Au Small Finance Bank Ltd. के निदेशक की रिपोर्ट

Mar 31, 2025

The Board of Directors ("the Board”) is pleased to present the 30^th Annual Report of AU Small Finance Bank Limited ("Your Bank”/“the Bank”), encompassing an overview of Bank''s operations, key financial highlights along with the Audited Financial Statements and the Independent Auditors'' Report for the financial year ended March 31, 2025.

A. Financial Summary & Highlights

The summary of the financial performance of your Bank for FY 2024-25 is presented below:

		(H in Crore)
Particulars	March 31, 2025	March 31, 2024
Deposits and Borrowings	1,35,928.44	92,661.49
Advances	1,07,092.48	73,162.65
Total Assets	1,57,845.67	1,09,425.67
Total Income	18,590.04	12,251.86
Interest Income	16,063.73	10,554.71
Other Income	2,526.31	1,697.14
Interest Expenditure	8,052.15	5,397.63
Operating Expenses (excluding depreciation)	5,698.70	4,239.36
Profit before Depreciation, Provisions and Tax	4,839.19	2,614.87
Depreciation	258.51	225.44
Provision for Income Tax	682.13	464.71
Other Provisions and Write-offs	1,792.62	389.99
Net Profit	2,105.93	1,534.72
Add: Additions on Amalgamation	538.14	-
Appropriations
Transfer to Statutory Reserve	526.48	383.68
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961	180.00	130.00
Transfer to Capital Reserve	53.44	7.32
Transfer to Investment Reserve Account	-	8.77
Transfer to Investment Fluctuation Reserve	39.01	52.50
Deduction due to Amalgamation adjustments	5.00	-
Dividend pertaining to previous year paid during the year	74.31	66.70
Dividend (in H) (Per Equity Share)	1.00	1.00
Surplus carried over to Balance Sheet	6,938.71	5,172.88
Earnings Per Share (EPS) (in ?) (After excluding Exceptional items not annualized)
Basic (in H)	28.32	22.98
Diluted (in H)	28.24	22.86

Key Performance Highlights

Your Bank witnessed growth and consistent performance in FY 2024-25. The key financial performance indicators for the year are as follows:

• Balance sheet size grew to H1,57,845.67 Crore as on March 31, 2025 vis-a-vis H1,09,425.67 Crore as on March 31, 2024.

• Deposits grew to H1,24,268.54 Crore and CASA ratio stood at 29.17% as on March 31, 2025 against 33.41% as on March 31, 2024.

• Gross Advance grew to H1,08,778.17 Crore and Credit to Deposit ratio¹ stood at 86.18% as on March 31, 2025 against 83.92% as on March 31, 2024.

* Credit to Deposit ratio (excluding Re-Finance) stood at 78.49% as

on March 31, 2025 against 78.31% as on March 31, 2024.

Notes:

1. Figures of previous year have been regrouped/reclassified wh erever n e cess a ry to confo rm to the c urrent p e rio d ’s classification.

2. Previous year numbers are not directly comparable due to erstwhile Fincare merger being effective from April 01, 2024.

Analysis of Bank''s performance is covered in Management Discussion & Analysis section of the Annual Report.

B. Business Overview

Amidst a challenging global macroeconomic environment, the Indian economy is exhibiting a quickening growth momentum, with resilience and financial stability. Despite facing certain headwinds such as inflationary pressures and geopolitical uncertainties, the Indian economy remains on a positive trajectory, positioning itself as a key player in the global economic landscape. With a prudent fiscal policy and a conducive business environment, India is poised to sustain its growth momentum and solidify its position as a major economic force in the years to come. The government''s initiatives to boost manufacturing, infrastructure development, and digital transformation have propelled the economy forward, attracting both domestic and foreign investment.

The financial sector played a crucial role in supporting this growth, contributing to overall economic stability and development. The optimistic economic environment presents ample opportunities for small finance banks in India to contribute to financial inclusion and economic development.

With a stable GDP growth rate, controlled inflation, easing liquidity and monetary conditions and a strong focus on infrastructural development, India remains a bright spot in an uncertain global landscape. Additionally, India''s corporate and financial sectors have stronger balance sheets than before the pandemic. These figures highlight the Indian economy''s resilience and positive trajectory during the specified period.

During the financial year 2024-25, your Bank demonstrated resilience and steady growth amidst a challenging economic and operational environment marked by persistent interest rate pressures, tight liquidity conditions, climate related disturbances and uncertain global macro trends. Your Bank exhibited sustained performance across key metrics, including

asset and deposit growth, profitability, and digital products for higher engagement with customers. Noteworthy highlights include the successful launch of innovative banking products like AU ivy'', AU Eternity'' and Green deposits titled ''Planet First'', along with strategic initiatives such as the ''Soch Badlo aur Bank Bhi'' brand campaign and the merger of erstwhile Fincare Small Finance Bank (''Fincare SFB''). Your Bank remains focused on sustainable growth, leveraging its strong regulatory compliance framework, technological investments, and strategic partnerships to fortify its position in the market and deliver consistent returns to stakeholders.

Your Bank is delighted to inform that following the successful Amalgamation of erstwhile Fincare SFB as on April 01, 2024, your Bank has evolved into a formidable banking franchise, greatly expanding its reach to over 1.13 Crore customers across 21 States & 4 Union Territories. With a network of 2,456 Banking touchpoints, your Bank is committed to provide top notch services through a dedicated workforce of 50,000 employees. This merger has paved a way for your Bank to extend its presence into South India, significantly broadening its distribution network. This increased footprint of Branches and touchpoints will enhance Bank''s ability to provide diverse range of products and services to a larger customer base, solidifying its market position and helping to realise its aspirations of PAN India Banking franchise.

The key business developments and segment-wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

C. Update on the Amalgamation of Erstwhile Fincare Small Finance Bank Limited with Bank

Following the successful amalgamation of erstwhile Fincare Small Finance Bank Limited ("Transferor Bank”) into and with the AU Small Finance Bank Limited ("Transferee Bank” or "your Bank”), the consolidated entity has completed one year of its operation as a unified Banking institution. Your Bank with this strategic merger has achieved strong and diversified retail banking franchise with a wide reach across India and have augmented your Bank''s portfolio with microfinance, mortgages, and gold loans, while leveraging erstwhile Fincare SFB''s rural distribution network and your Bank''s digital capabilities. The combined entity has achieved synergies in deposits, technology, and efficiency, ultimately benefiting key financial metrics.

Integration Phases:

Amalgamation became effective on April 1, 2024 (the "Effective Date”) and your Bank has undertaken a structured and strategic approach towards postmerger integration. The primary focus has been on seamlessly consolidating operations, standardizing internal processes, and fostering a unified organizational culture across all functional areas. To facilitate this, your Bank developed a comprehensive, phased integration roadmap that outlined key milestones, timelines, and responsibilities. This roadmap is being diligently followed, ensuring that operational alignment and systems harmonization to cultural integration and stakeholder communication is executed in timely and coordinated manner. These efforts have been instrumental in driving synergies, enhancing operational efficiency, and reinforcing your Bank''s commitment to delivering consistent value to its stakeholders. Phase 1 included erstwhile Fincare payment systems (CTS, IMPS, AePS, NACH/ e-Nach, ATM/POS/ECOM, UPI, NEFT/RTGS) which was successfully integrated into AU SFB''s payment system and Phase 2 of IT consolidation and Integration is in progress.

D. Dividend

Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 ("Listing Regulations”) and Reserve Bank of India ("RBI”) guidelines, your Bank has formulated and adopted a Dividend Distribution Policy. This policy aims to strike a balance between rewarding Your Bank''s shareholders by distributing a portion of profits whilst ensuring that adequate funds are retained for the sustainable growth of your Bank. The same can be viewed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

In line with the aforementioned policy and considering your Bank''s financial performance during the FY 2024- 25, the Board at its meeting held on April 22, 2025 recommended a dividend of 10% (H 1 per fully paid-up Equity Share of H10 each) for the year ended March 31, 2025. This recommendation will be placed before the shareholders for approval at the upcoming Annual General Meeting ("AGM”) of your Bank.

In terms of the provisions of the Income Tax Act, 1961, the dividend income is taxable in the hands of the members and the dividend will be paid to the members by your Bank after deduction of tax at source ("TDS”) at the applicable rates.

E. Credit Rating The details of credit rating assigned to your Bank for debt March 31, 2025 along with outlook are given below: Nature of Debt instrument Nature of Term CRISIL Ratings			instruments issued and outstanding as on India Ratings CARE Ratings ICRA Limited
Fixed Deposits	Long-Term	CRISIL AA /Stable	-	-	-
Long-Term/ Subordinated Debt/ Tier II Bond	Long-Term	CRISIL AA/Stable	IND AA/Stable	CARE AA/ Stable	ICRA AA/ Stable
Certificate of Deposits	Short-Term	CRISIL A1	IND A1	CARE A1	-

Note:

• Post Amalgamation, all NCDs of erstwhile Fincare SFB have been transferred to your Bank, accordingly ratings have been upgraded by India Ratings and CARE on April 10, 2024 and by ICRA Limited on May 17, 2024.

• CRISIL reaffirmed the above credit ratings of the Bank on April 10, 2024 and on April 2, 2025.

• The India Ratings have reaffirmed the above credit ratings of your Bank April 10, 2024 and September 09, 2024 and November 29,2024

• The CARE has reaffirmed the above credit ratings of your Bank on April 10, 2024, August 14, 2024, October22, 2024 and January 14, 2025.

• The ICRA have reaffirmed the above credit ratings of your Bank on February 27, 2025

• Further, new credit rating has been assigned for proposed issue of Tier II Bond by CARE and ICRA on January 14, 2025 and February 27, 2025 respectively.

• The above rating details can be accessed on the website of the Bank at https://www.aubank.in/credit-rating

F. Change in Nature of Business

During the year under review, there were no changes in the nature of business of your Bank.

G. Transfer to Reserves

In consonance with the RBI regulations and other applicable regulations, your Bank has proposed transferring the following amounts to various reserves for the financial year ended March 31, 2025 as mentioned below:

Amount transferred to	Amount (J In crores)
Statutory Reserve	526.48
Transfer to Special Reserve U/s 36 (1) (viii)	180
Transfer to Capital Reserve	53.44
Transfer to Investment Reserve Account	-
Transfer to Investment Fluctuation Reserve	39.01

H. Transfer to the Investor Education and Protection Fund (“IEPF”)

In accordance with Section 124 and 125 of the Companies Act, 2013 ("Act”) read with the Investor Education and Protection Fund ("IEPF”) Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (as amended from time to time), all the equity shares of your Bank in respect of which dividend amounts have not been paid or claimed by the shareholders for seven consecutive years or more are required to be transferred to demat account of IEPF Authority. There was no unclaimed/unpaid dividend or shares of your Bank liable to be transferred to the IEPF during the FY 2024-25.

Further, the details of amount relating to unclaimed dividends and the dates by which such dividend can be claimed by the shareholders from your Bank are mentioned under Report on Corporate Governance appended with Board''s Report as Annexure-i.

Further, details of the unclaimed/un-encashed dividends lying in the unpaid dividend accounts as on end of the financial year are available on website of the Bank at https://www.aubank.in/unclaimed-dividend-page

I. Deposits

As a Banking company, your Bank is not subject to disclosures pertaining to deposits as required under Rule 8(5)(v) & (vi) of the Companies (Accounts)

Rules, 2014 read with Sections 73 and 74 of the Act and the Companies (Acceptance of Deposits) Rules, 2014. The details of the deposits received and accepted by your Bank as a Banking company have been disclosed in the financial statements for the financial year ended March 31, 2025 forming part of this Annual Report for FY 2024-25.

J. Capital Structure & Fund Raising

Authorised Share Capital

During the period under review, there was no change in the Authorised Share Capital of your Bank and as on March 31, 2025, the Authorised Share Capital of your Bank stood at H1,200 Crore comprising 1,20,00,00,000 equity shares of H10 each.

Paid-up Capital

In accordance with the Scheme of Amalgamation of erstwhile Fincare SFB with and into your Bank, 7,35,25,352 equity shares of face value H10 each were issued and allotted to the shareholders of erstwhile Fincare SFB on April 01, 2024.

Further during the period under review, your Bank issued and allotted 18,42,728 equity shares of face value of H10 each pursuant to exercise of Employee Stock Options (ESOPs) under different ESOP Schemes ("Schemes”). Consequently, the total issued, subscribed and Paid-up Equity Share Capital ("PUSC”) of your Bank has increased by H75.37 Crore and accordingly PUSC stood at H744.53 Crore as on March 31, 2025, comprising of 74,45,30,531 equity shares of H10 each.

Non-convertible Debentures (“NCDs”)

During the year, your Bank has successfully raised H770 Crore by issuing 77,000 9.2% unsecured, rated, listed, redeemable, subordinated, non-convertible lower Tier II bonds in the nature of Non-Convertible Debentures and categorized as Tier II capital under the BASEL II Framework having a Face Value of H1,00,000 each for cash by way of private placement.

Also, your Bank has redeemed Non-Convertible NCDs of H75 crores in total during the year under review.

Details of outstanding NCDs as on March 31, 2025, includes NCDs of erstwhile Fincare SFB, transferred to your Bank pursuant to Amalgamation becoming effective from April 01, 2024 are as follows:

Sr.	isin	Series	Amount (J in Crore)	Date of Allotment	Date of Maturity
1.	INE949L08418	-	500	November 30, 2018	May 30, 2025
2.	INE949L08442	Series I	350	August 03, 2022	August 03, 2032
3.	INE949L08434	Series II	100	August 03, 2022	August 13, 2032
4.	INE949L08426	Series III	50	August 03, 2022	August 23, 2032
5.	INE519Q08152*	-	100	September 30, 2019	September 30, 2025
6.	INE519Q08160*	-	49	June 15, 2023	December 15, 2028
7.	INE519Q08178*	-	75	July 05, 2023	January 05, 2029
8.	INE519Q08186*	-	50	August 09, 2023	February 09, 2029
9.	INE519Q08194*	-	60	August 23, 2023	February 23, 2029
10.	INE949L08459	-	770	March 28, 2025	March 28, 2035
	Total		2,104
* ISINs are listed under the name of AU Small Finance Bank w.e.f. April 12, 2024 and the notification was issued by BSE in this regard can be accessed at httos://www. bseindia.com/markets/MarketInfo/DisnNewNoticesCirculars.asnx?nage=20?40409-4

K. Employee Stock Option Schemes

Your Bank has instituted multiple Schemes, all of which have received requisite approval from the shareholders. These Schemes are structured in accordance with the SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021, as amended from time to time, with the objective of enabling employees to participate in your Bank''s long-term growth and financial success.

At your Bank, employee engagement and retention are key strategic priorities. The Bank believes that fostering a sense of ownership among employees not only enhances their commitment and job satisfaction but also contributes significantly to improved productivity and sustained organizational performance. Through these initiatives, the Bank aims to cultivate a culture of shared success and long-term value creation.

The grant of Employee Stock Options under the approved Schemes is subject to the review and approval of the Nomination and Remuneration Committee ("NRC”), in accordance with the Bank''s Compensation Policy. Options are awarded as part of the Annual Performance Review cycle and at the

time of hiring, based on a comprehensive evaluation of several parameters including the employee''s scale, designation, performance ratings, grade, tenure of service, strategic importance of the role, and overall contribution to Bank''s performance etc. This structured and merit-based approach has helped in aligning employees with Bank''s long-term objectives and thereby reinforcing a culture of performance and accountability.

Following are the Employee Stock Option Schemes in force as on March 31, 2025:

• Employee Stock Option Scheme 2015 - Plan A (ESOP 2015 - Plan A)

• Employee Stock Option Scheme 2015 - Plan B (ESOP 2015 - Plan B)

• Employee Stock Option Scheme 2016 - (ESOP 2016)

• Employee Stock Option Scheme 2018 - (ESOP 2018)

• Employee Stock Option Scheme 2020 - (ESOP 2020)

• Employee Stock Option Scheme 2023 - (ESOP 2023)

The details of vesting of various schemes are as follows:

% of vesting of

ESOP Scheme & Plan	Vesting Period	options
ESOP 2015 - Plan A	1 year from the date of grant or at the time of IPO whichever is later	20%
	Expiry of 1 year from 1st vesting	30%
	Expiry of 2 years from 1st vesting	50%
	Total	100%
ESOP 2015 - Plan B	1 year from the date of grant or at the time of IPO whichever is later	20%
	Expiry of 1 year from 1st vesting	30%
	Expiry of 2 years from 1st vesting	50%
	Total	100%
ESOP 2016	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options
ESOP 2018	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	Refer Note
ESOP 2020	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options
ESOP 2023	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options

Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018, ESOP 2020 and ESOP 2023. Vesting is as per terms of grant approved by NRC in the grant letter issued to employees and NRC is empowered to change the vesting period in case of corporate action such as Amalgamation.

The Brief Details of Existing ESOP Schemes as on March 31, 2025 are given below:

Particulars	ESOP 2015 - Plan A	ESOP 2015 - Plan B	ESOP 2016	ESOP 2018	ESOP 2020	ESOP 2023
Date of Shareholders Approval	31-Aug-15	31-Aug-15	10-Oct-16	07-Aug-18	23-Dec-20	30-Apr-23
Total Number of Options approved	38,75,483	50,93,437	31,71,733	80,60,529	99,96,200	2,00,00,000
Total Number of options outstanding at the Beginning of the period@	0	1,96,800	13,89,718	28,01,033	91,91,678	37,67,044
Total No. of Options granted (during FY 2024-25)	50,000	28,000	67,551	1,44,001	8,67,015	57,86,439
The Pricing Formula	H 10.11 per	H 16.69 per	Market price	Market price	Market price	Market price
	share	share	linked#	linked	linked	linked
		(H 33.37 per
		share prior
		to Bonus)
Options Vested (during FY 2024-25)@	0	39,100	5,17,110	3,03,819	20,99,704	19,60,788
Options Exercised & allotted (during FY 2024-25)	0	31,300	3,94,088	6,26,087	1,31,259	6,59,994
Total No of shares arising as a result of exercise of option	0	31,300	3,94,088	6,26,087	1,31,259	6,59,994
Options lapsed/ Forfeited (during FY 2024-25) (Available for re-issue)@	0	20,500	1,14,120	1,54,167	8,90,464	7,88,239
Total No. of options exercisable at the end of the year@	0	33,800	8,00,796	16,67,457	34,83,004	12,13,690
Total No of options outstanding at the end of the year@	50,000	1,73,000	9,49,061	21,64,780	90,36,970	81,05,250
Variation in terms of options		There is no variation in terms of options during the year
Money realized by exercise of Options during FY (in H)	0	5,22,397.00	10,24,21,939.00	20,15,31,857.50	7,36,05,605.00	23,50,08,917.00

L. Details of Board and Key Managerial Personnel (“KMP”)

The composition of the Board is regulated by a combination of the provisions of the Act, the Banking Regulation Act, 1949 ("BR Act”), the Listing Regulations and other applicable laws, and the Articles of Association of your Bank. As of March 31, 2025, the Board consisted of 10 Directors, including 7 Independent Directors and 2 Executive Directors and a Non-Executive Non-Independent Director.

During FY 2024-25 and after the end of financial year up to the date of this report, the following changes took place in the Board and Key Managerial Personnel of your Bank:

I. Appointments

1. Mr. Divya Sehgal (DIN: 01775308) was appointed as an Additional Director (Non-Executive NonIndependent) of your Bank to hold office for a period of 3 years with effect from April 01, 2024 up to March 31, 2027.

Further, shareholders vide resolution passed through postal ballot dated May 30, 2024, approved his appointment as Non-Executive and Non-Independent Director, not liable to retire by rotation, with effect from April 01, 2024.

2. Mr. Nandkumar Saravade (DIN: 07601861) was appointed as an Additional Director (NonExecutive Independent) of your Bank to hold office for a period of 3 years with effect from May 31, 2025 subject to approval of shareholders in the ensuing Annual General Meeting.

Mr. Nandkumar Saravade is an IT expert and the Board is of the opinion that he is a person of integrity, expertise, and competent experience and proficiency to serve your Bank as an Independent Director strengthening the overall composition of the Board.

3. Mr. Jagajit Mangal Prasad (DIN: 11146660) was appointed as an Additional Director (Non-Executive Independent) of your Bank to hold office for a period of 3 years with effect from July 01, 2025 subject to approval of shareholders in the ensuing Annual General Meeting.

The Board is of the opinion that Mr. Jagajit Mangal Prasad is an HR expert and a person of integrity, expertise, and competent experience and proficiency to serve your Bank as an Independent Director strengthening the overall composition of the Board.

II. Re-appointments

1. The Board at its meeting held on August 17, 2024, on recommendation of NRC, and after evaluating the performance of Mr. Harun Rasid Khan ("H.R. Khan”) (DIN: 07456806) has approved and recommended his re-appointment as Part Time Chairman and Independent Director of your Bank for a second term of 3 (three) consecutive years from December 28, 2024 upto December 27, 2027 (both days inclusive), for the approval of the Members. He shall not be liable to retire by rotation during his tenure as an Independent Director. The same has been approved by the members vide resolutions passed through the postal ballot on October 24, 2024. Further, his re-appointment as Part Time Chairman is also approved by the RBI vide its letter dated December 19, 2024.

The Board is of the opinion that Mr. H.R. Khan is a person of integrity, expertise, and competent experience and proficiency to serve your Bank as an Independent Director and Part-time Chairman.

Further, Mr. H.R. Khan''s presence on the Board has greatly benefited your Bank in improving the governance framework and advancing financial inclusion initiatives. His active involvement as Chairman/member of various Board Committee such as the Committee for Financial Inclusion, Risk Management Committee, NRC, and Corporate Social Responsibility Committee among others has significantly contributed to informed decision-making and effective oversight.

2. The Board at its meeting held on March 07, 2025, on recommendation of NRC, and after evaluating the performance of Mr. Kamlesh Shivji Vikamsey (DIN: 00059620), during his first tenure as an Independent Director, has approved and recommended his re-appointment as an Independent Director of your Bank for a second term of 5 (five) consecutive years from April 25, 2025 to April 24, 2030 (both days inclusive), for the approval of the Members and he shall not be liable to retire by rotation during his tenure as an Independent Director. The same has been approved by the members vide special resolution passed through postal ballot on April 10, 2025.

The Board is of the considered view that Mr. Kamlesh Shivji Vikamsey possesses the requisite integrity, professional expertise, proficiency and extensive experience to serve effectively as an Independent Director of your Bank. His deep domain knowledge and strategic acumen have been instrumental in guiding your Bank''s governance and operational frameworks.

III. Others

1. Mr. Rajeev Yadav was appointed as Deputy CEO and categorised as Senior Management Personnel ("SMP”) of the Bank w.e.f. April 01, 2024 as a part of key terms & conditions of the Scheme of Amalgamation of erstwhile Fincare SFB into and with your Bank.

IV. Directors Retiring by Rotation

In accordance with the provisions of Section 152 of the Act, Mr. Sanjay Agarwal, Managing Director & CEO, retired by rotation at the previous AGM and shareholders approved his re-appointment. Further, Mr. Uttam Tibrewal, Whole-Time Director & Deputy CEO of your Bank shall retire by rotation at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment.

Except as aforesaid, no other change took place in the Board or in Key Managerial Personnel

("KMP”) of your Bank. The composition of the Board and Key Managerial Personnel of your Bank is in compliance with the applicable regulatory norms.

All the Directors of your Bank have confirmed that they satisfy the fit and proper criteria as prescribed under the applicable regulations and that they are not disqualified from being appointed as directors in terms of Section 164(2) of the Act. Further, none of the directors have been debarred from holding office as director by virtue of any order of the SEBI or any other authority.

V. Directors and Officers Liability Insurance Policy

Your Bank has a Directors and Officers Liability Insurance Policy which protects Directors and Officers of your Bank for any breach of fiduciary duty. Further, the Board is apprised about the insurance coverage under the said policy annually.

M. Code of Conduct for Directors and SMPs

I n accordance with Regulation 17(5) of the Listing Regulations, your Bank has formulated and adopted a Code of Conduct ("Code”), for Directors and SMPs, duly approved by the Board. This Code sets forth the guiding principles for ethical, transparent, and responsible conduct expected from the Directors and SMP, including (KMPs), thereby reinforcing a culture of fairness, integrity, and accountability within the organization.

All Directors and SMPs have affirmed compliance with the Code for the financial year 2024-25. A declaration to this effect, signed by the Managing Director & CEO, forms part of the Report on Corporate Governance, annexed to the Board''s Report as Annexure-i. The Code is available on the Bank''s website at https:// www.aubank.in/investors/secretarial-policies.

N. Number of Meetings of Board

During the period under review, a total of eleven (11) Board Meetings were convened, with none exceeding the mandated 120-day interval as mandated under the provisions of the Act read with rules made thereunder, Secretarial Standard-I issued by the Institute of Company Secretaries of India ("ICSI”), and Listing Regulations. The dates of these meetings, along with attendance details for each Director, have been comprehensively disclosed in the Report on

Corporate Governance annexed as Annexure-i to the Board''s Report.

O. Committees of the Board

Your Bank recognizes the significance of Board Committees in fostering strong Corporate Governance practices. Accordingly, your Bank has constituted various Board Committees to enhance the effectiveness & efficiency of the Board and assist in decision-making processes. These Committees have been formed in compliance of provisions of the Act and relevant rules made thereunder, Listing Regulations, BR Act, RBI Circular & Guidelines, Articles of Association of your Bank and other pertinent guidelines/circulars issued from time to time.

The details of the Board Committees of your Bank including, re-constitution, their terms of reference, number & date of meetings held during FY 2024-25 and attendance thereof are disclosed in the Report on Corporate Governance annexed with Board''s Report as Annexure-i.

P. Meeting of Independent Directors

As per the requirement of Section 149(8) read with Schedule IV of the Act and Regulation 25 of the Listing Regulations, a meeting of the Independent Directors of your Bank is required to be held at least once a year in absence of non-independent directors and members of the management.

During the year under review, two (2) meetings of your Bank''s Independent Directors were convened on April 23, 2024, and June 26, 2024 chaired by Mr. M. S. Sriram and Mr. H.R. Khan, respectively. These meetings were attended exclusively by the Independent Directors, without the presence of any other members of the Board or management. A range of matters were deliberated upon and reviewed during these meetings including the following:

• Action taken report of previous meeting of Independent Directors.

• The quality, quantity, and timeliness of flow of information between the management of your Bank and the Board that is necessary for the Board to effectively and reasonably perform their duties

• Whether adequate time is spent by the Board/ Committees on discussions on important issues.

• Performance of Non-Independent Directors, the Board as a whole, Chairperson of your Bank.

Q. Familiarisation Programme for Independent Directors

In accordance with Regulation 25(7) of the Listing Regulations and RBI guidelines, your Bank conducts familiarisation programme for all its Directors including Independent Directors.

These familiarisation programmes are conducted through a combination of experts from your Bank and/or external agencies having in-depth expertise in various areas, taking into account the business requirement of your Bank, and the existing skill sets of the Directors. Such sessions enable the Directors to obtain an insight on contemporary matters and changes therein.

The Details of familiarisation programme and other sessions organised for Independent Directors during FY 2024-25 is disclosed in the Report on Corporate Governance annexed with Board''s Report as Annexure-i and on the website of your Bank under Disclosures under Regulation 46 of the LODR.

R. Declaration of Independence

In accordance with provisions of Sections 149(6) and 149(7) read with Schedule IV of the Act and Regulation 16(1)(b) and 25(8) of the Listing Regulations, your Bank has received necessary declarations/disclosures from all the Independent Directors confirming that they meet and comply with the criteria of independence.

Pursuant to the Companies (Creation and Maintenance of Databank of Independent Directors) Rules, 2019 read in conjunction with the Companies (Appointment and Qualifications of Directors) Rules, 2014, the Independent Directors of your Bank have successfully registered their names in the online databank of Independent Directors maintained & administered by the Indian Institute of Corporate Affairs ("IICA”). The Independent Directors have also confirmed that they were not aware of any circumstance or situation which existed or may be reasonably anticipated, that could impair or impact their ability to discharge their duties with an objective independent judgement and without any external influence.

In the opinion of Board, the Independent Directors possesses requisite domain knowledge, experience, expertise, integrity, and proficiency as required under the Code applicable for Independent Directors as stipulated under Schedule IV of the Act and in terms of the policy of your Bank.

S. Compensation Policy for appointment and remuneration of Director’s, KMP, SMP, Material Risk Takers (MRTs) and Control Function Staff

Your Bank has formulated and adopted a comprehensive Compensation Policy for appointment and remuneration of its Directors, Key Managerial Personnel ("KMP”), Senior Management Personnel ("SMP”), Material Risk Takers ("MRT”) and Control Function Staff on the recommendation of the NRC, in compliance with the provisions of Section 178(3) of the Act read with relevant rules made thereunder, Listing Regulations and RBI guidelines.

The policy governs the appointment and remuneration of Directors (including Independent Directors), KMP, SMP, MRTs and Control Function staff as applicable in accordance with the criteria established by the NRC of the Board as mandated by the Act and applicable Rules, Listing Regulations, and other relevant guidelines.

Key objectives of the policy include establishing standards for compensation, including fixed and variable pay, retaining and motivating talent, defining internal guidelines for reimbursement to Directors and KMPs, institutionalising a mechanism for appointment/removal/evaluation of performance of Directors, administering ESOP as per SEBI regulations and ensuring compliance with applicable laws, rules, and regulations as well as ''Fit and Proper criteria'' of directors for their appointment.

The policy undergoes regular review by the Board in addition to the other amendments that may be required in the policy and is hosted on the Bank''s website https://www.aubank.in/investors/ secretarial-policies.

The terms of reference of the NRC and details of Compensation Policy are covered in Report on Corporate Governance annexed with Board''s Report as Annexure-i.

T. Evaluation of the Directors, the Board and Committees

The provisions of Section 149(8) read with Schedule IV, Section 178(2) of the Act, Regulation 17 and other applicable Regulations of the Listing Regulations, and Guidance Note on Board Evaluation issued by the SEBI, mandates the performance evaluation of the Board, its committees, individual directors and the Chairperson of your Bank on the basis of various parameters with the aim to improve the effectiveness of the individual Director, Committees and the Board.

Board evaluation is a vital aspect of corporate governance that enhances the effectiveness of the Board by identifying strengths and areas for improvement and promotes transparency and accountability. Your Bank has structured process in place for Board performance evaluation which is conducted annually. The evaluation is conducted based on a comprehensive framework reviewed and approved by the NRC.

The Performance evaluation of the Board, its Committees, Chairperson, Independent Directors, Executive and Non-Executive Director is evaluated after seeking inputs from all the Directors on the basis of criterias prescribed under guidance note on Board Evaluation issued by SEBI which inter alia covered the following aspects:

• Board as a Whole: Assess structure of Board, effectiveness of Board meetings, functions of Board and level of independence of the management from the Board

• Board Committees: Review composition, size and scope of work, quality of deliberations, timeliness, and expertise.

• independent Directors: Evaluate participation, Assesses independence, contribution to discussions, fulfillment of functions, management oversight, and shareholders'' interest.

• Chairperson: Focus on contribution in meetings, strategic input, integrity, collaboration and governance oversight.

• Executive Directors: Measure strategic

execution, commitment, operational leadership, accountability, performance, value creation, Governance & Compliance.

• Non - Executive Director: Evaluate Knowledge & Participation, contribution to discussions, fulfillment of functions, Impartial approach and shareholders'' interest.

Details of Board performance evaluation carried out for FY 2024-25 including methodology used, its outcome and proposed recommendations for implementation in the upcoming financial year, are covered under Report on Corporate Governance, forming part of this Board''s report as Annexure-i.

U. Statutory Auditors and their Report

In consonance with the ''Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory

Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)'' dated April 27, 2021 issued by RBI, Banks are required to

appoint Statutory Auditors for a continuous period of three (3) years, subject to the audit firms meeting eligibility criteria annually and obtaining RBI approval on an annual basis.

At the 29^th AGM of your Bank held on July 26, 2024, M/s. M S K A & Associates, Chartered Accountants (FRN: 105047W) and M/s. Mukund M Chitale & Co., Chartered Accountants (FRN: 106655W) were appointed as Joint Statutory Auditors for a period of Three (3) years to hold office from the conclusion of the 29^th AGM till the conclusion of the ensuing 32^nd AGM, subject to RBI approval on an annual basis.

M/s. M S K A & Associates, Chartered Accountants and M/s. Mukund M Chitale & Co., Chartered Accountants, Joint Statutory Auditors of your Bank, have provided audit report on the financial statements for the FY 2024-25, with no qualifications, reservations, or adverse remarks. Further, in accordance with Section 143(12) of the Act, the auditors have not identified any instances of fraud within your Bank by its officers or employees.

The SAs have confirmed their eligibility in adherence to Section 141 of the Act and the guidelines issued by the RBI from time to time. Moreover, pursuant to the relevant provisions of Listing Regulations, the SAs have also confirmed their adherence to the peer review process as mandated by the Institute of Chartered Accountants of India ("ICAI”). The SAs also possess a valid certificate issued by the Peer Review Board of ICAI, ensuring their competence and professionalism in their field.

V. Secretarial Auditors and their Report

The Board of your Bank, on the recommendation of the Audit Committee, had appointed M/s. V. M. & Associates, Company Secretaries (Registration No. P1984RJ039200 & Peer Review Certificate No.: 5447/2024) to conduct the Secretarial Audit of your Bank for the financial year 2024-25.

The Secretarial Auditors have not reported any instance of fraud in accordance with Section 143(12) of the Act during the year under review and their report does not contain any qualification, reservation, or adverse remark for the financial year 2024-25. The Secretarial Audit Report for the financial year 2024-25 in form MR-3 is annexed with Board''s Report as Annexure-iV.

Further, in compliance to the provisions of Section 204 of the Act read with Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, Regulation 24A of Listing Regulations read

with SEBI Circular No. SEBI/HO/CFD/CFD-PoD-2/ CIR/P/2024/185 dated December 31, 2024 and upon recommendation of the Audit Committee, the Board of your Bank, subject to the approval of the shareholders of your Bank at the ensuing Annual General Meeting, have approved the appointment of M/s. Mehta & Mehta, Company Secretaries (Registration No. P1996MH 007500 & Peer Review Certificate No.:3686/2023), as the Secretarial Auditors of your Bank to conduct the audit of the secretarial records for a period of five (5) consecutive years starting from the Financial Year 2025-26 till the Financial Year 2029-30.

W. Particulars of Loans, Guarantees and Investments

Pursuant to the provisions of Section 186(11) of Act, the provisions of Section 186 of the Act except sub- section (1), do not apply to loans made, guarantees given or securities provided or acquisition of securities by a Banking company in the ordinary course of business and are exempted from disclosure requirement in the Annual Report.

However, the particulars of investments made by your Bank are disclosed in Schedule 8 of the Financial Statements for FY 2024-25, forming part of this Annual Report, as per the applicable provisions of BR Act.

X. Related Party Transactions

During FY 2024-25, your Bank did not engage in any material significant transactions with related parties that could potentially create conflicts of interest between your Bank and these parties. All related party transactions conducted throughout the year were carried out at arm''s length basis and in the normal course of business operations.

The Audit Committee has accorded omnibus approval for related party transactions which are of a repetitive nature and entered in the ordinary course of business. Further, the Audit Committee of your Bank reviewed details of all related party transactions entered by your Bank on quarterly basis.

As per Section 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the financial year ended March 31, 2025.

The Policy on Related Party Transactions and Materiality as approved by the Board can be accessed on the website of your Bank at https://www.aubank. in/investors/secretarial-policies.

Y. Material Changes and Commitments, if any, affecting the Financial Position of Bank

There were no material developments/changes/ commitments affecting the financial position of your Bank which have occurred after March 31, 2025, till the date of this report

Z. Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

Your Bank remains deeply committed to environmental sustainability, consistently advancing initiatives aimed at reducing its carbon footprint. By leveraging digital technologies and implementing targeted emission-reduction strategies across its operations, your Bank continues to foster eco-conscious practices and contribute meaningfully to a greener future.

(a) Conservation of Energy

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipments:

Your Bank is committed to environmental sustainability and is actively reducing emissions through digital solutions and adopting low-carbon innovations, like exploring zero-carbon electricity for Banking operations. Your Bank has implemented a three-tiered strategy for energy conservation:-

1. Energy Efficiency Measures

• Encouraging green plants and gardens on Bank''s premises to lower air conditioning needs and keeping AC temperatures at 25°C or higher.

• Engaging in performance-based contracts for energy savings.

• Replacing conventional lighting with energy-efficient LED fixtures.

• Using timers for signage to optimise energy usage.

• Installing power factor systems in electrical panels for efficient electricity use and implementing power factor corrections.

2. Technology Upgrades

• Deploying an i-Touch manager for efficient monitoring and control of electricity usage, leading to reduced consumption.

• Using Variable Refrigerant Volume (VRV) based Chillers to cut down on energy usage in ACs By upto 20%.

• Employing insulation to minimise heat load in offices, reducing the reliance on air conditioning.

• Using UPS and inverters to reduce reliance on diesel electricity generators.

3. Renewable Energy, Recycling and Resource Optimization

• Recognising the importance of renewable energy for a cleaner future, your Bank has installed a 1 MW solar plant.

• The solar project is situated in Gajner Site, Bikaner district, Rajasthan, and serves Jagatpura, Malviya Nagar, and Tonk Road offices at Jaipur, Rajasthan.

• This project is expected to generate 1.6 million units annually, contributing significantly to reducing carbon footprint and supporting global sustainability goals.

• Recycling systems and supplies: Your Bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards.

• Your Bank also employs a coherent system of recycling slightly older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, your Bank successfully reduces the demand for new desktops and laptops even with the growing workforce.

Other initiatives

Green Building: Natural Sunlight is maximised through Green Building design in Offices to the extent possible to reduce reliance on artificial lighting to the extent possible.

Green building encompasses environmentally responsible and resource-efficient practices throughout a building''s life cycle, from planning to demolition. It expands on traditional building concerns of economy, utility, durability, and comfort by prioritising energy, land, water, and material savings while reducing pollution and

promoting harmony with nature. Bank''s office at Sanpada, Mumbai, achieved a "Gold” rating in IGBC''s Existing Green Interior Category, showcasing a commitment to indoor environment quality, sustainable materials, energy efficiency, water conservation, and eco-design principles. This achievement reflects your Bank''s dedication to environmental responsibility and sets a standard for future branches nationwide.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

1. AU 0101 App: AU 0101 App feature enables customer access to Bank from anywhere, which contributes to reducing carbon footprint and seamless video banking enables customers to avail Banking services virtually through a video enabled chat with branch executives, eliminating the need to travel to the branch. The ''AU 0101'' retail Internet and mobile banking application and platform have been successfully migrated to AWS''s private cloud, ensuring high availability, scalability, and security. Even during peak traffic periods, the system remains responsive and reliable, seamlessly meeting customer demands. In FY 2024-25, ~53% term deposits were booked via AU 0101 app and contributing to ~22% of overall term deposits mobilized.

2. Digital Banking: Your Bank has significantly advanced its digital banking capabilities, making banking more convenient and paperless. Over 90% of deposit accounts are now opened digitally, primarily through Tab and Video Banking. The platform is expanding to support end-to-end onboarding for various products, including loans, credit cards, insurance, and wealth services.

Your Bank witnessed strong growth in the adoption of tab-based account opening, mobile banking, WhatsApp banking (24/7 banking solutions), and Net banking, thus minimising paper usage, reducing waste generation, and achieving improved waste management.

3. Video Banking: This service helps Customers to connect with Video Bankers on real time basis at Customer''s convenience from home. Customer can open account, book FD, and much more. Bank provides video banking facility with a vision to offer all its services virtually through video-enabled chat with branch executives, eliminating the need for branch visits. This

initiative helped your Bank twofold in promoting digital banking and inspiring its customers to adopt a more environmentally sustainable banking channel and saving of fuel by reducing commutation challenges.

4. Tab Onboarding Journey: This service enables bank staff to onboard customers using digital platform which helps with increased speed and efficiency by reducing time for document verification and data entry. Customers appreciate the convenience and accessibility of online onboarding, Tab based onboarding platform incorporates security measures like encryption and biometric authentication. In FY 2024-25 ~80% of the accounts were processed using Tab banking. In FY 2025-26, Tab banking journey has moved to a new platform to ensure faster TAT through seamless activation, robust mule account detection modules and co-originated offerings like Term Deposit, Mutual Fund, Insurance and Demat at the point of onboarding.

5. Embracing E-receipts Culture: Bank encourage customers to choose electronic receipts at ATMs, and send them a detailed SMS on their most recent transaction and Bank balance to their registered mobile number to reduce paper usage. Bank also collaborated with the transport department of Haryana to automate the ticketing process, allowing for the conservation of natural resources.

6. Automate Energy data collection: This is an application of digital technologies for energy data collection. Bank has replaced manual way of data collection from its various sites and automated data collection through ERP software.

Energy accounting and reduction have a major effect on emissions as an enabler in accelerating clean energy transitions. The system is helping your Bank to cut costs, improve efficiency and resilience, and reduce emissions.

7. Cloud computing & storage: Cloud infrastructure modernizes your Bank''s operations by:

• Enhancing scalability and resiliency

• Supporting load sharing

• Reducing operational costs

• Improving environmental sustainability

through reduced physical infrastructure needs

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

Your Bank delivers products and services that promote sustainable development and conduct its business in a fair and professional manner. A proper structure and process is available which facilitates incorporating risk criteria in the product development and approval process. Your Bank is continuously taking various steps on product improvement. Your Bank has implemented an upgraded version of ITAM tool (IT asset management tool). This tool will manage all Bank''s IT assets life cycle i.e. from procurement to scrap and disposal of asset, for pan India banking operations. Highly efficient use of technology through software helps save time, improve efficiency, reduce costs, improve productivity, make institution more agile and enhances the information security.

Embracing the transformative power of robotics, your Bank has automated over 100 processes through Robotic Process Automation (RPA). This strategic move not only reduces manual intervention but also underscores Bank''s dedication to technological excellence and continuous improvement.

In terms of AD-1 applications, your Bank has implemented the Kondor Treasury Application to enhance financial efficiency and global connectivity. This state-of-the-art solution streamlines interbank trading processes by automating tasks, improving accuracy, and enhancing risk assessment. Additionally, Bank has enabled secure interbank transactions in USD via SWIFT. The SWIFT network ensures reliable and efficient cross-border financial transactions. Leveraging SWIFT''s standardised messaging system, we have fostered international trade and facilitated seamless USD transactions.

Your Bank is investing in initiatives and innovations to build a digital gateway to a sustainable lifestyle. Your Bank''s investments in digital technologies have simplified banking and enabled a smoother customer journey. In addition, a robust technology platform has been created by your Bank as a part of the new-age digital banking ecosystem.

III) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a) The details of technology imported: Nil

b) The year of import: Nil

c) Whether the technology been fully absorbed: Nil

d) If not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV) Expenditure incurred on Research and Development:

Since financial services is being primarily covered under service Sector, the details of this clause are not applicable to your Bank.

(c) Foreign Exchange Earnings and Outgo

During the financial year ended March 31, 2025, the foreign exchange earnings was H76.51 Crore and the foreign exchange outgo was H44.02 Crore.

AA. Risk Management

Your Bank operates within a robust Enterprise Risk Management Framework aligned with its risk appetite, ensuring proactive identification, assessment, mitigation, and monitoring of risks. A multi-layered governance model based on the three-lines-of-defense principle supports prudent risk oversight. Your Bank has institutionalized a strong risk culture and governance structure, driven by Board-approved policies, a defined risk appetite statement, and continuous risk assessment. Key risks monitored include credit, operational, market, liquidity, fraud, compliance, cyber security, and emerging risks such as climate and data privacy. Technology-enabled tools and automated reporting enhance real-time risk monitoring and portfolio oversight. The Board, supported by the Risk Management Committee (RMC) and other specialized committees, oversees the risk governance process. The Chief Risk Officer, reporting independently to the RMC, plays a central role in managing risk areas and aligning risk strategy with business objectives. The Internal Capital Adequacy Assessment Process (ICAAP) and stress testing further strengthen your Bank''s resilience and capital planning.

Credit Risk Management

Credit risk arises from a borrower''s failure to meet contractual obligations. Your Bank mitigates this through robust underwriting standards, portfolio monitoring, early warning systems, and defined risk limits aligned with business strategy. Credit risk is managed through a comprehensive policy framework, with oversight by the Credit Risk Management Committee ("CRMC”), which monitors large exposures, asset quality, and portfolio concentration.

Operational Risk Management

Operational risk stems from failures in internal processes, systems, or external events. Your Bank follows a three-lines-of-defense model, with the Operational Risk Management Department (ORMD) implementing the framework and the Operational Risk Management Committee ("ORMC”) overseeing it. Fraud risk is addressed through a dedicated Risk Containment Unit and monitored by the Special Committee of the Board for Monitoring and Follow up of Cases of Fraud ("SCBMF”). Continuous enhancements in systems and controls ensure resilience, especially in digital banking.

Outsourcing Risk

Your Bank manages outsourcing risk through Board-approved IT and financial outsourcing policies, aligned with RBI guidelines. The Committee for Outsourcing of IT and Financial Services oversees vendor risk, ensuring due diligence, monitoring, and compliance with risk management standards.

Business Continuity Management (BCM)

Your Bank has a comprehensive BCM framework to ensure continuity of critical operations during disruptions. This includes disaster recovery sites, regular BCP drills, and emergency response plans. The ORMD coordinates BCM efforts across units, ensuring preparedness and resilience.

Market Risk, Liquidity Risk & Asset Liability Management

Your Bank manages market risk arising from investments, trading, and forex positions through a Board approved framework that includes defined limits, benchmarks, and analytical tools to optimize risk-adjusted returns. Liquidity risk, the inability to meet funding obligations, and the same is mitigated through robust fund planning, daily liquidity monitoring, and adherence to internal thresholds which are stricter than regulatory norms. The Asset Liability Management Policy outlines a comprehensive governance structure for managing market, interest rate, forex, and liquidity risks. The Asset Liability Management Committee ("ALCO”) oversees risk identification, measurement, and compliance with internal and regulatory limits, ensuring resilience under normal and stressed conditions.

Information Security Risk Management

Your Bank has implemented a robust cyber and information security framework to safeguard its IT infrastructure and customer data against evolving threats such as phishing, malware, and system vulnerabilities. Governed by Board approved policies overseen by the Chief Information Security Officer (CISO), the framework includes real-time monitoring

via a Cyber Security Operations Centre, layered security controls, and adoption of next-gen solutions. Your Bank follows a People-Process-Technology (PPT) model, emphasizing employee training, defined procedures, and advanced technologies. Awareness campaigns are conducted regularly to educate customers on cyber fraud prevention and safe banking practices.

Reputation Risk Management

Reputation risk is managed through strong governance, ethical conduct, and transparent stakeholder engagement. Your Bank monitors reputational exposure via its ICAAP and a Reputation Risk Index (RRI). Senior management and the Board ensure zero tolerance for misconduct and uphold high standards of integrity. Regular communication with stakeholders and adherence to Bank''s values and Code of Conduct help preserve and enhance its reputation.

Compliance Risk Management

Your Bank manages compliance risk through a robust framework guided by its Board-approved Compliance Policy and KYC/AML Policy, aligned with RBI regulations and the Prevention of Money Laundering Act. A dedicated Compliance Department ensures adherence to applicable laws, monitors regulatory developments, and reports regularly to senior management and the Audit Committee. Your Bank emphasizes a strong compliance culture, supported by regular training and policy reviews to stay aligned with evolving regulatory expectations.

Emerging Risks

• Data Privacy: Your Bank ensures compliance with the applicable data privacy guidelines through multi-layered data protection controls and regular threat assessments.

• Cybersecurity & Fraud Risk: A next-gen cybersecurity framework, supported by AI/ML-based fraud detection and a multi-tier governance structure, safeguards IT infrastructure and customer data.

• Climate Risk: Through its Sustainability Policy and Green Fixed Deposit Policy, your Bank addresses climate-related risks and promotes green financing initiatives like green loans and Planet First - Green Fixed Deposits, with third-party validation and audits.

• Social Media Risk: Your Bank actively monitors and mitigates reputational and operational risks from social media through external partnerships and real-time surveillance of digital platforms.

AB. Corporate Social Responsibility

Over the past seven years, your Bank has upheld a consistent and purpose-driven approach to its Corporate Social Responsibility (CSR) initiatives, addressing socio-economic challenges through inclusive and transformative CSR programs. These efforts aim to build skills, nurture talent, and create pathways for self-reliance. Rooted in Bank''s foundational commitment to reach the unreachable and serve the underserved, CSR initiatives are centered around three core pillars:

• Skill Development with Job Placement Support

• Sports Training and Talent Development

• Women Empowerment through Entrepreneurship

Beyond these focus areas, your Bank also supports broader social development initiatives in healthcare, safe drinking water, road safety, environmental conservation, water resource management and promotion of art & culture among others.

Each initiative reflects your Bank''s mission to uplift communities and contribute meaningfully to the vision of Viksit Bharat. As your Bank continues its journey of social transformation, it remains deeply committed to enabling long-term, sustainable change ensuring that beneficiaries experience lasting impact and they progress toward a more equitable society.

The terms of reference of the CSR Committee are outlined in the Report on Corporate Governance annexed as Annexure-I. The disclosures required to be given under Section 135 of the Act read with Rule 8(1) of the Companies (Corporate Social Responsibility Policy) Rules, 2014 and Companies (Corporate Social Responsibility Policy) Rules, 2021, in the prescribed format has been appended herewith as Annexure-II. The CSR Policy is also available on the Bank''s website at https://www.aubank.in/investors/ secretarial-policies.

AC. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Bank maintains a zero-tolerance policy towards any form of harassment, reinforcing its commitment to fostering a workplace culture rooted in respect, dignity, and inclusivity. Your Bank is dedicated to ensuring a safe, prejudiced-free environment where employees can work without fear of bias or misconduct.

In alignment with the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 and Policy on Prevention and Redressal of Sexual Harassment at the Workplace, your Bank has constituted three level Internal Committees (Branch,

Regional & Central) to address complaints promptly and impartially. These committees are empowered to conduct thorough independent and fair inquiries, ensuring justice and accountability. Your Bank has also implemented mandatory training and awareness programs to educate staff on respectful workplace behavior and the procedures for reporting and addressing grievances.

Detailed information regarding your Bank''s commitment to prevent and address sexual harassment along with summary of cases is provided in the Report on Corporate Governance as Annexure-i to the Board''s Report.

AD. Compliance with Maternity Benefit Act 1961

Your Bank has adhered to all applicable provisions of the Maternity Benefit Act, 1961, ensuring full compliance with statutory requirements.

AE. Subsidiary, Joint Ventures & Associate Companies

Your Bank does not have any subsidiary, joint ventures & associate companies. Hence, the details of this clause are not applicable to your Bank. Accordingly, Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

AF. Material Orders Passed by Regulators or Courts or Tribunals

During the FY 2024-25, no material orders have been passed by the Regulators/ Courts/ Tribunals which would impact the going concern status of your Bank and its future operations.

AG. Internal Financial Control & their Adequacy

Your Bank has instituted a strong internal financial control framework, thoughtfully aligned with its defined risk appetite and tailored to the size, scale, and complexity of its operations. The scope and authority of the risk-based internal audit function are clearly articulated in the Board-approved Internal Audit Policy.

The audit function plays a pivotal role in ensuring that your Bank''s processes and operations adhere to regulatory guidelines, accounting standards, and internal rules and guidelines of your Bank. This function offers an impartial evaluation of the quality and effectiveness of your Bank''s internal control, risk management, and governance systems to provide assurance to the Board and Audit Committee.

During the year under review, your Bank''s internal control systems were found to be adequate and

operating effectively. Additionally, the Joint Statutory Auditors expressed their opinion on the adequacy and operational effectiveness of your Bank''s internal controls over financial reporting, as required under the applicable provisions of the Act. This opinion can be referred to in the Auditor''s Report attached to the audited financial statements for FY 2024-25 forming part of this Annual Report.

AH. Cost Records

Being a Banking company, provisions of Section 148(1) of the Act, relating to maintenance of cost records is not applicable to your Bank.

AI. Corporate Governance

The governance structure of your Bank is designed to ensure that your Bank is managed in the best interests of all its stakeholders, including regulators, depositors, customers, employees, shareholders, and all other stakeholders while maintaining effective risk management and compliance with applicable laws and regulations. The Corporate Governance has been an integral part of the way the Bank has been operating since inception. The Bank believes that good Corporate Governance emerges through the implementation of best management practices, strict adherence to laws and regulations, and a commitment to transparency and ethical conduct.

Your Bank is dedicated to constantly refining its governance and assurance practices by benchmarking itself against the global best practices. The Bank is committed to have a top-notch Governance and assurance framework in place, and it constantly works to enhance its Risk Management, Compliance, and Audit practices.

Key aspects of these functions, along with recent initiatives, are integral to the Bank''s commitment to excellence in governance which inter alia include:

1. Risk Management:

Your Bank has designed comprehensive Enterprise Risk Management framework to protect the organization as well as the interests of all major stakeholders. The risk governance is driven by a risk appetite statement, well-articulated policies for effective risk management, and a robust risk management structure. The Bank continuously carry out the risk assessment and ensure compliance to the internal/ regulatory limits along with periodic review, monitoring and submission of the key reports to relevant management and Board committees. Adherence to the framework ensures a structured and systematic approach to risk management that is crucial for the calibrated growth of the Bank. Since your Bank operate

in underserved segments and accordingly it has evolved its risk management practices to mitigate and manage the associated risks.

The responsibility for executing key risk management activities has been entrusted to the Board Delegated Committees (Executive Committees), including the Credit Risk Management Committee, ORMC, ALCO, Asset Liability Management Committee, IT Steering Committee, and Information Security Committee. Risk management is a top priority for your Bank, with a strong framework in place to address potential risks. The Bank''s risk management philosophy and approach are centered on safeguarding the interests of customers and investors, as well as preserving your Bank''s reputation and financial stability.

2. Compliance Function:

Compliance is a key pillar of your Bank''s governance framework and it is designed to ensure adherence to all regulatory requirements (in letter and spirit) and foster a robust compliance culture across the organization. In order to cultivate the right tone for compliance, the function consistently seeks guidance from the Board and its committees. It engages with internal stakeholders through both structured and informal meetings to effectively communicate the necessary compliance standards.

As a technology-driven Bank, it has embedded regulatory requirements in a digitalized processes/workflows to ensure full compliance and have invested in various advanced systems and technological solutions. Further, to strengthen its efforts, the Compliance Function has adopted several initiatives, including:

(i) Compliance Sustenance Framework

(ii) Compliance Self Certification

(iii) Enhancing the Product Approval Process

(iv) Quality Assurance and Improvement Programme (QAIP)

3. Internal Audit Function:

The Internal Audit function is the guardian of your Bank''s governance framework. It adheres to a risk-based audit approach outlined in your Bank''s Risk Based Internal Audit Policy. This function independently assesses the adequacy and effectiveness of your Bank''s internal control and risk management frameworks and processes to provide objective assurance to your Bank''s Board/ Committees, senior management, and the regulator.

Further, the Internal Audit function is responsible for formulating, implementing and monitoring your Bank''s audit plan. Based on the audits conducted, it highlights relevant findings and continuously monitors, validates, and reports on the progress of remediation actions. Additionally, while maintaining objectivity and independence, the Internal Audit function also offers advisory services, which aim to enhance governance, risk management, and control processes.

The Report on Corporate Governance for FY 2024-25 along with certificate issued by M/s. V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under Chapter IV of the Listing Regulations, is annexed with Board''s Report as Annexure-i.

AJ. Business Responsibility and Sustainability Report & Sustainability Initiatives

In terms of Regulation 34(2)(f) of the Listing Regulations, top 1000 listed entities based on their market capitalization as on December 31, every year, are required to submit Business Responsibility and Sustainability Report ("BRSR”), as a part of their annual report. In the BRSR disclosures on performance against the nine principles of the ''National Guidelines on Responsible Business Conduct'' (NGRBCs) are reported wherein each principle is divided into essential and leadership indicators.

SEBI has further mandated the top 150 listed companies (by market capitalization) to undertake an assessment or assurance of the BRSR Core from financial year 2023-24 and for top 250 listed companies from the financial year 2024-25 subsequently. The BRSR Core is a sub-set of the BRSR, consisting of a set of Key Performance Indicators (KPIs) / metrics under 9 ESG attributes. Considering market capitalization of the Bank, the requirement of BRSR and assessment or assurance of the BRSR core for the FY 2024-25 is applicable on your Bank.

Accordingly, the Bank''s BRSR for FY 2024-25 along with the Independent reasonable assurance statement on BRSR core disclosures from Intertek India Private Limited, is annexed with Board''s Report.

Your Bank has Board level Sustainability Committee chaired by Independent Director. This committee is responsible for decision-making on sustainability related issues. The composition, terms of reference and meeting details of the Sustainability Committee are included in Report on Corporate Governance annexed with Board''s Report as Annexure-i. Further,

it has initiated need based several environmental and social initiatives for the benefit of its stakeholders.

AK. Particulars of Employee Remuneration

As per Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rule, 2014, the ratio of the remuneration of each Director to the median employee''s remuneration and other details is annexed with Board''s Report as Annexure-iii.

Additionally, the statement containing employee particulars required by Section 197(12) of the Act and Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, is a part of this report. Pursuant to Section 136(1) of the Act, the annual report has been sent to Members without the aforementioned statement, which can be inspected at the registered office of your Bank up to the date of the AGM. Members interested in obtaining a copy of the Annexure may request it from the Company Secretary of the Bank at [email protected]

AL. Management Discussion and Analysis

The Management Discussion and Analysis Report for the FY 2024-25 is included as a separate section within the Annual Report, as required under Regulation 34(2)(e) and Schedule V of the Listing Regulations.

AM. Annual Return

The draft Annual Return for the financial year ended on March 31, 2025 in the prescribed form MGT-7, as required under Section 134(3)(a) and Section 92(3) of the Act, can be accessed on the Bank''s website at https://www.aubank.in/other-reports

AN. Whistle-Blower Policy & Vigil Mechanism

Your Bank values reliability, fairness and equality which form foundation for all the decisions taken and believes in conducting its affairs in a fair manner to build customer trust and confidence and ensure customer delight. Your Bank encourages its employees, all stakeholders and members of general public, who have concerns about suspected misconduct, to come forward and express these concerns without fear of retaliation or unfair treatment.

A Whistle-Blower Policy in Banking Institutions is crucial for fostering transparency, accountability, and ethical behavior within the organisation. Your Bank has implemented Whistle-Blower Policy & Vigil Mechanism in pursuance of the provisions of Section 177(9) of the Act read with the rules made thereunder and Regulation 4(2)(d) and Regulation 22 of the Listing Regulations, which aims at establishing

an effective vigil mechanism in your Bank to quickly spot aberrations and deal with it at the earliest.

The Whistle-Blower Policy provides a safe and confidential avenue for employees to report any potential misconduct or fraudulent activities without fear of retaliation. This Policy includes adequate safeguards against the victimisation of individuals who avail this mechanism ensuring they have direct access to the Chairman of the Audit Committee. None of your Bank''s personnel has been denied access to the Audit Committee of your Bank.

The policy can be accessed on the website of the Bank at https://www.aubank.in/investors/ secretarial-policies and further details have been provided in the Report on Corporate Governance forming part of this Board''s Report as Annexure-i.

AO. Anti-Bribery and Anti-Corruption Policy

Your Bank upholds a strict ''zero-tolerance approach'' towards bribery, corruption, and unethical practices and is committed to conduct all its dealings and operations with professionalism, fairness, and integrity. In alignment with this commitment, your Bank has implemented an Anti-Bribery and AntiCorruption Policy that has been approved by the Board. This policy outlines the fundamental principles for conducting Banking business in a transparent, honest, and ethical manner. The policy can be accessed on the website of the Bank at https://www.aubank.in/notice-board.

AP. Adherence to Secretarial Standard issued by the Institute of Company Secretaries of India

Your Bank has adhered to the Secretarial Standards issued by the ICSI of India on Meetings of Board and General Meetings.

AQ. Status of Ind AS Implementation

The Banks are advised to follow the Indian Accounting Standards as notified under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the RBI in this regard. The Banks in India currently prepare their financial statements as per the guidelines issued by the RBI, the Accounting Standards notified under section 133 of the Act and generally accepted accounting principles in India ("Indian GAAP”). In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian Accounting Standards ("Ind AS”), which were based on convergence with the International Financial Reporting Standards (IFRS), for scheduled commercial banks, insurance companies and non-banking financial companies

(NBFCs). In March 2019, RBI deferred the implementation of Ind AS for banks till further notice as the recommended legislative amendments were under consideration of Government of India. Your Bank had undertaken preliminary diagnostic analysis of the GAAP between Indian GAAP vis-a-vis Ind AS and shall proceed for ensuring the compliance as per applicable requirements and directions in this regard.

In FY 2023, Reserve Bank of India, through its discussion paper on "Introduction of Expected Credit Loss framework for provisioning by Banks” has proposed to adopt an expected credit loss framework based on the approach as per Ind AS 109, supplemented by regulatory backstops wherever necessary. Further, in FY 2024, the RBI issued a master direction on classification, valuation and operation of investment portfolio of Commercial Banks (Directions), 2023, which became effective from April 1, 2024. The revised master direction brings the classification and accounting of investments closer to Ind AS. Your Bank has implemented the required changes as per the master direction with effect from April 1, 2024.

Directors’ Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Act, the Board hereby confirms that:

1. In the preparation of the annual accounts for the year ended March 31, 2025, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2. We 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 of March 31, 2025 and of the profit of your Bank for the year ended on that date.

3. We have taken proper and sufficient care for the maintenance of adequate accounting records in accordance with the provisions of the Companies

Act, 2013 for safeguarding your Bank''s assets and for preventing and detecting fraud and other irregularities.

4. We have prepared the annual accounts on a going concern basis.

5. We have laid down internal financial controls to be followed by your Bank and ensured that such internal financial controls are adequate and were operating effectively.

6. We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgement and Appreciation

The Board extends its sincere gratitude to the Government of India, various State Governments, regulatory bodies such as RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, as well as to all the shareholders, debenture holders, esteemed Bankers, Lenders, Credit Rating Agencies, and Debenture Trustees for their unwavering support and trust in your Bank.

The Board would further like to express appreciation to BSE Limited, National Stock Exchange of India Ltd., National Securities Depository Limited, Central Depository Services (India) Limited, Registrar & Share Transfer Agent, Vendors and Service Providers for their continued support & co-operation.

Your Bank''s valued customers deserve a special mention for their loyalty and continued patronage and the Board is truly grateful for the trust they have placed in your Bank.

The Board also expresses its heartfelt thanks and gratitude to each employee for their hard work, solidarity, cooperation, support and continued commitment towards your Bank and its customers. Through their commitment to strong work ethics, professionalism, teamwork, and initiatives, they have played a crucial role in enabling your Bank to continue serving its depositors and customers and maintaining Bank''s customer-centric approach.

1

Net Interest Income (NII) grew to H8,011.58 Crore for FY-2024-25 vis-a-vis H5,157.09 Crore for FY 2023-24.

• Net Profit After Tax increased to H2,105.93 Crore for FY 2024-25 vis-a-vis H1,534.72 Crore for FY 2023-24 (post considering pre-tax exceptional impact of H76.80 Crore in Q4 FY2024 towards erstwhile Fincare merger related expense).

---

Mar 31, 2024

The Board of Directors (“Board”) are pleased to present the Twenty-Ninth Annual Report of the AU Small Finance Bank Limited (“Bank”) covering business and operations together with the Audited Financial Statements and Independent Auditors' Report for the financial year ended March 31, 2024.

A. Financial Summary & Highlights

The summary of the financial performance of the Bank for FY 2023-24 is presented below:

(Rs. in Crore)
Particulars	March 31, 2024	March 31, 2023
Total Income	12,300.61	9,239.87
Interest Income	10,554.72	8,205.41
Other Income	1,745.89	1,034.46
Interest Expenditure	5,397.63	3,780.13
Operating Expenses (excluding depreciation)	4,239.36	3,254.84
Profit before Depreciation, Provisions and Tax	2,663.62	2,204.90
Depreciation	225.44	185.42
Provision for Income Tax	464.71	436.71
Other Provisions and Write-offs	438.75	154.84
Net Profit	1,534.72	1,427.93
Appropriations
Transfer to Statutory Reserve	383.68	356.98
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961	130.00	115.00
Transfer to Capital Reserve	7.32	2.52
Transfer to Investment Reserve Account	8.77	-
Transfer to Investment Fluctuation Reserve	52.50	17.20
Dividend pertaining to previous year paid during the year	66.70	31.51
Dividend (in 1) (Per Equity Share)	1	1
Surplus carried over to Balance Sheet	5,172.88	4,287.14
Earnings Per Share (EPS) (in K) (After excluding Exceptional Items not annualised)
Basic (in K)	22.98	21.86
Diluted (in K)	22.86	21.74

Key Performance Highlights

The Bank witnessed growth and consistent performance in FY 2023-24. The key financial performance

indicators for the year are as follows:

•    Net Interest Income (NII) grew to 15,157.09 Crore for FY-2023-24 vis-a-vis 14,425.28 Crore for FY 2022-23 registering YoY growth of 16.54%.

•    Net Profit After Tax increased to 11,534.72 Crore for FY 2023-24 (post considering pre-tax exceptional impact of 176.80 Crore in Q4 FY2024 towards Fincare merger related expense) vis-a-vis 11,427.93 Crore for FY 2022-23 registering YoY growth of 7.48%.

•    Balance sheet size grew to 11,09,425.67 Crore as on March 31, 2024 vis-a-vis 190,216.12 Crore as on March 31, 2023 registering YoY growth of 21.29%.

•    Deposits grew to 187,182.12 Crore reflecting YoY growth of 25.69% and CASA ratio stood at 33.41% as on March 31, 2024 against 38.43% as on March 31, 2023.

•    Gross Advance grew to 173,999.07 Crore reflecting YoY growth of 25.09% and Credit to Deposit ratio stood at 83.92% as on March 31, 2024 against 84.22% as on March 31, 2023.

• Gross NPA and Net NPA ratio stood at 1.67% and 0.55% as on March 31, 2024 vis-a-vis 1.66% and 0.42% as on March 31, 2023.

Analysis of Bank's performance is covered in Management Discussion & Analysis section of the Annual Report.

B.    Business Overview

Amidst a challenging global macroeconomic environment, the Indian economy is exhibiting a quickening growth momentum, with resilience and financial stability. Despite facing certain headwinds such as inflationary pressures and geopolitical uncertainties, the Indian economy remains on a positive trajectory, positioning itself as a key player in the global economic landscape. With a prudent fiscal policy and a conducive business environment, India is poised to sustain its growth momentum and solidify its position as a major economic force in the years to come. The government's initiatives to boost manufacturing, infrastructure development, and digital transformation have propelled the economy forward, attracting both domestic and foreign investment.

The financial sector played a crucial role in supporting this growth, contributing to overall economic stability and development. The optimistic economic environment presents ample opportunities for small finance banks in India to contribute to financial inclusion and economic development.

With a stable GDP growth rate, controlled inflation, and a strong focus on infrastructural development, India remains a key player in the global economic landscape. The Indian economy demonstrated resilience, achieving 8.2% annual average real GDP growth rate in the past three years. Market expect growth dynamics to continue to play out in the medium term, with GDP expanding close to 7.0% annually over the next three years. GDP growth is supported by healthy demographics and competitive unit labor costs. Additionally, India's corporate and financial sectors have stronger balance sheets than before the pandemic. These figures highlight the Indian economy's resilience and positive trajectory during the specified period.

During the financial year 2023-24, the Bank demonstrated consistent resilience and steady growth amidst a challenging economic environment marked by persistent interest rate pressures, tight liquidity conditions, and uncertain global macro trends. The Bank exhibited robust performance across key metrics, including asset and deposit growth, profitability, and digital products for higher engagement with Customers. Noteworthy highlights include the successful launch of innovative banking products like AU IVY' and 'Planet First', along with strategic initiatives such as the 'Soch Badlo aur Bank Bhi' brand campaign and the merger with Fincare Small Finance Bank ("Fincare SFB”). The bank remained focused on sustainable growth, leveraging its strong regulatory compliance framework, technological investments, and strategic partnerships to fortify its position in the market and deliver consistent returns to stakeholders.

The Bank is delighted to inform that following the successful merger as on April 01, 2024, the Bank has evolved into a formidable banking franchise, greatly expanding its reach to over 1.10 Crore customers across 21 States & 4 Union Territories. With a network of 2,383 Banking touchpoints, the Bank is committed to provide top notch services through a dedicated workforce of 46,000+ employees. This merger has paved a way for the Bank to extend its presence into South India, significantly broadening its distribution network. This increased footprint of Branches and touchpoints will enhance Bank's ability to provide diverse range of products and services to a larger customer base, solidifying its market position and helping to realise its aspirations of PAN India Banking franchise.

The key business developments and segment-wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

C.    Update on the Amalgamation of Fincare Small Finance Bank Limited with the Bank

The scheme of amalgamation of Fincare Small Finance Bank Limited (“Fincare SFB”) (“Transferor Bank”) into and with the AU Small Finance Bank Limited (“Transferee Bank” or the “Bank”) (“the Amalgamation Scheme”) was approved by the Board of Directors of the Transferor Bank & Transferee Bank on October 29, 2023 in accordance with Section 44A of the Banking Regulation Act, 1949 and, Reserve Bank of India (Amalgamation of Private Sector Banks) Directions, 2016 subject to approval of shareholders of both the Transferor Bank and Transferee Bank, Reserve Bank of India (“RBI”) and Competition Commission of India (“CCI”).

The Amalgamation Scheme was approved by the shareholders of the Transferor Bank and Transferee Bank at their respective Extraordinary General Meetings held on November 24, 2023 and November 27, 2023.

Thereafter, the Amalgamation Scheme was subsequently approved by CCI on January 23, 2024 and the RBI through its press release and order dated March 04, 2024, granted its sanction to the same with effect from April 01, 2024 (“Effective Date”).

Further, the Board of the Bank declared the effectiveness of the Scheme of Amalgamation marking all Fincare SFB branches to operate as branches of the Bank with effect from April 01, 2024. The shareholders of Fincare SFB received 579 equity shares of the Bank in exchange for every 2,000 equity shares of I 10 each, fully paid up in Fincare SFB (“Share Exchange Ratio”). Furthermore, all employees of Fincare SFB transitioned to the Bank's team seamlessly.

This Amalgamation is set to create a strong and diversified retail banking franchise with a wide reach across India and will enhance Bank's portfolio with microfinance, mortgages, and gold loans, while leveraging Fincare SFB's rural distribution network and Bank's digital capabilities. The combined entity aims to achieve synergies in deposits, technology, and efficiency, ultimately benefiting key financial metrics. Additionally, both Banks prioritise a positive workplace culture, seeing it as crucial to the success of the merger.

The Bank takes this opportunity to thank its shareholders for voting in favour of the said amalgamation and for reposing your trust in the Bank and its management.

Further details regarding the amalgamation are covered in Management Discussion & Analysis section of the Annual Report.

D.    Dividend

Pursuant to Regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) and RBI guidelines, the Bank has formulated and adopted a Dividend Distribution Policy. This policy aims to strike a balance between rewarding our shareholders by distributing a portion of profits whilst ensuring that adequate funds are retained for the sustainable growth of the Bank. The same can be viewed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

In line with the aforementioned policy and considering the Bank's financial performance during the FY 202324, the Board at its meeting held on April 24, 2024 recommended a dividend of 10% (I 1 per fully paid-up Equity Share of I 10 each) for the year ended March 31, 2024. This recommendation will be placed before the shareholders for approval at the upcoming Annual General Meeting (“AGM”) of the Bank.

In terms of the provisions of the Income Tax Act, 1961, the dividend income is taxable in the hands of the members and the dividend will be paid to the members by the Bank after deduction of tax at source ('TDS') at the applicable rates.

E.    Credit Rating

The details of credit rating assigned to the Bank for debt instruments issued and outstanding as on March 31, 2024 along with outlook is given below:

Nature of Debt Instrument	Nature of Term	CRISIL	India Ratings	CARE
Fixed Deposits	Long-Term	CRISIL AA+/Stable	-	-
Long-Term/ Subordinated Debt/ Tier II Bond	Long-Term	CRISIL AA/Stable	IND AA/Stable	CARE AA/Stable
Certificate of Deposits	Short-Term	CRISIL A1+	IND A1+	CARE A1+

Note:

•    The CRISIL have reaffirmed the above credit ratings of the Bank on July 21, 2023 and Nov 7, 2023

•    The India Ratings have reaffirmed the above credit ratings of the Bank on July 20, 2023, Mar 05, 2024 and Mar 19, 2024

•    The CARE have reaffirmed the above credit ratings of the Bank on Apr 05, 2023, Oct 3, 2023 and Mar 15, 2024.

•    The above rating details can be accessed on the website of the Bank at https://www.aubank.in/credit-ratina

Credit rating for debt instruments of Fincare SFB, transferred to the Bank pursuant to Amalgamation effective from April 01, 2024:

Nature of Debt Instrument	Nature of Term	India Ratings	CARE	ICRA
Long-Term/ Subordinated Debt/ Tier II Bond	Long-Term	IND AA/Stable	CARE AA/ Stable	[ICRA] AA/ Stable

*Post Amalgamation, all NCDs of Fincare Small Finance Bank have been transferred to AU Small Finance Bank, accordingly ratings have been upgraded by India Ratings and CARE on April 10, 2024 and by ICRA Limited on May 17, 2024.

F.    Change in Nature of Business

During the year under review, there were no changes in the nature of business of the Bank.

G.    Transfer to Reserves

In consonance with the RBI regulations and other applicable regulations, the Bank has proposed to transfer the following amounts to various reserves for the financial year ended March 31, 2024 as mentioned below:

Amount transferred to	Amount (1 in Crore)
Statutory Reserve	383.68
Transfer to Special Reserve U/s 36 (1) (viii)	130.00
Transfer to Capital Reserve	7.32
Transfer to Investment Reserve Account	8.77
Transfer to Investment Fluctuation Reserve	52.50

During the year under review, no amount was transferred to general reserves by the Bank.

H.    Transfer to the Investor Education and Protection Fund (“IEPF”)

In accordance with Section 124 and 125 of the Companies Act, 2013 (“Act”) read with the Investor Education and Protection Fund (“IEPF”) Authority (Accounting, Audit, Transfer and Refund) Rules, 2016 (as amended from time to time), all the equity shares of the Bank in respect of which dividend amounts have not been paid or claimed by the shareholders for seven consecutive years or more are required to be transferred to demat account of IEPF Authority. There was no unclaimed/unpaid dividend or shares of the Bank liable to be transferred to the IEPF during the FY 2023-24.

Further, details of the unclaimed/un-encashed dividends lying in the unpaid dividend accounts as on end of the financial year are available on website of the Bank at https://www.aubank.in/reports/disclosures.

I.    Deposits

As a Banking company, we are not subject to disclosures pertaining to deposits as required under Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Act and the Companies (Acceptance of Deposits) Rules, 2014. The details of the deposits received and accepted by the Bank as a Banking company have been disclosed in the financial statements for the financial year ended March 31, 2024 forming part of this Annual Report for FY 2023-24.

J.    Capital Structure & Fund Raising

Authorised Share Capital

During the period under review, there was no change in the Authorised Share Capital of the Bank and as on March 31, 2024, the Authorised Share Capital of the Bank stood at H 1,200 Crore comprising of 1,20,00,00,000 equity shares of 110 each.

Paid-up Capital

During the period under review, the Bank allotted 24,17,396 equity shares of face value of 110 each pursuant to exercise of Employee Stock Options (ESOPs) under different ESOP Schemes. Consequently, the total issued, subscribed and paid-up equity share capital of the Bank increased by 12.42 Crore to 1669.16 Crore as on March 31, 2024 comprising of 66,91,62,451 equity shares of 110 each.

Allotment pursuant to the Scheme of Amalgamation of Fincare SFB with and into the Bank

In accordance with the Scheme of Amalgamation of Fincare SFB with and into the Bank, 7,35,25,352 equity shares of face value of 110 each were issued and allotted to the shareholders of erstwhile Fincare SFB on April 01, 2024. Following this allotment, the total issued, subscribed and paid-up equity share capital of the Bank stood at 1742.69 Crore comprising of 74,26,87,803 equity shares of 110 each.

Non-convertible Debentures (“NCDs”)

During the year, the Bank has not issued any capital under Tier II and total outstanding NCDs stood at 11,000 Crore as on March 31, 2024.

Details of outstanding NCDs as on March 31, 2024 are as follows:

Sr. No.	ISIN	Series	Amount (K in Crore)		Date of Issue	Date of Allotment	Date of Maturity
1.	INE949L08418	-	Â	500	April 26, 2018	November 30, 2018 May 30, 2025
2.	INE949L08442	Series I Debentures	Â	350	July 29, 2022	August 03, 2022	August 03, 2032
3.	INE949L08434	Series II Debentures	Â	100	July 29, 2022	August 03, 2022	August 13, 2032
4.	INE949L08426	Series III Debentures	Â	50	July 29, 2022	August 03, 2022	August 23, 2032
Details of Non-Convertible Debentures of Fincare SFB, transferred to the Bank pursuant to Amalgamation effective from April 01, 2024 are as follows:
Sr. No.	ISIN*	Amount (J in Crore)		Date of Issue**		Date of Allotment	Date of Maturity
1.	INE519Q08145	Â	37	February 21, 2018		March 20, 2018	June 20, 2024
2.	INE519Q08137	Â	38	February 21, 2018		March 22, 2018	June 22, 2024
3.	INE519Q08152	Â	100	September 26, 2019 September 30, 2019 September 30, 2025
4.	INE519Q08160	Â	49	February 20, 2023		June 15, 2023	December 15, 2028
5.	INE519Q08178	Â	75	February 20, 2023		July 05, 2023	January 05, 2029
6.	INE519Q08186	Â	50	June 23, 2023		August 09, 2023	February 09, 2029
7.	INE519Q08194	Â	60	June 23, 2023		August 23, 2023	February 23, 2029

*Above ISINs are listed under the name of AU Small Finance Bank w.e.f. April 12, 2024 and the notification issued by BSE in this regard can be accessed athttos://www.bseindia.com/markets/MarketInfo/DisoNewNoticesCirculars.asox?oaae=20240409-4 **Date of issue is the date on which issue was approved by Board of Directors of Fincare Small Finance Bank.

K. Employee Stock Option Schemes

The Bank has formulated different Employee Stock Option Schemes (“Schemes”), with the approval of shareholders of the Bank and these Schemes are designed in compliance with the SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021, as amended from time to time to allow the Bank's employees to have a share in the Bank's future growth and financial success.

At AU Small Finance Bank, employee engagement and loyalty is prioritised and it leads to increased productivity and overall job satisfaction. By offering the employees a sense of ownership and pride in their work, Bank aims to drive long-term success.

The grant of Options to employees under these Schemes is approved by the Nomination and Remuneration Committee (“NRC”), in alignment with the Bank's Compensation Policy. This process occurs during the Annual Performance Review and at the time of hiring, basis various factors such as scale, designation, performance, grades, period of service, role significance, and contribution to the Bank's overall performance when determining the number of options to be granted.

Presently, following are the Employee Stock Option Schemes in force:

•    Employee    Stock Option    Scheme 2015    - Plan A (ESOP 2015 - Plan A)

•    Employee    Stock Option    Scheme 2015    - Plan B (ESOP 2015 - Plan B)

•    Employee    Stock Option    Scheme 2016    - (ESOP 2016)

•    Employee Stock    Option Scheme    2018 - (ESOP 2018)

•    Employee Stock    Option Scheme    2020 - (ESOP 2020)

•    Employee Stock    Option Scheme    2023 - (ESOP 2023)

The details of vesting of various schemes are as follows:

ESOP Scheme & Plan	Vesting Period	% of vesting of options
ESOP 2015 - Plan A	1 year from the date of grant or at the time of IPO whichever is later	20%
Â	Expiry of 1 year from 1st vesting	30%
Â	Expiry of 2 years from 1st vesting	50%
Â	Total	100%
ESOP 2015 - Plan B	1 year from the date of grant or at the time of IPO whichever is later	20%
Â	Expiry of 1 year from 1st vesting	30%
Â	Expiry of 2 years from 1st vesting	50%
Â	Total	100%
ESOP 2016	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%
ESOP 2018	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%
ESOP 2020	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%
ESOP 2023	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options	100%

Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018, ESOP 2020 and ESOP 2023. The term of vesting is also mentioned as per terms of grant approved by NRC in the grant letter issued to employees and NRC is empowered to change the vesting period in case of corporate action such as Amalgamation.

The Brief Details of Existing ESOP Schemes as on March 31, 2024 is given below:

Particulars	ESOP 2015 - Plan A	ESOP 2015 - Plan B	ESOP 2016	ESOP 2018	ESOP 2020	ESOP 2023
Date of Shareholders Approval	31-Aug-15	31-Aug-15	10-Oct-16	07-Aug-18	23-Dec-20	30-Apr-23
Total Number of Options approved	38,75,483	50,93,437	31,71,733	80,60,529	99,96,200	2,00,00,000
Total Number of options outstanding at the Beginning of the period @	0	85,000	18,51,752	44,02,476	78,07,595	0
Total No. of Options granted (during FY 2023-24)	0	1,34,000	43,386	1,21,585	22,41,169	39,18,118
The Pricing Formula	H10.11 per	H16.69 per	Market price	Market price	Market price	Market price
Â	share	share (H33.37 per share prior to Bonus)	linked#	linked	linked	linked
Options Vested (during FY 2023-24)	0	20,200	5,63,590	17,25,484	15,63,062	0
Options Exercised & allotted (during FY 2023-24)	0	6,200	4,59,452	16,08,021	3,43,723	0
Total No of shares arising as a result of exercise of option	0	6,200	4,59,452	16,08,021	3,43,723	0
Options lapsed/ Forfeited (during FY 2023-24) (Available for re-issue)@	0	16,000	45,968	1,15,007	5,13,363	1,51,074
Total No. of options exercisable at the end of the year@	0	30,000	7,13,850	20,42,988	17,55,839	0

Particulars	ESOP 2015 - Plan A	ESOP 2015 - Plan B	ESOP 2016 ESOP 2018	ESOP 2020	ESOP 2023
Total No of options outstanding at the end of the year@	0	1,96,800	13,89,718 28,01,033	91,91,678	37,67,044
Variation in terms of options	Â	There is no variation in terms of options during the year			Â
Money realised by exercise of Options during FY (in H)	0.00	1,03,478.00	12,00,01,755.50 52,71,71,345.50	19,10,75,619.00	0
Total No of Options granted to KMPs	Â	Â	Please refer Note 1	Â	Â
Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year	Nil	Nil	Nil Nil	Nil	Nil
Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant	Nil	Nil	Nil Nil	Nil	Nil
Diluted Earnings Per Share (EPS) of the Company after considering the effect of potential equity shares on account of exercise of Options	Â	Â	Refer Note 2	Â	Â
Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS	Â	Â	Refer Note 2	Â	Â
Weighted average share/ exercise price of the shares exercised during the year (in H)	Â	16.69	261.18 327.84	555.90	Â
Weighted average fair values of the outstanding options (in H)	Please refer point no. 26 of B. Other Disclosures of Schedule 18 of Notes to accounts to Audited Financial Results for FY 2023-24

@ In terms of SEBI circular dated June 15, 2021 regarding relaxation from the requirement of minimum vesting period in case of death of employee(s) and provisions of the SEBI (Share-Based Employee Benefit and Sweat Equity) Regulations, 2021, options granted to employees who have demised, have been vested in the legal heirs or nominees of the deceased employees immediately. The numbers given above include the options vested in legal heirs/nominees of deceased employees.

# Pricing for ESOP Scheme 2016 was changed from fixed price of H140 to market linked price with the approval of shareholders obtained in the Annual General Meeting held on July 19, 2019.

Note 1
Sr ..' Name of Official No.	Designation	Number of Options Granted in ESOP 2020
1 Uttam Tibrewal	Whole-Time Director	@
2 Vimal Jain	Chief Financial Officer	18,817
3 Manmohan Parnami	Company Secretary	11,668
Grand Total	Â	30,485

@ Variable Pay (Performance bonus) of Mr. Uttam Tibrewal, WTD in the form of ESOPs amounting to H 1.21 Crore has been approved by RBI for FY 2022-23, in respect of which 38,387 ESOPs have been granted under ESOP 2023 by the Nomination & Remuneration Committee of the Bank on June 26, 2024.

Note 2

The Securities and Exchange Board of India (“SEBI”) has prescribed two methods to account for stock grants: namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options grants to the employees. Further, the Bank calculates the fair value of options at the time of grant using Black- Scholes pricing model for Whole-Time Directors, Chief Executive Officers/Material Risk Takers and Control Function staff as per RBI guidelines dated November 04, 2019 with the following assumptions:

Particulars		March 31, 2024
Risk free interest rate	Â	7.06%-7.19%
Expected life	Â	3 Year- 5.5 Year
Expected volatility	Â	39.85%-41.61%
Expected dividends	Â	0.09%-0.11%
Had the Bank used the fair value model to determine the compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:
Â	Â	(H in Crore)
Particulars	Year ended March 31, 2024	Year ended March 31, 2023
Profit after tax as reported	1,534.72	1,427.93
Add: ESOP Expense already booked (net of tax)	22.71	15.53
Less: ESOP cost using fair value method (net of tax)	111.93	77.62
Profit after tax (adjusted)	1,445.50	1,365.84
Earnings Per Share
Basic
- As reported	22.98	21.86
- Adjusted for ESOP cost using fair value method	21.64	20.91
Diluted
- As reported	22.86	21.74
- Adjusted for ESOP cost using fair value method	21.53	20.79
(H in Crore)
Particulars	As on March 31, 2024	As on March 31, 2023
Stock options outstanding (gross)	274.06	229.16
Deferred compensation cost outstanding	45.17	30.67
Stock options outstanding (net)	228.89	198.49

In accordance with SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021, as amended, necessary disclosures are made in Schedule 18 - Notes forming part of the financial statements for FY 2023-24 and are included in the annual report and also disclosed on the website of the Bank at https://www.aubank.in/reports/disclosures.

L. Details of Board of Director’s and Key Managerial Personnel

The composition of the Board is regulated by a combination of the provisions of the Act, the Banking Regulation Act, 1949 (“BR Act ”), the Listing Regulations and other applicable laws, and the Articles of Association of the Bank. As of March 31, 2024, the Board consisted of 9 Directors, including 7 Independent Directors and 2 Executive Directors.

During the FY 2023-24 and after the end of financial year up to the date of this report, following changes took place in the Board of Directors and Key Managerial Personnel of the Bank:

Appointments

1.    Ms. Kavita Venugopal (DIN: 07551521) was appointed as an Additional Director (Non-Executive Independent) of the Bank to hold office for a period of 3 years with effect from March 29, 2023 up to March 28, 2026 considering her vast experience, specialised knowledge and skill set. Further, shareholders vide resolution passed through postal ballot on April 30, 2023 approved her appointment as an Independent Director (Non-Executive) with effect from March 29, 2023.

2.    Mr. Harun Rasid Khan, Independent Director (Non-Executive) (DIN:07456806) was appointed as Part-Time Chairman of the Bank, to hold office for a period of 3 years with effect from January 30, 2024 till December 27, 2024. Further, shareholders vide resolution passed through postal ballot on January 26, 2024 approved his appointment as Part Time Chairman with effect from January 30, 2024. RBI approved appointment of Mr. Harun Rasid Khan as Part-Time Chairman of the Bank.

3.    Mr. Divya Sehgal (DIN: 01775308) was appointed as an Additional Director (Non-Executive Non-Independent) of the Bank to hold office for a period of 3 years with effect from April 01, 2024 up to March 31, 2027 and he shall not be liable to retire by rotation. Further, shareholders vide resolution passed through postal ballot dated May 30, 2024 approved his appointment as Non-Executive and Non-Independent Director with effect from April 01, 2024. This appointment has been made in accordance with the key terms & conditions of the Scheme of Amalgamation of Fincare SFB into and with the Bank.

4.    Mr. Uttam Tibrewal (DIN: 01024940), Whole-Time Director was re-designated as “Whole-Time Director & Deputy CEO” of the Bank with effect from April 01, 2024 as a part of key terms & conditions of the Scheme of Amalgamation of Fincare SFB into and with the Bank.

Re-appointments

5.    The RBI approved the re-appointment of Mr. Sanjay Agarwal (DIN: 00009526) as Managing Director & CEO (“MD & CEO”) and Mr. Uttam Tibrewal (DIN: 01024940) as Whole-Time Director (“WTD”) of the Bank for a further period of 3 years from April 19, 2023 to April 18, 2026.

6.    In accordance with the provisions of Section 152 of the Act, Mr. Uttam Tibrewal, Whole-Time Director retired by rotation at the previous AGM and shareholders approved his re-appointment. Further, Mr. Sanjay Agarwal, Managing Director & CEO of the Bank shall retire by rotation at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment.

Completion of Tenure

7.    Mr. Raj Vikash Verma (DIN: 03546341) ceased to be the Part Time Chairman and Independent Director of the Bank from the close of business hours on January 29, 2024 on completion of his tenure. The Board extends its sincere appreciation to Mr. Raj Vikash Verma for his outstanding leadership and valuable insights during his tenure with the Bank and expresses gratitude for his guidance and wisdom and wish him continued success in all his future endeavours.

During the year, except as aforesaid, no other change took place in the Board of Directors or in Key

Managerial Personnel of the Bank. The composition of the Board of Directors and Key Managerial

Personnel of the Bank is in compliance with the applicable regulatory norms.

Further, none of the directors have been debarred from holding office as director by virtue of any order

of the SEBI or any other authority.

Others

8.    Mr. Rajeev Yadav was appointed as Deputy CEO and categorised as Senior Management Personnel (“SMP”) of the Bank w.e.f. April 01, 2024 as a part of key terms & conditions of the Scheme of Amalgamation of Fincare SFB into and with the Bank.

M. Code of Conduct for Directors and SMPs

Pursuant to Regulation 17(5) of Listing Regulations, the Bank has implemented a Code of Conduct for

Directors and Senior Management Personnel (SMPs). This code outlines the fundamental principles for

ethical and transparent behaviour by the Directors and SMPs of the Bank to further promote fairness and orderliness within the organisation. All Directors and SMPs have affirmed their adherence to the code for the FY 2023-24 and a declaration by the MD & CEO to this effect forms part of Report on Corporate Governance annexed with Board's Report as Annexure-I. The Bank's Code of Conduct for Directors and SMPs can be accessed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

N.    Number of Meetings of Board

Throughout the period under review, a total of eleven (11) Board Meetings were convened, with none exceeding the mandated 120-day interval as per the provisions of the Act read with Rules made thereunder, Secretarial Standard-I issued by the Institute of Company Secretaries of India, and Listing Regulations. The dates of these meetings, along with attendance details for each Director, have been comprehensively disclosed in the Report on Corporate Governance annexed as Annexure-I to the Board's Report.

O.    Committees of the Board

The Bank recognises the significance of Board Committees in fostering strong Corporate Governance practices. Accordingly, the Bank has constituted various Board Committees to enhance the effectiveness & efficiency of the Board and assist in decision-making processes. These Committees have been formed in compliance of provisions of the Act and relevant rules made thereunder, Listing Regulations, BR Act, RBI Circular & Guidelines, Articles of Association of the Bank and other pertinent guidelines issued from time to time.

I n addition, as part of the Amalgamation process of Fincare SFB with and into the Bank, the Board of Directors approved constitution of Committee of Independent Directors on October 29, 2023. This Committee was tasked with reviewing various reports, including valuation reports, due diligence reports, and other relevant documents/certificates, in order to recommend a draft Scheme of Amalgamation. The primary goal of this Committee was to ensure that the proposed scheme is in the best interest of the Bank's shareholders.

Subsequently, the Committee was dissolved post submission of its report to the Board on October 29, 2023.

Additionally, in view of completion of tenure of Mr. Raj Vikash Verma as Part Time Chairman and Independent Directors on the Board from January 29, 2024 (closure of business hours) and appointment of Mr. Harun Rasid Khan as Part Time Chairman w.e.f. January 30, 2024, the Board of Directors at its meeting held on January 25, 2024 have approved the revised composition of Board Committees effective from January 30, 2024. The details of the Board Committees of the Bank including, re-constitution, their terms of reference, number & date of meetings held during FY 2023-24 and attendance thereof are disclosed in the Report on Corporate Governance annexed with Board's Report as Annexure-I.

P.    Meeting of Independent Directors

As per the requirement of Section 149(8) read with Schedule IV of the Act and Regulation 25 of the Listing Regulations, a meeting of the Independent Directors of the Bank is required to be held at least once a year in absence of non-independent directors and members of the management.

During the year under review, 1 (one) meeting of Independent Directors of the Bank was convened on April 24, 2023 which was chaired by Mr. Raj Vikash Verma and attended by all the Independent Directors and various matters were discussed & reviewed at the meeting inter alia covering:

•    Action taken report of previous meeting of Independent Directors.

•    Performance of Non-Independent Directors, the Board of Directors as a whole, Chairperson of the Bank.

•    The quality, quantity, and timeliness of flow of information between the management of the Bank and the Board of Directors that is necessary for the Board of Directors to effectively and reasonably perform their duties.

•    Whether adequate time is spent by the Board/Committees on discussions on important issues.

•    Update on existing corporate governance practices.

Q.    Familiarisation Programme for Independent Directors

In accordance with Regulation 25(7) of the Listing Regulations and RBI guidelines, the Bank conducted various familiarisation programmes during FY 2023-24 for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank's Business, and its operations for better understanding of their responsibilities, roles, and rights for effective contribution in sustainable growth of the Bank.

The Details of familiarisation programme and other sessions organised for Independent Directors during FY 2023-24 is disclosed in the Report on Corporate Governance annexed with Board's Report as Annexure-I and on the website of the Bank under https://www.aubank.in/investors/secretarial-policies.

R.    Declaration of Independence

In accordance with provisions of Sections 149(6) and 149(7) of the Act, Schedule IV and Regulation 16(1)(b) and 25(8) of the Listing Regulations, the Bank has received necessary declarations/disclosures from all the Independent Directors confirming that they meet and comply with the criteria of independence. The Independent Directors have also complied with the Code for Independent Directors as prescribed in Schedule IV to the Act.

Pursuant to the Companies (Creation and Maintenance of Databank of Independent Directors) Rules, 2019 read in conjunction with the Companies (Appointment and Qualifications of Directors) Rules, 2014, the Independent Directors of the Bank have successfully registered their names in the online databank of Independent Directors maintained & administered by the Indian Institute of Corporate Affairs (“IICA”). The Independent Directors have also confirmed that they were not aware of any circumstance or situation which existed or may be reasonably anticipated, that could impair or impact their ability to discharge their duties with an objective independent judgement and without any external influence.

I n the opinion of Board, the Independent Directors possesses requisite domain knowledge, experience, expertise, integrity, and proficiency as required under the Code applicable for Independent Directors as stipulated under Schedule IV of the Act and in terms of policies of the Bank.

S.    Compensation Policy for appointment and remuneration of Director’s, Key Managerial Personnel, Senior Management Personnel, Material Risk Takers (MRTs) and Control Function Staff

The Bank has formulated and adopted a comprehensive Compensation Policy for appointment and remuneration of its Directors, Key Managerial Personnel (“KMP”), Senior Management Personnel (“SMP”), Material Risk Takers (“MRT”) and Control Function Staff on the recommendation of the NRC, in compliance with the provisions of Section 178(3) of the Act read with relevant rules made thereunder, Listing Regulations and RBI guidelines.

The policy governs the appointment and remuneration of Directors (including Independent Directors), KMP, SMP, MRTs and Control Function staff as applicable in accordance with the criteria established by the NRC of the Board as mandated by the Act and applicable Rules, Listing Regulations, and other relevant guidelines.

Key objectives of the policy include establishing standards for compensation, including fixed and variable pay, retaining and motivating talent, defining internal guidelines for reimbursement to Directors and KMPs, institutionalising a mechanism for appointment/removal/evaluation of performance of Directors, administering ESOP as per SEBI regulations and ensuring compliance with applicable laws, rules, and regulations as well as 'Fit and Proper criteria' of directors for their appointment.

The policy undergoes regular review by the Board of Directors in addition to the other amendments that may be required in the policy and is hosted on the Bank's website https://www.aubank.in/investors/ secretarial-policies.

The terms of reference of the NRC and Compensation Policy are detailed in Report on Corporate Governance annexed with Board's Report as Annexure-I.

T.    Evaluation of the Directors, the Board and Committees

The evaluation of Board performance is a crucial exercise for organisations to gauge the effectiveness of their governing bodies. By assessing both individual Board members and the Board as a whole, Bank can identify strengths, weaknesses, and areas for improvement. This evaluation is essential to ensure that the Board is operating effectively in alignment with the organisation's strategic objectives.

The provisions of Section 149(8) read with Schedule IV, Section 178(2) of the Act, Regulation 17 and other applicable Regulations of the Listing Regulations, and Guidance Note on Board Evaluation issued by the SEBI, mandates the performance evaluation of the Board, its committees, individual directors and the Chairperson of the Bank on the basis of various parameters with the aim to improve the effectiveness of the individual Director, Committees and the Board.

The Bank has established a structured process for Board performance evaluation which is conducted annually. The NRC reviews and approves the criteria and the mechanism for carrying out this exercise effectively.

Details regarding the Board performance evaluation carried out for FY 2023-24 including methodology used, its outcome and proposed recommendations for implementation in the upcoming financial year, are provided in the Report on Corporate Governance, forming part of this Board's report as Annexure-I.

U.    Statutory Auditors and their Report

In consonance with the 'Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)' dated April 27, 2021 issued by RBI, Banks are required to appoint Statutory Auditors for a continuous period of three (3) years, subject to the audit firms meeting eligibility criteria annually and obtaining RBI approval on an annual basis.

At the 26^th AGM of the Bank held on August 17, 2021, M/s. Deloitte Haskins and Sells, Chartered Accountants (Registration No. 117365W) and M/s. G. M. Kapadia & Co., Chartered Accountants (Registration No. 104767W) were appointed as Joint Statutory Auditors for a period of Three (3) years to hold office from the conclusion of the 26^th AGM till the conclusion of the ensuing 29^th AGM, subject to RBI approval on an annual basis.

M/s. Deloitte Haskins and Sells, Chartered Accountants and M/s. G. M. Kapadia & Co., Chartered Accountants, Joint Statutory Auditors of the Bank, have provided audit report on the financial statements for the FY 2023-24, with no qualifications, reservations, or adverse remarks. Further, in accordance with Section 143(12) of the Act, the auditors have not identified any instances of fraud within the bank by its officers or employees.

Further, as tenure of M/s. Deloitte Haskins and Sells, Chartered Accountants (Registration No. 117365W) and M/s. G. M. Kapadia & Co., Chartered Accountants (Registration No. 104767W) is completing at the conclusion of 29^th AGM of the Bank, the Board of Directors at its meeting held on June 27, 2024 on the recommendation of the Audit Committee has proposed the appointment of M/s. M S K A & Associates, Chartered Accountants (FRN: 105047W) and M/s. Mukund M Chitale & Co., Chartered Accountants (FRN: 106655W) as the Joint Statutory Auditors of the Bank for a period of three (3) years from the conclusion of 29^th AGM until the conclusion of 32^nd AGM of the Bank to be held in the calendar year 2027, subject to the approval of the shareholders. The Reserve Bank of India has approved the appointment of the above Joint Statutory Auditors for FY 2024-25.

The SAs have confirmed their eligibility in adherence to Section 141 of the Act and the guidelines issued by RBI from time to time. Moreover, pursuant to the relevant provisions of Listing Regulations, the SAs have also confirmed their adherence to the peer review process as mandated by the Institute of Chartered Accountants of India (“ICAI”). The SAs also possess a valid certificate issued by the Peer Review Board of ICAI, ensuring their competence and professionalism in their field.

V.    Secretarial Auditors and their Report

In compliance to the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of Listing Regulations and upon recommendation of the Audit Committee, the Bank has appointed M/s. V. M. & Associates, Company Secretaries (Registration No. P1984RJ039200) to conduct Secretarial Audit of the Bank for the financial year ended March 31, 2024.

The Secretarial Auditors have not reported any instance of fraud in accordance with Section 143(12) of the Act during the year under review and their report did not contain any observation or qualification for the FY 2023-24. The Secretarial Audit Report for FY 2023-24 in form MR-3 is annexed with Board's Report as Annexure-IV.

W.    Particulars of Loans, Guarantees and Investments

Pursuant to the provisions of Section 186(11) of Act, the provisions of Section 186 of the Act except subsection (1), do not apply to loans made, guarantees given or securities provided or acquisition of securities by a Banking company in the ordinary course of business and are exempted from disclosure requirement in the Annual Report.

However, the particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements for FY 2023-24, forming part of this Annual Report, as per the applicable provisions of BR Act.

X.    Related Party Transactions

During the FY 2023-24, the Bank did not engage in any material significant transactions with related parties that could potentially create conflicts of interest between the Bank and these parties. All related party transactions conducted throughout the year were carried out at arm's length basis and in the normal course of business operations.

The Audit Committee has accorded an omnibus approval for related party transactions which are of repetitive nature and entered in the ordinary course of business. Further, the Audit Committee of the Bank reviewed details of all related party transactions entered by the Bank on quarterly basis.

As per Section 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the financial year ended March 31, 2024.

The Policy on Related Party Transactions and Materiality as approved by the Board can be accessed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

Y.    Material Changes and Commitments, if any, affecting the Financial Position of the Bank

As mentioned in the paragraph C of the Board Report, the amalgamation of Fincare Small Finance Bank with and into the Bank became effective from April 01, 2024. Further details regarding the same are covered in Management Discussion & Analysis section of the Annual Report.

Except as above, no material changes and commitments that affect the financial position of the Bank have occurred between the end of the financial year i.e. March 31, 2024 and up to the date of this Report.

Z.    Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

The Bank has consistently upheld a commitment to environment sustainability, and has proactively implemented various measures to reduce emissions footprint, including utilising digital technologies and implementing emission reduction initiatives throughout Banking operations.

(a) Conservation of Energy

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipments:

The Bank is committed to environmental sustainability and is actively reducing emissions through digital solutions and adopting low-carbon innovations, like exploring zero-carbon electricity for Banking operations. Bank has implemented a three-pronged strategy for energy conservation:-

1.    Energy Efficiency Measures

•    Encouraging green plants and gardens on Bank's premises to lower air conditioning needs and keeping temperatures at 24°C or higher.

•    Engaging in performance-based contracts for energy savings.

•    Switching to LED lights instead of traditional ones to cut down on electricity usage.

•    Using timers for signage to optimise energy usage.

•    Installing power factor systems in electrical panels for efficient electricity use and implementing power factor corrections.

2.    Technology Upgrades

•    Implementing an i-Touch manager for efficient monitoring and control of electricity usage, leading to reduced consumption.

•    Using Variable Refrigerant Volume (VRV) based Chillers to cut down on energy usage in ACs by 20% and prevent pilferage.

•    Employing insulation to minimise heat load in offices, reducing the need for excessive air conditioning.

•    Using UPS and inverters to reduce reliance on diesel generators.

3.    Renewable Energy

•    Recognising the importance of renewable energy for a cleaner future, the Bank has installed a 1 MW solar plant.

•    The solar project is situated in Gajner Site, Bikaner district, Rajasthan, and serves Jagatpura (JPO-01), Malviya Nagar, and Tonk Road offices at Jaipur, Rajasthan.

•    This project is expected to generate 16 Lacs units annually, contributing significantly to reducing carbon footprint and supporting global sustainability goals.

•    Recycling systems and supplies: The Bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards. The Bank also employs a coherent system of recycling slightly older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, the Bank successfully reduces the demand for new desktops and laptops even with the growing workforce.

Other Initiatives -

Green Building - Natural Sunlight is maximised through Green Building design in Offices to reduce reliance on artificial lighting to the extent possible.

Green building encompasses environmentally responsible and resource-efficient practices throughout a building's life cycle, from planning to demolition. It expands on traditional building concerns of economy, utility, durability, and comfort by prioritising energy, land, water, and material savings while reducing pollution and promoting harmony with nature. Bank's office at Sanpada, Mumbai, achieved a “Gold” rating in IGBC's Existing Green Interior Category, showcasing a commitment to indoor environment quality, sustainable materials, energy efficiency, water conservation, and eco-design principles. This achievement reflects the Bank's dedication to environmental responsibility and sets a standard for future branches nationwide.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

1. Digital Banking: Banking is made convenient through the digital platform, doing away with all the paperwork like cheques, pay-in slips, Demand Drafts, and so on. ~90% of Bank's deposit accounts are opened through digital platforms, with the main one being Tab Banking. Expanding its capabilities, the Bank is gradually adding end-to-end customer on-boarding journeys on this platform i.e. Micro Business Loan (MBL), Home Loan, 2-wheeler and 4-wheeler Loan, Credit Card, Insurance and Wealth Products.

Digital banking for asset products offers convenient Banking for Customers, eliminating the need for excessive paperwork and enhancing banking experience. This technological advancement allows the Bank to leverage its capabilities and streamline operations, ultimately leading to increased efficiency and faster service.

The Bank witnessed strong growth in the adoption of tab-based account opening, Android-based mobile banking, WhatsApp banking (24/7 banking solutions), and Net banking, thus minimising paper usage, reducing waste generation, and achieving improved waste management.

2.    AU 0101 App: AU 0101 App feature enables the Customers to bank from anywhere and which contributes to reducing carbon footprint; and seamless video banking enables customers to avail Banking services virtually through a video-enabled chat with branch executives, eliminating the need to travel to the branch. The 'AU0101' retail Internet and mobile banking application and platform have been successfully migrated to AWS’s private cloud, ensuring high availability, scalability, and security. Even during peak traffic periods, the system remains responsive and reliable, seamlessly meeting customer demands.

3.    Video Banking: This service helps Customers to connect with Video Bankers on real time basis at Customer's convenience from home. Customer can open account, book FD, and much more. Bank provides video banking facility with a vision to offer all its services virtually through video-enabled chat with branch executives, eliminating the need for branch visits. This initiative helped the Bank twofold in promoting digital banking and inspiring its customers to adopt a more environmentally sustainable banking channel and saving of fuel by reducing commutation challenges.

4.    Embracing E-receipts Culture: Bank encourage customers to choose electronic receipts at ATMs, then send them a detailed SMS on their most recent transaction and Bank balance to their registered mobile number to reduce paper usage. Bank also teamed up with the transport department of Haryana to automate the ticketing process, allowing for the conservation of natural resources.

5.    Automate Energy data collection: This is an application of digital technologies for energy data collection. Bank has replaced manual way of data collection from its various sites and automated data collection through ERP software.

Energy accounting and reduction have a major effect on emissions as an enabler in accelerating clean energy transitions. The system is helping the Bank to cut costs, improve efficiency and resilience, and reduce emissions.

6.    Cloud computing & storage: Cloud computing & storage is helping in modernising infrastructure, scale operations, improve resiliency, load sharing and reduced costs for the Bank.

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

The Bank delivers products and services that promote sustainable development and conduct its business in a fair and professional manner. A proper structure and process is available which facilitates incorporating risk criteria in the product development and approval process. The Bank is continuously taking various steps on the product improvement. The Bank has implemented an upgraded version of ITAM tool (IT asset management tool). This tool will manage all Bank's IT assets life cycle i.e. from procurement to scrap and disposal of asset, for pan India banking operations. Highly efficient use of technology through software helps in save time, improve efficiency, reduce costs, improve productivity, more agile and helps in information security.

Embracing the transformative power of robotics, the Bank has automated over 100 processes through Robotic Process Automation (RPA). This strategic move not only reduces manual intervention but also underscores the Bank's dedication to technological excellence and continuous improvement.

In terms of AD-1 applications, the Bank has implemented the Kondor Treasury Application to enhance financial efficiency and global connectivity. This state-of-the-art solution streamlines interbank trading processes by automating tasks, improving accuracy, and enhancing risk assessment. Additionally, Bank has enabled secure interbank transactions in USD via SWIFT. The SWIFT network ensures reliable and efficient cross-border financial transactions. Leveraging SWIFT's standardised messaging system, we have fostered international trade and facilitated seamless USD transactions.

the Bank is investing in initiatives and innovations to build a digital gateway to a sustainable lifestyle. The Bank's investments in digital technologies have simplified banking and enabled a smoother customer journey. In addition, a robust technology platform has been created by the Bank as a part of the new-age digital banking ecosystem.

III)    I n case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a)    The details of technology imported: Nil

b)    The year of import: Nil

c)    Whether the technology been fully absorbed: Nil

d)    If not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV)    Expenditure incurred on Research and Development:

Since financial services is being primarily covered under Service Sector, the details of this clause are not applicable to the Bank.

(c) Foreign Exchange Earnings and Outgo

During the financial year ended March 31, 2024, the foreign exchange earnings was I 12.44 Crore and the foreign exchange outgo was I 19.52 Crore.

AA.Risk Management

The Bank operates in an environment which is characterised by multitude of risks and constantly identifying the emerging and evolving risks is critical to ensure stability, profitability and sustainability of the Bank. The Bank further aims to balance risk and return within approved boundaries, with a focus on refining risk measurement systems for optimal performance and to safeguard stakeholders' interests.

The Bank operates a robust Enterprise Risk Management Framework to address and manage various risks evolving around Credit Risk, Market & Liquidity Risk, Operational Risk, IT and Cyber Security Risk, Compliance Risk, and other risks through a multi-layered process overseen by experienced leadership, maintaining a proactive stance to address emerging threats.

A robust and independent risk management function is essential to ensure effective risk management within a Bank. The primary objective of the Bank's risk management function is to proactively anticipate vulnerabilities at all levels, and this is achieved through detailed quantitative and qualitative analysis of the risks associated with various activities. By adopting this preemptive approach, the Bank can stay ahead of potential risks and challenges in a constantly evolving industry and regulatory landscape. This proactive preparedness ensures that the Bank is well-equipped to tackle any unforeseen issues that may arise.

The three Lines of Defence - individual business units and support functions, Risk Management and Compliance departments, and Internal Audit function - governs the Bank's risk management and provide assurance to the Board that the risks assumed by the Bank are within the risk appetite approved by the Board and the adequacy and effectiveness of the governance framework around the risks for Bank's business.

The Risk Management policies play a crucial role in the Banking sector which helps in mitigating potential risks and safeguard the financial well-being of the institution. Effective risk management policies also help to enhance the Bank's resilience in the face of unforeseen events and uncertainties and maintain longterm sustainability. The risk management framework of the Bank is guided by these policies for evaluating risks associated with the business, allowing Banks to make informed decisions and allocate resources effectively while maintaining the trust and confidence of stakeholders, as well as sustaining long-term growth and profitability. The Risk Management Policies undergo annual reviews and periodic updates in accordance with regulatory and internal guidelines.

The Board is benefitted by a seasoned executive management team, along with the support of Board Committees and Board Delegated Committees that form part of the Risk Governance Framework. Striking a balance between growth and prudent risk management, the Board is dedicated to creating value for stakeholders. In line with regulatory requirements, the Bank has also constituted a Risk Management Committee (“RMC”) tasked with overseeing the implementation of the risk governance framework and guiding principles. The Internal Capital Adequacy Assessment Process (ICAAP) evaluates the amount and distribution of capital needed to cover risks, including a forward-looking stress capital assessment. The RMC reviews the Risk Appetite framework, ICAAP, and stress testing results.

A Chief Risk Officer (“CRO”) has been appointed to lead various risk areas including Credit Risk, Market & Liquidity Risk, Operational Risk, Fraud Risk, Information Security Risk, and Compliance Risk, among others and operates in accordance with approved risk management policies and the delegation matrix, with direct access to the RMC. Playing a pivotal role in shaping risk management decisions that influence the Bank's strategic direction, the CRO diligently monitors the progress of risk management activities. Further details of the RMC and its terms of reference are set out in the Report on Corporate Governance annexed with Board's Report as Annexure-I.

The Risk Management framework is a layered structure and broadly consists of the following aspects for effective risk management across the Bank:

(a) Credit Risk Management

Risk: Credit risk arises from default by borrowers in their terms of contract with the Bank especially failure to make payments or repayments. Credit Risk is the possibility of losses which may arise due to outright default or due to inability or unwillingness of a customer or counterparty to meet commitments in relation to repayments, trading settlements, or any other financial transaction.

Mitigation: Credit Risk & NPA Management Committee (“CRNPAC”) overseas and reviews the credit risk and is responsible for prudential limits on large credit exposures, asset concentration, portfolio management, loan review mechanism, risk concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. Credit Risk Management formulates credit risk policies and procedures for managing the credit risk and ensuring portfolio composition and quality.

The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit risk within the Bank through strengthening underwriting norms, keeping close watch on asset quality trends and concentrations at individual exposures as well as at the portfolio level. It establishes risk limits and conducts periodic portfolio reviews. It exercises oversight on the strategy and underwriting functions of the Credit group. Portfolio monitoring is carried out through Portfolio Profiling, Early Warning Framework, Rapid Portfolio Review, and Monitoring of High Value Customers and other risk activities. All aspects of credit risk are governed by the Credit Risk Management Policy and other related Policies.

The Bank has laid down prudential limits and caps on various aspects to control the magnitude of credit risk. The defined risk limits are forward-looking and are reviewed in sync with future business plans. The Bank has a comprehensive credit risk architecture, policies, procedures, and systems for managing credit risk in its retail and commercial segments. Commercial lending is managed on an individual as well as portfolio basis. In contrast, given the granularity of individual exposures, retail lending is managed largely on a portfolio basis across various products and customer segments. Robust systems are in place to ensure credit quality and minimise default losses. The Bank ensures portfolio diversification, stringent credit approval processes, periodic post-disbursement monitoring, and remedial measures. The Bank has ensured strong asset quality through volatile times in the lending environment by stringently adhering to prudent norms and institutionalised processes.

CRNPAC follow the guiding principles listed below and submit its updates to RMC of the Board at regular intervals:

•    Ensure that a governance framework is established for an effective oversight, segregation of duties, monitoring and management of Credit Risk in the Bank.

•    Ensure that the approval of credit proposals are as per the defined strategies, systems, and processes.

•    Ensure that guiding principles shall be laid down for the setting up and monitoring of the credit and credit risk appetite and limits.

•    Establish standards to facilitate effective identification and assessment of credit risk in the Bank.

•    Establish standards for effective measurement and monitoring of credit risk and NPA.

•    Ensure adherence to the guidelines/policies related to credit, credit risk and NPA management as issued by the RBI from time to time.

(b) Operational Risk Management

Risk: Operational Risk has been defined by the RBI as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes Legal Risk but excludes Strategic and Reputational Risk.

Mitigation: The Bank has a Board approved Operational Risk Management Policy which encompasses a comprehensive Operational Risk Management framework. The framework outlines the governance structure and processes for monitoring & managing various operational risks and controls linked to various processes across all business verticals. This structure consists of three lines of defence: the business line (including support and operations) is the first line, an independent Operational Risk Management Department (ORMD) is the second line, and Internal Audit is the third line. These units collaborate to manage, monitor, and mitigate operational risks effectively. The independent ORMD is responsible for implementation of this framework while the Board delegated Operational Risk Management Committee (ORMC) oversees the implementation of this framework across the Bank and advise on the implementation of measures for risk mitigation which further reports to the RMC.

The Bank's Fraud Monitoring and Control measures are robust with a dedicated Risk Containment Unit (RCU) guided by a Board approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to the Audit Committee and the Board and fraud cases over I 1 Crore or more are specifically reported and dealt with by the Special Committee for Fraud Monitoring (SCFM) of the Board. The Bank is continuously enhancing its systems, practices, controls, and review mechanisms ensuring fraud-prone areas are continuously monitored and secured against internal and external threats.

In the realm of Digital Banking, with Digital Banking services, we have made significant advancements in both customer facing technologies and internal digitisation. To further enhance security and customer experience, we monitor transactions continuously. With confidence in our technological capabilities, we are poised to drive the next phase of growth in Digital Banking.

Outsourcing Risk Policy

The Bank also has in place a comprehensive Outsourcing Risk Policy in line with RBI guidelines with ultimate responsibility resting with the Board for the outsourced activity. However, for ease of functioning, the powers have been delegated to the Committee for Outsourcing of IT and Financial Services which further reports to RMC. The outsourcing policy of the Bank lays down the framework adopted by the Bank for reviewing and approving outsourcing of services that includes plans and procedures to evaluate, assess, approve, review, control and monitor the risks and materiality of all its vendor/ outsourcing activities and serve as a guide to adopt sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from outsourcing activities.

Business Continuity Management (BCM) plan

The Bank has a comprehensive Business Continuity Management (BCM) plan in place with policies, and procedures meticulously designed to align with regulatory guidelines, and it undergoes thorough reviews and audits to ensure effectiveness.

In terms of Governance and management, the ORMD is tasked with coordinating with various Units to identify the critical business functions and processes across the Bank, for which effective Business Continuity Plan (“BCP”) needs to be planned for.

Approach towards emergency, disaster & crisis management

Business continuity - Manage continuity of critical business operations and accelerated resumption of services after a disaster.

Emergency response - Deal with site-level emergency at an office or a branch involving life safety issues like fire, bomb threats, and so on.

IT disaster recovery - Quick recovery of critical business applications during hardware/ network/ power failure etc.

Pandemic response - Facilitate a well-structured and efficient response to any pandemic situation that threatens the safety of the Bank's employees and/or disrupts the Bank's critical business functions.

Crisis management - Comprehensive incident and crisis management framework tackles Bank wide incidents and crisis such as pandemic, terrorist attacks, ransomware attacks, fire, cyclone, earthquake, city level floods, cyber-attacks, and data centre outages, among others.

The Bank has a business continuity programme in place to ensure the continuity of critical operations of the Bank in the event of any disaster/incident affecting business continuity. This business continuity programme is developed considering the criticality of the functions performed and the systems have been designed to minimise the operational, financial, legal, and other material consequences arising from such a disaster and focus is on ensuring faster recovery and minimising the impact on the IT systems of the Bank. The Bank has dedicated Disaster recovery sites and there are periodic drills in place to validate the effectiveness of our BCPs. These controls help execute immediate action in case any business/application-level issue arises which is leading to an impact on banking services/ operations. The learning from the BCP drill exercises is used in refining the BCP framework.

(c) Market Risk, Liquidity and Asset Liability Management

Risk: Market Risk for the Bank originates from investment and trading in securities and forex exchange open positions, which are undertaken both for the customers and on a proprietary basis. The market risk management framework of the Bank sets benchmark and various limits to monitor the market risk exposures, the performance of portfolios vis-a-vis the market risk limits and comparable benchmarks, which provide guidance to optimise the risk-adjusted rate of return of the Bank's investment portfolio. Liquidity risk refers to Bank's inability to fund an increase in assets or withdrawal of liabilities and meet both expected and unexpected cash & collateral obligations at reasonable cost without adversely impacting its financial condition.

Mitigation: Market risk management is guided by well-defined policies, regulatory guidelines, processes, limits and systems for the identification, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk management of its trading/investment portfolios and forex positions.

The Asset Liability Management Policy of the Bank stipulates a comprehensive framework for managing liquidity risk, ensuring Bank's ability to meet its liquidity obligations and remain resilient during period of liquidity stress caused by Bank-level factors, market-wide factors, or a combination of both. The Board approved policy outlines the risk appetite around the liquidity and market risk while also establishes a governance structure in line with the Bank's overall Risk Appetite. The Asset Liability Management Committee of the Bank is responsible for overseeing the identification, measurement and management of market risk, forex risk, interest rate risk and liquidity risk within the

Bank, ensuring adherence to the established internal and regulatory prudential limits and operating within the Board approved risk appetite.

(d)    IT Risk Management

Risk: The Bank is growing with digitisation and aimed at leveraging digital technology to provide a best-in-class experience for its customers while simultaneously enhancing productivity and improving IT risk management. Risk of cyber-attacks on the Bank's systems arises among others from computer viruses, malicious or destructive code, phishing attacks, denial of service or information, application vulnerability and other security breaches resulting in disruption of its services or theft or leak of sensitive internal data or customer information.

Mitigation: IT Risk management is a critical process aimed at identifying, assessing, mitigating and monitoring risks that could impact an organisation's information technology infrastructure and data assets. The Bank has established a robust information and cyber security framework for securing its IT infrastructure and systems. Management and Board level committees have been formed to review and monitor IT security infrastructure and compliance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer (“CISO”) is responsible for monitoring the information security risks covering all aspects of data security for the Bank who reports to CRO. Cyber Security Operation Centre with qualified professionals is reporting to CISO for monitoring of real-time cyber security glitches. The Bank has adopted layered approach security deployment and continuously evaluating and investing in nextGen cyber security solutions to strengthen the cyber security posture of the Bank. Accordingly, appropriate advanced controls at various layers have been deployed to ensure that cyber security risk is minimised.

(e)    Reputation Risk Management

Risk: Any adverse stakeholder and public perception about the Bank may negatively impact its ability to attract and retain customers and may expose the Bank to litigation and regulatory actions.

Mitigation: The Bank assesses and manages Reputation Risk on regular basis. Your Bank communicates with its stakeholders regularly through appropriate engagement mechanisms to address stakeholder expectations and assuage their concerns, if any. There is Zero tolerance for knowingly engaging in any activity that is not consistent with values, Code of Conduct, or policies of the Bank. The Bank identifies reputation risk in its ICAAP document and an assessment framework has been established to monitor the level of reputation risk.

(f)    Compliance Risk Management

Risk: Compliance risk primarily involve the possibility of monetary penalties, regulatory sanctions, and reputational damage to the Bank. These risks can be effectively mitigated by ensuring continued compliance with the applicable laws and regulations governing Anti-Money Laundering (AML), Know Your Customer (KYC) requirements, data privacy, and other pertinent domains.

Mitigation: The following two major policies form the bedrock of the Bank's robust Compliance Risk Management framework -

1.    Compliance Policy - The Compliance Policy defines compliance philosophy in the Bank. It outlines the Compliance structure, scope of compliance, compliance processes and procedures for managing risk. It has been formalised in accordance with the Reserve Bank of India's circular on 'Compliance functions in Banks and Role of Chief Compliance Officer'. The policy emphasises on independence of the Compliance function and fosters a uniform compliance culture across the Bank.

2.    Know your Customer/ Anti-Money Laundering Policy - The KYC/ AML policy enables the Bank to know and understand its customers and their financial dealings, thereby facilitating prudent management of risks associated with money laundering and terrorist financing. It majorly encompasses Customer acceptance and identification procedures, Customer Due Diligence, transaction monitoring, Periodic updation of customers' risk and data privacy norms. The policy has been framed in line with the RBI's Master Direction - Know Your Customer (KYC) Direction, 2016 (as updated from time to time) and in terms of the provisions of the Prevention of Money Laundering Act, 2002 and rules thereof.

These policies are reviewed annually or more frequently (as and when there is any regulatory change) to keep them aligned with the evolving regulations and industry standards.

The Bank has a dedicated Compliance department that is adequately staffed with subject matter experts who diligently identify, assess, and control potential risks within their respective domains by carrying out regular reviews and monitoring of products, policies, and procedures. The Compliance department continuously monitors developments and updates the status of compliance to the senior management and Audit Committee of the Board, which enables the Board to advise on the implementation of measures for risk mitigation. Additionally, to keep themselves abreast with the latest regulations, these compliance officers participate in internal and external trainings periodically.

AB.    Corporate Social Responsibility

The Bank is committed to supporting the entrepreneurial dreams of the underprivileged and unbanked population in India by providing financial assistance. The Bank firmly believes that every individual deserves equal opportunity regardless of their socio-economic background and is dedicated to empowering people by making them realise their true potential and become self-reliant. Additionally, the Bank has been actively involved in implementing impactful CSR projects aimed at enhancing the livelihoods of marginalised communities. These projects primarily focus on skills development, empowering women entrepreneurs, promoting rural sports, and other initiatives that bring positive change to the targeted communities. CSR activities and funds of the Bank are closely monitored by the Corporate Social Responsibility Committee (“CSR Committee”) formed by the Board of Directors. Further, impact assessment of these projects was also carried out for the FY 2023-24.

In compliance with the CSR provisions outlined in the Act read with the rules made thereunder, a total of 112.65 Crore has been allocated to the “Unspent Corporate Social Responsibility Account” for FY 2023-24 for the purpose of funding ongoing CSR Projects. This allocated amount will be used in alignment with the Company's CSR Policy and implementation schedule.

The terms of reference of CSR Committee are outlined in the Report on Corporate Governance annexed as Annexure-I. Further, a comprehensive breakdown of expenditures and other relevant details pertaining to CSR activities including executive summary along with web-link(s) of Impact Assessment of CSR Projects carried out for FY 2023-24 have been disclosed in the Annual Report on Corporate Social Responsibility annexed as Annexure-II with Board's Report. The CSR Policy is also available for viewing on the Bank's website at https://www.aubank.in/investors/secretarial-policies.

AC.    Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Bank is dedicated to fostering a safe and healthy work environment for all employees, free from prejudice, gender bias, and sexual harassment. We uphold a zero-tolerance policy towards any form of sexual harassment and strive to promote a positive and productive workplace for everyone.

In alignment with the guidelines set forth in the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, the Bank ensures a safe and conducive work environment for all employees and associates by implementation of a Policy on Prevention and Redressal against Sexual Harassment at the workplace.

Detailed information regarding the Bank's commitment to preventing and addressing sexual harassment is provided in the Report on Corporate Governance as Annexure-I to the Board's Report.

AD.    Subsidiary, Joint Ventures & Associate Companies

The Bank does not have any subsidiary, joint ventures & associate companies. Hence, the details of this clause are not applicable to the Bank. Accordingly, the Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

AE.    Material Orders Passed by Regulators or Courts or Tribunals

During the FY 2023-24, no material orders have been passed by the Regulators/ Courts/ Tribunals which would impact the going concern status of the Bank and its future operations.

AF.    Internal Financial Control & their Adequacy

The Bank maintains a robust internal financial control system carefully tailored to its risk appetite and aligned with the size, scale, and complexity of the Banking operations. The scope and authority of the risk-based internal audit function is clearly outlined in the Board approved Internal Audit Policy of the Bank.

The audit function plays a pivotal role in ensuring that the Bank's processes and operations adhere to regulatory guidelines, accounting standards, and internal rules and guidelines of the Bank. This function offers an impartial evaluation on the quality and effectiveness of the Bank's internal control, risk management, and governance systems to provide assurance to the Board of Directors and Audit Committee.

During the period under review, the internal controls of the Bank were in place and operating effectively. Further, the Joint Statutory Auditors have issued an opinion on the adequacy of the internal controls over financial reporting of the Bank and operating effectiveness, as required under the Act. Details of this opinion can be referred to in the Auditor's Report attached to the audited financial statements for FY 2023-24.

AG.    Cost Records

Being a Banking company, provisions of Section 148(1) of the Act, relating to maintenance of cost records is not applicable to the Bank.

AH. Corporate Governance

Corporate Governance is the cornerstone of the Bank's operations, underpinned by principles of transparency, accountability, integrity, fairness, and compliance while conducting business & making necessary disclosures. Corporate Governance has been an integral part of the way the Bank has been operating since inception. The Bank believes that good Corporate Governance emerges through the implementation of best management practices, strict adherence to laws and regulations, and a commitment to transparency and ethical conduct. Effective risk management is central to the governance framework, as the Bank prioritise maintaining strong risk management and internal controls to support sustainable business growth and build public trust.

The Bank is dedicated to constantly refining its governance and assurance practices by benchmarking itself against global best practices. The Bank is committed to having a top-notch Governance and assurance framework in place, and it constantly works to enhance its Risk Management, Compliance, and Audit practices. The Board of Directors, various committees and policies of the Bank play a pivotal role in overseeing the overall Governance & Assurance framework.

The Bank is continuously striving to enhance governance and assurance functions. Through the implementation of various practices and initiatives, we are dedicated to bolstering the risk and compliance culture.

Key aspects of these functions, along with recent initiatives, are integral to the Bank's commitment to excellence which include:

1.    Risk Management:

The responsibility for executing key risk management activities has been entrusted to the Board Delegated Committees, including the Credit Risk & NPA Management Committee, Operational Risk Management Committee, Asset Liability Management Committee, IT Steering Committee, and Information Security Committee. Risk management is a top priority for the Bank, with a strong framework in place to address potential risks. The Bank's risk management philosophy and approach are centered on safeguarding the interests of customers and investors, as well as preserving the Bank's reputation and financial stability.

2.    Compliance Function:

Corporate Governance in Banks emphasises compliance with laws, regulations and ethical standards as the Banks are subject to a complex regulatory environment. The primary focus of the Compliance function is to establish and maintain a strong culture of compliance within the Bank. In order to cultivate the right tone for compliance, the function consistently seeks guidance from the Board of Directors and its committees. It engages with internal stakeholders through both structured and informal meetings to effectively communicate the necessary compliance standards.

In order to strengthen its efforts, the Compliance Function has introduced several new initiatives, including:

(i)    Compliance Sustenance Framework

(ii)    Compliance Self Certification

(iii)    Enhancing the Product Approval Process

(iv)    Quality Assurance and Improvement Programme (QAIP)

(v)    Bringing in IT/IS resources with specialised domain knowledge.

3. Internal Audit Function:

The Internal Audit Department adheres to a risk-based audit approach outlined in the Bank's Risk Based Internal Audit Policy. The department prioritises audits of high-risk areas in coordination with the Risk Management and Compliance Functions. Additionally, the Bank has established an independent Quality Assurance function to enhance the effectiveness of the Internal Audit Department. This function conducts independent quality checks on audit activities performed by the various sub-verticals within the department.

The Report on Corporate Governance for FY 2023-24 along with certificate issued by M/s. V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under Chapter IV of the Listing Regulations, is annexed with Board's Report as Annexure-I.

AI.    Business Responsibility and Sustainability Report & Sustainability Initiatives

At AU Small Finance Bank, sustainability is at the core of its business model and reflects in all its offerings. The Bank's commitment to environmental and social responsibility is deeply rooted in its values. The Bank believes in taking proactive measures rather than reactive responses to climate change, focusing on setting ambitious targets and robust governance to achieve them.

The Sustainability Committee of the Board of the Bank guides on this journey, while MD & CEO continually inspires to build a Bank that sustains for generations. Initiatives like AU's Green Deposit demonstrate Bank's dedication to mobilising funds for green projects and supporting India's Net Zero targets.

The Bank prioritise stakeholder awareness through training programmes covering sustainability and ESG topics for all employees. The Bank's communication efforts, both internally and externally, ensure that its sustainability message reaches everyone.

As a part of Banking operations, the Bank promotes digital banking, video banking, and e-receipts to reduce paper usage and waste. Its focus on clean mobility, including incentives for electric vehicle loans, and sustainable office practices further underline Bank's commitment to eco-friendly practices.

Additionally, the Bank empowers women through initiatives like AU Udyogini and promote sports through Bano Champion, fostering inclusivity and well-being in communities. Continual improvements in sustainability ratings validate its ongoing efforts in this area.

The Sustainability Report and Business Responsibility and Sustainability Report (“BRSR”) of the Bank demonstrate transparency and adherence to global standards, showcasing its commitment to sustainable growth and positive societal impact.

In addition, the BRSR of the Bank for the FY 2023-24 is included as Annexure-V to the Board's Report and can also be accessed on the Bank's website at https://www.aubank.in/other-reports, as required by Regulation 34(2)(f) of the Listing Regulations and relevant SEBI circulars.

AJ.    Particulars of Employee Remuneration

As per Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rule, 2014, the ratio of the remuneration of each Director to the median employee's remuneration and other details is annexed with Board's Report as Annexure-III.

Additionally, the statement containing employee particulars required by Section 197(12) of the Act and Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, is a part of this report. Pursuant to Section 136(1) of the Act, the annual report has been sent to Members without the aforementioned annexure, which can be inspected at the registered office of the Bank up to the date of the AGM. Members interested in obtaining a copy of the Annexure may request it from the Company Secretary of the Bank at [email protected]

AK.    Management Discussion and Analysis

The Management Discussion and Analysis Report for the FY 2023-24 is included as a separate section within the Annual Report, as required under Regulation 34(2)(e) and Schedule V of the Listing Regulations.

AL.    Annual Return

The draft Annual Return for the financial year ended on March 31, 2024 in the prescribed form MGT-7, as required under Section 134(3)(a) and Section 92(3) of the Act, can be accessed on the Bank's website at https://www.aubank.in/other-reports

AM. Whistle-Blower Policy & Vigil Mechanism

The Bank values reliability, fairness and equality which form foundation for all the decisions taken and believes in conducting its affairs in a fair manner to build customer trust and confidence and ensure customer delight. The Bank encourages its employees, all stakeholders and members of general public, who have concerns about suspected misconduct, to come forward and express these concerns without fear of retaliation or unfair treatment.

A Whistle-Blower Policy in Banking Institutions is crucial for fostering transparency, accountability, and ethical behaviour within the organisation. The Bank has implemented Whistle-Blower Policy & Vigil Mechanism in pursuance of the provisions of Section 177(9) of the Act read with the rules made thereunder and Regulation 4(2)(d) and Regulation 22 of the Listing Regulations, which aims at establishing an effective vigil mechanism in the Bank to quickly spot aberrations and deal with it at the earliest.

The Whistle-Blower Policy provides a safe and confidential avenue for employees to report any potential misconduct or fraudulent activities without fear of retaliation. This Policy includes adequate safeguards against the victimisation of individuals who avail this mechanism ensuring they have direct access to the Chairman of the Audit Committee. None of the Bank's personnel has been denied access to the Audit Committee of the Bank.

The policy can be accessed on the website of the Bank at https://www.aubank.in/investors/Secretarial-policies and further details have been provided in the Report on Corporate Governance forming part of this Board's Report as Annexure-I.

AN. Anti-Bribery and Anti-Corruption Policy

The Bank upholds a strict 'zero-tolerance approach' towards bribery, corruption, and unethical practices and is committed to conduct all its dealings and operations with professionalism, fairness, and integrity. In alignment with this commitment, the Bank has implemented an Anti-Bribery and Anti-Corruption Policy that has been approved by the Board of Directors. This policy outlines the fundamental principles for conducting Banking business in a transparent, honest, and ethical manner. The policy can be accessed on the website of the Bank at https://www.aubank.in/notice-board.

AO. Adherence to Secretarial Standard issued by the Institute of Company Secretaries of India

The Bank has adhered to the Secretarial Standards issued by the Institute of Company Secretaries of India on Meetings of Board of Directors and General Meetings.

AP.    Status of Ind AS Implementation

In accordance with RBI circular RBI/2015-16/315 DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016 for Implementation of Indian Accounting Standards (Ind AS), the Banks are advised to follow the Indian Accounting Standards outlined under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the RBI in this regard. Currently, Banks in India prepare their financial statements following the guidelines of the RBI, the Accounting Standards under Section 133

of the Act, and the generally accepted accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs released a roadmap for the adoption of new Indian Accounting Standards (Ind AS), which were aligned with the International Financial Reporting Standards (IFRS) for scheduled commercial Banks, insurance companies, and non-banking financial companies (NBFCs). However, in March 2019, RBI postponed the implementation of Ind AS for Banks until further notice as the necessary legislative changes were being reviewed by the Government of India. The Bank has conducted an initial diagnostic analysis of the discrepancies between Indian GAAP and Ind AS and is committed to ensuring compliance with the relevant requirements and guidelines moving forward.

Directors’ Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Act, the Board of Directors hereby confirm that:

1.    In the preparation of the annual accounts for the year ended March 31, 2024, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2.    We 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 the Bank as on March 31, 2024 and of the profit of the Bank for the year ended on that date.

3.    We have 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 Bank's assets and for preventing and detecting fraud and other irregularities.

4.    We have prepared the annual accounts on a going concern basis.

5.    We have laid down internal financial controls to be followed by the Bank and ensured that such internal financial controls are adequate and were operating effectively.

6.    We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgement and Appreciation

The Board extends its sincere gratitude to the Government of India, various State Governments, regulatory bodies such as RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, as well as to all the shareholders, debenture holders, esteemed Bankers, Lenders, Credit Rating Agencies, and Debenture Trustees for their unwavering support and trust in the Bank.

The Board would further like to express appreciation to BSE Limited, National Stock Exchange of India Ltd., National Securities Depository Limited, Central Depository Services (India) Limited, Registrar & Share Transfer Agent, Vendors and Service Providers for their continued support & co-operation.

The Bank's valued customers deserve a special mention for their loyalty and continued patronage and the Board is truly grateful for the trust they have placed in the Bank.

The Board also expresses its heartfelt thanks and gratitude to each employee for their continued commitment towards the Bank and its customers. Through their commitment to strong work ethics, professionalism, teamwork, and initiatives, they have played a crucial role in enabling the Bank to continue serving its depositors and customers and maintaining Bank's customer-centric approach.

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Mar 31, 2023

Your Board of Directors are pleased to present the Twenty-Eighth Annual Report of the AU Small Finance Bank Limited (“Bank”) covering business and operations together with the Audited Financial Statements and Independent Auditors'' Report for the financial year ended March 31, 2023.

A. Financial Summary & Highlights

The summary of the financial performance of your Bank for FY 2022-23 is presented below:

(C in crore)
Particulars	March 31, 2023	March 31, 2022
Total Income	9,239.87	6,915.42
Interest Income	8,205.41	5,921.73
Other Income	1,034.46	993.69
Interest Expenditure	3,780.13	2,687.61
Operating Expenses (excluding depreciation)	3,254.84	2,272.60
Profit before Depreciation, Provisions and Tax	2,204.90	1,955.21
Depreciation	185.42	140.17
Provision for Income Tax	436.71	324.24
Other Provisions and Write-offs	154.84	360.97
Net Profit	1,427.93	1,129.83
Appropriations
Transfer to Statutory Reserve	356.98	282.46
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961	115.00	117.30
Transfer to Capital Reserve	2.52	18.52
Transfer to Investment Reserve Account	-	-
Transfer to Investment Fluctuation Reserve	17.20	20.24
Dividend pertaining to previous year paid during the year	31.51	-
Dividend (in C) (Per Equity Share)	1	0.50*
Surplus carried over to Balance Sheet	4,287.14	3,382.42
Earnings Per Share (EPS) (in D) (After excluding Exceptional Items not annualised)
Basic (in D)	^^^^^21.86	18.03
Diluted (in D)	21.74	17.85

*The Board recommended dividend of Cl per equity share on pre-bonus share capital for the year ended March 31, 2022. Further, consequent to approval of the Bonus Issue of 1:1 by the shareholders vide Postal Ballot dated May 29, 2022, the dividend was proportionately adjusted to C0.50 per equity share on post-bonus share capital which was duly approved by the shareholders at the 27^th Annual General Meeting (“AGM") held on August 23, 2022.

Key Performance Highlights

Your Bank witnessed growth and consistent performance in FY 2022-23. The key financial performance indicators for the year are as follows:

• Profit Before Tax increased to C1,864.64 crore for FY 2022-23 vis-a-vis C1,454.07 crore for FY 2021-22 registering YoY growth of 28.24%.

• Net Profit After Tax increased to C1,427.93 crore for FY 2022-23 vis-a-vis C1,129.83 crore for FY 2021-22 registering YoY growth of 26.38%.

• Balance sheet size grew to C90,216.12 crore as on March 31, 2023 vis-a-vis C69,077.80 crore as on March 31, 2022 registering YoY growth of 30.60%.

• Deposits grew by 32% YoY to C69,365 crore and CASA ratio improved to 38.4% as on March 31, 2023 against 37.3% as on March 31, 2022 resulting to consistent and strong performance across parameters while continuing to progress on the journey of building a standardised, scalable, and sustainable banking franchise in deposits, assets, and digital banking.

• Gross NPA and Net NPA ratio continue to gradually decline to 1.66% and 0.42% as on March 31, 2023 vis-a-vis 1.98% and 0.50% as on March 31, 2022 on account of significant improvement in the asset quality.

Analysis of Bank''s performance is covered in Management Discussion & Analysis section of the Annual Report.

B. Dividend

The Board at its meeting held on April 25, 2023 recommended dividend of 10% i.e., C1 per fully paid-up Equity Share of C10 each for the year ended March 31, 2023. The payment of dividend is subject to approval of the shareholders at the forthcoming AGM of the Bank.

In terms of regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) and Reserve Bank of India (“RBI”) guidelines, your Bank has formulated and adopted a Dividend Distribution Policy which inter alabalances the objective of rewarding its shareholders by sharing a part of profits and ensuring that sufficient funds are maintained for the growth of the Bank.

The dividend declared is in compliance of Dividend Distribution Policy and applicable RBI guidelines/ Regulations. The Dividend Distribution Policy was reviewed by the Board from time to time and the same has been hosted on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

C. Business Overview

The FY 2022-23 witnessed a period of unpredictable macro and global headwinds with constrained liquidity and elevated inflation resulting in notable upsurges in interest rates and intensified competition for deposits. Amidst this challenging and unsettled environment, Bank exhibited commendable resilience and achieved remarkable results across various key performance indicators and remained steadfast in commitment to establish a robust Banking ecosystem encompassing Deposits, Assets, and Digital Banking. Bank continued its efforts towards developing a standardised, scalable, and sustainable banking brand and strategically enhanced its distribution channels and made continuous investments in digital initiatives, branding, and distribution. These efforts are aimed at capitalising the substantial opportunities within the Banking sector and ensuring readiness of Bank for future.

The Bank demonstrated strong performance across key parameters including an enhanced CASA ratio and a balanced mix of retail deposits, acquisition through digital products, credit growth across all lending verticals, stable spreads and asset quality, reduction in GNPA ratio supported by strong collections remaining north of 100% achieving an overall robust level of profitability.

The Bank continued its momentum on harnessing the digital capabilities through diversified digital banking offerings, i.e. AU 0101, Video Banking, Credit Cards, UPI QR, and more, all of which continued to see strong momentum during the year and notably, over 5 lakh cards issued and out of which nearly one-third of customers availing their first-ever credit card and over 1 million UPI QRs to merchants were issued. This coupled with QR- based lending, enabled us to empower this customer segment with easy access to formal credit.

As on March 31, 2023, Bank has established operations across 1,027 Banking touchpoints while serving 38 lakh customers in 21 States & 3 Union Territories with an employee base of 28,320 employees. Bank''s focus on digital initiatives has seen significant traction in all areas.

Bank is delighted to announce that the RBI through its letter dated April 19, 2023, has issued a licence authorising the Bank to operate as an Authorised Dealer Category-I (AD-I) under Section 10 of the Foreign Exchange Management Act, 1999 to engage in foreign exchange transactions, including buying and selling currencies, facilitating international trade, and providing foreign exchange services to its Business including EXIM customers, Resident & NR customers. This shall facilitate international trade by providing services such as issuing letters of credit, handling import/export documentation, and offering trade finance solutions leading to competitive advantage, diversification of revenue streams and enhanced Credibility and Trust.

The key business developments and segment-wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

D. Credit Rating

The details of credit rating assigned to the Bank for debt instruments issued and outstanding as on March 31, 2023 along with outlook is provided below:

Nature of Debt Instrument	Nature of Term	CRISIL*	India Ratings#	CARE@
Fixed Deposits	Long-Term	AA /Stable	-	-
Long-Term/ Subordinated Debt/ Tier II Bond	Long-Term	AA/Stable	AA/Stable	AA/Stable
Certificate of Deposits	Short-Term	A1	A1	A1

Note:

*CRISIL rating upgraded long-term rating to AA/Sable from AA-/Positive and reaffirmed Short-Term Ratings to A1 and also upgraded FD ratings to AA /Stable from FAA /Positive on June 29, 2022. CRISIL assigned AA/Stable to Tier II Bond and withdrawn the ratings of Subordinated Debt as the Bank has repaid the term loan in full on July 7, 2022

#India Ratings upgraded long-term Tier II bonds ratings to AA/Stable from AA-/Stable, reaffirmed Short-Term Ratings to A1 and has withdrawn the ratings of Subordinated Debt & Bank Facilities as the Bank has repaid the term loan in full on July 22, 2022.

@CARE Ratings has reaffirmed the Long-Term Tier-II Bond Rating to AA/Stable and reaffirmed rating of Certificate of Deposits to A1 on April 4, 2023.

The above rating details is available on the website of the Bank and can be accessed at https://www.aubank.in/credit-rating

E. Change in Nature of Business

During the year under review, there were no changes in the nature of business of the Bank.

F. Transfer to Reserves

In terms of RBI regulations and other applicable regulations, the Bank has proposed to transfer the following amounts to various reserves for the financial year ended March 31, 2023 as mentioned below:

Amount transferred to	Amount (D in crore)
Statutory Reserve	356.98
Transfer to Special Reserve U/s 36 (1) (viii)	115.00
Transfer to Capital Reserve	2.52
Transfer to Investment Fluctuation Reserve	17.20

During the year under review, no amount was transferred to general reserves by the Bank.

G. Transfer to the Investor Education and Protection Fund (“IEPF”)

In accordance with Section 124 and 125 of the Companies Act, 2013 ("Act") read with applicable rules, as amended, there was no unclaimed/unpaid dividend or shares liable to be transferred to the IEPF during the FY 2022-23.

Further, details of the unclaimed/un-encashed dividends lying in the unpaid dividend accounts as on end of the financial year are provided on website of the Bank at https://www.aubank.in/investors/investor-services.

H. Deposits

Being a Banking company, the disclosures required under Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Act and Companies (Acceptance of Deposits) Rules, 2014 are not applicable. The details of the deposits received and accepted by your Bank as a Banking company have been disclosed in the financial statements for the financial year ended March 31, 2023.

I. Capital Structure & Fund Raising

Authorised Share Capital

During the period under review, the Authorised Share Capital of the Bank increased from C350 crore to C1,200 crore comprising of 1,20,00,00,000 equity shares of C10 each.

Paid-up Capital

Pursuant to the below allotments of equity shares, the total issued, and paid-up equity share capital of the Bank increased by C351.85 crore to C666.75 crore as on March 31, 2023 as compared to C314.90 crore as on March 31, 2022.

• Bonus Issue

During the year, the Bank had allotted 31,50,93,233 equity shares of C10 each as fully paid-up Bonus Equity Shares to the eligible shareholders as on the record date i.e. June 10, 2022 in the proportion of 1:1, i.e., 1 (One) bonus equity share for every 1 (One) fully paid-up equity shares held. The shareholders approved the above issue of bonus shares vide postal ballot dated May 29, 2022.

• Qualified Institutions Placement

Pursuant to the provisions of SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the Act and considering the growth aspirations, your Bank successfully completed Qualified Institutions Placement (“QIP”) of 3,44,82,758 equity shares of face value of C10 each at an issue price of C580 per Equity Share (including a security premium of C570 per Equity Share) on subscription by Qualified Institutional Buyers (“QIB”) aggregating to C2,000 crore. The issue was opened on August 3, 2022 and allotment of Equity shares were made on August 9, 2022.

With respect to disclosure under Regulation 32(7A) of SEBI Listing Regulations, the Audit Committee of the Board at its meeting held on October 19, 2022, had reviewed, and confirmed that the funds raised through QIP issue during the year have been fully utilised for the intended object as mentioned in the private placement document and there was no deviation or variation in utilisation of the said funds. Further, No allotment was made to Promoter and Promoter Group under QIP.

• Allotment of Equity Shares pursuant to exercise of Stock Options

The Board of Directors allotted 22,69,033 equity shares pursuant to exercise of ESOP under different ESOP Schemes.

Non-convertible Debentures (“NCDs”)

During the year, your Bank has successfully raised Tier-II capital of C500 crore by way of private placement by issuing 500 (Five Hundred) 9.30% Unsecured, Not guaranteed, Subordinate - Tier 2 - Lower, Taxable, NonCumulative, Rated, Redeemable, Non-Convertible Debentures having a face value of C1,00,00,000 (Rupees One crore only) each for cash.

Accordingly, total outstanding NCDs stood at C1,000 crore as on March 31, 2023 against C500 crore as on March 31, 2022.

Details of outstanding NCDs as on March 31, 2023 are as below:

Sr. No.	ISIN	Series	Amount (D in crore)	Date of Issue	Date of Allotment	Date of Maturity
1.	INE949L08418	-	500	April 26, 2018	November 30, 2018	May 30, 2025
2.	INE949L08442	Series I Debentures	350	July 29, 2022	August 3, 2022	August 3, 2032
3.	INE949L08434	Series II Debentures	100	July 29, 2022	August 3, 2022	August 13, 2032
4.	INE949L08426	Series III Debentures	50	July 29, 2022	August 3, 2022	August 23, 2032

The Audit Committee of the Board at its meeting held on October 19, 2022, had reviewed, and confirmed that the Bank had utilised the said funds for the intended object as mentioned in offer document and there was no deviation or variation in utilisation of the said funds.

J. Employee Stock Option Schemes

Your Bank has formulated several Employee Stock Option Schemes (“Schemes”), which have been duly approved by the shareholders of the Bank. The Schemes have been devised in accordance with the SEBI (Share-Based Employee Benefits) Regulations, 2014 read with SEBI (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021 (“SBEB & SE Regulation - 2021”) as amended from time to time.

The Option grants to employees under the schemes are approved by the Nomination and Remuneration Committee (“NRC”) in terms of Compensation Policy of the Bank, as part of Annual Performance Review of employee''s performance and at the time of hiring. Several factors including scale, designation, performance, grades, period of service, criticality of role and their contribution for the Bank''s overall performance is taken into consideration for deciding number of options to be granted to the employees.

The Bank had following Employee Stock Option Schemes as on March 31, 2023:

• Employee Stock Option Scheme 2015 - Plan A (ESOP 2015 - Plan A)

• Employee Stock Option Scheme 2015 - Plan B (ESOP 2015 - Plan B)

• Employee Stock Option Scheme 2016 - (ESOP 2016)

• Employee Stock Option Scheme 2018 - (ESOP 2018)

• Employee Stock Option Scheme 2020 - (ESOP 2020)

The details of vesting of various schemes are as follows:

ESOP Scheme & Plan	Vesting Period		% of vesting of Options
ESOP 2015 - Plan A	1 year from the date of grant or at the time of IPO whichever is later		20%
	Expiry of 1 year from 1st vesting		30%
	Expiry of 2 years from 1st vesting		50%
	Total		100%
ESOP 2015 - Plan B	1 year from the date of grant or at the time of IPO whichever is later		20%
	Expiry of 1 year from 1st vesting		30%
	Expiry of 2 years from 1st vesting		50%
	Total		100%
ESOP 2016	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options		100%
ESOP 2018	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options		100%
ESOP 2020	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options		100%
Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018, and ESOP 2020. The term of vesting is also mentioned as per terms of grant approved by NRC in the grant letter issued to employees.
The Brief Details of Existing ESOP Schemes as on March 31, 2023 is given below:
Particulars	ESOP Plan A 2015	ESOP ESOP Scheme ESOP Scheme Plan B 2015 2016 2018	ESOP Scheme 2020
Date of Shareholders Approval 31-Aug-15		31-Aug-15 10-Oct-16 07-Aug-18	23-Dec-20
Total Number of Options approved (Pre 38,36,058 Bonus)		49,33,194 21,00,000 49,33,200	50,00,000
Increase in Number Bonus	of options due to 39,425	1,60,243 10,71,733 31,27,329	49,96,200
Total Number of Options approved (Post 38,75,483 Bonus)		50,93,437 31,71,733 80,60,529	99,96,200
Total Number of options outstanding at 1,18,000 the Beginning of the period@		22,000 11,04,139 28,84,340	16,23,695

Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016	ESOP Scheme 2018	ESOP Scheme 2020
Total Number of Options granted (during FY 2022-23)	-	41,000	37,468	6,11,828	50,98,223
Total Number of Bonus Options Issued during the FY 2022-23	-	22,000	10,54,575	28,35,939	16,22,925
The Pricing Formula (per share)	C10.11	C16.69 (C33.37 prior to Bonus Issue)	Market Price Linked#	Market Price Linked	Market Price Linked
Options Vested (during FY 2022-23)@	-	11,200	4,17,278	26,42,164	6,27,176
Options Exercised (during FY 2022-23)	1,18,000	-	3,00,397	17,84,285	66,351
Total Number of shares arising as a result of exercise of option	1,18,000	-	3,00,397	17,84,285	66,351
Options lapsed/Forfeited (during FY 2022-23)@	-	-	44,033	1,45,346	4,70,897
Total Number of options exercisable at the end of the year@	-	16,000	6,17,020	19,56,556	5,76,857
Total Number of options outstanding at the end of the year@	-	85,000	18,51,752	44,02,476	78,07,595
Variation in terms of options	Appropriate adjustments with respect to the exercise price and/or the number of stock options were made to give effect of bonus issue completed during FY 2022-23 for options which were available for grant and those already granted but not exercised as on Record Date. No variation in terms of options were made during the FY 2022-23.
Money realised by exercise of Options (during FY 2022-23) (in C)	11,92,980.00	-	6,21,31,266.00	59,31,30,686.50 3,72,79,984.00
Total Number of Options granted to Key Managerial Personnel			Refer Note 1
Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year	Nil	Nil	Nil	Nil	Nil
Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Bank at the time of grant	Nil	Nil	Nil	Nil	Nil
Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options		Please refer Note 2
Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS		Please refer Note 2
Weighted average share/exercise price of the shares exercised during the year (in C)	C10.11	-	C206.83	C332.42	C561.86
Weighted average fair values of the outstanding options (in C)	Please refer point no. 25 of B. Other Disclosures of Schedule 18 of Notes to accounts to Audited Financial Results for FY 2022-23

@In terms of SEBI circular dated June 15, 2021 regarding relaxation from the requirement of minimum vesting period in case of death of employee(s) and provisions of the SEBI (Share-Based Employee Benefit and Sweat Equity) Regulations, 2021, options granted to employees who have demised, have been vested in the legal heirs or nominees of the deceased employees immediately. The numbers given above include the options vested in legal heirs/nominees of deceased employees.

#Pricing for ESOP Scheme 2016 was changed from fixed price of '' 140 to market linked price with the approval of shareholders obtained in the Annual General Meeting held on July 19, 2019.

Note 1
Sr.	Name of Official	Designation	Number of Options Granted in
No.			ESOP 2018	ESOP 2020
1	Uttam Tibrewal	Whole-Time Director	-	54,136
2	Vimal Jain	Chief Financial Officer	22,781	-
3	Manmohan Parnami	Company Secretary	-	13,546
	Grand Total		22,781	67,682

Note 2

The Securities and Exchange Board of India (“SEBI”) has prescribed two methods to account for stock grants; namely (i) the intrinsic value method; (ii) the fair value method. The Securities and Exchange Board of India (“SEBI”) has prescribed two methods to account for stock grants: namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options grants to the employees. Further, the Bank calculates the fair value of options at the time of grant using Black-Scholes pricing model for Whole-Time Directors, Chief Executive Officers/Material Risk Takers and Control Function staff as per RBI guidelines dated November 4, 2019 with the following assumptions:

Particulars		March 31, 2023
Risk free interest rate		7.12% - 7.45%
Expected life		3 Year - 5.5 Year
Expected volatility		41.37% - 48.62%
Expected dividends		0.08% - 0.10%
Had the Bank used the fair value model to determine the compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below: (C in crore)
Particulars	Year ended March 31, 2023		Year ended March 31, 2022
Profit after tax as reported	1,427.93		1,129.83
Add: ESOP Expense already booked (net of tax)	15.53		13.76
Less: ESOP cost using fair value method (net of tax)	77.62		48.53
Profit after tax (adjusted)	1,365.84		1,095.06
Earnings Per Share
Basic
- As reported	21.86		18.03
- Adjusted for ESOP cost using fair value method	20.91		17.48
Diluted
- As reported	21.74		17.85
- Adjusted for ESOP cost using fair value method	20.79		17.30
(C in crore)
Particulars	As on March 31, 2023		As on March 31, 2022
Stock options outstanding (gross)	229.16		203.94
Deferred compensation cost outstanding	30.67		26.16
Stock options outstanding (net)	198.49		177.78

I n accordance with SBEB & SE Regulation - 2021 necessary disclosures are made in Schedule 18 - Notes forming part of the financial statements for FY 2022-23 and are included in the annual report and also disclosed on the website of the Bank at https://www.aubank.in/reports/disclosures.

K. Detail of Board of Director’s and Key Managerial Personnel

The composition of the Board of Directors of the Bank (“Board”) is governed by the provisions of the Act, the Banking Regulation Act, 1949 (“BR Act”), the SEBI Listing Regulations other applicable laws, and the Articles of Association of the Bank. At the end of March 31, 2023, the Board of your Bank had 10 Directors, out of which 8 were Independent Directors and 2 were Executive Directors.

During the FY 2022-23 and up to the date of this report, following changes took place in the Board of Directors and Key Managerial Personnel of the Bank:

Appointments

1. Mr. Kamlesh Shivji Vikamsey (DIN: 00059620) was appointed as Additional Director (Independent) for a period of 3 years with effect from April 25, 2022 to April 24, 2025. Further, shareholders vide resolution passed through postal ballot approved his appointment as Independent Director on May 29, 2022.

2. Ms. Malini Thadani (DIN: 01516555) was appointed as Additional Director (Independent) of the Bank to hold office for a period of 3 years with effect from November 25, 2022 up to November 24, 2025. Further, shareholders vide resolution passed through postal ballot approved her appointment as Independent Director on December 30, 2022.

3. Ms. Kavita Venugopal (DIN: 07551521) was appointed as Additional Director (Independent) of the Bank to hold office for a period of 3 years with effect from March 29, 2023 up to March 28, 2026. Further, shareholders vide resolution passed through postal ballot approved her appointment as Independent Director on April 30, 2023.

Re-appointments

4. Re-appointment of Mr. Mankal Shankar Sriram and Mr. Pushpinder Singh, Independent Directors for a second term for a period of 3 years commencing from October 21, 2022 to October 20, 2025 and of Mr. Kannan Gopalaraghavan Vellur, Independent Director for a second term for a period of 3 years commencing from January 22, 2023 to January 21, 2026 has been approved by the shareholders in its 27^th AGM held on August 23, 2022 after taking into the consideration the balance of skills, knowledge, qualifications, experience and basis the ''fit and proper assessment'' carried out by the NRC & Board.

5. With the approval of the Board of Directors at their meeting held on October 10, 2022, the proposal for re-appointment of Mr. Raj Vikash Verma (DIN: 03546341) as Part-time Chairman (Independent Director) of the Bank for a period from April 8, 2023 till January 29, 2024, was submitted to RBI. The proposal has been approved by RBI for the above-mentioned period and communicated vide its letter dated February 22, 2023. Further, shareholders vide resolution passed through postal ballot has already approved his re-appointment as Part-Time Chairman (Independent Director) on November 12, 2022.

6. Re-appointment of Mr. Sanjay Agarwal (DIN: 00009526) as Managing Director & CEO and Mr. Uttam Tibrewal (DIN: 01024940) as Whole-Time Director has been approved by RBI vide its letter dated April 12, 2023, for a period of 3 (three) years w.e.f. April 19, 2023 till April 18, 2026. Further, shareholders vide resolution passed through postal ballot has already approved their re-appointment on March 9, 2022 vide resolution passed through postal ballot.

7. In accordance with the provisions of Section 152 of Act, Mr. Sanjay Agarwal, Managing Director & CEO retired by rotation at the previous AGM and shareholders approved his re-appointment. Further, Mr. Uttam Tibrewal, Whole-Time Director of the Bank shall retire by rotation at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment.

Completion of Tenure

8. Mr. Krishan Kant Rathi (DIN: 00040094) and Ms. Jyoti Narang (DIN: 00351187) ceased to be the Independent Directors of the Bank with effect from March 29, 2023 (close of business hours) on completion of their tenures. The Board hereby places on record its sincere appreciation for Mr. Krishan Kant Rathi and Ms. Jyoti Narang for guidance and wisdom to Board during their tenure.

During the year, no other change took place in the Board of Directors or in Key Managerial Personnel of the Bank. The composition of the Board of Directors and Key Managerial Personnel of the Bank was compliant with the applicable regulatory norms.

Further, none of the directors have been debarred from holding office as director by virtue of any order of the SEBI or any other authority.

L. Code of Conduct for Directors and SMPs

In accordance with Regulation 17(5) of SEBI Listing Regulations, the Bank has adopted the Code of Conduct for Directors and Senior Management Personnel (“SMPs”). The code of conduct sets forth the guiding principles for orderly & fair conduct by Directors and SMPs. All Directors and SMPs have affirmed the compliance of the code for the FY 2022-23 and a declaration to this effect signed by the MD & CEO forms part of Report on Corporate Governance annexed with Board''s Report as Annexure - I. The Bank''s Code of Conduct for Directors and SMPs is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

M. Number of Meetings of Board

During the period under review, Sixteen (16) Board Meetings were held and the gap between the said meetings did not exceed the limit of 120 days as prescribed under the provisions of Act and Rules made thereunder, Secretarial Standard-I Issued by the Institute of Company Secretaries of India and provisions of SEBI Listing Regulations. The dates of Board meetings and details of attendance of each Director have been disclosed in the Report on Corporate Governance annexed with Board''s Report as Annexure-I.

N. Committees of the Board

The Bank believes that Board Committees are critical to promote best Corporate Governance practices within the Bank. Accordingly, the Bank has constituted various Board Committees to improve the Board effectiveness and to support in decision-making. The constitution of these Committees is in compliance of provisions of the Act and relevant rules made thereunder, SEBI Listing Regulations, BR Act, RBI Circular & Guidelines, Articles of Association of the Bank and other guidelines issued from time to time.

Further, in view of completion of tenure of Mr. Krishan Kant Rathi & Ms. Jyoti Narang as Independent Directors on the Board w.e.f. March 29, 2023 (closure of business hours) and appointment of Ms. Kavita Venugopal as an Independent director w.e.f. March 29, 2023, the Board of Directors at their meeting held on March 10, 2023 have approved the revised constitution of Board Committees effective from March 30, 2023. The details of the Board Committees of the Bank including, constitution, their scope, number & date of meetings held during FY 2022-23 and attendance thereof are disclosed in the Report on Corporate Governance annexed with Board''s Report as Annexure-I.

O. Meeting of Independent Directors

As per the requirement of the Section 149(8) read with Schedule IV of Act and Regulation 25 of SEBI Listing Regulations, a meeting of the Independent Directors of the Bank is required to be held at least once a year in absence of non-independent directors.

During the year under review, the Independent Directors of the Bank met 2 (Two) times on April 25, 2022 and on March 10, 2023, chaired by Mr. Raj Vikash Verma and attended by all the Independent Directors of the Bank and discussed & reviewed inter alia below matters:

• Performance of Non-Independent Directors, the Board of Directors as a whole, and Chairperson of the Bank.

• Assessed the quality, quantity, and timeliness of flow of information between the management of the Bank and the Board of Directors that is necessary for the Board of Directors to perform their duties effectively and reasonably.

• Assessed whether adequate time is spent by the Board/Committees on discussions on important issues.

• Reviewed the criteria for evaluation of performance of Board Committees.

• Familiarisation Programme held during the year.

• Reviewed the revised composition of Board Committees of the Bank.

P. Familiarisation Programme for Independent Directors

I n accordance with Regulation 25(7) of SEBI Listing Regulations and RBI guidelines, the Bank conducted various familiarisation programme during FY 2022-23 for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank''s Business, and its operations for better understanding of their responsibilities, roles, and rights for effective contribution in sustainable growth of the Bank.

The Details of familiarisation programme and other sessions organised for Independent Directors during FY 2022-23 is disclosed in the Report on Corporate Governance annexed with Board''s Report as Annexure-I and on the website of the Bank under https://www.aubank.in/investors/secretarial-policies.

Q. Declaration of Independence

In accordance with provisions of Sections 149(6) and 149(7) of the Act, Schedule IV and Regulation 16(1)(b) and 25(8) of the SEBI Listing Regulations, the Bank has received necessary declarations/disclosures from all the Independent Directors confirming that they meet and comply with the criteria of independence.

All the Independent Directors possesses requisite domain knowledge, experience, expertise, integrity, and proficiency as required under the Code applicable for Independent Directors as stipulated under Schedule IV of the Act and in terms of policies of the Bank.

R. Compensation Policy for appointment and remuneration of Director’s, Key Managerial Personnel, Senior Management Personnel, Material Risk Takers (MRTs) and Control Function Staff

In accordance with the provisions of Section 178(3) of the Act read with relevant rules made thereunder, SEBI Listing Regulations, RBI guidelines and on the recommendation of the NRC, the Bank has formulated and adopted a compensation policy for appointment and remuneration of its Directors, Key Managerial Personnel (“KMP”), Senior Management Personnel (“SMP”), Material Risk Takers (“MRTs”) and Control Function Staff.

Compensation policy regulates the appointment and remuneration of Directors (including Independent Directors), KMP, SMP, MRTs and Control Function staff as applicable in accordance with criteria formulated by the NRC of the Board under the requirement of the Act read with applicable Rules under the Act and SEBI Listing Regulations and other applicable guidelines.

The key objectives of policy are as under:

• Establish standards on compensation/remuneration including fixed and variable pay - covering share-linked instruments, which are in alignment with the applicable rules and regulations and is based on the trends and practices of remuneration prevailing in the industry.

• Retain, motivate, and promote talent and to ensure long-term sustainability of talented WTDs, KMPs, SMPs, MRTs, Control Function Staff and other employees as applicable.

• Define internal guidelines for payment of other reimbursement to the Directors and KMPs.

• Institutionalise a mechanism for the appointment/ removal/ resignation/evaluation of performance of Directors.

• Perform such functions as are required to be performed by the NRC under the Securities and Exchange Board of India (Share-Based Employee Benefits and Sweat Equity) Regulations, 2021, including the following:

(a) administering the ESOP plans;

(b) determining the eligibility of employees to participate under the ESOP plans;

(c) granting options to eligible employees and determining the date of grant;

(d) determining the number of options to be granted to an employee;

(e) determining the exercise price under the ESOP plans; and

• Ensure compliance with applicable laws, rules, and regulations as well as ''Fit and Proper criteria'' of directors before their appointment.

The policy is reviewed by the Board of Directors in addition to the other amendments that may be required in the policy. The Policy is hosted by the Bank on its website at https://www.aubank.in/investors/secretarial-policies.

The terms of reference of the NRC and Compensation Policy have been provided in Report on Corporate Governance annexed with Board''s Report as Annexure-I.

S. Evaluation of the Directors, the Board and Committees

I n accordance with the provisions of Section 149(8) read with Schedule IV, Section 178(2) of the Act, Regulation 17 and other applicable Regulations of SEBI Listing Regulations, and in consonance with Guidance Note on Board Evaluation issued by the SEBI, the Board assesses the performance of the Individual Director, Board Committees and Board as a whole on the basis of various criteria with the aim to improve the effectiveness of the individual Director, Committees and the Board.

The description and process of annual performance evaluation has been provided in Report on Corporate Governance annexed with Board''s Report as Annexure-I.

T. Statutory Auditors and their Report

In accordance with the ''Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)'' dated April 27, 2021 (“RBI Guidelines”) issued by RBI, Banks shall appoint the Statutory Auditors for a continuous period of three (3) years, subject to the firms satisfying the eligibility norms each year and the approval of RBI on an annual basis.

M/s. Deloitte Haskins and Sells, Chartered Accountants (Registration No. 117365W) and M/s. G. M. Kapadia & Co., Chartered Accountants (Registration No. 104767W) were appointed as the Joint Statutory Auditors for a period of Three (3) years by the Shareholders of the Bank at the 26^th AGM held on August 17, 2021, to hold office from the conclusion of the 26^th AGM till the conclusion of the 29^th AGM of the Bank subject to the approval of the RBI on annual basis.

There are no qualifications, reservations or adverse remarks made by M/s. Deloitte Haskins and Sells, Chartered Accountants and M/s. G. M. Kapadia & Co., Chartered Accountants, Joint Statutory Auditors of the Bank, in their report on the financial statements for the FY 2022-23. Further, pursuant to Section 143(12) of the Act the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

The Statutory Auditors have confirmed their eligibility under Section 141 of the Act and as per the guidelines issued by RBI from time to time. Further, as required under the relevant provisions of SEBI Listing Regulations, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India (“ICAI”) and they hold a valid certificate issued by the Peer Review Board of ICAI.

U. Secretarial Auditors and their Report

I n accordance with the provisions of Section 204 of the Act and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of SEBI Listing Regulations and upon recommendation of the Audit Committee, the Bank has appointed M/s. V. M. & Associates, Company Secretaries (Registration No. P1984RJ039200) to undertake the Secretarial Audit of the Bank for the financial year ended March 31, 2023.

During the year under review, pursuant to provisions of the Section 143(12) of the Act no frauds have been reported by the Secretarial Auditors, and there were no observations or qualifications made by the Secretarial Auditors in their Report. The Secretarial Audit Report for FY 2022-23 in form MR-3 is annexed with Board''s Report as Annexure-IV.

V. Particulars of Loans, Guarantees and Investments

In accordance with the provisions of Section 186(11) of Act the provisions of Section 186 of the Act except sub-section (1), do not apply to loans made, guarantees given or securities provided or acquisition of securities by a Banking company in the ordinary course of business and are exempted from disclosure requirement in the Annual Report.

However, the particulars of investments made by the Bank are disclosed in Schedule 8 of the Financial Statements for FY 2022-23, forming part of this Annual Report, as per the applicable provisions of BR Act.

W. Related Party Transactions

During FY 2022-23, the Bank has not entered into any materially significant transaction with its related parties, which could lead to a potential conflict of interest between the Bank and these parties. All the related party transactions that were entered into during the year were on an arm''s length basis and in ordinary course of business.

The Audit Committee of the Board has given omnibus approval for related party transactions of repetitive nature and entered in the Ordinary Course of Business. Further, the Audit Committee of the Bank reviewed details of all related party transaction entered by the Bank on quarterly basis.

Hence, pursuant to Section 134(3)(h) of the Act read with Rule 8(2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the financial year ended March 31, 2023.

The Policy on Related Party Transactions and Materiality as approved by the Board is available on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

X. Material Changes and Commitments, if any, affecting the Financial Position of the Bank

There are no material changes and commitments which affect the financial position of the Bank which have occurred between the end of the financial year i.e. March 31, 2023 up to the date of this Report.

Y. Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

Since inception, your Bank has operated responsibly towards environment sustainability. The Bank has taken proactive measures to address its emissions footprint by leveraging digital interventions, and implementing emission reduction initiatives wherever possible.

(a) Conservation of Energy

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipment''s:

Your Bank has launched a gamut of initiatives that are a testimony of Bank''s strong intent towards simplifying Banking by eliminating unnecessary steps and enabling smooth onboarding of customers while reducing negative impact on the environment. The Bank has undertaken the following initiatives for conservation of energy:

• AC capacity planning ensures optimal sizing to prevent over consumption of energy.

• Energy-efficient Star Rated equipments are installed for saving of electricity cost.

• Bank promotes green plant & garden in premises to reduce air conditioning load.

• Installation of an i-Touch manager to help monitor and control electricity usage, reducing consumption by 20% and preventing pilferage.

• Variable Refrigerant Volume (VRV) based Chiller used for energy usage reduction in ACs.

• Insulation used to minimise Heat load in offices and to reduce the need for excessive air conditioning.

• Use of LED instead of tradition lighting to reduce electricity consumption.

• Natural Sunlight is maximised through Green Building design in Offices to the extent possible to reduce reliance on artificial lighting to the extent possible.

• Installation of Timer for signages to optimise energy usage.

• Power factor system installed in Electrical panel for optimum usage of electricity.

• UPS & Inverter used to minimise reliance on Diesel generator set.

As part of Bank''s commitment to environmental responsibility and to conserve energy, Bank installed a 1.25-Megawatt Solar plant a renewable source of energy that is long-lasting source, thereby resulting into numerous benefits, including reducing energy and carbon intensities, saving of cost, minimising environmental impact, mitigating climate change, and conserving water resources.

Using power supervision technology and guidelines: With installation of range of tools and systems that are designed to monitor, control, and optimise power usage in existing buildings and assets of the Bank, increased energy efficiency is achieved through the replacements and lighting retrofits including installation of intelligent energy management devices among other measures.

Using Cloud based technology and virtualised info Centre: Your Bank strives to channelise its efforts and investment towards infrastructure development in the digital space. The Bank makes use of virtual machines and cloud-based technologies to create a virtual ecosystem. This not only reduces dependency on physical servers thereby reducing operational wattage and space, new, energy efficient, reliable, and vastly advanced cloud-based systems have been put in place.

Being a technology absorption measure as well, Bank shall be immensely benefited with virtualisation of server where there will be saving energy cost due to high availability under cloud based technology, reduced need for on premises physical servers, scalability, workload sharing, elasticity, and rapid resource provisioning etc., thereby achieving enhanced efficiency, flexibility, and cost-effectiveness.

Recycling systems and supplies: Your Bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards. The Bank also employs a coherent system of recycling slightly older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, the Bank successfully reduces the demand for new desktops and laptops even with the growing workforce.

Scrap Disposal

There is limited scope for Scrap build up & disposal as the Bank is into financial Services Space. Further, in respect of IT Assets, the same were disposed through E-Waste vendor and details are covered in the Business Responsibility and Sustainability Report of FY 2022-23 annexed with Board''s Report as Annexure-V.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

1. Digital Banking: The Bank witnessed strong growth in the adoption of Tab-based account opening, Android-based Mobile Banking, WhatsApp Banking (24/7 Banking solutions), and Net Banking, thus minimising paper usage, reducing waste generation, and achieving improved waste management.

2. AU 0101 App: This app enables the customers to Bank from anywhere and which contributes to reducing carbon footprint through a video-enabled chat with Bank''s executives, eliminating the need to travel.

3. Video Banking: Launched Video Banking with a vision of offering all Bank''s services virtually through video-enabled chat with branch executives, eliminating the need for Branch visits. This initiative helped two-fold in promoting Digital Banking and inspiring customers to adopt a more environmentally sustainable Banking channel and saving of fuel by reducing commutation.

4. E-receipts Culture: E-receipts at ATMs, followed by a detailed SMS regarding the last transaction and Bank balance sent to the customer''s registered mobile number, resulting in reduced consumption of paper.

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

Bank is continuously taking various steps on the product improvement. Bank is in the process of implementation of new and upgraded version of ITAM tool (IT asset management tool). This tool will manage all Bank''s IT assets life cycle i.e., from procurement to scrap and disposal of asset, for PAN INDIA banking operations. Highly efficient use of technology through software helps in save time, improve efficiency, reduce costs, improve productivity, more agile and helps in information security.

III) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a) The details of technology imported: Nil

b) The year of import: Nil

c) Whether the technology been fully absorbed: Nil

d) If not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV) Expenditure incurred on Research and Development:

Since financial services is being primarily covered under Service Sector, the details of this clause are not applicable to the Bank.

(c) Foreign Exchange Earnings and Outgo

During the financial year ended March 31, 2023, the foreign exchange earnings was C3.53 crore and the foreign exchange outgo was C12.31 crore.

Z. Risk Management

Your Bank operate in a highly dynamic, evolving, competitive and strict regulatory environment. Constantly identifying the emerging and evolving risks for Bank''s business is critical to protect the business sustainability. Proactive steps are taken to contain and mitigate these risks which helps to safeguard the interests of Bank''s stakeholders.

The nature of Risk in a Banking Industry are of wide array evolving around Credit Risk, Market & Liquidity Risk, Operational Risk, IT and Cyber Security Risk, Compliance Risk, and other risks. Your Bank has adopted a multi-layered risk management process to identify, assess, monitor, and manage risks through the effective use of processes, information, and technology.

Bank''s robust risk management framework has evolved over the years under the supervision of highly experienced Board and senior leadership. Bank approach is to ensure that it understand these risks well in order to respond to them in a timely manner. This translates into consistent risk management practices to measure, monitor, control, and mitigate risks. This approach is translated into Bank''s daily risk management practices, which encompass the measurement, monitoring, control, and mitigation of risks. By actively engaging in these practices, Bank aim to proactively contain and address potential threats to Bank''s business. This proactive stance ensures that Bank stay ahead of the curve and are well-prepared to handle any challenges that may arise in ever-changing industry and regulatory landscape.

The Bank''s risk management is governed by the three Lines of Defence. First Line of Defence consists of individual business units and support functions that own and manage risks through adherence to laid-down procedures.

Second Line of Defence consists of the Risk Management and Compliance departments which ensure the First Line of Defence is properly designed, is in place and operating as intended through regular reporting.

Third Line of Defence consists of the Internal Audit function, which provides the highest level of independent assurance on the effectiveness of governance, risk management and internal controls through audit in line with the approved audit plan and reporting the same to the Audit Committee of the Board on a regular basis.

Collectively, these three functions provide assurance to the Board that the risks assumed by the Bank are within the risk appetite approved by the Board and the adequacy and effectiveness of the governance framework around the risks for Bank''s business.

The Risk Management policies act as guiding principles for implementation of risk management framework in the Bank. The Board is supported by an experienced executive management team, Board Committees, and Board Delegated Committees as part of the Risk Governance Framework. The Board ensures a balance between growth and prudent risk management while creating value for stakeholders. To comply with regulatory provisions, the Bank has established a Risk Management Committee that oversees the implementation of the risk governance framework and guiding principles. The Bank has appointed a Chief Risk Officer (CRO) who administers various risk areas such as Credit Risk, Market & Liquidity Risk, Operational Risk, Fraud Risk, Information Security Risk, Compliance Risk, and other risks. The CRO works in accordance with the approved risk management policies and the delegation matrix, and has direct access to the Risk Management Committee. The CRO plays a key role in making risk management decisions that impact the Bank''s strategic direction and monitors the progress of risk management activities. The details of the Risk Management Committee and its terms of reference are set out in the Report on Corporate Governance annexed with Board''s Report as Annexure-I.

The Risk Management framework is a layered structure and broadly consists of the following aspects for effective risk management across the Bank:

(a) Credit Risk Management

Risk: Credit risk arises from business operations that give rise to actual, contingent, or potential claims against any counterparty, borrower, or obligor. The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit risk within the Bank through strengthening underwriting norms, keeping close watch on asset quality trends and concentrations at individual exposures as well as at the portfolio level.

Mitigation: Credit Committee and Credit Risk & NPA Management Committee (“CRNPAC”) overseas and reviews the credit risk and is responsible for prudential limits on large credit exposures, asset concentration, portfolio management, loan review mechanism, risk concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. All aspects of credit risk are governed by the Credit Risk Management Policy and other Policies. Your Bank has laid down prudential limits and caps on various aspects to control the magnitude of credit risk. The defined risk limits are forward-looking and are reviewed in sync with future business plans. Loan administration and monitoring is carried out through Portfolio Profiling, Early Warning Framework, Rapid Portfolio Review, and Annual Monitoring of High Value Customers and other risk activities.

The CRNPAC looks after credit risk assessment on quantitative and qualitative basis. The Bank has a defined mechanism for necessary action to be taken in case of any alarming situation. Key risk indicators are defined for all major products having significant contribution to asset book.

CRNPAC follow the guiding principles listed below:

• Ensure that a governance framework is established for an effective oversight, segregation of duties, monitoring and management of Credit Risk in the Bank.

• Ensure that the sourcing and approval of credit proposals are as per the defined strategies, systems, and processes.

• Ensure that guiding principles shall be laid down for the setting up and monitoring of the credit and credit risk appetite and limits.

• Establish standards to facilitate effective identification and assessment of credit risks in the Bank.

• Establish standards for effective measurement and monitoring of credit risk and NPA.

• Ensure adherence to the guidelines/policies related to credit, credit risk and NPA management as issued by the RBI from time to time.

The Board Delegated Credit Committees submit their updates to Risk Management Committee of the Board at regular intervals.

(b) Operational Risk Management

Risk: Operational Risk has been defined by the RBI as the risk of loss resulting from inadequate or failed internal processes, people, and systems or from external events. This definition includes Legal Risk but excludes strategic and reputational Risk.

Mitigation: The Bank has the Board delegated Operational Risk Management Committee (“ORMC”) to oversee implementation of the operational risk management framework across the Bank and advise on implementation of measures for risk mitigation which further reports to Risk Management Committee of the Board. The Bank follows an integrated risk approach, where operational risks and its monitoring folds into CRO and ORMC. The Bank has in place a Board approved Operational Risk Management Policy which includes a comprehensive Operational Risk Management Framework for documenting, assessing, and periodic monitoring of various risks and controls linked to various processes across all business verticals.

Your Bank also has Risk Containment Unit that is guided by a Board approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to the Audit Committee and the Board and fraud cases in excess of C1 crore or more are specifically reported and dealt by the Special Committee for Fraud Monitoring (“SFMC”) of the Board. The Bank is continuously strengthening its systems, operational practices and processes, procedures, controls, and review mechanism so that fraud-prone areas are sanitised against internal and external breaches and by continuously monitoring that these control measures are operating effectively.

With the Digital Banking services, the Bank has seen significant milestones in both at customer facing technologies and internal digitisation. To ensure safe and secure transactions and improve the customer experience at digital fronts, the Bank monitors the transactions on an ongoing basis. As your Bank prepares for the next step in the world of Digital Banking, it is confident that its technological capabilities will propel the next phase of growth in the coming years.

Your Bank has in place a comprehensive Outsourcing Risk Policy in line with RBI guidelines released on time-to-time basis keeping in view the extensive use of outsourcing by the Bank. Board has the ultimate responsibility for the outsourced activity. However, for ease of functioning, the powers have been delegated to the Risk Management Committee of the Board and Committee for Outsourcing of IT and Financial Services. The outsourcing policy document of the Bank lays down the framework adopted by the Bank for reviewing and approving outsourcing of services that includes plans and procedures to evaluate, assess, approve, review, control and monitor the risks and materiality of all its vendor/outsourcing activities and serve as a guidance to the Bank to adopt sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from outsourcing activities.

Your Bank has in place a comprehensive Business Continuity Management plan, policy, and procedures in place to ensure continuity of critical operations of the Bank in the event of any disaster/incident affecting business continuity. The Bank''s business continuity Programme is developed considering the criticality of the functions performed and the systems have been designed to minimise the operational, financial, legal, and other material consequences arising from such a disaster and focus is on ensuring faster recovery of and minimising impact on the IT systems of the Bank. Your Bank has dedicated DR sites and there are periodic drills in place to validate effectiveness of Bank''s Business Continuity Plans (“BCP”). These controls helped Bank in taking immediate action in case of any business/application level issue arises which is leading to impact on Banking services/operations. The learning from the BCP drill exercises are used in refining the BCP framework.

(c) Market Risk, Liquidity and Asset Liability Management

Risk: Market Risk for the Bank originates from investment and trading in securities, which are undertaken both for the customers and on a proprietary basis. The market risk management framework of the Bank sets benchmark for market risk exposures, the performance of portfolios vis- a-vis the market risk limits and comparable benchmarks, which provide guidance to optimise the risk-adjusted rate of return of the Bank''s investment portfolio. Liquidity risk refers to Bank''s inability to fund an increase in assets or withdrawal of liabilities and meet both expected and unexpected cash & collateral obligations at reasonable cost without adversely impacting its financial condition.

Mitigation: Market risk management is guided by well-defined policies, guidelines, processes and systems for the identification, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk management of its trading and investment portfolios.

The Asset Liability Management Policy of the Bank stipulates a broad framework for liquidity risk management to ensure that the Bank is able to meet its liquidity obligations as well as to withstand a period of liquidity stress from Bank-level factors, market-wide factors, or a combination of both. The Board approved policy captures the risk appetite around the liquidity and market risk of the Bank and helps to put in place defined governance structure in consonance with the Bank''s Risk Appetite.

The Asset Liability Management Committee of the Bank oversees the framework for identification, measurement and management of market risk, interest rate risk and liquidity risk in the Bank and ensures compliance with established internal and regulatory prudential limits and operate within the approved risk appetite by the Board.

(d) IT Risk Management

Risk: Your Bank is growing with digitisation and aimed at leveraging digital technology to provide a best-in-class experience for its customers while simultaneously enhancing productivity and improve on IT risk management. Risk of cyber-attacks on your Bank''s systems arises among others from computer viruses, malicious or destructive code, phishing attacks, denial of service or information, application vulnerability and other security breaches resulting in disruption of its services or theft or leak of sensitive internal data or customer information.

Mitigation: Your Bank has established a robust information and cyber security framework for securing its IT infrastructure and systems. IT Steering Committee and IT Security Risk Management Committee reports to Board level IT Strategy & Information Systems Security Committee. This committee reviews and monitors IT security infrastructure and vigilance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer (“CISO”) is responsible for monitoring the information security risks covering all aspects of data security for the Bank who reports to CRO. Cyber Security Operation Centre with qualified professionals is reporting to CISO for monitoring of real-time cyber security glitches. Your Bank has also deployed advanced controls at various layers to ensure that cyber security risk in minimised.

(e) Reputation Risk Management

Risk: Reputation risk can negatively impact the Bank''s ability to attract or retain customers and expose it to litigation and regulatory action.

Mitigation: Your Bank assesses and manages Reputation Risk on periodic basis. Your Bank communicates with its stakeholders regularly through appropriate engagement mechanisms to address stakeholder expectations and assuage their concerns, if any. There is Zero tolerance for knowingly engaging in any activities that are not consistent with values, Code of Conduct, or policies of the Bank.

(f) Compliance Risk Management

Risk: The adoption of effective AML/KYC standards is an essential part of Banks'' Risk Management practices. Banks with inadequate Compliance (AML/KYC) risk management programmes may be subject to significant risks, especially legal and reputational risk. Sound Compliance (AML/KYC) policies and procedures not only contribute to a Bank''s overall safety and soundness and also protect the integrity of the banking system by reducing the likelihood of Banks becoming vehicles for money laundering, terrorist financing and other unlawful activities. Recent initiatives to reinforce actions against terrorism in particular have underlined the importance of Banks'' ability to monitor their customers wherever they conduct business.

Mitigation: The Bank has a dedicated Compliance Department that continuously monitors new developments and updates the Bank''s Board and senior management about its implications. The Bank has a strong compliance culture and have well-articulated policies with regard to conduct, Vigil Mechanism, AML & KYC, and engagement with third party vendors. Compliance & risk department update status of compliance & controls to Audit Committee Board on regular basis to review and advise on implementation of measures for AML/KYC risk mitigation along with effective Transaction monitoring.

AA.Corporate Social Responsibility

Your Bank has been financing the entrepreneurship aspiration of the unreached and unbanked masses of India. This has been further adopted in designing and implementing high impact CSR projects aimed at improving livelihoods of marginalised and vulnerable segment of the society. The CSR initiatives of the Bank is focused on Skills Development, Women Entrepreneurship, Rural Sports, among others, all of which have a profound positive impact on the targeted communities.

CSR activities and funds are monitored by the CSR Committee formed by the Board of Directors. Further, assessing the impact of these projects that would be carried out in the upcoming years.

Pursuant to CSR provisions of the Act and rules made thereunder, the Bank has transferred C8.26 crore in “Unspent Corporate Social Responsibility Account” for carrying out expenditure on its ongoing CSR Projects and such amount shall be spent in Compliance of CSR Policy towards CSR obligation as per their respective implementation schedule.

The terms of reference of CSR Committee have been disclosed in the Report on Corporate Governance and a detailed breakup of expenditure carried out and other details related to CSR activities has been disclosed in the Annual Report on Corporate Social Responsibility is annexed with Board''s Report as Annexure-II. The CSR Policy is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

AB. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

In accordance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, your Bank is committed to provide a safe and conducive work environment to all its employees and associates. The Bank has implemented its Policy on Prevention and Redressal against Sexual Harassment at the work place.

The disclosure required under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 is provided in Report on Corporate Governance annexed with Board''s Report as Annexure-I.

AC. Subsidiary, Joint Ventures & Associate Companies

The Bank does not have any subsidiary, joint ventures & associate companies. Hence, the details of this clause are not applicable to the Bank. Accordingly, the Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

AD. Material Orders Passed by Regulators or Courts or Tribunals

During the period under review, no material orders have been passed by the Regulators/ Courts/ Tribunals which would impact the going concern status of the Bank and its future operations.

AE. Internal Financial Control & their Adequacy

Your Bank has an effective internal financial control system in line with the risk appetite of the Bank and aligned to the scale, size, and complexity of its operations. The scope and authority of the risk based internal audit function is defined in the Internal Audit Policy of the Bank which is duly approved by the Board.

The audit function essentially validates the compliances of Bank''s processes and operations with regulatory guidelines, accounting procedures and Bank''s own internal rules and guidelines.

The internal audit function provides independent assurance to the Board of Directors and Audit Committee on the quality and effectiveness of the Bank''s internal control, risk management and governance systems and processes.

Proper internal controls were in place and operating effectively for the period under review. Further, in compliance with the requirements of the Act joint statutory auditors have issued an opinion with respect to the adequacy of the internal controls over financial reporting of the Bank and the operating effectiveness of such controls, details of which may be referred to in the Auditor''s Report attached to the audited financial statements of FY 2022-23.

AF. Cost Records

Being a Banking company, provisions of Section 148(1) of the Act, relating to maintenance of cost records is not applicable to the Bank.

AG. Corporate Governance

Your Bank believes in promoting transparency, accountability, integrity, fairness and compliance while maintaining adequate risk management and internal controls for sustainable business growth and fostering public confidence.

The Bank consistently evaluates its practices against industry benchmarks to ensure adherence to the best practices of Corporate Governance to achieve and upholding the utmost standards of Corporate Governance. The Bank remains steadfast in its commitment to operate in accordance with the highest principles of governance and ethics, with the aim of maintaining its reputation as a model institution in the banking industry.

The Bank accords paramount importance in having a best-in-class Governance and assurance framework in the Institution. The Bank continuously endeavour to fortify and upgrade its Risk Management, Compliance and Audit practices. The Board of Directors and its various committees, being the apex decision-making bodies of the Bank, oversee the overall Governance & Assurance framework.

As stated above, it is Bank''s persistent effort to continuously elevate the level of governance & assurance functions and it is pertinent to enumerate some of the present key aspects of these functions in the Bank along with the new practices implemented/initiatives undertaken in the recent past to fortify the risk and compliance culture:

1. Risk Management:

Bank''s risk management philosophy and approach are designed to protect customers and investors interests along with Bank''s reputation and financial strength. Execution of core risk management activities in the Bank has been delegated to Board Delegated Committee viz. Credit Risk & NPA Management Committee, Operational Risk Management Committee, Asset Liability Management Committee, IT Steering Committee and IT Security Risk Management Committee.

2. Compliance Function:

The most important role of Compliance function is to ensure a robust compliance culture in the Bank. To set the right tone of Compliance culture, the function seeks regular guidance from the Board of Directors and its various committees. It connects with the internal stakeholders through periodic structured and unstructured meetings to convey the compliance requirements ''loud and clear''.

The Compliance Function in its endeavour to further fortify its efforts has implemented various new initiatives, some of which are (i) Compliance Sustenance Framework, (ii) Compliance Self Certification, (iii) Strengthening the Product Approval Process, (iv) Quality Assurance and Improvement Programme (QAIP), (v) specialised domain knowledge of IT/IS resources roped in.

3. Internal Audit Function:

The Internal Audit Department follows a risk-based audit approach as laid down in the Risk Based Internal Audit Policy of the Bank and prioritises audits of high-risk areas identified in collaboration with the Risk Management as well as Compliance Functions. Further, to strengthen the IAD, Bank has set up an independent Quality Assurance function carries out an independent quality check of the audit activities conducted by the various sub-verticals of the Internal Audit function.

During the year, your Bank was awarded with the Certificate of Excellence on Corporate Governance from The Institute of Company Secretaries of India.

The Report on Corporate Governance for FY 2022-23 along with certificate issued by M/s. V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under Chapter IV of the SEBI Listing Regulations, is annexed with Board''s Report as Annexure-I.

AH. Business Responsibility and Sustainability Report & Sustainability Initiatives

The Bank endeavours to benchmark itself with the best of corporates in India and continued its focus to implement best Environmental, Social and Governance (ESG) practices in its operations with responsible lending approach. In alignment with the vision of the Bank, through its sustainability initiatives, the Bank continue to enhance value creation in society, steer itself towards resilience and sustainable growth.

The Board of Directors has constituted Sustainability Committee and approved the Sustainability Policy of the Bank which serve as guiding principle for driving the Bank''s sustainability initiatives, thereby ensuring that sustainable practices are consistently, methodically, and strategically integrated into Banking operations.

As a measure of global best practices on sustainable initiatives and ESG practices, Bank''s First Sustainability Report was released on January 19, 2023 for FY 2021-22 in line with the Global Reporting Initiative framework - Sustainability Reporting Standards (GRI Standards core option).

Further, In accordance with the amendment in Regulation 34(2)(f) of the SEBI Listing Regulations, vide Gazette notification no. SEBI/LAD-NRO/GN/2021/22 dated May 5, 2021, the Business Responsibility and Sustainability Report (“BRSR”) is hosted at the Bank''s website.

The BRSR is annexed with Board''s Report as Annexure-V and disclosed on the website of the Bank at https://www.aubank.in/investors.

AI. Particulars of Employee Remuneration

I n accordance with Section 197(12) of the Act read with Rule 5(1) of the Companies (Appointment and Remuneration of Managerial Personnel) Rule, 2014, the ratio of the remuneration of each Director to the median employee''s remuneration and other details is annexed with Board''s Report as Annexure-III.

The statement containing particulars of employees as required under Section 197(12) of the Act read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended, forms part of this report. In terms of Section 136(1) of the Act the annual report is being sent to the Members excluding the aforesaid annexure, the annexure is available for inspection up to the date of AGM at the registered office of the Bank and any Member interested in obtaining a copy of the Annexure may write to the Company Secretary of the Bank at [email protected].

AJ. Management Discussion and Analysis

In accordance with the Regulation 34(2)(e) and Schedule V of the SEBI Listing Regulations, the Management Discussion and Analysis Report for the FY 2022-23 is covered in a separate section forming part of the Annual Report.

AK. Annual Return

In accordance with the provisions of Section 134(3)(a) read with Section 92(3) of the Act the draft Annual Return for the financial year ended on March 31, 2023 in the prescribed form MGT-7 is disclosed on the website of the Bank at https://www.aubank.in/investors.

AL. Whistle-Blower Policy & Vigil Mechanism

In accordance with the provisions of Section 177(9) of the Act rules made thereunder and Regulation 4(2)(d) and Regulation 22 of the SEBI Listing Regulations, the Bank has implemented Whistle-Blower Policy & Vigil Mechanism which is disclosed on the website of the Bank at https://www.aubank.in/investors/Secretarial-policies.

The details have been provided in Report on Corporate Governance annexed with Board''s Report as Annexure-I.

AM. Anti-bribery and Anti-corruption Policy

The Bank follows a ''zero-tolerance approach'' towards bribery, corruption, and other wrong practices. The Bank is resolute to act professionally, fairly, ethically and with integrity in its dealings and operations. The Bank has a Board approved Anti-Bribery and Anti-Corruption Policy laying down the principles for carrying out Banking business in an honest and ethical manner. The said policy is disclosed on the website of the Bank at https://www.aubank.in/notice-board.

AN. Compliance of Secretarial Standard issued by the Institute of Company Secretaries of India

The Bank has complied with the Secretarial Standards issued by the Institute of Company Secretaries of India on Meetings of the Board of Directors and General Meetings.

AO. Status of Ind AS Implementation

As per the RBI circular RBI/2015-16/315 DBR.BP.BC.No.76/21.07.001/2015-16 dated February 11, 2016 Implementation of Indian Accounting Standards (Ind AS), The Banks are advised to follow the Indian Accounting Standards as notified under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the RBI in this regard. The Banks in India currently prepare their financial statements as per the guidelines issued by the RBI, the Accounting Standards notified under Section 133 of the Act and generally accepted accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian Accounting Standards (Ind AS), which were based on convergence with the International Financial Reporting Standards (IFRS), for scheduled commercial Banks, insurance companies and non-banking financial companies (NBFCs). In March 2019, RBI deferred the implementation of Ind AS for Banks till further notice as the recommended legislative amendments were under consideration of Government of India. The Bank had undertaken preliminary diagnostic analysis of the GAAP differences between Indian GAAP vis-a-vis Ind AS and shall proceed for ensuring the compliance as per applicable requirements and directions in this regard.

Directors’ Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Act the Board of Directors hereby confirm that:

1. In the preparation of the annual accounts for the year ended March 31, 2023, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2. We 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 the Bank as on March 31, 2023 and of the profit of the Bank for the year ended on that date.

3. We have 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 Bank''s assets and for preventing and detecting fraud and other irregularities.

4. We have prepared the annual accounts on a going concern basis.

5. We have laid down internal financial controls to be followed by the Bank and ensured that such internal financial controls are adequate and were operating effectively.

6. We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgment and Appreciation

The Board places on record its gratitude to the Government of India, various State Governments, RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, Bankers, Lenders, Credit Rating Agencies & Debenture Trustees for their continued support and faith reposed in the Bank.

The Board would also like to thank BSE Limited, National Stock Exchange of India Ltd., National Securities Depository Limited, Central Depository Services (India) Limited, Registrar & Share Transfer Agent, Vendors and Service Providers for their continued support & co-operation.

The Board also places on record its appreciation to its valued customers for their continued patronage and to the members & Debenture holders of the Bank.

The Board also expresses its heartfelt thanks and gratitude to each employee and their families for their continued commitment towards the Bank and its customers, who by demonstrating strong work ethics, professionalism, teamwork, and initiatives helped the Bank continue to serve its depositors and customers and reinforce its customer centric image despite the challenging environment.

For and on behalf of the Board of Directors AU SMALL FINANCE BANK LIMITED

Sd/- Sd/-

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole-Time Director

DIN: 00009526 DIN: 01024940

Date: June 29, 2023 Date: June 29, 2023

Place: Jaipur Place: Mumbai

CIN: L36911RJ1996PLC011381

Registered Office: 19-A, Dhuleshwar Garden, Ajmer Road, Jaipur - 302 001, Rajasthan, India

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Mar 31, 2022

Your Board of Directors have great pleasure in presenting the Twenty-Seventh Annual Report of the AU Small Finance Bank Limited (“the Bank”) covering Business and operations together with the Audited Financial Statements, Independent Auditors'' Report for the financial year ended 31^st March 2022.

A. Financial Summary & Highlights

The summary of the financial performance of your Bank for FY 2021-22 is presented below:

('' in crore)
Particulars	For the year ended
	31st March 2022 |	31st March 2021
Total Income	6,915.42	6,370.98
Interest Income	5921.73	4,950.05
Other Income	993.69	1,420.93
Interest Expenditure	2,687.61	2,584.61
Operating Expenses (excluding depreciation)	2,272.60	1,554.06
Profit before Depreciation, Provisions and Tax	1,955.21	2,232.31
Depreciation	140.17	104.37
Provision for Income Tax	324.24	287.82
Other Provisions and Write-offs	360.97	669.44
Net Profit	1,129.83	1,170.681
Appropriations
Transfer to Statutory Reserve	282.46	292.67
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961	117.30	77.00
Transfer to Capital Reserve	18.52	28.87
Transfer to Investment Fluctuation Reserve	20.24	(31.65)
Dividend (including tax/cess thereon) pertaining to previous year paid during the year	-	-
Dividend (in '') (Per Equity Share)	12	-
Surplus carried over to Balance Sheet	3,382.42	2,691.10
Earnings Per Share (EPS) (in '') (After excluding Exceptional Items not annualised)
Basic (in '' )	36.06	38.19
Diluted (in '')	35.69	37.86

*The Board recommended dividend of '' 1/- per equity shares on pre-bonus share capital for the year ended 31^st March 2022 subject to approval of shareholders at the ensuing Annual General Meeting. Further, consequent to approval of the bonus issue by the shareholders, the dividend shall be adjusted proportionately i.e. '' 0.50 per equity share on post-bonus share capital.

**Net Profit After Tax for FY 2021-22 increased to '' 1,129.83 crore vis-a-vis '' 600.23 crore (excluding the sale ofinvestment of Aavas Financiers Limited) for FY 2020-21 registering YoY growth of 88.23%.

Key Performance Highlights

Your Bank witnessed growth and consistent performance in FY 2021-22. The key financial performance indicators for the year is as follows:

sale of investment of Aavas Financiers Limited) for FY 2020-21 registering YoY growth of 88.23%.

• Balance sheet size grew to '' 69,077.80 crore as on 31^st March 2022 vis-a-vis '' 51,591.31 crore as on 31^st March 2021 registering YoY growth of 33.89%.

• Deposits continue to scale driven by increasing brand awareness, granular deposits base, branch expansion, improved digital offerings and launch of credit Cards & QR code thereby enhancing the product offerings. Wit h these measures CASA ratio improved to 37% in

FY 2021-22 from 23% in FY 2020-21 and overall cost of funds reduced by 88 bps to 5.95% in FY 2021-22 from 6.83% in FY 2020-21.

• Gross NPA and Net NPA was 1.98% and 0.50% respectively as on 31^st March 2022 as compared to 4.25% and 2.18% respectively as on 31^st March 2021, with improvement in collection efficiency and assets quality.

Analysis of Bank''s performance is covered in Management Discussion & Analysis section of the Annual Report.

Business Overview

Your Bank completed its 5 years journey as a Bank and made significant strides in its journey over past five years to become a retail focused, tech led, preferred, and trusted Bank. Despite headwinds of demonetisation, GST, NBFC Crisis and battling the pandemic, your Bank has responded adequately through robust Business continuity management by promptly catering to customers and other stakeholder''s requirements without fail. The Bank constantly worked to simplify the business processes to become even more customer centric during these times. Your Bank is grateful to the government of India and RBI for their unstinting support in terms of relief, reforms, and packages.

The Bank has its presence in 18 states & 2 UTs and had total 919 touch points (692 Bank Branches, 210 BCBOs & 17 BCs) and 514 (including co-branded) ATMs as on 31^st March 2022. During the FY 2021-22, the Bank has expanded its distribution and opened 87 new Bank Branches and entered 3 newer states.

During FY 2021-22, Bank has served 27.5 lakhs customer being the largest small finance Bank by offering over 30 products with a team of 27,800 employees. In journey as a Small Finance Bank, it was fraught with headwinds but your Bank remain optimistic with cautious approach

while continuously working towards the purpose of developing one of best retail Banking franchise.

Your Bank is Expanding the reach of its branches and density through digital channels leading to Phygital Branches. With customers utilising digital services -Internet Banking, online transfer, UPI payments, services through Video Banking etc. the need for branch proximity has reduced as a critical criterion for banking. Your Bank is constantly innovating for making Banking simple by providing integrated and tailor- made solutions for its customers with tech-led approach, faster digital adoption, at low cost, supported by robust IT, risk management, governance structure, products, processes, policies, and systems in place.

During the pandemic, your Bank realised that there is a growing need for credit cards, especially in the core markets and how skewed the markets were in the favor of urban markets. The Bank built the entire system and ecosystem from scratch and became the first Small Finance Bank to have its credit card. All digital channels have done phenomenally well with 1.7 lakh plus credit card issued out of which 53% credit card holders are first time credit card users and the Bank have also installed 4.8 lakhs UPI QR. Initial trends from the Video Banking experience have been quite encouraging in terms of enhancing reach, acquisition, and engagement. AU0101 continued to see strong traction with 39% quarter-on-quarter growth in user registration, 2 lakhs plus non-bank customers also got registered on AU0101. Your Bank is on the track of empowering India financially, digitally, and socially driving financial inclusion in country as envisaged under Small Finance Bank Licensing Guidelines.

The key business developments and segment wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

B. Credit Rating:

The details of credit rating obtained by the Bank for debt instruments issued by Bank and outstanding as on 31^st March 2022 along with outlook is provided below, the same is also available on website of the Bank:

Nature of Debt Instrument	Nature of Term	CRISIL1	India Ratings2	CARE3
Fixed Deposits	Long Term	FAA /Positive	-	-
Non- Convertible Debentures	Long Term	CRISIL AA-/Positive	IND AA-/Stable	-
Subordinated Debt	Long Term	CRISIL AA-/Positive	-	-
Tier II Bonds	Long Term	CRISIL AA-/Positive	IND AA-/Stable	CARE AA/Stable
Bank Loans/Facilities	Long Term	-	IND AA-/Stable	-
Certificate of Deposits	Short Term	CRISIL A1	IND A1	CAREA1

Note:

¹CRISIL rating revised its rating outlook to ‘Positive'' from ‘Stable'' and reaffirmed ratings on 23^rd November 2021.

²India Ratings has withdrawn the ratings of Subordinated Debt as the Bank has repaid the term loan (Subordinated Debt) in full and affirmed rating of other instruments on 19^th August 2021.

³CARE Ratings on 23^rd March 2022 has assigned a rating of CARE AA/Stable for Tier-II Bonds and has Reaffirmed rating of Certificate of Deposits. Further, the CARE ratings withdrawn the ratings of term loan as the Bank has repaid the term loan in full.

ICRA Credit ratings have reaffirmed and withdrawn rating on Subordinated Debt and Non-Convertible Debentures on 6^th July 2021 as instruments/ISINs were fully redeemed.

C. Dividend

In terms of regulation 43A of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”) and Reserve Bank of India (“RBI”) guidelines, your Bank has formulated and adopted a Dividend Distribution Policy with an objective to appropriately reward shareholders through dividends for reposing their confidence in the Bank over the years while retaining the sufficient capital required for supporting future business growth requirements. The said Policy was reviewed by the Board from time to time and the same has been hosted on the website of the Bank at https://www.aubank.in/ investors/secretarial-policies.

Your Board of Directors in its meeting held on 25^th-26^th April 2022 has recommended a final dividend for its shareholders of 10% i.e. '' 1 per equity share on face value of '' 10/- each for the financial year 2021 -22 and consequent to approval of bonus issue by the shareholders, the dividend shall be adjusted proportionately i.e. '' 0.50 per equity share on post-bonus share capital and dividend shall be paid subject to the approval of the members at the 27^th Annual General Meeting (AGM). There was no interim dividend declared during the reporting period. The record date for final Dividend will be 30^th July 2022 (Saturday) for determining the names of the members who would be entitled to the dividend, for the financial year ended 31^st March 2022.

D. Bonus Issue

The Board, at its meeting held on 25^th 26^th April 2022, approved and recommended the issue of bonus shares to celebrate the 5 years of Bank''s operations in Apr-2022 and further to create additional liquidity, making Bank''s stock more affordable for retail investors, attract investors attention and develop positive retail investor sentiment. The shareholders approved the issue of bonus shares vide postal ballot dated 29^th May 2022 in the proportion of 1:1, i.e. 1 (One) bonus equity share for every 1 (One) fully paid-up equity shares held. The Bank had allotted 31,50,93,233 equity shares of '' 10/- each as fully paid-up Bonus Equity Shares to the eligible shareholders as on the record date i.e. 10^th June 2022.

E. Change in Nature of Business

During the year under review, there has been no change in the nature of business of the Bank. Further, information on the business overview and outlook and state of the affairs of the Bank is covered under the Management Discussion & Analysis section of the Annual Report.

F. Transfer to Reserves

In terms of RBI regulations and other applicable regulations, the Bank has proposed to transfer the

following amounts to various reserves for the financial year ended 31^st March 2022 as mentioned below:

Amount transferred to	Amount ('' in Crore)
Statutory Reserve	282.46
Transfer to Special Reserve U/s 36 (1) (viii)	117.30
Transfer to Capital Reserve	18.52
Transfer to Investment Fluctuation Reserve	20.24

The Board of Directors has not proposed to transfer any amount to general reserve for the financial year ended 31^st March 2022.

G. Transfer to the Investor Education and Protection Fund (IEPF)

In accordance with Section 124 and 125 of the Companies Act, 2013 read with applicable rules, as amended, there was no unclaimed/unpaid dividend or shares liable to be transferred to the IEPF during the FY 2021-22.

Further, details of the unclaimed / un-encashed dividends lying in the unpaid dividend accounts as on end of the financial year are provided on website of the Bank at https://www.aubank.in/investors/investor-services.

H. Deposits

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 and Companies (Acceptance of Deposits) Rules, 2014 are not applicable. The details of the deposits received and accepted by your Bank as a Banking company have been disclosed in the financial statements for the financial year ended 31^st March 2022.

I. Capital Structure & Fund Raising

During the period under review, there has been no change in the authorised share capital of the Bank. The Board of Directors allotted 26,86,641 equity shares pursuant to exercise of ESOP under different ESOP Schemes.

Pursuant to the abovesaid ESOP allotments of equity shares, the total issued and paid-up equity share capital of the Bank increased by '' 2.69 crore to '' 314.90 crore as on 31^st March 2022 as compared to '' 312.21 crore as on 31^st March 2021.

Further, post 31^st March 2022 on recommendation of Board, shareholders vide postal ballot dated 29^th May 2022 approved the increase in authorised capital from '' 350 crore to '' 1200 crore and corresponding amendments to the Clause V of the Memorandum of Association of the Bank was carried out.

Further, the Bank has redeemed Non-Convertible Debentures (NCDs) of '' 675 crore during the FY 2021 22. Accordingly, total outstanding NCDs stood at '' 500 crore as on 31^st March 2022 against '' 1175 crore as on 31^st March 2021 with increased focus on raising fund through retail deposits and repaying loan facilities as per their repayment schedule.

J. Employee Stock Option Schemes

Your Bank has formulated different Employee Stock Option Schemes ("Schemes"), which have been duly approved by the shareholders of the Bank. The Schemes have been devised in accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014 read with SEBI (Share Based Employee Benefits and Sweat Equity) Regulations, 2021 as amended from time to time.

The Option grants to employees under the schemes are approved by the Nomination and Remuneration Committee in terms of Compensation Policy of the Bank,

as part of Annual Performance Review of employee''s performance and at the time of hiring. Several factors including scale, designation, performance, grades, period of service, criticality of role and their contribution for the Bank''s overall performance is taken into consideration for deciding number of options to be granted to the employees.

Presently, following are the Employee Stock Option Schemes:

• Employee Stock Option Scheme 2015 - Plan A (ESOP 2015 - Plan A)

• Employee Stock Option Scheme 2015 - Plan B (ESOP 2015 - Plan B)

• Employee Stock Option Scheme 2016 - (ESOP 2016)

• Employee Stock Option Scheme 2018 - (ESOP 2018)

• Employee Stock Option Scheme 2020 - (ESOP 2020)

The details of vesting of various schemes are as follows:
ESOP Scheme & Plan	Vesting Period			% Of vesting of options
ESOP 2015 - Plan A	1 year from the date of grant or at the time of IPO whichever is later				20%
	Expiry of 1 year from 1 st vesting				30%
	Expiry of 2 years from 1 st vesting				50%
	Total				100%
ESOP 2015 - Plan B	1 year from the date of grant or at the time of IPO whichever is later				20%
	Expiry of 1 year from 1 st vesting				30%
	Expiry of 2 years from 1 st vesting				50%
	Total				100%
ESOP 2016	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options				100%
ESOP 2018	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options				100%
ESOP 2020	Options granted under this scheme would vest after one year but not later than six years from the date of grant of options				100%
Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018, and ESOP 2020. The term of vesting is also mentioned as per terms of grant approved by NRC in the grant letter issued to employees.
The Brief Details of Existing ESOP Schemes as on 31st March 2022 is given below:
Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016	ESOP Scheme 2018	ESOP Scheme 2020
Date of Shareholders Approval 31-Aug-2015		31-Aug-2015	10-Oct-2016	07-Aug-2018	23-Dec-2020
Total Number of Options approved 38,36,058		49,33,194	21,00,000	49,33,200	50,00,000
Total Number of options outstanding at the Beginning 1,66,036 of the period@		11,26,727	14,38,280	42,31,257	1,17,177
Total No. of Options granted (during FY 2021-22) 0		10,000	81,750	0	16,05,213
The Pricing Formula	'' 10.11 per share	'' 33.37 per share	Market price linked#	Market price linked	Market price linked
Options Vested (during FY 2021-22)@ 0		2,973	4,26,672	11,25,061	20,596
Options Exercised (during FY 2021-22) 48,036		11,14,727	3,30,259	11,92,319	1,300
Total No of shares arising as a result of exercise of 48,036 option		11,14,727	3,30,259	11,92,319	1,300

Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016	ESOP Scheme 2018	ESOP Scheme 2020
Options lapsed/ Forfeited (during FY 2021-22) (Available for re-issue)@	0	0	85,632	1,54,598	97,395
Total No. of options exercisable at the end of the year@	1,18,000	2,400	2,75,447	5,80,678	19,296
Total No. of options outstanding at the end of the year@	1,18,000	22,000	11,04,139	28,84,340	16,23,695
Variation in terms of options		No Change during the FY 2021-22
Money realised by exercise of Options (during FY 2021-22) (in '')	4,85,644	3,71,98,440	8,45,33,090	78,15,58,849	10,28,300
Total No of Options granted to KMPs		Please refer Note 1
Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year	Nil	Nil	Nil	Nil	Nil
Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant	Nil	Nil	Nil	Nil	Nil
Diluted Earnings Per Share (EPS) of the Company after considering the effect of potential equity shares on account of exercise of Options			Refer Note 2
Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS			Refer Note 2
Weighted average share/exercise price of the shares exercised during the year (in '')	10.11	33.37	255.96#	655.49*	791
Weighted average fair values of the outstanding options (in '')	Please refer point no. 25 of B. Other Disclosures of Schedule 18 of Notes to accounts to Audited Financial Results for FY 2021-22

#Pricing for ESOP Scheme 2016 was changed from fixed price of'' 140 to market linked price with the approval of shareholders obtained in the Annual General Meeting held on 19^th July 2019. 2,49,464 ESOPs were exercised, and equity shares were allotted at the exercise price of'' 140 each, 80,795 ESOPs were exercised, and equity shares were allotted at the exercise price of'' 614 each under ESOP Scheme 2016.

*500 ESOPs were exercised and equity shares were allotted at the exercise price of'' 589 each, 30,164 ESOPs were exercised and equity shares were allotted at the exercise price of'' 614 each, 592 ESOPs were exercised and equity shares were allotted at the exercise Price of '' 622 each, 2,44,080 ESOPs were exercised and equity shares were allotted at the exercise Price of'' 630 each, 26,623 ESOPs were exercised and equity shares were allotted at the exercise price of'' 643 each, 8,81,202 ESOPs were exercised and equity shares were allotted at the exercise price of '' 664 each, 4,680 ESOPs were exercised and equity shares were allotted at the exercise price of '' 668 each and 4,478 ESOPs were exercised and equity shares were allotted at the exercise price of '' 724 each under ESOP Scheme 2018 and 1,300 ESOPs were exercised and equity shares were allotted at the exercise price of '' 791 each under ESOP Scheme 2020.

@In terms of SEBI circular dated 15^th June 2021 regarding relaxation from the requirement of minimum vesting period in case of death of employee(s) and provisions of the SEBI (Share Based Employee Benefit and Sweat Equity) Regulations, 2021, options granted to employees who have demised, have been vested in the legal heirs or nominees of the deceased employees immediately. The numbers given above include the options vested in legal heirs/nominees of deceased employees.

Note 1

Following are the total number of stock options that have been granted to Key Management Personnel (KMP) during the financial year ended 31^st March 2022:

S Name of Official No.	Designations	No. of ESOPs granted in ESOP Scheme 2020
1 Mr. Uttam Tibrewal	Whole Time Director (Executive Director)	8,585
2 Mr. Vimal Jain	Chief Financial Officer	14,357
3 Mr. Manmohan Parnami	Company Secretary	3,808
Total		26,750

Note 2

The Securities and Exchange Board of India (SEBI) has prescribed two methods to account for stock grants; namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options grants to the employees. The Bank also calculates the fair value of options at the time of grant, using Black- Scholes pricing model with the following assumptions:

Particulars	31st March 2022
Risk free interest rate		5.98% - 6.79%
Expected life		3 years - 5.5 years
Expected volatility		42.60% - 43.39%
Expected dividends		0.10%
The Bank measures the cost of ESOP using the intrinsic value method. Had the Bank used the fair value model to determine compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below: ('' in Cr.)
Particulars	Year ended 31st March 2022	Year ended 31st March 2021
Profit after tax as reported	1,129.83	1,170.68
Add: ESOP cost using intrinsic value method (net of tax)	13.76	57.46
Less: ESOP cost using fair value method (net of tax)	48.53	92.81
Profit after tax (adjusted)	1,095.06	1,135.33
Earnings Per Share (in '')
Basic
- As reported	36.06	38.19
- Adjusted for ESOP cost using fair value method	34.95	37.04
Diluted
- As reported	35.69	37.86
- Adjusted for ESOP cost using fair value method	34.59	36.72
Particulars	As on 31st March 2022	As on 31st March 2021
Stock options outstanding (gross)	203.94	188.76
Deferred compensation cost outstanding	26.16	29.35
Stock options outstanding (net)	177.78	159.41

In accordance with SEBI circular no. CIR/CFD/POLICY CELL/2/2015 dated 16^th June 2015 necessary disclosures are made in Schedule 18 - Notes forming part of the financial statements for FY 2021-22 and are included in the annual report and also disclosed on the website of the Bank at https://www.aubank.in/reports/disclosures.

K. Detail of Directors and Key Managerial Personnel

During the FY 2021-22 and upto the date of this report, following changes took place in the Board of Directors and Key Managerial Personnel of the Bank:

1. Mr. Harun Rasid Khan (DIN: 07456806) was appointed as an Additional Director (Independent) for a period of 3 years with effect from 28^th December 2021 to 27^th December 2024. Further, shareholders vide resolution passed through postal ballot approved his appointment as Independent Director (Non-Executive) on 9^th March 2022.

Mr. Harun Rasid Khan has a vast experience of over four decades in the areas of Banking & Finance, Payment and Settlement systems, Economics, Financial Markets and has handled leadership positions as the Deputy Governor & the Executive Director at the Reserve Bank of India. The Board of Directors of the Bank opined that Mr. Harun Rasid Khan is a person of integrity and has relevant knowledge & experience, skills, and expertise for appointment as Independent Director of the Bank.

2. Mr. Kamlesh Shivji Vikamsey (DIN: 00059620) was appointed as Additional Director (Independent) for a period of 3 years with effect from 25^th April 2022 to 24^th April 2025. Further, shareholders vide resolution passed through postal ballot approved his appointment as Independent Director (Non-Executive) on 29^th May 2022.

Mr. Kamlesh Shivji Vikamsey is fellow member of Institute of Chartered Accountants of India, and he holds bachelor''s degree in commerce from the University of Mumbai. He has vast experience of over 35 years in the areas of Auditing, Taxation, Corporate & Personal Advisory Services, and Business & Management Consulting Services. He also held leadership & directorship positions in various Companies/Institutions nationally & globally. The Board of Directors of the Bank opined that Mr. Kamlesh Shivji Vikamsey is a person of integrity and has relevant knowledge & experience, skills, and expertise for appointment as Independent Director of the Bank.

3. With the approval of shareholders and RBI, Mr. Raj Vikash Verma has been re-appointed as Part-time Chairman of the Bank for a period of 2 (two) years w.e.f. 8^th April 2021. Mr. Raj Vikash Verma''s vast and diversified experience of over ~40 years in fields of Finance, Economics, Banking, Regulatory Compliances, Housing & Mortgage Finance and the Real Estate Sector shall help the Bank to build a strong foundation on which it can profitably and sustainably scale its operations. Further, his regulatory knowledge, vast experience shall benefit the Bank with enhanced focus on the qualitative and quantitative matters that should be looked by the Board and Committees of Board.

4. On the recommendation of Nomination & Remuneration Committee, the Board of Directors in their meeting held on 28^th January 2022 have approved the re-appointment of Mr. Sanjay Agarwal, Managing Director & CEO and Mr. Uttam Tibrewal, Whole Time Director, for a period of Four (4) years, with effect from 19^th April 2022 up to 18^th April 2026. Further, shareholders vide resolution passed through postal ballot has approved their appointment on 9^th March 2022.

5. In accordance with the provisions of section 152 of Companies Act, 2013, Mr. Uttam Tibrewal, Whole Time Director retired by rotation at the previous Annual General Meeting and shareholders approved his re-appointment. Further, Mr. Sanjay Agarwal, Managing Director & CEO of the Bank shall retire by rotation at the ensuing Annual General Meeting and being eligible for reappointment, offers himself for re-appointment.

6. Re-appointment of Mr. Mankal Shankar Sriram, Independent Director and Mr. Pushpinder Singh, Independent Director for a second term for a period of 3 years commencing from 21^st October

2022 and Mr. Kannan Gopalaraghavan Vellur, Independent Director for a second term for a period of 3 years commencing from 22^nd January

2023 has been approved by the Board of Directors

in their meeting held on 20^th July 2022 after taking into the consideration the balance of skills, knowledge, qualifications, experience and ‘fit and proper assessment'' carried out by the Nomination & Remuneration Committee & Board. Further, their reappointment is subject to approval of shareholders at the ensuing Annual General Meeting.

Mr. M S Sriram has vast experience in financial inclusion, microfinance, understanding of rural economy, co-operatives, agriculture and agriculture Finance and his continuation on Board shall further strengthen the Bank''s ability to increase credit flow at the bottom of the pyramid and further deepen the impact of its financial & digital inclusion initiatives.

Mr. Pushpinder Singh''s expertise in Banking technology will greatly aid the Bank''s aspiration of becoming customer-centric, secured and technology driven Bank in the rapidly changing digital-banking infrastructure, with emergence of newer technologies and fast paced developments around digital & payments eco systems.

Mr. Kannan is a Banking industry veteran with over 40 years of experience in Banking & Financial Services (BFSI) sector and he is acknowledged an authority in credit, treasury, business management, risk, and investment management in the Banking sector.

7. Mr. Deepak Jain, Chief Operating Officer has been designated and appointed as Chief Risk Officer (“CRO”) for a period of 3 (three) years from 1^st September 2021, by the Board on the recommendation of Risk Management Committee and Nomination and Remuneration Committee and in view of his appointment as CRO, he demitted the office of Chief Operating Officer w.e.f. 31^st August 2021.

During the year, no other change took place in the Board of Directors or in Key Managerial Personnel of the Bank. The composition of the Board of Directors and Key Managerial Personnel of the Bank was compliant with the applicable regulatory norms.

Further, none of the directors have been debarred from holding office as director by virtue of any order of the SEBI or any other authority.

L. Code of Conduct for Directors and SMPs

In accordance with Regulation 17(5) of SEBI Listing Regulations, the Bank has adopted the Code of Conduct for the Directors and Senior Management Personnel (SMPs). The code of conduct sets forth the guiding principles for orderly & fair conduct by Board Directors and SMPs. All Board members and SMPs have affirmed the compliance of the code for the FY 2021-22 and a declaration to this effect signed by the MD & CEO

forms part of Corporate Governance Report annexed with Board''s Report as Annexure - I. The Bank''s Code of Conduct for Directors and SMPs is disclosed on the website of the Bank at https://www.aubank.in/investors/ secretarial-policies.

M. Number of Meetings of Board

During the period under review, fourteen (14) Board meetings were held and the gap between the said meetings did not exceed the limit of 120 days as prescribed under the provisions of Companies Act, 2013, and Rules made thereunder, Secretarial Standard-I Issued by Institute of Company Secretaries of India and provisions of SEBI Listing Regulations. The dates of Board meetings and details of attendance of each director have been disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

N. Committees of the Board

The Bank believes that Board Committees are crucial to promote best Corporate Governance practices within the Bank. Accordingly, the Bank has constituted various Board Committees to improve the Board efficiency and to support in decision making. The constitution of these Committees is in acquiescence of provisions of the Companies Act, 2013, and relevant rules made thereunder, SEBI Listing Regulations, the Banking Regulation Act, 1949, RBI Circular & Guidelines, Articles of Association of the Bank and other guidelines issued from time to time. The details of the Board Committees of the Bank including number & date of meetings of Committees held during the FY 2021-22 and attendance thereat are disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

O. Meeting of Independent Directors

In terms of Schedule IV of the Companies Act, 2013, the Independent Directors are required to hold at least one meeting in a financial year without the presence of Non- Independent Directors and Members of the Management, to review the matters as set out therein.

During the Financial Year 2021-22, the Independent Directors met on 28^th April 2021, inter alia to review the matters statutorily prescribed under the Companies Act, 2013 and SEBI Listing Regulations.

P. Familiarisation Programme for Independent Directors

In accordance with Regulation 25(7) of SEBI Listing Regulations and RBI guidelines, the Bank has organised various familiarisation programme during FY 2021-22 for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank''s business, and its operations for better understanding of their roles, rights and responsibilities for effective contribution in growth of the Bank.

The Details of familiarisation programme and other training programme for Independent Directors during FY 2021-22 is disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I and on the website of the Bank under https://www.aubank. in/investors/secretarial-policies.

Q. Declaration of Independence

In accordance with provisions of sections 149(6) and 149(7) of the Companies Act, 2013, Schedule IV and Regulation 16(1)(b) and 25(8) of the SEBI Listing Regulations, all the Independent Directors have submitted the declaration of independence, confirming that they meet the criteria of independence. In terms of Regulation 25 of SEBI Listing Regulations, the Board of Directors has examined the veracity of declarations submitted by respective Independent Director. Further, in view of change in definition of Independent Directors as per Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) (Third Amendment) Regulations, 2021, all the Independent Directors of the Bank have furnished the declaration of independence as per revised format.

The Independent Directors have complied with the Code applicable for Independent Directors as stipulated under schedule IV of the Companies Act, 2013. Further, all the Independent Directors have registered in the Independent Directors Databank and have paid the relevant fees. All the compliances of rule 6(1) & (2) of the Companies (Appointment and Qualification of Directors) Rules, 2014 have been complied with.

R. Compensation Policy for appointment and remuneration of Director''s, Key Managerial Personnel and Senior Management Personnel

In accordance with the provisions of section 178(3) of the Companies Act, 2013 read with relevant rules made thereunder, SEBI Listing Regulations, RBI guidelines and on the recommendation of the Nomination and Remuneration Committee, the Bank has formulated and adopted a comprehensive compensation policy for appointment and remuneration of its Directors, Key Managerial Personnel, Senior Management Personnel, Material Risk Takers (MRTs) and Control Function Staff.

The proposal for appointment of Directors is put up to the Nomination and Remuneration Committee (“NRC”) along with requisite documents/disclosures received in the prescribed format for his/her proposed candidature as a director. The NRC evaluates the balance of skills, knowledge, qualifications, experience and carries out the ‘fit and proper assessment'' covering the review of the veracity of documents required for the post and if deems fit, the same is recommended for appointment to Board of Directors for their consideration and approval.

Chartered Accountants, Joint Statutory Auditors of the Bank, in their report on the financial statements for the FY 2021-22. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

The Statutory Auditors have confirmed their eligibility under Section 141 of the Companies Act, 2013 and as per the guidelines issued by RBI from time to time. Further, as required under the relevant provisions of SEBI Listing Regulations, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and they hold a valid certificate issued by the Peer Review Board of ICAI.

U. Secretarial Auditors and their Report

In accordance with the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of SEBI Listing Regulations and upon recommendation of the Audit Committee, the Bank has appointed M/s. V.M. & Associates, Company Secretaries (Registration No. P1984RJ039200) to undertake the Secretarial Audit of the Bank for the financial year ended 31^st March 2022.

During the year under review, pursuant to provisions of the Section 143(12) of the Companies Act, 2013, no frauds have been reported by the Secretarial Auditors, and there were no observations or qualifications made by the Secretarial Auditors in their Report. The Secretarial Audit Report for FY 2021-22 in form MR-3 is annexed with Board''s Report as Annexure-IV.

V. Particulars of Loans, Guarantees and Investments

In accordance with the provisions of Section 186(11) of Companies Act, 2013, the provisions of Section 186 of the Companies Act, 2013, except sub-section (1), do not apply to loans made, guarantees given or securities provided or acquisition of securities by a Banking company in the ordinary course of business and are exempted from disclosure requirement in the Annual Report. Hence, there is no disclosure being made herein in this regard.

W. Related Party Transactions

Your Bank has in place a Board approved Policy on Related Party Transactions & Materiality, which provide for the process, procedure and steps required for approval reporting and disclosure of related party transactions.

The Audit Committee of the Board has given omnibus approval for related party transactions of repetitive nature and entered in the Ordinary Course of Business.

During the FY 2021-22, as a part of Annual review, the Board of Directors reviewed the Compensation Policy and the same is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

The terms of reference of the Nomination and Remuneration Committee and Compensation Policy have been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

S. Evaluation of the Directors, the Board and Committees

In accordance with the provisions of Section 149(8) read with Schedule IV, Section 178(2), Section 134(3)(p) of the Companies Act, 2013, Regulation 16 and other applicable Regulations of SEBI Listing Regulations, and in consonance with Guidance Note on Board Evaluation issued by the SEBI the Board assesses its own performance with the aim to improve the effectiveness of the Board and the Committees as part of annual performance evaluation process.

The description and process of annual performance evaluation have been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

T. Statutory Auditors and their Report

In accordance with the ‘Guidelines for Appointment of Statutory Central Auditors (SCAs)/Statutory Auditors (SAs) of Commercial Banks (excluding RRBs), UCBs and NBFCs (including HFCs)'' dated 27^th April 2021 (‘RBI Guidelines'') issued by RBI, Banks shall appoint the Statutory Auditors for a continuous period of three (3) years, subject to the firms satisfying the eligibility norms each year and the approval of RBI on an annual basis.

As the tenure of the M/s. S. R. Batliboi & Associates LLP has ended at the conclusion of 26^th Annual General Meeting held on 17^th August 2021, M/s Deloitte Haskins and Sells, Chartered Accountants (Registration no. 117365W) and M/s G. M. Kapadia & Co., Chartered Accountants (Registration no. 104767W) were appointed as the Joint Statutory Auditors (SAs) of the Bank for a period of three (3) years from the conclusion of 26^th Annual General Meeting until the conclusion of 29^th Annual General Meeting of the Bank to be held in the calendar year 2024, at the Annual General Meeting held on 17^th August 2021 subject to the approval of the RBI on annual basis. Further, Reserve Bank of India has approved the appointment of the above audit firms as Joint Statutory Auditors (SAs) of the Bank for FY 2021-22 & and thereafter for FY 202223 Annually.

There are no qualifications, reservations or adverse remarks made by M/s Deloitte Haskins and Sells, Chartered Accountants and M/s G. M. Kapadia & Co.,

During the FY 2021-22, all transactions with related parties, were in the ordinary course of the business and on an arm''s length basis. Further, no material related party transactions entered by the Bank during the FY 2021-22. The transactions entered by the Bank with related parties were reported to the Audit Committee.

Hence, pursuant to Section 134(3)(h) of the Companies Act, 2013 read with Rule 8 (2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the financial year ended 31^st March 2022.

In line with the requirements of the Companies Act, 2013 and amendment to the SEBI Listing Regulations, your Bank has amended the Policy on Related Party Transactions & Materiality as approved by the Board and the same is disclosed on the website of the Bank at https://www. aubank.in/investors/secretarial-policies.

X. Material Changes and Commitments, if any, affecting the Financial Position of the Bank

There are no material changes and commitments affecting the financial position of the Bank which have occurred between the end of the financial year i.e. 31^st March 2022 upto the date of this Report.

Y. Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

Your Bank is committed for maintaining a balance between growth and optimal utilisation of resources and focused towards undertaking initiatives for absorption of technology with conservation of energy.

(a) Conservation of Energy

Being a responsible institution, your Bank is committed towards saving energy and performing business operations in a sustainable manner. Your Bank has undertaken several energy conservation initiatives & measures by upgrading its systems and by implementing technology innovations in its IT Systems.

Details of the quantity of energy saved by the Bank for few of the IT equipments is given below:

Category	Count of Asset	Total Savings (in units)
Desktop	10,009	25,94,333
Laptop	11,709	12,13,989
Printers	1,983	23,98,637
Wep printers	1,191	14,40,634
Total		76,47,593

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipment''s

Your Bank strives to employ the best practices of Energy Conservation in Facility Management through robust planning, administration, and maintenance and regular communication and awareness among employees around these measures at Bank level. Your Bank uses energy efficient LED lights in branches, offices and uses maximum of natural light in the office premises during the daytime.

Your Bank also makes use of IT hardware that meets the Environmental Safeguard Agency''s (EPA) Power Star Advisory to minimise electricity consumption in the Bank. This optimisation of resources also extends to machines such as workstations, desktops, laptops, and notebooks. Additionally, your Bank also uses machines with multicore processors that elevate a machine''s performance without drawing on too much energy, which in turn results in higher efficiency and performance enhancement.

Your Bank is also driving changes in digital Banking in the sector through the effective use of Paperless for TwoWheeler Lending Process. To achieve this digitisation, the Bank uses a Tab-based system thereby eliminating the need of paper for documentation of any kind. Your Bank has also introduced Instant Account Opening facility through WhatsApp and other digital channels. This has helped to adopt a smooth, user- friendly approach of account opening. Bank is further focusing & making long term tech investments in Video Banking technologies to provide ease of Banking, where customers'' time can be further saved by connecting through Video Banking in place of visiting at Branches/offices, thereby further saving fuel expenses. Such digital initiatives have gone a long way to help your Bank reduce the carbon footprint and moving closer to its goal of digital excellence & automation.

Using power supervision technology and guidelines

Your Bank uses devices with the latest Operating System that work on Advanced Settings Power Use Interface (ACPI) to increase computational efficiency and reduce energy consumption. Using a machine in the powersaving configuration means that it will automatically switch to energy saving mode once left idle for certain amount of time.

Using Cloud based technology and virtualised info center

Your Bank strives to channelise its efforts and investment towards infrastructure development in the digital space. Your Bank makes use of virtual machines and cloud-based technologies to create a virtual ecosystem.

This not only reduces dependency on physical servers thereby reducing operational wattage and space, new, energy efficient, reliable, and vastly advanced cloud-based systems are put into place to enhance the user experience.

Recycling systems and supplies

Your Bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards. The Bank also employs a coherent system of recycling slightly older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, the Bank successfully reduces the demand for new desktops and laptops even with the growing workforce.

Scrap Disposal

There is limited scope for Scrap build up & disposal as the Bank is into Financial Services Space. Further, in respect IT Assets, the same were disposed through E-Waste vendor and details are covered in the Business Responsibility and Sustainability Report FY 2021-22 annexed with Board''s Report as Annexure-V.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

Your Bank is adopting various strategies to enhance its positive impact on the absorption of new technology. The digitisation of the Bank''s products and services has helped to make it more convenient for customers and helped to reduce the quantum of resources consumed in banking operations. Bank implemented managed print services (MPS) for PAN INDIA Banking operations. Highly efficient use of technology resulting in less pollution and waste of resources i.e. ‘Reuse, Recycle and Reduce waste''. All MFPs are managed through software which helps in saving time, improve efficiency, reduce costs, save money, improve productivity, reduce capital expenditure, improve cashflow, more agile and helps in security of information.

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

Through the advent of digital banking and mobile based initiatives, your Bank has been able to not only enrich the customer experience, but also provide cost effective products & services by focusing on bringing down the transaction & service cost. Your Bank also makes use of efficient end point devices and IT Hardware that makes optimal electric consumption while providing high performance.

III) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a) The details of technology imported: Nil

b) The year of import: Nil

c) Whether the technology been fully absorbed: Nil

d) I f not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV) Expenditure incurred on Research and Development

Since financial services is being primarily covered under Service Sector, the details of this clause are not applicable to the Bank.

(c) Foreign Exchange Earnings and Outgo

During the financial year ended 31^st March 2022, there were no foreign exchange earnings and the foreign exchange outgo was '' 6.18 crore.

Z. Risk Management

Over quite some time, the finance industry witnessed significant transformations due to advancements in technologies, business model transformations, changing regulatory standards, and many other external and internal factors. Risk is the most critical element for the Bank and in the Banking industry this element became even more critical considering the Bank being custodian of public deposits. The nature of Risk in a Banking Industry has a wide array which evolves around Credit Risk, Market & Liquidity Risk, Operational Risk, IT and Cyber Security Risk, Compliance Risk and other risks. Your Bank has adopted a multi-layered risk management process to identify, assess, monitor, and manage risks through the effective use of processes, information, and technology.

The good risk management practices of the Bank have facilitated navigating through pandemic times and its Enterprise Risk Management (ERM) framework has helped us strategically benchmark its practices across different business lines to best-in-class levels.

Your Bank has an integrated risk management function, which is independent of business functions and is entrusted with the responsibility of managing risks prudently. The risk management philosophy and approach are designed to protect depositors, customers'' and shareholders'' interests.

Risk function of the Bank takes cognisance of risk as an integral part of growth and accordingly integrates its scope in sync with the growth of the Bank. Risk function understands that growth comes with its inherent risk and

same is to be addressed adequately through adequate controls and measures.

For effective risk management across Bank, it ensures that all the officials at leadership level are suitably qualified and experienced as per industry standards, must have necessary skill sets and should remain updated as an ongoing process. Bank also arrange trainings for the officials to enhance their competencies. This helps Bank in better Risk Mitigation and Management.

Bank had developed enterprise risk model (Overall Risk Assessment Scorecard) which is designed to strengthen the Bank''s capability to identify, measure, monitor and mitigate and report all the risk on a timely as well as comprehensive manner.

Pursuant, to Regulation 21 of the SEBI Listing Regulations, the Bank has constituted a Risk Management Committee which oversees the implementation of the risk governance framework in line with the guiding principles and as mandated by the regulatory provisions, Bank has appointed a Chief Risk Officer ("CRO"), who administers the risk associated key verticals i.e. Credit Risk, Market & Liquidity Risk, Operational Risk, Fraud Risk, Information Security Risk, Compliance Risk and other Risks under the aegis of the Board approved risk management policies and in accordance with the approval and responsibility delegation matrix. The CRO has unhindered access to the Risk Management Committee of the Board and interacts regularly with the Committee Members. The CRO is primarily responsible for making decisions on risk management issues that directly impact the strategic direction of the Bank and monitor the progress of risk management activities. The details of the Risk Management Committee and its terms of reference are set out in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

The Risk Management framework is a layered structure and broadly consists of the following aspects for effective risk management across the Bank:

(a) Credit Risk Management

Risk: Credit risk arises from business operations that give rise to actual, contingent, or potential claims against any counterparty, borrower, or obligor. The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit risk within the Bank through strengthening underwriting norms, keeping close watch on asset quality trends and concentrations at individual exposures as well as at the portfolio level.

Mitigation: Credit Committee and Credit Risk & NPA Management Committee (CRNPAC) overseas and reviews the credit risk and is responsible for prudential limits on large credit exposures, asset concentration, portfolio management, loan review mechanism, risk

concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. All aspects of credit risk are governed by the Credit Risk Management Policy and other Policies. Your Bank has laid down prudential limits and caps on various aspects to control the magnitude of credit risk. Loan administration and monitoring is carried out through Portfolio Profiling, Early Warning Framework, Rapid Portfolio Review, and Annual Monitoring of High Value Customers.

Credit Risk and NPA Committee follow the guiding principles listed below:

• Ensure that a governance framework is established for an effective oversight, segregation of duties, monitoring and management of Credit Risk in the Bank.

• Ensure that the sourcing and approval of credit proposals are as per the defined strategies, systems, and processes.

• Ensure that guiding principles shall be laid down for the setting up and monitoring of the credit and credit risk appetite and limits.

• Establish standards to facilitate effective identification and assessment of credit risks in the Bank.

• Establish standards for effective measurement and monitoring of credit risk.

• Ensure adherence to the guidelines/policies related to credit, credit risk and NPA management as issued by the Reserve Bank of India (RBI) from time to time.

The Board Delegated Credit Committees submit their updates to Risk Management Committee of the Board at regular intervals.

(b) Operational Risk Management Risk: Operational Risk has been defined by the RBI as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. This definition includes Legal Risk but excludes Strategic and Reputational Risk.

Mitigation: The Bank has the Board delegated Operational Risk Management Committee (“ORMC”) to oversee implementation of the operational risk management framework across the Bank and advise on implementation of measures for risk mitigation which further reports to Risk Management Committee of the Board. The Bank follows an integrated risk approach, where operational risks and its monitoring folds into Chief Risk Officer (CRO) and ORMC. The Bank has in place a board approved Operational Risk Management Policy which includes a comprehensive Operational Risk Management Framework for documenting, assessing, and periodic monitoring of various risks and controls linked to various processes across all business verticals.

Your Bank also has Risk Containment Unit (RCU) that is guided by a Board approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to the Audit Committee and the Board and fraud cases in excess of '' 1 crore or more are specifically reported and dealt by the Special Committee for Fraud Monitoring (“SFMC”) of the Board. The Bank is continuously strengthening its systems, operational practices and processes, procedures, controls, and review mechanism so that fraud-prone areas are sanitised against internal and external breaches and by continuously monitoring that these control measures are operating effectively.

With the launch of Digital Banking, the Bank has seen significant milestones in both at customer facing technologies and internal digitisation. To ensure safe and secure transactions and improve the customer experience at the digital fronts, the Bank monitors the transactions on an ongoing basis. As your Bank prepares for the next step in the world of Digital Banking, it is confident that its technological capabilities will propel the next phase of growth in the coming years.

Your Bank has in place a comprehensive Outsourcing Risk Policy in line with RBI guidelines released on time-to-time basis keeping in view the extensive use of outsourcing by the Bank. Board shall have the ultimate responsibility for the outsourced activity. However, for ease of functioning, the powers have been delegated to the Risk Management Committee of the Board (“RMCB”) of the Board and Committee for Outsourcing of IT and Financial Services. The outsourcing policy document of the Bank lays down the framework adopted by the Bank for reviewing and approving outsourcing of services that includes plans and procedures to evaluate, assess, approve, review, control and monitor the risks and materiality of all its vendor/outsourcing activities and serve as a guidance to the Bank to adopt sound and responsive risk management practices for effective oversight, due diligence and management of risks arising from outsourcing activities.

Your Bank has in place a comprehensive Business Continuity Management (BCM) plan, policy, and procedures in place to ensure continuity of critical operations of the Bank in the event of any disaster/ incident affecting business continuity. The Bank''s business continuity Programme is developed considering the criticality of the functions performed and the systems have been designed to minimise the operational, financial, legal, and other material consequences arising from such a disaster and focus is on ensuring faster recovery of and minimising impact on the IT systems of the Bank. The Bank activated its BCP plans even before the lockdown was announced and employees started working remotely from 22^nd March 2020. This empowered us to deliver sustenance in our customer offerings and a high degree of uptime in the digital channels. Your

Bank hereby report that the Bank''s Business Continuity Management was operating effectively throughout the year.

Your Bank has responded to the COVID-19 pandemic adequately through robust Business continuity management, by promptly catering to customer and other stakeholder''s requirements without fail. The Bank make sure that the lessons learnt from the pandemic are not lost and are evolving BCP learnings on the go. Your Bank has been constantly working to simplify the business processes to become even more customer centric during these tough times. Further, Your Bank has Cyber Crisis Management Plan in place to address any disruption due to cyber events.

(c) Market Risk, Liquidity and Asset Liability Management

Risk: Market Risk for the Bank originates from investment and trading in securities, which are undertaken both for the customers and on a proprietary basis. The market risk management framework of the Bank sets benchmark for market risk exposures, the performance of portfolios visa-vis the market risk limits and comparable benchmarks, which provide guidance to optimise the risk- adjusted rate of return of the Bank''s investment portfolio. Liquidity risk refers to Bank''s inability to fund an increase in assets or withdrawal of liabilities and meet both expected and unexpected cash & collateral obligations at reasonable cost without adversely impacting its financial condition.

Mitigation: Market risk management is guided by well-defined policies, guidelines, processes and systems for the identification, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk management of its trading and investment portfolios.

The Asset Liability Management (ALM) Policy of the Bank stipulates a broad framework for liquidity risk management to ensure that the Bank is able to meet its liquidity obligations as well as to withstand a period of liquidity stress from Bank-level factors, market-wide factors, or a combination of both. The Board approved policy captures the risk appetite around the liquidity and market risk of the Bank and helps to put in place defined governance structure in consonance with the Bank''s Risk Appetite.

The Asset Liability Management Committee (ALCO) of the Bank oversees the framework for identification, measurement and management of market risk, interest rate risk and liquidity risk in the Bank and ensures compliance with established internal and regulatory prudential limits and operate within the approved risk appetite by the Board.

(d) IT Risk Management

Risk: Your Bank is growing with digitisation and aimed at leveraging digital technology to provide a best-in-class experience for its customers while simultaneously enhancing productivity and improve on IT risk management. Risk of cyber-attacks on your Bank''s systems arises among others from computer viruses, malicious or destructive code, phishing attacks, denial of service or information, application vulnerability and other security breaches resulting in disruption of its services or theft or leak of sensitive internal data or customer information.

Mitigation: Your Bank has established a robust information and cyber security framework for securing its IT infrastructure and systems. IT Steering Committee and Information Security Risk Management committee reports to Board level IT Strategy & Information Systems Security Committee. This committee reviews and monitors IT security infrastructure and vigilance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer ("CISO") is responsible for monitoring the information security risks covering all aspects of data security for the Bank who reports to Chief Risk Officer (CRO). Cyber Security Operation Center (CSOC) with qualified professionals is reporting to CISO for monitoring of real-time cyber security glitches. Your Bank has also deployed advanced controls at various layers to ensure that cyber security risk in minimised.

Further, your Bank has a cyber security management framework, a combination of technologies, processes and practices designed to protect networks, computers, programmes and data from cyber-attacks, damage, or unauthorised access.

(e) Reputation Risk Management

Risk: Reputation risk can negatively impact the Bank''s ability to attract or retain customers and expose it to litigation and regulatory action.

Mitigation: Your Bank communicates with its stakeholders regularly through appropriate engagement mechanisms to address stakeholder expectations and assuage their concerns, if any. There is Zero tolerance for knowingly engaging in any activities that are not consistent with values, Code of Conduct, or policies of the Bank.

(f) Compliance Risk Management

Risk: The adoption of effective KYC/AML standards is an essential part of Banks'' Risk Management practices. Banks with inadequate Compliance (AML/KYC) risk management programmes may be subject to significant risks, especially legal and reputational risk. Sound Compliance (AML/KYC) policies and procedures not only contribute to a Bank''s overall safety and soundness and also protect the integrity of the banking system by reducing the likelihood of Banks becoming vehicles for money laundering, terrorist financing and other unlawful

activities. Recent initiatives to reinforce actions against terrorism in particular have underlined the importance of Banks'' ability to monitor their customers wherever they conduct business.

Mitigation: The Bank has a dedicated Compliance Department that continuously monitors new developments and updates the Bank''s Board and senior management about its implications. The Bank has a strong compliance culture and have well- articulated policies with regard to conduct, Vigil Mechanism, AML& KYC, and engagement with third party vendors. Compliance & risk department updated status of compliance & controls to Audit Committee Board (ACB) on regular basis to review and advise on implementation of measures for AML /KYC risk mitigation along with effective Transaction monitoring.

AA. Corporate Social Responsibility

The CSR philosophy of the Bank is to make meaningful contribution by empowering socially, economically, financially, and physically excluded, disadvantaged and challenged communities through CSR initiatives and thereby helping them to become self-reliant and achieve sustainable and inclusive development and growth. Bank is focusing on creating opportunities for enhancing livelihood, opportunities, improving quality of education and skills development, creating awareness amongst public at large on topics of financial & digital literacy, sports health, hygiene and preventive health care etc.

Bank is assiduously committed for ensuring the social wellbeing of the communities in the vicinity of Bank''s business operations through CSR initiatives that are aligned with the key priority areas identified for CSR initiatives.

Further, In compliance of the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Bank has a duly constituted CSR Committee which defines the scope of the CSR Projects for the Bank and its implementation as per Board approved CSR policy.

Pursuant to CSR provisions of the Companies Act, 2013, and rules made thereunder, the Bank has transferred '' 8.53 Crore in "Unspent Corporate Social Responsibility Account" (Amount of '' 8.22 Crore transferred in unspent CSR Account for FY 2021-22 and Balance of '' 0.31 Crore in unspent CSR Account of FY 2020-21) for carrying out expenditure on its ongoing CSR Projects and such amount shall be spent in Compliance of CSR Policy towards CSR obligation as per their respective implementation schedule.

The terms of reference of CSR Committee have been disclosed in the Corporate Governance Report and a detailed breakup of expenditure carried out and other

details related to CSR activities has been disclosed in the Corporate Social Responsibility Report annexed with Board''s Report as Annexure-II. The CSR Policy is disclosed on the website of the Bank at https://www.aubank.in/ investors/secretarial-policies.

AB. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

In accordance with the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013, your Bank has in place a Policy on Prevention and Redressal against Sexual Harassment.

The disclosure required under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 is provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

AC. Subsidiary & Associate Companies

The Bank does not have any subsidiary or associate. Hence, the details of this clause are not applicable to the Bank. Accordingly, the Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

AD. Material Orders Passed by Regulators or Courts or Tribunals

During the period under review, no material orders have been passed by the Regulators/Courts/Tribunals which would impact the going concern status of the Bank and its future operations.

AE. Internal Financial Control & their Adequacy

Your Bank has an effective internal financial control system in line with the risk appetite of the Bank and aligned to the scale, size, and complexity of its operations. The scope and authority of the risk based internal audit function is defined in the Internal Audit Policy of the Bank which is duly approved by the Board.

The audit function essentially validates the compliances of Bank''s processes and operations with regulatory guidelines, accounting procedures and Bank''s own internal rules and guidelines.

The internal audit function provides independent assurance to the Board of Directors and Audit Committee on the quality and effectiveness of the Bank''s internal control, risk management and governance systems and processes.

Proper internal controls were in place and operating effectively for the period under review. Further, in compliance with the requirements of the Companies Act, 2013, joint statutory auditors have issued an opinion

with respect to the adequacy of the internal controls over financial reporting of the Bank and the operating effectiveness of such controls, details of which may be referred to in the Auditor''s Report attached to the audited financial statements of FY 2021-22.

AF. Cost Records

The provisions for maintenance of cost records as specified by the Central Government under section 148(1) of the Companies Act, 2013, are not applicable to the Bank.

AG. Corporate Governance

The Bank''s activities are carried out in accordance with good corporate governance practices and the Bank is constantly striving to make them better with the time. The Bank believes that Governance framework and good practices helps in creating right culture and in turn enhances long-term sustainable value for all its stakeholders. Bank adheres to the Corporate Governance requirements set out by the SEBI.

The Corporate Governance Report for FY 2021 -22 along with certificate issued by M/s V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under the SEBI Listing Regulations, is annexed with Board''s Report as Annexure-I.

AH. Business Responsibility and Sustainability Report

In accordance with the amendment in Regulation 34(2) (f) of the SEBI Listing Regulations, vide Gazette notification no. SEBI/LAD-NRO/GN/2021/22 dated 05^th May 2021, your Bank has adopted the Business Responsibility and Sustainability Report ("BRSR") voluntarily for FY 2021-22 to provide enhanced disclosure on ESG practices and priorities of the Bank. The BRSR is annexed with Board''s Report as Annexure-V and disclosed on the website of the Bank at https://www.aubank.in/reports.

AI. Social Environmental and Management System

The Social Environmental and Management System (SEMS) is a set of policies and procedures that helps in setting guiding principles for identifying and managing financial institution''s exposure to the environmental and social risks of its customers. The Bank endeavors to benchmark itself with the best of corporates in India and continued its focus to implement best Environmental, Social and Governance (ESG) practices in its operations with responsible lending approach. The procedures and decision-making process of the SEMS are systematically incorporated at each stage of appraisal and monitoring. Awareness is also created among vendors and customers to comply with applicable social and environmental laws to inculcate right practices in their operations.

AJ. Particulars of Employee Remuneration

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, is annexed with Board''s Report as Annexure-III.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, as amended is given in an annexure and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the annual report is being sent to the Members excluding the aforesaid annexure. the annexure is available for inspection upto the date of Annual General Meeting at the registered office of the Bank and any Member interested in obtaining a copy of the Annexure may write to the Company Secretary of the Bank at [email protected].

AK. Management Discussion and Analysis

The Management Discussion and Analysis Report as required by Regulation 34(2)(e) of the SEBI Listing Regulations for the FY 2021-22 is covered in a separate section forming part of the Annual Report.

AL. Annual Return

In accordance with the provisions of Section 134(3)(a) read with Section 92(3) of the Companies Act, 2013, the Annual Return for the financial year ended on 31^st March 2022 in the prescribed form MGT-7 is disclosed on the website of the Bank at https://www.aubank.in/reports.

AM. Whistle Blower Policy & Vigil Mechanism

In accordance with the provisions of Section 177(9) of the Companies Act, 2013, Rules made thereunder and Regulation 4(2)(d) and Regulation 22 of the SEBI Listing Regulations, the Bank has implemented Whistle Blower Policy & Vigil Mechanism which is disclosed on the website of the Bank at https://www.aubank.in/investors/ secretarial-policies.

The details have been provided in Corporate Governance Report annexed with Board''s Report as Annexure - I.

AN. Anti-bribery and Anti-corruption Policy

The Bank follows a ‘zero-tolerance approach'' towards bribery, corruption and other wrong practices. The Bank is resolute to act professionally, fairly, ethically and with integrity in its dealings and operations. The Bank has a Board approved Anti-Bribery and Anti-Corruption Policy laying down the principles for carrying out Banking business in an honest and ethical manner. The said policy

is disclosed on the website of the Bank at https://www. aubank.in/reports.

AO. Compliance of Secretarial Standard issued by ICSI

The Bank has complied with the provisions of all the applicable Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI) as notified from time to time.

AP. Status of Ind AS Implementation

As per the RBI circular RBI/2015-16/315 DBR.BP.BC. No.76/21.07.001/2015-16 dated 11^th February 2016 Implementation of Indian Accounting Standards (Ind AS), The Banks are advised to follow the Indian Accounting Standards as notified under the Companies (Indian Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the Reserve Bank in this regard. The Banks in India currently prepare their financial statements as per the guidelines issued by the RBI, the Accounting Standards notified under section 133 of the Companies Act, 2013 and generally accepted accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian Accounting Standards (Ind AS), which were based on convergence with the International Financial Reporting Standards (IFRS), for scheduled commercial Banks, insurance companies and non-banking financial companies (NBFCs). In March 2019, RBI deferred the implementation of Ind AS for Banks till further notice as the recommended legislative amendments were under consideration of Government of India. The Bank had undertaken preliminary diagnostic analysis of the GAAP differences between Indian GAAP vis-a-vis Ind AS and shall proceed for ensuring the compliance as per applicable requirements and directions in this regard.

Directors'' Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, the Board of Directors hereby confirm that:

1) In the preparation of the annual accounts for the year ended 31^st March 2022, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2) We have 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 as on 31^st March 2022 and of the profit of the Bank for the year ended on that date.

3) We have 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 Bank''s assets and for preventing and detecting fraud and other irregularities.

4) We have prepared the annual accounts on a going concern basis.

5) We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

6) We have laid down internal financial controls to be followed by the Bank and ensured that such internal financial controls are adequate and were operating effectively.

Acknowledgment and Appreciation

The Board places on record its gratitude to the Government of India, various State Governments, RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, Bankers, Lenders, Debenture Trustees, Registrar & Share Transfer Agent, Vendors, Service Providers and others for their continued support and faith reposed in the Bank.

The Board would also like to thank BSE Limited, National Stock Exchange of India Ltd, National Securities Depository Limited, Central Depository Services (India) Limited and Credit Rating Agencies for their continued co- operation.

The Board hereby convey its sincere thanks to the Shareholders, Debenture/Bond Holders and esteemed customers of the Bank for their unstinted patronage.

The Board also expresses its deep appreciation for the dedication and commitment of the employees at all levels for their strong work ethics, professionalism, reinforcing customer centricity, and commendable progress made in challenging environment during the year and helping in laying a strong foundation by keeping eyes on horizon and ears to ground.

For and on behalf of the Board of Directors AU SMALL FINANCE BANK LIMITED

Sd/- Sd/-

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole Time Director

DIN: 00009526 DIN: 01024940

Date: 20^th July 2022 Date: 20^th July 2022

Place: Jaipur Place: Jaipur

CIN: L36911RJ1996PLC011381

Registered Office: 19-A, Dhuleshwar Garden,

Ajmer Road, Jaipur - 302001, Rajasthan

1

• Net Profit After Tax for FY 2021-22 increased to '' 1,129.83 crore vis-a-vis '' 600.23 crore (excluding the

2

Profit Before Tax for FY 2021-22 increased to '' 1454.07 crore vis-a-vis ''807.08 crore for FY 2020-21 (excluding the sale of investment of Aavas Financiers Limited) registering YoY growth of 80.16%.

---

Mar 31, 2021

• Capital Adequacy Ratio increased to 23.37% as on 31^st March 2021 vis-a-vis 21.99% as on 31^st March 2020.

• Deposits continue to scale driven by increasing brand awareness, granular deposits, branch expansion and improved digital offerings. CASA ratio improved to 23% in FY 2020-21 from 14% in FY 2019-20 and overall cost of funds reduced by 86 bps to 6.83% in FY 2020-21 from 7.69% in FY 2019-20.

• Gross NPA and Net NPA was 4.25% and 2.18% respectively as on 31^st March 2021 as compared to 1.68% and 0.81% respectively as on 31^st March 2020, mainly due to impact on borrowers of COVID-19 pandemic and lockdowns during FY 2020-21.

Analysis of overall performance have been covered in detail in Management Discussion & Analysis section of the Annual Report.

Business Overview

Your Bank has made significant strides in its journey over past four years to become a retail focused, tech-led, preferred, trusted Bank. During FY 2020-21, the Bank expanded distribution and opened 37 new bank branches and entered newer states and union territories viz. Jammu & Kashmir, West Bengal, Telangana, Odisha and Karnataka. The Bank has its presence in 15 states & 2 UTs, having total 744 touch points (552 bank branches, 177 BCBOs & 15 BCs) and 343 ATMs as on 31^st March 2021. The Bank is committed in bringing more unbanked and underbanked people in the ambit of formal banking channels by offering seamless banking experience.

Your Board of Directors have pleasure in presenting the Twenty-Sixth Annual Report covering Business and Operations together with the Audited Financial Statements for the financial year ended 31^st March 2021.

In a year heightened by uncertainty, Your Bank posted a credible performance, registered growth in key performance parameters.

A. Financial Performance & State of Bank''s Affairs

The summary of the financial performance of your Bank for FY 2020-21 is presented below:

(''in crore)
	YoY	For the year ended
	Growth (%)	31st March 2021	31st March 2020
Total Income	28.24%	6401.60	4,991.98
Interest Income	15.50%	4950.05	4,285.89
Other Income	105.57%	1451.55	706.09
Interest Expenditure	8.74%	2584.61	2,376.94
Operating Expenses (excluding depreciation)	16.91%	1554.06	1,329.25
Profit before Depreciation, Provisions and Tax	76.00%	2262.93	1,285.79
Depreciation	17.77%	104.37	88.62
Provision for Income Tax	20.33%	287.82	239.19
Other Provisions and Write-offs	147.20%	700.06	283.20
Net Profit	73.49%	1170.68	674.78
Appropriations
Transfer to Statutory Reserve		292.67	168.70
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961		77.00	67.00
Transfer to Capital Reserve		28.87	6.93
Transfer to Investment Fluctuation Reserve		(31.65)	90.43
Dividend (including tax/cess thereon) pertaining to previous year paid during the year		0.00	26.44
Dividend (in '') (Per Equity Share)		-	-
Surplus carried over to Balance Sheet		2691.10	1,887.32
Earnings Per Share (EPS) (in '') (After excluding Exceptional Items not annualised)
Basic (in '')		38.19	22.78
Diluted (in '')		37.86	22.32

Key Performance Indicators

Your Bank witnessed growth and consistent performance in FY 2020-21. The key financial indicators for performance

are as follows:

• Profit Before Tax for FY 2020-21 (including sale of investment of Aavas Financiers Limited) increased to ''1,458.51 crore vis-a-vis ''913.97 crore for FY 2019-20 registering YoY growth of 59.58%. Earnings Per Share (EPS) has increased to ''38.19 compared to ''22.78 last year.

• Net Profit After Tax (including sale of investment of Aavas Financiers Limited) grew by 73.49% to ''1,170.68 crore for FY 2020 - 21 vis-a-vis ''674.78 crore for FY 2019-20.

• Balance sheet size grew by 22.42% YoY to ''51,591.31 crore as on 31^st March 2021 vis-a-vis ''42,143.07 crore as on 31^st March 2020 driven by core profits, sale of investment of Aavas Financiers Limited and Capital Issuance via QIP route and assets growth.

Leveraging skills in the small ticket secured retail lending segment and focusing on retail deposits base, Bank continue to offer the wide range of products and services to cater to the evolving needs of its customers. The Bank''s customer base crossed the milestone of 2 million customers during FY 2020-21.

Despite the difficult circumstances during FY 2020-21 due to COVID-19 pandemic, there was an increase in branch deposits, higher customer traction with a 38% annual growth in aggregate deposits and CASA ratio was at 23% as of 31^st March 2021. During the year, Bank raised capital and maintained healthy capital adequacy ratio of 23.37% and Tier-I ratio at 21.53% which was well above minimum requirements of 15% and 7.5%, respectively.

Assets Under Management (AUM) of the Bank increased by 22% to ''37,712 crore as on 31^st March 2021 vis-a-vis ''30,893 crore as on 31^st March 2020, primarily driven by growth in the retail assets under management.

Your Bank is constantly innovating for making banking simple by providing integrated and tailor-made solutions for its customers with tech-led approach, faster digital adoption, at low cost, supported by robust IT, risk management, governance structure, products, processes, policies, and systems in place.

The key business developments and segment wise position of business and its operations are covered in detail under the Management Discussion & Analysis section of the Annual Report.

B. Credit Rating:

The details of credit rating obtained by the Bank in respect of debt instruments issued by it and outstanding as on 31^st March 2021 along with outlook is given here under:

Nature of Debt Instrument	Nature of Term	CRISIL	India Ratings	ICRA	CARE
Fixed Deposits*	Long Term	FAA /Stable	-	-	-
Non-Convertible Debentures	Long Term	AA- /Stable	AA-/Stable	AA- /Stable	-
Subordinated Debt/Tier II Bonds	Long Term	AA- /Stable	AA-/Stable	AA- /Stable	-
Bank Loans	Long Term	-	AA- /Stable	AA- /Stable	AA- /Stable
Certificate of Deposits	Short Term	A1	A1	-	A1

*CRISIL vide their communication dated 3^rd December 2020 has assigned “FAA /Stable” Rating for the Fixed Deposit Program of ''40,000 crore (Rupees Forty Thousand crore).

C. Dividend

The Board of Directors of the Bank have adopted a Dividend Distribution Policy in terms of Regulation 43A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Reserve Bank of India (RBI) guidelines with an objective to appropriately reward shareholders through dividends for reposing their confidence in the Bank while retaining the capital required for supporting future business growth. The Bank proposes Dividend in compliance with the Dividend Distribution Policy of the Bank and RBI guidelines in this regard. The Policy of the Bank is disclosed on the website https://www.aubank.in/investors/secretarial-policies.

The Board of Directors have not recommended any dividend for FY 2020-21, hence no record date is kept for the purpose of dividend.

D. Change in Nature of Business

During the year under review, there has been no change in the nature of business of the Bank. Further, information on the business overview and outlook and state of the affairs of the Bank is covered under the Management Discussion & Analysis section of the Annual Report.

During the year under review, Shareholders have approved the Employees Stock Option Scheme 2020 (ESOP 2020) consisting of 50,00,000 ESOPs through postal ballot on 23^rd December 2020.

Presently, following are the Employee Stock Option Schemes:

• Employee Stock Option Scheme 2015 - Plan A (ESOP 2015 - Plan A)

• Employee Stock Option Scheme 2015 - Plan B (ESOP 2015 - Plan B)

• Employee Stock Option Scheme 2016 - (ESOP 2016)

• Employee Stock Option Scheme 2018 - (ESOP 2018)

• Employee Stock Option Scheme 2020 - (ESOP 2020)

E. Transfer to Reserves

In terms of RBI regulations and other applicable regulations, the Bank has transferred the following amounts to various reserves during the financial year ended 31^st March 2021.

Transfer to Reserves
Amount transferred to	Amount ('' in crore)
Statutory Reserve	292.67
Transfer to Special Reserve U/s 36 (1) (viii)	77.00
Transfer to Capital Reserve	28.87
Transfer to Investment Fluctuation Reserve	(31.65)

The Board of Directors has not proposed to transfer any amount to general reserve for the financial year ended 31^st March 2021.

F. Transfer to the Investor Education and Protection Fund (IEPF)

In terms of Section 124 and 125 of the Companies Act, 2013 read with applicable rules as amended from time to time, dividends that are unpaid or unclaimed for a period of 7 (seven) years from the date of transfer to unpaid dividend account are required to be transferred to the IEPF. Further, the equity shares of the Bank for which dividend has not been paid or claimed for seven consecutive years or more shall also liable to be transferred to the IEPF, in accordance with the IEPF rules.

There was no such unclaimed/unpaid dividend or shares liable to be transfered to the IEPF for the year under review. The Bank has disclosed the details of unclaimed dividend amounts lying with the Bank on its website at https://www.aubank.in/investors/investor-services.

G. Deposits

Being a Banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014 read with Sections 73 and 74 of the Companies Act, 2013 and Companies (Acceptance of Deposits) Rules, 2014 are not applicable. The details of the deposits received and accepted by your Bank as a banking company have been disclosed in the financial statements for the financial year ended 31^st March 2021.

H. Inclusion In ‘Futures & Options'' Segment and Bank Nifty Index of NSE

During the year under review, the National Stock Exchange (NSE) vide its Circular no. NSE/FAOP/47161 dated 29^th January 2021, notified that future & options (F&O) contracts of AU Small Finance Bank Limited will be available for trading with effect from 26^th February 2021. Accordingly, the F&O contracts on securities of the Bank were available from said date for trading. Further, from 31^st March 2021, your Bank has also been included in Bank Nifty Index.

I. Capital Structure & Fund Raising

During the period under review, there has been no change in the authorised share capital of the Bank. The Board of Directors has allotted 30,90,063 equity shares pursuant to exercise of ESOP under different ESOP Schemes.

Further, considering significant opportunities available in retail and MSME financing and keeping in mind growth projections, the Bank decided to raise further capital from the market. Accordingly, the Board of Directors in its meeting dated 2^nd May 2020 approved the raising of equity capital up to ''2,500 crore (Rupees Two Thousand Five Hundred crore only) through Qualified Institutions Placement ("QIP"), or any other alternative permissible mode. The same was approved by the shareholders in the Annual General Meeting held on 21^st July 2020.

Accordingly, pursuant to provisions of the SEBI (Issue of Capital and Disclosure Requirements) Regulations, 2018 and the Companies Act 2013, the Bank successfully completed Qualified Institutions Placement (QIP) of 50,00,000 equity shares of face value of ''10 each at an issue price of ''1,251 per Equity Share (including a security premium of ''1,241 per Equity Share) on subscription by Qualified Institutional Buyers (QIB) aggregating to ''625.50 crore.

With respect to disclosure under Regulation 32(7A) of SEBI (Listing Obligations & Disclosure Requirements) Regulations, 2015, the funds raised through QIP issue during the year has been fully utilised for the intended object as mentioned in the private placement document and there was no deviation or variation in utilisation of the said funds.

Pursuant to the above allotments of equity shares, the total issued and paid-up equity share capital of the Bank increased by ''8.09 crore to ''312.21 crore as on 31^st March 2021 as compared to ''304.12 crore as on 31^st March 2020.

During the year, Bank has sold 49,62,374 Equity Shares at a total consideration of ''737.18 crore held in Aavas Financiers Limited, thereby making Bank well capitalised for its business expansion needs.

Further, the Bank has redeemed total Non-Convertible Debentures (NCDs) of ''481.67 crore during the FY 2020-21. Accordingly, total outstanding NCDs stood at ''1,175 crore as on 31^st March 2021 against ''1,656.67 crore as on 31^st March 2020.

J. Employee Stock Option Schemes

Your Bank has formulated different Employee Stock Option Schemes ("Schemes"), which have been duly approved by the shareholders of the Bank. The Schemes have been devised in accordance with the SEBI (Share Based Employee Benefits) Regulations, 2014 as amended from time to time.

The grants in the schemes are approved by the Nomination and Remuneration Committee based on the pre-determined criteria. In terms of Compensation Policy of the Bank, employees are granted options as part of Annual Performance Review of their performance and at the time of hiring. Several factors including scale, designation, performance, grades, period of service, criticality of role and their contribution for the Bank''s overall performance is taken into consideration for deciding number of options to be granted to the employees.

During the year under review, with the approval of shareholders at the Annual General Meeting held on 21^st July 2020, modifications have been carried out in the Employees Stock Option Scheme 2015 Plan A & B, Employees Stock Option Scheme 2016 & Employees Stock Option Scheme 2018 w.r.t. ‘Section 8 - Change in Capital Structure or Corporate Action clause''.

The details of vesting of various schemes are as follows:

ESOP Scheme & Plan Vesting Period % ^{of vesting of}

options

ESOP 2015 - Plan A 1 year from the date of grant or at the time of IPO whichever is later 20%

Expiry of 1 year from 1^st vesting 30%

Expiry of 2 years from 1^st vesting 50%

Total 100%

ESOP 2015 - Plan B 1 year from the date of grant or at the time of IPO whichever is later 20%

Expiry of 1 year from 1^st vesting 30%

Expiry of 2 years from 1^st vesting 50%

Total 100%

ESOP 2016 Options granted under this scheme would vest after one year but not later than six

years from the date of grant of options 100%

ESOP 2018 Options granted under this scheme would vest after one year but not later than six 100%

years from the date of grant of options

ESOP 2020 Options granted under this scheme would vest after one year but not later than six 100%

years from the date of grant of options

Note: Options granted may be exercised within four years from the date of first vesting of the options under ESOP 2015 and six years from the date of first vesting of the options under ESOP 2016, ESOP 2018 and ESOP 2020.

The Brief Details of Existing ESOP Schemes as on 31^st March 2021 is given below:

Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016	ESOP Scheme 2018	ESOP Scheme 2020
Date of Shareholders Approval	31st August 2015	31st August 2015	10th October 2016	07th August 2018	23rd December 2020
Total Number of Options approved	38,36,058	49,33,194	21,00,000	49,33,200	50,00,000
Total Number of Options outstanding at the Beginning of the period	14,11,428	12,43,496	7,97,337	42,83,256
Total No. of Options granted (during FY 2020-21)	38,702®	10,30,758®	9,95,960	4,48,138	1,17,177
Source of shares			Primary
The Pricing Formula	10.11	33.37	Market price linked#	Market price linked	Market price linked
Options Vested (during FY 2020-21)	2,19,202®	10,46,612®	3,62,612	9,08,691	-
Options Exercised (during FY 2020-21)	12,84,094	11,47,527	3,06,738	3,51,704	-
Total No. of shares arising as a result of exercise of Option	12,84,094	11,47,527	3,06,738	3,51,704	-

Particulars	ESOP Plan A 2015 ESOP Plan B 2015 ESOP Scheme 2016 ESOP Scheme 2018 ESOP Scheme 2020
Options lapsed/ Forfeited (during FY 2020-21) (Available for re-issue)		- 49,329 1,48,883
Total No. of Options exercisable at the end of the	1,66,036	11,14,154 1,81,774 6,67,735	-
year
Total No. of options outstanding at the end of the year	1,66,036	11,26,727 14,37,230 42,30,807	1,17,177
Variation in terms of Options	Modification in ESOP	Schemes w.r.t. ‘Change in Capital Structure or	No
	Corporate Action clause’ was done vide Shareholders approval obtained in the Annual General Meeting dated 21st July 2020 in compliance of SEBI (Share Based Employee Benefits) Regulations, 2014. There is no impact of amendment carried out in the schemes for the employees to whom
	options were granted.
Money realised on exercise of Options (during FY 2020-21) (in '')	1,29,82,190	3,82,92,976 4,29,43,320 23,05,66,640
Total No. of Options granted to Senior Management Personnel (SMPs)		Please refer Note 1
Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year	NIL	NIL NIL NIL	NIL
Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant	NIL	NIL NIL NIL	NIL
Diluted Earnings Per Share (EPS) of the Bank after considering the effect of potential equity shares on account of exercise of Options		Refer Note 2
Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS		Refer Note 2
Weighted average share/ exercise price of the shares exercised during the year (in '')	10.11	33.37 140.00 655.57*	**
Weighted average fair values	Please refer Schedule 18 and point no. 7 to Notes to accounts to
of the outstanding options (in '')		Audited Financial Results for FY 2020-21

@ Mr. Uttam Tibrewal was granted 38,702 ESOPs under ESOP Scheme 2015 - Plan A & 10,18,758 ESOPs under ESOP Scheme 2015 - Plan B on 27^th October 2017 at exercise price of ''10.11 & ''33.37 each, respectively. The RBI pursuant to its letter dated 5^th February 2021 intimated to the Bank that the ESOPs granted to Mr. Uttam Tibrewal pertains to the period prior to his appointment as the Whole-Time Director of the Bank and thus, the approval of RBI is not required, and the Board of Directors of the Bank may take appropriate decision in this regard subject to adherence to statutory norms, as applicable. The Board of Directors in its meeting held on 27^th March 2021 approved exercise of said ESOPs granted to Mr. Uttam Tibrewal and the grant date stands good from 27^th October 2017, vesting period and exercise of the said ESOPs remains unimpacted. The said ESOPs which were not included in ESOP granted during FY 2017-18, are shown under options granted, vested and exercisable in the above table.

Proposal for Variable Pay for Mr. Uttam Tibrewal, Whole-time Director in form of Performance Bonus and ESOPs for FY 2019-20 was submitted to RBI for approval. RBI vide its letter dated 3^rd May 2021 did not acceded the proposal and the proposal was reconsidered by the NRC & Board and the same is pending with RBI for its approval.

# Pricing for ESOP Scheme 2016 was changed from fixed price of ''140 to market linked price with the approval of shareholders obtained in the Annual General Meeting held on 19^th July 2019.

* 2,56,969 ESOPs were allotted at the exercise price of ''664, 10,314 ESOPs were allotted at the exercise price of ''643, 237 ESOPs were allotted at the exercise Price of ''622, 500 ESOPs were allotted at the exercise Price of ''589, 81,208 ESOPs were allotted at the exercise price of ''630, 1,576 ESOPs were allotted at the exercise price of ''668 and 900 ESOPs were allotted at the exercise price of ''724 under ESOP Scheme 2018. ** No Options were exercisable under ESOP scheme 2020 in FY 2020-21.

Note 1

Following are the total number of stock options that have been granted to Senior Management Personnel (SMPs) during the financial year ended 31^st March 2021:

S.No.	Name	Designations	No. of ESOP granted in ESOP 2016@	No. of ESOP granted in ESOP 2020@
1	Mr. Deepak Jain*	Chief Operating Officer	20,107	0
2	Mr. Rishi Dhariwal	Group Head Branch Banking	14,526	0
3	Mr. Bhaskar Vittal Karkera	Chief of Wheels	16,981	0
4	Mr. Manoj Tibrewal	Group Head - Distribution, Enterprise Salary & Merchant Acquiring	10,221	0
5	Mr. Vimal Jain*	Chief Financial Officer	9,487	0
6	Mr. Yogesh Jain	Chief of Staff	12,211	0
7	Mr. Mayank Markanday**	Chief Risk Officer	10,311	0
8	Mr. Vivek Tripathi	Chief of Strategy - Commercial Banking	11,060	0
9	Mr. Ankur Tripathi	Chief Information Officer	10,231	0
10	Mr. Pankaj Sharma	National Business Manager - SBL MSME	6,185	0
11	Mr. Aalekh Vijayvargiya	National Credit Manager SBL (MSME)	9,521	0
12	Mr. Shantanu Prasad	Chief of Treasury & Wholesale Liability	6,686	0
13	Mr. Ashok Kumar Khandelwal	Chief Compliance Officer	5,485	0
14	Mr. Vikrant Jethi	Chief of Collections	10,573	0
15	Mr. Naveen Vashisht	National Business Manager Wheels Used	7,411	0
16	Mr. Aditya Sharma	Chief Technical & Legal Officer - Mortgages	9,830	0
17	Mr. Shoorveer Singh Shekhawat	Chief of Products & Communication-Liabilities	8,695	0
18	Mr. Vijendra Singh Shekhawat	President - Core Market Banking, Rajasthan	6,763	0
19	Mr. Alok Gupta***	Chief Risk Officer	0	20,000
20	Mr. Sachin Kumar Jain	National Credit Manager Wheels	5,751	0
21	Mr. Raj Kumar Sharma	National Collection Manager Wheels	7,920	0
22	Mr. Shekhar Shukla	Chief of Operations-Liabilities	8,727	0
23	Mr. Yogesh Soni	Chief of Branch Banking Operations	6,880	0
24	Mr. Prince Tiwari	Chief of Financial Institutions Group (FIG) & Investor Relations (IR)	10,543	0
25	Mr. Sultan Ram Jat	Senior Vice President Retail Banking	7,115	0
26	Mr. Avinash Sharan	Circle Manager Branch Banking - North	8,527	0
27	Mr. Manmohan Parnami	Company Secretary	4,680	0
28	Mr. Abhinav Garg	National Product & Communication Manager Wheels	5,437	0
29	Mr. Sumit Sharma	National Collection Manager SBL-HL	7,370	0
30	Mr. Akhil Kumar Patni	National Product & Communication Manager Secured Business Loans	3,749	0
31	Mr. Vikas Chowdhry	Lead Operations - Retail Assets & SBL	4,646	0

@ESOPs granted under ESOP 2016 and ESOP 2020 at an exercise price of ''614 and ''929, respectively.

*Mr. Deepak Jain and Mr. Vimal Jain was elevated as Chief Operating Officer and Chief Financial Officer respectively w.e.f. 1^st April 2020. **Mr. Mayank Markanday was Chief Risk Officer of the Bank till 31^st March 2021 and he is designated as Chief of Credit Card Business & Merchant Solution Group w.e.f. 1^st April 2021.

***Mr. Alok Gupta was designated as Chief Risk Officer of the Bank w.e.f. 1^st April 2021.

ramcuiars or¹ marcn 2U21

Risk-free interest rate (%) 5.84% - 6.12%

Expected life (years) 3 years - 5.5 years

Expected volatility (%) 41.72% - 42.29%

Expected dividend rate (%) 0%

The Bank measures the cost of ESOP using the intrinsic value method. Had the Bank used the fair value model to determine compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:

Note 2

The Securities and Exchange Board of India (SEBI) has prescribed two methods to account for stock grants; namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options grants to the employees. The Bank also calculates the fair value of options at the time of grant, using Black- Scholes pricing model with the following assumptions:

('' in crore)
Particulars	Year ended 31st March 2021	Year ended 31st March 2020
Profit after tax as reported	1170.68	674.78
Add: ESOP cost using intrinsic value method (net of tax)	57.46	17.76
Less: ESOP cost using fair value method (net of tax)	92.81	51.64
Profit after tax (adjusted)	1135.33	640.90
Earnings Per Share
Basic
- As reported	38.19	22.78
- Adjusted for ESOP cost using fair value method	37.04	21.64
Diluted
- As reported	37.86	22.32
- Adjusted for ESOP cost using fair value method	36.72	21.20
('' in crore)
Particulars	As on 31st March 2021	As on 31st March 2020
Stock options outstanding (gross)	188.76	104.14
Deferred compensation cost outstanding	29.35	21.52
Stock options outstanding (net)	159.41	82.62

In accordance with SEBI circular no. CIR/CFD/POLICY CELL/2/2015 dated 16^th June 2015 necessary disclosures are made in Schedule 18 - Notes forming part of the financial statements for FY 2020-21 and are included in the annual report and also disclosed on the website of the Bank at https://www.aubank.in/reports.

K. Board of Directors and Key Managerial Personnel

During the year under review, following changes took place in the Board of Directors and Key Managerial Personnel of the Bank:

1. Shareholers vide resolution passed through postal ballot dated 22^nd January 2020 approved the appointment of Mr. Raj Vikash Verma as Independent Director of the Bank for second term for a period of three years effective from 30^th January 2021. Further, shareholders vide resolution passed through postal ballot dated 28^th October 2020 has

approved his appointment as Part-Time Chairman on 23^rd December 2020 subject to approval of RBI for a period of 2 (Two) years with effect from 8^th April 2021. RBI vide its letter dated 8^th April 2021 has approved reappointment of Mr. Raj Vikash Verma as Part-time Chairman of the Bank for a period of 2 (two) years w.e.f. 8^th April 2021.

Mr. Raj Vikash Verma''s vast and diversified experience of over ~40 years in fields of Finance, Economics, Banking, Regulatory Compliances, Housing & Mortgage Finance and the Real Estate Sector shall help the Bank to build a strong foundation on which it can profitably and sustainably scale its operations. Further, his regulatory experience shall benefit the Bank in enhancing the qualitative and quantitative matters that should be looked by the Board and Committees of Board.

2. Mr. Narendra Ostawal, Non-executive Director expressed his desire to step down from the Board due

to his other engagements. The Board of Directors in their meeting dated 28^th October 2020 accepted his resignation with effect from close of business hours on 28^th October 2020. Your directors place on record sincere appreciation for his contribution to the Bank during his tenure and conveys best wishes for his future endeavours.

3. With the approval of the shareholders obtained at 25^th Annual General Meeting of the Bank, Mr. Mankal Shankar Sriram (M S Sriram) and Mr. Pushpinder Singh were appointed as Independent Directors for a period of 3 years i.e. up to 20^th October 2022 and Mr. Kannan Gopalaraghavan Vellur (V G Kannan) was appointed as Independent Director for a period of 3 years i.e. upto 21^st January 2023.

Mr. M S Sriram has vast experience in financial inclusion, microfinance, understanding of rural economy, co-operatives , Agriculture and Agriculture Finance and his inclusion on Board shall strengthen the Bank''s ability to increase credit flow at the bottom of the pyramid and further deepen the impact of its financial inclusion initiatives. Mr. Pushpinder Singh''s expertise in banking technology will greatly aid the Bank''s aspiration of becoming customer-centric and technology driven Bank in the rapidly changing digital-banking infrastructure, with emergence of newer technologies and payment systems. Mr. Kannan is a banking industry veteran with over 38 years of experience in Banking & Financial Services (BFSI) sector and he is acknowledged an authority in credit, treasury, risk and investment management in the Banking sector.

The Board of Directors of the Bank is of the opinion that Mr. M S Sriram, Mr. Pushpinder Singh and Mr. V G Kannan are persons of integrity and has relevant experience and expertise for appointment as Independent Directors of the Bank.

4. Pursuant to the section 152 of Companies Act, 2013, Mr. Sanjay Agarwal, Managing Director & CEO retired at the previous Annual General Meeting and shareholders approved his re-appointment. Further, Mr. Uttam Tibrewal, Whole Time Director of the Bank shall retire at the ensuing Annual General Meeting and being eligible for reappointment, offers himself for re-appointment.

With the approval of the Board of Directors, the proposal for re-appointment of Mr. Sanjay Agarwal, Managing Director & CEO and Mr. Uttam Tibrewal, Whole Time Director was submitted to Reserve Bank of India, for a period of 3 years with effect from 19^th April 2020. The said proposal was approved by Reserve Bank of India.

5. Mr. Vimal Jain, Chief of Finance and Accounts has been elevated as Chief Financial Officer with effect from 1^st April 2020, by the Board on

the recommendation of Audit Committee and Nomination and Remuneration Committee.

6. Mr. Deepak Jain, Chief Financial Officer has been elevated as Chief Operating Officer by the Board of Directors and designated as Key Managerial Personnel in terms of section 2(51) of the Companies Act, 2013 with effect from 1^st April, 2020 on the recommendation of the Nomination and Remuneration Committee.

During the year, no other changes took place in the Board of Directors or in Key Managerial Personnel of the Bank. The composition of the Board of Directors and Key Managerial Personnel of the Bank was compliant with the applicable regulatory norms.

Further, none of the Directors have been debarred from holding office as Director by virtue of any order of the SEBI or any other authority.

L. Code of Conduct for Directors including Independent Directors and SMPs

The Board of Directors of the Bank adopted the Code of Conduct for the Directors and Senior Management Personnel (SMPs) of the Bank in compliance of Regulation 17(5) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, and the code of conduct sets forth the guiding principles for orderly & fair conduct by Board Directors and SMPs. For FY 2020-21, all Board members and SMPs have affirmed the compliance with the code and a declaration to this effect signed by the Managing Director & CEO forms part of Corporate Governance Report annexed with Board''s Report as Annexure - I. The Bank''s Code of Conduct for Directors and SMPs is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

M. Number of Meetings of Board

During the period under review, eleven (11) Board meetings were convened and duly held on the following dates:

•	2nd May 2020	• 15th December 2020
•	30th May 2020	• 28th January 2021
•	23rd July 2020	• 27th February 2021
•	5th September 2020	• 12th March 2021
• •	24th October 2020 28th October 2020	• 27th March 2021

The intervening gap between the said meetings were in accordance with the provisions of Companies Act, 2013, relevant Rules made thereunder, Secretarial Standard-I Issued by Institute of Company Secretaries of India and provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. The dates of Board

meetings and details of attendance of each director have been disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

Committees of the Board

The Bank believes that Board Committees are crucial to promote best Corporate Governance within the Bank. Accordingly, the Bank has constituted various Board Committees to improve the Board efficiency and to support in decision making. The constitution of these Committees is in acquiescence of provisions of the Companies Act, 2013, the relevant rules made thereunder, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Banking Regulation Act, 1949, the Articles of Association of the Bank and other guidelines issued from time to time. The details of the Board Committees of the Bank are disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

Meeting of Independent Directors

Your Bank conducted a separate meeting of Independent Directors on 1^st May 2020 and 12^th March 2021 without the presence of the Non-Independent Directors and members of Management of the Bank.

The Independent Directors in the said meetings discussed about the flow of information to the Board, its Committees, Governance, Compliance, and other areas of improvements. Further, performance of Non-Independent Directors, the Board as a whole and the Chairman was also evaluated.

Familiarisation Programme for Independent Directors

Pursuant to Regulation 25(7) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and RBI guidelines, various familiarisation programme were organised during FY 2020-21 for the Independent Directors to enable them to familiarise with the Bank, its Management, Bank''s business, and its operations for better understanding of their roles, rights and responsibilities for effective contribution in growth of the Bank. Details of familiarisation programme attended by Board members during FY 2020-21 are disclosed on the website of the Bank under https://www.aubank.in/ investors/secretarial-policies.

The detail about familiarisation programme and other training programme is disclosed in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

N. Declaration of Independence

In accordance with provisions of sections 149(6) and 149(7) of the Companies Act, 2013, Schedule IV and Regulation 16 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, all the

Independent Directors have submitted the declaration of independence, confirming that they meet the criteria of independence. In terms of Regulation 25 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Board has examined the veracity of declarations submitted by respective Board members. The Board opined that Independent Directors appointed during the financial year are having requisite integrity, expertise, specialised knowledge, experience, and the proficiency.

The Independent Directors have complied with the Code applicable for Independent Directors as stipulated under schedule IV of the Companies Act, 2013. Further, all the Independent Directors have registered themself in the Independent Director Databank and paid the relevant fees. All the compliances of rule 6 (1) & (2) of the Companies (Appointment and Qualifications of Directors) Rules, 2014 have been complied with.

O. Compensation Policy for Directors, Key Managerial Personnel, Senior Management Personnel and Other Employees

In accordance with the provisions of section 178(3) of the Companies Act, 2013 read with rules made thereunder, RBI guidelines and on the recommendation of the Nomination and Remuneration Committee, the Bank has formulated and adopted a comprehensive compensation policy for its Directors, Key Managerial Personnel, Senior Management Personnel, and other Employees.

The objectives of the Compensation policy along with the other details has been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I and disclosure in this regard have been made in schedule to notes to accounts of the audited financial statements for FY 2020-21.

Criteria for Appointment of Director & Senior Management Personnel

The proposal for appointment of Directors is put up to the Nomination and Remuneration Committee along with requisite documents/disclosures received in the prescribed format for his/her proposed candidature as director.

The Nomination and Remuneration Committee carry out the fit and proper assessment after ascertaining the veracity of documents being submitted, experience and qualifications required for the post and if deem fit, recommends the profile for appointment to Board of Directors for their approval.

The Nomination and Remuneration Committee and the Board ensures that the remuneration to be paid to the proposed appointee is in accordance with the compensation policy and RBI guidelines issued in this regard.

During the FY 2020-21, as a part of Annual review, the Board of Directors reviewed the Compensation Policy, which regulates the appointment of Directors, Key Managerial Personnel, Senior Managerial Personnel, and other employees of the Bank.

The terms of reference of the Nomination and Remuneration Committee, Compensation Policy and evaluation process has been detailed in Corporate Governance Report annexed with Board''s Report as Annexure-I. The Compensation Policy of the Bank is disclosed on the website of the Bank at https://www. aubank.in/investors/secretarial-policies

Evaluation of the Directors, the Board and Committees

The description and details of evaluation process has been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

P. Statutory Auditors and their Report

M/s. S. R. Batliboi & Associates LLP (Firm Registration No. 101049W/E300004) was appointed as the Statutory Auditors for a period of four (4) years by the shareholders of the Bank at the Twenty Second (22^nd) Annual General Meeting held on 27^th September 2017, to hold office from the conclusion of the 22^nd Annual General Meeting till the conclusion of the 26^th Annual General Meeting of the Bank, in accordance with the provisions of the Companies Act, 2013.

There are no qualifications, reservations or adverse remarks made by M/s. S.R. Batliboi & Associates LLP, Chartered Accountants, Statutory Auditors of the Bank, in their report on the financial statements for the FY 2020-21. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

Further, as the tenure of the M/s. S. R. Batliboi & Associates LLP is ending at the conclusion of 26^th Annual General Meeting of the Bank, the Board of Directors at its meeting held on 8^th July 2021 on the recommendation of the Audit Committee has proposed the appointment of Deloitte Haskins and Sells, Chartered Accountants (Registration no. 117365W) and G. M. Kapadia & Co., Chartered Accountants (Registration no. 104767W) as the Joint Statutory Auditors (SAs) of the Bank for a period of three (3) years from the conclusion of 26^th Annual General Meeting until the conclusion of 29^th Annual General Meeting of the Bank to be held in the calendar year 2024, subject to the approval of the shareholders and the Reserve Bank of India. Reserve Bank of India has approved the appointment of the above SAs for FY 2021-22.

The Statutory Auditors have confirmed their eligibility under Section 141 of the Companies Act, 2013. Further,

as required under the relevant provisions of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and they hold a valid certificate issued by the Peer Review Board of ICAI.

Q. Secretarial Auditors and their Report

In compliance with the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 and Regulation 24A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Board in its meeting held on 2^nd May 2020, upon recommendation of the Audit Committee, appointed M/s. V.M. & Associates, Company Secretaries (Registration No. P1984RJ039200) to undertake the Secretarial Audit of the Bank for the financial year ended 31^st March 2021.

During the year under review, no frauds have been reported by the Secretarial Auditors, and there were no observations or qualifications made by the Secretarial Auditors in their Report. The Secretarial Audit Report for FY 2020-21 annexed with Board''s Report as Annexure-IV.

R. Loans, Guarantees and Investments under Section 186

Pursuant to Section 186(11) of Companies Act, 2013, loans made, guarantees given or securities provided or acquisition of securities by a banking company are carried out in its ordinary course of business and are exempted from disclosure requirement in the Annual Report. Hence, there is no disclosure being made herein in this regard.

S. Related Party Transactions

During the year under review, no related party transaction has been entered by the Bank with the related parties as falling under the purview of Section 188 of the Companies Act, 2013. Audit Committee of the Board has given omnibus approval for related party transactions of repetitive nature. All transactions with related parties, were in the ordinary course of the business and on an arm''s length basis. No transaction has been entered that could lead to potential conflict of interest between the Bank and related parties. All the transactions entered by the Bank with related parties were reported to the Audit Committee and accordingly, required disclosures are made to the Committee for review.

Hence, pursuant to Section 134(3)(h) of the Companies Act, 2013 read with Rule 8 (2) of the Companies (Accounts) Rules, 2014, there are no related party transactions that are required to be reported in form AOC-2. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the year ended 31^st March 2021.

older IT systems by assigning them to the staff that does not need to perform heavy data processing on their system. By doing so, the bank successfully reduces the demand for new desktops and laptops even with our growing workforce.

(b) Technology Absorption

I) The efforts made towards Technology absorption:

Your Bank is continuously improving its product offerings and operations through the adoption of technological advancements. The bank has observed a strong growth in the adoption of IOS and Android based Mobile banking, Internet banking, TAB-based account opening and Account opening through digital channels. The bank has channelised its efforts towards digitising the banking services in a user-friendly manner that empowers our customers to carry out their tasks in a hassle free, paper free manner that also saves their time. Bank has also enriched our customer''s experience by integrating different payment platforms and providing most of banking services for customers delight.

II) The benefits derived like product improvement, cost reduction, product development or import substitution:

Through the advent of digital banking and mobile based initiatives, your bank has been able to not only enrich the customer experience, but also provide cost effective products & services by focussing on bringing down the transaction cost. Your bank also makes use of efficient end point devices and IT Hardware that makes optimal electric consumption while providing high performance.

III) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year):

a) The details of technology imported: Nil

b) The year of import: Nil

c) Whether the technology been fully absorbed: Nil

d) If not fully absorbed, areas where absorption has not taken place, and the reasons thereof: Nil

IV) Expenditure incurred on Research and Development

Since financial services is being primarily covered under Service Sector, hence the said point is not directly applicable on Banking Industry.

(c) Foreign Exchange Earnings and Outgo

During the year ended 31^st March 2021, the foreign exchange earnings of the Bank was '' 0.57 crore and foreign exchange outgo was ''1.08 crore.

Your Bank has in place a Board approved Policy on Related Party Transactions & Materiality, which provide for the process, procedure and steps required for approval of related party transactions, in compliance of applicable requirements of appropriate reporting and disclosure of transactions between the Bank and related parties.

The Policy on Related Party Transactions & Materiality as approved by the Board is disclosed on the website of the Bank at https://www.aubank.in/investors/secretarial-policies.

T. Material Changes and Commitments, if any, affecting the Financial Position of the Bank

There are no material changes and commitments affecting the financial position of the Bank which have occurred between the end of the financial year i.e., 31^st March 2021 and the date of this Report.

The world has endured a year of the unexpected onslaught by the COVID-19 virus, with a significant macroeconomic impact all over the world, the second wave had hit India in April-2021 and it is observed that Business environment shall take some time to get back to normalcy with expectation that vaccination drive will bring back positivity in Economic & Business outlook faster. It is acknowledged that Government of India & State Governments and Reserve Bank of India are taking all requisite initiatives in this regard.

U. Conservation of Energy, Technology Absorption & Foreign Exchange Earnings and Outgo

With each step we take into a more digital world, your bank is committed for maintaining a balance between growth and optimal utilisation of resources. Your bank is also focused towards undertaking initiatives for absorption of technology with conservation of energy.

(a) Conservation of Energy

Being a responsible institution, your bank is committed towards saving energy and performing business operations in a sustainable manner. Your Bank has undertaken several energy conservation initiatives by upgrading its systems and by engaging technological innovations for it''s IT Systems.

Steps taken or impact on conservation of energy, utilising alternate sources of energy and capital investment on energy conservation equipments

Your bank strives to employ the best practices of Energy Conservation in Facility Management through robust planning, administration, and maintenance. Your bank uses energy efficient LED lights in branches, offices and uses maximum

of natural light in the office premises during the daytime.

Your bank also makes use of IT hardware that meets the Environmental Safeguard Agency''s (EPA) Power Star Advisory to minimise electricity consumption in the bank. This optimisation of resources also extends to machines such as workstations, desktops, laptops, and notebooks. Additionally, your bank also uses machines with multi-core processors that elevate a machine''s performance without drawing on too much energy, which in turn results in higher efficiency and performance enhancement.

Your bank is also driving a digital revolution in the banking sector through the effective use of Paperless Two-Wheeler Lending Process. To achieve this digitisation, the bank uses a Tab-based system thereby eliminating the need of paper for documentation of any kind. Your Bank has also introduced Instant Account Opening facility through WhatsApp and other digital channels. This has helped your bank to adopt a smooth, user-friendly approach of account opening. Such digital initiatives have gone a long way to help your bank reduce the carbon footprint and moving closer to its goal of digital excellence.

Using power supervision technology and guidelines

Your bank uses devices with the latest Operating System that work on Advanced Settings Power Use Interface (ACPI) to increase computational efficiency and reduce energy consumption. Using a machine in the power-saving configuration means that it will automatically switch to energy saving mode once left idle for certain amount of time.

Using Cloud based technology and virtualised info center

Your bank strives to channelise its efforts and investment towards infrastructure development in the digital space. Your bank makes use of virtual machines and cloud-based technologies to create a virtual ecosystem. This not only reduces dependency on physical servers thereby reducing operational wattage and space, but also means that the new, energy efficient, reliable, and vastly advanced cloud-based systems are put into place to enhance the user experience.

Recycling systems and supplies

Your bank also practices highly efficient management methods to refurbish aging IT systems. This is carried out to avoid sending hazardous materials into huge landfills and scaling down the load on already overburdened junkyards. The bank also employs a coherent system of recycling slightly

V. RISK MANAGEMENT

Over quite some time, the finance industry witnessed significant transformations due to advancements in technologies, business model transformations, changing regulatory standards, and many other external and internal factors. Risk is the most critical element for the Bank and in the banking industry this element became even more critical considering the Bank being custodian of public deposits. The nature of Risk in a Banking Industry has a wide array which evolves around Credit Risk, Market Risk, Liquidity Risk, Operational Risk, IT and Cyber Security Risk, and other risks. Your bank has adopted a multi-layered risk management process to identify, assess, monitor, and manage risks through the effective use of processes, information, and technology.

The good risk management practices of the bank have facilitated navigating through pandemic times and its Enterprise Risk Management (ERM) framework has helped us strategically benchmark its practices across different business lines to best-in-class levels.

The Risk Management Process is monitored by risk management policies and the delegation matrix approved by Board of Directors. The Board is supported by an experienced executive management team, Board Committees and Board Delegated Committees as part of the Risk Governance Framework. The Board has an oversight of the management''s efforts to balance growth and prudent risk management, while creating value for stakeholders.

Pursuant, to Regulation 21 of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Bank has constituted a Risk Management Committee and as mandated by the regulatory provisions, Bank has appointed Chief Risk Officer ("CRO"), who administers the risk associated key verticals through dedicated divisions i.e., Credit Risk, Market Risk, Operational Risk, Fraud Risk, Information Security Risk and other Risks under the aegis of the Board approved risk management policies and in accordance with the approval and responsibility delegation matrix. The CRO has unhindered access to the Risk Management Committee of the Board. The details of the Risk Management Committee and its terms of reference are set out in the Corporate Governance Report annexed with Board''s Report as Annexure-I.

The Risk Management framework is a layered structure and broadly consists of the following aspects for effective risk management across the Bank.

(a) Credit Risk Management

Risk: Credit risk arises from business operations that give rise to actual, contingent, or potential claims against any counterparty, borrower, or obligor. The goal of credit risk management is to strengthen underwriting norms, focus on good asset quality

The Asset Liability Management (ALM) Policy of the Bank stipulates a broad framework for liquidity risk management to ensure that the Bank is in a position to meet its liquidity obligations as well as to withstand a period of liquidity stress from bank-level factors, market-wide factors or a combination of both. The Board approved policy captures the risk appetite around the liquidity and market risk of the Bank and helps to put in place defined governance structure in consonance with the Bank''s Risk Appetite.

The Asset Liability Management Committee (ALCO)/ Investment Committee (IC) of the Bank oversees the framework for identification, measurement and management of market risk, interest rate risk and liquidity risk in the Bank and ensures compliance with established internal and regulatory prudential limits and operate within the approved risk appetite by the Board.

(d) IT Risk Management

Risk: Your Bank is growing with digitisation and aimed at leveraging digital technology to provide a best-in-class experience for its customers while simultaneously enhancing productivity and improve on IT risk management. Risk of cyber-attacks on your Bank''s systems arises among others from computer viruses, malicious or destructive code, phishing attacks, denial of service or information, application vulnerability and other security breaches resulting in disruption of its services or theft or leak of sensitive internal data or customer information.

Mitigation: The Bank has established a robust information and cyber security framework for securing its IT infrastructure and systems. IT Steering Committee and Information Security Risk Management committee reports to Board-level IT Strategy & Information Systems Security Committee. This committee reviews and monitors IT security infrastructure and vigilance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer ("CISO") is responsible for monitoring the information security risks covering all aspects of data security for the Bank who reports to Chief Risk Officer (CRO). Cyber Security Operation Center (CSOC) with qualified professionals is reporting to CISO for monitoring of real-time cyber security glitches. Your Bank has also deployed advanced controls at various layers to ensure that cyber security risk in minimised.

Further, your Bank has a cyber security management framework, a combination of technologies, processes and practices designed to protect networks, computers, programmes and data from cyber-attacks, damage, or unauthorised access.

and concentrations at individual exposures as well as at the portfolio level.

Mitigation: Credit Committee and Credit Risk & NPA Management Committee (CRNPAC) overseas and reviews the credit risk and is responsible for formulation of standards, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentration, standards for loan collateral, portfolio management, loan review mechanism, risk concentration, monitoring and evaluation, provisioning, regulatory and other issues around it. Further, Bank has in place credit appraisal models for appraising cases including risk assessment, checks and balances. The Board Delegated Credit committees submit their updates to Risk Management Committee of the Board at regular intervals. All aspects of credit risk are governed by the Credit Risk Management Policy and other Policies. The scope of the Credit Risk unit includes measuring, assessing, and monitoring credit risk within our Bank. Your Bank has laid down prudential limits and caps on various aspects to control the magnitude of credit risk. Loan administration and monitoring is carried out through Portfolio Profiling, Early Warning Framework, Rapid Portfolio Review, and Annual Monitoring of High Value Customers.

(b) Operational Risk Management

Risk: Operational risks arise from inadequate and/ or missing controls in internal processes, people, and systems or from external events or a combination of all the four.

Mitigation: The Bank has the Board delegated Operational Risk Management Committee (ORMC) to review and advise on implementation of measures for risk mitigation which further reports to Risk Management Committee of the Board. The Bank follows an integrated risk approach, where operational risks and its monitoring folds into Chief Risk Officer (CRO) and ORMC. The Bank has in place a board approved Operational Risk Management Policy which includes a comprehensive Operational Risk Management Framework for documenting, assessing, and periodic monitoring of various risks and controls linked to various processes across all business verticals.

Your Bank has Risk Containment Unit (RCU) that is guided by a Board approved Fraud Risk Management Policy. Fraud cases reported in the Bank are apprised to the Audit Committee and the Board and fraud cases in excess of ''1 crore or more are specifically reported and dealt by the Special Committee for Fraud Monitoring (SFMC) of the Board. The Bank is continuously strengthening its systems,

operational practices and processes, procedures, controls, and review mechanism so that fraud-prone areas are sanitised against internal and external breaches and by continuously monitoring that these control measures are operating effectively.

Your Bank has in place a comprehensive Business Continuity Management (BCM) plan, policy, and procedures in place to ensure continuity of critical operations of the Bank in the event of any disaster/ incident affecting business continuity. The Bank''s business continuity programme is developed considering the criticality of the functions performed and the systems have been designed to minimise the operational, financial, legal, and other material consequences arising from such a disaster and focus is on ensuring faster recovery of/ minimising impact on the IT systems of the Bank. We hereby report that the Bank''s Business Continuity Management was operating effectively throughout the year and no fraud case of ''1 crore or more was reported during period under review.

Your Bank has responded to the COVID-19 pandemic adequately through robust Business continuity management, by promptly catering to customer and other stakeholder''s requirements without fail. Your Bank has been constantly working to simplify the business processes to become even more customer centric during these tough times. Further, Your Bank has Cyber Crisis Management Plan in place to address any disruption due to cyber events.

(c) Market Risk, Liquidity and Asset Liability Management

Risk: Market Risk for the Bank originates from investment and trading in securities, which are undertaken both for the customers and on a proprietary basis. The market risk management framework of the Bank sets benchmark for market risk exposures, the performance of portfolios vis-a-vis the market risk limits and comparable benchmarks, which provide guidance to optimise the risk-adjusted rate of return of the Bank''s investment portfolio. Liquidity risk refers to Bank''s inability to fund an increase in assets or withdrawal of liabilities and meet both expected and unexpected cash & collateral obligations at reasonable cost without adversely impacting its financial condition.

Mitigation: Market risk management is guided by well-defined policies, guidelines, processes and systems for the identification, measurement, monitoring and reporting of exposures against various risk limits set in accordance with the risk appetite of the Bank. The Bank utilises the analytical tools for the market risk management of its trading and investment portfolios.

(e) Reputation Risk Management

Risk: Reputation risk can impact the Bank''s ability to attract or retain customers and expose it to litigation and regulatory action.

Mitigation: Your Bank communicates with its stakeholders regularly through appropriate engagement mechanisms to address stakeholder expectations and assuage their concerns, if any. There is Zero tolerance for knowingly engaging in any activities that are not consistent with values, Code of Conduct, or policies of the Bank.

(f) Compliance Risk management

Risk: Unprecedented changes in laws, regulations and regulatory policies can increase the risks of non-compliance and regulatory actions in the form of penalties, fines, restrictions, or other sanctions in case of regulatory failures.

Mitigation: The Bank has a dedicated Compliance Department that continuously monitors new developments and updates the Bank''s Board and senior management about its implications. The Bank has a strong compliance culture and have well-articulated policies with regard to code of conduct, Vigil Mechanism, AML& KYC, and engagement with third party vendors.

I n the overarching risk management framework, the relevant risk and mitigates have been covered under Management Discussion & Analysis section of the Annual Report.

W. Corporate Social Responsibility

Over the years, the Bank has pioneered in its Corporate Social Responsibility (‘CSR'') initiatives. The objective of the Bank''s CSR initiatives is to improve the quality of life of communities and create long-term value for all stakeholders. In compliance of the provisions of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Bank has a CSR Committee and Board approved CSR policy to provide guidelines for carrying out CSR activities. The Bank''s flagship CSR programmes are designed for bringing positive change and to address critical development issues in areas of education, sports, development, women empowerment, and Financial & Digital literacy in areas of its operations.

Considering the global pandemic of COVID-19 in 2020-21, the Bank has contributed substantial amount of its CSR allocation for health and safety initiatives. During the year under review, the Bank has reached out to the lives of over 13.91 lakh people through innovative initiatives in drinking water, education, livelihood, sports, amongst others.

AD. Business Responsibility Report

Pursuant to Regulation 34(2)(f) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 a Business Responsibility Report (BRR) is required to be published by the Top 1000 listed companies based on market capitalisation. The BRR describes the initiatives taken by the Bank from environmental, social and governance perspective in the format prescribed under SEBI Circular No. CIR/CFD/CMD/10/2015 dated 4^th November 2015 and the same has been disclosed in the Business Responsibility Report annexed with Board''s Report as Annexure-V and disclosed on the website of the Bank at https://www.aubank.in/reports.

AE. Social Environmental and Management System

The Social Environmental and Management System (SEMS) is a set of policies and procedures that helps in setting guiding principles for identifying and managing financial institution''s exposure to the environmental and social risks of its customers. The Bank endeavours to benchmark itself with the best of corporates in India and continued its focus to implement best Environmental, Social and Governance (ESG) practices in its operations with responsible lending approach. The procedures and decision-making process of the SEMS are systematically incorporated at each stage of appraisal and monitoring. Awareness is also created among vendors and customers to comply with applicable social and environmental laws to inculcate right practices in their operations.

AF. Particulars of Employee Remuneration

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, annexed with Board''s Report as Annexure-III.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 as amended is given in an Annexure and forms part of this report. In terms of Section 136(1) of the Companies Act, 2013, the annual report is being sent to the Members excluding the aforesaid Annexure. The Annexure is available for inspection upto the date of Annual General Meeting at the registered office of the Bank and any Member interested in obtaining a copy of the Annexure may write to the Company Secretary of the Bank at [email protected].

AG. Management Discussion and Analysis

The Management Discussion and Analysis Report for FY 2020-21 is covered in a separate section forming part of the Annual Report.

Pursuant to the amendment in CSR provisions of the Companies Act, 2013 and rules made thereunder that came into force on 22^nd January 2021, Bank has classified its CSR allocation into ongoing projects and transferred ''3.46 crore into Unspent Corporate Social Responsibility Account and such amount shall be spent by the Bank in pursuance of the Corporate Social Responsibility Policy for its CSR obligations within a period of 3 financial years.

The terms of reference of CSR committee have been disclosed in the Corporate Governance Report and a detailed breakup of expenditure carried out and other details related to CSR activities has been disclosed in the Corporate Social Responsibility Report annexed with Board''s Report as Annexure-II. The CSR Policy is disclosed on the website of the Bank at https://www.aubank.in/ investors/secretarial-policies.

X. Disclosure under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

Your Bank has in place a Policy on Prevention and Redressal Against Sexual Harassment. The primary objective of the said policy is to provide all safeguards to employees from sexual harassment at the workplace. Bank has zero tolerance towards sexual harassment at workplace and persists to uphold and maintain its work environment safe and secure. Your Bank has constituted Internal Complaints Committee in compliance of the provisions of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to review, investigate and take suitable actions on complaint and there is a Board level Disciplinary Committee that reviews the decisions taken by Internal Complaints Committee.

The disclosure required under the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 is provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

Y. Subsidiary & Associate Companies

The Bank does not have any company which is its subsidiary or associate. Hence, the details of this clause are not applicable to the Bank. Accordingly, the Bank is also not required to formulate a specific policy on dealing with material subsidiaries.

Z. Material Orders Passed by Regulators or Courts or Tribunals

During the period under review, no material orders have been passed by the Regulators/Courts/Tribunals which would impact the going concern status of the Bank and its future operations.

AA. Internal Controls System & their Adequacy

Your Bank has an effective internal control system in line with the risk appetite of the Bank and aligned to the scale, size, and complexity of its operations. The scope and authority of the risk based internal audit function is defined in the Internal Audit Policy of the Bank which is duly approved by the Board.

The audit function essentially validates the compliances of Bank''s processes and operations with regulatory guidelines, accounting procedures and Bank''s own internal rules and guidelines.

The internal audit function provides independent assurance to the Board of Directors and Audit Committee on the quality and effectiveness of the Bank''s internal control, risk management and governance systems and processes.

Proper internal controls were in place and operating effectively for the period under review. Further, in compliance with the requirements of Companies Act, 2013, statutory auditors have issued an opinion with respect to the adequacy of the internal controls over financial reporting of the Bank and the operating effectiveness of such controls, details of which may be referred to in the Auditor''s Report attached to the audited financial statements of FY 2020-21.

AB. Cost Records

The provisions for maintenance of cost records as specified by the Central Government under section 148(1) of the Companies Act, 2013 are not applicable to the Bank.

AC. Corporate Governance

The Bank''s activities are carried out in accordance with good corporate governance practices and the Bank is constantly striving to make them better with the time. The Bank believes that Governance framework and good practices helps in creating right culture and in turn enhances long-term sustainable value for all its stakeholders. Bank adheres to the Corporate Governance requirements set out by the SEBI.

The Corporate Governance Report for FY 2020-21 along with certificate issued by CS Manoj Maheshwari, Partner M/s V. M. & Associates, Company Secretaries confirming the compliance to applicable requirements related to corporate governance as stipulated under the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 is annexed with Board''s Report as Annexure-I.

AH. Annual Return

In accordance with the provisions of Section 134(3) read with Section 92(3) of the Companies Act, 2013, the Annual Return for the financial year ended on 31^st March ; 2021 in the prescribed form MGT-7 is disclosed on the

¦ website of the Bank at https://www.aubank.in/reports.

AI. Whistle Blower Policy & Vigil Mechanism

The details have been provided in Corporate Governance Report annexed with Board''s Report as Annexure-I.

Whistle Blower Policy & Vigil Mechanism as approved by Board is disclosed on the website of the Bank at https:// www.aubank.in/investors/secretarial-policies.

i AJ. Anti-bribery and Anti-corruption Policy

The Bank follows a ‘zero-tolerance approach'' to bribery, corruption and other wrong practices. The Bank is resolute to act professionally, fairly, and with integrity in its dealings and operations. The Bank has a Board approved Anti-Bribery and Anti-Corruption Policy laying down the principles for carrying out banking business in an honest j and ethical manner. The said policy is disclosed on the _r website of the Bank at https://www.aubank.in/reports.

AK. Compliance of Secretarial Standards issued j by ICSI

The Bank has complied with the provisions prescribed in Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI).

AL. Status of Ind AS Implementation.

; As per RBI circular RBI/2015-16/315 DBR.BP.BC.

; No.76/21.07.001/2015-16 dated 11^th February 2016

l Implementation of Indian Accounting Standards (Ind AS), Banks are advised that scheduled commercial banks (excluding RRBs) shall follow the Indian Accounting Standards as notified under the Companies (Indian ; Accounting Standards) Rules, 2015, subject to any guideline or direction issued by the Reserve Bank in this ; regard. Banks in India currently prepare their financial l statements as per the guidelines issued by RBI, the Accounting Standards notified under section 133 of the Companies Act, 2013 and generally accepted accounting principles in India (Indian GAAP). In January 2016, the Ministry of Corporate Affairs issued the roadmap for implementation of new Indian Accounting Standards (Ind AS), which were based on convergence with the International Financial Reporting Standards (IFRS), for scheduled commercial banks, insurance companies and non-banking financial companies (NBFCs). In March 2019, RBI deferred the implementation of Ind AS for banks till further notice as the recommended legislative amendments were under consideration of Government of India. The Bank had undertaken preliminary diagnostic analysis of the GAAP differences

between Indian GAAP vis-a-vis Ind AS and shall proceed for ensuring the compliance as per applicable requirements and directions in this regard and the Bank is submitting Proforma Ind AS Financial Statements to RBI on a quarterly basis.

Directors Responsibility Statement

Pursuant to Section 134(3)(c) read with Section 134(5) of the Companies Act, 2013, the Board of Directors hereby confirm that:

1) In the preparation of the annual accounts for the year ended 31^st March 2021, the applicable accounting standards have been followed along with proper explanation relating to material departures, if any.

2) We have 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 as on 31^st March 2021 and of the profit of the Bank for the year ended on that date.

3) We have 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 Bank''s assets and for preventing and detecting fraud and other irregularities.

4) We have prepared the annual accounts on a going concern basis.

5) We have laid down internal financial controls to be followed by the Bank and ensured that such internal financial controls are adequate and were operating effectively.

6) We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgment and Appreciation

The Board places on record its gratitude to the Government of India, various State Governments, RBI, SEBI, MCA, IRDAI, IBA, UIDAI, CERSAI, Bankers, Lenders, Debenture Trustees, Registrar & Share Transfer Agent, Vendors, Service Providers and others for their continued support and faith reposed in the Bank. The Board would also like to thank the BSE Limited, the National Stock Exchange of India Limited, National Securities Depository Limited, Central Depository Services (India) Limited and the Credit Rating Agencies for their continued cooperation.

The Board hereby convey its sincere thanks to the Shareholders, Debenture/Bond Holders and esteemed customers of the Bank for their unstinted patronage.

The Board also expresses its deep appreciation for the dedication and commitment of the employees at all levels for their strong work ethics, professionalism, reinforcing customer centricity, and commendable progress made in challenging environment during the year.

For and on behalf of the Board of Directors AU SMALL FINANCE BANK LIMITED

Sd/- Sd/-

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole Time Director

DIN: 00009526 DIN:01024940

Date: 8^th July, 2021 Date: 8^th July, 2021

Place: Jaipur Place: Mumbai

CIN: L36911RJ1996PLC011381

Registered Office: 19-A, Dhuleshwar Garden,

Ajmer Road, Jaipur - 302001, Rajasthan

---

Mar 31, 2019

To

The Members,

AU SMALL FINANCE BANK LIMITED

The Board of Directors has immense pleasure in presenting the 24th Annual Report of AU Small Finance Bank Limited covering the business and key operational highlights of your Bank together with Audited Financial Statements for the year ended on 31st March 2019.

A. BUSINESS OUTLINE AND FINANCIAL PERFORMANCE HIGHLIGHTS Financial Performance:

(Rs. in crore)

Particulars	y-o-y Growth (%)	For the year ended
		31st March 2019	31st March 2018
Total Income	58.26 ^	3,410.86	2,155.25
Interest Income		2,948.84	1,767.19
Other Income		462.02	388.06
Interest Expenditure		1,606.35	826.73
Operating Expenses (excluding depreciation)		1,020.85	699.36
Profit before Depreciation, Provisions and Tax	24.56 ^	783.66	629.16
Depreciation		61.75	53. 25
Provision for Income Tax		198.32	153.08
Other Provisions and Write-offs		141.78	130.79
Net Profit	30.74^	381.81	292.04
Appropriations
Transfer to Statutory Reserve		95.45	73.01
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961		37.80	20.50
Transfer to Capital Reserve		2.76	0.00
Transfer to Investment Fluctuation Reserve		22.12	0.00
Dividend (including tax/cess thereon) pertaining to previous year paid during the year		17.48	0.00
Dividend (in ‘) (Per Equity Share)		0.75*	0.50
Surplus carried over to Balance Sheet		1,572.03	1,365.84
EPS
(After excluding Exceptional Items not annualised)
Basic		13.16	10.26
Diluted		12.90	10.00

*Proposed Dividend as recommended by the Board of Directors.

i. Key Highlights on Profitability

- Total Profit before Tax was Rs.580.13 crore for FY 2018-19 vis-a-vis Rs.443.35 crore for FY 2017-18 and Earnings Per Share (EPS) was Rs.13.16 compared to Rs.10.26 last year

- Net Profit stood at Rs.381.81 crore for FY 2018-19 vis-a-vis Rs.292.04 crore for FY 2017-18, with y-o-y growth of 30.74%

- Net Interest Income grew by Rs.402.02 crore from Rs.940.46 crore during FY 2017-18 to Rs.1342.48 crore during FY 2018-19, with a y-o-y growth of 42.75%

ii. Key Highlights on Balance Sheet

- Balance sheet size grew to Rs.32,623 crore as on 31st March 19 vis-a-vis Rs.18,833 crore as on 31st March 18 with y-o-y growth of 73%

- CASA increased by Rs.1456.61 crore to Rs.3590.09 crore during FY 2018-19 from Rs.2,133.49 crore during FY 2017-18, registering a growth of 68.27%

- Capital Adequacy Ratio stood at same level, i.e. 19.31% as on 31st March 2019 vis-a-vis 19.31 % as on 31st March 2018

iii. Key Highlights on Asset Quality

- The Return on Equity (RoE) stood at 14% and the Return on Asset (RoA) stood at 1.5%

- Gross NPA and Net NPA remained stable at 2.0% and 1.3%, respectively, as on 31st March 2019 as compared to 2.0% and 1.3 %, respectively, as on 31st March 2018

iv. Key Operational Highlights

- During FY 2018-19, your Bank’s disbursement rose to Rs.16,077 crore vis-a-vis Rs.10,825 crore in FY 2017-18, registering an increase of 49%.

- As on 31st March 2019, your Bank’s distribution network stood at 322 Branches, 83 Asset Centres, 86 Banking Outlets (BOs) and 67 Business Correspondents (BCs), 14 Offices and 543 ATMs spread across 11 States and Union Territory

- Keeping an objective of making ‘Digital Bank as good as Traditional Bank’, in its second year of operation, your Bank focussed on enriching the ‘Customer Phygital Experience’ by creating a robust technology platform to create a new age Digital Banking

Management Discussion & Analysis section covers the industry overview, financial and operating performance of the Bank and forms part of this Annual Report.

Change in the Nature of Business

There is no change in the nature of business of the Bank for the year under review.

Dividend

Your Board of Directors is pleased to recommend dividend for 2nd consecutive year to reward its shareholders with 7.5% i.e., Rs.0.75/- per equity share on face value of Rupee 10/each for the year 2018-19 (previous year 5% i.e. Rs.0.50/- per equity share) subject to the approval of the members in the 24th Annual General Meeting (AGM). There was no interim dividend declared during the reporting period.

The total outgo on account of dividend inclusive of taxes, for FY 2018-19 is Rs.26.43 crore which represents a pay-out of 6.92% of the Bank’s profit.

In terms of Regulation 43A of the Securities and Exchange Board of India (SEBI) (Listing Obligations and Disclosure Requirements) Regulations, 2015, the Bank adopted Dividend Distribution Policy and the dividend proposed is in line with the Dividend Distribution Policy of the Bank. The Policy is hosted on the website of the Bank and can be viewed at www.aubank.in/au-notice-board

Closure of Share Transfer Books and Record Date for Dividend

The Register of Members and the Share Transfer Books of the Bank will remain closed from 20th July 2019 to 26th July 2019 (both days inclusive) for the purpose of the 24th AGM of the shareholders of the Bank to be held on 26th July 2019 and for determining the names of the members who would be entitled to the dividend, if any, declared by the Bank for the financial year ended 31st March 2019. The said dividend shall be paid to those members whose names appear on the Register of Members of the Bank as on 19th July 2019.

Transfer to the Investor Education and Protection Fund

In terms of Sections 124 and 125 of the Companies Act, 2013 (the Act) read with the Investor Education and Protection Fund Authority (Accounting, Audit, Transfer and Refund) Rules 2016, dividend that remain unpaid or unclaimed for a period of seven years from the date of transfer are required to be transferred to the Investors Education and Protection Fund. There is no unclaimed/unpaid dividend liable for transfer to the Investors Education and Protection Fund for the year under review. The Bank has uploaded the details of unclaimed dividend amounts lying with the Bank on its website and can be viewed at https://www.aubank. in/unpaidunclaimed-dividend-details

Branch Banking and Liability Products

In line with the Government of India’s focus, your Bank is committed to increase the reach of formal banking services across the country and extend banking services to the ‘belly of the nation’.

The Branch Banking and Liabilities product suite caters to the financial needs of all set of customers, including self-employed, salaried individuals, children, women entrepreneurs, senior citizens, companies, societies, trusts, educational institutions, hospitals, governmentcorporations and local bodies among others. Our wide-ranging product suite includes Savings Account, Current Account, Term Deposit, Locker, Bank Guarantee, Gold Loan among others. Through our empanelled partners, we also provide Point of Sale (POS) for business needs, Life and Health Insurance, along with Mutual Fund investment solutions for customers.

Your Bank is steadily building a granular deposits book based on simple and clear value proposition, competitive interest rate on deposits, superior customer service and achieved strong traction in CASA. During the FY 2018-19, Bank expanded its presence to 543 ATMs as on 31st March, 2019 vis-a-vis 292 ATMs as on previous year end.

Financial Inclusion

Small Finance Banks were set up with the objective of enhancing financial inclusion and offer banking services in India by providing a saving vehicle and supplying credit to small business units, small and marginal farmers, micro and small industries and other unorganised entities through high-end technology and low-cost operations.

In the FY 2018-19, your Bank exceeded the benchmark targets prescribed under the licensing conditions and further contributed to Financial Inclusion through several initiatives.

With around 62% of the total branches in Semi-Urban, Rural and Unbanked Rural areas your Bank expanded reach to the hitherto excluded population and even in Metropolitan and Urban Area. Your Bank opened 4,03,000 deposit accounts and mobilised deposit of around Rs.2200 crore from these areas. Your Bank added 16 new Unbanked Rural Branches in its reach, taking the total Unbanked Rural branch count to 30. Your Bank also has 86 Banking Outlets (BOs) in Unbanked Rural Areas of Rajasthan, Madhya Pradesh, Gujarat, Punjab, Haryana and Maharashtra, which is a low cost alternative for providing banking services to take banking to the last mile. Banking Outlets not just offer Savings Accounts and remittances services but also encourages these outlets to mobilise Term Deposits, Loans, Loan Repayments and other services. Together the BOs and the Unbanked Rural Branches have opened 47,218 accounts in the Unbanked Rural areas with a total deposit of Rs.45.80 crore. In addition to this, the Unbanked Rural Branches and BOs have disbursed loans to the tune of Rs.39.38 crore through 1,123 cases.

The BO Model at AU Small Finance Bank encourages the following:

Entrepreneurship: AU Bank has hand-picked dynamic individuals to take up the crucial responsibility of BOs at a village level. Many of these are either engaged in small-time employments like retail shops, juice shops, or were homemakers etc. These individuals are from nearby villages, the local area trusts them and they understand these customers better and are able to persuade them to use banking. AU Bank identified their entrepreneurial spirit and encouraged them to become BOs and act responsibly. Your Bank organised regular training programmes for them to gain a better understanding of the banking business and customers’ needs.

Unbanked rural area empowerment: Areas that had no access to any form of banking, started banking transactions such as cash withdrawal and cash deposit. AU Bank offered a wide range of services through BOs. Besides opening bank accounts, BOs are also disbursing loans in rural areas. The BOs can open accounts, conduct Aadhar-based and card-based deposit and withdrawal transactions, non-financial transactions like balance inquiry, mini-statement, etc. and can share leads of all other AU products via the AU Business App. We encouraged them and conducted 300 plus literacy camps at these locations to provide comprehensive education regarding the benefits of formal banking to over 23,000 people. The camps were oraganised via Nukkad Natak to engage rural population to understand benefits of banking in their local language.

In the FY 2018-19, the unbanked rural BOs have opened 33,619 accounts in these scantily populated areas. We focussed not just on account opening in these areas, but also disbursed loans of Rs.20.24 crore. Over 1,12,264 financial transactions, including cash deposit and cash withdrawal took place through these BOs.

Apart from the above, your Bank also contributed towards the government’s novel MUDRA Yojana and opened 33,658 BSBD accounts with a deposit of around Rs.12 crore, issued around 2,61,000 RuPay Cards and disbursed MUDRA Loans to the tune of Rs.3,482 crore in FY 2018-19. The Bank also launched Pradhan Mantri Jevan Jyoti Bima Yojana in FY 2018-19 and went live on an online module and issued 650 policies under this scheme. The Bank also launched Pradhan Mantri Suraksha Bima Yojana and shall soon go live with the Atal Pension Yojana.

Retail Assets

Your Bank provides a wide range of retail asset products, including Vehicle Loans, Secured Business Loan to Micro, Small and Medium Enterprises (MSMEs) and Small & Medium-sized Enterprises (SMEs), Gold Loan, Agri-SME Loan, Consumer Durable Loan, Home Loan and Education Loan to cater to the entire financial lifecycle needs of customers. Vehicle Loans and Secured Business Loans constituted the bulk of the retail loan book and revenues.

The Bank would remain focussed on core retail segments with emphasis on contiguous deeper expansion in existing geographies and enter new geographies gradually. The Bank would continue to focus on ‘customer delight’ by building strong and personalised relationships with retail clients and serving their needs with the use of emerging technologies. We customise our product offerings and features according to customer’s business needs after assessing the business model of clients. This leads to deeper customer engagement in a cost effective manner. Your Bank’s operating model is lean, credit processes are robust, technology driven and cost efficient.

During the year, your Bank enriched its bouquet of product offerings to its customers through ‘digital empowerment’ by offering financial products and services via an online platform against a new set of multiple collaterals. The Bank would continue to offer and introduce new tailor-made products to service the financial needs of customers.

Small and Mid-corporate Assets

The Bank’s Small and Mid-corporate business caters to the diverse needs of a wide range of corporate customer segments, including SMEs, Agri-SMEs, Indian corporates, financial institutions, mid-market companies and real estate businesses. This vertical offers a comprehensive set of products and services to these customers, including term loan, working capital finance, trade finance, lease rental discounting and other services including finance to Non-banking Financial Companies (NBFCs), microfinance companies, Housing Finance Companies (HFCs) and for construction finance.

The disbursements in this segment were Rs.3,764 crore against Rs.2,877 crore in the previous year, registering a growth of 31% and Assets under Management stood at Rs.4,129 crore, against Rs.2,739 crore in previous year, registering a growth of 51%.

Under Business Banking, your Bank caters to all segments of the businesses, including wholesalers, retailers, traders, manufacturers, service providers, contractors, distributors, educational institutes, healthcare institutes, etc. for fulfilling working capital needs, including day-to-day operations, setting up of new units and business expansion.

Treasury

The Treasury Department of the Bank manages asset liability gaps, fund planning, regulatory liquidity requirements viz Cash Reserve Ratio (CRR), Statutory Liquidity Ratio (SLR) and Liquidity Coverage Ratio (LCR) and investments portfolio both SLR and Non-SLR of the Bank. The asset-liability mismatches and interest rate sensitivities of the Bank are efficiently tracked through Structural Liquidity Statements & Interest Rate Sensitivity and judiciously managed with various market investments and money market products. On the other hand, the treasury is also responsible for managing and optimising the cost of funds for the Bank through efficient planning and mix of available resources.

The Bank meets its regulatory requirements on CRR and SLR through efficient liquidity management and investment in GOI securities, SDLs and T-Bills across varying maturities. The portfolio durations were efficiently managed in line with interest rate view and within the overall risk framework provided in Investment Policy and under the oversight of the Bank’s Investment Committee. The treasury also successfully maintained appropriate liquidity buffers in compliance to regulatory requirement of the LCR guidelines, while keeping the business requirements under consideration.

The Bank during the year continued to grow its relationship with both public and private sector banks, by setting up inter-bank limits and transacting in money market instruments. At the same time, the treasury endeavoured to optimise cost of funds by encouraging branches to mobilise deposits at competitive rate of interest in line with prevailing interest rates scenario.

On the treasury systems front, the Bank has well-established systems and platforms, including the RBI platform e-Kuber, Treasury Management System by Credence Analytics, Structured Financial Messaging Systems (SFMS), National Electronic Fund Transfer (NEFT), Real Time Gross Settlement System (RTGS) and Clearing Corporation of India Limited (CCIL) systems, which include money market and sovereign bond dealing platforms. The Bank’s Treasury also has in place a robust primary and secondary Data Centre and Disaster Recovery Centre, in partnership with external vendors, to secure the live systems, which are vital to the Bank’s business continuity and Business Continuity Plan (BCP) for any contingency. All systems and platforms are working seamlessly as per the Treasury requirements. The Treasury has also successfully implemented its BCP for any contingency.

The Treasury department is responsible for managing surplus funds by investing in SLR and high-quality Non-SLR instruments as per the approved regulatory frameworks and internal policies to get optimum risk adjusted returns. The Treasury has initiated and maintained a Debt Capital Market (DCM) book in FY 2018-19 for short- and medium-term investments in bonds and debentures, thus enhancing return on excess funds as well as create High Quality Liquid Assets (HQLA) to aid in regulatory LCR. The Treasury has also initiated active trading in Government securities to generate trading profit by capturing market movements.

Financial Institutions Group (FIG)

Financial Institutions Group (FIG) managed the relationship with financial market participants covering Banks, Mutual Funds, Insurance Companies, Development Finance Institutions (DFIs) and Multilaterals, as well as with associates and intermediaries like credit rating agencies, legal firms, and stock exchanges. The Bank enhanced its relationship with domestic DFIs and availed long-term, low-cost refinance facilities of substantial amount under various schemes for improvement in liquidity position. During the year, FIG facilitated medium and long-term liability for the Bank as per requirement and arranged for the setup of fund based and non-fund based limits with various counter parties and market participants.

To provide cushion in extreme liquidity scenarios, the Bank has been able to secure contingency lines from public and private sector banks. The Bank has also tied up with various banks to ensure availability of trade and remittance products for its clients and has successfully facilitated inward and outward foreign currency transactions, including issuance of trade instruments (Letter of Credit and Bank Guarantees) and processing of trade payments within the capacity of AD-II category bank.

The Bank empanelled with all the leading Stock Exchanges of India (i.e., NSE, BSE, MCX and NCDEX) for acceptance of the deposits to be placed by members of the exchange as margin collateral. This led to new business avenues for the Bank in terms of deposit mobilisation.

Investments

The Treasury maintained SLR investments in the form of Central and State Government Securities as per regulatory requirements of 19% of Net Demand and Time Liability (NDTL) within approved policy criteria in terms of duration and risk profile.

Transaction Banking

With innovative thinking and increased ownership, the Bank remained committed to provide customers with the ease of banking and achieved greater convenience through following measures:

- No deposit slips

- Simpler customer instruction forms

- Extended banking hours

- Seeding of AU Bank account to receive Direct Benefit Transfer (DBT) benefit

- Continuous enhancement in Personal Net Banking and Mobile Banking

- Corporate Net Banking

- Payment Gateway Integration

- Technology Support for Business Correspondents

- Aadhaar-enabled Payment Services (AEPS) extended to BCs where AU customers can perform activities such as Cash Withdrawal, Cash Deposit, Fund Transfer via Aadhaar, Balance Enquiry and Mini Statement.

- Card-based Transactions went live for providing services to AU customers as well as other bank customers to withdraw cash from BOs/BCs points.

The Bank’s strategy is to become digital bank of choice and focus has been to offer the easy & convenient tech solution to our customers. For this, your Bank started ‘AU Sewadwaar’ for collection of EMI/Insurance premium at

AU branches for third party tie-ups, ‘Nodal Account’ for aggregator and payment partners and ‘Mangalam Vishesh Account’ for letting customers sweepout to FD from their existing current account.

Technology and Digital Banking

Your Bank’s continued its endeavour to become a digital bank by creating best-in-class customer-centric solutions and deliver superior customer experience. Leveraging an omni-channel approach with a multi-product suite, the focus has been to create a trusted and recognised Digital Brand in the banking space.

- Digital Brand

The purpose of your Bank has been to simplify banking for all users. With this core principle for building the Digital Brand and in order to create a sustainable long-term business model, we have been targeting to use 360° communication plans across multiple digital and social media channels, the objective is to uplift the brand awareness and consideration scores for your Bank, resulting in positive spill-over effects in traditional businesses too.

- Digital Properties

During the year, focus of the Bank remained to deliver a seamless omni-channel integrated solution that ensured consistent high-level customer experience across all channels (website, internet banking, mobile applications and chat bots). The Bank has been working on state-of-the-art Digital Contact Centre that will be used for higher customer acquisition and better customer engagement through innovative models including virtual Relationship Manager.

- Digital Products

- Digital Assets

Digital Asset is being designed with focus to deliver a seamless straight-through-disbursal process across the various digital modes. Strategic and business partnerships and social media campaigns is being leveraged for customer acquisition. Existing and new-to-bank customers shall apply and get loans through a well-defined credit and risk evaluation process.

- Digital Liabilities

AU Abhi App (mobile and web version) are being deployed by the Bank for Customer acquisition and faster account opening. Customers can open a Direct Benefit Account (DBT) with Bank and this is an important technology enabler for increasing the liability base customers.

- Digital Partnerships

Leveraging partnerships for optimal customer experience and increasing customer acquisition will be the focus for a fully operational Digital Bank. The various partnerships being looked at are strategic, business and technology with the objective of offering and facilitating the latest and most competitive products to the customers of the Bank.

The Bank is using issuer ratings and short-term and long-term instruments/bank facilities’ ratings that are assigned by the accredited rating agencies (i.e., India Ratings, CARE, CRISIL and ICRA) for its debt instruments. The credit rating of the Bank was upgraded by CRISIL from ‘A /Positive’ to ‘AA-/ Stable’ and by ICRA Ratings from ‘A /Stable’ to ‘AA-/Stable’, covering debt instruments of the Bank in view of strong consistent performance quarter to quarter.

Ratings of Debt Instruments

Nature of the Debt Instrument	Nature of Term	India Ratings	CRISIL	ICRA	CARE
Non-convertible Debentures	Long Term	AA-/Stable	AA-/Stable	AA-/Stable	-
Subordinated Debt/Tier II Bonds	Long Term	AA-/Stable	AA-/Stable	AA-/Stable	-
Bank Loans	Long Term	AA-/Stable	-	AA-/Stable	AA-/Stable
Certificate of Deposits	Short Term	A1	A1	-	-

Transfer to Reserve

In terms of applicable RBI regulations, the Bank has transferred the following amounts to various reserves for the financial year ended 31st March 2019.

Transfer to Reserves

Amount transferred to	Amount (Rs. in crore)
Statutory Reserve	95.45
Transfer to Special Reserve U/s 36 (1) (Viii)	37.80
Transfer to Capital Reserve	2.76
Transfer to Investment Fluctuation Reserve	22.12

Securities Capital

During FY 2018-19, there was no change in the authorised share capital of the Bank and it stood at Rs.35,00,000,000 (Rupees Three Hundred and Fifty Crore only). The paid-up capital of the Bank as on 31st March 2019 stood at Rs.2,92,35,74,860 (Rupees Two Hundred and Ninety-Two Crore Thirty-Five Lakh Seventy-Four Thousand Eight Hundred and Sixty only) consisting of 29,23,57,486 equity shares at face value of Rs.10 (Rupees Ten) each.

During FY 2018-19, your Bank issued 43,30,441 equity shares at a face value of Rs.10 (Rupees Ten) each, fully paid-up for cash at an issue price of Rs.692.77 (Rupees Six Hundred and Ninety Two and Seventy Seven paisa including premium of Rs.682.77) per equity share, aggregating to an amount of Rs.2,99,99,99,612 (Rupees Two Hundred and Ninety-Nine Crore Ninety-Nine Lakh Ninety-Nine Thousand Six Hundred and Twelve only) to Camas Investments Pte. Ltd. through preferential allotment.

Further, the Bank issued 1,01,04,364 convertible warrants to Camas Investments Pte. Ltd. to apply for, get issued and allotted 1 (one) equity share of the Bank at a face value of Rs.10 (Rupees Ten) each (for every Convertible Warrant), for cash, in one or more tranches, at a price of Rs.692.77 (Rupees Six Hundred and Ninety Two and Seventy Seven paisa including a premium of Rs.682.77), aggregating to an amount of Rs.700,00,00,249 (Rupees Seven Hundred Crore and Two Hundred and Forty-Nine) (Warrants Subscription Consideration) within a period of 18 months from the date of allotment of convertible warrants. The Bank received partial amount of Rs.175,00,00,063 (Rupees One Hundred and Seventy-Five Crore and Sixty-Three only) in respect to the above convertible warrants.

Your Bank also raised Tier-II capital by issuing 5,000 (Five Thousand) fully paid-up, unsecured, subordinated, rated, listed, redeemable, non-convertible bonds with face value of Rs.10,00,000 (Rupees Ten Lakh Each) aggregating to Rs.500,00,00,000 (Rupees Five Hundred Crore only) being classified as subordinated debt and categorised as Tier-II capital Bonds under the Basel II framework. The said Bonds were allotted to leading financial institutions and Banks.

The Bank added Rs.2,32,34,250 (Rupees Two Crore Thirty Two Lakh Thirty Four Thousand Two Hundred Fifty) to the paid-up equity share capital by allotting 23,23,425 equity shares of face value of Rs.10 (Rupees Ten) each to employees on exercise of options under Employee Stock Option Plan 2015 (Plan A and Plan B) and ESOP Scheme 2016 as per details mentioned below:

Equity Shares allotted on Exercise of ESOPs

Sr. No.	Date of Allotment	ESOP Plan -2015 A	ESOP Plan -2015 B	ESOP Scheme 2016	Total
1	14th August 2018	2,87,476	1,85,985	53,220	5,26,681
2	27th September 2018	7,16,465	8,32,353	3,960	1,552,778
3	11th December 2018	56,752	57,077	1,800	1,15,629
4	7th March 2019	2,048	15,299	1,10,990	1,28,337
	Total No. of Shares	10,62,741	10,90,714	1,69,970	23,23,425

Employees Stock Option Plan (ESOP)

Employee Stock Option Schemes, duly approved by the shareholders of the Bank enabled the employees to participate in the future growth and financial success of the Bank. The Bank provides its employees a platform to perform and display their long-term commitment towards future growth of the Bank by way of rewarding them through Stock Options. The Employee Stock Option Schemes have been devised in accordance with SEBI (Share Based Employee Benefits) Regulations 2014 as amended from time to time. In terms of compensation policy of the Bank, employees are granted options as part of Annual Performance Review of their performance and to hire best talent at senior management positions. Several factors including scale, designation, performance, grades, period of service, the Bank’s performance, criticality of role & their contribution is taken consideration for decision on nos. of ESOPs to be granted to the employees.

The Bank’s shareholders had approved the following Employee Stock Option Schemes:

- EMPLOYEE STOCK OPTION PLAN 2015 - PLAN A

- EMPLOYEE STOCK OPTION PLAN 2015 - PLAN B

- EMPLOYEE STOCK OPTION PLAN 2016

- EMPLOYEE STOCK OPTION PLAN 2018

The details of vesting of various schemes are as follows:

ESOP Schemes	Vesting Period
	Vesting Period	% of Vesting of Options
	1 year from the date of grant or at the time of IPO, whichever is later	20%
	Expiry of 1 year from 1st vesting	30%
	Expiry of 2 years from 1st vesting	50%
	Total	100%
ESOP 2015 - Plan B	Vesting Period	% of Vesting of Options
	1 year from the date of grant or at the time of IPO whichever is later	20%
	Expiry of 1 year from 1st vesting	30%
	Expiry of 2 years from 1st vesting	50%
	Total	100%
ESOP 2016	Vesting Period	% of Vesting of Options
	Options granted under this scheme would vest after one year but not later than six years from the date of 1st vesting of options	100%
ESOP 2018	Vesting Period
	Options granted under this scheme would vest after one year but not later than six years from the date of 1st vesting of options	100%

Details of Existing ESOP Schemes as on 31St March 2019

Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016	ESOP Scheme 2018
Date of Shareholders Approval	31st August 2015	31st August 2015	10th October 2016	07th August 2018
Total No. of Options Approved	38,36,058	49,33,194	21,00,000	49,33,200
Total No. of Options Outstanding at	31,08,020	30,56,541	13,87,321	-
the Beginning of the Period
Total No. of Options Granted	-	1,146	86,864	20,13,928*
(during FY 2018-19)
The Pricing Formula/Price in Rs.	10.11	33.37	140	Market Price Linked
Options Vested (during FY 2018-19)	11,00,018	11,29,510	2,53,538	Nil
Options Exercised (during FY 2018-19)	10,62,741	10,90,714	1,69,970	Nil
Total No. of Shares Arising as a Result	10,62,741	10,90,714	1,69,970	Nil
of Exercise of Options
Options Lapsed/Forfeited (during	30,032	43,672	1,99,255	46,980
FY 2018-19) (Available for Re-issue)
Total No. of Options Exercisable at	33,865	37,230	78,142	-
the End of the Year
Total No. of Options Outstanding at	2,015,247	19,23,301	11,04,960	19,66,948*
the End of the Year
Variation in Terms of Options	No	No	No	No
Money Realised by Exercise of Options	1,07,44,311.43	3,63,97,126.18	2,37,95,800	Nil
(during FY 2018-19) (in Rs.)
Total No. of Options Granted to Senior	Please refer Note 1	Please refer Note 1	Please refer Note 1	Nil
Management Personnel (SMPs)
Any other employee who received	Please refer Note 2	Please refer Note 2	Please refer Note 2	Nil
a grant in any one year of options
amounting to 5% or more of options granted during that year
Identified employees who are granted	Nil	Nil	Nil	Nil
options, during any one year equal to or exceeding 1% of the issued capital
(excluding outstanding warrants
and conversions) of the Company at
the time of grant
Diluted EPS of the Company after
considering the effect of potential equity shares on account of		Refer Note 4		-
exercise of Options
Impact of the Difference between
the Intrinsic Value of the Options and the Fair Value of the Options on		Refer Note 4		-
Profits and on EPS
Weighted Average Share/Exercise	10.11	33.37	140	No shares were
Price of the Shares Exercised during				exercised under this
the Year (in Rs.)				scheme during the year
Weighted Average Fair Values of the	Please refer Schedule 18 (7) to Notes to accounts to Audited Financial			-
Outstanding Options (in Rs.)		Results for FY 2018-19

*10,00,000 ESOPs under ESOP Scheme 2018 were granted to Mr. Uttam Tibrewal, Whole Time Director during the year and the same are subject to RBI approval.

Note 1

Following are the total no. of stock options that have been granted to the SMPs during the financial year ended 31st March 2019

S. No.	Name	Designation	No. of ESOPs Granted in ESOP Plan-A 2015	No. of ESOPs Granted in ESOP Plan-B 2015	No. of ESOPs Granted in ESOP Scheme 2016	No. of ESOPs Granted in ESOP Scheme 2018
1	Deepak Jain	Chief Financial Officer				5,00,000
2	Manoj Tibrewal	Group Head HR, Marketing & Distribution	-	-	-	5,00,000
3	Ashok Khandelwal	Chief Compliance Officer	-	-	-	4,000
4	Sumit Madan	Chief of Branch Banking	-	-	-	15,000
5	Mayank Markanday	Chief Risk Officer	-	-	-	10,000
6	Rishi Dhariwal	Chief of Secured Business Loan	-	-	-	7,500
7	Vijendra Singh Shekhawat	Chief of Operations - Assets				5,000
8	Yogesh Jain	Group Head Strategy -Treasury, FIG, DCM, Wholesale Liability and Investor Relation				20,000
9	Vinay Vaish	Chief of Credit Risk	-	-	-	4,000
10	Nitin Gupta	Chief Audit Officer	-	-	-	3,000
11	Manmohan Parnami	Company Secretary	-	-	-	3,000
12	Amiya Dikshit*	Chief Technology Officer	-	-	-	0

*Amiya Dikshit resigned and was relieved during FY 2018-19 and no ESOPs were exercisable during the tenure of his employment.

Note 2

Following are the details of Employees who received a grant in any one year of ESOPs amounting to 5% or more of ESOPs granted during that year

S. No.	Name	Designation	No. of ESOPs Granted in ESOP Plan-A 2015	No. of ESOPs Granted in ESOP Plan-B 2015	No. of ESOPs Granted in ESOP 2016	No. of ESOPs Granted in ESOP Scheme 2018
1	Uttam Tibrewal	Whole Time Director*	-	-	-	10,00,000
2	Manoj Tibrewal	Group Head HR, Marketing & Distribution	-	-	-	5,00,000
3	Deepak Jain	Chief Financial Officer	-	-	-	5,00,000

* 10,00,000 ESOPs under ESOP Scheme 2018 were granted to Mr. Uttam Tibrewal, Whole Time Director during the year and the same are subject to RBI approval.

Note 3

The SEBI has prescribed two methods to account for stock grants: (i) the intrinsic value method and (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options it grants to the employees. The Bank also calculates the fair value of options at the time of grant, using the Black-Scholes pricing model with the following assumptions:

Particulars	31st March 2019
Risk-free Interest Rate (%)	7.30% - 8.03%
Expected Life (years)	3 years - 5.5 Years
Expected Volatility (%)	37.28% - 38.39%
Expected Dividend Rate (%)	0%

Note 4

The Bank measures the cost of ESOP using the intrinsic value method. Had the Bank used the fair value model to determine compensation, its Profit after Tax and EPS as reported would have changed to the amounts indicated below:

(Rs. in crore)

Particulars	Year Ended 31st March 2019	Year Ended 31st March 2018
Profit after Tax as Reported	381.81	292.04
Add: ESOP Cost Using Intrinsic Value Method (Net of Tax)	25.11	9.24
Less: ESOP Cost Using Fair Value Method (Net of Tax)	36.38	12.51
Profit after Tax (Adjusted)	370.54	288.77
EPS
Basic
- As Reported	13.16	10.26
- Adjusted for ESOP Cost Using Fair Value Method	12.77	10.14
Diluted
- As Reported	12.90	10.00
- Adjusted for ESOP Cost Using Fair Value Method	12.52	9.89

Particulars	As on 31st March 2019	As on 31st March 2018
Stock Options Outstanding (Gross)	103.75	94.04
Deferred Compensation Cost Outstanding	44.87	73.76
Stock Options Outstanding (Net)	58.88	20.28

The Bank has granted 10,00,000 stock options on 30th August 2018 under Plan D1 and 38,702 and 10,18,758 stock options on 27th October 2017 under Plan A3 and Plan B5, respectively, to Whole time Director which are pending for RBI Approval. Accordingly, these options have not been considered for the purpose of computing the impact of ESOP fair value on profit before tax.

Re-classification of Certain Persons from the Promoter Group to Public Category

In pursuance to the Regulation 31A of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, your Bank re-classified some of its promoter group i.e., Mr. Niranjan Lal Aggarwal, Mr. AjayAgarwal, Mr. Ashok Kumar Agarwal, Mr. Baldev Agarwal, Mr. Dinesh Kumar Agarwal, Mr. Mahender Kumar Agarwal, Mr. Manoj Kumar Agarwal, Mr. Srikant Kedia, Mr. Suresh Chand Kedia, Ms. Anita Aggarwal, Ms. Bina Agarwal, Ms. Chanda Devi Kedia, Ms. Dropathy Jaipuria, Ms. Pinki Agarwal, Ms. Sunita Gupta and M/s Natural Fab, who were not directly or indirectly exercising control over the affairs of the Bank, to public category. They were neither holding any key managerial positions or representations of the Board of Directors in the Bank, nor engaged in any management or day-to-day affairs and also do not have any right either to appoint any Director or an ability to control the management or policy decisions of the Bank in any manner.

Your Bank duly received approvals from Stock Exchanges and the same were disclosed in compliance of Regulation 30 of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015.

Deposits

Being a banking company, the disclosures required as per Rule 8 (5) (v) & (vi) of the Companies (Accounts) Rules, 2014, read with Sections 73 to 76 of the Companies Act, 2013 are not applicable.

Particulars of Loans, Guarantees and Investments

Pursuant to Section 186 (11) of Companies Act, 2013, loans made, guarantees given or securities provided or acquisition of securities by a Banking company are carried out in its ordinary course of business and are exempted from disclosure requirement in the Annual Report. Hence, there is no disclosure being made herein in this regard.

B. CORPORATE GOVERNANCE

The Report on Corporate Governance for FY 2018-19, along with the certificate issued by Practicing Company Secretary, CS Mr. Manoj Maheshwari, confirming the compliance to applicable requirements related to corporate governance as stipulated under Chapter IV of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 forms part of this Annual Report as Annexure I.

Board and Board Committees

The Board of Directors holds fiduciary position and is entrusted with the responsibility to act in the best interests of the Bank. The Board at its meetings deliberate and decide on strategic issues including review of business policies, financial matters, discuss on business performance and other critical matters for the Bank. Committees constituted by the Board focus on specific areas and take informed decisions within the framework of the delegated authority and responsibility and make specific recommendations to the Board on matters under its purview. Decisions and recommendations of the committees are placed before the Board for consideration and approval as required.

Board Meetings

During FY 2018-19, seven (7) Board meetings were convened and held, the details of which are given in the Corporate Governance Report, forms part of this report as Annexure I. The intervening gap between the meetings was within the period prescribed under the Companies Act, 2013, Secretarial Standard I and as per SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015.

Committees of the Board

The Board places significant reliance on its committees by delegating responsibilities to assist it in carrying out its function under its supervision and stewardship. It therefore remains crucial that effective linkages are in place between the committees and the Board as a whole.

The Board Committees constitution is in acquiescence of provisions of the Companies Act, 2013, the relevant rules made thereunder, SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, Banking Regulation Act, 1949, other guidelines issued by RBI from time to time and the Articles of Association of the Bank. The details of the Board Committees of the Bank are disclosed in the Corporate Governance Report, which forms part of this report.

Meetings of Independent Directors

Your Bank conducted a separate meeting of Independent Directors consisting of Mr. Mannil Venugopalan, Mr. Krishan Kant Rathi, Mr. Raj Vikash Verma and Ms. Jyoti Narang as prescribed under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and Section 149(6) of Companies Act, 2013.

During the year under review, the Independent Directors of the Bank met on 26th April 2018 without the presence of the Non-independent Directors and Members of the Senior Management of the Bank.

At the said meeting, the Independent Directors of the Bank inter alia reviewed the performance of the Non-independent Directors, the Board as a whole and reviewed the performance of the Chairman of the Bank taking into account the views of the Executive and Non-executive Directors and assessed the quality, quantity and timeliness of flow of information between the Management and the Board for effective discharge of their duties.

No sitting fees was paid to the Independent Directors of the Bank for participating in the said meeting.

Independent Woman Director

In terms of the provisions of Section 149 of the Companies Act, 2013 and Regulation 17 (1) (a) of SEBI (Listing Obligations and Disclosure Requirements), Regulations 2015, your Bank continues to comply with the requirement and has one Independent Woman Director on its Board.

Board of Directors and Key Managerial Personnel

The composition of the Board of Directors of the Bank is in accordance with the Banking Regulation Act, 1949, the Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015. As on 31st March 2019, the Board of Directors comprises seven (7) Directors, out of which five (5) are Non-executive Directors. The Chairman of the Board and three (3) other Directors are Independent (Non-executive Directors) including one (1) Woman Independent Director. All the Directors have rich experience and specialised knowledge in sectors covering banking, economics, law, finance, accountancy and other relevant areas.

Your Bank’s Board consists of professionals who have the knowledge and experience required in the banking industry. The responsibilities of the Board inter alia include formulation of policies, taking new initiatives, performance review, monitoring of plans and pursuing of policies and procedures and ensuring that the Bank operates under the regulatory framework laid down by the RBI for Banks.

The remuneration/sitting fees paid to the Directors during the year has been disclosed in the Corporate Governance Report as Annexure I.

The following appointment on the Board was made during the year.

Appointment of Mr. Narendra Ostawal as Additional Director (Non-executive)

The Board of the Bank, in its meeting held on 17th January 2019, appointed Mr. Narendra Ostawal as Additional Director (Non-executive) (DIN: 06530414) of the Bank. Prior to this, he was appointed as a Nominee Director on behalf of Redwood Investments Ltd., fund advised by Warburg Pincus. Further, no remuneration was paid to Mr. Narendra Ostawal during the period under review.

The details of the brief profile of Mr. Narendra Ostawal is available on the website of the Bank at www.aubank.in/ about-us/board-directors

Declaration of Independence

The Bank has received necessary declarations from each Independent Director under Section 149(6) and 149(7) of the Companies Act, 2013 and Regulation 16(1) (b) and Regulation 25(8) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 (Listing Regulations), that they meet the criteria of independence laid down thereunder.

Retirement by Rotation

In terms of Section 1 52 of the Companies Act, 201 3, Mr. Uttam Tibrewal, Whole Time Director, shall retire at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment. The Board recommends his re-appointment at the ensuing AGM and requisite information required under SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and under Secretarial Standard - II has been provided with the notice of the AGM.

Key Managerial Personnel

Mr. Sanjay Agarwal, Managing Director & CEO, Mr. Uttam Tibrewal, Whole Time Director, Mr. Deepak Jain, Chief Financial Officer and Mr. Manmohan Parnami, Company Secretary are Key Managerial Personnel of your Bank as defined under section 2 (51) of Companies Act, 2013. There was no change in composition of Key Managerial Personnel of the Bank.

Evaluation of the Directors, the Board and Its Committees

Pursuant to the provisions of the Companies Act, 2013, Regulation 17 (10) and other applicable Regulations of SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and in consonance with Guidance Note on Board Evaluation issued by the SEBI, the Board on the recommendation of the Nomination and Remuneration Committee of the Bank carried out an annual performance evaluation of the Board as a whole and directors individually. The Board also carried evaluation of the working of its various Committees for the year under consideration.

The performance evaluation of the Directors was carried out by the entire Board, other than the Director being evaluated. The performance evaluation of the Chairman and the Non-independent Directors were carried out by the Independent Directors. The Nomination and Remuneration Committee carried out the performance evaluation of all the Directors of the Bank. The Directors expressed their satisfaction over the evaluation process.

The Evaluation process covers a structured questionnaire for evaluation by Board members and format has been designed after taking inputs received from the Directors and process of evaluation has been detailed below:

Familiarisation Programme for Directors

The Bank conducted orientation programme for the induction of Directors and during the year, programme organised by reputed institutes were attended by the Directors covering their roles and responsibility, IT Risks, cyber security, compliance and other governance aspects in the Bank. The Corporate Governance Report for FY 2018-19 contains the requisite information and the details of the familiarisation programmes imparted to Directors. These programmes are also hosted on the website of the Bank and can be accessed at www.aubank.in/au-notice-board

Corporate Social Responsibility

In compliance with the provision of Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Bank has set up a Corporate Social Responsibility (CSR) Committee.

Your Bank thoughtfully spent its CSR funds and selected few projects post assessment of their sustainable impact on the society. The primary focus areas were covering the field of livelihood enhancement, financial & digital literacy and development of sports. The contribution under CSR was carried out by AU Foundation through its AU Skill Academy, AU Sports Village and in collaboration with specialised implementing agencies. The Bank has devised long term strategy to take up sustainable projects that have widespread and long-lasting impact on the society. An overview of the CSR programmes undertaken by the Bank during FY 2018-19 is detailed in the Corporate Social Responsibility Report as Annexure II.

The CSR Policy, as recommended by the CSR Committee and approved by the Board, is available on the website of the Bank at www.aubank.in/au-notice-board

Social Environmental and Management System

The Social Environmental and Management System (SEMS) is a set of policies, procedures, tools and internal capacity to identify and manage a financial institution’s exposure to the environmental and social risks of its customers. The Bank endeavours to benchmark itself with the best of corporates in India and continued its focus to implement Environmental, Social and Governance (ESG) practices. The procedures and decision-making process of the SEMS are systematically incorporated at each stage of transaction appraisal and monitoring.

Awareness is also created among vendors and customers to comply with applicable social and environmental laws.

Human Capital

Your Bank endeavours to provide a conducive workplace with best-in-class standards and believes that employees are the most important assets. To ensure that an effective and the right resource is acquired, your Bank continuously strengthens and updates its hiring mechanism.

During FY 2018-19, your Bank expanded its workforce to 12,623 employees as on 31st March 2019 vis-a-vis 11,151 employees as on 31st March 2018.

Your Bank, through its Human Resource Department, nurtures its employees through robust learning and development programme. A knowledge-driven approach is followed for designing & organising relevant training programmes to make employees ready for challenges and drive success in their functional roles.

In today’s disruptive digital environment, it is critical to build a high-quality, robust talent pool with adaptability skills for the changing needs of the workplace for a sustained competitive advantage and to achieve accelerated growth. The Bank has always emphasised on a knowledge-driven approach for visualising the future and bringing that future to the present. The Bank focussed on developing the capacity and capability to nurture the brightest and best quality talent.

Anti-bribery and Anti-corruption Policy

The Bank adopts a ‘zero-tolerance approach’ to bribery and corruption and is committed to act professionally, fairly and with integrity in its dealings wherever it operates. The Bank has an Anti-bribery and Anti-Corruption Policy laying down the principles for carrying out banking business in an honest and ethical manner.

The Anti-bribery and Anti-corruption Policy as approved by the Board is available on the website of the Bank at www.aubank.in/au-notice-board

Disclosure under Section 22 of the Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The primary objective of the Policy on Prevention and Redressal Against Sexual Harassment is to protect the women employees from sexual harassment at the place of work. Your Bank constituted an Internal Complaints Committee in compliance with the provisions of The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 to review, investigate and take suitable actions on complaints and there is a Board-level Disciplinary Committee that reviews the decisions taken by the Internal Complaints Committee.

The complaints received and the details relating thereto were as follows for the period under review:

Heading	Nos.
No. of Complaints Pending at the	1
Beginning of the Year
No. of Complaints Received and Resolved	1
during the year
No. of Complaints Pending at the End of the Year	0

Extract of Annual Return

Pursuant to Section 134(3)(a) and Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the extract of the Annual Return as on 31st March 2019, in the prescribed form MGT-9 forms part of this report under Annexure VI and is available on the website of the Bank at https://www.aubank.in/investor-relations.

Compensation Policy

The objective of the Compensation Policy is to regulate the appointment and remuneration of Directors (including Independent Directors), KMP, SMP and other employees of the Bank according to the criteria formulated by the Nomination and Remuneration Committee of the Board under the requirement of the Companies Act, 201 3 read with applicable Rules and the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015 and guidelines issued by RBI in this regard.

The key objectives of the Compensation Policy are as follows:

- To institutionalise a mechanism for the appointment/removal/dismissal of Directors, lay down selection criteria for appointment of a Director, formulate the criteria for determining qualifications, positive attributes and independence of a Director and recommend to the Board

- To formulate the criteria for evaluation of performance of the Directors on the Board

- To establish standards on compensation/remuneration, including fixed and variable, which are in alignment with the applicable rules and regulations and are based on the trends, practices of remuneration prevailing in the industry

- To define internal guidelines for the payment of perquisites to the Directors, Key Managerial Personnels (KMPs), Senior Management Personnels (SMPs) and other employees of the Bank

The Compensation Policy is available on the website of the Bank at www.aubank.in/au-notice-board

Disclosure on Remuneration

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, form part of this Report and is annexed as Annexure III to this Report.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and Rule 5(3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms part of this Report and is annexed as Annexure IV to this Report.

Whistle Blower Policy and Vigil Mechanism

Whistle Blower Policy has been devised with a view to provide a mechanism to employees, customer and stakeholders of the Bank to approach the Chief Vigilance Officer and thereafter Disciplinary Committee of the Bank in case they observe any unethical and improper practices or any other alleged wrongful conduct in the Bank. The policy aims at establishing an efficient vigil mechanism in the Bank to quickly spot aberrations and deal with them at the earliest.

The policy devised is aligned to the recommendations of Protected Disclosure Scheme for Private Sector and Foreign Banks, instituted by RBI and in view of amendments in SEBI (Prohibition of Insider Trading) Regulations, 2015, the said policy has been amended by insertion of clause to report instances of leak of Unpublished Price Sensitive Information.

The Vigil Mechanism provides a channel to the employees, Directors and other stakeholders to report to the management about unethical behaviour, actual or suspected fraud or violation of the Codes of Conduct, regulatory requirements, incorrect or misrepresentation of any financial statements and such other matters. The Chief Vigilance Officer of the Bank act as a Special Assistant/ Advisor to the Managing Director (MD & CEO) of the Bank in the discharge of the vigilance functions. He is responsible for ensuring and promoting a culture of speaking up/raising red flags on matters relating to breaches/violations of the Bank’s Code of Conduct or any fraudulent transactions and provides a non-threatening environment to employees to discuss matters relating to the Bank’s Code of Conduct, suspected unethical behaviour, malpractices, wrongful conduct, frauds, violations of law and questionable accounting or auditing matters, which build trust and transparency in the Bank. During the year, no person was denied access to the Audit Committee or its Chairman to raise his/her concern under the Vigil Mechanism.

The Whistle Blower Policy and Vigil Mechanism as approved by Board are available on the website of the Bank at www.aubank.in/au-notice-board

Related Party Transactions

The Board approved Related Party Transactions and Materiality Policy as per the provisions of the Companies Act, 2013 read with the rules made thereunder and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, described the related party transactions requiring requisite approvals and requirements of appropriate reporting and disclosure of transactions between the Bank and its related parties.

During FY 2018-19, the Bank has not entered any materially significant transactions with its Promoters, Directors, management or relative of the Directors, which could lead to potential conflict of interest between the Bank and these parties, other than the transaction entered in the ordinary course of business and the transactions entered into by the Bank are on ‘arm’s length basis’. On quarterly basis, the Audit Committee of the Bank is apprised of all specified details of related party transactions. Hence, pursuant to Section 134 (3) (h) of the Companies Act, 2013 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. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the year ended 31st March 2019.

The Related Party Transactions and Materiality Policy as approved by the Board is available on the website of the Bank at www.aubank.in/au-notice-board

Code of Conduct for Directors and SMPs

The Board of Directors of the Bank adopted the Code of Conduct for the Directors and Senior Management Personnel of the Bank in compliance with Regulation 17(5) of the SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, which sets forth the guiding principles on which Bank’s Board and Senior Management Personnel shall operate and conduct themselves with stakeholders, including government and regulatory agencies, media, etc.

In respect of FY 2018-19, all Board members and Senior Management personnel of the Bank have affirmed the compliance with the code as applicable to them and a declaration to this effect signed by the Managing Director & CEO and forms part of the Corporate Governance Report as Annexure I.

The Bank’s Code of Conduct for Directors and Senior Management is available on the website of the Bank at www.aubank.in/au-notice-board

Code for Prevention of Insider Trading

In compliance with the SEBI (Prohibition of Insider Trading) Regulations 2015, the Bank has approved code for prohibition of insider trading in the shares of the Bank, which inter alia, prohibits trading in shares of the Bank by insiders while in possession of unpublished price sensitive information in relation to the Bank and in view of amendments in SEBI (Prohibition of Insider Trading) Regulations, 2015, requisite amendments were carried out in the code and effective from 1st April 2019.

Code of Conduct for Employees

Code of Conduct is a comprehensive written code which is applicable to all employees and lays down the Principles and standards that govern the activities of the Bank and its employees to ensure and promote ethical behaviour within the governance framework and attempts to set forth the guiding principles and values on which the Bank’s employees shall operate and conduct its business with its all stakeholders including government, regulatory agencies, media and others with whom they are connected or interact with.

Material Orders Passed by Regulators or Courts or Tribunals, and Penalties and Punishment

There are no material orders passed by the regulators/ courts/tribunals during FY 2018-19, which would impact the going concern status of the Bank and its future operations.

The Bank has complied with the applicable requirements and no strictures or penalties were imposed on the Bank by the RBI, Stock Exchanges and SEBI during the year under review.

Material Changes and Commitments, if any, Affecting the Financial Position of the Bank

There are no material changes affecting the financial position of Bank that have occurred between the end of FY 2018-19 of the Bank to which the financial statements relate and the date of this Board’s Report.

Maintenance of Cost Records

Being a banking company, the Bank is not required to maintain cost records as per sub-section (1) of Section 148 of the Companies Act, 2013.

Risk Management Framework

Robust risk management structure has been devised that proactively identifies the risks faced by the Bank and helps in mitigating them. Risk Management Committee (RMCB) of the Board supervises the risk management functions and advises on risk mitigation strategies, thereby bringing a top-down focus to risk management.

The Risk Management Department headed by the Chief Risk Officer administers the risk management functions in the Bank through dedicated divisions i.e., Credit Risk, Market Risk, Operational Risk, Fraud Risk and Information Security Risk under the aegis of Board approved risk management policies and approval & responsibility delegation matrix.

The detailed note on Risk Management is covered under Management Discussion and Analysis section, which forms part of this Annual Report.

The Enterprise Risk Management framework is a layered structure and broadly consists of the following components for effective risk management across the Bank.

(a) Credit Risk Management

There is Credit Risk and NPA Management Committee (CRANPAC) which reports to Risk Management Committee of the Board. The CRANPAC overseas and reviews the credit risk and ensures that Bank’s operations are run as per the credit risk framework laid down by the RMCB & Board of the Bank. The CRANPAC is responsible for formulation of standards for presentation of credit proposals, financial covenants, rating standards and benchmarks, delegation of credit approving powers, prudential limits on large credit exposures, asset concentration, standards for loan collateral, portfolio management, loan review mechanism, risk concentration, risk monitoring and evaluation, provisioning, regulatory and other issues around it.

(b) Operational Risk Management

Your Bank has in place a Board delegated committee for Operational Risk Management (ORMC) which reports to (RMCB) for review and advise for implementation of measures for risk mitigation. The Bank follows an integrated risk approach where operational risks & its monitoring folds into CRO and ORMC. The Bank has business continuity framework to ensure the continuity of services in the event of any catastrophic event. Your Bank’s operational risk management framework is designed with a clear understanding of various operational risks faced by the Bank and for its continuous monitoring disciplined risk assessment & mitigation measures were operating effectively during the year.

(c) Fraud Risk Management

Your Bank has effective fraud risk management framework and Risk Containment Unit (RCU) that is guided by a Board approved Fraud Risk Management Policy. Fraud reported in the Bank are apprised to the Audit Committee and Board and fraud in excess of Rs.1 crore or more are specifically reported and dealt by the SFMC Committee of the Board. Frauds in banks occur when the safeguards are inadequate or the procedural checks are not adhered to, leaving the system/bank vulnerable to internal or external perpetrators. The only effective defence the Bank can have against frauds is to continuously strengthen its systems, operational practices, procedures, controls and review mechanism so that fraud-prone areas are sanitised against internal and external breaches and these control measures operate effectively.

(d) Market Risk, Liquidity and Asset Liability Management

Your Bank has a well-developed market risk framework comprising Board-approved policies and established practices. The Bank has in place an integrated risk measurement framework that captures all components of market risks. The Asset Liability Management Committee (ALCO) of the Bank oversees the framework for identification, measurement and management of market risk, interest rate risk and liquidity risk in the Bank and ensures compliance with established internal and regulatory prudential limits.

(e) IT Risk Management

Your Bank has established robust information and cyber security framework for securing its IT infrastructure and systems. There is a dedicated IT Steering and Information Security Committee which reports to Board-level IT Strategy & Information Systems Security Committee. This committee reviews and monitors IT security infrastructure and vigilance over IT related vulnerabilities against emerging cyber security risks. The Chief Information Security Officer (CISO) is responsible for monitoring the information security risk covering all aspects of data security for the Bank who reports to Chief Risk Officer (CRO). Cyber Security Operation Center (CSOC) with qualified professionals report into CISO for monitoring of real-time cyber security incidents.

(f) Business Continuity Plan

Your Bank has put in place a comprehensive Business Continuity Management (BCM) plan, policy and procedures to ensure continuity of critical operations of the Bank in the event of any disaster/incident affecting business continuity. The Bank’s business continuity programme is developed considering the criticality of the functions performed and the systems used to minimise the operational, financial, legal and other material consequences arising from such a disaster and focus is on ensuring faster recovery of/ minimizing impact on the IT systems of the Bank.

(g) Cyber Security Management

Technology has drastically changed the banking services, products, methods of operation and the way banks function. Your Bank has been able to offer more products to increase customer’s delight and operational efficiency and reduce operational expenses of banking services. However, it is equally true that the advent of technology has also made banks vulnerable to cyber-attacks. Cyber security is the combination of technologies, processes and practices designed to protect networks, computers, programmes and data from cyber-attacks, damage or unauthorised access. Cyber space is a complex environment consisting of interactions between people, software and services, supported by worldwide distribution of Information and Communication Technology (ICT) devices and networks.

To combat growing cyber threats and enhance the resilience of the banking system to address cyber risks, your Bank has set up a framework for cyber security in compliance with the guidelines issued by the RBI. During the year, the Directors and Senior Management attended the training & certification programme organised by IDRBT for awareness about current IT and cyber security issues.

Statutory Auditors & their report

M/s. S.R. Batliboi & Associates LLP (Firm Registration No. 101049W/E300004) were appointed as the Statutory Auditors for a period of four (4) years by the Members of the Bank at the (22nd) Twenty Second Annual General Meeting held on 27th September 2017, to hold office from the conclusion of the 22nd Annual General Meeting till the conclusion of the 26th Annual General Meeting of the Bank, in accordance with the provisions of the Companies Act, 2013.

The Statutory Auditors have confirmed their eligibility under Section 141 of the Companies Act, 2013. Further, as required under the relevant provisions of SEBI (Listing Obligations & Disclosure Requirements) Regulations 2015, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and they hold a valid certificate issued by the Peer Review Board of ICAI and the Board has upon recommendation of the Audit Committee proposed the ratification of their appointment as Statutory Auditors for the FY 2019-20, subject to approval of shareholders at the ensuing AGM and the RBI.

There are no qualifications, reservations or adverse remarks made by M/s. S.R. Batliboi & Associates LLP, Chartered Accountants, Statutory Auditors of the Bank, in their report. Further, pursuant to Section 143(12) of the Companies Act, 2013, the Statutory Auditors of the Bank have not reported any instances of frauds committed in the Bank by its officers or employees.

Secretarial Auditors & their report

In compliance with the provisions of Section 204 of the Companies Act, 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, the Board in its meeting dated 26th April 2018 upon recommendation of the Audit Committee appointed M/s. V.M. & Associates, Practicing Company Secretaries (Registration No. P1984RJ039200) to undertake the Secretarial Audit of the Bank during the financial year ended 31st March 2019. The Secretarial Audit Report for FY 2018-19 is annexed herewith as Annexure V.

There were no observations or qualifications made by the Secretarial Auditor in its Report (except expense on CSR activities below the prescribed limit); justification of observation covering reasons for not being able to carry out CSR expenditure has been provided in the report on CSR attached as Annexure II to this Board’s Report.

Internal Financial Controls System and their Adequacy

Your Bank has an effective internal control system calibrated to the risk appetite of the Bank and aligned to the scale, size and complexity of its operations. The scope and authority of the risk-based internal audit function is defined in the Internal Audit Policy of the Bank duly approved by the Board.

The audit function essentially validates the compliances of Bank’s processes and operations with regulatory guidelines, accounting procedures and the Bank’s own internal rules and guidelines.

The Internal Audit function provides independent assurance to the Board of Directors, Audit Committee and Senior Management on the quality and effectiveness of the Bank’s internal control, risk management and governance systems and processes.

Proper internal financial controls were in place and were operating effectively during the year. Further, the statutory auditors have, in compliance with the requirements of the Companies Act, 2013, issued an opinion with respect to the adequacy of the internal financial controls over financial reporting of the Bank and the operating effectiveness of such controls details of which may be referred to in the Auditor’s Report attached to the Audited Financial Statements of FY 2018-19.

Compliance

Strong compliance & governance culture has been established with the objective to build trust & transparency among all stakeholders and a dedicated Compliance Department headed by the Chief Compliance Officer for ensuring regulatory compliance across all businesses and operations has been setup.

The Board, Audit Committee & Risk Management Committee of the Bank oversee the implementation of the entire compliance framework and risk management system across the Bank.

C. BUSINESS RESPONSIBILITY REPORT

Pursuant to Regulation 34 (2) (f) of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, a Business Responsibility Report (BRR) is required to be published by the Top 500 listed companies based on market capitalisation. The BRR describes the initiatives taken by the Bank from environmental, social and governance perspective in the format prescribed under SEBI Circular No. CIR/CFD/CMD/10/2015 and the same is attached herewith as Annexure VII and placed on the website of the Bank at www.aubank.in/investor-relations.

D. MANAGEMENT DISCUSSION AND ANALYSIS

The Management Discussion and Analysis Report for FY 2018-19 is presented in a separate section forming part of this Annual Report.

E. OTHER STATUTORY DISCLOSURES

Conservation of energy and technology absorption

Your Bank as a responsible organisation established and implemented the required systems and processes to conserve energy aligned to its nature of the business. The Bank is using energy efficient cooling systems for its operations. The distributed cooling system has been designed in such a way that if a particular area/room is not in use, the air-conditioning for that particular area is auto switched off to conserve energy. In similar ways, energy efficient lighting systems like LEDs have been widely used in offices of the Bank. Your Bank used wide glass windows to utilise maximum natural lights to conserve electricity used by the lighting system.

Your Bank as part of its digital strategy is focussed on building an IT architecture in a manner to achieve internal natural resource consumption efficiencies and simultaneously minimising the carbon footprint.

Efforts made by the Bank for conservation of energy and absorption of technology have been detailed below:

- Energy-efficient IT hardware

IT hardware assets used by your Bank comply with the Environmental Protection Agency’s (EPA’s) Energy Star guidelines for lower power consumption. These IT assets include workstation, notebooks, servers, etc. Further, your Bank is using multicore processors in servers, which increases processing output without substantially increasing energy usage.

- Digital Solutions

Your Bank is leading the digital banking revolution by operating ‘Paperless Account Origination’ through a TAB-based system, which has significantly reduced paper consumptions in the Bank. Under the ‘Go Green Programme’ all printers of the Bank are being configured with both side printing and the size of e-receipts have been reduced to print two slips on a single page. These initiatives by the Bank have significantly reduced the overall paper consumption within the Bank.

- Using power management technology and best practices

Your Bank is a pioneer in adopting the latest operating systems running on Advanced Configuration and Power Interface (ACPI) enabled systems that incorporate power saving features that automatically goes on power-saving mode in case the system is idle for a specific time interval.

- Using Cloud-based and virtualised data centre

The virtual and Cloud technology based servers are one of the most energy efficient servers in the current technology era and the Bank invested on virtualisation and Cloud-based technology to reduce the number of physical servers.

- Recycling systems and supplies

The Bank is following an efficient way of managing aging IT systems to scale down the load on already overtaxed landfills and to avoid sending hazardous materials to those landfills where they can seep into the environment and cause harm.

The Bank has an efficient way of re-furbishing the slightly old IT systems that can be used by staff who do not require heavy data processing. Hence, the Bank reduces the demand for new laptops/desktops despite the increase in manpower. In many cases, when an IT engineer needs a new high end workstation to run resource hungry programmes, the old computer is perfectly adequate for use by someone doing Word processing, spreadsheets or other less intensive tasks. This hand-me-down method allows two employees to get better systems than they had, while requiring the purchase of only one new machine (thus saving money and avoiding unnecessary e-waste).

Foreign exchange earnings and outgo

During the year ended 31st March 2019, there were no foreign exchange earnings and the foreign exchange outgo was of Rs.0.46 crore.

MD & CEO and CFO Certification

The MD & CEO and the CFO of the Bank have issued certificate certifying that the financial statements do not contain any materially untrue statements and these statements represent a true and fair view of the Bank’s affairs. They also certify that no transactions entered into during the year were fraudulent, illegal or violative of the Code of Conduct of the Bank. The certificate of MD & CEO and CFO forms part of Annual Report.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

During the period under review, the Bank has complied with all the mandatory requirements of Regulation 17 to 27 of SEBI (Listing Obligations and Disclosure Requirements) and other applicable Regulations except for Regulation 24, which is not applicable to the Bank.

Accounting Treatment

The Bank has adopted accounting policies that are in line with the accounting standards and financial statements are prepared in adherence to the accounting policies, accounting standards and applicable provisions of the Companies Act, 2013, SEBI (Listing Obligations and Disclosure Requirements) Regulations 2015 and RBI Guidelines in this regard.

Subsidiary and Associate Companies

During the period under review, the Bank does not have any subsidiary or associate companies. Hence, Form AOC 1 as specified under the Companies Act, 2013 is not applicable to the Bank for FY 2018-19.

Compliance of Secretarial Standards issued by the ICSI

The Bank has complied with applicable Secretarial Standards issued by the Institute of Company Secretaries of India (ICSI).

F. INVESTOR RELATIONS

Pursuant to the applicable compliance of SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015, the financial results of the Bank on a quarterly basis are published to the Stock Exchanges. The same were also published on the website of the Bank and in leading national and vernacular newspapers. The Managing Director & CEO, Whole Time Director, CFO and Chief of Investor Relations at regular intervals connect with the analysts/ shareholders and respond to the queries from investors on a quarterly basis.

For share transfers, dividend payments and all other investor-related activities are attended to and processed at the office of our Registrars and Share Transfer Agents, i.e., Link Intime India Private Limited, contact details of which are provided in the Corporate Governance Report of the Annual Report.

Board-approved Investor Grievance Redressal Policy lays down the simplified procedure for shareholders to submit their queries, concerns and grievances for timely resolution. Shareholders can email at [email protected] for any query and can also visit the Bank’s website for more information at www.aubank.in. All the investor complaints received during the year were resolved and there was no investor complaint that was unresolved as on 31st March 2019.

G. DIRECTORS’ RESPONSIBILITY STATEMENT

Your Directors would like to inform that the audited financial statements for the financial year ended 31st March 2019 are in conformity with the requirements of Clause (c) of Sub-section (3) of Section 134 of the Companies Act, 2013 and hereby confirm:

(a) That in the preparation of the annual accounts, the applicable Accounting Standards have been followed along with proper explanation relating to material departures

(b) That 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 and loss of the Bank for that period

(c) That 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 Bank’s assets and for preventing and detecting fraud and other irregularities;

(d) That the Directors had prepared the annual accounts on a going concern basis

(e) That 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

(f) That 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

Acknowledgment

The Board of Directors wish to place on record their gratitude to the RBI, SEBI, Ministry of Corporate Affairs, Indian Banks’ Association (IBA), Unique Identification Authority of India (UIDAI), the Bank’s customers, bankers, shareholders debenture holders, trustees and others for their continued support and faith reposed in the Bank. The Directors would also like to thank the BSE Limited, the National Stock Exchange of India Limited, National Securities Depository Limited, Central Depository Services (India) Limited and the Credit Rating Agencies for their continued co-operation.

The Board also expresses its deep sense of appreciation to all employees of the Bank for their strong work ethic, excellent performance, professionalism, teamwork, commitment and self-driven approach as key enablers for achieving consistent growth.

For and on behalf of the Board of Directors

AU SMALL FINANCE BANK LIMITED

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole Time Director

DIN:00009526 DIN: 01024940

Date: 22nd April 2019

Place: Jaipur

---

Mar 31, 2018

To

The Members,

AU SMALL FINANCE BANK LIMITED

The Board of Directors are pleased to present the 23rd Annual Report on the business and operations of your Bank together with the Audited Financial Statements for the financial year ended 31st March 2018.

A. BUSINESS OVERVIEW AND FINANCIAL HIGHLIGHTS Key Financial Highlights

During FY 2017-18, your Bank successfully transitioned into Small Finance Bank (Bank) and continued to deliver a sound financial performance with a total income of Rs.2,155 crore, up by 52% y-o-y, led by an all-round growth across retail and small & mid corporate assets, liabilities, branch banking and treasury operations.

During FY 2017-18, your Bank’s disbursement rose to Rs.10,825 crore vis-a-vis last year’s Rs.6,730 crore; registering an increase of 61% and the Bank’s Asset Under Management increased to Rs.16,038 crore; up by 49% over FY 2016-17.

As on 31st March 2018, your Bank’s distribution network stood at 306 branches, 97 asset centres, 23 offices, 71 banking outlets under Business Correspondent Structure and 292 ATMs spread across 11 states.

Besides, your Bank continued to enhance its shareholder value by delivering healthy financial performance on all key parameters. Total profit before tax was Rs.443 crore in current year vis-a-vis Rs.1,143 crore in the previous year (including income of Rs.670 crore from stake sale in subsidiaries and associate companies net of taxes) and Earning Per Share (EPS) was Rs.10.26 compared to last year of Rs.11.20. Banking operations were commenced in FY 2017-18, and despite investment in information technology, branch infrastructure and hiring of human capital, the Bank maintained its earning per share with consistent asset growth, disbursement and sustained earnings.

Key Operational Highlights

We laid a strong foundation of our liability franchise in the first year of our banking operations and liability build up has shown a strong traction in terms deposits mobilisation. Your Bank opened nearly half a million customer accounts in FY 2017-18 and adequate deposit mobilisation helped bringing down our cost of funds, thereby benefitting our customers as well.

With the objective to serve all financial needs of our customers, we expanded our retail product suite and added new products including Agri-SME Loans, Gold Loans, Two-wheeler Loans, Home Loans, Consumer Durable Loans, Business Banking, Mutual Funds, Insurance and others. The Mutual Funds and Insurance are third-party products.

Last year, your Bank went public with issue size of Rs.1,913 crore. It was purely an Offer for Sale (OFS) IPO, which was oversubscribed by 54 times with huge traction from retail and institutional investors.

Within seven months of starting our banking operations we became a Scheduled Bank and featured in Fortune India 500 companies with 6th rank in terms of PAT growth.

Financial Performance:

Summary of Financial Performance

(Rs. in crore)

Particulars	For the year ended
	31st March 2018	31st March 2017
Total Income	2,155.25	2,089.97*
Interest Income	1,767.19	1,280.00
Other Income	388.06	809.97
Interest Expenditure	826.73	496.31
Operating Expenses
(excluding depreciation)	699.36	347.05
Profit before Depreciation, Provisions and Tax	629.16	1,246.61
Depreciation	53. 25	5.78
Provision for Income Tax	153.08	314.94
Other Provisions and Write-offs	130.79	103.91
Net Profit	292.04	821.98
Appropriations
Transfer to Statutory Reserve	73.01	164.39
Transfer to Special Reserve u/s 36(1)(viii) of Income Tax Act, 1961	20.5	-
Proposed Dividend (in ‘)
(Per Equity Share)	0.5	-
Surplus carried over to Balance Sheet	1,365.84	1,167.31
EPS (in ‘)
(After excluding exceptional items not annualised) Basic	10.26	11.20
Diluted	10.00	10.99

*Includes Exceptional Item of profit on sale of investments in subsidiaries and associates in FY 2016-17.

The Return on Equity (RoE) stood at 13.7% and the Return on Asset (RoA) stood at 2.0%. Your Bank maintained excellent asset quality, despite a challenging macro environment and even with the AUM growing by more than half, the asset quality remained intact with our Gross NPA and Net NPA stood at 2.0% and 1.3% in current year vis-a-vis 1.9% and 1.2% in the previous year, respectively.

Please refer to the section of Financial & Operating Performance in the Management Discussion & Analysis for detailed analysis of performance.

Dividend

In view of the excellent financial performance of your Bank and listing during the year, Board of Directors proposed to reward its shareholders by way of cash dividend, after retaining sufficient profit for future growth and recommended a dividend at a rate of ‘0.50 per equity share of Rs.10 each for FY 2017-18 and also recommends it for approval by the shareholders at the 23rd Annual General Meeting. This dividend shall be subject to tax on dividend to be paid by the Bank.

Change in Nature of Business during FY 2017-18

On 13th April 2017, the name of the Company was changed from Au Financiers (India) Limited to AU Small Finance Bank Limited and thereafter the Bank commenced its banking operations on 19th April, 2017 and surrendered its NBFC-ND-AFC certificate of registration no. B-10-00139 with the RBI. Except above, there was no change in the nature of business of your Bank for the year under review.

Listing

In FY 2017-18, the Bank successfully completed its Initial Public Offer (IPO) of Rs.1,913 crore under ‘Offer for Sale’ structure and the issue was oversubscribed by 54 times with the aggregate demand of Rs.72,331 crore. The equity shares of the Bank were listed and admitted for dealings with BSE Limited (BSE) and National Stock Exchange of India Limited (NSE) on 10th July 2017.

Branch Banking and Liability Products

Our Branch Banking and Liabilities Franchise caters to a diverse set of customers including self-employed, salaried individuals, children, women entrepreneurs, senior citizens, companies, societies, trusts, educational institutions, hospitals, government corporations and local bodies, among others. The branch network is spread across 306 Branches and 71 business correspondents in 11 states and covers Tier I urban centres, metros and all the way up to Tier V and Tier VI rural and semi-urban unbanked and unreached markets.

Our comprehensive product suite includes Savings Account, Current Account, Term Deposits, Lockers, Bank Guarantee, Gold Loan and so on. Through our empaneled partners, we also provide Point of Sale (POS), Life and Health Insurance, along with Mutual Fund investment solutions to our customers.

The focus of Branch Banking services is on providing ease of banking to our customers by offering minimum documentation, paperless banking and extended banking hours.

In line with the Government of India’s focus, your Bank is committed to increase the reach of formal banking services across the country and extending banking services to the ‘belly of the nation’.

Products and services combined with our continuous focus on increasing customer convenience through innovative digital solutions and in-branch transactional conveniences aim at providing a robust banking platform to our customers. Our superior product offering coupled with our strong customer-centric approach shall translate into brighter prospects for the Bank in the coming years.

Business Correspondents

The regulatory intent of setting up Small Finance Bank was to enhance reach and financial inclusion in the country by provisions of saving vehicle and supply of credit to small business units, small and marginal farmers, micro and small industries and other unorganised entities through high-end technology and low-cost operations.

Keeping in mind above key guiding principles for setting up of Small Finance Bank, the Bank started financial inclusion initiatives by adopting business correspondent (BC) structure, an alternative for providing banking services to both urban and rural customers. The Bank provides various products and services such as Savings Accounts, Term Deposits, loans, Remittances, Loan Repayments and offers other services.

BC Structure is fully technology-enabled i.e. opening Savings Accounts through tabs via biometric authentication done by linking the accounts to Aadhaar. The focus of the Bank is on development of innovative and low-cost technology solutions for providing convenient banking services in rural areas. During FY 2017-18, we set up 71 banking outlets under BC structure and will leverage our capabilities in years to come.

Retail Assets

Your Bank provides a wide range of retail asset products including Vehicle Loan, Secured Business Loan to micro, small & medium enterprises (MSMEs) and small and medium-sized enterprises (SMEs), Gold Loan, Consumer Durable Loan, Agri-SME Loan and Home Loan to cater the entire financial lifecycle needs of customers.

As a ‘New Generation Bank’, we focus on making banking simple for masses by smart use of technology. This leads to deeper customer engagement in a cost-effective manner.

In terms of retail finance, quantum of funding is gradually increasing industry wide. To acquire mindspace of our customers and to stay ahead of competition, we continue to focus on ‘customer delight’ by building strong and personalised relationships with retail clients and serving their needs with the use of emerging technologies.

The performance of your Bank’s retail banking business was robust during the year under review. Total Deposit base was Rs.7,923 crore and excluding certificate of deposits, Deposits stood at Rs.6,743 crore and healthy CASA Ratio of 32%.

Vehicle Loan and MSME Loan account for bulk of the retail loan book and revenues. The Bank’s Retail Asset Under Management were Rs.13,013 crore in this period. During the year under review, with a continued focus on semi-urban and rural markets, the Bank grew its active loan accounts from 2.80 lakh in previous year to 3.58 lakh in the current year.

The Bank recently announced launch of its Home Loan product and would continue to offer and introduce new tailormade products to service home finance needs of customers.

Small & Mid Corporate Assets

The Bank’s Small & Mid-corporate business caters to the diverse needs of a wide range of corporate customer segment including SMEs, Indian corporates, financial institutions, public-sector undertakings, mid-market companies and real estate businesses. The business offers a comprehensive portfolio of products and services to these customers including term loan, working capital finance, trade finance and other services including finance to non-banking financial company (NBFCs), microfinance companies, housing finance companies (HFCs) and for construction finance.

The disbursements in this segment were Rs.3,303 crore against Rs.1,161 crore in the previous year registering a growth of 185% and Asset Under Management stood at Rs.3,025 crore with 102% increase over the previous year.

The Bank’s NBFC experience empowers it to expand its loan book by focussing on development financing and ensuring deeper financial inclusion through credit extension to NBFCs/MFIs/HFCs.

Treasury Update

The Treasury Department of the Bank manages asset liability gaps, fund planning, regulatory liquidity requirements (CRR, SLR and LCR) and investments portfolio (both SLR and Non-SLR) of the Bank. The asset-liability mismatches and interest rate sensitivities of the Bank’s portfolio are efficiently tracked (SLS and IRS) and managed through various market investments and money market products. On the other hand, the treasury is also responsible for managing and keeping cost of funds low for the Bank by utilising available resources and efficient planning.

The treasury also ensures that the Bank meets its regulatory requirements on Cash Reserve Ratio (CRR) and Statutory Liquidity Ratio (SLR) through efficient liquidity management and government bonds position management. The SLR portfolio durations were efficiently placed in anticipation of the interest rates movements, within the overall risk framework and under the oversight of the Bank’s Investment Committee. The treasury also successfully maintained appropriate liquidity buffers as per the regulatory requirement of the Liquidity Coverage Ratio (LCR) guidelines, while keeping the business requirements under consideration.

In its first year of operation, the Bank has successfully grown its relationship with major banks both in private sector and public sector, through mutual inter-bank limit set-up and executing money market transactions actively. The treasury is responsible to manage their excess funds through various investment as per approved regulatory frameworks and internal policies to get optimum yields with minimum risks. At the same time, the treasury could achieve the optimum cost of funds by encouraging branches to mobilise sufficient deposits and to build retail liability franchise by offering attractive rate of interest keeping in view prevailing interest rate scenario.

Update on Financial Institutions Group (FIG)

Financial Institutions Group (FIG) was formed to manage the overall relationship with various financial market participants like Banks, Mutual Funds, Insurance companies, Development Finance Institutions (DFI), Multilaterals, as well as with associates and intermediaries like credit rating agencies, legal firms, stock exchanges and merchant bankers. At the same time, FIG is responsible to facilitate long-term liquidity for the Bank according the requirement and limits set up including non-fund based limits for trade transactions (in the form of LC/BG) with counter parties and market participants.

During the year under review, your Bank got a rating upgrade to AA-(Stable) from two rating agencies - India Ratings and CARE Ratings. The Bank has also been able to set up counter-party limits with most of the private and public-sector banks for ensuring various inter-bank transactions and liquidity management. Further, to provide cushion in extreme liquidity scenarios, the Bank has been able to secure Line of Credit facility from a public-sector bank as well. In this process, the Bank has tied-up with various private and public-sector banks to ensure availability of Trade and Remittance products for its clients and has successfully facilitated quite a few inward and outward foreign currency transactions including issuance of trade instruments (L/C and Bank Guarantees) and processing of trade payments.

At the SFB platform, the Reserve Bank of India (RBI) prescribed an additional capital charge of 25% on the secured borrowings brought forward in the Bank balance sheet (Grand-Fathered secured borrowings). To avoid any resulting reduction in the capital adequacy, the Bank could convert almost all its Secured Non-Convertible Debentures (NCD) and term loans to Unsecured. To reduce the overall cost of borrowing, the FIG team undertook specific projects with an aim to either pre-pay or re-price existing term loans, pre-pay and replace high-cost NCDs with alternate market borrowings and moved 90% of existing third-party secured bank guarantees to different banks on an unsecured basis and at lower pricing. This helped in optimising the cost of contingent liability on the Bank’s securitisation obligations.

In terms of liquidity management, the Bank managed to enhance its relationship with domestic Development FIs (DFI) like NABARD, SIDBI, MUDRA and availed long-term, low-cost refinance facilities for substantial amount under various schemes. This helped your Bank to continue providing long-term assistance to various under-banked and under-served customers in rural and semi-urban locations and to manage its ALM.

Implementation of Treasury Software and Other Platforms

On the treasury systems front, the Bank went live and stabilised with RBI platform e-Kuber, Treasury Management System by Credence Analytics from the start of bank transactions, Structured Financial Messaging Systems (SFMS), National Electronic Fund Transfer (NEFT), Real Time Gross Settlement System (RTGS) and Clearing Corporation of India Limited (CCIL) systems, which include money market and sovereign bond dealing platforms. The Bank’s treasury has established, in partnership with external vendors, a robust primary & secondary Data Centre and Disaster Recovery Centre, to secure the live systems, which are vital to the Bank’s business continuity. All systems and platforms are working seamlessly as per treasury requirements. Treasury has also successfully implemented its Business Continuity Plan (BCP) for any contingency.

Investments

Treasury is required to maintain SLR investments in the form of Central and State Government Securities as per regulatory requirements of 19.50% of NDTL within approved policy criteria in terms of duration and risk profile.

Transaction Banking

Your Bank is committed to provide customers the convenient banking. Innovative thinking and increased ownership of the Bank has led to greater customer convenience through:

No deposit slips

Our customers can just walk up to our branch counters and deposit their cheque/cash without going through the mundane and tedious task of having to fill up a deposit slip and its respective counterfoil. We ourselves generate a receipt of deposit and duly hand it over to our clients. Keeping the same thought of customer convenience at the helm, we also understand that there may be some clients who may desire the use of deposit slips and that is why, the deposit slips are also made available at all our branches.

Biometric authentication based ‘paperless’ customer on-boarding

We have significantly reduced the use of account opening forms through our initiative of using a TAB-based application for on-boarding our customers. Through this initiative a customer is on-boarded through biometric authentication of Aadhar credentials.

Simpler customer instruction forms

In all our customer instruction forms, we have consciously eliminated details being repetitively sought from our customers, such as we have eliminated the requirement to specify amount in figures and thereafter in words as well.

Extended banking hours

We recognise the busy schedule of our customers and thus, provide formal banking services according to their convenience. We offer extended banking and locker operating hours for our customers.

Seeding of AU Bank account to receive Direct Benefit Transfer (DBT) benefit

Our clients can choose to seed their AU Bank account with the NPCI (National Payments Corporation of India) mapper to receive DBT benefits and subsidies. This feature allows us to provide a more integrated offering to our clients.

Technology and Digital Banking

Digital solutions have always been at the core of all initiatives and offerings of the Bank with an overall focus on increasing customer convenience and satisfaction. Your Bank has implemented a scalable best-in-class technology stack with 20 advanced applications catering to the entire lifecycle of the customer engagement right from lead generation to loan satisfaction including digital on-boarding of customers, core banking system, human capital management, risk management and expense management, among others.

Some of the key digital initiatives undertaken by the Bank since its inception are:

We offer instant account opening through a TAB-based application using biometric customer authentication. This initiative has not only increased customer convenience by providing instant account opening but has also reduced paperwork by e-validation of the customer’s Aadhaar credentials. Along with customer convenience, this initiative also serves the objective of being ‘eco-friendly’ given that there is a significant reduction in paperwork. This initiative has been very well received by our customers and incrementally every month more than 95% of the savings account customers are being on boarded through TABs.

Launch of our Mobile Banking application has made banking services available to our customers at their convenience.

We have partnered with Bijli pay and India Transact Services Limited (ITSL) to provide POS solutions to our customers. This has equipped our customers (merchants) to digitally accept payments.

We have aimed at providing utmost transactional convenience, in a completely secure environment, to our customers through our continuously evolving IPC and mobile banking based digital platforms. With facilities such as account summary, creation of Fixed Deposits, stop payments, fund transfers, NEFT, RTGS, IMPS and others, we are implementing the technological advancements for our customers’ convenience.

Your Bank implemented best-in-class technology stack including Core-Banking System, Human Capital Management, Risk management suite from Oracle.

Ratings of Debt Instruments

The Bank has been assigned by various credit rating agencies viz. India Ratings, CARE, CRISIL, ICRA and Brickworks for its Debt instruments and debentures. Credit rating of Bank was upgraded by India Ratings from ‘IND A (Positive)’ to ‘IND AA- (Stable)’ and by CARE Ratings from ‘CARE A /Stable’ to ‘CARE AA-/Stable’ covering debt instruments of the Bank in view of strong consistent performance on quarter to quarter.

The Ratings of Debt Instruments are as follows :

Nature of Debt Instrument	Nature of Term	India Ratings	CRISIL	ICRA	CARE	Brickworks
Non-Convertible Debentures Subordinated Debt Bank Loans Certificate of Deposits	Long Term Long Term Long Term Short Term	AA- /Stable AA- /Stable AA- /Stable A1	A Positive A /Positive - A1	A /Stable A /Stable - -	- - AA- /Stable- -	- - AA /Stable -

B. FINANCIAL DISCLOSURES

Dividend Distribution Policy

In terms of Regulation 43A of Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015 (“Listing Regulations”), the Bank has formulated and adopted Dividend Distribution policy of Bank and dividend proposed is in line with the Dividend Distribution Policy of the Bank. The Dividend Distribution Policy as approved by the Board can be accessed at website of the Bank at www.aubank.in/au-notice-board

Closure of Share Transfer Books and Record Date for Dividend

The Register of Members and the Share Transfer Books of the Bank will be closed from 1st August 2018 (Wednesday) to 7th August 2018 (Tuesday) (both days inclusive) for the purpose of the 23rd Annual General Meeting of the shareholders of the Bank to be held on 7th August, 2018 and for determining the names of the Members who would be entitled to dividend, if any, declared by the Bank for the financial year ended 31st March 2018. The Record Date for payment of the said dividend has been fixed on 31st July, 2018. The said dividend shall be paid to those Members whose name appears on the Register of Members of the Bank as on 31st July, 2018.

Transfer to the Investor Education and Protection Fund

In terms of Section 125 of the Companies Act, 2013 (the Act) unclaimed dividends are required to be transferred to the Investors Education and Protection Fund. There is no dividend which is unclaimed pertaining to previous years and hence, there is no requirement of transferring the same to the Investors Education and Protection Fund for the year under the review.

Transfer to Reserve

As per requirement of RBI regulations, the Board proposed to transfer the following amounts to various reserves during the financial year ended 31st March 2018.

Transfer to Reserves

Amount transferred to	Amount (Rs. in crore)
Statutory Reserve	73.01
Transfer to Special Reserve U/s 36 (1) (Viii)	20.50

Share Capital

During the FY 2017-18, there was no change in the authorised share capital of the Bank and it stood at Rs.35,00,000,000 (Rupees Three Hundred and Fifty Crore Only). The paid-up Equity Share Capital of the Bank as on financial year ended 31st March 2018 stood at Rs.2,85,70,36,200 (Rupees two hundred and eighty-five crore seventy lakh thirty six thousand two hundred only) divided into Rs.28,57,03,620 (Twenty Eight Crore Fifty Seven Lakh Three Thousand Six Hundred Twenty) equity shares of Rs.10 each.

During FY 2017-18, the Bank’s issued and paid up capital increased on allotment of equity shares pursuant to exercise of ESOPs options.

The Bank added Rs.1,45,27,140 to the paid up equity share capital by allotting 14,52,714 equity shares of Rs.10 each to employees on exercise of options under Employee Stock Option Plan 2015 (Plan A and Plan B) as follows:

Sr. No.	Date of allotment	ESOP Plan - 2015 A	ESOP Plan - 2015 B	Equity Shares allotted on Exercise of ESOPs
1	15th November 2017	6,09,402	6,32,804	12,42,206
2	4th December 2017	54,990	74,868	1,29,858
3	2nd February 2018	8,539	47,362	55,901
4	7th March 2018	12,991	11,758	24,749
Total No. of Shares		6,85,922	7,66,792	14,52,714

The detailed note pertaining ESOPs has been covered under below:

Employees Stock Option Plan (ESOP)

Employee Stock Option Plan (ESOP) for employees of the Bank for participation of employees in sharing of wealth in course of financial progress of the Bank is in place. It not only strengthens the sense of ownership but also leads to inclusive growth for employees and the Bank.

The Bank continued with its plan of rewarding long-serving employees with ESOPs, thus making them true partners in the Bank’s growth and foster a culture of sustainable value creation.

The stock options are granted to employees under Employee Stock Option Schemes are presented below:

EMPLOYEE STOCK OPTION PLAN 2015 - PLAN A

EMPLOYEE STOCK OPTION PLAN 2015 - PLAN B

EMPLOYEE STOCK OPTION PLAN 2016

The Employee Stock Option Plans are administered by the Nomination & Remuneration Committee of the Bank. The ‘Employee Stock Option Scheme 2015’ (ESOP 2015) and ‘Employee Stock Option Scheme 2016’ (ESOP 2016) — collectively referred as the Schemes — were originally approved by the shareholders at their extra-ordinary general meetings held on 31st August 2015 and 10th October 2016. Thereafter, the amendment in the said Schemes was approved by shareholders through postal ballot on 24th January 2017. In furtherance, the Schemes were ratified by shareholders at the Annual General Meeting held on 27th September 2017.

The Schemes are in compliance with the SEBI (Share Based Employee Benefits) Regulations, 2014. The source of shares is primary in nature, since the Bank has been issuing new equity shares upon exercise of options. Requisite details including option movement during the year under Schemes i.e. ESOP 2015 - Plan A, ESOP 2015 - Plan B and ESOP 2016 as on 31st March 2018 form part of this report.

The details of vesting of various schemes are as follows:

ESOP Scheme

ESOP Schemes	Vesting period
ESOP 2015 - Plan A	Vesting Period 1 year from the date of grant or at the time of IPO whichever is later Expiry of 1 year from 1st vesting Expiry of 2 years from 1st vesting	% of vesting of options 20% 30%
		50%
Total		100%
ESOP 2015 - Plan B	Vesting Period 1 year from the date of grant or at the time of IPO whichever is later Expiry of 1 year from 1st vesting Expiry of 2 years from 1st vesting
		% of vesting of options 20% 30% 50%
Total		100%
ESOP 2016	Vesting Date Options granted under this scheme would vest after one year but not later than six years from the date of grant of options.	% of vesting of options
		100%

The Details/Summary of Existing ESOP Schemes as on 31st March 2018

Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016
Date of shareholders’ approval	31st August	31st August	10th October
	2015	2015	2016
Total number of options approved	38,36,058	49,33,194	21,00,000
Total number of options outstanding at the beginning of the period	34,38,066	38,75,784	2,68,300
Total number of options granted
(during FY 2017-18)	3,61,000	42,510	15,53,701
The pricing formula/price in Rs.	10.11	33.37	140
Options vested (during FY 2017-18)	6,86,605	7,67,421	0
Options exercised (during FY 2017-18)	6,85,922	7,66,792	0
Total number of shares arising as a result of exercise of options	6,85,922	7,66,792	0
Options lapsed/forfeited (during FY 2017-18) (Available for re-issue)	5,124	94,961	4,34,680
Total number of options exercisable at the end of the year	683	528	0
Total number of options outstanding at the end of the year	31,08,020	30,56,541	13,87,321
Variation in terms of options	No	No	No
Money realised by exercise of options (during FY 2017-18) (in Rs.)	69,34,671	2,55,87,849	0
Total number of options granted to Senior Management Personnel (SMPs)	Please refer	Please refer	Please refer
	Note 1	Note 1	Note 1
Any other employee who received a grant in any one year of options amounting	Please refer	Please refer	Please refer
to 5% or more of options granted during that year	Note 2	Note 2	Note 2
Identified employees who are granted options, during any one year equal to	Nil	Nil	Nil
or exceeding 1% of the issued capital (excluding outstanding warrants and
conversions) of the Company at the time of grant
Diluted Earnings Per Share (EPS) of the Company after considering the effect		Refer Note 3
of potential equity shares on account of exercise of options
Impact of the difference between the intrinsic value of the options and the fair		Refer Note 3
value of the options on profits and on EPS
Weighted average share/exercise price of the shares exercised during the	10.11	33.37	140
year (in Rs.)
Weighted average fair values of the outstanding options (in Rs.)	Please refer Schedule 18 (7) to Notes to accounts to
	Audited Financial Statements for FY 2017-18

Note: The ESOP Scheme - 2015 (Plan A & B) & ESOP Scheme 2016 was ratified by its shareholders at Annual General Meeting held on 27th September 2017.

Note 1

Following are the total number of stock options that have been granted to Senior Management Personnel (SMP) during the financial year ended 31st March 2018:

S. No.	Name	Designation	No. of ESOP granted in ESOP Plan-A 2015	No. of ESOP granted in ESOP Plan-B 2015	No. of ESOP granted in ESOP Plan 2016
1	Manoj Tibrewal	Chief of HR - Group Head	2,28,000	-	-
2	Rishi Dhariwal	Chief of Credit & Collection - Retail	-	-	7,867
3	Vijendra Singh Shekhawat	Chief of Operations & IT	-	-	3,158
4	Yogesh Jain	Chief Treasury Officer	-	-	15,283
5	Vinay Vaish	Chief of Credit & Collection - SME and Mid Corporate	-	-	7,451
6	Nitin Gupta	Chief Audit Officer	-	-	2,912
7	Mayank Markanday	Chief Risk Officer	-	-	14,540
8	Amiya Dikshit	Chief Technology Officer	-	-	11,000

Note 2

Any other employee who received a grant in any one year of options amounting to 5% or more of options granted during that year:

S. No.	Name	Designation		No. of ESOP granted in ESOP Plan-A 2015	No. of ESOP granted in ESOP Plan-B 2015	No. of ESOP granted in ESOP Plan 2016
1	Uttam Tibrewal	Whole-time Director*		38,702	10,18,758	0
2	Manoj Tibrewal	Group Head - HR		2,28,000	-	-
3	Bhaskar Karkera	Chief of Wheels		1,08,000	30,000	-
4	Sultan Ram Jat	Sr. Vice President - Retail Banking		25,000	-	-
5	Sharad Vishvanath	Group Head - Digital, Ana		-	-	3,60,000

*38,702 ESOPs under ESOP Scheme 2015 - Plan A & 10,18,758 ESOPs Under ESOP Scheme 2015 - Plan B were granted to Mr. Uttam Tibrewal, WTD during the year and the same are subject to RBI approval.

**Mr. Sharad Vishvanath resigned and relieved during FY 2017-18 and No ESOPs were exercisable during the tenure of his employment with the Bank.

Note 3

The Securities and Exchange Board of India (SEBI) has prescribed two methods to account for stock grants; namely (i) the intrinsic value method; (ii) the fair value method. The Bank adopts the intrinsic value method to account for the stock options it grants to the employees. The Bank also calculates the fair value of options at the time of grant, using Black-Scholes pricing model with the following assumptions:

Particulars	31st March 2018
Risk-free interest rate (%)	7.42%
Expected life (years)	2.58 yrs - 5.34 yrs
Expected volatility (%)	44.68%
Expected dividend rate (%)	0%

Note 4

The Bank measures the cost of ESOP using the intrinsic value method. Had the Bank used the fair value model to determine compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:

(Rs. in crore)

Particulars	Year ended 31st March 2018	Year ended 31st March 2017
Profit after tax as reported	292.04	821.98
Add: ESOP cost using intrinsic value method (net of tax)	9.24	2.66
Less: ESOP cost using fair value method (net of tax)	12.51	4.09
Profit after tax (adjusted)	288.76	820.55
Earnings Per Share (in Rs.)
Basic
- As reported	10.26	30.18
- Adjusted for ESOP cost using fair value method Diluted	10.14	30.12
- As reported	10.00	29.61
- Adjusted for ESOP cost using fair value method	9.89	29.56

(Rs. in crore)

Particulars	As on 31st March 2018	As on 31st March 2017
Stock options outstanding (gross)	94.04	14.01
Deferred compensation cost outstanding	73.76	7.86
Stock options outstanding (net)	20.28	6.15

The 3,60,000 options granted under plan C4 had a different vesting schedule, however, the options granted expired without any vesting to the grantee as the service conditions were not fulfilled. Accordingly, these options have not been considered for the purpose of computing the impact of ESOP fair value on profit before tax.

The Bank has granted 38,702 and 10,18,758 stock options on 27th October 2017 to Whole-time Director under Plan A3 and plan B5, which are pending for approval from the RBI. Accordingly, these options have not been considered for the purpose of computing the impact of ESOP fair value on profit before tax.

Deposits

Being a banking company, the disclosures required as per Rule 8(5)(v) & (vi) of the Companies (Accounts) Rules, 2014, read with Sections 73 and 74 of the Companies Act, 2013 are not applicable.

Particulars of loans, guarantees and investments

Pursuant to Section 186(11) of 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 in the Annual Report and hence there is no disclosure being made herein.

C. CORPORATE GOVERNANCE

The Report on Corporate Governance for FY 2017-18 along with certificate issued by Mr. ManojMaheshwari, Practicing Company Secretary confirming the compliance to applicable requirements related to corporate governance as stipulated under Chapter IV of the Listing Regulations is forming part of this Annual Report as Annexure I.

Board & Board Committees

The Board of Directors holds fiduciary position and is entrusted with the responsibility to act in the best interests of the Bank. Board meetings are held to discuss and decide various business policies, strategies, financial matters, other businesses and review the annual financial plan, performance and strategy laid by the Bank. Committees appointed by the Board focus on specific areas and take informed decisions within the framework of delegated authority and responsibility and make specific recommendations to the Board on matters under its purview. All decisions and recommendations of the committees are placed before the Board for consideration.

Board Meetings

The Board of Directors of the Bank meet at least once in a quarter and each quarterly meeting generally includes a business and finance update and discussion. The Board met seven times during FY 2017-18 and the interval between the meetings was within time limit mentioned under the Companies Act, 2013 and Secretarial Standard-I and Listing Regulations.

Committees of the Board

The Board has constituted various Committees to take informed decisions in the interest of the Bank and to establish best corporate governance practices. The Board Committees deal with specific matters as per delegated powers and monitor the activities falling under different functional areas of the Bank in acquiescence of provisions of Companies Act, 2013, the relevant rules made thereunder, the Listing Regulations, Banking Regulation Act, 1949, other guidelines issued by RBI from time to time and the Articles of Association of the Bank.

Meetings of Independent Directors

The Report on Corporate Governance for FY 2017-18 contains the requisite information about the meeting of Independent Directors conducted without the presence of any of the Executive Directors, the Non-executive Non-independent Directors during the year.

Board of Directors and Key Managerial Personnel

Your Bank’s Board consists of professionals who are having knowledge and experience required in the banking industry. The responsibilities of the Board inter alia include formulation of policies, taking new initiatives, performance review, monitoring of plans and pursuing of policies and procedures and ensuring that the Bank operates under regulatory framework laid down by the RBI for Banks.

Following appointments on the Board were made during the year.

1. Appointment of Mr. Raj Vikash Verma as Additional Director (Independent)

Mr. Raj Vikash Verma (DIN: 03546341) was appointed as additional Director (Independent) on the Board at its meeting held on 30th January 2018 to hold office up to the date of ensuing Annual General Meeting (AGM) and Board recommends his appointment as Independent Director at the ensuing AGM and requisite details pertaining to regulation 36 and Secretarial Standard II has been provided with the notice of AGM.

2. Appointment of Mr. Narendra Ostawal as Nominee Director

Under section 161 of the Companies Act, 2013 and Article 13(b) of the Articles of Association of the Bank as reproduced hereunder provides a right to the shareholder of the Bank to nominate one member to the Board of the Bank. The appointment of Mr. Narendra Ostawal as Nominee Director (DIN: 06530414) on behalf of Redwood Investments Ltd., fund advised by Warburg Pincus on the Board was approved by the Board at its meeting held on 30th January 2018. No remuneration was paid to Nominee Director during the period under review.

The details of Brief profile of Mr. Raj Vikash Verma & Mr. Narendra Ostawal is available on the website of the Bank at www.aubank.in/about-us/board-directors

Declaration of Independence

The Bank has received necessary declarations from each Independent Director under Section 149(7) of the Companies Act, 2013 and Listing Regulations, affirming that they meet the criteria of independence laid down in the Companies Act, 2013 and Listing Regulations.

Key Managerial Personnel

Mr. Sanjay Agarwal, Managing Director and CEO, Mr. Uttam Tibrewal, Whole-time Director, Mr. Deepak Jain, Chief Financial Officer and Mr. Manmohan Parnami, Company Secretary are Key Managerial Personnel of your Bank as defined under section 2 (51) of Companies Act, 2013. There was no change in composition of Key Managerial Personnel of the Bank.

Evaluation of the Board, its Directors and Committees

The Board has conducted annual evaluation of the performance of all its Directors, Committees of the Board, Non-executive Chairman and of the Board as whole in terms of Section 134(3)(p) of the Companies Act, 2013, rules made thereunder and listing regulations as applicable. Evaluation process followed by the Bank is covered in detail under report on Corporate Governance forming part of this annual report.

Familiarisation Programme for Directors

Orientation programme is organised for induction of Directors covering review of MOA & AOA, Annual Report, Code of Conduct for Directors and employees, Organisation Chart, the Board & Board-delegated Committees, their terms of reference and others. The senior management team is introduced to the Board members to familiarise and acclimatise them with operations, processes, policies and procedures of the Bank. The Report on Corporate Governance for FY 201718 contains the requisite information and the details of familiarisation programmes imparted to Directors are posted on the website of the Bank and can be accessed at www.aubank.in/au-notice-board

Retirement by Rotation

I n terms of Section 152 of the Companies Act, 2013, Mr. Sanjay Agarwal, MD & CEO, being Director liable to retire by rotation, shall retire at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment. The Board recommends his re-appointment at the ensuing AGM and requisite information required under Listing Regulations and Secretarial Standard II has been provided with the notice of AGM.

Corporate Social Responsibility

In compliance with Section 135 of the Companies Act, 2013 read with the Companies (Corporate Social Responsibility Policy) Rules, 2014, the Bank has setup a Corporate Social Responsibility (CSR) Committee.

The Bank is committed to identify and support outreach programmes aimed at developing and nurturing the community. The Bank works through partnerships with Non-Governmental Organisations (NGOs) as well as directly to create social value. The Bank has implemented Social Environment Management System in its credit and management assessment processes with respect to offering financial services to its customers. Statutory disclosures with respect to the CSR Committee and a Report on CSR Activities forms part of this Report as Annexure II.

The CSR Policy, as recommended by the CSR Committee and as approved by the Board, is available on the website of the Bank at www.aubank.in/au-notice-board

Social Environment and Management System

An Environmental and Social Management System (SEMS) is a set of policies, procedures, tools and internal capacity to identify and manage a financial institution’s exposure to the environmental and social risks of its customers. The Bank continuously endeavours to ensure effective social and environmental management practices in its all activities, procedures, products and services. The procedures and decision-making process of the SEMS are systematically incorporated at each stage of transaction appraisal and monitoring.

On an ongoing basis, the Bank is making the best efforts to ensure that all projects are in compliance with applicable requirements and transparency is maintained in its activities. Besides, the Bank is continuously striving to create awareness among its vendors, customers to comply with applicable social and environmental laws.

Human Capital

Your Bank has attracted the best talent from the industry to ensure sustainable growth. With ongoing banking transition during the year, the Bank provided a range of employment opportunities to banking professionals covering liability, branch operation, treasury and for other functions. During FY 2017-18, your Bank expanded its workforce to 11,151 employees as on 31st March 2018 vis-a-vis 8,515 employees as on 31st March 2017.

The Bank was awarded as ‘Dream Companies to Work For - 2018’ by Times Ascent, in recognition of its efforts for providing excellent platform for employees to grow. Your Bank took significant steps for training its employees to improve their productivity, resulting in service satisfaction among customers. To meet its ever-growing need for enriching the workforce, your Bank has also collaborated with leading academic institutions to offer skill development programmes. To digitalise HR experience, your Bank has launched Digital Human Capital Management System for simplified access to employee related information and e-learning modules that help enhance employee skillsets.

Anti-Bribery and Anti-Corruption Policy

The Bank adopts a ‘zero-tolerance approach’ to bribery and corruption and is committed to act professionally, fairly and with integrity in all its dealings wherever it operates. The Bank has Anti-Bribery and Anti-Corruption Policy laying down the principles for carrying out banking business in an honest and ethical manner.

The Anti-Bribery and Anti-Corruption Policy as approved by the Board is available on the website of the Bank at www. aubank.in/au-notice-board

Disclosure under Section 22 of the Sexual Harassment of Woman at Workplace (Prevention, Prohibition and Redressal) Act, 2013

The Bank has zero tolerance for any action by any executive, which may fall under the ambit of ‘Sexual Harassment’ at workplace. Your Bank is fully committed to uphold and maintain the dignity of every woman and other employees working in the Bank. This policy provides protection against sexual harassment of women at workplace and lays down procedure for prevention and redressal of such complaints. There is internal complaint committee, which reviews, investigate and takes suitable actions against any complaints received. During the year ended 31st March 2018, three complaints were received by the Bank and all of them were investigated and closed.

Heading	Nos.
No. of Complaints Pending at the Beginning of the year	NIL
No. of Complaints received & resolved during the year	3
No. of Complaints Pending at the End of the year	NIL

Extract of Annual Return

Pursuant to Section 134(3)(a) and Section 92(3) of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, the extract of the Annual Return as on 31st March 2018, in the prescribed form MGT 9, forms part of this report under Annexure VI.

Remuneration Policy

Your Bank has formulated and adopted policy for Director’s appointment and remuneration covering Directors, KMPs and Employees of the Bank. The objective of the Director’s appointment and remuneration policy is to regulate the appointment and remuneration of Directors (including Independent Directors), Key Managerial Personnel (KMP), Senior Management personnel according to the criteria formulated by the Nomination and Remuneration Committee of the Board under the requirement of the Companies Act, 2013 read with applicable Rules and Listing Regulations.

The key objectives of the Policy on Director’s appointment and remuneration are as follows:

To institutionalise a mechanism for the appointment/ removal/dismissal of Directors and lay down selection criteria for appointment of a Director and formulate the criteria for determining qualifications, positive attributes and independence of a Director and recommend to the Board

To formulate the criteria for evaluation of performance of the Directors on the Board

To establish standards on compensation/remuneration including fixed and variable, which are in alignment with the applicable rules and regulations and is based on the trends, practices of remuneration prevailing in the industry; and

To define internal guidelines for payment of perquisites to the directors, KMP and senior employees.

The Director’s appointment and Remuneration Policy is available on the website of the Bank at www.aubank.in/au-notice-board

Employee Remuneration

The ratio of the remuneration of each Director to the median employee’s remuneration and other details in terms of subsection 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, form part of this report and is annexed as Annexure - III to this Report.

The statement containing particulars of employees as required under Section 197(12) of the Companies Act, 2013 read with Rule 5(2) and Rule 5 (3) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, forms part of this report and is annexed as Annexure - IV to this Report.

Whistle Blower Policy & Vigil Mechanism

The Whistle Blower Policy of your Bank has been formulated as part of corporate governance norms and transparency where the employees, customers, stakeholders or Non-Governmental Organisations (NGOs) are encouraged to refer any Protected Disclosures, which have not been resolved or satisfactorily resolved within the usual applicable protocols. The employees may refer any Protected Disclosures covering areas such as corruption, misuse of office, criminal offences, suspected/actual fraud, failure to comply with existing rules and regulations and acts resulting in financial loss/operational risk, loss of reputation and others detrimental to customers’/public interest.

The Vigil Mechanism provides a channel to the employees, Directors and other stakeholders to report to the management about unethical behaviour, actual or suspected fraud or violation of the Codes of Conduct, regulatory requirements, incorrect or misrepresentation of any financial statements and such other matters. The Chief Vigilance Officer of the Bank shall act as a Special Assistant/ Advisor to the Managing Director (MD & CEO) of the Bank in the discharge of the vigilance functions. He is responsible for ensuring and promoting a culture of speaking up/ raising red flags on matters relating to breaches/violations of the Bank’s Code of Conduct, fraudulent transactions and provides a non-threatening environment to employees to discuss matters relating to the Bank’s Code of Conduct, suspected unethical behaviours, malpractices, wrongful conduct, frauds, violations of law and questionable accounting or auditing matters, which build trust and transparency in the Bank. During the year, no person was denied access to the Audit Committee or its Chairman to raise his/her concern under vigil mechanism.

Whistle Blower Policy & Vigil Mechanism as approved by Board is available on the website of the Bank at www.aubank.in/au-notice-board

Related Party Transactions

During FY 2017-18, the Bank has not entered any materially significant transactions with its promoters, Directors, Management, subsidiaries or relative of the Directors, which could lead to potential conflict of interest between the Bank and these parties, other than transaction entered in the ordinary course of business and transactions entered into by the Bank are on ‘arm’s length basis’. On quarterly basis, the Audit Committee of the Bank considers all specified details of related party transactions. Hence, pursuant to Section 134(3)(h) of the Companies Act, 2013 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. To ensure the transparency, substantive and procedural fairness of related party transactions, your Bank has framed the policy on Related Party Transactions & Materiality as approved by the Audit Committee and the Board of Directors. The requisite disclosure has been made under Schedule 18 of the notes forming part of audited financial statements for the year ended 31st March 2018.

The Policy on Related Party Transactions & Materiality as approved by the Board is available on the website of the Bank at www.aubank.in/au-notice-board

Code of Conduct for Directors and Senior Management Personnel

In compliance with regulation 17(5) of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations, 2015, your Bank has Code of Conduct for the Board of Directors and the Senior Management Personnel to set forth the guiding principles on which the Bank and its Board and Senior Management Personnel for acting on behalf and with stakeholders, government and regulatory agencies, media and anyone else with whom it is connected. Declaration signed by the Chief Executive Officer stating that the members of Board of Directors and Senior Management Personnel have affirmed compliance with the Code of Conduct of the Board of Directors and Senior Management Personnel which is forming part of Report on Corporate Governance as Annexure I to this report.

The Code of Conduct for Directors and Senior Management Personnel as approved by the Board is available on the website of the Bank at www.aubank.in/au-notice-board

Code for prevention of Insider Trading

In compliance of the Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015, the Bank has formulated a code for prohibition of insider trading in the shares of the Bank, which inter alia, prohibits trading in shares of the Bank by insiders while in possession of unpublished price sensitive information in relation to the Bank.

Code of Conduct for Employees

Your Bank has adopted a Code of Conduct for employees to define business ethics, which lays down the principles and standards that govern the activities of the Bank and its employees to ensure and promote ethical behaviour within the governance framework in the Bank and attempts to set forth the guiding principles and values on which the Bank’s employees shall operate and conduct its business with its stakeholders, government and regulatory agencies, media and anyone else with whom they are connected or interact with. Your Bank expects all its employees and officers to act in accordance with high professional and ethical standards and comply with all applicable laws, regulations and internal policies.

Material orders passed by Regulators or Courts or Tribunals and Penalties & Punishment

There are no material orders passed by the Regulators/ Courts/Tribunals during FY 2017-18, which would impact the going concern status of the Bank and its future operations.

The Bank has complied with the applicable requirements and no strictures or penalties were imposed on the Bank by RBI, Stock Exchanges and SEBI during the year under review.

Material changes and commitments, if any, affecting financial position of the Bank

There are no material changes and commitments, affecting the financial position of the Bank that have occurred between the end of the financial year of the Bank i.e. 31st March 2018 and the date of the Board’s Report i.e. 26th April 2018.

Risk management framework

Effective risk management framework to actively manage all risks is ensured by the Board of Directors and for implementation of the same, the Board has laid down the Credit Risk management and Risk Management policies and the delegation matrix.

The Board is supported by the Risk Management committee of the Board, which is chaired by an independent Director. It is also supported by various management committees as part of the Risk Governance framework. The design and implementation of a sound risk process is largely the responsibility of Chief Risk Officer and senior Credit Risk officers of the Bank. The detailed note on Risk Management is covered under Management Discussion Analysis section, which forms part of this Annual report.

The Enterprise Risk Management framework is a layered structure and broadly consists of following components for effective Risk Management across the Bank.

Credit Risk

Your Bank has a structured and standardised credit approval process including customer selection criteria, comprehensive credit risk assessment and delegation matrix thereof, which covers analysis of relevant quantitative and qualitative information to ascertain the borrower’s credit worthiness.

Operational Risk

The Bank manages and controls operational risk in a cost-effective manner within targeted levels. A comprehensive system of internal controls and systems, procedures to monitor transactions, maintain key back-up procedures by undertaking regular contingency planning and providing employees with continuous training is in place to mitigate such risks.

Market Risk

Market risk is the risk in which earning or capital will decrease due to changes in market factors. The Asset Liability Management Committee (ALCO) of the Bank oversees the framework for identification, measurement and management of market risk, interest rate risk and liquidity risk in the Bank and ensures compliance with established internal and regulatory, prudential limits.

IT Risk

Your Bank ensures that business information to which they have access, including computer systems they utilise in the performance of their duties, is protected from inappropriate access, disclosure or modification. The Chief Information Security Officer (CISO) is responsible for monitoring the information security risk covering all aspects of data security for the Bank. We have also placed a Cyber Security Operation Center (CSOC) with qualified professionals who report into CISO office for monitoring of real time Cyber Security Incidents. The Chief Technology Officer of the Bank is responsible for overall IT governance covering Technology Infrastructure & Solutions, monitoring of product development & support. He is also responsible for supervision of process of network access logs, process of firewall log reports, process for port access reports for critical network devices, monitoring of Network Operations Center (NOC) and process of Change and Incident management.

Business Continuity Plan

The Business Continuity Plan (BCP) manages and supports business recovery in the event of facilities disruption or disaster. Your Bank has framed BCP, which includes policies, standards and procedures to ensure continuity, resumptions and recovery of critical business processes, at an agreed level and to limit the impact of the disaster on people, processes and infrastructure. It minimises the operational, financial, legal and other material consequences arising from such a disaster.

Cyber Security

As technology has drastically changed banking services, products, methods of operation and the way banks function, your Bank has been able to offer more products to increase customers’ delight, operational efficiency and reduce operational expenses of banking services. However, it is equally true that the advent of technology has also made banks vulnerable to cyber-attacks. To combat growing cyber threats and enhancing the resilience of the banking system to address cyber risks, your Bank has set up a framework for Cyber Security in compliance of guidelines issued by Reserve Bank of India.

Cyber security is the combination of technologies, processes and practices designed to protect networks, computers, programmes and data from cyber-attacks, damage or unauthorised access. Cyber space is a complex environment consisting of interactions between people, software and services, supported by worldwide distribution of Information and Communication Technology (ICT) devices and networks.

Auditors

Statutory Auditors

The members at the 22nd Annual General Meeting (AGM) of the Bank had, subject to the approval of RBI, appointed M/s. S.R. Batliboi & Associates LLP (Firm Registration No. 101049W/ E300004) as Statutory Auditors for a period of four (4) years to hold office till the conclusion of 26th AGM in connection with the audit of the books of accounts of the Bank.

The Statutory Auditors have confirmed their eligibility under Section 141 of Companies Act, 2013 for reappointment as Statutory Auditors of the Bank. Further, as required under the relevant provisions of the Listing Regulations, the Statutory Auditors had also confirmed that they had subjected themselves to the peer review process of the Institute of Chartered Accountants of India (ICAI) and they hold a valid certificate issued by the Peer Review Board of ICAI and the Board has upon recommendation of Audit Committee, proposed the ratification of their appointment as Statutory Auditors for the FY 2018-19, subject to approval of shareholders at the ensuing AGM & of RBI.

Secretarial Auditors

The Bank had appointed M/s. V.M. & Associates, Company Secretaries (Registration No. P1984RJ039200), as its Secretarial Auditors for FY 2017-18. The Bank provided all assistance and facilities to the Secretarial Auditor for conducting their audit. The Report of Secretarial Auditor for the FY 2017-18 is annexed to this report as Annexure V. The Board has upon recommendation of Audit Committee approved their appointment as Secretarial Auditors for FY 2018-19.

Qualifications in Statutory and Secretarial Audit Reports

There were no adverse observations or qualifications made by the Statutory Auditors in the Auditor’s Report and report is self-explanatory.

Further, there were no observations and qualifications made by the Secretarial Auditor in its Report (except expense on CSR activities below the prescribed limit), justification of observation covering reasons for not being able to carry out CSR expenditure has been provided in report on CSR attached as an Annexure II to this report.

Internal Financial Controls System & their adequacy

Proper internal financial controls were in place and were operating effectively. Further, the statutory auditors have, in compliance with the requirements of Companies Act, 2013, issued an opinion with respect to the adequacy of the internal financial controls over financial reporting of the Bank and the operating effectiveness of such controls details of which may be referred to in the Auditor’s report attached to the audited financial statements of FY 2017-18.

Compliance

Your Bank has institutionalised a strong compliance culture and framework in line with its strategic goals of transparency and trust, among all its stakeholders. Your Bank has a dedicated Compliance Department for ensuring regulatory compliance, across all its businesses and operations. The key functions of this department include, dissemination of key regulatory updates affecting the various businesses of your Bank, review of new products and processes from a regulatory compliance perspective, provide guidance on compliance-related matters among others. Your Bank has also put in place a ‘Know Your Customer’ and ‘Anti-Money Laundering Policy’ approved by the Board of Directors and transaction monitoring procedures, as per the RBI guidelines.

D. BUSINESS RESPONSIBILITY REPORT

Pursuant to Regulation 34(2)(f) of the Listing Regulations, a Business Responsibility Report (BRR) is required to be prepared by top five hundred listed companies based on market capitalisation in a format prescribed under SEBI Circular no. CIR/CFD/CMD/10/2015 and the it is attached herewith as annexure VII to this report.

We are pleased to inform that your Bank is among Top 500 Listed Companies of India in terms of market capitalisation in first year of listing itself. As part of regulatory disclosure, the report describing the initiatives taken by the Bank from an environmental, social and governance perspective is displayed at website of the Bank at the link www.aubank.in/investor-relations

E. MANAGEMENT DISCUSSION AND ANALYSIS

Management Discussion and Analysis Report for the financial year under review is presented in a separate section forming part of this Annual Report.

F. OTHER STATUTORY DISCLOSURES Conservation of energy and technology absorption

The Bank’s systems and processes have been aligned by adopting sophisticated technology for conservation of energy, in view of the challenges faced due to increased uses of electronic equipment and computer systems in the banking industry.

Your Bank as part of its digitalisation strategy is focussed upon building an IT architecture in a manner to achieve internal natural resource consumption efficiencies and minimising its carbon footprint and efforts made by the Bank for Conservation of energy and absorption of technology have been detailed below:

Buying energy efficient hardware

Your Bank is procuring its hardware from major hardware vendors including notebooks, workstations and servers that meet the Environmental Protection Agency’s (EPA’s) Energy Star guidelines for lower power consumption. Further, multicore processors increases processing output without substantially increasing energy usage.

Using power management technology and best practices

Modern operating systems running on Advanced Configuration and Power Interface (ACPI) enabled systems incorporate power-saving features that allows to configure monitors and hard disks to power down after a specified period of inactivity. Systems can be set to hibernate when not in use, thus powering down the CPU and RAM as well.

Using virtualisation technology to consolidate servers

We have reduced the number of physical servers and using virtualisation technology to run multiple virtual machines on a single physical server. The virtualised infrastructure would decrease energy costs substantially.

Consolidating storage with SAN/NAS solutions

Consolidation of storage using storage area networks and network attached storage solutions reduces the energy consumption.

Recycling systems and supplies

To reduce the load on already overtaxed landfills and to avoid sending hazardous materials to those landfills (where they can reach into the environment and cause harm), old systems and supplies are reused, repurposed and recycled. We have started by repurposing items within the Bank; for example, in many cases, when a graphics designer or engineer needs a new high-end workstation to run resource-hungry programs, the old computer is perfectly adequate for use by someone doing word processing, spreadsheets, or other less intensive tasks. This hand-me-down method allows two employees to get better systems than they had, while requiring the purchase of only one new machine (thus saving money and avoiding unnecessary e-waste).

Reduced paper consumption

Another way to save money while reducing the Bank’s impact on the environment is to reduce consumption of paper. We have done this by switching from a paper-based to an electronic workflow by creating, editing, viewing, and delivering documents in digital rather than printed form. During FY 2017-18, substantial number of Savings Accounts were opened through TABs that has enabled savings for the Bank.

Foreign exchange earnings and outgo

During the year ended 31st March 2018, there was no foreign exchange earnings and outgo.

MD & CEO and CFO Certification

The MD & CEO and the CFO of the Bank have issued certificate certifying that the financial statements do not contain any materially untrue statement and these statements represent a true and fair view of the Bank’s affairs. They also certify that no transactions entered into during the year were fraudulent, illegal or violative of the Code of Conduct of the Bank. They are responsible for establishment and maintenance of the Internal Financial Controls for financial reporting and they have indicated to the auditors and the Audit Committee about any significant changes in internal control over financial reporting, significant changes in the accounting policies and instances of significant frauds, if any, which they were aware of. The certificate of MD & CEO and the CFO is forming part of this report.

G. OTHER DISCLOSURES

Your Bank continued to comply with guidelines of RBI and other applicable regulations as applicable on our Bank.

SEBI (Listing Obligations and Disclosure Requirements) Regulations, 2015

During the period under review, the Bank has complied with all the mandatory requirements of Regulation 17 to 27 of SEBI (LODR) and other applicable Regulations except for Regulation 24, which is not applicable to the Bank.

Accounting Treatment

The Bank has adopted accounting policies which are in line with the accounting standards and financial statements are prepared in adherence to the accounting policies, accounting standards and applicable provisions of Companies Act, 2013 and Listing Regulations.

Subsidiary Companies

During the period under review, the Bank does not have any subsidiary companies. Hence, Form AOC 1 as specified under Companies Act, 2013 is not applicable on Bank.

H. INVESTOR RELATIONS

Pursuant to the applicable compliance of Listing Regulations, your Bank publishes financial results on quarterly basis, which are duly reviewed by the Audit Committee before submission to the Board. The financial results of the Bank are also posted on the website of the Bank. The Managing Director and CEO/WTD and Chief of Investor Relations, at regular intervals comes on conference call with the analysts/shareholders and responds to the queries from investors on quarterly basis.

For share transfers, dividend payments and all other investor related activities are attended to and processed at the office of our Registrars & Share Transfer Agents, i.e. Link Intime India Private Limited, contact details of which are provided under corporate governance report section of Annual report.

The Bank’s has the Board approved policy, ‘Investor Grievance Redressal Policy’, which lays down the simplified procedure for shareholders to submit their queries, concerns and grievances for timely resolution. Shareholders can write at [email protected] for any query and can also visit the Bank’s website for more information on the Bank at www.aubank.in

I. DIRECTORS RESPONSIBILITY STATEMENT

Your Directors would like to inform that the audited financial statements for the financial year ended 31st March 2018 are in conformity with the requirements of clause (c) of sub-section (5) of section 134 of the Companies Act, 2013 and hereby confirm:

a. t hat in the preparation of the annual accounts, the applicable Accounting Standards had been followed along with proper explanation relating to material departures;

b. t he 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 and loss 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 Bank’s assets 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.

Acknowledgment

The Board of Directors wish to place on record their gratitude to the Reserve Bank of India, Securities and Exchange Board of India, Ministry of Corporate Affairs, Indian Banks’ Association (IBA), Unique Identification Authority of India (UIDAI), the Bank’s Customers, Bankers and other Lenders, Members, Debenture holders, Trustees and others for their continued support and faith reposed in the Bank. The Directors would also like to thank the BSE Limited, the National Stock Exchange of India Limited, National Securities Depository Limited, Central Depository Services (India) Limited and the Credit Rating Agencies for their continued co-operation.

The Board of Directors appreciates their support and is grateful for the confidence that they have placed in the Board of Directors and the Bank’s management. The Board also places on record its deep appreciation for the dedication and commitment of the employees at all levels as their hard work, co-operation and support enabled the Bank to maintain its consistent growth.

For and on behalf of the Board of Directors

AU SMALL FINANCE BANK LIMITED

Erstwhile AU FINANCIERS (INDIA) LIMITED

Sd/- Sd/-

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole-time Director

DIN:00009526 DIN:01024940

Date: 26th April, 2018

Place: Jaipur

CIN: L36911RJ1996PLC011381

---

Mar 31, 2017

To

The Members,

AU SMALL FINANCE BANK LIMITED

The Directors are pleased to present the 22nd Annual Report on the performance of your Company for the financial year ended 31st March, 2017 along with the Audited Financial Statements including Consolidated Financial Statements, Auditor’s Report and Secretarial Auditor’s Report thereon.

Results of operations

The Summarized Financial Performance of your Company for the Financial Year (FY) ended 2016-17 is as follows:

Key Performance Highlights

(Rs. in Cr.)

Particulars	2016-17	2015-16
Total Revenue	1387.44	1015.48
Total Expenditure	908.66	684.31
Profit Before Depreciation & Tax	478.78	331.17
Exceptional Items*	670.35	-
Depreciation	5.78	8.52
Current Tax	310.48	115.08
Deferred Tax	6.43	-3.8
Adjustment of tax relating to earlier	4.46	-0.25
periods
Profit after Tax	821.98	211.62
Transfer to Statutory Reserve	164.40	42.32
EPS (Rs. per share)
Basic (Rs. per share)	30.18	8.00
Diluted (Rs. per share)	29.61	7.95

- There has been an increase in revenue of the Company in FY 2016-17 which stood at Rs. 1387.44 Cr with a growth of 36.63% over the total revenue of Rs. 1015.48 Cr for FY 2015-16. Your company maintained consistent growth over the last few years with right strategic steps including introduction of new product lines and expansion to newer geographies.

- Profit after tax stood at Rs. 821.98 Cr for FY 2016-17, from Rs. 211.62 Cr showing Y-o-Y growth of 288.42% considering exceptional items over that of FY 2015-16.

- *Above exceptional item included the profit on sale of shares of Aavas Financiers Limited (formerly known as Au Housing Finance Limited), Index Money LLP (formerly known as Index Money Limited), M Power Micro Finance Private Limited and Au Insurance Broking Services Private Limited of Rs. 516.9 Cr. (net of the expenses incurred in connection with such sale and net of tax) for the financial year ended 31 st March, 2017.

Other Operational Performance Highlights: Disbursements

Your Company achieved a disbursement figure of Rs. 6730.46 Cr. for the FY 2016-17 as compared to Rs. 5619.23 Cr. for FY 2015-16 registering a growth of 20%. The credit offtake for loan products remained healthy during the year.

This became possible with commitment to offer a bouquet of customized loan products to a wide spectrum of customers expansion of business to newer geographies and increased penetration in rural areas. Alternate distribution channels, customer connect schemes, referral schemes, reinforcement of customer faith on AU Brand and distribution vertical also supported in achieving good loan disbursement numbers beyond what were envisaged for FY 2016-17.

Assets Under Management

During the period under review, the net loan book size grew to Rs. 10733.86 Cr. at the end of FY 2016-17 as compared to Rs. 8221.29 Cr. at the end of FY 2015-16 registering a growth of 31 %.

Lending operations

The demand for products offered by your Company remained healthy during the year, with growth predominantly in MSME loan products in rural and semi urban areas. Expansion of business in Madhya Pradesh, Gujarat and other states and reaching out to more customers ensured that we continue to grow our loan books at healthy rate on consistent basis.

Non-performing assets

The net Non-Performing Assets (NPA) as on 31st March, 2017 was 1.22% vis-a-vis 0.80% as on 31st March, 2016 There was also change of NPA classification norms from 150 DPD to 120 DPD during the year under review in view of applicable RBI guidelines for NBFCs and despite increase in loan book size, the asset quality remained under control.

Company’s Strategy & Transformation

Your Company is prominent, retail focused finance company primarily serving low and middle income individuals and businesses that have limited or no access to formal banking and finance channels.

As an NBFC, Au FINANCIERS (INDIA) LIMITED built a successful track record of serving under banked and unbanked customers in rural and emerging areas of north, west and central India and supported them to realise their personal and business aspirations by offering Vehicle, MSME & SME Loans.

As on 31 st March, 2017, your company was carrying out its business operations through 301 branches spread across 10 states and one union territory in India, with significant presence in the states of Rajasthan, Gujarat, Maharashtra and Madhya Pradesh and employed 8,515 personnel serving 5,56,887 Loan Account customers.

Small Finance Bank

Your Company received Banking license from the RBI to set up a ‘Small Finance Bank’ (“SFB”) on 20th December, 2016. Thereafter, your Company changed its name from “AU FINANCIERS (INDIA) LIMITED” to “AU SMALL FINANCE BANK LIMITED” on 13th April, 2017, your company commenced Banking Business as Small Finance Bank on 19th April, 2017.

As a bank, your company intend to expand and strengthen business model to offer a diverse suite of banking products and services by leveraging our asset based lending strengths, existing customer base and cost efficient, technology driven branch operating model to create a successful new SFB. Your company believes that our transition into SFB has offered us significant growth potential and we aim to be a retail focused, preferred trusted SFB offering integrated and tailored solutions to customers.

On Banking platform, primary objective would be to make banking simple, easy and accessible, to provide employment opportunities, to contribute in financial inclusion maintain and grow our asset quality.

Your Company has adopted a strategy of contiguous expansion across regions and Your Banking Business is firmly integrated with our business strategies, approach & target market and customer segment, enabling us to create shared stakeholder value both in the near and long-term future and we shall continue to focus on executing the promised plans, motivating our teams under right leaders, with a mission to build AUSFB an admired retail franchise with collective entrepreneurial approach backed by future ready tech friendly platform for our customers.

Secondary Sale

During the period of review one of the important condition to apply for the final license for Small Finance Bank was to bring down the Foreign Equity to 49% (which was earlier close to 64%) as stipulated by RBI in its In-Principle Approval dated 7th October, 2015. Transaction involved selling of 15.7% of shareholding on fully diluted basis from Foreign Investors to Domestic Investors consisting of Domestic Institutional Investors, HNIs, and Employees of the Company for Rs. 751 Crores and complied with conditions stipulated by RBI.

Subsidiaries, Associates &Joint Venture Companies (including major change with Subsidiaries & associates in reference to RBI Guidelines)

During the year, company divested its stake from its subsidiary companies viz. Index Money Limited, Au Housing Finance Limited and its associate companies viz. M Power Micro Finance Private Limited, Au Insurance Broking Services Private Limited in compliance of conditions laid down by the Reserve Bank of India in its in-principle approval letter dated 07th October, 2015 and in its correspondences thereafter.

Brief Summary of Divestment

Name of company	Nature of interest at the time Stake Sale	Date of divestment
Index Money LLP (formerly Known as Index Money Limited)	Subsidiary Company	17thjune 2016
Aavas Financiers Limited (formerly Known as Au Housing Finance Limited)	Subsidiary Company	23rd June 2016
M Power Micro Finance	Associate	08th September
Private Limited	Company	2016
Au Insurance Broking	Associate	08th December
Services Private Limited	Company	2016

Since above companies were subsidiaries and associate for the part of FY 2016-17, a statement containing the salient features of the financial statement of our subsidiaries & associates in the prescribed format AOC 1 is appended as Annexure I to this report.

During the year under review your Company has divested its stake in its subsidiaries and associates and the aggregate profit on sale of these investments has been disclosed in financial statements.

The details of divestments by your Company during the year are as follows:

Divestment of stake in Aavas Financiers Limited (Formerly known as “AU Housing Finance Limited”), wholly owned Subsidiary of your Company

Your Company had received in-principle approval to establish a SFB from RBI on 7th October, 2015, wherein it was stipulated to merge Aavas Financiers Limited with your Company. Further, byway of RBI Letter dated 18th January, 2016, our Company had obtained no-objection from RBI to divest stake in Aavas Financiers Limited. Pursuant to Aavas Financiers Limited SPA, your Company sold 33,773,484 equity shares of Aavas Financiers Limited to Lake District Holdings Limited, Kedaara Capital Alternative Investment Fund - Kedaara Capital AIF 1, Partners Group Private Equity Master Fund LLC and Partner Group ESCL Limited for an aggregate consideration of Rs. 8,28.35 Cr. Obtaining RBI approval for the divestment was a condition precedent to the execution of the transaction in the Aavas Financiers Limited SPA. Pursuant to RBI letter dated 6th April, 2016, final approval for divestment of 90.10% stake in Aavas Financiers Limited was obtained by your Company.

Divestment of stake in Index Money LLP (Formerly known as “Index Money Limited”), wholly owned subsidiary of your Company

Your Company had received in-principle approval to establish a SFB from RBI on 7th October, 2015, wherein it was stipulated to merge Index Money LLP with your Company. Your Company by way of RBI Letter dated 18th January, 2016, had obtained no-objection from RBI to divest stake in Index Money LLP and stake sale was successfully completed in year under review.

Divestment of Stake in M power Micro Finance Pvt. Limited

Your Company has divested 29.53% of the outstanding equity shares of M Power Micro Finance Private Limited on 08th September, 2016 and it is no more associate of your Company in compliance of conditions stipulated by RBI to set up Small Finance Bank.

Divestment of stake in Au Insurance Broking Services Private Limited

26% of the outstanding equity shares of Au Insurance Broking Services Private Limited was transferred on 08th December, 2016 and it is no more associate of your Company in terms of stipulations to set up Small Finance Bank.

In view of above divestments, there was partial stake sale in Aavas Financiers Limited & M Power Micro Finance Private Limited and complete stake sale in Index Money Limited and Au Insurance Broking Services Private Limited during FY 2016-17 and your company had no subsidiaries & associates as on 31 st March 2017.

Consolidated Financial Statements - FY 2016-17

Pursuant to sub-section (3) of Section 129 of the Companies Act, 2013, Company prepared a consolidated financial statement including its subsidiaries & associates Companies which shall be laid before the ensuing Annual General Meeting along with the Financial Statement under sub-section (2) of section 129 i.e. Standalone Financial Statements and in compliance of other applicable sections of Companies Act, 2013 and rules there under and under applicable accounting standards.

Appropriations/Transfer to reserves

Your Company proposes to transfer Rs. 164.40 Cr. of the net profits to statutory reserve, created under Section 45 IC of the Reserve Bank of India Act, 1934 and Company does not propose to transfer any amount to general reserves.

Dividend

Your Company converted into a small finance bank and owing to increased expenditure for IT software & hardware, branch expansions, infrastructure and Branding expenses, it will be prudent for the Company to conserve resources for being used in transformation of Banking business. Hence, Board does not propose to declare any dividend for the year ended 31 st March, 2017.

Share capital

During the period under review several key corporate actions were carried out wherein changes in share capital took place and your company, reclassified its unissued share capital, increased its authorised share capital, issued bonus shares, converted warrants into equity shares and cancelled the unsubscribed portion of issued capital under the review.

Reclassification of unissued portion of Authorised Capital

During the period under review company’s Authorised Share Capital of Rs. 97,00,00,000/- (Rupees Ninety-Seven Crores Only) was divided into 7,81,50,000 (Seven Crore Eighty One Lakh and Fifty Thousand) Equity Shares of Rs. 10/-(Rupee Ten Only) each and 18,85,000 (Eighteen Lakh Eighty Five Thousand) Compulsory Convertible Preference Shares of Rs. 100/- (Rupee One Hundred Only) each which was reclassified by shifting the unissued part of preference share capital as mentioned above into the Equity Share Capital of the Company, as a result of which the authorized capital changed to Rs. 97,00,00,000/- (Rupees Ninety-Seven Crores Only) which was divided into 9,70,00,000 (Nine Crore Seventy Lakh Equity Shares of Rs. 10/- Each..

Increased Authorised Share Capital

Keeping growth objectives mind and in view of proposed bonus issue, it was imperative to increase the authorised Share Capital of the Company and Therefore, authorised capital of the was increased from Rs. 97,00,00,000/- (Rupees Ninety Seven Crores Only) to Rs. 35,00,000,000/- (Rupees Three Hundred and Fifty Crores Only) during year under review.

Bonus Shares

In view of the strong financial performance, profits were capitalized in benefit of the shareholders and Company issued 22,86,25,755 (Twenty Two Crore Eighty Six Lakhs, Twenty Five Thousand and Seven Hundred and Fifty Five Only) bonus equity shares duly approved by the shareholders at their meeting dated 10th October 2016 Equity Shares of Rs. 10/- (Rupees ten only) each and 5 (Five) equity share for every 1 (One) existing equity share held by the Members were issued as bonus shares.

Allotment of Equity Shares on conversion of Share Warrants

During the year company allotted equity shares on conversion share of Warrants in the following manner:

Company issued 16,44,399 (Sixteen Lakh Forty-Four Thousand Three Hundred Ninety Nine) warrants which were converted & allotted into equal nos. of equity shares to Mr. Sanjay Agarwal, Key Person as approved by the shareholders at their meeting dated 10th June 2016 and 99,00,000 (Ninety-Nine Lakhs) equity shares were allotted on conversion of warrants to KMPs out of which 90,00,000 (Ninety Lakh) Equity shares were allotted to Mr. Sanjay Agarwal - MD, 7,50,000 (Seven Lakh & Fifty Thousand) Equity Shares were allotted to Mr. Uttam Tibrewal - WTD and 1,50,000 (One Lakh Fifty Thousand) Equity Shares were allotted to Mr. Deepakjain - CFO on 03rd January, 2017 which was approved by Shareholders at their meeting dated 10th October, 2016.

Cancellation of Unsubscribed Issued Capital

During the year company cancelled unsubscribed issued capital for 13,061 (Thirteen Thousand and Sixty One) equity shares. These Equity Shares were originally approved by Board of Directors on 28th March, 2014 for allotment to the proposed subscribers and the said shareholders did not subscribe to the said shares within the stipulated time as per the Companies Act. Therefore, in compliance of applicable laws, cancellation of said shares was approved at shareholders meeting dated 25th February, 2017 to streamline the issued, subscribed and paid up share Capital of the Company.

After above corporate actions in FY2016-17, Company’s authorized capital stood at Rs. 35,00,000,000/-(Rupees Three Hundred and Fifty Crores Only) divided into 35,00,00,000 (Thirty Five Crores) equity shares of face value of Rs. 10 (Ten) each and issued and paid up capital was Rs. 284,25,09,060 (Two Hundred and Eighty Four Crores, Twenty Five Lakhs and Nine Thousand and Sixty) divided into 28,42,50,906 (Twenty Eight Crores, Forty Two Lakhs Fifty Thousand Nine Hundred and Six) equity shares having face value of Rs. 10 (Ten) each as on 31 st March, 2017.

Employee stock Option Plan

Your Company has instituted Stock Option Schemes is to attract and retain the personnel for positions of substantial responsibility and to provide additional incentive to Employees. The ESOP Plan is implemented to enable the Employees to share the wealth that they help to create for the Company over a certain period of time. The Company strongly believes that an equity linked component in the wealth creation goes a long way in aligning the objectives of an individual with those of the Company. Through ESOP Plan, the Company intends to offer an opportunity of sharing the wealth created to those Employees who have contributed in creation of this wealth. The Stock Option Schemes also enable the Company to hire the best talent for its senior management and key positions.

The Company instituted “2011 Au Employees Stock Option Plan” on 21st September, 2011 pursuant to Resolution dated 21st May, 2011 and 27th September, 2011, passed by Board of Directors and Shareholders, respectively. This ESOP scheme was completed and shares underlying the ESOP scheme were issued. Board of Directors formulated ‘Employees Stock Option Scheme 2015’ in their Meeting dated 10th August, 2015 which was subsequently approved by the shareholders of the Company at their Extra-ordinary General meeting dated 31st August, 2015 and empowering the Board & Nomination and remuneration committee to execute the said employees stock option scheme as “Au FINANCIERS (INDIA) LIMITED-Employees Stock Option Plan A & Plan B 2015”.

Board of Directors at its meeting dated 23rd August, 2016 passed a resolution to approve ESOP Scheme called as “Au FINANCIERS (INDIA) LIMITED-Employees Stock Option Plan 2016” which was approved by shareholders at extraordinary general meeting dated 10th October, 2016 approving the scheme”.

The above referred ESOP Scheme 2015 and ESOP Scheme 2016, i.e. ESOP Plans called as “Au FINANCIERS (INDIA) LIMITED-Employees Stock Option Plan A & Plan B 2015 and Au FINANCIERS (INDIA) LIMITED-Employees Stock Option Plan 2016” were subsequently amended by the shareholders on 24th January, 2017 through postal ballot.

The Employee Stock Option Plans are administered by the Nomination & Remuneration Committee of the Board of the Company.

The details of vesting of various schemes in which ESOP is granted are as follows:

ESOP Schemes		Vesting period
ESOP Plan-A-2015	Vesting Date	% of vesting of options
	1 year from the date of grant or at the time of IPO whichever 20%
	is later
	Expiry of 1 year from 1st vesting Expiry of 2 years from 1st vesting Total	30% 50% 100%
ESOP Plan - B 2015
	1 year from the date of grant or at the time of IPO whichever 20%
	is later
	Expiry of 1 year from 1st vesting Expiry of 2 years from 1st vesting Total	30% 50% 100%
ESOP Scheme 2016	Options granted under this scheme would vest after one year but not later than six years from
	the date of grant of options.

Various details including option movement during the year under Schemes i.e. ESOP Plan - A 2015, ESOP Plan - B 2015 and ESOP Scheme 2016 respectively as on 31 st March, 2017 are as follows:

Particulars	ESOP Plan A 2015	ESOP Plan B 2015	ESOP Scheme 2016
Date of Shareholder’s Approval	31st August 2015	31st August 2015	23rd August 2016
Total Number of Options approved	3,836,058	4,933,194	2,100,000
Total Number of options outstanding at the Beginning of the period	3,338,418	2,862,846	-
Total No. of Options granted (during FY 2016-17)	418,512	1,122,654	268,300
The Pricing Formula	10.11	33.37	140
Options Vested (during FY 2016-17)	-	-	-
Options Exercised (during FY 2016-17)	-	-	-
Total No of shares arising as a result of exercise of option	-	-	-
Options lapsed/ Forfeited (during FY 2016-17) (available for reissue)	318,864	109,716
Total No of options exercisable at the end of the year	-
Total No of options outstanding at the end of the year	3,438,066	3,875,784	268,300
Variation in terms of options	Refer Note 1	Refer Note 1	Refer Notel
Money realized by exercise of Options (during FY 2016-17) (in Rs. )	-	-	-
Total No of Options granted to Senior Management Personnel (SMP) i.e. Directors and Key managerial personnel	2,188,212 Refer Note 2	2,075,178 Refer Note 2	-
Any other employee who received a grant in any one year of options	Nil	Nil	Nil
amounting to 5% or more of options granted during that year
Identified employees who are granted options, during any one year equal to or exceeding 1% of the issued capital (excluding outstanding warrants and conversions) of the Company at the time of grant	Nil	Nil	Nil

Diluted Earnings Per Share (EPS) of the Company after considering the effect of potential equity shares on account of exercise of Options		Refer Note 3
Impact of the difference between the Intrinsic Value of the Options and the Fair Value of the Options on Profits and on EPS	Refer Note 3	Refer Note 3 Refer Note 3
Weighted average share/exercise price of the shares exercised during the year (in Rs. )	10.11	66.67 140
Weighted average fair value(WAFV) of the outstanding options (in Rs. )	Refer note 33 to notes to accounts of Standalone Annual Audited Financial Results of FY2016-17

Note: Pursuant to issuance of Bonus issue in the ratio of 5:1 on 19th October, 2016 all the ESOP option/price converted into multiple/divide in 6 after effecting bonus issue and all the figures mentioned above has been converted to such post bonus issue nos. and value

The Securities and Exchange Board of India (‘SEBI’) has prescribed two methods to account for stock grants; namely (i) the intrinsic value method; (ii) the fair value method. The Company adopts the intrinsic value method to account for the stock options it grants to the employees. The Company also calculates the fair value of options at the time of grant, using Black-Scholes pricing model with the following assumptions:

Particulars	31st March, 2017
Risk free interest rate	6.86%
Expected life	3.1 -4.1 year
Expected volatility	49.91%
Expected dividends	0%

Note 1:

The above referred ESOP Plan 2015 and ESOP Scheme 2016 were subsequently amended by the shareholders on 24th January, 2017 through postal ballot and the amended as follows:

ESOP Plan A 2015:

Particulars	Existing Terms	Amended Terms, if any
Name of Plan	Au FINANCIERS (INDIA) LIMITED-Employees Stock Option Plan-A 2015	same as original
ESOP Scheme Nos. of ESOPs	639,343	3,836,058 (post bonus)
Exercise Price	Rs. 60.65/- each	Rs. 10.11/- each (post bonus)
Exercise Period	the time period of 4 years from the 1 st Vesting Date within Same as original which an Employee should exercise his right to apply for Shares against the Vested Option in pursuance to this ESOP Plan. The Options shall not be permitted to be exercised after the expiry of the above-mentioned Exercise Period. After the above-mentioned date, all the Options vested but remaining unexercised under the ESOP Plan shall lapse and such Options which were subject thereto, shall become available for future grant under the ESOP Plan (unless the ESOP Plan is terminated)
Vesting Schedule	As detailed above	Same as original
Secondary Acquisition Post Listing		Au Financiers Employee Welfare Trust can purchase shares from stock exchanges where shares of Company would be listed

Name of Plan	Au FINANCIERS (INDIA) LIMITED-Employees Stock Option same as original Plan-B 2015
ESOP Scheme Nos. of ESOPs	822,199	4,933,194 (post bonus)
Exercise Price	Rs. 200.21/- each	Rs. 33.37/- each (post bonus)
Exercise Period	The time period of 4 years from the lst Vesting Date within Same as original which an Employee should exercise his right to apply for Shares against the Vested Option in pursuance to this ESOP Plan. The Options shall not be permitted to be exercised after the expiry of the above-mentioned Exercise Period. After the above-mentioned date, all the Options vested but remaining unexercised under the ESOP Plan shall lapse and such Options which were subject thereto, shall become available for future grant under the ESOP Plan (unless the ESOP Plan is terminated)
Vesting Schedule	As detailed above	Same as original
Secondary Acquisition Post Listing		Au Financiers Employee Welfare Trust can purchase shares from stock exchanges where shares of Company would be listed

ESOP Scheme 2016:

Particulars	Existing Terms	Amended Terms, if any
Name of Plan	Au FINANCIERS (INDIA) LIMITED-Employees Stock Option Plan No change
	2016
ESOP Scheme Nos.	3,50,000	21,00,000 (post bonus)
of ESOPs
Exercise Price	Rs. 840/- each	Rs. 140/-each (post bonus)
Exercise Period	Time period of four years starting from the first vesting date.	Time period of six years from first vesting date.
Vesting Schedule	First vesting - 20% -One (1) year from Initial Public Offer Options granted under this scheme would vest
	(“IPO”) or twelve (12) months from grant date, whichever is	after one year but not later than six years from
	later.	the date of grant of options.
	Second Vesting - 30%- after 2 year from date of 1 st grant.
	Third Vesting - 50% - after 3 year from date of 1 st grant.
Secondary	-	Au Employee Welfare Trust can purchase
Acquisition Post		shares from stock exchanges where shares of
Listing		Company would be listed.

Note 2:

Details of Options granted to senior managerial personnel i.e.. Directors and Key managerial personnel

S. NO.	Name	Designation	No. of ESOP Granted in ESOP Plan-A 2015	No. of ESOP Granted in ESOP Plan-B 2015	No. of ESOP Granted in ESOP Scheme 2016
1	Mr. Uttam Tibrewal	Whole-time Director	1,665,000 10.11/-	2,061,924 m 33.37/-	-
2	Mr. Deepak Jain	Chief Financial Officer	509,562 10.11/-	-	-
3	Mr. Manmohan Parnami	Company Secretary	13,650 10.11/-	13,254 33.37/-	-

Note 3:

The Company measures the cost of ESOP using the intrinsic value method. Had the Company used the fair value model to determine compensation, its profit after tax and earnings per share as reported would have changed to the amounts indicated below:

(Rs. in Lakh)

Particulars	Year ended 31st March, 2017	Year ended 31st March, 2016
Profit after tax as reported (Rs. in Lakh)	82,197.61	21,161.95
Add: ESOP cost using intrinsic value method (net of tax)	266.45	135.87
Less: ESOP cost using fair value method (net of tax) (Rs. in Lakh)	408.67	202.42
Profit after tax (adjusted) (Rs. in Lakh)	82,055.38	21,095.40
Earnings Per Share*
Basic
- As reported	30.18	8.00
-Adjusted for ESOP cost using fair value method	30.12	7.98
Diluted
- As reported	29.61	7.95
-Adjusted for ESOP cost using fair value method	29.56	7.91

*Earning Per share is in Rs.

Contracts or Arrangements with related parties

All contracts/ arrangements/transactions entered by the Company during the financial year with related parties have been covered in note no. 28 to Financial Statements for the period 31st March, 2017 and all related party transactions are placed before the Audit Committee & Board for approval. Prior omnibus approval for relevant transactions is also obtained from the Audit Committee & Board for the related party transactions and accordingly the required disclosures are made to the Committee & Board on quarterly basis in terms of the applicable requirements under the law.

The policy on Related Party Transactions and materiality dealing with Related Party Transactions as approved by the Audit Committee and the Board of Directors is uploaded on the website of the Company and link for the same is https://www.aubank.in/au-notice-board.

Particulars of contracts or arrangements with related parties referred to in Section 188 of the Companies Act, 2013, in the prescribed Form AOC-2, is appended as Annexure II to the Board’s report.

Loans, Guarantees or Investment in Securities

Required disclosure on Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the notes to the financial statements provided in this Annual Report and in reference to Section 186 of the Companies Act, 2013 read with Rule 11(2) of the Companies (Meetings of Board and its Powers) Rules, 2014, the loans made, guarantee given or security provided are in the ordinary course of business by a Non-Banking Financial Company (NBFC) registered with Reserve Bank of India (RBI) is exempt from the applicability of provisions of Section 186 of the Act.

Change in Nature of Business

During the year under review, we continued to operate as a retail focused “Systemically Important, Non-Deposit Accepting Asset Finance Company” (NBFC-ND-AFQ a nonbanking finance company (“NBFC”) offering vehicle finance; micro, small and medium enterprises (“MSMEs”) loans; and small and medium enterprises (“SMEs”) loans and there was no change in nature of business during FY 2016-17.

However, Company changed its name from ’Au FINANCIERS (INDIA) LIMITED” to “AU SMALL FINANCE BANK LIMITED” on 13th April, 2017 and commenced its banking operations formally on 19th April, 2017.

Treasury & Finance Mobilization of Funds

During the year under report and as per business requirement, your Company raised funds at lower cost, mainly by way of private placement of Non-Convertible Debentures with comfortable liquidity position, undrawn cash credit lines, working capital demand loan, rupee Term Loans from Banks.

During the year, your Company further focused on bringing reduction in its cost of borrowings by raising funds through short term instruments like Commercial Papers, WCDL etc., and further reduction in rate of interest on existing lines of credit from banks. We are pleased to inform that Company successfully raised credit lines from National Bank for Agriculture and Rural Development (NABARD).

Non-Convertible Debentures

During the year under review your company raised funds via issuance ofRs. 2,555 Cr. Non-Convertible Debentures. Company earned trust of the investor’s viz. HDFC Bank Limited, ICICI Bank, State Bank of India Mutual Fund, IDFC Bank Limited, International Finance Corporation, ICICI Prudential Mutual Fund, Reliance Mutual Fund, FMO, Franklin Templeton, DSP Blackrock Investments Managers and Asian Development Bank under their various schemes.

Credit Ratings

Your Company was rated by leading rating agencies of India as on 31st March, 2017 and the ratings have been presented under note no. 37 (P) of the financial statements of the Company for FY 2016-17.

Capital Adequacy Ratio

Your Company is well capitalized and the Capital Adequacy Ratio (CRAR) of your Company is 23.04% as on 31 st March, 2017, which is higher than minimum requirement as prescribed by the RBI. Strong Capital Adequacy Ratio not only defines that your Company is adequately capitalized and it also signifies that it has strong capacity to meet the time liabilities and had cushion for other risks such as credit risk, operational & other inherent risks of the Business.

Corporate Governance

Board & Committees Brief and Composition

Duty of the Board of Directors of your Company is to oversee that the operation & management of Company is run in ethical manner. The Board is scheduled to meet at least once a quarter and each quarterly meeting of the Board will generally include a business and finance update and discussion. Board reviews the Company’s annual financial plan and monitors the Company’s performance against its annual financial plan.

Board Meetings:

There were 10 meetings of the Board held during the year under review and the intervening gap between the meetings was within the period prescribed under the Companies Act, 2013 & Secretarial Standard-I.

The composition, number of meetings held under the review, the scope of work of the respective committees including Nomination & Remuneration Committee, Audit Committee, Stakeholder’s relationship committee and Corporate Social responsibility committee have been appended in the report on corporate governance, forming part of this Annual Report.

Declaration by Independent directors

Company 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.

Board of Directors and Key Managerial Personnel

Board of Directors

- The composition of the Board of your Company is in conformity with the provisions of the Companies Act, 2013 as amended from time to time and has a well-structured Board with a balanced mix of Executive and Non-Executive Directors comprising of Five (5) Directors with 3 (Three) Non-Executive (Independent Directors) and 2 (Two) Executive Directors. Your Company is also in compliance of requirement of having 1 woman Director on Board. The Executive and Non-Executive Directors are competent and knowledgeable personalities possessing required skills and competencies in compliance to the requirements of Banking Regulations Act 1949, Companies Act 2013 and other applicable laws and regulations.

- None of the Directors of the Company are disqualified from being appointed as Directors as specified under Section 164 (2) of the Companies Act, 2013, read with its applicable rules.

- Following directors resigned from the Board of Company during the period under review:

Mr. Vishal Mahadevia (Nominee Director)	23rd January, 2017
Mr. Nishant Sharma (Nominee Director)	24th January, 2017
Mr. Ravindra Bahl (Nominee Director)-	24th January, 2017

Company applied with RBI for granting approval for Mr. Mannil Venugopalan for the position of Non-Executive Part Time Chairman and considering his vast experience, RBI granted approval and he is being designated as Non Executive Part Time Chairman of the Bank.

Pursuant to the applicable provisions of the Companies Act, 2013, Regulation Act, 1949 and Articles of Association of the Company and subject to the approval of Reserve Bank of India (RBI) and on approval by shareholders at their meeting held on 31 st March, 2017 for appointment of Mr. Sanjay Agarwal as the “Managing Director & CEO” and Mr. Uttam Tibrewal as the “Whole time Director” in view of proposed transition to Banking platform for the tenure of 3 years from date of taking the charge.

In terms of Section 152 of the Companies Act, 2013, Mr. Uttam Tibrewal, being director liable to retire by rotation, shall retire at the ensuing AGM and being eligible for reappointment, offers himself for re-appointment.

Other Key Managerial Personnel

Mr. Deepakjain, Chief Financial Officer and Mr. Manmohan Parnami, Company Secretary are the other 2 Key Managerial Personnel of your Company as per the provisions of the Companies Act, 2013 and rules made thereunder.

Performance evaluation

Board evaluation is the most effective way to ensure the Board members understand their duties and to adopt effective good governance practices. To be effective, boardroom appraisals need to have specific, clearly defined steps and practices and a special commitment from the Board. Your Company evaluates the performance of individual directors, the Board as a whole and its committees annually.

Evaluation mechanism is based on independent assessment of performance of Directors and Board as a whole and of its committees. The performance of the committees was evaluated by the Board after seeking inputs from the committee members on the basis of criteria such as the composition of committees, manner of conducting the meetings, value additions made by the members of the committees, sharing of relevant knowledge, effectiveness of committee meetings etc.

The Board and the Nomination and Remuneration Committee reviewed the performance of individual directors on the basis of criteria covering their knowledge, participation and the contribution of the individual director to the Board and committee meetings like attendance of the directors in the meetings, their contribution & inputs and expertise and other relevant parameters.

Familiarization Programme for Independent Directors

In compliance with the requirements of the act and the regulations, the Company has putin place a familiarization programmes for the Independent Directors to familiarize them with their role, rights and responsibility as directors, the working of the Company, nature of the industry in which the Company operates, business model etc. The details of such familiarization programmes imparted to Independent Directors are posted on the website of the Company and can be accessed at https://www.aubank.in/ au-notice-board

Meetings of Independent Directors

The Independent Directors met once during the year under review. The meeting was conducted in an informal manner without the presence of any of the Executive Directors, the Non-Executive, Non-Independent Directors or any other Management Personnel.

The meeting was held inter alia to discuss:

- Review of the performance of Non-independent Directors and the Board of Directors as a whole.

- Review of the performance of the Chairman of the Company, taking into account the views of the Executive and Non-executive directors.

- Assess the quality, content and timeliness of flow of information between the management and the Board that is necessary for the Board to effectively and reasonably perform its duties.

Regulatory Compliances RBI Guidelines

Your Company continued to comply with guidelines of RBI, Companies Act, 2013 and other applicable regulation as applicable to a Non-Banking Non-Deposit Taking Systemically Important Asset Finance Company (‘NBFC-ND-SI-AFC’) Your Company continues to comply with all requirements prescribed by RBI from time to time.

Deposits

Your Company was a non-deposit taking NBFC as on 31st March, 2017, and thus has not accepted any public deposits during the FY 2016-17.

Material Events Occurring After Balance Sheet Date-Sec 134 (3) (I) of Companies Act, 2013

The major events after the balance sheet date, i.e. after 31 st March, 2017 were as follows:

Name Change

Your Company received license from Reserve Bank of India dated 20th December, 2016 to commence banking business under Section 22(1) of the Banking Regulation Act, 1949 and changed name of the company from “Au FINANCIERS (INDIA) LIMITED” to “AU SMALL FINANCE BANK LIMITED” and approval of Registrar of Companies, Rajasthan was received on 13th April, 2017.

Governance Framework

Bank formed the Board and Board delegated committees, approved the policies as applicable on Banks in terms of applicable RBI guidelines and Listing Regulations for building strong governance framework for Banking platform.

Commencement of Banking Business Operations

Commenced its banking operations on 19th April 2017 to build AU SMALL FINANCE BANK an admired retail franchise offering diverse suite of banking products and services by leveraging our asset based lending strengths. Simultaneously, Company also surrendered its NBFC-ND-Sl AFC License with RBI on the same day.

Approval to the terms of appointment of MD & CEO & Whole Time Director

RBI granted approval to the terms of the appointment Mr. SanjayAgarwal as the “Managing Director & CEO” and Mr. Uttam Tibrewal as the “Whole time Director”.

Initial Public Offer

In terms of in-principle approval of RBI to set up Small Finance Bank, it was mandatory to get Company listed within a period of 3 years. During 2016-17 taking this initiative forward. Company filed Draft Red Herring Prospectus and received approval for the same on 22nd March, 2017 and in recently concluded IPO, there was an overwhelming response across all the categories of investors and issue was oversubscribed by 54 times. We are sufficiently capitalized and IPO of Rs. 1913 crore was a pure Offer for Sale which provided liquidity to our existing shareholders and Bank got listed on 10th July, 2017 on NSE & BSE Bourses.

With commencement of the bank and the completion of our listing, we are now focused to build our Bank and stabilize our operations. Our key priorities for the future will be to continue to serve the customers in the best possible way, maintain and continuously improve the asset quality, thoroughly abide by all the regulations mandated on us, control our operational expenditure, strengthen our product portfolio across assets and liabilities.

Extract of annual return

Pursuant to sub-section 3(a) of Section 134 and sub-section (3) of Section 92 of the Companies Act, 2013 read with Rule 12 of the Companies (Management and Administration) Rules, 2014, extract of annual return in the prescribed form MGT-9 as annexure IV is attached to this Report.

Conservation of Energy, Technology Absorption, Foreign Exchange Earnings and Outgo

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 Company are as under:

Conservation of Energy

(i) The steps taken or impact on conservation of energy

Your Company has adopted social environment management system and installed energy conserving computer monitors, LED lights, AC with good electric saving ratings wherever possible at branches & other offices to conserve energy and plans to carry out operations with low cost, highly technology lean operations model.

(ii) The steps taken by the company for utilising alternate sources of energy

We are taking measures to utilize the day light to the extent possible to save electricity at Branches and other offices.

(iii) The capital investment on energy conservation equipments

In view of banking transition, Bank shall explore more options to have monitoring and control over usage of electricity and other resources by the Branches to ensure efficiency in our operations.

Technology Absorption

(i) The efforts made towards technology absorption

Your Company has implemented social media, cutting-edge technologies like virtualisation and continue to invest in the best-in-class IT systems with the objective to make IT systems as business enabler and tool for improving efficiency and speed of its operations.

Your Company has incurred huge amount to build a lean and efficient Banking infrastructure and availed services of Netmagic an NTT Communication Company to manage its Datacentre, Near DR & DR site with view to ensure Business Continuity and seamless working.

For easy & convenient banking for our customers and to take maximum benefit of available technology resources for improving our efficiencies, we have taken following measures

- Aadhar enabled authentication,

- Account opening over tabs,

- Paperless account banking with no deposition and withdrawal slips at Branches required for carrying out transactions.

(ii) The benefits derived like product improvement, cost reduction, product development or import substitution;

Above measures would help us in cost reduction, increase in efficiency of operations and productivity per employee.

Company implemented several key applications for Customer Relationship Management and is currently underway of implementing the other applications to improve its technology architecture further.

(iii) In case of imported technology (imported during the last three years reckoned from the beginning of the financial year) - NA

(iv) Your Company has not incurred any expenditure on Research and Development during the year under review Foreign Exchange Earnings and Outgo

The foreign exchange earnings and the foreign exchange outgo of the Company is furnished in note no. 32 of Annual Financial Statements for FY2016-17.

Management Discussion and Analysis Report

The Management Discussion and Analysis Report for the year under review is presented in a separate section forming part of Annual Report.

Policies & Framework:

Policies regarding appointment & remuneration

Your Company has formulated a policy for nomination and remuneration of Director and KMPs which laid down the process for appointment of Directors including the required skill sets, experience, etc. The Policy covers aspects of board composition, skill sets, diversification of board of directors as required under the Companies Act, 2013. Nomination & Remuneration committee (NRC) identifies and scrutinizes the prospective candidates for the position of Director keeping in view the requisite qualifications, expertise, skill sets, track record, etc. The NRC has also put in place the policy on board diversity and policy for nomination and remuneration of Directors and KMPs. Policy is placed on the website of your company at weblink https://www.aubank.in/au-notice-board.

Vigil, Whistle Blower Mechanism & Anti-Bribery and Corruption Policy

The Company formulated and established a Vigil Mechanism Framework to enable directors and employees to report genuine concerns about unethical behavior, actual or suspected fraud or violation of Code of Conduct. This policy promotes open and fearless environment of direct communication by employees to management of the Company. Further, this policy seeks to provide necessary safeguards for protection of employees from reprisals or victimization, for whistle blowing in good faith. The Policy neither releases employees, customers and/or vendors from their duty of confidentiality in the course of their work, nor is it a route for taking up a grievance about personal situation. During the year, no whistle blower event was reported and mechanism is functioning well. No personnel has been denied access to the Audit Committee.

The Vigil Mechanism, whistle blower policy has been uploaded on the website of the Company i.e. https://www. aubank.in/au-notice-board Anti-Bribery Policy mechanism is also in place to ensure that no bribe and corrupt practices are carried out by the Company or its employees and associates and report on the same being submitted to the Board.

Disclosures under Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013

The Company is committed to provide a safe and conducive work environment to its employees and has formulated Policy for Prevention of Sexual Harassmentto prohibit, prevent or deter any acts of sexual harassment at workplace and to provide the procedure for the redressal of complaints pertaining to sexual harassment, thereby providing a safe and healthy work environment. During the year under review, no case of sexual harassment was reported. The internal complaint committee has been formed to ensure safe and conducive work environment is provided to its employees and to monitorthe compliance of applicable guidelines in this regard.

Corporate Social Responsibility

Your Board has constituted a Corporate Social Responsibility committee in accordance with requirement of Section 135 of Companies Act, 2013. Details of CSR Committee are available in the report on Corporate Governance. CSR Committee has formulated and recommended a CSR policy, which has been approved by the Board and periodically reviewed. Your Company’s CSR policy is committed towards CSR activities as envisaged in Schedule VII of the Companies Act, 2013. The Annual Report on CSR activities as required under Companies (CSR Policy) Rules 2014, which is attached to this report as Annexure V. The CSR Policy can be accessed at https:// www.aubank.in/au-notice-board

Your company has implemented Social Environment Management System as agreed upon with International Finance Corporation & Asian Development Bank in its internal credit and management assessment processes with respect to offering its financial services to its customers.

Internal Financial Controls and their Adequacy

The Companies Act, 2013 has introduced a reasonably advanced reporting concept for auditors i.e.. Internal Financial Control (IFC) over financial reporting. Auditors of the Company are required to report on adequacy and operating effectiveness of Internal Financial Controls of the Company with report on financial statements prepared under Section 143 of the Act.

The Company as per the requirement of section 134 (5) (e) has adopted the policies and procedures to ensure orderly and efficient conduct of its business, including adherence to the Company’s policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, timely preparation of reliable financial information.

During the year under review, the Statutory Auditors and the Secretarial Auditor have not reported any instances of frauds committed in the Company by its Officers or Employees to the Audit Committee under section 143(12) of the Companies Act, 2013, details of which needs to be mentioned in this Report.

Auditors & Auditors’ report:

Statutory Auditor

Your Company recently converted into Small Finance Bank and commenced its Banking Business on 19th April, 2017. It is regulated by the Banking Regulation Act 1949, therefore, as per the Section 30 of the Banking Regulation Act and as per the prescribed Circulars of RBI, it is required to take prior approval of RBI for the Appointment of Statutory Auditor in the Bank for each financial year and we hereby inform that Company received approval from RBI for the appointment of M/S S.R. BATLIBOI & ASSOCIATES LLP, Chartered Accountants as Auditors of the Bank for the FY 2017-18.

In terms of Sections 139 and 141 of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, it is hereby informed that RBI has granted approval to the name of M/s. S. R. BATLIBOI & ASSOCIATES LLP, Chartered Accountants, (Registration No. 101049W/ E300004) for appointment as statutory auditor of the Company for FY 2017-18 and it is proposed for approval of the members in the forthcoming Annual General Meeting for auditing the Annual Accounts of the Company for FY 2017-18 and for appointing them as statutory auditors from the conclusion of 22nd Annual General Meeting till the conclusion of the 26th Annual General Meeting of Bank to be held in the calendar year 2021 subject to ratification of their appointment by the Members of the Bank at every subsequent Annual General Meeting. A certificate under Section 141 of the Companies Act, 2013, is received from the M/s S. R. BATLIBOI & ASSOCIATES. LLP, Chartered Accountants, existing auditors and proposed audit firm which fulfils the criteria, prescribed in the said section to the effect that their appointment, if made, would be within the prescribed limits under Section 141 of the Act and that, they are not disqualified for such appointment within the meaning of Section 141 of the Act and the Company.

Reports & qualifications, if any

The notes on the financial statements referred to in the Auditors’ Report are self-explanatory and do not call for any further comments. The Auditors’ Report does not contain any qualification, reservation or adverse remark.

Secretarial Auditor

Pursuant to Section 204 of the Companies Act 2013, your Company had appointed M/s V. M. Associates, Practicing Company Secretaries, Jaipur as its Secretarial Auditors to conduct the secretarial audit of the Company for FY 2016-17. Your Directors recommended and approved their appointment as the Secretarial Auditors of the Company for FY 2017-18.

Reports & qualifications, if any

Company provided all assistance and facilities to the Secretarial Auditor for conducting their audit for FY 2016-17. The Secretarial Audit Report as specified in Section 204 of Companies Act, 2013 in Form MR-3 as annexure VI to this report. There are no qualifications or adverse remarks in the Secretarial Audit Report except observation on expense on CSR activities were below the prescribed limit. Board’s explanation has been formed as set out in Annexure V Annual Report on Corporate Social Responsibility.

Details of significant and material orders passed by the Regulators or Courts or Tribunals impacting the going concern status and the Company’s operations in future.

No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and the Company’s operations in future.

Risk Management Framework & Policy

The Board of Directors has overall responsibility for Risk Management of the Company. The Board oversees the Company’s Risk and related control environment, reviews and approves the policies designed during transition of company from Non-Banking Finance Company to Bank.

The Board ensures that comprehensive policies, systems and controls are in place to identify, monitor and manage material risks at banking platform. The Board has laid down a Risk appetite framework which identifies the quantum of risk and the Company is willing and able to assume in its exposures and business activities in pursuit of its strategic objectives and desired returns. The Board has also established policies governing risk management frame work and hired experienced senior personnel to identify and look overall risk framework.

In view of Banking transition. Board has taken following steps to strengthen the risk governance framework:

a. Board has reviewed and approved applicable regulatory and business operations policies to enhance & improve the monitoring mechanism of its risk embedded in Banking business model

b. Board has constituted 21 committees including following committees for monitoring and mitigating the risk involved on Banking platform with a view to strengthen its framework for risk governance and control and for risk management following are the committees of the Board

- Risk Management Committee of the Board

- Operational Risk Management & IT Committee and

- Credit Risk & NPA management committees

c. Each new product is assessed, recommended by product approval committee and approved by Board before being introduced.

d. There are separate Audit, Risk & Compliance functions in the Bank led by respective department heads for monitoring the regulatory and other business risks.

e. Chief Risk Officer has also been appointed for building, governing & monitoring the risk management framework of the Bank.

f. Risk Management Policy has been uploaded on the website of the Company i.e. at https://www.aubank.in/au-notice-board

Human Resources

The Company aims to align HR practices, policies and processes with business objectives, goals, to motivate people for higher performance and build a competitive working environment. The Company strongly believes that its employees are the most important asset base and all measures introduced by the Company is aimed at providing employee satisfaction, enabling them to deliver better results year over year. At the end of March 2017, the Company had 8,515 employees. With increase in growth and size, it was inevitable for the Company to increase ability to hire manpower faster to handle and manage banking operations. In line of banking business requirements, the Company hired manpower from external manpower service companies and direct recruitments to ensure that growth envisaged by management can be achieved on consistent basis. Employee relations remained cordial and the work atmosphere remained congenial during the year.

Brief of Bank Products

Your Bank successfully commenced banking operation and bifurcated its products offered to the customers covering Liability and Asset Products.

Assets Products Portfolio

Your Bank launched various customized assets products such as Retail bank & Wholesale Banking Products and commits to provide consistent customization in asset products to meet evolving need of our customers.

Liability Products Portfolio

Your Bank launched various liability customized liability products viz. Saving Accounts, Currents Accounts, Fixed Deposit (FD), Recurring Deposit (RD), Gold Loans, Agri Term Loan, Locker Facility, Assets, Point of Sale (POS) and Fixed Deposit Overdraft (FDOD) and commits to provided consistent development of liability products.

IT Strategy

Unified Payment Interface (UPI), Aadhar Enabled Authentication, Payment E-wallets, mobile banking and post demonization less cash environment has led to revolution in the banking sector wherein convenience, ease of use and cost effective way of transacting are key enablers for Bank to get more customers and to enhance customer convenience.

At AU Bank, we focus on building a Differentiated technology infrastructure, enhancing convenience for customers and building a differentiated simplified banking experience for our customers.

It included the Mobility solutions for our sales force, call center operations, liability centralized processing hub, cheque clearing centers, unified platform for customer relationship management and cash dispensation machines and we shall take forward digital banking & analytics for tapping growing digital banking culture that will allow the unbanked masses to open their accounts and those with bank accounts to easily manage their finances.

Digital Banking

Your Bank committed to provide digitalized banking services to its customer and enhance scope of paper less banking for our customers. As per the commitment of Bank we have associated with various technology partners.

Particular of Employees

The Particular of Employees pursuant to sub Rule 2 & 3 of Rule 5 of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014, as amended is covered under annexure III & for particular of employees under Rule 5 (1) of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 is covered in annexure VII to this report.

Investor Relations

To communicate details of performance, important developments and exchange of information, any investor can write at [email protected] and for other enquiries, investors can visit the Company’s website www.aubank.in

Your Company ensures that critical information about the Company is available to all the investors by hosting all such information on the Company’s website

MD & CEO / CFO Certification

The MD & CEO and the CFO of the company have issued certificate certifying that the financial statements do not contain any materially untrue statement and these statements represent a true and fair view of the Company’s affairs. They also certify that no transactions entered into during the year were fraudulent, illegal or violative of the code of conduct of the Company, they are responsible for establishment and maintenance of the Internal Financial Controls forfinancial reporting and they have indicated to the auditors and the Audit Committee about any significant changes in internal control over financial reporting, significant changes in the accounting policies and instances of significant frauds, if any, which they were aware. The Annual certificate is annexed and forms part of the Annual Report.

Directors’ responsibility statement

As required under clause (c) of sub-section (3) of section 134 of the Companies Act, 2013 directors, to the best of their knowledge and belief, state 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 Company at the end of the financial year and of the profit and loss of the Company 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 Company’s assets 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 Company 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.

Acknowledgements

We place our sincere appreciation to our Chairman and other Independent Directors during the course of transition from NBFC to Bank and in getting the Bank Listed.

Your Company would like to acknowledge the role of all its stakeholders including shareholders, customers, key partners and lenders for their continued support to the Company.

The directors appreciate the guidance received from various regulatory authorities including RBI, SEBI, MCA, Registrar of Companies, the Stock Exchanges and the depositories.

Your directors place on record their appreciation of the hard work and dedication of all the employees towards company.

For and on behalf of the Board of Directors

AU SMALL FINANCE BANK LIMITED

Erstwhile Au FINANCIERS (INDIA) LIMITED

Sanjay Agarwal Uttam Tibrewal

Managing Director & CEO Whole Time Director

DIN:00009526 DIN:01024940

Date: 09th August, 2017

Place: Mumbai

CIN No. L36911RJ1996PLC011381

---

Mar 31, 2016

To,

The Members,

Au FINANCIERS (INDIA) LIMITED (“Company”)

The Directors are pleased to present the 21st Annual Report on the performance of your Company for the financial year ended March 31, 2016 along with Audited Financial Statements including Consolidated Financial Statements, Auditor’s Report and Secretarial Auditor’s Report.

STANDALONE FINANCIAL RESULTS

The Summarized Financial Performance of your Company, Standalone basis, for the Financial Year ended 2015-16 is as follows:

KEY PERFORMANCE HIGHLIGHTS - STANDALONE Au FINANCIERS (INDIA) LIMITED

- The total income achieved by your Company during FY 2015-16 was Rs.1015.48 Cr registering growth of 44% over the total income of Rs.706.31 Cr earned during FY 2014-15.

- Profit before tax and Profit after tax stood atRs.322.65 Cr and Rs.211.62 Cr for FY 2015-16, respectively, as against Rs.208.38 Cr and Rs.140.23 Cr for FY 2014-15, respectively. Profit aftertax showed a growth of 51% over that of FY 2014-15.

FINANCIAL RESULTS - STANDALONE Au FINANCIERS (INDIA) LIMITED

(Rs. in Cr)

Particulars	2015-16	2014-15
TOTAL INCOME	1,015.48	706.31
Total Expenditure	684.31	491.42
Profit Before Depreciation & Tax	331.17	214.89
Depreciation	8.52	6.52
Current Tax	115.08	75.66
Deferred Tax	(3.80)	(5.48)
Adjustment of tax relating to earlier periods	(0.25)	(2.04)
Profit after Tax	211.62	140.23
Transfer to Statutory Reserve	42.32	28.05
EPS:-
Basic	48.01	32.03
Diluted	47.70	32.03

CONSOLIDATED FINANCIAL RESULTS - Au GROUP

Your Company’s outstanding performance on standalone basis was equally driven and supported by its subsidiaries and associate Companies and the summary of Consolidated Financial Results is presented below:

KEY PERFORMANCE HIGHLIGHTS

- The total income achieved by your Company on Consolidated basis during the FY 2015-16 was Rs.1214.10 Cr registering growth of 49% over the total income of Rs.815.27 Cr earned during FY 2014-15.

- Profit before tax and after tax on consolidated basis was Rs.373.25 Cr and Rs.246.54 Cr for FY 2015-16, as against Rs.240.88 Cr and Rs.163.08 Cr for FY 201415, respectively. Consolidated profit before tax increased by 55% over the previous year 2014-15, whereas profit after tax registered a growth of 51% over that of FY 2014-15.

Consolidated Financial Results

(Rs. in Cr)

Particulars	2015-16	2014-15
TOTAL INCOME	1214.10	815.27
Total Expenditure	831.05	566.87
Profit Before Depreciation & Tax	383.05	248.41
Depreciation	9.80	7.53
Current Tax	131.36	85.45
Deferred Tax	(2.94)	(4.69)
Adjustment of tax relating to earlier periods	(0.23)	(2.00)
Share of profit of Associate	1.48	0.96
Profit after Tax	246.54	163.08

OTHER OPERATIONAL PERFORMANCE HIGHLIGHTS

- Disbursements

Your Company achieved a disbursement figure of Rs.5,619 Cr compared to Rs.3,378 Cr The demand for products offered by your Company remained healthy during the year, with growth predominantly in rural and semi urban areas, this became possible with commitment on offering a bouquet of loan products to a wide spectrum of customers with expansion of business to newer geographies and increased penetration. Customer connect schemes, referral schemes and distribution vertical supported the vision of achieving numbers beyond what were envisaged at start of FY 2015-16.

- Assets Under Management

During the period under review, the net loan book size grew from Rs.5,568 Cr to Rs.8,221 Cr reflecting a growth of 48%.

- Non-performing Assets

The amount of gross Non-Performing Assets (NPA) as at March 31, 2016 was Rs.74 Cr vis-a-vis Rs.55 Cr as at March 31, 2015 which was 0.88% of loan portfolio in current year against 0.95% for previous year. Despite steep increase in loan book with 48% in last year, NPA has not increased.

- Lending Operations

The demand for products offered by your Company remained healthy during the year, with growth predominantly in rural and semi urban areas. Commitment towards offering a bouquet of loan products to a wide spectrum of customers was maintained; instead a growth of 66% of loan disbursed was witnessed.

- Appropriations to Reserves

Your Company proposes to transfer Rs.42.32 Cr i.e., 20% of the net profits to statutory reserve, created under Section 45 IC of the Reserve Bank of India Act, 1934.

- Share Capital

During the period under review there was no change in share capital of your Company and no new shares were issued during the year.

- Related Party & Contracts

All contracts / arrangements / transactions entered by the Company during the fi nancial year with related parties were in the ordinary course of business and on an arm’s length basis. All such Related Party Transactions details were placed before the Audit committee for approval, wherever applicable. Approval from Audit Committee was obtained for the Related Party Transactions.

Particulars of contracts or arrangements with related parties referred to in Section 188(1) of the Companies Act, 2013, in the prescribed Form AOC-2, is appended as Annexure II to the Board’s report.

- Dividend

Your Company is aiming to expand and transform into a small finance bank, owing to the development and expansion plans of the Company, your Directors have not proposed any dividend for the year ended March 31, 2016. Your Board believes that it will be prudent for the Company to conserve resources as we are transiting into Small Finance Bank platform.

- Loans & Guarantees

Loans, guarantees and investments covered under Section 186 of the Companies Act, 2013 form part of the notes to the financial statements provided in this Annual Report and with respect to disclosure. Further, pursuant to Section 186(11)(a) of the Companies Act, 2013 (the ’Act’) read with Rule 11(2) of the Companies (Meetings of Board and its Powers) Rules, 2014, the loan made, guarantee given or security provided in the ordinary course of business by a Non-Banking Financial Company (NBFC) registered with Reserve Bank of India (RBI) are exempt from the applicability of provisions of Section 186 of the Act.

DEPOSITS

Your Company is a non-deposit taking NBFC, and thus has not accepted any public deposits during the FY 2015-16.

	Particulars	Status
a	Accepted during the year	Not Applicable as no deposits were accepted by the Company.
b	Remained unpaid or unclaimed as at the end of the year	Not Applicable
c	Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved- (i) At the beginning of the year (ii) Maximum during the year (iii) At the end of the year	Not Applicable
d	The details of deposits which are not in compliance with the requirements of Chapter V of the Act	Not Applicable because no deposits were accepted by the Company

BUSINESS & OPERATIONS

- Company’s Strategy & Transformation

The business has grown well on the back of its business model built on the fundamental creed of client centricity and customized products, close connect, flexibility, deeper reach into rural/ semi urban geographies and execution efficiency with timely disbursement.

The Indian market is huge and offers ample scope for immense growth and long-term economic prospects, positive demographics, rising income levels etc. therefore, committed young and dynamic team of Au FINANCIERS (INDIA) LIMITED is poised to grow leaps and bounds to mark its substantial presence in the financial services space.

In view of the same, your Company made an application to Reserve Bank of India to set up Small Finance Bank in February, 2015 with an object to expand its business in rural and semi urban areas and cater its services via banking products. Reserve Bank of India granted ‘in-principle approval’ to your Company to set up Small Finance Bank via approval dated October 07, 2015. The ‘in-principle approval’ granted is valid for 18 months to enable to comply with the requirements under the guidelines and fulfill other conditions as may be stipulated by the RBI. On being satisfied that the applicants have complied with the requisite conditions, the RBI would consider granting them license for commencement of banking business under the banking regulations Act, 1949. For meeting the aforesaid, your Company is strategically working for complying all the requirements and conditions as stipulated by the apex bank of India, for converting it into ‘Small Finance Bank’.

Small Finance Bank platform to the Company shall be a logical step in further strengthening the trust of our customers and servicing their needs comprehensively through integrated financial solution to meet their personal banking and business requirement. We will continue to innovate on our low-cost, technology-driven operating model and strong risk architecture, which allows us to serve customers in under-banked geographies efficiently. Our superior service and firm presence will allow us to aid Government schemes of financial inclusion, including direct benefit transfer and promoting small ticket and regular saving vehicles in unbanked & under banked districts.

- Change in Nature of Business, if any

There was no change in nature of business during the FY 2015-16; your Company has continued to carry on its lending operations.

- Areas of Operations Subsidiaries & Associates (including major change with Subsidiaries & associates in reference to RBI Guidelines)

A statement containing the salient features of the financial statement of our subsidiaries in the prescribed format AOC-1 is appended as Annexure I. The statement also provides the details of performance and financial positions of each of its subsidiaries & associates. As on March 31,2016, your Company has following subsidiaries & associates:

Au HOUSING FINANCE LIMITED

Au HOUSING FINANCE LIMITED is a subsidiary of your Company as on March 31, 2016 and is a registered National Housing Bank (“NHB”), primarily engaged in the business of housing Finance Activities, addressing lower income households (unserved and unreached segment) in rural and semi urban areas. Au HOUSING FINANCE LIMITED uses unique appraisal methodology to assess these customers individually and financing solution is customized to the customer’s housing finance needs. Major housing financing products of the company are as follows:

- House purchase loan

- House construction loan

- House renovation, extension loan

- Plot cum construction loan

It is reported 68% growth in profit after tax amounting to Rs.32.06 Cr in FY 2015-16, againstRs.19.08 Cr in FY 201415. Au HOUSING FINANCE LIMITED made preferential offer of shares under section 62 read with section 42 of Companies Act, 2013 for 4,666,667 shares to Au FINANCIERS (INDIA) LIMITED for subscription amount of Rs.700,000,050 during FY 2015-16 and Au HOUSING FINANCE also made preferential offer of 8,00,000 shares to Mr. Sushil Kumar Agarwal, Whole Time Director and CEO of AU HOUSING FINANCE LIMITED, which were duly subscribed and paid.

INDEX MONEY LIMITED

Index Money Limited, (IML) is a public limited company and a subsidiary of your Company as on March 31, 2016 and is engaged in business of financial consultancy. Considering the increasing demand of funds by the corporate, small business entities, IML continues to provide debt syndication services to small business entities.

The Company is in the process of divesting stake in Index Money Limited and Au Housing Finance Ltd, which will be completed before the filing of application for the final Banking License as per approval received from RBI.

Au INSURANCE BROKING SERVICES PRIVATE LIMITED

Au INSURANCE BROKING SERVICES PRIVATE LIMITED, an Associate Company of Au FINANCIERS (INDIA) LIMITED as per definition of section 2(6) of Companies Act, 2013 and during the period under review, has reported growth in profit after tax amounting to Rs.2.05 Cr in FY 2015-16, againstRs.1.96 Cr in FY 2014-15.

M POWER MICRO FINANCE PRIVATE LIMITED

Microfinance has occupied center stage as a promising conduit for extending financial services to unbanked sections of masses with over 60,000 customers. M POWER MICRO FINANCE PRIVATE LIMITED is an Associate Company of Au FINANCIERS (INDIA) LIMITED as per definition of section 2(6) of Companies Act, 2013. During the period under review, it has reported growth in profit after tax amounting to Rs.2.52 Cr in FY 2015-16, againstRs.1.17 Cr in FY 2014-15.

NAMES OF COMPANIES WHICH HAVE BECOME OR CEASED TO BE ITS SUBSIDIARIES, JOINT VENTURES ORASSOCIATE COMPANIES DURING THE YEAR

During the year under review, no company have become or ceased to become subsidiary, joint venture or associate of your Company.

TREASURY & FINANCE

- Mobilizationof Funds

During the year under report and as per business requirement, your Company raised funds at lower cost, mainly by way of rupee Term Loans from Banks and private placement of Debentures with comfortable liquidity position, undrawn cash credit lines. New Loans sanction in hand. During the year, your Company further focused on bringing reduction in its cost of borrowings by raising funds through short term instruments like Commercial Papers, WCDL and further reduction in rate of interest on existing lines of credit from banks. Same is represented herein:

Borrowing mix as on March, 2016

Product	Rs. in Cr	%
Banks & Fis	1,833	25
NCDs	2,075	28
Commercial Paper	520	7
Subordinated Debt (Tier II)	355	5
Securitization/Assignment	2,600	35
Total	7,383

- Credit Ratings

As on March 31, 2016 credit ratings granted to your Company is as follows:

Sl. Credit Rating Agency No.	Instruments	Upgraded/Assigned Ratings as on March 31, 2016
1 Brickwork	Long-Term Rating	BWRAA-/Stable
2 ICRA	Long-Term Rating	ICRAA /Stable
	Short Term Debt	ICRAA1
3 India Ratings & Research	Long-Term Rating	IND A /Stable
	Short-Term Debt	IND A1
	(Including Commercial Paper)

- Capital Adequacy Ratio

The present Capital Adequacy Ratio (CRAR) of your Company is maintained at 17.10%, which is higher to the minimum requirement as prescribed by the RBI. Such high rate of CRAR defines that your Company is able to maintain the capacity to meet the time liabilities and other risks such as credit risk, operational risk.

CORPORATE GOVERNANCE

- Board & Committees Brief and Composition

Duty of the Board of Directors of your Company is to oversee the management and operations of the Company. The Board is scheduled to meet at least once a quarter, and each quarterly meeting of the Board generally include a business and finance update. On an ongoing basis during the year, the Board monitors the Company’s performance against its annual financial plan.

Committees of the Company as per the requirement of Companies Act, 2013 and RBI Regulations, as on March 31, 2016 are as follows:

- Audit Committee

- Nominations & Remuneration Committee

- Corporate Governance Committee

- Asset & liability Management Committee

- Credit & Risk Management Committee

- Corporate Social Responsibility Committee

- Executive Committee

The composition, number of meeting held during the year, the scope of work of the respective committees have been reiterated in the report on corporate governance, forming part of this Annual Report.

- Board Meetings

There were 10 (ten) meetings of the Board held during the year. Detailed information is given in the Report on Corporate Governance, forming part of this Annual Report.

- Declaration by Independent Directors

A declaration under section 149(6) & (7) of the

Companies Act, 2013 has been obtained from each of the Independent Director.

- Directors

The composition of the Board of your Company is in conformity with the provisions of the Companies Act, 2013 as amended from time to time and has a well-structured Board with a balanced mix of Executive and Non-Executive Directors comprising Eight Directors - 6 (Six) Non-Executive and 2(Two) Executive Director. The Executive and Non-Executive Directors are competent and knowledgeable personalities possessing required skills and competencies.

In accordance with the provisions of sub section (6) of Section 152 of the Companies Act, 2013 and the Articles of Association of the Company; Mr. Vishal Mahadevia, Nominee Director, is liable to retire by rotation at the ensuing Annual General Meeting and being eligible, has offered himself for reappointment.

The Board recommends his re-appointment for consideration of the Shareholders approval pursuant to applicable provisions of the Companies Act, 2013. Also, Mr. Nishant Sharma who was appointed as an additional director on 22nd December, 2014 was regularized in the last Annual General Meeting held on July 13, 2015 with requisite majority.

None of the Directors of the Company are disqualified from being appointed as Directors as specified under Section 164(2) of the Companies Act, 2013, read with its applicable rules.

- Policies Regarding Appointment & Remuneration

With an ambition to become one of the most preferred financiers and to outperform its peers with an ambition to remain front runner in delivering best financial solutions, the Company has devised policy to pay adequate remuneration to its Directors and Key Managerial Personnel (KMP) to align the remuneration structure with best industry practices and appropriate risk rewards matrix.

The Nomination & Remuneration Committee has put in place the policy on board diversity for appointment & remuneration of directors taking into consideration qualification and wide experience of the directors in fields of banking, finance, regulatory, administration, legal, commercial vehicle segment apart from compliance of legal requirements of the Company.

REGULATORY COMPLIANCES

- RBI Guidelines

The Company continues to comply with the applicable regulations and guidelines of RBI as applicable to a Non-Banking Non Deposit Taking Systemically Important Asset Finance Company (‘NBFC-ND-SI-AFC’). The Company continues to comply with all requirements prescribed by RBI, from time to time.

- Companies Act, 2013

Pursuant to applicable provisions of the Companies Act, 2013 read with the respective rules formed there under, your Company complied with all the compliance requirements and the detail of compliances in respect of Section 134 of Companies Act, 2013 are enumerated in this report.

Extract of Annual Return

The extract of annual return as provided under subsection (3) of section 92 of the Companies Act, 2013, in the prescribed Form MGT-9 is annexed to this Report as Annexure IV.

Conservation of Energy and Technology Absorption

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 Company are explained as under:

Conservation of Energy

Your Company has adopted social environment

management system and installed LCD monitors, LED lights wherever possible at branches to conserve energy, and with low cost, highly technology lean operations model, your Company has installed control over system of branches to keep control of usage of power.

Technology Absorption

Your Company has implemented social media, cutting-edge technologies like virtualization and continue to invest in the best-in-class IT systems with the objective to make IT systems as business enabler and tool for improving efficiency and speed its operations.

Foreign Exchange Earnings and Outgo

The foreign exchange earnings and the foreign exchange outgo of the Company is furnished in Notes to the accounts and significant policies for FY 2015-16.

Management Discussion and Analysis Statement

Management Discussion and Analysis on the business of the Company is attached to this Report.

POLICIES & FRAMEWORK

- Risk Management Policies

Your Company has a Board approved Integrated Risk Management Policy, which has laid down framework for identifying, assessing, measuring various elements of risk involved in the business and formulation of procedures and systems for mitigating such risks. Risk Management Committee of the Board has overall responsibility for overseeing the Company’s risk management activities approving measurement methodologies and appropriate risk management procedures across the organization. Risk Management Committee periodically reviews and updates the Board about various risks related to your Company. Further, your Company is focusing on Technology & Innovation to leverage its huge customer base and it looks forward to strengthen the Risk Management Framework of the Company with increasing complexities in view of diversification of product and external factors affecting the business of the Company.

- Corporate Social Responsibility

Your Board has constituted a Corporate Social Responsibility committee in accordance with requirement of Section 135 of Companies Act, 2013. Details of CSR Committee are available in the report on Corporate Governance. CSR Committee has formulated and recommended a CSR policy, which has been approved by the Board and periodically reviewed. Your Company’s CSR policy is committed towards CSR activities as envisaged in Schedule VII of the Companies Act, 2013. The details of CSR policy of the Company are available on the website of the Company at www.aufin.in.

The Annual Report on CSR activities as required under Companies (CSR Policy) Rules 2014, which is attached to this report as Annexure V.

- Vigil, Whistle Blower Mechanism & Anti Bribery and Corruption Policy

The Company has formulated and established a Vigil Mechanism Framework to enable directors and employees to report genuine concerns about unethical behaviour, actual or suspected fraud or violation of Code of Conduct. This policy promotes open and fearless environment of direct communication by employees to management of the Company. Further, this policy seeks to provide necessary safeguards for protection of employees from reprisals or victimization, for whistle blowing in good faith. The Policy neither releases employees, customers and/or vendors from their duty of confidentiality in the course of their work, nor is it a route for taking up a grievance about personal situation. The Vigil Mechanism & whistle blower policy has been uploaded on the website of the Company i.e. www.aufin.in.

Anti Bribery Policy mechanism is in place to ensure that no bribe and corrupt practices are carried out by the Company or its employees and associates, and report on the same being submitted to the Board.

- Disclosures under Sexual Harassment of Women at Workplace (Prevention, Prohibition & Redressal) Act, 2013.

The Company is committed to provide a safe and conducive work environment to its employees and has formulated ‘Policy for Prevention of Sexual Harassment’ to prohibit, prevent or deter any acts of sexual harassment at workplace and to provide the procedure for the redressal of complaints pertaining to sexual harassment, thereby providing a safe and healthy work environment. During the year under review, no case of sexual harassment was reported.

- Performance Evaluation

Board evaluation is the most effective way to ensure the Board members understand their duties and to adopt effective good governance practices. To be effective, boardroom appraisals need to have specific, clearly defined steps and practices, and a special commitment from the Board. Your Company believes in evaluating the performance of individual directors constituting the Board as a whole and its committees from time to time on annual basis. Evaluation mechanism is based on independent assessment of performance of Directors and Board as a whole and its committees. Evaluation sheets are circulated to members highlighting the key points and thereafter filled evaluation sheets received from directors are placed before the members of Nomination and Remuneration Committee, Independent Directors, and the Board of Directors of the Company for evaluating performances.

- Meetings of Independent Directors

The Independent Directors met once during the year under review. The meeting was conducted in an informal manner without the presence of the Executive Directors, the Non-Executive Non-Independent Directors, or any other Management Personnel.

- Internal Financial Controls and their Adequacy

The Companies Act, 2013 has introduced a reasonably advanced reporting concept for auditors i.e.. Internal Financial Control (IFC). Auditors of the Company are required to report on adequacy and operating effectiveness of Internal Financial Controls of the Company with reports on financial statements prepared under Section 143.

The Company as per the requirement of section 134 (5)(e) has adopted the policies and procedures to ensure orderly and efficient conduct of its business, including adherence to the Company’s policies, safeguarding of its assets, prevention and detection of frauds and errors, accuracy and completeness of accounting records, timely preparation of reliable financial information.

During the year under review, the Statutory Auditors and the Secretarial Auditor have not reported any instances of frauds committed in the Company by its Officers or Employees to the Audit Committee under section 143(12) of the Companies Act, 2013, details of which needs to be mentioned in this Report.

AUDITORS &AUDITORS’ REPORT:

- Statutory Auditor

In terms of Sections 139 and 141 of the Companies Act, 2013, read with Companies (Audit and Auditors) Rules, 2014, the appointment of Statutory Auditors is to be ratified every year, via approval of the members at the Annual General Meeting. For auditing the Annual Accounts of the Company for FY 2016-17, ratification of auditors is proposed at this Annual General Meeting of the Company. A certificate under Section 141 of the Companies Act, 2013, is received from the M/s S. R. BATLIBOI & ASSOCIATES. LLP, Chartered Accountants, who are proposed to be appointed in place of M/s S. R. BATLIBOI & CO. LLP, existing auditors and proposed audit firm fulfils the criteria, prescribed in the said section to the effect that their appointment, if made, would be within the prescribed limits under Section 141 of the Act and that, they are not disqualified for such appointment within the meaning of Section 141 of the Act and the Company, and it is proposed to appoint M/s S.R. BATLIBOI & ASSOCIATES LLP in place of M/s S. R. BATLIBOI & CO. LLP.

- Reports & Qualifications, if any

The notes on the financial statements referred to in the Auditors’ Report are self-explanatory and do not call for any further comments. The Auditors’ Report does not contain any qualification, reservation or adverse remark.

- Secretarial Auditor

Pursuant to Section 204 of the Companies Act 2013, your Company had appointed M/s V. M. Associates, Practicing Company Secretaries, Jaipur as its Secretarial Auditor to conduct the secretarial audit of the Company for FY 2015-16. Your Directors recommended and approved their appointment as the Secretarial Auditors of the Company for FY 2016-17.

- Reports & Qualifications, if any

The Company provided all assistance and facilities to the Secretarial Auditor for conducting their audit for FY 2015-16. The Secretarial Audit Report as specified in Section 204 of Companies Act, 2013 in Form MR-3, which is annexed to this report as Annexure VI. There are no qualifications or adverse remarks in the Secretarial Audit Report.

DETAILS OF SIGNIFICANT AND MATERIAL ORDERS PASSED BY THE REGULATORS OR COURTS OR TRIBUNALS IMPACTING THE GOING CONCERN STATUS AND THE COMPANY’S OPERATIONS IN FUTURE.

No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and the Company’s operations in future.

HUMAN RESOURCES

The Company aims to align HR practices, policies and processes with business objectives, goals, to motivate people for higher performance and build a competitive working environment. The Company strongly believes that its employees are the most important asset base and all measures introduced by the Company is aimed at providing employee satisfaction, enabling them to deliver better results year over year. With increase in growth and size, it was inevitable for the Company to increase ability to hire manpower faster, so the Company started hiring employees from external manpower services companies to ensure that growth envisaged by management can be achieved on consistent basis. Employee relations remained cordial and the work atmosphere remained congenial during the year.

EMPLOYEE STOCK OPTION PLAN

Your Company provides its employees a platform for participating in important decision making and instilling long-term commitment towards future growth of the Company by way of rewarding them through Stock Options. The Employee Stock Option Plans are administered by the Nomination & Remuneration

Committee of the Board, and the Committee reports to the Board.

Name of ESOP Scheme	No. of Shares under the Scheme	Status
EMPLOYEES STOCK OPTION SCHEME, 2011 (Au ESOP 2011)	6,43,042	Completed
EMPLOYEES STOCK OPTION PLAN 2015 PLAN - A	6,39,343	In Progress
EMPLOYEES STOCK OPTION PLAN 2015 PLAN - B	8,22,199	In Progress
TOTAL NO.OF SHARES	21,04,584

PARTICULAR OF EMPLOYEES

The particulars of employees pursuant to sub Rule 2 & 3 of Rule 5 of Companies (Appointment & Remuneration of Managerial Personnel) Rules, 2014 has been annexed and is forming part of Board’s report.

INVESTOR RELATIONS

To communicate details of performance, important developments and exchange of information, any investor can write at [email protected] and for other enquiries, investors can visit the Company’s website www.aufin.in.

Your Company ensures that critical information about the Company is available to all the investors by hosting all such information on the Company’s website.

DIRECTORS’ RESPONSIBILITY STATEMENT

As required under clause (c) of sub-section (3) of section 134 of the Companies Act, 2013 directors, to the best of their knowledge and belief, state that -

- in the preparation of the annual accounts, the applicable Accounting Standards had been followed along with proper explanation relating to material departures;

- 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 Company at the end of the financial year and of the profit and loss of the Company for that period;

- 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 Company’s assets and for preventing and detecting fraud and other irregularities;

- the directors had prepared the annual accounts on a going concern basis;

- the directors had laid down internal financial controls to be followed by the Company and that such internal financial controls are adequate and were operating effectively; and

- 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.

ACKNOWLEDGEMENTS

Your Company would like to acknowledge the role of all its stakeholders - shareholders, borrowers, depositors, key partners and lenders for their continued support to the Company.

The directors appreciate the guidance received from various regulatory authorities including RBI, SEBI, MCA, Registrar of Companies the stock exchanges and the depositories.

Your directors place on record their appreciation of the hard work and dedication of all the employees of the Company.

For and on behalf of the Board of Directors

For Au FINANCIERS (INDIA) LIMITED

Sd/- Sd/-

Place: Jaipur Sanjay Agarwal Uttam Tibrewal

Date: May 27,2016 Managing Director Executive Director

CIN: U36911RJ1996PLC011381 DIN: 00009526 DIN: 01024940

---

Mar 31, 2015

To,

The Shareholders

The Directors are pleased to present the Twentieth Annual Report on the business and operations of your Company together with the Audited Financial Statement of the Company Accounts for the financial year ended 31 st March, 201 5.

Business Overview and Outlook

The Company delivered financial performance beyond which was envisaged in the Financial Year (FY) 2014-15 with a net profit of Rs.140.23 Crores, with an increase of 52% over FY 2013-14. The Company posted robust growth in its topline while gradually increasing volumes and size of its business verticals and expanding in more corners of the country.

The company’s distribution network comprises of 231 Branches as on 31 st Mar-201 5 with focus to penetrate further in rural & semi urban areas in Rajasthan and other states of its operations.

Given the overall optimism and the fact that the Indian economy is all set to revive with massive inflows of FDIs and other favourable policy decisions taken by the new Government, your company is geared up to capitalize on this momentum with a renewed vigour and enthusiasm and establish itself as one of the ‘Preferred Financiers’ in the country.

Your Company is having customer base of over 3 lacs and invested significantly in strengthening its existing IT Platform. We believe that the future of providing excellent service, will consist of a fine blend of offline and online channels employing innovation and technology combined with the effectiveness of human touch points as a means of customer service excellence.

State of Affairs & Overview of performance

- FY1 5 was another year of transformation with increase in depth & breath of its operations, products, hiring of senior professionals. The Company’s disbursements increased by 26% Rs.to 3377.50 Crores in FY1 5 from Rs.2685.04 Crores in FY 14 and the Assets Under Management (AUM) increased to Rs.5567.71 Crores as on 31 st March, 201 5 from Rs.4449.01 Crores as on 31st March 2014, registering a growth of 25% in AUM.

- Your Company has over the years maintained its focus on expanding operations in rural and semi-urban areas with over 85% of loan portfolio being classified under priority sector lending. Au FINANCIERS expanded gradually from Rajasthan to Maharashtra & Gujarat and thereafter in Madhya Pradesh, Chhattisgarh, Punjab and other contiguous states.

- In December 2014, Kedaara Capital Alternate Investment Fund, a SEBI Registered Entity & Ourea Holdings Limited put together picked up 9.98% stake from International Finance Corporation (IFC), India Business Excellence Fund (IBEF) & India Business Excellence Fund - I (IBEF-I) put together (Funds advised by MOPE Investment Advisors Pvt. Ltd.), in the company. This is Kedaara’s maiden investment in the financial services sector in India, which has significant potential for robust, secular growth. This proves to be a symbol of company’s outstanding performance even when the economic indicators were not favorable with counterparts struggling to break the jinx.

- India’s apex bank body, RBI taking further taking initiatives to recognise the significant role played by Systemically Important NBFCs in financial system announced Revised Regulatory framework for NBFCs. These revised RBI regulations for NBFCs were formulated to strengthen the financial system, align norms with banks, reduce the risk they posed to the financial system and improve NBFC capacity to endure asset quality shocks.

- We are pleased to inform that your Company has filed application for obtaining approval of “Small Finance Bank” (SFB) under the RBI guidelines released by RBI last year for Small Finance Bank in Private Sector. If Au FINANCIERS is permitted by the RBI to operate as SFB then Au FINANCIERS would be able to act change agent by deepening its reach into unbanked and underbanked areas in state of Rajasthan and other states where it operates by offering small savings & credit facilities to largely under-served including microbusinesses, small businesses.

- The Union Budget 201 5-1 6 allowed NBFCs registered with the RBI, and those of Rs.500 crore size or more, to be brought under the ambit of the SARFAESI ACT 2002. This initiative will help create a level playing field for NBFCs, make loan recovery smoother and benefit most industry players and housing finance companies. Your Company is pleased to inform that it has filed application with Ministry of Finance under intimation to RBI for permission to be covered under the ambit of SARFAESI.

- The Company laid heavy emphasis on technology and innovation for ensuring high quality of service to its customers. The whole idea of innovation in the Company is about knowing customers in better way, understanding their business, credit worthiness, getting them connected with other customers of the Company, creating capability to serve them with a difference.

- Company has diversified its asset class with increased focus on MSME and Structured Finance registering a growth of 44% in disbursement of MSME Loans. The company started to focus on getting green by providing economized tech savvy solutions to its customers, thereby ensuring reduced paperwork and high use of technological innovations.

- The company has been able to write new loans at competitive pricing on one side and on other side, the cost of borrowing reduced through better negotiations, raising of funds optimum mix of short term and long terms credit lines with diversified instruments.

There is no change in the nature of business of the company for the year under review.

Further information on the Business overview and outlook and State of the affairs of the company is covered in detail in the Management Discussion & Analysis report forming part of the annual report.

Financial Performance

The summarized financial performance of the Company for the year ended as at 31 st March, 201 5 is presented below:

(Rs.In Crores)

Particulars	2014-2015	2013-2014
Total Income	737.46	618.66
Total Expenditure	529.09	480.26
Profit Before Depreciation & Tax	214.89	141.69
Depreciation	6.52	3.29
Prior Period Adjustments	0	0
Current Tax	75.66	49.40
Deferred Tax {lncrease/(Decrease)}	(5.48)	(4.69)
Adjustment of tax relating to earlier periods {lncrease/(Decrease)}	(2.04)	1.30
Profit after Tax	140.23	92.39
Transfer to Statutory Reserve	28.05	18.48
Profit brought forward	228.40	1 54.49
Balance carried over to Balance Sheet	340.43	228.40
EPS:-
Basic	32.03	22.15
Diluted	32.03	22.15
Networth	796.19	632.19

The Company’s Total Income surged by 19% to Rs.737 Crores in FY1 5 from Rs.619 Crores in FY14. Net Profit for the year was Rs.140.23 Crores, an increase of 52% over the previous year.

Transfer To Reserves

Your Company has transferred Rs.28.05 crores i.e. 20% of the net profits amounting to Statutory Reserve as required under the provisions of Section 45 1C of The Reserve Bank of India Act, 1934.

Dividend

Due to commercial expediency and owing to the development and expansion plans of the Company, your Directors have not proposed any dividend for the year ended 31st March, 2015. Your Board believes that it will be prudent for the Company to conserve resources and there is need of ploughing back in the Company of the generated profits during the year to augment the future growth of the company. Hence, your directors are not recommending any dividend for the year under review.

With firm commitment and sustained efforts, your company expects to maintain sustained growth in years to come.

Employees Stock Option Scheme

Your Company provides its employees a platform for participating in important decision making and instilling long term commitment towards future growth of the Company by way of rewarding them through Stock Options. The Employee Stock Option Plans are administered by the Corporate Governance, Nomination & Remuneration Committee of the Board and Committee reports to Board.

Resource Mobilization

During the year under report and as per business requirement, your Company raised funds at lower cost, mainly by way of rupee Term Loans from Banks and private placement of Debentures, undrawn cash credit lines, New Loans sanction in hand, during the year with enhanced ratings the Company further focused on bringing reduction in its cost of borrowings by raising funds through short term instruments like Commercial Papers, WCDL etc. & further reduction in rate of interest on existing lines of credit from Banks.

a. Loans Prom Banks

In view of RBI guidelines on securitization issued on 7th May, 2012 and as a part of its asset liability management, your Company endeavored to diversify its resource base in order to achieve an appropriate maturity structure and to minimize the weighted average cost of borrowed funds. During the year under review, fresh Term Loans of Rs.105 crores were raised from the banks and financial institutions, taking the total term loan outstanding to Rs.518.17 crores As on March 31, 201 5, the Company had outstanding borrowing of Rs.2878.31 crore with banks & financial institutions.

b. Non-Convertible Debentures (NCD)

Secured debentures: During the year, the Company issued Secured Redeemable Non-Convertible Debt Instruments aggregating to Rs.497.50 crores. Such instruments were issued on private placement basis and are in the nature of Debentures.

c. Commercial Paper

During the year your Company issued CPs from Banks, Mutual Funds, thereby diversifying its investor’s class as well as bringing down borrowing cost through this instrument at competitive rates in line with industry and prevailing market rates.

d. Securitisation / Assignment of Loan Portfolio

During the year, your Company Securitised / Assigned loans (POS) to the extent of Rs.1356.06 Crore. Securitised / Assigned assets have been de-recognized in the books of the Company. All assignment & securitisation transactions were carried out in line with RBI guidelines on securitisation of standard assets.

Credit Rating

Continuing earlier taste of success, the company this year also managed to bag higher credit ratings, indicating strong credibility of its deliverables.

In 2014-1 5, Au FINANCIERS was assigned long term rating of IND A / STABLE by India Ratings and long term credit rating was upgraded by CARE (CARE A from CARE A in 2013-14), outlook was revised by CRISIL (CRISIL A/Positive from CRISIL N Stable in 2013-14) and Further, India Ratings assigned short term rating of IND A1 and CRISIL too upgraded short term rating to CRISIL A1 from CRISIL A1, the highest short term rating.

The Credit Ratings enjoyed by the Company as on March 31, 201 5, is as follows:

S.no	Credit Rating Agency	Instruments	Previous Ratings	Upgraded Ratings
1	CRISIL	Long-Term Rating	CRISIL A/Stable	CRISIL A/Positive
		Short-Term Debt (Including Commercial Paper)	CRISIL A1	CRISIL A1
2	CARE	Long-Term Rating	CARE A	CARE A
3	INDIA RATINGS & RESEARCH*	Long-Term Rating*	-	IND A
		Short-Term Debt* (Including Commercial Paper)	-	IND A1
4	ICRA	Long Term Rating	ICRA A	ICRA A

* INDIA RATINGS & RESEARCH has assigned ratings for the first time during the year 2014-1 5.

Share capital

During the year allotment of 826,357 fully paid equity shares to IFC in the month of April, 2014 under Preferential offer of shares was made and Kedaara Capital Alternate Investment Fund - KEDAARA CAPITAL AIF I & Ourea Holdings Limited (Fund Advised by Kedaara Capital Managers Ltd.) acquired 1,77,073 Equity Shares & 42,22,927 Equity Shares respectively of the Company representing 0.40% & 9.58%, respectively of the issued and paid up equity share capital of the company from India Business Excellence Fund (“IBEF”), and India Business Excellence Fund -1 (“IBEF-1”), funds advised by MOPE Investment Advisors Pvt. Ltd. and International Finance Corporation. In this Transaction, IBEF & IBEF I transferred 9,00,000 & 13,00,000 fully paid equity shares and IFC transferred 22,00,000 fully paid equity shares of the Company.

Subsidiary Companies

As at 31st March, 2015, your Company has following two subsidiaries:

Aii HOUSING FINANCE LIMITED

Au HOUSING FINANCE LIMITED is a wholly owned subsidiary of Au FINANCIERS (INDIA) LIMITED which was incorporated with an objective of serving housing needs of people living in rural and semi urban areas by providing affordable housing loans and to explore the huge un-reached housing finance market by leveraging wide network of branches and strong customer connect.

The number of branches of the company increased this year from 35 locations to 42 locations in the state of Rajasthan (21 Locations), Gujarat (07 Locations), Maharashtra (08 Locations), and Madhya Pradesh (04 Locations) and one each in Haryana and Delhi states, for its housing business with plans to scale up its operations to newer geographies in Financial Year 201 5-1 6.

- In FY15, your company invested Rs.30 Crores in its wholly owned subsidiary; Au HOUSING FINANCE LIMITED for further expansion of latter’s business.

- Recently in April 2015, India Ratings assigned Long Term credit rating of “IND A / Stable” to its wholly owned subsidiary, Au HOUSING FINANCE LIMITED. Further CRISIL revised outlook from “CRISIL A / Stable” to”CRISIL A/ Positive” and reaffirmed short term rating.

- Au HOUSING FINANCE LIMITED reported 1 65% growth in profit after tax amounting to Rs.19.08 crores in FY-14-15 against Rs.7.19 Crores in FY13-14.

INDEX MONEY LIMITED

INDEX MONEY LIMITED, (IML) a public limited company and a subsidiary of Company is engaged in business of financial consultancy. Considering the increasing demand of funds by the corporate, small business entities, IML continues to provide debt syndication services to small business entities.

It reported 563% growth in profit after tax amounting to Rs.106.27 lacs in FY-14-1 5 against Rs.1 6.02 lacs in FY13-14.

In view of section 2(6) of Companies Act, 201 3, following two Companies fall within the definition of “Associate Company”.

Associate Company - Au INSURANCE BROKING SERVICES PRIVATE LIMITED

Au INSURANCE BROKING SERVICES PRIVATE LIMITED, an Associate Company of Au FINANCIERS (INDIA) LIMITED has added 2 more branches this year. The company aims to achieve expansion in the FY 15-16, through leveraging various opportunities and digitizing the whole operations for better customer service.

It reported 632% growth in profit after tax amounting to Rs.1.96 crore in FY-14-15 against Rs.26.82 lacs in FY13-14 with increase in size of professional team and its base.

Associate Company - M POWER MICRO FINANCE PVT. LTD.

Microfinance has occupied centre stage as a promising conduit for extending financial services to unbanked sections of population with over 48,000 customers. It increased its authorised capital during the year and appointed Ms. Vanaja Shankar as Women- Independent Director of the M POWER MICRO FINANCE PVT. LTD.

It reported 588% growth in profit after tax amounting to Rs.1.17 crores in FY-14-15 against Rs.17 lacs in FY 13-14 resulting from expansion of branch network and its customer base.

Names of Companies Which Have Become or Ceased To Be Its Subsidiaries, Joint Ventures or Associate Companies During The Year;

During the year under review, no company have become or ceased to become subsidiary, joint venture or associate company of your company.

Directors

In accordance with the provisions of sub section (6) of Section 152 of the Companies Act, 2013 and the Articles of Association of the Company; Mr. Sanjay Agarwal, Managing Director, is liable to retire by rotation at the ensuing Annual General Meeting and being eligible, has offered himself for reappointment.

The Board recommends his re-appointment for consideration of the Shareholders approval.

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 quarters 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, certain business decisions are taken by the Board through circulation from time to time.

The Board met six (6) times during the FY 2014-1 5 viz. on April 29, 2014, May 23, 2014, August 07, 2014, October 31, 2014, January 28, 201 5 and February 1 6, 201 5. Detailed information on the meetings of the Board & Committees is included in the report on Corporate Governance, which forms part of this Annual Report.

None of the Directors of the Company are disqualified from being appointed as Directors as specified under Section 1 64 of the Companies Act, 2013, read with its applicable rules.

DETAILS OF DIRECTORS OR KEY MANAGERIAL PERSONNEL/DIRECTORS WHO WERE APPOINTED OR HAVE RESIGNED DURING THE FY 14-15

Sr. No.	Name	Designation	DIN	Remarks
1	Mr. Vishal Kumar Gupta	Investor Nominee Director	02368313	Resignation (ceased w.e.f. 22nd December,2014)
2.	Mr. Nishant Sharma	Investor Nominee Director	03117012	Appointment (appointed w.e.f. 22nd December,2014)
3.	Ms. Jyoti Narang	Woman Independent Director	00351187	Appointment (appointed w.e.f. 30th March, 201 5)

Statement on Declaration Given by All Its Independent Directors

Considering the requirement of skill sets on the Board, eminent people having an independent standing in their respective field/profession, and who can effectively contribute to the Company’s business and policy decisions are considered by the Nomination and Remuneration Committee, for appointment, as Independent Directors on the Board. Every Independent Director, at the first meeting of the Board in which he participates as a Director and thereafter at the first meeting of the Board in the financial year, given a declaration that he meets the criteria of independence as provided under law.

As per Section 149(6) of the Companies Act, 2013, all the Independent directors, Ms. Jyoti Narang, Mr. Mannil Venugopalan and Mr. Krishan Kant Rathi, have given the declaration of meeting the criteria of independence under this Section and they fulfill eligibility criteria as laid down under RBI Guidelines.

Company’s Policy on Directors’ Appointment and Remuneration.

The company has put in place nomination and remuneration policy duly approved by the Corporate Governance, Nomination & Remuneration Committee and by the Board. The policy lay down criteria for determining qualifications, positive attributes, independence of a director and other matters provided under sub-section (3) of section 178.

The company ensures the following:-

The company undertake process of due diligence to determine the suitability of the person for appointment / continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record, integrity and other factors such as fitness criteria.

The Corporate Governance, Nomination & Remuneration Committee scrutinize the information received from its Directors and based on information provided, the Board takes decision to appoint or otherwise.

Other factors such as industry standards and remuneration levels are also being considered by the company.

Performance Evaluation of The Board

The Nomination and Remuneration Committee at its meeting held on January 28, 2015 and the Board of Directors at its meeting held on January 28, 201 5, respectively, had laid down criteria for performance evaluation of Executive and non-Executive directors and Nomination and Remuneration Policy was also approved for the same. Well-defined and structured questionnaires were prepared for assessing the performance of Directors after taking into consideration the inputs received from the Directors, covering various aspects of the Board’s & committees functioning such as adequacy of the composition of the Board and its Committees, frequency of board & committee meetings, areas of responsibilities, compliance, governance, quality, quantity and timeliness of flow of information between the company management and the Board.

The evaluation process included review of performance of all Board Members. A member of the Board whose assessment was carried out did not participate in the discussion of his/her evaluation.

A separate Meeting of Independent Directors was convened on 28th January, 2015 where assessment of other Board members was carried out. It covered several parameters such as level of engagement, contribution, input on future growth, strategic insights, involvement and independence of judgment safeguarding the interest of the Company and its shareholders. In this meeting, no non-independent director was present.

The Directors have expressed their satisfaction with the evaluation process.

Corporate Governance

Your Company believes that sound Corporate Governance is essential for enhancing long-term shareholder value and retaining investor trust. Governance is moulded in the culture of your Company that is built upon core values, beliefs and ethics. Your Company has an active, experienced and well informed Board, necessary to ensure the highest principles of corporate conduct.

Since the Equity Shares of your Company are not listed on any Stock Exchange(s), the code of Corporate Governance as provided under Clause 49 of the Listing Agreement would not apply to the company.

However, your company reaffirms its commitment to the good corporate governance practices and transparency.

A Corporate Governance Report including details of Directors and committees is annexed to Directors’ Report and is made part of Annual Report.

Composition of Audit Committee

As on 31 st March, 201 5, the Audit Committee comprises of five members, viz., Mr. Krishan Kant Rathi, Independent Director, Mr. Mannil Venugopalan (Independent Director) and Mr. Vishal Mahadevia (Non-Executive Director), Ms. Jyoti Narang (Woman Independent Director) and Mr. Nishant Sharma (Non-Executive Director) Mr. Krishan Kant Rathi being (Independent Director) on Board of the Company was elected as the Chairman of the Audit Committee) on the Board of the Company serves as Chairman (Elected) of the Committee.

The accounts and financial position perused and reviewed by the Audit Committee were thereafter placed before board for their consideration. The committee is authorised to give advice on the appointment/reappointment of the External (Statutory) auditors, internal auditors and to monitor their performance and effectiveness, the audit fee, implementation of audit-based recommendations and any questions of resignation or dismissal of the external auditors. It reviews adequacy of internal control systems. Thus, it plays a role of mediator between External Auditors and Board of Directors.

The Audit Committee met four times during the year under review on 23rd May, 2014, 7th August, 2014, 31st October, 2014 and 28th January, 201 5.

The terms of reference of Audit Committee were revised on 27th May-15 in view of requirements laid down under Companies Act, 2013.

Corporate Social Responsibility (CSR)

Your company has always endeavored to address social concerns and work to the benefit of the local communities with the objective of CSR initiatives resulting in long term impact on society. The Company has been undertaking various socioeconomic, educational and health initiatives which focus on the welfare of the economically and deprived sections of society. As a socially responsible corporate, your Company facilitates programs and gives direct assistance to individuals, societies and other charitable organizations.

Detailed report forming part of annual report on initiatives taken by the company during the year on CSR activities is attached separately in an Annexure herewith.

Management Discussion and Analysis-Business Overview

A detailed Industry and business review on the operations of the Company is appended in the Management Discussion and Analysis Section of report.

Vigil Mechanism, Whistle Blower Policy and Anti Bribery and Corruption Policy

As per Section 177 of the Companies Act, 2013, a Vigil Mechanism has been established, in order to ensure that the activities of the Company and its employees are conducted in a fair and transparent manner by adoption of highest standards of professionalism, honesty, integrity and ethical behavior. The Vigil Mechanism & whistle blower policy has been uploaded on the website of the Company i.e. www.aufin.in

Company has established a vigil mechanism for Directors and employees to report concerns and unethical behavior, actual or suspected fraud or violation of code of conduct and ethics. It also provides for adequate safeguards against the victimization of persons who use such mechanism and make provision for direct access to the chairperson of the Audit Committee in exceptional cases.

The functioning of the vigil mechanism is reviewed by the Audit Committee from time to time.

Anti Bribery Policy mechanism is in place to ensure that no bribe and corrupt practices are carried out by the Company, its employees and associates and report on the same being submitted to Board.

Obligation of Company Under The Sexual Harassment of Women At Workplace (Prevention, Prohibition And Redressal) Act, 2013

The Company has always believed in providing a safe and harassment free workplace for every individual through various interventions and practices. The Company always endeavors to create and provide an environment that is free from discrimination and harassment including sexual harassment.

In order to prevent sexual harassment of women at work place a new act The Sexual Harassment of Women at Workplace (Prevention, Prohibition and Redressal) Act, 2013 has been notified on 9th December, 2013. Under the said Act every company is required to set up a Committee to look into complaints relating to sexual harassment at work place of any women employee. Company has set up committee for Compliance and reporting of events if any and for taking suitable actions. Your Directors further state that during the year under review, there were no cases reported and no complaints were received pursuant to the Sexual Harassment of Women.

Compliances of RBI Guidelines

The company continues to comply with the applicable regulations and guidelines of the Reserve Bank of India as applicable to a Non Banking Non Deposit Taking Systemically Important Asset Finance Company (‘NBFC-ND-SI-AFC’). As a prudent practice, your Company makes accelerated provisioning for Non-Performing Assets (NPAs) than that required by RBI for NBFCs. The company has submitted returns with RBI on timely basis.

Capital Adequacy

Your Company maintained a Capital to Risk-Weighted Assets Ratio (CRAR) of 18.54% as on 31st March, 2015 against a minimum 1 5% as per regulatory requirements specified by the Reserve Bank of India which we believe provides an adequate cushion to withstand business risks. Your company was in comfortable position with tier I capital of 17.07%.

Deposits

The Company has not accepted any deposits under section 73 of the Companies Act, 2013 and The Companies (Acceptance of Deposits) Rules, 2014 during the year ended 31 st March, 201 5.

DETAILS RELATING TO DEPOSITS COVERED UNDER CHAPTER V OF THE ACT:-

	Particulars	Status
a	Accepted during the year	Not Applicable as no deposits were accepted by the Company.
b	Remained unpaid or unclaimed as at the end of the year	Not Applicable
c	Whether there has been any default in repayment of deposits or payment of interest thereon during the year and if so, number of such cases and the total amount involved- (i) At the beginning of the year (ii) Maximum during the year (iii) At the end of the year	Not Applicable
d	The details of deposits which are not in compliance with the requirements of Chapter V of the Act	Not Applicable because no deposits were accepted by the Company.

Employees

Your Company believes in providing a conducive and challenging work environment for nurturing potential, encouraging performance and retaining talents at all levels. At the end of March 201 5 the company had 3553 employees as against 271 6 as at March 2014, indicating 31% increase in manpower by 837 employees at various locations and levels.

This year the Company hired people at senior positions having relevant industry experience and qualification to strengthen vehicle finance business & to build and grow MSMEs, SME & Structured Finance verticals. The Company recruited manpower from prestigious institutes like ICAI, ICSI, ICWAI, NT, 11M besides recruiting from other reputed Business Schools. The Company recruited staff from the geographies of our presence ensuring that we were able to gauge local customer aspirations in a better manner. As a part of our long-term vision, we consistently invested in employee training, helping grow the team’s learning curve.

Your Directors place on record the appreciation of effort and dedication of the employees in achieving good results during the year under review.

Internal Financial Control Systems and Their Adequacy

Your company had laid down set of standards, processes and structure which enables to implement internal financial control across the organisation and ensure that the same are adequate and operating effectively.

The processes and internal control systems play a critical role for the growth and sustainability of the Company. The Company’s well defined organizational structure, documented policy guidelines, defined authority matrix and internal controls ensure efficiency of operations, compliance with internal policies and other applicable laws and regulations as well as protection of resources. Moreover, the Company continuously upgrades these systems in line with the best available practices. The internal control system is supplemented by extensive internal and branch audits, regular reviews by management and standard policies and guidelines to ensure reliability of financial and all other records to prepare financial statements and other data of the company. The Audit Committee of the Board reviews internal and branch audit reports given along with management comments.

Auditors

A. Statutory Auditors

M/s. S.R. BATLIBOI & Co. LLP,(Firm Registration Number 301003E) (formerly M/s S. R. Batliboi & Co.) Chartered Accountants, the Statutory Auditors of the Company hold office until the conclusion of the ensuing Annual General Meeting and are eligible for re-appointment. They have confirmed that their appointment, if made, would be within the prescribed limits under Section 141 of the Companies Act, 2013, and that, they are not disqualified for such appointment within the meaning of Section 141 of the Act. The necessary eligibility certificate prescribed under the said Section has been received from them. Your Directors recommend their appointment as the Statutory Auditors of the Company. The proposal for their reappointment is included in the notice for Annual General Meeting sent herewith.

B. Secretarial Auditors

Pursuant to Section 204 of the Companies Act 2013 and the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014, your Company had appointed M/s V. M. & Associates, Practicing Company Secretaries, Jaipur as its Secretarial Auditors to conduct the secretarial audit of the Company for the FY 2014-1 5. The Company provided all assistance and facilities to the Secretarial Auditor for conducting their audit. The Report of Secretarial Auditor for the FY 2014-1 5 is annexed to this report. Your Directors approved their appointment as the Secretarial Auditors of the Company for FY1 5-1 6.

Comments on Qualifications/Comments Made by The Auditors

There are no Audit Qualifications in the Statutory Auditors Report and in the Secretarial Audit Report as forming part of Annual Report.

There are observations In terms of para (vii)(a) of the annexure to the Report on Legal and other Regulatory Matters forming part of Auditors’ Report, the Board of Directors of the company wish to submit that the slight delay in depositing undisputed statutory dues as referred to in the said annexure, took place inadvertently with no deliberate intention on the part of the company to delay the payment. However as an abundant precaution, the company shall take due care in future by strengthening its internal controls and meticulously adhering to timelines, thereby ensuring compliance.

Material Changes and Commitments, If Any, Affecting The Financial Position of The Company Which Have Occurred Between The End of The Financial Year of The Company To Which The Financial Statements Relate And The Date of The Report

No material changes occurred between the end of the financial year of the company to which the financial statements relate and the date of the report.

Other Dislcosures As Per Companies Act, 2013, Read With Its Applicable Rules Extract of The Annual Return

Extract of Annual Return as on the financial year ended on March 31, 2015, forming part of this report is attached as Annexure.

Conservation of Energy And Technology Absorption

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 Company are explained as under:

Conservation of Energy

Your Company has adopted social environment management system and installed LCD monitors wherever possible at branches to conserve energy and with low cost, highly technology lean operations model, Company has installed control over system of branches to keep control of usage of power.

Technology Absorption

Your Company has implemented social media, cutting edge technologies like virtualization and committed to continue to invest in the best in class IT systems with the objective to make IT systems as business enabler and tool for improving efficiency and speed its operations.

Foreign Exchange Earnings and Outgo

Further during the year under review, the Company has not earned but has incurred Rs.104.11 lacs as foreign exchange during FY 2014-1 5.

The particulars regarding expenditure in foreign exchange have been covered in notes to the accounts & significant policies for FY 2014-15.

Risk Management Policy

The Company has constituted its Risk Management Committee and it has established Risk Management framework approved as mandated by the regulator, RBI Credit and Risk Management. The role of the committee is primarily identification of inherent risks in view of Business model and other risks and It takes due steps to mitigate the same. Decisions are being taken by the Committee and wherever required approved by the Board. The Company’s robust risk management framework enabled it to streamline the areas where improvements required resulting in commendable performance and strong governance practices being showcased by the Company.

Further, Company is focusing on Technology & Innovation to leverage its huge customer base and it look forward to strengthen the Risk Management Framework of the Company with increasing Complexities in view of diversification of product and external factors affecting the business of the Company.

Particulars of contracts or arrangements with related parties:

All the related party transactions that were entered during the financial year are done on arm’s length basis. Relevant Form (AOC-2) for disclosure of particulars of contracts/arrangements entered into by the company with related parties referred to in sub-section (1) of section 188 of the Companies Act, 2013 is given as Annexure to this Report.

Particulars of Loans, Guarantees or Investments Under Section 186 of The Companies Act, 2013.

Pursuant to Section 186(11) of the Companies Act, 2013, Company being NBFC is engaged in business of Financing Enterprises, companies, institutions and thus lending business is an activity covered under ordinary course of Business. Au FINANCIERS has granted loans to Au HOUSING FINANCE LIMITED, its wholly owned subsidiary and also given guarantees with respect to financial assistance taken by it from various banks and institutions and carried out further equity investments and granted loans to M POWER MICRO FINANCE PVT. LTD. being associate Company under ordinary course of business. Details have been covered under notes to accounts of Audited Financial Statements for FY14-1 5.

Consolidated Financial Statements

Pursuant to Section 129 of the Companies Act, 2013, Your Company has prepared a Consolidated Financial Statement, and it shall be laid before the ensuing Annual General Meeting of the Company along with the laying of the Audited Financial Statements under sub-section (2) of Section 129 i.e. Standalone Financial Statements of the Company. A Statement containing salient features of the Financial statement of Subsidiaries / associate companies/ joint ventures is attached in form AOC - 1 as annexure to this Report.

Change In Nature of Business, If Any

There was no change in nature of business during the FY15, Company has continued to carry on its lending operations.

Details of Significant And Material Orders Passed By The Regulators or Courts or Tribunals Impacting The Going Concern Status And Company’s Operations In Future.

No significant and material orders were passed by the regulators or courts or tribunals impacting the going concern status and company’s operations in future.

Particulars of Employees:

Details & Disclosure of the employees of the Company as required pursuant to rule 5(2) of the Companies (Appointment and Remuneration of Managerial Personnel) Rules, 2014 is as follows:

S. No	Name of Employee	Remuneration (Amount Rs. In Lacs)	Designation	Nature of employment (Contractual/ Otherwise)	Qualifications and experience of the employee;	Date of commencement of employment	The age of such employee	The last employment held by such employee before joining the company	The percentage of equity shares held by the employee in the company within the meaning of clause (iii) of sub-rule (2) above; and	Whether any such employee is a relative of any director or manager of the company and if so, name of such director or manager
1	Mr. Sanjay Agarwal	89.84	Managing Director	Confirmed	FCA, B. Com, 20 Years	Appointed as Managing Director since 14th February, 2008 and was reappointed for a further period of 5 years by the Shareholders of the company w.e.f 14th February, 2013.	44	NA	14.98%	NO
2	Mr. Uttam Tibrewal	117.78	Whole time Director	Confirmed	B. Com, 19 Years	Appointed as Whole Time Director since 14th February, 2008 and was re-appointed for a further period of 5 years by the Shareholders of the company w.e.f 14th February, 2013	44	NA	0.67%	NO
3	Mr. Deepak Jain	86.63	Chief Financial Officer	Confirmed	FCA, 17 Years	17th May, 2010	41	NA	0.37%	NO
4	Mr. Manoj Tibrewal	82.59	Chief Operating Officer	Confirmed	CS, 19 Years	1st February, 2009	45	NA	0.57%	NO
5	Mr. Rishi Dhariwal	62.16	Chief Risk Officer	Confirmed	BE(Mechanical), MBA (IIM,Ahmedabad), 23 years	15th November, 2013	45	Citibank	NIL	NO
6.	Mr. Arvind Halli	65.84	CEO - MSME &SSF	Resigned & Relieved on 2nd Jan-2015	BE & MBA 18 Years	2nd June, 2014	43	Capryglobal	NIL	NO

Director’s Responsibility Statement:

In pursuance of section 134 (5) of the Companies Act, 2013, the Directors hereby confirm that:-

a) In the preparation of the annual accounts, the applicable accounting standards have been followed along with proper explanation relating to material departures;

b) We have 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 Company as at 31 st March , 201 5 and of the profit and loss of the company for that period;

c) We have 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 company and for preventing and detecting fraud and other irregularities;

d) We have prepared the annual accounts on a going concern basis;

e) We have laid down internal financial controls to be followed by the company and that such internal financial controls are adequate and were operating effectively; and

f) We have devised proper systems to ensure compliance with the provisions of all applicable laws and that such systems were adequate and operating effectively.

Acknowledgements

The Board acknowledges with gratitude the co-operation, assistance, guidance and support provided to your Company by its bankers, financial institutions, shareholders, regulatory bodies and other business constituents. The results of an organization are greatly reflective of the efforts put in by the people who work for the company. The Directors take this as an opportunity to place on record its appreciation to the contribution made by the employees, executives, officers, staff and the Senior Management of the company for successful operations during the year. Their enthusiasm and unstinting efforts enabled the Company to emerge as one of the leading company in Financial Services space.

For and on behalf of the Board of Directors

Au FINANCIERS (INDIA) LIMITED

Sd/- Sd/-

Sanjay Agarwal Uttam Tibrewal

Managing Director Whole Time Director

DIN: 00009526 DIN: 01 024940

Date: May 27, 2015

Place: Jaipur

CIN: U36911 RJ1 996PLC011 381