To the Members of
KOTAK MAHINDRA BANK LIMITED
The Directors present their Thirty-second Annual Report together with the audited
accounts of your Bank for the year ended 31st March 2017. FINANCIAL HIGHLIGHTS
(A) Kotak Mahindra Bank Limited - Consolidated financial highlights:
||31st March 2017
||31st March 2016
|Total expenditure, excluding provisions and contingencies
|Provisions and contingencies, excluding provision for tax
|Profit before tax
|Provision for taxes
|Profit after tax
|Less: Share of minority interest
|Add: Share in profit of Associates
|Consolidated profit for the Group
|Earnings per Equity Share:
|Basic ( Rs. )
|Diluted ( Rs. )
(B) Kotak Mahindra Bank Limited - Standalone financial highlights:
||31st March 2017
||31st March 2016
|Total expenditure, excluding provisions and contingencies
|Provisions and contingencies, excluding tax provisions
|Profit before tax
|Provision for taxes
|Profit after tax
|Add: Surplus brought forward from the previous year
|Add: Net Additions on Amalgamation
|Amount available for appropriation
Statutory Reserve under Section 17 of the Banking Regulation Act,
|Transfer to / (from) Investment Reserve Account
|Transfer to Capital Reserve
|Transfer to Special Reserve
|Dividend / Proposed Dividend
|Corporate Dividend Tax
|Surplus carried to Balance Sheet
* As per the requirements of pre-revised AS 4 - 'Contingencies and Events Occurring
after the balance sheet date', the Bank used to create a liability for dividend proposed /
declared after the balance sheet date if dividend related to periods covered by the
financial statements. As per AS 4 (Revised), with effect from April 2016, the Bank is not
required to provide for dividend proposed / declared after the balance sheet date.
Your Directors are pleased to recommend a dividend of ' 0.60 per equity share (previous
year '0.50 per equity share) for the year ended 31st March 2017. This would
entail a payout of '132.94 crore including dividend distribution tax (previous year '
110.53 crore) based on the number of shares as at 31st March 2017. The dividend
would be paid to all the shareholders, whose names appear on the Register of
Members/Beneficial Holders list on the Book Closure date.
Pursuant to Regulation 43A of the Securities and Exchange Board of India (Listing
Obligations and Disclosure Requirements) Regulations, 2015, the Board of Directors of the
Bank have adopted a Dividend Distribution Policy which is in line with the parameters
prescribed by SEBI for distribution of dividend. The Policy is available on the Bank's
website viz. URL:http://ir . kotak.com/governance/policies.html
During the year, your Bank has allotted 50,89,746 equity shares arising out of the
exercise of Employees Stock Options granted to the employees and whole-time directors of
your Bank and its subsidiaries and 14,25,313 equity shares arising out of the exercise of
Employee Stock Options under the adopted ESOP Schemes of the erstwhile ING Vysya Bank Ltd.
(elVBL). Further, in November 2016, your Bank allotted 660 equity shares in lieu of the
rights entitlement held in abeyance by elVBL and bonus entitlement thereon.
Post allotment of equity shares as aforesaid, the issued, subscribed and paid-up share
capital of the Bank stands at ' 9,20,44,89,385 comprising of 1,840,897,877 equity shares
of ' 5 each as on 31st March 2017.
Your Bank has a Capital Adequacy Ratio ('CAR') under Basel Ill as at 31st
March 2017 of 16.77% with Tier I being 15.90%.
During the year, your Bank has not issued any capital under Tier II. As on 31st
March 2017, outstanding Unsecured, Redeemable Non-Convertible, Subordinated Debt Bonds
were ' 858.80 crore and outstanding Unsecured, Non-Convertible, Redeemable Debt Capital
Instruments Upper Tier II stood at '348.28 crore.
Pursuant to the approval of the Board of Directors on 30th March 2017 and
approval of the shareholders on 9th May 2017, your Bank undertook a Qualified
Institutions Placement of up to 6.2 crore equity shares of ' 5 each of the Bank at an
issue price of ' 936 per equity share which received an overwhelming response. Allotment
of the equity shares pursuant to the issue is pending and are proposed to be allotted on
18th May 2017.
OPERATIONS Consumer Banking
The Consumer Banking business of your Bank, services a wide spectrum of customers
including domestic individual and households, non-residents, small and medium business
segments for a range of products from basic savings & checking accounts to term
deposits, credit cards, unsecured and secured loans, working capital and distribution of
Your Bank completed integration of branches and technology of the merged network of the
erstwhile ING Vysya Bank during the course of the year. This has enabled your Bank a wider
foot print coupled with the Digital push. Bank has engaged in a calibrated network
expansion and as of 31st March 2017 had 1369 branches and 2163 ATMs, covering
689 locations. Of the 36 new branches commissioned this year, 12 were in rural and
semi-urban locations. It added about 13.99 lac new customers this year across core banking
products of savings and checking accounts, term deposits, overdrafts and non-resident
Your Bank rolled out several initiatives aimed at offering a superior and
differentiated customer experience. Some key ones are:
Products and Services
Enhanced its suite of products positioned at customer clusters and launched a
new offer, Flexi-Balance - a Current Account proposition tailored exclusively for
SMEs having common/same family promoters. The proposition gives the benefit of pooling in
balances across related SMEs without each SME needing to maintain independent balance in
each of the Current Accounts.
Overall strategy of segmented approach continues to yield benefits. The
segmented Savings programs like Silk and Junior continue to show significant growth Y-o-Y.
Launched a new program, MY FAMILY, focused on acquiring banking
relationship of the whole family by giving proposition to pool the balances across
multiple savings accounts and get additional benefits. The Investment led Savings Account
- Alpha was re-launched in the last quarter on this fiscal based on customer and channel
Instituted Customer life cycle management programs, targeting key journeys of
the customer. The New to Bank Customer life cycle management program was launched to
ensure a smooth and seamless on-boarding of new customers. The other significant
journey that was launched was Inactive / Dormant life cycle to manage attrition of the
Focused on activities like Aadhaar penetration and digital activation of
a) Non Resident Indian Business
Some of the key initiatives taken this year are:
Extended C2R money transfer mode for UAE. NRI clients can now use this medium to
transfer money from UAE to their Kotak Bank account in India.
Further expanded the network of exchange house relationships and the count now
stands at 35, covering the following countries - Australia, Canada, GCC, Hong Kong,
Malaysia, New Zealand, Singapore, UK and USA.
Participated in various international business forums organized by the Indian
community in various countries, as a platform to reach out to the overseas Indian
Signed MoU with Ecobank, Nigeria for mutual customer referrals. Ecobank is a
leading pan-African bank with operations in 36 countries across the continent.
b) Priority Banking Business
A new tier - "Maxima" was launched across semi urban and rural branches to
cater to the aspiring and affluent segment in these locations. A Privy League branded
variant of the "Delight" credit card with exclusive benefits, was also launched
for the Privy League Prima customers.
c) Corporate Salary Business
Corporate salary business introduced a niche team of Premier Acquisition Managers to
tap the every growing boutique and niche smaller firms in finance; technology and start-up
segment. With this initiative, the corporate salary business on-boarded over 35 large
niche corporates this year.
d) Consumer Assets
Your Bank has continued to grow the product lines under the Consumer Assets business.
Credit Card: Credit card business has issued 9.03 lac cards by March 2017 and is in its
eighth year of operations. The credit card business has clocked total spends of '6,696
crore for the year at 47.3% growth Y-o-Y with a book size of '1459 crore.
Home Finance: As on 31st March 2017, Home Loan disbursement volumes were up
20% Y-o-Y while book growth was at 12% Y-o-Y. The Non Individual LAP book growth was 14%
while disbursement volumes in LAP were up 18% Y-o-Y. Your Bank has expanded its home
finance business further in Tier II cities.
Cross Sell through Bank Branches, Corporate Salary, Priority Channel, and Wealth Teams
contributed to around 44% of total volume.
This year also witnessed very low losses on account of effective recovery and
collection processes and policies adopted.
The Commercial Banking business focuses on meeting the banking and financial needs of
various segments. It partners Small and Medium Enterprises (SMEs) across the country and
provides financing in the manufacturing, trading and service industry. The business has
specialised units which offer financial solutions in the areas of commercial vehicles,
construction equipment, tractor, gold loans and agriculture business. It services the
priority sector by providing finance for tractor, crop loans, small enterprises and allied
agricultural activities. The business plays a significant role in meeting financial
inclusion goals and financing deep into 'Bharat' through an expanding network of branches
Following the merger with the erstwhile ING Vysya Bank Ltd., the SME/Business Banking
portfolio was consolidated during the year, which has resulted in creating efficiency and
a wider customer base. While the stress levels in the sector went up in the first half,
they have stabilized considerably in the second half.
The Commercial Vehicle (CV), Construction Equipment (CE) and Tractor Finance businesses
reported significant growth and gained market share in their respective businesses. The
demand for commercial vehicles was primarily led by replacement and regulatory changes
such as revised body specifications and transition from BSIII to BSIV. Further, Government
spending in the infrastructure sector has led to a strong demand in the CE industry. The
growth in the tractor finance portfolio was driven by higher tractor sales following a
good monsoon. The overall delinquency percentage of the CV, CE and tractor finance
portfolios has reduced.
The Agriculture Financing business continued its focus on the agriculture value chain
funding for various agro processing activities. It has registered growth despite
volatility and uncertainty in the commodities market. Further, the Bank has expanded its
crop loan business, so far concentrated in Punjab and Haryana, to Western and Central
The Wholesale Banking business caters to the diverse needs of a wide range of
corporate customer segments including major Indian corporates, conglomerates, financial
institutions, public sector undertakings, multinational companies, mid-market companies
and realty businesses. The business offers a comprehensive portfolio of products and
services to these customers including working capital finance, medium term finance, trade
finance, foreign exchange services, other transaction banking services, custody services,
debt capital markets and treasury services.
Having completed the integration of the erstwhile ING Vysya Bank last year, the
Wholesale Banking division has been focused on maximizing the benefits of this transaction
through higher growth in a profitable manner.
Given the slow credit off-take in the economy during the year, the Wholesale Banking
Business has targeted growth through growth of market share and this has been achieved
through higher customer acquisition, improved customer service and product innovations.
Some of the key initiatives to serve customers better are:
Continue to have equally high focus on adding new customers as increasing its
wallet share with the existing customers. The year saw a healthy addition of
New-to-Bank customers across customer segments, which in turn sets a strong foundation for
future growth in the business.
Set up a dedicated Service Solutions vertical to ensure faster customer
response and improve customer experience. This vertical is the single point of contact for
all service related and documentation issues with personnel present across the country.
Focus on this area has helped your Bank significantly improve its Turn-Around-Time (TAT)
across various processes including account opening and disbursals. Ongoing initiatives
such as digitization and Tablet Banking will help reduce TAT further in the coming year.
Focus on improving its suite of product offerings. During the year, the
Wholesale Banking business launched a number of new innovative state of the art,
best in class product solutions sets. The Bank witnessed significant addition of assets
through higher focus on products such as LCBDs (discounting of Letters of Credit),
Factoring, external benchmarked linked loans and discounting of long term lease rentals
(LRDs). Your Bank has set up its GIFT City branch this year which has helped it to
participate in syndication of overseas loans.
Your Bank has continued to work on ensuring a healthy portfolio through a volatile
economic environment and has kept a tight control on asset slippages. This has been
achieved through a proactive rebalancing of the portfolio to reflect economic situations
and reduction in exposure to situations with heightened risk. Your Bank's focus on risk
management has helped the business reduce its risk weighted assets (RWA) over the past few
years despite an increase in its exposure. Bank has also put in place a pricing
mechanism based on the Risk Adjusted Return on Capital (RaRoC) model which has helped to
optimize pricing and better utilize capital. Coupled with the reduction in RWA, the
business has achieved a significant improvement in its return on equity.
It has an integrated Corporate and Investment Banking (CIB) coverage model for some of
the top conglomerates and large corporate. The year saw a stabilization of the CIB model
with the Bank being able to significantly increase its banking wallet share and also
increase its investment banking business with these large corporate. As a testimony to
your Bank's efforts in this area, Asiamoney has awarded your Bank the Best Corporate and
Investment Bank in 2017 in India.
It has continued to focus on institutionalizing and improving practises leading to
better efficiencies. A number of tools are being put in place to monitor the productivity
and efficiency of the sales force. Given high focus in this area, costs have been kept
well in control further improving profitability of the business.
The Integrated Global Transaction Banking Services has had a strong year across its
large suite of products. Current Account & Savings Account balances saw significant
growth through focused marketing efforts and early to launch products such as ASBA. Trade
funded book crossed '10,000 crore this year. Bank's Cash Management System (CMS) has won a
number of awards this year including Best Cash Management Bank in India by the Asian
Banker. A separate LCBD desk was set up which reduced TAT and helped grow this business
Digitization and Automation are key pillars of your Bank's growth strategy and coupled
with ease of doing business and improvisations of our internal processes, have led to
efficiency improvements apart from improving TAT compared to competition across products
& Services. The year saw a number of digital initiatives by the Wholesale Banking
division. The response to the Bank's Liquidity management product, a state-of-the art
integrated treasury management solution for corporates has been encouraging. Your Bank
also launched All-Pay, a one-stop shop for all payment needs of e-commerce and m-commerce
companies. A number of other Digital initiatives including a corporate mobility solution,
an online trade portal and an integrated corporate portal are currently under
implementation. The business has also demonstrated proof of concept for transactions using
the advanced block chain technology and further implementations are in progress.
The new bankruptcy code was introduced this year by the government to expedite the
turnaround of the stressed assets. One needs to wait and watch the evolution of this new
The Division continued to focus on last mile turn around financing due to cash flow
based recoveries possible in such cases.
The Bank is seeing signs of some green shoots in resolutions and turn around in the
stress asset space. More opportunities are expected in the coming year and your Bank is
well positioned to play a pivotal role in providing financial and other turnaround
Your Bank's treasury actively contributes to your Bank by way of:
Proprietary Trading: The various proprietary trading desks actively trade in
products such as Fixed Income, Money Markets, Derivatives, Foreign Exchange and Bullion.
Primary Dealer Desk - part of the proprietary trading desk, actively participates in the
primary auctions of government securities, makes market in government securities and
engages in retailing of government securities.
o Facilitating access to foreign currency markets through cash & derivatives
products and providing fine market rates to clients for remittance and trade transactions.
o Client solutions - standardised and structured, pertaining to Debt Capital Markets
including Syndication of Loans, Bonds, Mezzanine financing, Promoter funding and
acquisition financing and Securitisation.
Balance Sheet Management: The Balance Sheet Management Unit (BMU) ensures
maintenance of regulatory reserves and adequate liquidity buffers and also manages the
Interest rate risk & Liquidity risk within the Risk appetite of the Bank.
FY 2016-17 has been a year with increased focus on assimilation of integrated employees
through improved engagement with the organization.
To ensure a seamless alignment, various initiatives were launched to internalize
behavioral parameters, transitioning to the expected behaviors and ownership to the cause
at the first line of leadership hierarchy in the organization.
Your Bank enhanced the focus to drive customer experience and service quality with
interventions in back office functions. Bank has been focused on improving productivity
through process simplification, automation and training. The talent base bank has reached
to 33013 employees. A proactive approach has been adopted to bring automation on query
management and engagement of employees with the aid of technology to manage the
With an average age of 33 years Bank continues to attract talent across all its
businesses and hierarchy and has put in place various processes and systems to ensure
alignment of employee behaviors with the organization's core values. Pre-trained manpower
acquisition channels such as Kotak Sales Officer (KSO) and Junior Sales Officer (JSO)
programs have been creating a sustainable workforce pipeline.
To enhance engagement and connect with workforce, a dedicated team was
institutionalized to focus on employee connect, engagement and communication. Focus of
engagement initiatives was driven from the internal model for improved connect. Bank
continues its focus on engagement and retention through initiatives that provide a
holistic environment where employees get opportunities to realize their potential. Talent
management as an integral part of overall performance management process in the Bank aims
to provide long term, sustained and meaningful careers to employees across the
organization. 'Pulse' engagement survey, along with other engagement initiatives, provided
insights on distinct employee needs that helped developing appropriate interventions.
Your Bank is committed to developing its capabilities as an organization and as
individuals to meet current and future business challenges. In the year 2016-17, it has
invested significantly in training and professional development - leveraging the latest
technologies to deliver highly impactful and relevant training programs to its employees.
These learning initiatives are designed around development of individual and team.
Leadership Development Programs focused on developing the leadership capabilities of the
senior executives, to help them prepare for future roles in the organization.
With the wave of digital, employee touchpoints are also digitized with the launch of
digital portal for all employee HR touchpoints. The portal facilitates simplifications,
access to information and self-service for employees.
Guided by our value system that motivates our attitudes and action, your Bank is
focused on forward looking policies, lean processes and nurturing talent.
The merger of all technology systems of the erstwhile ING Vysya Bank Ltd. with the
Bank's systems was concluded. With this integration, all staff in the merged entity have a
standardised technology environment to work in; from call center telephony to desktops and
networks. This has enabled seamless communication and collaboration amongst the Bank's
personnel. The merger and rationalisation of four data centers down to two datacenters has
resulted in streamlined technology operations with financial gains ensuing from the
synergies. The Bank's customers are all now serviced out of a single set of business
applications, ensuring a consistent experience to all customers of the merged entity.
The introduction of Digital products and services was key a focus throughout the Bank.
Some of the highlights being:
The Bank's retail customers' mobile experience was enriched with a full
range capabilities from online shopping, restaurant payments, movies ticket booking, and
Keeping up with the digital infrastructure introduced in the country, the Bank's
customers have been provided with a wide variety of payment mechanisms to choose
from, ranging from UPI, Mvisa and Bharat QR code. While the traditional payment methods of
NEFT and RTGS continued to see growth, the IMPs payment option, available to the customers
24 hours a day, is a much appreciated feature showing constantly increasing adoption
throughout the year.
The Bank's (salaried) customers can now avail themselves of a
pre-approved Personal Loan on mobile app. A pre-qualified customer can apply for a
personal loan while logged into the Mobile app and the disbursed amount is instantly
credited to customer's banking account.
Leveraging the digital infrastructure provided by the Government of India, the
Bank's Netbanking now offers access to customers to a 'DigiLocker'. This is a
platform that enables a customer to store and verify personal documents online.
The culmination of the digital offerings in the year has been the '811' product
on the mobile application. Kotak 811 is a mobile based account opening platform using
Aadhaar OTP, where customers can open an account with their Aadhaar details. It enables a
new customer to simply download an application on his/her mobile phone, and open an
account in less than 5 minutes. Customers can set their PINs for the mobile banking app
during the process and they also receive a virtual debit card. A first of its kind in the
banking industry, the product has already seen much interest.
On the lending side, the commercial customers' experience of applying for a
loan was enhanced by equipping the sales and relationship personnel, with mobile and
tablet applications to accept loan application details and even make immediate initial
loan eligibility information available to the customers.
The wealth management customers got a new mobile app for quick and easy
access to investment information. In the digital arena, the corporate banking business
focused on online merchant acquisition capability for their customers.
An Innovation Hub has been established to incubate ideas and develop proof of
concepts in emerging technologies such as Artificial Intelligence and Blockchain.
As customers get more knowledgeable about security considerations, they have been
empowered to directly control the access to their debit cards. The mobile application and
net banking provide functions that enable the customer to "turn off" his/her
debit card when not in use, and "turn on" the card at the point of usage. Thus
putting control, directly in the customers' hands.
To keep pace with the Bank's digital initiatives, there is a constant need to raise the
bar on information security. Several advanced security monitoring measures that track
unrelated transactions and data streams for possible correlation and potential cyber
threats were implemented. In accordance with RBI guidelines released in the year, your
Bank's cyber security policies and procedures were enhanced.
SUBSIDIARIES & ASSOCIATES
Your Bank's subsidiaries are established players in the different areas of financial
services, viz. car finance, investment banking, stock broking, asset management and life
As at 31st March 2017, your Bank has eighteen (18) subsidiaries as listed
Kotak Mahindra Prime Limited
Kotak Securities Limited
Kotak Mahindra Capital Company Limited
Kotak Mahindra Old Mutual Life Insurance Limited
Kotak Mahindra Investments Limited
Kotak Mahindra Asset Management Company Limited
Kotak Mahindra Trustee Company Limited
Kotak Investment Advisors Limited
Kotak Mahindra Trusteeship Services Limited
Kotak Infrastructure Debt Fund Limited (formerly known as 'Kotak Forex Brokerage
Kotak Mahindra Pension Fund Limited
Kotak Mahindra General Insurance Company Limited
IVY Product Intermediaries Limited
Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc.
Kotak Mahindra Financial Services Limited
Kotak Mahindra Asset Management (Singapore) Pte. Limited
During the year, Kotak Forex Brokerage Limited changed its name to Kotak Infrastructure
Debt Fund Limited, to commence new business activity of an Infrastructure Debt Fund. It
has received approval of Reserve Bank of India in April 2017 for commencing the new
Your Bank has executed a Share Purchase Agreement in April 2017 for acquisition of the
26% equity stake of Old Mutual plc in Kotak Mahindra Old Mutual Life Insurance Limited
(KLI). The transaction is subject to obtaining all necessary regulatory and other
approvals. Upon completion of the said acquisition, the Bank along with its subsidiaries
will hold 100% beneficial interest in KLI.
The various activities of the subsidiaries and the performance and financial position
of the subsidiaries and associates are outlined in the Management Discussion and Analysis
section appended to this Report.
The Bank's Policy for determining material subsidiaries is available on the Bank's
website viz. URL: http://ir.kotak.com/governance/policies.html As at 31st March
2017, your Bank has following four (4) Associate companies:
ACE Derivatives & Commodity Exchange Limited Infina Finance Private Limited Matrix
Business Services India Private Limited Phoenix ARC Private Limited
The Annual Report which consists of the financial statements of your Bank on standalone
basis as well as consolidated financial statements of the group
for the year ended 31st March 2017, has been sent to all the members of your
Bank. Web link of the Annual Report has been sent to all members whose
email IDs are registered with the Bank/Depository Participant(s). For members who have
not registered their email IDs, physical copies of the Annual Report are sent. It does not
contain Annual Reports of your Bank's subsidiary companies. Your Bank will make available
full Annual Report (including the Annual Reports of all subsidiaries) either a hard or
soft copy depending upon request by any member of your Bank. These Annual Reports will be
available on your Bank's website viz. URL: http://ir.kotak.com/annual-reports and will
also be available for inspection by any member at the Registered Office of your Bank.
EMPLOYEE STOCK OPTION & STOCK APPRECIATION RIGHTS SCHEMES
The stock options and the stock appreciation rights granted to the employees of the
Bank and its subsidiaries currently operate under the following Schemes:
Kotak Mahindra Equity Option Scheme 2007
Kotak Mahindra Equity Option Scheme 2015
Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2007
Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme 2010
Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2013
Kotak Mahindra Stock Appreciation Rights Scheme 2015
The disclosures requirements under the Securities and Exchange Board of India (Share
Based Employee Benefits) Regulations, 2014, for the aforesaid ESOP & SARs Schemes, in
respect of the year ended 31st March 2017, are disclosed on the Bank's website
viz. URL: http://ir.kotak.com/annual-reports
CORPORATE GOVERNANCE AND BUSINESS RESPONSIBILITY REPORT
Pursuant to Regulation 27 of the SEBI (Listing Obligations and Disclosure Requirements)
Regulations, 2015 (SEBI LODR Regulations), a separate section entitled 'Report on
Corporate Governance' has been included in this Annual Report. The Report of Corporate
Governance also contains certain disclosures required under the Companies Act, 2013. A
Business Responsibility Report containing the requisite details under Regulation 34 of the
SEBI LODR Regulations is disclosed on the Bank's website viz. URL:
DIRECTORS & KEY MANAGERIAL PERSONNEL
Directors retiring by rotation
Mr. Mark Newman, retires by rotation as a Director at this Annual General Meeting and
is eligible for re-appointment.
Directors appointed during the year
Mr. Uday Khanna (DIN 00079129) was appointed as an Additional Director of the Bank with
effect from 16th September 2016. Mr. Khanna who holds office as a Director up
to the date of this Annual General Meeting is proposed to be appointed as an Independent
Director, not liable to retire by rotation, for a term of 5 years from the date of his
appointment i.e. 16 September 2016, under Section 149 of the Companies Act, 2013, at the
ensuing Annual General Meeting. In terms of Section 160 of the Companies Act, 2013, your
Bank has received notice in writing from a member along with requisite deposit of
'1,00,000 proposing candidature of Mr. Khanna for his appointment as an Independent
Director of the Bank.
Prof. S. Mahendra Dev (DIN 06519869) was appointed as an Independent Director of the
Bank for a term of 5 years upto 14th March 2018. Based on the recommendation of
the Nomination & Remuneration Committee, the Board of Directors of the Bank, at its
meeting held on 15th May 2017 reappointed Prof. Dev as an Independent Director
for a further term of 3 years pursuant to the provisions of Section 149, 150(2) & 152
of the Companies Act, 2013 and Section 10-A(2-A) of the Banking Regulation Act, 1949,
subject to the approval of the shareholders at the ensuing Annual General Meeting of the
The Board of Directors of the Bank, at the same meeting, also re-appointed Mr. Uday
Kotak as Executive Vice-Chairman and Managing Director for the period from 1st
January 2018 to 31st December 2020, subject to the approval of the shareholders
and of the Reserve Bank of India. Further, Mr. Dipak Gupta has been re-appointed as
Whole-time Director of the Bank designated as Joint Managing Director for the period from
1st January 2018 to 31st December 2020 subject to the approval of
the shareholders and of the Reserve Bank of India. The approval of the shareholders in
this regard is being sought at the ensuing Annual General Meeting of the Bank.
The details of the Directors appointed/re-appointed are set out in the Corporate
Governance Report annexed to this Report.
Declaration from Independent Directors
The Board has received declarations from the Independent Directors as per the
requirement of Section 149(7) of the Companies Act, 2013 and the Board is satisfied that
the Independent Directors meet the criteria of independence as mentioned in Section 149(6)
of the Companies Act, 2013.
The Nomination and Remuneration Committee of the Bank's Board under the expert advice
of an external agency specialised in human resource and management consultancy, has
formulated the criteria for performance evaluation of the Directors and the Board as a
whole. The criteria formulated broadly covers the Board role, Board/Committee membership,
practice & procedure and collaboration & style.
In line with the SEBI Guidance note on Board Evaluation, a Board effectiveness
assessment questionnaire was designed for the performance evaluation of the Board, its
Committees, Chairman and individual directors and in accordance with the criteria set and
covering various aspects of performance including structure of the board, meetings of the
board, functions of the board, role and responsibilities of the board, governance and
compliance, evaluation of risks, grievance redressal for investors, conflict of interest,
stakeholder value and responsibility, relationship among directors, director competency,
board procedures, processes, functioning and effectiveness. The said questionnaire was
circulated to all the directors of the Bank for the annual performance evaluation.
Based on the assessment of the responses received to the questionnaire from the
directors on the annual evaluation of the Board, its Committees, Chairman and the
individual Directors, the Board Evaluation Report was placed before the meeting of the
Independent Directors for consideration. Similarly, the Board at its meeting assessed the
performance of the Independent Directors. The Directors were quite satisfied with the
results of the performance evaluation of the Board & its Committees, Chairman and
Key Managerial Personnel (KMPs)
The following officials of the Bank continue to be the "Key Managerial
Personnel" pursuant to the provisions of Section 203 of the Companies Act, 2013:
Mr. Uday Kotak, Executive Vice Chairman and Managing Director
Mr. Dipak Gupta, Joint Managing Director
Mr. Jaimin Bhatt, President & Group Chief Financial Officer
Ms. Bina Chandarana, Company Secretary
Appointment & Remuneration of Directors & KMPs
The appointment and remuneration of Directors of the Bank is governed by the provisions
of Section 35B of the Banking Regulation Act, 1949. The Nomination and Remuneration
Committee of the Bank's Board has formulated criteria for appointment of Senior Management
personnel and the Directors. Based on the criteria set it recommends to the Board the
appointment of Directors and Senior Management personnel. The Committee considers the
qualifications, experience, fit & proper status, positive attributes as per the
suitability of the role, independent status and various regulatory/ statutory requirements
as may be required of the candidate before such appointment.
The Reserve Bank of India ('RBI') vide its circular no.DBOD.No.BC.72/29.67.001/201 1-12
dated 13th January 2012 has issued the Guidelines on Compensation of Whole Time
Directors / Chief Executive Officers / Other Risk Takers of Private Sector Banks on
Compensation Policy which inter alia cover the following:
Proper balance between fixed pay and variable pay;
Variable pay not to exceed 70% (Seventy Per Cent) of the fixed pay in a
In accordance with the aforesaid RBI Circular, the Board of the Bank has adopted a
Compensation Policy for its Whole-time Directors, Chief Executive Officer of the Bank and
other employees which includes issue of stock appreciation rights as a form of variable
pay, linked to the Bank's stock price, payable over a period of time. The salient features
of the Compensation Policy are as follows:
Objective is to maintain fair, consistent and equitable compensation practices
in alignment with Kotak's core values and strategic business goals.
Applicable to all employees of the Bank. Employees classified into 3 groups: o
Whole-time Directors/Chief Executive Officer
o Risk Control and Compliance Staff
o Other categories of Staff
Compensation structure broadly divided into Fixed, Variable and ESOPs
o Fixed Pay - Total cost to the Company i.e. Salary, Retirals and Other Benefits
o Variable Pay - Linked to assessment of performance and potential based on Balanced
Key Result Areas (KRAs), Standards of Performance and achievement of targets with overall
linkage to Bank budgets and business objectives. The main form of incentive compensation
includes - Cash, Deferred Cash/Incentive Plan and Stock Appreciation Rights.
o ESOPs - Granted on a discretionary basis to employee based on their
performance and potential with the objective of retaining the employee.
Compensation Composition - The ratio of Variable Pay to Fixed Pay and the ratio
of Cash v/s Non Cash within Variable pay outlined for each category of employee
Any variation in the Policy to be with approval of the Nomination &
Malus and Clawback clauses applicable on Deferred Variable Pay.
Ensuring no personal hedging strategies by employees which undermine risk
alignment effects as part of their remuneration.
The details of the remuneration paid to the Non-Executive Chairman, Executive and
Non-Executive Directors of the Bank for the year ended 31st March 2017 is
provided in the Corporate Governance Report annexed to this Report.
The Non-Executive Chairman of the Bank receives a fixed amount of remuneration as
recommended by the Board and approved by the shareholders of the Bank and RBI, from time
to time. He also receives remuneration by way of sitting fees for attending meetings of
the Board or Committees thereof.
RBI vide its circular no. DBR.No.BC.97/29.67.001/2014-15 dated June 1, 2015 has issued
guidelines on payment of compensation to the Non-Executive Directors (NEDs) of private
sector banks which inter-alia specifies the following:
The Board of Directors of the Bank (in consultation with the Nomination &
Remuneration Committee) needs to formulate and adopt a comprehensive compensation policy
for NEDs (other than part-time non-executive Chairman).
Maximum amount of profit related commission not to exceed '10 lac per annum for
each director of the Bank.
Accordingly, in line with the aforesaid RBI circular and pursuant to the relevant
provisions of the Companies Act, 2013, the Board of the Bank has adopted a compensation
policy for the NEDs (excluding the part-time Non-Executive Chairman). The salient features
of the Compensation Policy are as follows:
Compensation structure broadly divided into o Sitting fees
o Re-imbursement of expenses
o Commission (profit based)
Amount of sitting fees and commission to be decided by the Board from time to
time, subject to the regulatory limits.
Overall cap on commission for each director '10 lac per annum.
NEDs not eligible for any stock options of the Bank.
At the Annual General Meeting of the Bank held on 22nd July 2016, the
shareholders have approved the payment of commission to the NEDs of the Bank with effect
from the financial year 2015-16.
Remuneration paid to the KMPs is in line with the Compensation Policy of the Bank which
is based on the RBI Guidelines.
Disclosures pursuant to Rule 5 of Companies (Appointment and Remuneration of Managerial
Personnel) Rules, 2014
1. Ratio of the remuneration of each director to the median remuneration of the
employees for the financial year:
|Mr Uday Kotak
||Vice Chairman & Managing Director
|Mr Dipak Gupta
||Joint Managing Director
|Dr Shankar Acharya
2. Percentage increase in remuneration of each director, Chief Financial Officer, Chief
Executive Officer, Company Secretary or Manager, if any, in the financial year:
||% increase in remuneration
||% increase in remuneration excluding SARs
|Mr Uday Kotak
||Vice Chairman & Managing Director
|Mr Dipak Gupta
||Joint Managing Director
|Dr Shankar Acharya
|Mr Jaimin Bhatt
|Ms Bina Chandarana
3. Percentage increase in the median remuneration of employees in the financial year:
For employees who were in employment for the whole of FY 2015-16 and FY 2016-17
increase in the median remuneration is 10.26%.
4. Number of permanent employees on the rolls of Bank at the end of the year: 33,013
5. Average percentile increase already made in the salaries of employees other than the
managerial personnel in the last financial year and its comparison with the percentile
increase in the managerial remuneration and justification thereof and point out if there
are any exceptional circumstances for increase in the managerial remuneration:
For employees other than managerial personnel who were in employment for the whole of
FY 2015-16 and FY 2016-17 the average increase is 10.34% and 11.95% excluding SARs.
Average increase for managerial personnel is 4.48% and 7.07% excluding SARs.
6. Affirmation that the remuneration is as per the remuneration policy of the Bank:
The Bank is in compliance with its Compensation Policy Notes:
1) Remuneration includes Fixed pay + Variable paid during the year + perquisite value
as calculated under the Income Tax Act, 1961. Remuneration does not include value of Stock
2) Stock Appreciation Rights (SARs) are awarded as variable pay. These are settled in
cash and are linked to the average market price/closing market price of the Bank's stock
on specified value dates. Cash paid out during the year is included for the purposes of
3) The Non-Executive Directors of the Bank (other than the Non-Executive Chairman)
receive remuneration in the form of sitting fees for attending the Board/Committee
meetings and in the form of an annual profit based commission. Such annual profit based
commission was paid for the first time for FY 2015-16 during FY 2016-17.
4) Increase in remuneration of Mr. C. Jayaram who retired as Joint Managing Director on
30th April 2016, but continues as non-executive director w.e.f. 1st
May 2016, has not been provided.
Pursuant to Section 204 of the Companies Act, 2013, your Bank has appointed Ms. Rupal
D. Jhaveri, a Company Secretary in Practice, as its Secretarial Auditor. The
Secretarial Audit Report for the financial year ended 31st March 2017 is
annexed to this Report.
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.
In terms of Section 139 of the Companies Act, 2013, Messrs S.R. Batliboi & Co. LLP,
Chartered Accountants, were appointed as statutory auditors of your Bank for a period of
four years from the conclusion of the Thirtieth Annual General Meeting until the
conclusion of the Thirty fourth Annual General Meeting of the Bank, subject to the annual
approval of RBI and ratification by the members every year. Accordingly, requisite
resolution forms part of the Notice convening the Annual General Meeting.
INTERNAL FINANCIAL CONTROLS
The Board of Directors confirms that your Bank has laid down set of standards,
processes and structure which enables to implement Internal Financial controls across the
organization with reference to Financial Statements and that such controls are adequate
and are operating effectively. During the year under review, no material or serious
observation has been observed for inefficiency or inadequacy of such controls.
IMPLEMENTATION OF IND AS
The Ministry of Finance, Government of India has vide its press release dated January
18, 2016 outlined the roadmap for implementation of International Financial Reporting
Standards (IFRS) converged Indian Accounting Standards (Ind AS) for Banks, Non-banking
Financial Companies and Insurance companies. RBI has advised Banks vide
RBI/2015-16/315DBR.BPBC.No.76/21.07.001/2015-16 to follow the Ind AS as notified under the
Companies (Indian Accounting Standards) Rules, 2015 subject to any guideline/direction
issued in this regard. For Banking companies, the implementation of Ind AS will begin from
April 1, 2018 onwards, with comparatives for the year beginning April 1, 2017. The Ind AS
quarterly financials of FY 2017-18 will need to be published as Y-o-Y comparison from June
As per Reserve Bank of India (RBI) directions, your Bank has taken following steps so
Submitted Standalone Proforma Ind AS financial statements to the RBI for the
half-year ended September 30, 2016, as required.
Formed Steering Committee for Ind AS implementation. The Steering Committee
comprises of representatives from Finance, Risk, Operations and Treasury. The Committee
oversees the progress of Ind AS implementation in the Bank, and provides guidance on
critical aspects of the implementation such as Ind AS technical requirements, systems and
processes, business impact, people and project management. The Committee closely reviews
progress of Ind AS implementation.
Evaluating various IT solutions to automate Ind AS especially Expected Credit
Losses (ECL) computation and other accounting changes in order to improve the robustness
of the process.
The Bank will continue to liaise with RBI and industry bodies on various aspects
pertaining to Ind AS implementation.
RELATED PARTY TRANSACTIONS
All the Related Party Transactions that were entered into during the financial year
were on arm's length basis and were in ordinary course of business.
Pursuant to Section 134(3)(h) read with Rule 8(2) of the Companies (Accounts) Rules,
2014, there are no related party transactions to be reported under Section 188(1) of the
Companies Act, 2013, in form AOC-2.
All Related Party Transactions as required under Accounting Standards AS-18 are
reported in Note 23 of Schedule 17 - Notes to Accounts of the Consolidated financial
statements and Note 7 of Schedule 18 - Notes to Accounts of the Standalone financial
statements of your Bank.
The Bank's Policy on dealing with Related Party Transactions is available on the Bank's
website viz. URL: http://ir.kotak.com/governance/policies.html
PARTICULARS OF LOANS, GUARANTEES OR INVESTMENTS
Pursuant to Section 186(11) of the Companies Act, 2013, loans made, guarantees given,
securities provided or acquisition of securities by a banking company in the ordinary
course of its business are exempted from the disclosure requirement under Section
134(3)(g) of the Companies Act, 2013.
WHISTLE BLOWER POLICY / VIGIL MECHANISM
Your Bank is committed to its "Vision Statement" of upholding its Global
Indian Financial Services Brand creating an ethos of trust across all constituents,
developing a culture of empowerment and a spirit of enterprise thereby becoming the most
preferred employer in the financial services sector.
Consistent with the Vision Statement, your Bank is committed to maintain and provide to
all its employees and directors highest standards of transparency, probity and
accountability. The Kotak Group endeavours to develop a culture where it is safe and
acceptable for all employees and directors to raise / voice genuine concerns in good
faith, and in a responsible as well as effective manner.
A vigil mechanism has been implemented through the adoption of Whistleblower Policy
with an objective to enable any employee or director, raise genuine concern or report
evidence of activity by the Bank or its employee or director that may constitute:
Instances of corporate fraud; unethical business conduct; a violation of Central or
State laws, rules, regulations and/or any other regulatory or judicial directives; any
unlawful act, whether criminal or civil; malpractice; serious irregularities; impropriety,
abuse or wrong doing; deliberate breaches and non-compliance with the Bank's policies;
questionable accounting/audit matters/financial malpractice. The same option has now been
extended to the vendors of the Bank also. The concerns can be reported on the website viz.
URL: https://cwiportal.com/kotak .
Currently an online mechanism enabling aforementioned reporting has been implemented
over and above other modes of communication like e-mail, or a letter sent by mail, courier
or fax to designated persons.
Safeguards to avoid discrimination, retaliation, or harassment, and confidentiality
have been incorporated in the policy. All employees and directors have access to the
Chairman of the Audit Committee in appropriate and exception circumstances.
The Policy has been uploaded on the Bank's intranet as well as website viz. URL:
http://ir.kotak.com/governance/policies.html and regular communication is made for
CORPORATE SOCIAL RESPONSIBILITY (CSR)
Your Bank has constituted a Board Corporate Social Responsibility Committee (CSR
Committee). The CSR Committee presently consists of Mr. C. Jayaram, Mr. Dipak Gupta and
Prof. S. Mahendra Dev.
Your Bank's CSR Committee drives the CSR programme of the Bank. Your Bank has a Board
approved CSR policy, charting out its CSR approach. This policy articulates the Bank's aim
to positively contribute towards economic, environmental and social well-being of
communities through its Corporate Social Responsibility agenda. The Bank's CSR agenda is
driven by its key focus areas:
a. Promoting education - primary focus area
b. Enhancing vocational skills and livelihood
c. Promoting preventive healthcare and sanitation
d. Reducing inequalities faced by socially and economically backward groups
e. Sustainable development
f. Relief and rehabilitation
g. Clean India
The Bank's CSR policy is available on the Bank's website viz. URL :
Pursuant to the provisions of Section 135, schedule VII of the Companies Act 2013 (the
Act), read with the Companies (Corporate Social Responsibility) Rules, 2014 the report of
the expenditure on CSR by the Company is as under:
The average net profit u/s 198 of the Bank standalone for the last three financial
years preceding 31st March 2017 is ' 2,746.24 crore.
The prescribed CSR expenditure required u/s 135, of the Act for FY 2016-17 is ' 5,492
The CSR expenditure incurred for the period 1st April 2016 to 31st
March 2017 under Section 135 of Companies Act, 2013 amounts to ' 1,733 lac as against '
1,641 lac CSR spend in the financial year 2015-16. The unspent amount for FY 2016-17 is
CSR expenditure of ' 1,733 lac in FY 2016-17 as a percentage of average net profit u/s
198 of the Bank standalone at ' 2,746.24 crore is 0.63%.
The Bank has been spending on CSR focused themes and programmes, which have been
approved by the Board CSR Committee and the Board. The CSR spending is guided by the
vision of creating long-term benefit to the society. The Bank is building its CSR
capabilities on a sustainable basis and is committed to gradually increase its CSR spend
in the coming years The Bank's commitment to achieve the mandated spend can be seen from
increasing CSR spends over the years. In FY 2014-15, Bank's CSR spend was '1,197 lac,
in FY 2015-16 it was '1,641 lac. In the reporting period, FY 2016-17, the CSR expenditure
has been further increased to '1,733 lac.
Though the Bank is eligible to consider upto 5% of total CSR spend as administrative
expenditure towards building its CSR capacities, etc., the Bank has taken a call not to
consider it as a part of CSR spend for the year FY 2016-17.
The details of CSR activities and report under Section 135 of the Companies Act, 2013
for FY 2016-17, are annexed to this Report.
RISK MANAGEMENT POLICY
Your Bank has in place a comprehensive Group Enterprise wide Risk Management (ERM)
framework supported by detailed policies and processes for management of Credit Risk,
Market Risk, Liquidity Risk, Operational Risk and various other Risks. During the year,
the Group ERM Policy was revised, keeping in mind the advances in Risk Management over the
past few years and emerging / evolving guidelines. Details of identification, assessment,
mitigations, monitoring and the management of these Risks are mentioned in the Management
Discussion and Analysis section appended to this Report.
CONSERVATION OF ENERGY, TECHNOLOGY ABSORPTION, FOREIGN EXCHANGE EARNINGS AND OUTGO
The provisions of Section 134(3)(m) of the Companies Act, 2013 read with Rule 8(3) of
the Companies (Accounts) Rules, 2014 are not applicable to your Bank.
The employee strength of your Bank, standalone, was over 33,000 and along with its
subsidiaries was over 44,000 as of 31st March 2017.
114 employees employed throughout the year and 56 employees employed for part of the
year were in receipt of remuneration of ' 1.02 crore or more per annum.
Organizational culture aspects like trust & inclusiveness were also reiterated
through cross functional meets conducted by senior business leaders for employees at mid
management level under the "Meet 5" initiative.
In a very short span, your Bank has crossed several milestones in its Gender Diversity
A differentiated talent acquisition strategy to increase women employee base
across various suitable roles has helped us to continue adding 21% women amongst all new
hires in the Bank. While continuing with our philosophy of providing equal opportunities,
an aggressive push in this area will help us achieve a better balance in gender diversity.
Prevention of Sexual Harassment (POSH): Bank continues with the belief on zero
tolerance towards sexual harassment at workplace and continues to uphold and maintain
itself as a safe and non-discriminatory organization. To achieve the same Kotak reinforces
the understanding and awareness of Prevention of Sexual Harassment of Women at Workplace
(Prevention, Prohibition and Redressal) Act, 2013. Bank has formulated Internal Complaints
Committee (ICC) at three regions for reporting any untoward instance. Any complaints
pertaining to sexual harassment are diligently reviewed and investigated and treated with
great sensitivity. The ICC members have been trained in handling and resolving complaints
and have also designed an online e-learning POSH Awareness module which covers the larger
Following is a summary of sexual harassment complaints received and disposed off during
the year 2016-17:
o No. of complaints received : 19
o No. of complaints disposed off : 12
In the case of 7 pending cases, enquiries were in progress at the close of the year.
With our objective to identify, build and nurture leaders across levels to deliver
superior business results and address individual career aspirations bank continues to put
efforts through various interventions.
As Bank enters in its next phase of growth and expansion of footprint across urban and
rural India, Bank and its subsidiaries continued to carry out several initiatives to
attract and retain a pool of highly skilled and motivated employees who are aligned to the
firm's vision of becoming the most trusted financial services provider.
In accordance with the provisions of Rule 5 of the Companies (Appointment and
Remuneration of Managerial Personnel) Rules, 2014 the names and other particulars of the
employees are set out in the annexure to the Directors' Report. In terms of the Proviso to
Section 136(1) of the Companies Act, 2013, the Directors' Report is being sent to all
shareholders excluding the aforesaid annexure. The annexure is available for inspection at
the Registered Office of your Bank. Any shareholder interested in obtaining a copy of the
said annexure may write to the Company Secretary at the Registered Office of your Bank.
DIRECTORS' RESPONSIBILITY STATEMENT
The Directors, based on the representations received from the operational management,
confirm in pursuance of Section 134(5) of the Companies Act, 2013, that:
(i) your Bank has, in the preparation of the annual accounts for the year ended 31st
March 2017, followed the applicable accounting standards along with proper explanations
relating to material departures, if any;
(ii) they have selected such accounting policies and applied them consistently and made
judgements and estimates that are reasonable and prudent so as to give a true and fair
view of the state of affairs of your Bank as at 31st March 2017 and of the
profit of your Bank for the financial year ended 31st March 2017;
(iii) they have taken proper and sufficient care to the best of their knowledge and
ability, for the maintenance of adequate accounting records in accordance with the
provisions of the Act for safeguarding the assets of your Bank and for preventing and
detecting fraud and other irregularities;
(iv) the annual accounts have been prepared on a going concern basis;
(v) they have laid down internal financial controls to be followed by the Bank and that
such internal financial controls are adequate and are operating effectively; and
(vi) they have devised proper systems to ensure compliance with the provisions of all
applicable laws and that such systems are adequate and operating effectively.
Following statements/reports/certificates are set out as Annexures to the Directors'
Extract Of Annual Return under Section 134(3)(a) of the Companies Act, 2013 read
with Rule 12 (1) of Companies (Management & Administration) Rules, 2014.
Secretarial Audit Report pursuant to Section 204 of the Companies Act, 2013.
Certificate from the auditors regarding compliance of conditions of corporate
governance as stipulated in para E of Schedule V of the Securities
and Exchange Board of India (Listing Obligations and Disclosure Requirements)
Your Directors would like to place on record their gratitude for the valuable guidance
and support received from the Reserve Bank of India, Securities
and Exchange Board of India, Insurance Regulatory and Development Authority and other
Government and Regulatory agencies. Your Directors
acknowledge the support of the members and also wish to place on record their
appreciation of employees for their commendable efforts, teamwork and professionalism.
|For and on behalf of the Board of Directors
|Dr. Shankar Acharya
||Date: 16th May 2017