social and governance perspective is attached as part of this Annual Report.
MATERIAL CHANGES AND COMMITMENT AFFECTING FINANCIAL POSITION OF THE BANK
There are no material changes and commitments, affecting the financial position of the Bank which has occurred between the end of the financial year of the Bank i.e. March 31, 2016 and the date of the Directors’ report i.e. April 27, 2016.
SIGNIFICANT AND MATERIAL ORDERS PASSED BY REGULATORS
During the year under review, no significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and Bank’s operation in future.
The Board of Directors of the Bank formulated and adopted policies for Remuneration of Employees of the Bank, Remuneration of Directors including the Chairperson of the Bank. The details of the same have been included in the Report on Corporate Governance, which is forming part of this Annual Report.
(a) The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 forms part of this report. In terms of Section 136 of the Companies Act, 2013 the same is open for inspection at the Registered Office of your Bank. A copy of this statement may be obtained by the members by writing to the Company Secretary of your Bank.
(b) The ratio of the remuneration of each director to the median employee’s remuneration and other details in terms of sub–section 12 of Section 197 of the Companies Act, 2013 read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, are forming part of this report as Annexure 3.
DISCLOSURES UNDER GREEN INFRA BONDS
Given the Government of India’s focus on India’s renewable energy potential and the target of achieving 175 GW of additional capacity installation by 2022, it is estimated that the renewable energy sector will require significant structured financing. There is a need to evolve innovative instruments to finance projects in the renewable energy, and Green infrastructure bonds are one such specialized avenue that allows finances to flow to vital clean energy projects.
YES BANK, India’s 5th largest private sector bank has successfully issued India’s first ever Green Infrastructure Bonds raising an amount of Rs. 1,000 Crores. The issue launched on February 16, 2015 for Rs. 500 Crores plus green shoe option witnessed strong demand from leading investors including Insurance companies, Pension & Provident Funds, Foreign Portfolio Investors, New Pension Schemes and Mutual Funds, resulting in a total subscription of Rs. 1,000 Crores and was closed on February 24, 2015. These bonds are for a tenor of 10 years.
YES BANK has also raised Rs. 315 Crores through the issue of Green Infrastructure Bonds to International Finance Corporation on a private placement basis. This is the first investment by IFC in an Emerging Markets Green Bond issue in the world. The bonds are for a tenor of 10 years.
The amount raised through both these issues, are used to finance Green Infrastructure Projects as per ‘Eligible Projects’ outlined in the Bank’s internal guidelines for adherence to Green Bond Principles. KPMG India is providing the Assurance Services this year, on the use of proceeds in accordance with the Green Bond principles.
Green Bond Principles
The Green Bond Principles (GBP) are voluntary process guidelines intended for broad use by the market that recommend transparency and disclosure, and promote integrity in the development of the Green Bond market. The Principles provide issuers guidance on the key components involved in launching a credible Green Bond; they aid investors by promoting availability of information necessary to evaluate the environmental impact of their Green Bond investments; and they assist underwriters by moving the market towards standard disclosures which will facilitate transactions. The GBP emphasize transparency accuracy which may be increasingly used for strategic decision making by investors. The GBP has four components, YES BANK has adopted, outlining the following key elements of
Use of proceeds;
Process to identify, evaluate and select eligible projects; Management of proceeds; and Reporting.
Use of Proceeds
The proceeds raised through the issue of these bonds/ debentures would be used in eligible project categories to enhance the long term resources for funding infrastructure projects, and will include all projects funded in whole, or in part, in the fields of renewable and clean energy projects including generation (including Greenfield) from sources such as Wind, Solar, Biomass, Hydropower and other such projects’. Wind, Solar, Hydro and Biomass projects sanctioned post the closure of debenture subscription only (February 24, 2015 for the Rs. 1,000 Crores issue, and August 5, 2015 for the Rs. 315 Crores issue) are considered for the allocation of the proceeds from Green Bonds.
Process for Evaluation and Selection of Eligible Projects
Along with the Bank’s credit policy that provides guidance for the identification, formulation and appraisal of projects, the Bank has also formally adopted an Environment and social Policy (ESP) which governs its lending decisions. The Project evaluation process follows from the interactions with potential borrower to understand the overall aspects of the project and a comparison against the eligibility criteria. Post preliminary consideration, based on the merits of the project, the evaluation moves to the risk team which assesses it and convey opinion on detailed due–diligence, if required.
The eligibility of the project is thus confirmed and further documentation is sought as per the Bank’s policies and Green Bond Principles.
Management of Proceeds
The proceeds from Green Bond are tracked internally on a quarterly basis. A tracker maintains information on eligible projects as per the criteria outlined in the guidelines and respective allocated amounts, in a pre–decided format. The unallocated proceeds would be placed in temporary instruments on a quarterly basis.
Communication to investors through an annual update would include information on allocation of proceeds: List of projects to which Green Bond proceeds have been allocated;
Brief description of these projects including installed capacity and annual generation of renewable energy (wherever applicable);
Summary of environmental and social impacts associated with these projects, if any; and Types of temporary investment instruments for the balance of unallocated proceeds
(1) The disclosures to be made under sub–section (3) (m) of Section 134 of the Companies Act, 2013 read with Rule (8)(3) of the Companies (Accounts) Rules, 2014 by your Bank are explained as under:
(A) Conservation of energy–
Environmental stewardship in the financial sector – ISO 14001:2004 Environmental Management System (EMS) certification for the Bank embarked on the 3rd year Benchmarking continual improvement and exponential growth in the Indian Banking space, YES BANK has achieved significant internal natural resource consumption efficiencies and minimized its carbon footprint. YES BANK is the first commercial bank in India to achieve the ISO 14001:2004 certification and has aligned its Environment Management System to the international standard. As on March 31, 2016, 184 YES BANK locations, including 75 cluster hubs, 106 hubs and 3 corporate offices, have been ISO 14001:2004 certified.
Through a greater owner–manager–partner behavior and participation among all relevant internal stakeholders, the Bank has been able to demonstrate its commitment to the requirements of the certification and strengthen measurement and management of its carbon footprint. The certification is based on the Bank’s Environmental Management Policy that was released in 2012 and firmly outlines the Bank’s commitment to achieve a 5% reduction in its carbon emissions intensity through broad–level actions.
The Bank aims to achieve the revised ISO 14001:2015 compliance in the next financial year. Aggressive awareness creation on electricity, paper, water, diesel conservation in day–to–day activities at the Bank has been created through wide circulation of resource conservation mailers, signage and posters to employees. Periodic trainings on Environmental Management System through mandatory quizzes, workshops, among others have actively engaged employees in ideas generation and their implementation.
(i) the steps taken or impact on conservation of energy;
YES BANK’s energy management initiatives over a 2 year period will aim at reducing 15 to 20 % energy consumption in all our facilities. Some of the key initiatives undertaken include:
Installation of energy intelligence software which helps in dynamic monitoring of consumption across facilities. This will result in 5 to 7 % savings. The pilot study conducted over few branches was successful. We will target 400 branches for implementation in 2016 and the rest in 2017.
Testing of retrofit solutions for HVAC systems and which has a potential saving of 10 to 15 % we will be incorporating some of the solutions in a phased manner over a 2 year period.
Incorporation of LED lighting in some of our facilities. It has a huge potential and will be taken up for implementation in to all of our facilities in phased manner. So far 2,812 nos of LED lights have been installed with a potential saving of 2,03,870 KWH of energy consumption and approx Rs. 16.5 Lakhs of saving.
As a part of clean energy initiative we are doing a feasibility study in 10 of our branches for rooftop solar energy generation.
Installation of Global Positioning System (GPS) in office runners: GPS tracking devices were installed in two wheelers across National Capital Region (NCR) region in phases to track the Km running on actual & save on fuel cost.
(ii) the steps taken by the Bank for utilizing alternate sources of energy:
Your Bank has explored the potential of using alternate sources of energy through pilot projects of installation of solar rooftop power generation & access of renewable energy through open access and your Bank would continue to explore alternative sources of energy in future.
(iii) the capital investment on energy conservation equipments:
Rs. 39.48 Lakhs upto present financial year (LED Tube lights project at IFC, Mumbai).
(B) Technology Absorption–
(i) The efforts made towards technology absorption:
Technology is a key enabler and core facilitator to the key goals of your Bank and is identified as one of the strategic pillars of the Bank. Since inception your Bank has been at the forefront of leveraging technology to provide better products and services to its customers. Your Bank is a truly differentiated Financial Institution with world–class, state–of–the–art technology.
All departments within the Bank use IT to deliver superior products and services to the customers.
Your Bank has adopted innovative modern technology and best in class international banking practices in respect of governance frameworks – to ensure that it renders the highest standards of service quality and operational excellence to its customers. As a new generation Bank, your Bank has deployed ‘Technology’ as a Strategic Business enabler – to build a distinct competitive advantage and to achieve Superior standards of Customer Service. The technology architecture and the innovative IT Outsourcing structure has enabled your Bank to achieve high standards of Customer Service at comparatively lower cost structures.
Your Bank is moving towards service oriented architecture by implementing Enterprise Service Bus (ESB). An ESB is a Web–services capable infrastructure that supports intelligently directed communication and mediated relationships among loosely coupled and decoupled biz components.
The service oriented architecture to assist your Bank’s large and e–commerce firms who are technology–driven or require time sensitive processing to consume your Bank’s ESB Services for their payment and receivables.
With a view to support new initiatives, innovations and ensure customer delight, your Bank has upgraded various systems and platforms as also implemented new systems and platforms. Your Bank has augmented direct channels infrastructure and further embarked on upgrading its core banking systems. Your Bank has implemented virtualization in its data centers, to ensure its IT Infrastructure is highly resilient and usage is optimized. As a result your Bank has reduced its carbon footprint.
The Bank has embarked upon implementing Virtual Desktop Infrastructure (VDI). VDI refers to the process of running a user desktop inside a virtual machine that resides on a server in the datacenter. It’s a powerful form of desktop virtualization because it enables fully personalized desktops for each user with all the security and simplicity of centralized management. VDI will help us in streamlining management and costs by consolidating and centralizing the desktops while delivering end–users mobility. This will enable access to virtual desktops anytime, from anywhere, on any device.
This means a more centralized, efficient client environment that is easier to maintain and able to respond more quickly to the changing needs of the user and business. Your Bank has launched YES PAY, a digital wallet to carry cash in safe, secure and convenient way. YES PAY is a Digital Wallet enabling Social Media & smart phone users to register seamlessly and then spend wisely. It provides a host of facilities like Mobile/DTH recharge, purchase of gift vouchers and avail discount coupons. Your Bank has implemented YES SECURE which is an alternate second factor authentication mechanism to existing SMS and IVR/Email OTP. YES SECURE empowers customer to generate an OTP without having mobile connectivity, even in ‘no network’ zone
Your Bank was the first to launch API Banking platform which provides secure layer for reliable access to banking system and business process for corporates. Your Bank was the first private sector bank to launch a unique service names ‘BANK in a BOX’ by deploying Bunch Note Acceptors/Recyclers across corporate clients in sectors like Retail stores, Hospitals, Gold Showrooms, Co–operative banks, Logistics, Airlines etc. Presently your Bank has 359 live note acceptors/recyclers installed across the country, and plans to implement around 1,000 boxes in a year’s time. This innovation has automated the cash handling process in the mentioned sectors that previously relied on traditional methods of managing cash predicted on door step banking method. Your Bank has also won prestigious ‘FINNOVITI Award 2016’ for the API Banking and BANK in a BOX.
(ii) the benefits derived like product improvement, cost reduction, product development or import substitution:
Technology has responded by being true strategic partner with business. Many first mover implementations have provided business, long lasting advantages, as also won many accolades and awards for the Bank. One of the finest direct banking platforms, first bank in India to offer two factor authentication, single PIN access to all electronic channels, Wi–Fi branches are some of the examples.
Innovations like API Banking, ‘Bank in a BOX’, Money Monitor (aggregation of customer accounts of all types across 11,000 institutions globally), Mobile Money Services, dual factor authentication, one view of customer relationship and most advanced voice enabled IVR helps the products and sales teams to offer superior products and services.
Your Bank has evaluated and implemented cutting edge technologies like virtualization, cloud computing and social media to invest in the best in class IT systems and practices, and in order to ensure that its technology platform becomes a strategic business tool for building a competitive advantage.
Apart from product development, product improvement & effective cost management, technology has also played a major role in customer acquisition & ensuring high level of service delivery & customer excellence. Your Bank has also been able to cater to Financial Inclusion needs through its award winning and globally recognized technology solution platform which offers doorstep banking services.
(C) Foreign exchange earnings and Outgo:
The Foreign Exchange earned in terms of actual inflows during the year and the Foreign Exchange outgo during the year in terms of actual outflows.
During the year ended March 31, 2016, the Bank earned Rs. 195.52 Crores and spent Rs. 377.94 Crores in foreign currency. This does not include foreign currency cash flows in derivatives and foreign currency exchange transactions.
(2). Number of cases filed, if any, and their disposal under Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013.
The Bank has Zero tolerance towards any action on the part of any executive which may fall under the ambit of ‘Sexual Harassment’ at workplace, and is fully committed to uphold and maintain the dignity of every women executive working in the Bank. The Policy provides for protection against sexual harassment of women at workplace and for prevention and redressal of such complaints. Further, Bank has a plan in place for ongoing training to create awareness on this policy among executives under the Gender Respect And Commitment to Equality (GRACE) program.
EXTRACTS OF ANNUAL RETURN
Pursuant to sub–section 3(a) of Section 134 and subsection (3) of Section 92 of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the extracts of the Annual Return as at March 31, 2016 forms part of this report as Annexure 4.
DIRECTORS’ RESPONSIBILITY STATEMENT
Pursuant to the requirement under Section 134(5) of the Companies Act, 2013, it is hereby confirmed that:
(a) in the preparation of the annual accounts, the applicable accounting standards had been followed along with proper explanation relating to material departures;
(b) the directors had selected such accounting policies and applied them consistently and made judgments and estimates that are reasonable and prudent so as to give a true and fair view of the state of affairs of the Bank at the end of the financial year and of the profit of the Bank for that period;
(c) the directors had taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies Act, 2013 for safeguarding the assets of the Bank and for preventing and detecting fraud and other irregularities;
(d) the directors had prepared the annual accounts on a going concern basis;
(e) the directors, had laid down internal financial controls to be followed by the Bank and that such internal financial controls are adequate and were operating effectively; and
(f) the directors had devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.
Your Directors take this opportunity to express their deep and sincere gratitude to the customers of the Bank for their confidence and patronage, as well as to the Reserve Bank of India, Securities and Exchange Board of India, Government of India and other Regulatory Authorities for their co–operation, support and guidance. Your Directors would like to express a deep sense of appreciation for the commitment shown by the employees in supporting the Bank in its continued robust performance on all fronts. Your Directors would also like to thank the employees for their continued support as the Bank evolves as the ‘Professionals’ Bank of India’ with a vision of ‘Building the Finest Quality Bank of the World in India by 2020’ For and on behalf of the Board of Directors
Managing Director & CEO Non–Executive
(DIN No: 00320702)
(DIN No: 02227854)
Date: April 27, 2016