Mar 31, 2021
In February 2003, Kotak Mahindra Finance Limited was given a license to carry out banking business by the Reserve Bank of India ("RBI"). It was the first Non Banking Finance Company (NBFC) in India to be converted into a Bank. Kotak Mahindra Bank Limited ("Kotak Mahindra Bank", "Kotak" or "the Bank") provides a full suite of banking services to its customers encompassing Retail Banking, Treasury and Corporate Banking in India and also has a representative office in Dubai. The Bank set up and commenced operations in May 2016, at its International Financial Services Center Banking Unit (IBU) in Gujarat International Finance Tec (GIFT) City, Gujarat. The Bank has commenced operations in October 2019 at its first overseas branch at the Dubai International Financial Centre (DIFC), Dubai, UAE.
The financial statements have been prepared in accordance with statutory requirements prescribed under the Banking Regulation Act, 1949. The accounting and reporting policies of Kotak Mahindra Bank used in the preparation of these financial statements is the accrual method of accounting and historical cost convention except derivatives and it conforms with Generally Accepted Accounting Principles in India ("Indian GAAP"), the Accounting Standards specified under section 133 and the relevant provision of the Companies Act, 2013 read with the Companies (Accounts) Rules, 2014 and other relevant provisions of the Companies Act, 2013 ("the 2013 act") and the Companies (Accounting Standards) Amendment Rules 2016 as amended from time to time in so far as they apply to banks and the guidelines issued by RBI.
The COVID-19 pandemic, besides the widespread public health implications, has had an extraordinary impact on macroeconomic conditions in India and around the world. During the previous year, people and economies around the world, witnessed serious turbulence caused by the first wave of the pandemic, the consequent lockdowns, the gradual easing of restrictions and the emergence of new variants of the virus. Although the government has started vaccination drive, COVID-19 cases have significantly increased in recent months due to second wave as compared to earlier levels in India. Various state governments have again announced strict measures including lockdowns to contain this spread. As COVID vaccines are administered to more and more people, businesses in sectors impacted by pandemic may pick up. However, the continuing and evolving nature of the virus has created uncertainty regarding estimated time required for businesses and lives to get back to normal.
The Bank continues to closely monitor the situation and in response to this health crisis has implemented protocols and processes to execute its business continuity plans and help protect its employees and support its clients. The pandemic has impacted lending business, distribution of third party products, fee income from services or usage of debit/ credit cards, collection efficiency etc. and has resulted in increase in customer defaults and consequently increase in provisions. The Bank, however, has not experienced any significant disruptions in the past one year and has considered the impact on carrying value of assets based on the external or internal information available up to the date of approval of standalone financial statements. The future direct and indirect impact of COVID-19 on Bank business, results of operations, financial position and cash flows remains uncertain. The standalone financial statements do not include any adjustments that might result from the outcome of this uncertainty.
The preparation of financial statements requires the Management to make estimates and assumptions considered in the reported amounts of assets and liabilities (including contingent liabilities) as of the date of the financial statements and the reported income and expenses during the reporting period. The Bank''s Management believes that the estimates used in preparation of the financial statements are prudent and reasonable. Actual results could differ from these estimates. Any revision to the accounting estimates is recognised prospectively in the current and future periods.
I n accordance with the RBI guidelines on investment classification and valuation, investments are classified on the date of purchase into "Held for Trading" (''HFT''), "Available for Sale" (''AFS'') and "Held to Maturity" (''HTM'') categories (hereinafter called "categories"). Subsequent shifting amongst the categories is done in accordance with the RBI guidelines at the lower of the acquisition cost or carrying value and market value on the date of the transfer, and depreciation, if any, on such transfer is fully provided.
Under each of these categories, investments are further classified under six groups (hereinafter called "groups") - Government Securities, Other Approved Securities, Shares, Debentures and Bonds, Investments in Subsidiaries / Joint Ventures and Other Investments for the purposes of disclosure in the Balance Sheet.
The Bank follows ''Settlement Date'' accounting for recording purchase and sale transactions in securities, except in the case of equity shares where ''Trade Date'' accounting is followed.
I nvestments that are held principally for resale within 90 days from the date of purchase are classified under HFT category. As per the RBI guidelines, HFT securities, which remain unsold for a period of 90 days are reclassified as AFS securities as on that date. Investments which the Bank intends to hold till maturity are classified as HTM securities. The Bank has classified investments in subsidiaries, joint ventures and associates under HTM category. Investments which are not classified in either of the above two categories are classified under AFS category.
The cost of investments is determined on weighted average basis. Broken period interest on debt instruments and government securities are considered
as a revenue item. The transaction costs including brokerage, commission, etc. paid at the time of acquisition of investments is recognised in Profit and
Loss Account.
⢠Investments classified as HFT or AFS - Profit or loss on sale or redemption is recognised in the Profit and Loss Account.
⢠Investments classified as HTM - Profit on sale or redemption of investments is recognised in the Profit and Loss Account and is appropriated to Capital Reserve after adjustments for tax and transfer to Statutory Reserve. Loss on sale or redemption is recognised in the Profit and Loss Account.
The Bank undertakes short sale transactions in Central Government dated securities in accordance with RBI guidelines. The short position is categorised
under HFT category and netted off from Investments in the Balance Sheet. The short position is marked to market and loss, if any, is charged to the
Profit and Loss Account while gain, if any, is ignored. Gain or loss on settlement of the short position is recognised in the Profit and Loss Account.
The valuation of investments is performed in accordance with the RBI guidelines as follows:
a) Investments classified as HTM - These are carried at their acquisition cost. Any premium on acquisition of debt instruments / government securities is amortised over the balance maturity of the security on a straight line basis. Any diminution, other than temporary, in the value of such securities is provided.
b) Investments classified as HFT or AFS - Investments in these categories are marked to market and the net depreciation, if any, within each group is recognised in the Profit and Loss Account. Net appreciation, if any, is ignored. Further, provision other than temporary diminution is made at individual security level. Except in cases where provision other than temporary diminution is made, the book value of the individual securities is not changed as a result of periodic valuations.
c) The market or fair value of quoted investments included in the ''AFS'' and ''HFT'' categories is measured with respect to the market price of the
scrip as available from the trades or quotes on the stock exchanges, SGL account transactions, price list of RBI or prices declared on Fixed Income
Money Market and Derivatives Association of India (''FIMMDA'') website by Financial Benchmark India Private Limited (FBIL) as at the year end.
d) Treasury Bills, Exchange Funded Bills, Commercial Paper and Certificate of Deposits being discounted instruments, are valued at carrying cost.
e) Market value of units of mutual funds is based on the latest net asset value declared by the mutual fund.
f) I nvestments in subsidiaries / joint ventures (as defined by RBI) are categorised as HTM and assessed for impairment to determine other than temporary diminution, if any, in accordance with RBI guidelines.
g) Market value of investments where current quotations are not available are determined as per the norms prescribed by the RBI as under:
⢠I n case of unquoted bonds, debentures and preference shares where interest / dividend is received regularly (i.e. not overdue beyond 90 days), the market price is derived based on the Yield to Maturity for Government Securities as published by FIMMDA / FBIL and suitably marked up for credit risk applicable to the credit rating of the instrument. The matrix for credit risk mark-up for each category and credit rating along with residual maturity issued by FIMMDA / FBIL is adopted for this purpose;
⢠In case of bonds and debentures (including Pass Through Certificates) where interest is not received regularly (i.e. overdue beyond 90 days), the valuation is in accordance with prudential norms for provisioning as prescribed by the RBI. Interest on such securities is not recognised in the Profit and Loss Account until received;
⢠Equity shares, for which current quotations are not available or where the shares are not quoted on the stock exchanges, are valued at break-up value (without considering revaluation reserves, if any) which is ascertained from the company''s latest Balance Sheet. In case the latest Balance Sheet is not available, the shares are valued at ? 1 per investee company;
⢠Units of Venture Capital Funds (VCF) held under AFS category where current quotations are not available are marked to market based on the Net Asset Value (NAV) shown by VCF as per the latest audited financials of the fund. In case the audited financials are not available for a period beyond 18 months, the investments are valued at ? 1 per VCF. Investment in unquoted VCF after 23rd August, 2006 are categorised under HTM category for the initial period of three years and valued at cost as per RBI guidelines. Such investments are required to be transferred to AFS thereafter;
⢠Security receipts are valued as per the Net Asset Value (NAV) obtained from the issuing Asset Reconstruction Company or Securitisation Company or estimated recovery whichever is lower.
h) Non-performing investments are identified and depreciation / provision are made thereon based on RBI guidelines. The depreciation / provision on such non-performing investments are not set off against the appreciation in respect of other performing securities. Interest on non-performing investments is not recognized in the Profit & Loss Account until received.
i) Repurchase and reverse repurchase transactions - Securities sold under agreements to repurchase (Repos) and securities purchased under agreements to resell (Reverse Repos) are accounted as collateralised borrowing and lending transactions respectively. The difference between the consideration amount of the first leg and the second leg of the repo is recognised as interest income or interest expense over the period of the transaction.
Advances are classified as performing and non-performing advances (''NPAs'') based on RBI guidelines and are stated net of bills rediscounted, specific provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation, provisions for funded interest term loan and provisions in lieu of diminution in the fair value of restructured assets. Also, NPAs are classified into sub-standard, doubtful and loss assets as required by RBI guidelines. Interest on NPAs remaining uncollected is transferred to an interest suspense account and not recognised in the Profit and Loss Account until received.
Amounts paid for acquiring non-performing assets from other banks and NBFCs are considered as advances. Actual collections received on such nonperforming assets are compared with the cash flows estimated while purchasing the asset to ascertain overdues. If these overdues are in excess of 90 days, then these assets are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of non-performing assets.
The Bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where the Bank is participating, the aggregate amount of the participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the Bank is participating, the aggregate amount of participation is shown as due from banks under advances.
Provision for NPAs comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Bank considers accelerated specific provisioning that is based on past experience, evaluation of security and other related factors. Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the Bank in case of NPAs written off are recognised in the Profit and Loss Account.
The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower''s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance / securities, which would generally include, among others, alteration of repayment period / repayable amount / the amount of installments / rate of interest (due to reasons other than competitive reasons). Restructured accounts are classified as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made.
I n accordance with the RBI guidelines relating to COVID-19 Regulatory Package dated 27th March, 2020, 17th April, 2020 and 23rd May 2020 and clarification issued by RBI through Indian Bankers Association dated 6th May, 2020, the Bank has granted moratorium on the payment of instalments and / or interest, as applicable, falling due between 1st March, 2020 and 31st August, 2020 to eligible borrowers classified as Standard, even if overdue, as on 29th February, 2020. In accordance with RBI guidelines, the moratorium period, wherever granted, is excluded by the Bank from the number of days past-due for the purpose of asset classification under RBI''s Income Recognition and Asset Classification norms. The Bank holds provisions as at 31st March, 2021 against the potential impact of customers impacted by COVID-19 pandemic which is higher than the regulatory requirements. In accordance with the said guidelines, such accounts where moratorium has been granted will not be considered as restructured.
Further in accordance with Resolution Framework for COVID-19 and Restructuring of Micro, Small and Medium Enterprises (MSME) sector advances both announced by RBI on 6th August, 2020, the Bank has implemented one-time restructuring for certain eligible borrowers and such borrowers are classified as Standard in accordance with the above framework.
In accordance with RBI guidelines the Bank has provided general provision on standard assets including credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts, and gold at levels stipulated by RBI from time to time - farm credit to agricultural activities, individual housing loan and SME at 0.25%, commercial real estate at 1.00%, restructured standard advances and MSME borrowers registered under GST who have been granted relief at 5%, teaser rate housing loans at 2.00%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%. Additional 2% standard asset provision is done for overseas stepdown subsidiaries of Indian corporates. Standard provision is also made at higher than the prescribed rates in respect of advances to stressed sectors as per the framework approved by the Board of Directors. In case of Frauds, the Bank makes provision for amounts it is liable for in accordance with the guidelines issued by RBI. A general provision at 10% on the entire amount outstanding from borrowers who had an overdue on February 29, 2020 and to whom moratorium was given is also made.
In respect of borrowers restructured under the Resolution Framework for COVID-19, a general provision, which is higher of the provisions held as per the extant IRAC norms immediately before implementation of restructuring or 10% of the renegotiated debt exposure, has been made. Further, for borrowers restructured under the Restructuring of Micro, Small and Medium Enterprises (MSME) sector advances Bank has maintain additional provision of 5% over and above the provision already held.
Further to provisions required as per the asset classification status, provisions are held for individual country exposure (except for home country) as per the RBI guidelines. Exposure is classified in the seven risk categories as mentioned in the Export Credit Guarantee Corporation of India Limited (''ECGC'') guidelines and provisioning is done for that country if the net funded exposure is one percent or more of the Bank''s total assets based on the rates laid down by the RBI.
Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines.
Loss on sale of Advances sold to Asset Reconstruction Company are recognised immediately in the Profit and Loss Account.
The Bank enters into arrangements for sale of loans through Special Purpose Vehicles (SPVs). In most cases, post securitisation, the Bank continues to service the loans transferred to the SPV. At times, the Bank also provides credit enhancement in the form of cash collaterals and / or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision / disclosure is made at the time of sale in accordance with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets".
I n accordance with the RBI guidelines, the profit or premium on account of securitisation of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitised asset amortised over the tenure of the securities issued. Loss on account of securitisation on assets is recognised immediately to the Profit and Loss Account.
The Bank invests in PTCs of other SPVs which are accounted for at the deal value and are classified under Investments.
Property, Plant & Equipment and Intangible Assets have been stated at cost less accumulated depreciation and amortisation and adjusted for impairment, if any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to put to use. Subsequent expenditure incurred on assets put to use is capitalised only when it increases the future benefit / functioning capability from / of such assets. Gain or loss arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognised as income or expense in the Profit and Loss Account. Profit on sale of premises of the Bank, net of taxes and transfer to statutory reserve is appropriated to Capital Reserve as per RBI guidelines.
Depreciation / Amortisation - Depreciation is provided on a pro-rata basis on a Straight Line Method over the estimated useful life of the assets at rates which are equal to or higher than the rates prescribed under Schedule II of the Companies Act, 2013 in order to reflect the actual usage of the assets. The estimated useful lives of assets based on technical evaluation by management are as follows:
6 Cash and cash equivalents
Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at Call and Short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency).
The Bank imports bullion including precious metal bars on a consignment basis for selling to its wholesale and retail customers. The difference between the sale price to customers and actual price quoted by supplier is reflected under other income.
The Bank also borrows and lends gold, which is treated as borrowings or lending as the case may be in accordance with the RBI guidelines and the interest paid or received is classified as interest expense or income and is accounted on an accrual basis.
Interest income is recognised on accrual basis.
I nterest income in respect of retail advances is accounted for by using the internal rate of return method to provide a constant periodic rate of return on the outstanding on the contract.
Interest income on investments in PTCs and loans bought out through the direct assignment route is recognised at their effective interest rate.
Interest income on discounted instruments is recognised over the tenure of the instruments so as to provide a constant periodic rate of return.
Service charges, fees and commission income are recognised when due except for guarantee commission and letter of credit which is recognised over the period of the guarantee / letter of credit. Syndication / arranger fee is recognised as income as per the terms of engagement.
Upon an asset becoming NPA the income accrued gets reversed, and is recognised only on realisation, as per RBI guidelines. Penal interest is recognised as income on realization other than on running accounts where it is recognised when due.
Dividend income is accounted on an accrual basis when the Bank''s right to receive the dividend is established.
Gain on account of securitisation of assets is amortised over the life of the securities issued in accordance with the guidelines issued by the RBI. Loss on account of securitisation of assets is recognised immediately in Profit and Loss account.
I n respect of non-performing assets acquired from other Banks / FIs and NBFCs, collections in excess of the consideration paid at each asset level or portfolio level is treated as income in accordance with RBI guidelines and clarifications.
Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is recognized as expense under other expenses in accordance with the guidelines issued by the RBI.
Provident Fund
Contribution as required by the statute made to the government provident fund or to a fund set up by the Bank and administered by a board of trustees is debited to the Profit and Loss Account when an employee renders the related service. The Bank has no further obligations.
Superannuation Fund
The Bank makes contributions in respect of eligible employees, subject to a maximum of ?0.01 crore per employee per annum to a Fund administered by trustees and managed by Life Insurance Companies. The Bank recognises such contributions as an expense in the year when an employee renders the related service.
New Pension Scheme
The Bank contributes up to 10% of eligible employees'' salary per annum, to the New Pension Fund administered by a Pension Fund Regulatory and Development Authority (PFRDA) appointed pension fund manager. The Bank recognises such contributions as an expense in the year when an employee renders the related service.
DIFC Employee Workplace Savings Scheme (DEWS)
The Bank''s branch in Dubai International Financial Centre (DIFC) contributes up to 8.33% of eligible branch employees'' salary per annum to the DIFC Employee Workplace Savings Scheme (DEWS). The Bank recognises such contributions as an expense in the year when an employee renders the related service. The Bank has no further obligation.
Gratuity
The Bank provides for Gratuity, covering employees in accordance with the Payment of Gratuity Act, 1972, service regulations and service awards as the case may be. The Bank''s liability is actuarially determined (using Projected Unit Credit Method) at the Balance Sheet date. The Bank makes contribution to Gratuity Funds administered by trustees and managed by Life Insurance Companies.
Pension Scheme
I n respect of pension payable to certain erstwhile ING Vysya Bank Limited ("eIVBL") employees under Indian Banks'' Association ("IBA") structure, the Bank contributes 10% of basic salary to a pension fund and the difference between the contribution and the amount actuarially determined by an independent actuary is trued up based on actuarial valuation conducted as at the Balance Sheet date. The Pension Fund is administered by the Board of Trustees and managed by Life Insurance Company. The present value of the Bank''s defined pension obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date.
Employees covered by the pension plan are not eligible for employer''s contribution under the provident fund plan
The contribution made to the Pension fund is recognised as planned assets. The defined benefit obligation recognised in the Balance Sheet represents the present value of the defined benefit obligation as reduced by the fair value of the plan assets.
Actuarial gains or losses in respect of all defined benefit plans are recognised immediately in the Profit and Loss Account in the year in which they are incurred.
The Bank accrues the liability for compensated absences based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilisation. The net present value of the Banks'' obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date. Actuarial gains / losses are recognised in the Profit and Loss Account in the year in which they arise.
As per the Bank''s policy, employees are eligible for an award after completion of a specified number of years of service with the Bank. The obligation is measured at the Balance Sheet date on the basis of an actuarial valuation using the Projected Unit Credit Method.
The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognised during the period when the employee renders the service. These benefits include performance incentives.
Equity-settled scheme:
The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The Schemes provide for grant of options on equity shares to employees of the Bank and its Subsidiaries to acquire the equity shares of the Bank that vest in a cliff vesting or in a graded manner and that are to be exercised within a specified period.
In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments, issued by The Institute of Chartered Accountants of India, the cost of equity-settled transactions is measured using the intrinsic value method. The intrinsic value being the excess, if any, of the fair market price of the share under ESOSs over the exercise price of the option is recognised as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account. The deferred employee compensation cost is amortised on a straight-line basis over the vesting period of the option. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of equity instruments that are outstanding.
The options that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense in "Payment to and provision for employee", equal to the amortised portion of value of lapsed portion. In respect of the options which expire unexercised the balance standing to the credit of Employee''s Stock Option (Grant) Outstanding accounts is transferred to General Reserve. The fair market price is the latest available closing price, preceding the date of grant of the option, on the stock exchange on which the shares of the Bank are listed.
Where the terms of an equity-settled award are modified, the minimum expense recognised in ''Payments to and provision for employees'' is the expense as if the terms had not been modified. An additional expense is recognised for any modification which increases the total intrinsic value of the share-based payment arrangement, or is otherwise beneficial to the employee as remeasured as at the date of modification.
In respect of options granted to employees of subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. Cash-settled scheme:
The cost of cash-settled transactions (Stock Appreciation Rights - ["SARs"]) is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. This intrinsic value is amortised on a straight-line basis over the vesting period with recognition of corresponding liability. This liability is remeasured at each Balance Sheet date up to and including the vesting date with changes in intrinsic value recognised in Profit and Loss Account in ''Payments to and provision for employees''.
The SARs that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense, equal to the amortised cost in respect of the lapsed portion.
Foreign currency monetary assets and monetary liabilities are translated as at the Balance Sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (FEDAI) and the resultant gain or loss is accounted in the Profit and Loss Account.
Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transactions except in respect of representative office (which are integral in nature) expenses, which are translated at monthly average exchange rates.
Outstanding forward (other than deposit and placement swaps) and spot foreign exchange contracts outstanding at the Balance Sheet date are revalued at rates notified by FEDAI for specified maturities and at the interpolated rates of interim maturities. In case of forward contracts of greater maturities where exchange rates are not notified by FEDAI, are revalued at the forward exchange rates implied by the swap curves in respective currencies. The forward profit or loss on the forward contracts are discounted using discount rate and the resulting profits or losses are recognised in the Profit and Loss Account as per the regulations stipulated by the RBI.
Foreign exchange swaps "linked" to foreign currency deposits and placements are translated at the prevailing spot rate at the time of swap. The premium or discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortised over the period of the swap and the same is recognised in the Profit and Loss Account.
Contingent liabilities on account of letters of credit, bank guarantees and acceptances and endorsements outstanding as at the Balance Sheet date denominated in foreign currencies and other foreign exchange contracts are translated at year-end rates notified by FEDAI.
Notional amounts of derivative transactions comprising of forwards, swaps, futures and options are disclosed as off Balance Sheet exposures. The Bank recognises all derivative contracts (other than those designated as hedges) at fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting date. Derivatives are classified as assets when the fair value is positive (positive marked to market) or as liabilities when the fair value is negative (negative marked to market). Changes in the fair value of derivatives other than those designated as hedges are recognised in the Profit and Loss Account.
Outstanding derivative transactions designated as "Hedges" are accounted in accordance with hedging instrument on an accrual basis over the life of the underlying instrument. Option premium paid or received is recognised in the Profit and Loss Account on expiry of the option. Option contracts are marked to market on every reporting date.
Leases where all the risks and rewards of ownership are retained by the lessor are classified as operating leases. Operating lease payments are recognised as an expense in the Profit and Loss Account on a straight-line basis over the lease term. Initial direct costs in respect of operating leases such as legal costs, brokerage costs, etc. are recognised as expense immediately in the Profit and Loss Account.
The Bank has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and long term contracts. In accordance with Accounting Standard - 29 on ''Provisions, Contingent Liabilities and Contingent Assets'', the Bank recognises a provision for material foreseeable losses when it has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are measured based on best estimate of the expenditure required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates.
In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure to this effect is made as contingent liabilities in the financial statements. The Bank does not expect the outcome of these contingencies to have a materially adverse effect on its financial results. Contingent assets are neither recognised nor disclosed in the financial statements.
The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. Impairment loss, if any, is provided in the Profit and Loss Account to the extent carrying amount of assets exceeds their estimated recoverable amount.
The Income Tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Deferred tax assets and liabilities are recognised for the future tax consequences of timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent period.
Deferred tax assets on account of timing differences are recognised only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realised. In case of carry forward losses and unabsorbed depreciation, under tax laws, all the deferred tax assets are recognised only to the extent there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realised.
Deferred tax assets are reassessed at each reporting date, based upon the Management''s judgement as to whether realisation is considered as reasonably certain.
Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change.
As per AS 4 (Revised), with effect from April 2016, the Bank is not required to provide for dividend proposed / declared after the Balance Sheet date. The same shall be appropriated from next year amount available for appropriation.
Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, and share split.
For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year.
Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013.
The Bank estimates the liability for credit card reward points and cost per point using actuarial valuation conducted by an independent actuary, which includes assumptions such as mortality, redemption and spends.
In accordance with guidelines issued by RBI vide DBOD.No.BP.BC.81/21.01.018/2006-07 dated 18th April, 2007 and Accounting Standard 17 (AS-17) on "Segment Reporting", the Banks'' business has been segregated into the following segments whose principal activities were as under:
Segment Principal activity
Treasury, BMU and Corporate Centre Money market, forex market, derivatives, investments and primary dealership of government securities and
Balance Sheet Management Unit (BMU) responsible for Asset Liability Management and Corporate Centre which primarily comprises of support functions.
Corporate / Wholesale Banking Wholesale borrowings and lendings and other related services to the corporate sector which are not included
under retail banking.
Retail Banking Includes:
I Lending
Commercial vehicle finance, personal loans, home loans, agriculture finance, other loans / services and exposures which fulfill the four criteria for retail exposures laid down in Basel Committee on Banking Supervision document "International Convergence of Capital Measurement and Capital Standards: A Revised Framework".
II Branch Banking
Retail borrowings covering savings, current, term deposit accounts and Branch Banking network / services including distribution of financial products.
III Credit Cards
Receivables / loans relating to credit card business.
Other Banking business Any other business not classified above.
A transfer pricing mechanism has been established by Asset Liability Committee (ALCO) for allocation of interest cost to the above segments based on borrowing costs, maturity profile of assets / liabilities etc. and which is disclosed as part of segment revenue.
Segment revenues consist of earnings from external customers and inter-segment revenues based on a transfer pricing mechanism. Segment expenses consist of interest expenses including allocated operating expenses and provisions.
Segment results are net of segment revenues and segment expenses.
Segment assets include assets related to segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding net worth, employees'' stock option (grants outstanding) and proposed dividend and dividend tax thereon.
Since the business operations of the Bank are primarily concentrated in India, the Bank is considered to operate only in the domestic segment.
The Board of Directors, the Asset Liability Management Committee (ALCO), the Risk Management Committee (RMC), Board Committee for Derivatives, the Senior Management Committee for Derivatives (SMC) and the Market Risk Management Department are entrusted with the management of risks in derivatives.
The philosophy and framework for the derivative business is laid out in the Board approved Investment and Derivative policies. The ALCO of the Bank is empowered to set the limit-framework for derivatives. It also reviews the market risk exposures of derivatives against the limits. The Risk Management Committee reviews all risks on a consolidated basis.
The Board Committee for Derivatives and the Senior Management Committee for Derivatives (SMC) oversee the client derivatives business. These committees are responsible for reviewing and approving the derivative products that can be offered to clients (within the regulatory framework provided by the RBI). The Board approved ''Customer Suitability and Appropriateness Policy for Derivatives'' lays down the risk management & governance framework for offering derivatives to clients.
The Bank has Back-Office and Risk Management - independent of the dealing function. The Market Risk Management & Counterparty Risk Management Departments are responsible for assessment, monitoring, measurement & reporting of Market & Counterparty risks in derivatives.
All significant risks of the derivative portfolio are monitored, measured & reported to the senior management. The Market Risk Management Department, on a daily basis, measures & reports risk-metrics like Value-at-Risk (VaR), PV01, Option Greeks like Delta, Gamma, Vega, Theta, Rho etc. Counterparty Risk exposure of the derivatives portfolio is also reported daily. The Market Risk Management Department independently reports profitability on a daily basis. Rate reasonability tests are performed on the Derivative portfolio to ensure that all trades are entered into at market rates. Stress testing is performed to measure the impact of extreme market shifts on the Bank''s portfolio (including derivatives). Suitability and Appropriateness assessment is performed before offering derivatives to clients. The Bank continuously invests in technology to enhance the Risk Management architecture.
The Board Approved ''Hedging Policy'' details the hedging strategies, hedging processes, accounting treatment, documentation requirements and effectiveness testing for hedges.
Hedges are monitored for effectiveness periodically, in accordance with the Board Approved Policy.
d) Accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation:
Derivative transactions are segregated into trading or hedge transactions. Trading transactions outstanding as at the Balance Sheet dates are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account.
Derivative transactions designated as "Hedges" are accounted in accordance with hedging instruments on an accrual basis over the life of the underlying instrument.
Option premium paid / received is accounted for in the Profit and Loss Account on expiry of the option.
Pursuant to the RBI guidelines, any receivables as well positive Mark to Market (MTM) in respect of future receivable under derivative contracts comprising of crystallised receivables which remain overdue for more than 90 days are reversed through the Profit and Loss Account. Limits for Derivative exposures to Corporates are approved by the Credit Committee and for Banks by the ALCO. These exposures are renewable annually and are duly supported by ISDA agreements. MTM breaches are monitored daily and are cash collateralised wherever necessary.
37. Disclosures on Remuneration A. Qualitative Disclosures:
a) Information relating to the composition and mandate of the Remuneration Committee:
The Nomination & Remuneration committee comprises of independent directors of the Bank. Key mandate of the Nomination & Remuneration committee is to oversee the overall design and operation of the compensation policy of the Bank and work in coordination with the Risk Management Committee to achieve alignment between risks and remuneration.
The Nomination and Remuneration Committee (NRC) will be, inter alia, reviewing and tracking the implementation of the Compensation Policy of the Bank. The NRC will comprise atleast 3 Non-executive Directors, out of which not less than one-half should be independent directors and should include at least one member from the Bank''s Risk Management Committee of the Board. (RMC).
b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy:
Objective of Banks'' Compensation Policy is:
⢠To maintain fair, consistent and equitable compensation practices in alignment with Bank''s core values and strategic business goals;
⢠To ensure effective governance of compensation and alignment of compensation practices with prudent risk taking;
⢠To have mechanisms in place for effective supervisory oversight and Board engagement in compensation
⢠To ensure that the Compensation practices are within the regulatory framework stipulated from time to time by RBI.
The remuneration process is aligned to the Bank''s Compensation Policy objectives.
c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks:
I n order to manage current and future risk and allow a fair amount of time to measure and review both quality and quantity of the delivered outcomes, a significant portion of senior and middle management compensation is variable. Further reasonable portion variable compensation is non- cash and deferred, over a period of 3 years or longer.
In case the employee is retiring within next 2 years, cash to non-cash ratio may change in favor of more cash (including deferred cash) and the vesting schedule may be shorter.
I n addition, remuneration process provides for ''malus'' and ''clawback'' option to take care of any disciplinary issue or future drop in performance of individual/ business/ company
d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration:
I ndividual performances are assessed in line with business/ individual delivery of the Key Result Areas (KRAs), top priorities of business, budgets etc. KRAs of Line roles are linked to financials, people, service and process (Quality) and compliance parameters and KRAs of nonLine Roles have linkage to functional deliveries needed to achieve the top business priorities.
Further remuneration process is also linked to market salaries / job levels, business budgets and achievement of individual KRAs.
e) A discussion of the banks'' policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting:
A discussion on Policy on Deferral of Remuneration revised effective 1 April 2020
Employees have been broadly classified into following categories:
⢠Category I - Comprising MD & CEO and Whole Time Directors (WTDs).
⢠Category II - Material Risk Takers (MRTs). These include employees whose actions may have material impact on the risk exposures of the bank and who satisfy both - qualitative and quantitative criteria, as given below:
o Qualitative Criteria: Employees in the grade M10 and above
o Quantitative Criteria: Fixed Cost to Company (FCTC) is ? 1 Crore p.a. and above.
This excludes employees under Category III.
⢠Category III - Risk control and compliance employees - comprising staff in grade M9 and above in the following Control functions;
o Risk & Policy function
o Financial Control including group consolidation;
o Compliance;
o Internal Audit; o Back-office Operations
o Vigilance
o Legal
o Secretarial
⢠Category IV: Other employees - This includes all employees, not explicitly covered in the first three categories.
Following principles are applied for deferral / vesting of variable remuneration in accordance with RBI guidelines and Bank''s compensation policy:
Category I & II
⢠At least 50% of fixed pay, should be variable for arriving at the total compensation for the year
⢠The Cash component of the Variable Pay will not exceed 50% of the Fixed Pay
⢠The total variable payout shall be limited to a maximum of 300% of the fixed pay.
⢠In case variable pay is up to 200% of the fixed pay, a minimum of 50% of the variable pay; and in case variable pay is above 200%,
a minimum of 67% of the variable pay should be via non-cash instruments.
⢠Regardless of the quantum of pay, a minimum of 60% of the total variable pay must invariably be under deferral arrangements. Further, if cash component is part of variable pay, at least 50% of the cash bonus should also be deferred.
⢠However, in cases where the cash component of variable pay is under ? 25 lakh for a year, deferral requirements would not be necessary.
⢠The deferral period should be a minimum of three years. This would be applicable to both, the cash and non-cash components of the variable pay.
The compensation will be approved by the Nomination and Remuneration committee and RBI.
Category III
⢠The total variable payout shall be limited to a maximum of 300% of the fixed pay.
⢠However, in cases where the cash component of variable pay is under ? 25 lakh for a year, deferral requirements would not be necessary.
⢠The deferral period should be a minimum of three years. This would be applicable to both, the cash and non-cash components of the variable pay.
Approval authority: MD & CEO or as delegated by MD & CEO, will approve the variable pay.
For adjusting deferred remuneration before & after vesting:
Malus: Payment of all or part of amount of deferred variable pay can be prevented.
Clawback: Previously paid or already vested deferred variable pay can also be recovered under this clause.
Malus and clawback may be applied for following circumstances:
⢠Fraud, misfeasance, breach of trust, dishonesty, or wrongful disclosure by the employee of any confidential information pertaining to the bank or any of its affiliates;
⢠Willful misinterpretation / misreporting of financial performance of the bank;
⢠Material failure in risk management controls or material losses due to negligent risk-taking which are attributable to the employee, whether directly or indirectly;
⢠Any misconduct pertaining to moral turpitude, theft, misappropriation, corruption, forgery, embezzlement or an act of a felonious or criminal nature;
⢠Non-disclosure of material conflict of interest by the employee or any misuse of official powers;
⢠An act of willful, reckless or grossly negligent conduct which is detrimental to the interest or reputation of the bank or any of its affiliates, monetarily or otherwise;
⢠Material breach of Code of Conduct, any Non-Disclosure Agreement, regulatory procedures, internal rules and regulations or any other such instance for which the NRC, in its discretion, deems it necessary to apply malus or / and clawback provisions;
Besides the above there can be other circumstances when malus may be applied. In deciding the application of malus / clawback to any part or all of variable pay or incentives (whether paid, vested or unvested), the NRC will follow due process and adhere to the principles of natural justice and proportionality.
Depending on the nature of the business/function/ role, the risk involved, the time horizon for review, various forms of Variable Pay may be applicable.
The components of such variable pay will include:
⢠Cash (Cash and Short term deferred cash) - this may be paid at intervals ranging from Monthly, Quarterly, half-yearly and annual. The Monthly/ Quarterly / Half Yearly VP will be under the role and preapproved business specific incentive schemes. This may be payable within one year of grant.
⢠Long Term Incentive Pay (LTIP): This shall be granted to employees, in the form of Employee Stock Options (ESOPs) and / or Stock Appreciation Rights (SARs) and / or Deferred Cash. This shall be granted on a discretionary and reasonable basis, to motivate employees, create shareholder value by aligning interest of employees with the long-term interests of the Bank. LTIP may also be granted from time to time with the objective of retaining employees.
o ESOPs/ SARs will be linked to Kotak Mahindra Bank Stock price and will vest over a period of time.
Mar 31, 2019
2. Segment Reporting: The Summary of the operating segments of the Bank for the year ended 31st March, 2019 are as given below: (Rs in crore) Particulars 31st March, 2019 31st March, 2018 1. Segment Revenue   a. Treasury, BMU and Corporate Centre 5,965.16 5,730.26 b. Corporate/ Wholesale Banking 11,392.66 9,061.32 c. Retail Banking 13,885.48 11,437.61 d. Other Banking business -  Sub-total 31,243.30 26,229.19 Less : Inter-segmental revenue 2,696.06 2,428.49 Total 28,547.24 23,800.70 2. Segment Results   a. Treasury, BMU and Corporate Centre 2,050.07 1,723.06 b. Corporate/ Wholesale Banking 3,287.57 2,984.45 c. Retail Banking 2,048.15 1,510.71 d. Other Banking business -  Sub-total 7,385.79 6,218.22 Total Profit Before Tax 7,385.79 6,218.22 Provision for Tax 2,520.46 2,133.92 Total Profit After Tax 4,865.33 4,084.30 3. Segment Assets   a. Treasury, BMU and Corporate Centre 101,401.71 91,500.50 b. Corporate /Wholesale Banking 134,695.27 100,506.20 c. Retail Banking 174,501.61 143,303.89 d. Other Banking business - - Sub-total 410,598.59 335,310.59 Less : Inter-segmental Assets 98,604.66 70,571.48 Total 311,993.93 264,739.11 Add : Unallocated Assets 178.16 194.28 Total Assets as per Balance Sheet 312,172.09 264,933.39 4. Segment Liabilities   a. Treasury, BMU and Corporate Centre 84,885.34 76,300.61 b. Corporate /Wholesale Banking 122,068.09 88,984.44 c. Retail Banking 160,851.80 132,725.09 d. Other Banking business -  Sub-total 367,805.23 298,010.14 Less : Inter-segmental Liabilities 98,604.66 70,571.48 Total 269,200.57 227,438.66 Add : Unallocated liabilities 73.14 13.08 Add : Share Capital & Reserves & surplus 42,898.38 37,481.65 Total Liabilities as per Balance Sheet 312,172.09 264,933.39  Particulars 31st March, 2019 31st March, 2018 5. Capital Expenditure    a. Treasury, BMU and Corporate Centre 83.41 44.21  b. Corporate /Wholesale Banking 53.64 20.71  c. Retail Banking 364.75 237.94  d. Other Banking business  -  Total 501.80 302.86 6. Depreciation / Amortisation    a. Treasury, BMU and Corporate Centre 107.47 101.30  b. Corporate /Wholesale Banking 25.21 16.47  c. Retail Banking 234.24 184.92  d. Other Banking business - -  Total 366.92 302.69 Segmental Information is provided as per the MIS available for internal reporting purposes, which includes certain estimates and assumptions. 3. Lease Discloures: a. The Bank has taken various premises and equipment under operating lease. The lease payments recognised in the Profit and Loss Account are Rs 500.92 crore (previous year Rs 453.31 crore). The sub-lease income recognised in the Profit and Loss Account is Rs 5.53 crore (previous year Rs 5.56 crore). b. The future minimum lease payments under non-cancellable operating lease - not later than one year is Rs 438.26 crore (previous year Rs 402.44 crore), later than one year but not later than five years is Rs 1,378.45 crore (previous year Rs 1,275.44 crore) and later than five years Rs 1,101.50 crore (previous year Rs 1,089.00 crore). The lease terms include renewal option after expiry of primary lease period. There are no restrictions imposed by lease arrangements. There are escalation clauses in the lease agreements. 4. Deferred Taxes: "Others" in Other Assets (Schedule 11 (VI)) includes deferred tax asset (net) of Rs 178.16 crore (previous year Rs 194.28 crore). The components of the same are as follows: (Rs in crore) Particulars of Asset/ (Liability) 31st March, 2019 31st March, 2018 Provision for NPA and general provision on standard assets 170.05 197.66 Expenditure allowed on payment basis 139.68 130.47 Depreciation 29.02 9.43 Deduction u/s. 36(1)(viii) of the Income Tax Act, 1961 (160.59) (143.28) Net Deferred Tax Asset 178.16 194.28 5. Credit card reward points: The following table sets forth, for the periods indicated, movement in provision for credit card account reward points: (Rs in crore) Particulars 31st March, 2019 31st March, 2018 Opening provision for reward points 13.12 7.95 Provision for reward points made during the year 24.53 17.18 Utilisation/write-back of provision for reward points (22.72) (12.01) Closing provision for reward points* 14.93 13.12 * This amount will be utilised towards redemption of the credit card accounts reward points. 6. Fixed Assets as per Schedule 10 B include intangible assets relating to purchased software and system development expenditure which are as follows: (Rs in crore) Particulars 31st March, 2019 31st March, 2018 Gross Block   At cost on 31st March of the preceding year 489.16 506.01 Additions during the year 169.35 67.47 Deductions during the year 149.62 84.32 Total 508.89 489.16 Depreciation / Amortisation   As at 31st March of the preceding year 400.61 424.45 Charge for the year 94.95 60.48 Deductions during the year 145.97 84.32 Depreciation to date 349.59 400.61 Net Block 159.30 88.55 Capital commitments for purchase of software and system development expenditure are Rs 38.73 crore (previous year Rs 53.87 crore). 7. Related Party Disclosures: As per Accounting Standard -18, Related Party Disclosure, the Bank's related parties are disclosed below: A. Parties where control exists: Nature of relationship Related Party Subsidiary Companies Kotak Mahindra Prime Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Life Insurance Company Limited (formerly known as Kotak Mahindra Old Mutual Life Insurance Limited) Kotak Mahindra Investments Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc. Kotak Investment Advisors Limited Kotak Mahindra Trusteeship Services Limited Kotak Infrastructure Debt Fund Limited Kotak Mahindra Pension Fund Limited Kotak Mahindra Financial Services Limited Kotak Mahindra Asset Management (Singapore) Pte. Ltd. Kotak Mahindra General Insurance Company Limited IVY Product Intermediaries Limited BSS Microfinance Limited (formerly known as BSS Microfinance Private Limited) (w.e.f 27 September, 2017) B. Other Related Parties: Nature of Relationship Related Party Individual having significant influence over the enterprise Mr. Uday S. Kotak along with relatives and enterprises in which he has beneficial interest holds 29.99% of the equity share capital and 19.68% of the paid-up share capital of Kotak Mahindra Bank Limited as on 31st March, 2019. Associates / Others ACE Derivatives and Commodity Exchange Limited. Infina Finance Private Limited Matrix Business Services India Private Limited Phoenix ARC Private Limited Kotak Education Foundation ING Vysya Foundation Key Management Personnel (KMP) Mr. Uday S. Kotak, Managing Director and CEO Mr. Dipak Gupta, Joint Managing Director Enterprises over which KMP / relatives of KMP have control / significant influence Aero Agencies Limited Kotak and Company Private Limited Komaf Financial Services Private Limited Asian Machinery & Equipment Private Limited. Insurekot Sports Private Limited Kotak Trustee Company Private Limited Cumulus Trading Company Private Limited Palko Properties Private Limited Kotak Chemicals Limited Kotak Ginning & Pressing Industries Private Limited Kotak Commodities Services Private Limited Harisiddha Trading and Finance Private Limited Puma Properties Private Limited Business Standard Private Limited Business Standard Online Private Limited Allied Auto Accessories Private Limited Uday S Kotak HUF Suresh A Kotak HUF USK Benefit Trust II Kotak Family Foundation (w.e.f. 2 May 2017) Helena Realty Private Limited (w.e.f. 2 Feb 2018) Doreen Realty Private Limited (w.e.f. 15 Feb 2018) Renato Realty Private Limited (w.e.f. 15 Feb 2018) Pine Tree Estates Private Limited (w.e.f. 20 Mar 2018) Meluha Developers Private Limited (w.e.f. 20 Mar 2018) Quantyco Realty Private Limited (w.e.f. 16 Mar 2018) Xanadu Properties Private Limited (w.e.f. 20 Mar 2018) Relatives of KMP Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Mr. Jay Kotak Mr. Dhawal Kotak Ms. Aarti Chandaria Ms. Anita Gupta Ms. Urmila Gupta Mr. Arnav Gupta Mr. Parthav Gupta Mr. Prabhat Gupta Ms. Jyoti Banga  (Rs in crore) Items/Related Party Subsidiary Associates/ Companies Others Key Management Personnel (KMP) Enterprise over which KMP/ Relative of KMP have control / significant influence Relatives of KMP Total Liabilities       Deposits 1056.10 125.00 632.99 144.75 143.35 2102.19  (1,407.47) (57.75) (128.35) (134.45) (1.99) (1,730.01) Borrowings        (-) (-) (-) (-) (-) (-) Interest Payable 1.65 0.39 5.56 1.72 0.41 9.73  (8.21) (0.05) (0.95) (1.37) (0.01) (10.59) Other Liabilities 16.91 0.01 - 0.01 - 16.93  (14.42) (0.01) (-) (0.30) (-) (14.73) Assets       Advances 0.52 - - - - 0.52  (#) (-) (-) (-) (-) (#) Investments-Gross 3067.74 33.88 - # - 3101.62  (3,072.15) (33.88) (-) (#) (-) (3,106.03) Diminution on - 29.82 - # - 29.82 Investments (-) (29.82) (-) (#) (-) (29.82) Commission Receivable 49.54 - - - - 49.54  (43.81) (-) (-) (-) (-) (43.81) Others 65.04 0.01 # # # 65.05  (69.58) (0.04) (-) (0.07) (-) (69.69) Expenses       Salaries/fees (Include ESOP) - - 8.84 - - 8.84  (-) (-) (8.06) (-) (-) (8.06) Interest Paid 48.96 7.31 36.10 11.66 1.09 105.12  (88.37) (38.23) (12.02) (15.38) (0.31) (154.31) Others 120.36 10.02 - 4.29 - 134.67  (27.85) (19.00) (-) (4.51) (-) (51.36) Income       Dividend 45.14 - - - - 45.14  (7.61) (-) (-) (-) (-) (7.61) Interest Received 51.86 - - - - 51.86  (44.23) (-) (-) (-) (-) (44.23) Others 392.36 0.11 # 0.86 # 393.33  (319.71) (0.10) (#) (0.87) (-) (320.68) Other Transactions       Sale of investment 642.67 - - - - 642.67  (180.27) (-) (-) (-) (-) (180.27) Purchase of Investment 1185.64 - - - - 1185.64  (821.57) (-) (-) (-) (-) (821.57)  (Rs in crore) Items/Related Party Subsidiary Companies Associates/ Others Key Management Personnel (KMP) Enterprise over which KMP/ Relative of KMP have control /significant influence Relatives of KMP Total Loan disbursed during the year 343.38 - - - - 343.38 (1,820.23) (-) (-) (-) (-) (1,820.23) Loan repaid during the year 343.05 - - - - 343.05 (1,881.48) (-) (-) (-) (-) (1,881.48) Dividend paid - - 39.78 0.05 0.26 40.09 (-) (-) (34.10) (0.04) (0.22) (34.36) Reimbursement to companies 21.12 - - - - 21.12 (20.06) (-) (-) (-) (-) (20.06) Reimbursement from companies 98.82 0.09 - - - 98.91 (165.17) (0.10) (-) (-) (-) (165.27) Purchase of Fixed assets 0.14 - - - - 0.14 (0.59) (-) (-) (-) (-) (0.59) Sale of Fixed assets 0.04 - - - - 0.04 (0.55) (-) (-) (-) (-) (0.55) Swaps/Forward/ Options contracts 2132.70 - - - 1.88 2134.58 (5,068.59) (-) (-) (-) (-) (5,068.59) Guarantees/Lines of credit 20.25 - - - - 20.25 (0.25) (0.05) (-) (-) (-) (0.30)  QIP Issuance Expense adjusted against Share Premium _ _ _ _ _ _ (10.09) (-) (-) (#) (-) (10.09) Professional Charges towards Strategic investment -capitalized - - - -   (3.51) (-) (-) (-) (-) (3.51) I. Liabilities:       Other liabilities       Other Payable       Kotak Mahindra Prime Limited 0.89 - - - - 0.89 (0.33) (-) (-) (-) (-) (0.33) BSS Microfinance Limited 13.59 - - - - 13.59 (4.03) (-) (-) (-) (-) (4.03) Kotak Securities Limited 1.06 - - - - 1.06 (6.86) (-) (-) (-) (-) (6.86) Others 1.37 0.01 - 0.01 - 1.39 (3.20) (0.01) (-) (0.30) (-) (3.51)  (Rs in crore) Items/Related Party Subsidiary Companies Associates/ Others Key Management Personnel (KMP) Enterprise over which KMP/ Relative of KMP have control / significant influence Relatives of KMP Total II. Assets: Investments       Kotak Mahindra Life Insurance Company Limited 1557.20 - - - - 1557.20 (1,557.20) (-) (-) (-) (-) (1,557.20) Kotak Mahindra Prime Limited 141.71 _ _ _ _ 141.71 (361.82) (-) (-) (-) (-) (361.82) BSS Microfinance Limited 138.56 - - - - 138.56 (117.87) (-) (-) (-) (-) (117.87) Kotak Mahindra Investments Limited 338.03 - - - - 338.03 (338.03) (-) (-) (-) (-) (338.03) Kotak Mahindra General Insurance Company Limited 220.00 - - - - 220.00 (175.00) (-) (-) (-) (-) (175.00) Kotak Infrastructure Debt Fund Limited 492.19 - - - - 492.19 (342.19) (-) (-) (-) (-) (342.19) Others 180.05 - - # - 180.05 (180.05) (-) (-) (#) (-) (180.05) ACE Derivatives and Commodity Exchange Limited - 33.88 - - - 33.88 (-) (33.88) (-) (-) (-) (33.88) Diminution on Investments       ACE Derivatives and Commodity Exchange Limited _ 29.82 _ _ _ 29.82 (-) (29.82) (-) (-) (-) (29.82) Business Standard Private Ltd - - - # - # (-) (-) (-) (#) (-) (#) Commission Receivable       Kotak Mahindra Life Insurance Company Limited 48.35 - - - - 48.35 (42.81) (-) (-) (-) (-) (42.81) Kotak Mahindra General Insurance Company Limited 1.19 _ _ _ _ 1.19 (0.99) (-) (-) (-) (-) (0.99) Others Receivable       Kotak Mahindra Prime Limited 14.97 - - - - 14.97 (22.29) (-) (-) (-) (-) (22.29) Kotak Securities Limited 11.01 - - - - 11.01 (2.89) (-) (-) (-) (-) (2.89) Kotak Investment Advisors Limited 2.70 - - - - 2.70 (3.29) (-) (-) (-) (-) (3.29) Kotak Mahindra Life Insurance Company Limited 4.70 - - - - 4.70 (8.97) (-) (-) (-) (-) (8.97)        (Rs in crore) Items/Related Party Subsidiary Companies Associates/ Others Key Management Personnel (KMP) Enterprise over which KMP/ Relative of KMP have control / significant influence Relatives of KMP Total Kotak Infrastructure Debt Fund Limited 15.02 _ _ _ _ 15.02 (4.88) (-) (-) (-) (-) (4.88) BSS Microfinance Limited 10.88 - - - - 10.88 (23.03) (-) (-) (-) (-) (23.03) Others 5.76 0.01 - # - 5.77 (4.23) (0.04) (-) (0.07) (-) (4.34) III. Expenses:       Salaries / fees (Include ESOPs)             Mr. Uday Kotak - - 3.54 - - 3.54 (-) (-) (3.20) (-) (-) (3.20) Mr. Dipak Gupta - - 5.30 - - 5.30 (-) (-) (4.86) (-) (-) (4.86) Other Expenses       Brokerage       Kotak Securities Limited 0.02 - - - - 0.02 (0.30) (-) (-) (-) (-) (0.30) Premium       Kotak Mahindra Life Insurance Company Limited 4.51 _ _ _ _ 4.51 (3.30) (-) (-) (-) (-) (3.30) Kotak Mahindra General Insurance Company Limited 2.47 - - - - 2.47 (2.66) (-) (-) (-) (-) (2.66) Others       Kotak Mahindra Prime Limited 3.36 - - - - 3.36 (3.30) (-) (-) (-) (-) (3.30) Kotak Infrastructure Debt Fund Limited 0.06 - - - - 0.06 (-) (-) (-) (-) (-) (-) Aero Agencies Limited - - - 4.22 - 4.22 (-) (-) (-) (4.39) (-) (4.39) Business Standard Private Limited - - - 0.07 - 0.07 (-) (-) (-) (0.12) (-) (0.12) BSS Microfinance Limited 104.92 - - - - 104.92 (13.78) (-) (-) (-) (-) (13.78) Kotak Mahindra Financial Services Limited 5.02 - - - - 5.02 (4.51) (-) (-) (-) (-) (4.51) Kotak Mahindra (UK) Limited # - - - - #  (-) (-) (-) (-) (-) (-) Others # 0.28 - - - 0.28 (#) (0.22) (-) (-) (-) (0.22)  (Rs in crore) Items/Related Party Subsidiary Companies Associates/ Others Key Management Personnel (KMP) Enterprise over which KMP/ Relative of KMP have control / significant influence Relatives of KMP Total Donations       Kotak Education Foundation - 9.74 - - - 9.74 (-) (18.79) (-) (-) (-) (18.79) IV. Income:       Dividend       Kotak Mahindra Capital Company Limited 41.23 - - - - 41.23 (-) (-) (-) (-) (-) (-) Kotak Mahindra Trustee Company Limited 3.75 _ _ _ _ 3.75 (7.50) (-) (-) (-) (-) (7.50) Kotak Infrastructure Debt Fund Limited 0.05 - - - - 0.05 (-) (-) (-) (-) (-) (-) Kotak Mahindra Prime Limited 0.11 _ _ _ _ 0.11 (0.11) (-) (-) (-) (-) (0.11) Other Income       Kotak Mahindra Life Insurance Company Limited 215.19 _ _ _ _ 215.19 (193.44) (-) (-) (-) (-) (193.44) Kotak Mahindra General Insurance Company Limited 15.71 - - - - 15.71 (11.73) (-) (-) (-) (-) (11.73) Kotak Securities Limited 93.02 - -
Mar 31, 2018
* The Bank on 18th May, 2017, concluded a Qualified Institutions Placement (QIP) of 62,000,000 equity shares at a price of Rs, 936 per equity share aggregating Rs, 5,803.20 crore. Accordingly, Share Capital increased by Rs, 31.00 crore and share premium increased by Rs, 5,733.67 crore, net of share issue expenses of Rs, 38.53 crore. The above expenses include Rs, 0.72 crore paid to the statutory auditors in connection with the issue. Further the Bank has allotted during the year 2,750,629 equity shares consequent to exercise of ESOPs vested. Accordingly the share capital further increased by Rs, 1.37 crore and share premium increased by Rs, 149.87 crore, net of share issue expenses of Rs, 0.18 crore, 1. During the year ended 31st March, 2018 and year ended 31st March, 2017, the value of sale/transfer of securities to/from HTM category (excluding one-time transfer of securities and sales to RBI under OMO auctions) was within 5% of the book value of instruments in HTM category at the beginning of the year The Senior Management Committee for Derivatives (SMC) performs the ongoing oversight and monitoring of the client derivatives business. This committee is responsible for reviewing and approving the derivative products that can be offered to clients (within the regulatory framework provided by the RBI). The Board approved ''Customer Suitability and Appropriateness Policy for Derivatives'' lays down the risk management & governance framework for offering derivatives to clients, The Market Risk Management Department is responsible for monitoring, measurement & reporting of risks in derivatives. The Market Risk Management Department is independent of the Treasury Front-Office & Back-Office and directly reports into the Group Chief Risk Officer b) Scope and nature of risk measurement, risk reporting and risk monitoring systems: All significant risks of the derivative portfolio are monitored, measured & reported to the senior management. The Market Risk Management Department, on a daily basis, measures & reports risk-metrics like Value-at-Risk (VaR), PV01, Option Greeks like Delta, Gamma, Vega, Theta, Rho etc. Credit Risk exposure from the derivatives portfolio is also reported daily. The Market Risk Management Department independently reports profitability on a daily basis. Rate reasonability tests are performed on the Derivative portfolio to ensure that all trades are entered into at market rates. Stress testing is performed to measure the impact of extreme market shifts on the Bank''s portfolio (including derivatives). Suitability and Appropriateness assessment is performed before offering derivatives to clients. The Bank continuously invests in technology to enhance the Risk Management architecture. c) Policies for hedging and/or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges/mitigates: The Board Approved ''Hedging Policy'' details the hedging strategies, hedging processes, accounting treatment, documentation requirements and effectiveness testing for hedges. Hedges are monitored for effectiveness periodically, in accordance with the Board Approved Policy, d) Accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation: Derivative transactions are segregated into trading or hedge transactions. Trading transactions outstanding as at the Balance Sheet dates are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account. Derivative transactions designated as "Hedges" are accounted in accordance with hedging instruments on an accrual basis over the life of the underlying instrument. Option premium paid/received is accounted for in the Profit and Loss Account on expiry of the option, Pursuant to the RBI guidelines, any receivables as well positive Mark to Market (MTM) in respect of future receivable under derivative contracts comprising of crystallized receivables which remain overdue for more than 90 days are reversed through the Profit and Loss Account. Derivative exposures for Corporate are approved by the Credit Committee and for Banks by the ALCO. These exposures are renewable annually and are duly supported by ISDA agreements. MTM breaches are monitored daily and are cash collateralized wherever necessary. 11. The Provision Coverage Ratio (PCR) of the Bank after considering technical write-off is 65.68% as at 31st March, 2018 (previous year: 61.38%). Above represents Gross NPA and NPI 2. RBI vide its circular dated 18th April 2017, has directed banks shall make suitable disclosures, wherever either (a) the additional provisioning requirements assessed by RBI exceed 15 percent of the published net profits after tax for the reference period or (b) the additional Gross NPAs identified by RBI exceed 15 percent of the published incremental Gross NPAs for the reference period, or both. There has been no divergence observed by RBI for the financial year 16-17 in respect of the Bank''s asset classification and provisioning under the extant prudential norms on income recognition asset classification and provisioning (IRACP) which require such disclosures, 3. There are no unsecured advances for which intangible security such as charge over the rights, licenses, authority, etc. are accepted as collateral by the Bank. Definitions: (A) Working funds is the monthly average of total assets as reported by the Bank''s Management to the RBI under Section 27 of the Banking Regulation Act, 1949. (B) Operating profit = (Interest Income Other Income - Interest expenses - Operating expenses). (C) Business is monthly average of net advances and deposits as reported to the RBI under section 27 of the Banking Regulation Act, 1949. Interbank deposits are excluded for the purposes of computation of this ratio, (D) Productivity ratios are based on average number of employees, * Listed equity investments in AFS have been considered at 50% ''243.79 crore) haircut as per RBI directions In computing the above information, certain estimates and assumptions have been made by the Bank''s Management. 36. DISCLOSURES ON REMUNERATION A. Qualitative Disclosures: a) Information relating to the composition and mandate of the Remuneration Committee: The Nomination & Remuneration committee comprises of independent directors of the Bank. Key mandate of the Nomination & Remuneration committee is to oversee the overall design and operation of the compensation policy of the Bank and work in coordination with the Risk Management Committee to achieve alignment between risks and remuneration, b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy: Objective of Banks'' Compensation Policy is: - To maintain fair, consistent and equitable compensation practices in alignment with Bank''s core values and strategic business goals; - To ensure effective governance of compensation and alignment of compensation practices with prudent risk taking; - To have mechanisms in place for effective supervisory oversight and Board engagement in compensation The remuneration process is aligned to the Bank''s Compensation Policy objectives, c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks: In order to manage current and future risk and allow a fair amount of time to measure and review both quality and quantity of the delivered outcomes, a significant portion of senior and middle management compensation is variable. Further reasonable portion variable compensation is non- cash and deferred, over a period of 3 years or longer. In addition, remuneration process provides for ''malus'' and ''claw back'' option to take care of any disciplinary issue or future drop in performance of individual/ business/ company, d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration: Individual performances are assessed in line with business/individual delivery of the Key Result Areas (KRAs), top priorities of business, budgets etc. KRAs of Line roles are linked to financials, people, service and process (Quality) parameters and KRAs of non-Line Roles have linkage to functional deliveries needed to achieve the top business priorities. Further remuneration process is also linked to market salaries/ Job levels, business budgets and achievement of individual KRAs. e) A discussion of the banks'' policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting: A discussion on Policy on Deferral of Remuneration Employees are classified into following three categories for the purpose of remuneration: Category I: Whole Time Directors (WTD)/Chief Executive Officer (CEO) Category II: Risk Control and Compliance Staff Category III: Other Categories of Staff Following principles are applied for deferral/vesting of variable remuneration in accordance with RBI guidelines and Bank''s compensation policy: Category I a. Variable Pay will not exceed 70% of Fixed Pay, b. The Cash component of the Variable Pay will not exceed 50% of the Fixed Pay, c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of Variable Pay will be deferred over a period of 3 years, or longer, on a pro-rata basis. The compensation will be approved by the Nomination and Remuneration committee and RBI Category II a. Variable Pay will not exceed 70% of Fixed Pay, b. The Cash component of the Variable Pay will not exceed 50% of the Fixed Pay, c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of Variable Pay will be deferred over a period of 3 years, or longer, on a pro-rata basis. Category III Variable Pay is payable as per approved schemes for incentive or Bonus: i) The Cash component of the Variable Pay will not exceed 60% of the Fixed Pay, ii) If Variable Pay is higher than 60% of Fixed Pay, at least 40% of Variable Pay will be deferred over a period of 3 years, or longer, on a pro-rata basis. iii) However, if Variable Pay is less than or equal to '' 10 lakhs, management will have the discretion to pay the entire amount as cash, For adjusting deferred remuneration before & after vesting: Malus: Payment of all or part of amount of deferred variable pay can be prevented. This clause will be applicable in case of: - Disciplinary Action (at the discretion of the Disciplinary Action Committee) and/or - Significant drop in performance of Individual/ Business/Company (at the discretion of the Nomination & Remuneration Committee) and/ or - Resignation of the staff prior to the payment date, Claw back: Previously paid or already vested deferred variable pay can also be recovered under this clause. This clause will be applicable in case of Disciplinary Action (at the discretion of the Disciplinary Action Committee and approval of the Nomination & Remuneration Committee). f) Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms: The main forms of such variable remuneration include: - Cash - this may be at intervals ranging from Monthly, Quarterly, Annual. - Deferred Cash/Deferred Incentive Plan, - Stock Appreciation Rights (SARs): These are structured, variable incentives, linked to Kotak Mahindra Bank Stock price, payable over a period of time - ESOP as per SEBI guidelines, The form of variable remuneration depends on the job level of individual, risk involved, the time horizon for review of quality and longevity of the assignments performed. B. Quantitative Disclosures: a) Number of meetings held by the Remuneration Committee during the financial year and remuneration paid to its members. During year ended 31st March, 2018 4 meetings of Nomination and Remuneration committee was held. Each Member of the Nomination and Remuneration committee is paid a sitting fee of '' 40,000 per meeting, b) Number of employees having received a variable remuneration award during the financial year. Quantitative disclosure restricted to CEO, one Whole Time Director and Seven Executive Board members as risk takers, c) Number and total amount of sign-on awards made during the financial year. Not applicable d) Details of guaranteed bonus, if any, paid as joining/sign on bonus. Not applicable e) Details of severance pay, in addition to accrued benefits, if any. NIL (previous year Nil) f) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms Cash - NIL (previous year Nil) Outstanding SARs as at 31st March, 2018 - 156,428 rights (previous year 96,004 rights) Outstanding ESOPs as at 31st March, 2018 - 1,218,277 equity shares (previous year 878,448 equity shares) g) Total amount of deferred remuneration paid out in the financial year. Payment towards SARs during year ended 31st March, 2018 Rs, 8.91 crore (previous year Rs, 5.29 crore) h) Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred and non-deferred. Total fixed salary for the year ended 31st March, 2018 - Rs, 20.82 crore (previous year Rs, 16.28 crore) Deferred Variable Pay* SARs - 68,180 rights (previous year 54,220 rights) ESOPs - 497,100 equity shares (previous year 494,060 equity shares) Non Deferred variable pay* Rs, 4.68 crore (previous year Rs, 3.99 crore) * Details relating to variable pay pertains to remuneration awards for the financial year 2016-17 awarded during current financial year. Remuneration award for the year ended 31s March, 2018 are yet to be reviewed and approved by the remuneration committee i) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments. - Nil (Previous year Nil) j) Total amount of reductions during the financial year due to ex- post explicit adjustments. - Nil (Previous year Nil) k) Total amount of reductions during the financial year due to ex- post implicit adjustments. - Nil (Previous year Nil) 39. Unhedged Foreign Currency Exposure of borrowers: The bank recognises the importance of the risk of adverse fluctuation of foreign exchange rates on the profitability and financial position of borrowers who are exposed to currency risk. Currency induced credit risk refers to the risk of inability of borrowers to service their debt obligations due to adverse movement in the exchange rates and corresponding increase/decrease in their book values of trade payables, loan payables, trade receivables, etc. thereby exposing the Bank to risk of default by the borrower. In this regard, the Bank had put in place requisite policies & processes for monitoring and mitigation of currency induced credit risk of borrowers. These include the following: (a) Currency risk of borrowers on account of un-hedged foreign currency exposures ("UFCE") is duly considered and analysed in credit appraisal notes. (b) Periodic monitoring of un-hedged foreign currency exposures of borrowers. (c) Risk classification of borrowers having un-hedged foreign currency exposures, into Low/Medium/High, as per internal norms, based on likely loss/EBID ratio. Likely loss means the potential loss which can be caused over a one year horizon by adverse movement of exchange rates. (e) In case of borrowers exposed to currency risk where declarations for foreign currency payables/receivables (UFCE declarations) are not submitted, provision for currency induced credit risk is made as per RBI stipulated rates mentioned below: - 10 bps in cases where limits with banking system are less than Rs, 25 crore; - 80 bps in cases where limits with banking system are Rs, 25 crore or more, (f) Further, where annual certification from statutory auditors of UFCE data is not submitted, such borrowers are treated as UFCE declaration not submitted cases and provision is computed as per point (e) above, (g) Borrowers where the credit exposure is only Letter of Credit Bills Discounting, Fixed Deposit backed, Bank Guarantee/Standby Letter of Credit backed are exempted from the above requirements. Exposures on other Banks and Public Financial Institutions like SIDBI, EXIM Bank, NABARD, NHB are also exempted from the above requirements, (h) Management of foreign exchange risk is considered as a parameter for internal risk rating of borrowers, Provision held for currency induced credit risk as at 31st March, 2018 is Rs, 50.24 crore. (Previous year Rs, 50.54 crore). Incremental Risk weighted Assets value considered for the purpose of CRAR calculation in respect of currency induced credit risk as at 31st March, 2018 is Rs, 1,293.22 crore (Previous year Rs, 2,156.04 crore.) 40. b) Qualitative disclosure around LCR The Reserve Bank of India has prescribed monitoring of sufficiency of Bank''s liquid assets using Basel III - Liquidity Coverage Ratio (LCR). The LCR is aimed at measuring and promoting short-term resilience of Banks to potential liquidity disruptions by ensuring maintenance of sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days, The LCR requirement has been introduced in a phased manner with banks required to maintain minimum LCR of 60% till Dec 2015 and the 70% from Jan 2016 onwards. The requirement will be increasing by 10% annually to 100% by Jan 2019. LCR requirement is currently at 90% effective Jan 2018. The ratio comprises of high quality liquid assets (HQLAs) as numerator and net cash outflows in 30 days as denominator. HQLA has been divided into two parts i.e. Level 1 HQLA which comprises of primarily cash, excess CRR, SLR securities in excess of minimum SLR requirement and a portion of mandatory SLR as permitted by RBI (under MSF and FALLCR) and Level 2 HQLA which comprises of investments in highly rated non-financial corporate bonds and listed equity investments considered at prescribed haircuts. Cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities by the outflow run-off rates and cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in. The Bank has implemented the LCR framework and has consistently maintained LCR well above the regulatory threshold. The average LCR for the quarter ended 31st March, 2018 was 106.48% which is above the regulatory limit of 90%. For the quarter ended 31st March, 2018 Level 1 HQLA stood at 94.67% (41,366 crs.) of the total HQLA. LCR is expected to bring in more funding stability due to severe run-off factors on wholesale funding but at the same time it has increased the liquidity cost due to maintenance of high quality liquid assets. Apart from LCR, Bank uses various stock liquidity indicators to measure and monitor the liquidity risk in terms of funding stability, concentration risk, dependence on market borrowings, liquidity transformation, etc. The Bank maintains a diversified source of funding in terms of depositor concentration, lender concentration as well as instrument concentration. This is evident through low depositor and lender concentration with top 4.depositors contributing 13.4% of Bank''s total deposits and top 10 lenders contributing 5.7% of Bank''s total liabilities, Asset Liability Committee (ALCO) of the Bank is the primary governing body for Liquidity Risk Management supported by Balance Sheet Management Unit (BMU), Risk Management Department (RMD), Finance and ALCO Support Group. BMU is the central repository of funds within the Bank and is vested with the responsibility of managing liquidity risk within the risk appetite of the Bank. Bank has incorporated Basel III Liquidity Standards - LCR and NSFR as part of its risk appetite statement for liquidity risk. 41. Frauds The Bank has reported 268 (Previous year 126 cases) fraud cases involving fraud amount of one lakh and above during the financial year ended 31st March 2018 amounting to Rs, 56.73 crore (Previous year Rs, 111.54 crore). The Bank has recovered / expensed off / provided the entire amount where necessary. Segmental Information is provided as per the MIS available for internal reporting purposes, which includes certain estimates and assumptions. 6. Lease Discloures: a. The Bank has taken various premises and equipment under operating lease. The lease payments recognized in the Profit and Loss Account are Rs, 453.31 crore (previous year Rs, 430.81 crore). The sub-lease income recognized in the Profit and Loss Account is Rs, 5.56 crore (previous year Rs, 5.95 crore), b. The future minimum lease payments under non-cancellable operating lease - not later than one year is Rs, 402.44 crore (previous year Rs, 366.42 crore), later than one year but not later than five years is Rs, 1,275.44 crore (previous year Rs, 1,160.15 crore) and later than five years Rs, 1,089.00 crore (previous year Rs, 1,003.01 crore). The lease terms include renewal option after expiry of primary lease period. There are no restrictions imposed by lease arrangements. There are escalation clauses in the lease agreements. 7. Related Party Disclosures: A. Parties where control exists: Nature of relationship Related Party Subsidiary Companies Kotak Mahindra Prime Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Life Insurance Company Limited (formerly known as Kotak Mahindra Old Mutual Life Insurance Limited) Kotak Mahindra Investments Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc. Kotak Investment Advisors Limited Kotak Mahindra Trusteeship Services Limited Kotak Infrastructure Debt Fund Limited Kotak Mahindra Pension Fund Limited Kotak Mahindra Financial Services Limited Kotak Mahindra Asset Management (Singapore) Pte. Ltd. Kotak Mahindra General Insurance Company Limited IVY Product Intermediaries Limited BSS Microfinance Limited (formerly known as BSS Microfinance Private Limited) (w.e.f 27 September 2017) Nature of Relationship Related Party Individual having significant Mr. Uday S. Kotak along with relatives and enterprises in which he has beneficial influence over the enterprise interest holds 30.04% of the equity share capital of Kotak Mahindra Bank Limited as on 31 March 2018 Associates / Others ACE Derivatives and Commodity Exchange Limited, Infina Finance Private Limited Matrix Business Services India Private Limited Phoenix ARC Private Limited Kotak Education Foundation ING Vysya Foundation Key Management Personnel (KMP) Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director Mr. C. Jayaram, Joint Managing Director (upto 30 April 2016) Mr. Dipak Gupta, Joint Managing Director Enterprises over which KMP / Aero Agencies Limited relatives of KMP have contr°l / Kotak and Company Private Limited significant influence Komaf Financial Services Private Limited Asian Machinery & Equipment Private Limited, Insurekot Sports Private Limited Kotak Trustee Company Private Limited Cumulus Trading Company Private Limited Palko Properties Private Limited Kotak Chemicals Limited Kotak Ginning & Pressing Industries Private Limited Kotak Commodities Services Private Limited Harisiddha Trading and Finance Private Limited Puma Properties Private Limited Business Standard Private Limited Business Standard Online Private Limited Allied Auto Accessories Private Limited Uday S Kotak HUF Suresh A Kotak HUF USK Benefit Trust II Kotak Family Foundation (w.e.f. 2 May 2017) Helena Realty Private Limited (w.e.f. 2 Feb 2018) Doreen Realty Private Limited (w.e.f. 15 Feb 2018) Renato Realty Private Limited (w.e.f. 15 Feb 2018) Pine Tree Estates Private Limited (w.e.f. 20 Mar 2018) Meluha Developers Private Limited (w.e.f. 20 Mar 2018) Quantyco Realty Private Limited (w.e.f. 16 Mar 2018) Xanadu Properties Private Limited (w.e.f. 20 Mar 2018) Nature of Relationship Related Party Relatives of KMP Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Mr. Jay Kotak Mr. Dhawal Kotak Ms. Aarti Chandaria Ms. Anita Gupta Ms. Urmila Gupta Mr. Arnav Gupta Mr. Parthav Gupta Mr. Prabhat Gupta Ms. Jyoti Banga Ms. Usha Jayaram (upto 30 April 2016) Mr. K. Madhavan Kutty (upto 30 April 2016) Mr. Vivek Menon (upto 30 April 2016) Ms. Nayantara Menon Mehta (upto 30 April 2016) Note: 1. Figures in brackets represent previous year''s figures. 2. The above does not include any transactions in relation to listed securities done on recognized stock exchange during the year However above includes transactions done on NDS with known related parties. 3. # in the above table denotes amounts less than Rs, 50,000 Note; 1. Figures in brackets represent previous year''s figures. 2. # in the above table denotes amounts less than Rs, 50,000 8. Employee Share Based Payments: At the General Meetings, the shareholders of the Bank had unanimously passed Special Resolutions on 28th July, 2000, 26th July, 2004, 26th July, 2005, 5th July, 2007, 21st August, 2007 and 29th June, 2015, to grant options to the eligible employees of the Bank and its subsidiaries and associate companies. Pursuant to these resolutions, the following Employees Stock Option Schemes had been formulated and adopted: (a) Kotak Mahindra Equity Option Scheme 2001-02; (b) Kotak Mahindra Equity Option Scheme 2002-03; (c) Kotak Mahindra Equity Option Scheme 2005; (d) Kotak Mahindra Equity Option Scheme 2007; and (e) Kotak Mahindra Equity Option Scheme 2015 Further, pursuant to the Scheme of Amalgamation of ING Vysya Bank Limited with the Bank, the Bank has renamed and adopted the ESOP Schemes of the eIVBL, as given below: - Kotak Mahindra Bank Limited (IVBL) Employees Stock Option Scheme 2005; - Kotak Mahindra Bank Limited (IVBL) Employees Stock Option Scheme 2007; - Kotak Mahindra Bank Limited (IVBL) Employee Stock Option Scheme 2010; and - Kotak Mahindra Bank Limited (IVBL) Employees Stock Option Scheme 2013 Consequent to the above, the Bank has granted stock options to the employees of the Group. The Bank under its various plan / schemes, has granted in aggregate 148,401,294 options (including options issued in exchange on amalgamation) as on 31st March, 2018 (Previous year 144,210,124). In aggregate 9,475,005 options are outstanding as on 31st March, 2018 (Previous year 8,663,925) under the aforesaid schemes, Equity-settled options The Bank has granted options to employees of the Group vide various employee stock option schemes. During the year ended 31st March, 2018, the following schemes were in operation: Stock appreciation rights At the General Meeting, the shareholders of the Bank had unanimously passed Special Resolution on 29th June, 2015 to grant SARs to the eligible employees of the Bank, its subsidiaries and associate companies. Pursuant to this resolution, Kotak Mahindra Stock Appreciation Rights Scheme 2015 has been formulated and adopted. Subsequently, the SARs have been granted under this scheme and the existing SARs will continue, The SARs are settled in cash and vest on the respective due dates in a graded manner as per the terms and conditions of grant. The contractual life of the SARs outstanding range from 1.10 to 4.02 years, Fair value of Employee stock options The fair value of the equity-settled and cash-settled options is estimated on the date of grant using Black-Scholes options pricing model taking into account the terms and conditions upon which the options were granted. The fair value of the cash-settled options is remeasured at each Balance Sheet date. The following table lists the inputs to the model used for equity-settled and cash-settled options: The expected volatility was determined based on historical volatility data and the Bank expects the volatility of its share price may reduce as it matures. The measure of volatility used in the Black-Scholes options pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volatility of the stock prices on the National Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options has been considered. The above information has been prepared by Management, Effect of the employee share-based payment plans on the Profit and Loss Account and on the financial position: Had the Bank recorded the compensation cost computed on the basis of Fair Valuation method instead of intrinsic value method, employee compensation cost would have been higher by Rs, 42.26 crore (Previous year Rs, 33.21 crore) and the profit after tax would have been lower by Rs, 27.64 crore (Previous year Rs, 21.72 crore). Consequently the basic and diluted EPS would have been Rs, 21.40 (Previous year Rs, 18.45) and Rs, 21.37 (Previous year Rs, 18.43) respectively In computing the above information, certain estimates and assumptions have been made by Management. ii. Gratuity The gratuity plan provides a lumpsum payment to vested employees at retirement or on termination of employment based on respective employee''s salary and years of employment with the Bank subject to a maximum of Rs, 0.20 crore. There is no ceiling on gratuity payable to directors and certain categories of employees subject to service regulations and service awards, # In the absence of detailed information regarding plan assets which is funded with Life Insurance Corporation of India, the composition of each major category of plan assets, the percentage or amount for each category to the fair value of plan assets has not been disclosed. The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled, The Bank expects to contribute Rs, 39.82 crore to gratuity fund in financial year 2018-19. The above information is as certified by the actuary and relied upon by the auditors, The estimates of future salary increases, considered in actuarial valuation, take account of inflation, seniority, promotion and other relevant factors. The overall expected rate of return on assets is determined based on the market prices prevailing on that date, applicable to the period over which the obligation is to be settled, 8. Provisions and Contingencies: Breakup of "Provisions and Contingencies" (including write-offs; net of write-backs) shown under the head Expenditure in Profit and Loss Account: 9. Corporate Social Responsibility (CSR): As per the provisions of the Section 135 of the Companies Act, 2013 the Bank is required to contribute Rs, 73.97 crore. The Bank has contributed Rs, 18.79 crore to the Kotak Education Foundation and Rs, 7.61 crore to other CSR initiatives in the current financial year, The Bank has also adopted a strong CSR policy, charting out its plan to invest in society and its own future. The Bank is building its CSR capabilities on a sustainable basis and is committed to gradually increase its CSR spend in the coming years, 10. Tier II Bonds: a) Lower Tier II Bonds outstanding as at 31st March, 2018 Rs, 701.80 crore (previous year Rs, 858.80 crore), During the current year and previous year the Bank had not issued lower Tier II bonds. In accordance with the RBI requirements lower Tier II bonds of Rs, 367.00 crore (previous year Rs, 383.64 crore) are not considered as Tier II capital for the purposes of capital adequacy computation under Basel III guidelines, b) Upper Tier II Bonds outstanding as at 31st March, 2018 are Rs, 225.10 crore (previous year Rs, 348.28 crore) of which bonds issued outside India are Rs, 225.10 crore (previous year Rs, 212.28 crore), During the current and previous year, the Bank did not issue upper Tier II bonds, c) Interest Expended-Others (Schedule 15(III)) includes interest on subordinated debt (Lower and Upper Tier II) Rs, 81.68 crore (previous year Rs, 116.19 crore), * Also refer Schedule 12 - Contingent Liability 11 The Bank has received few intimations from "suppliers" regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and there is no outstanding against those suppliers as on 31st March, 2018, hence disclosures, if any, relating to amounts unpaid as at the yearend together with interest paid/payable as required under the said Act have not been given. The above is based on information available with the Bank and relied upon by the Auditors, 12. Figures for the previous year have been regrouped/reclassified wherever necessary to conform to current years'' presentation.
Mar 31, 2017
1 Advances Classification: Advances are classified as performing and non-performing advances (''NPAs'') based on RBI guidelines and are stated net of bills rediscounted, specific provisions, interest in suspense for non-performing advances and claims received from Export Credit Guarantee Corporation, provisions for funded interest term loan and provisions in lieu of diminution in the fair value of restructured assets. Also, NPAs are classified into sub-standard, doubtful and loss assets as required by RBI guidelines. Interest on NPAs is transferred to an interest suspense account and not recognized in the Profit and Loss Account until received. Amounts paid for acquiring non-performing assets from other banks and NBFCs are considered as advances. Actual collections received on such non-performing assets are compared with the cash flows estimated while purchasing the asset to ascertain over dues. If these overdoes are in excess of 90 days, then these assets are classified into sub-standard, doubtful or loss as required by the RBI guidelines on purchase of nonperforming assets. The Bank transfers advances through inter-bank participation with and without risk. In accordance with the RBI guidelines, in the case of participation with risk, the aggregate amount of the participation issued by the Bank is reduced from advances and where the Bank is participating, the aggregate amount of the participation is classified under advances. In the case of participation without risk, the aggregate amount of participation issued by the Bank is classified under borrowings and where the Bank is participating, the aggregate amount of participation is shown as due from banks under advances. Provisioning: Provision for NPAs comprising sub-standard, doubtful and loss assets is made in accordance with RBI guidelines. In addition, the Bank considers accelerated specific provisioning that is based on past experience, evaluation of security and other related factors. Specific loan loss provision in respect of non-performing advances are charged to the Profit and Loss Account. Any recoveries made by the Bank in case of NPAs written off are recognized in the Profit and Loss Account. The Bank considers a restructured account as one where the Bank, for economic or legal reasons relating to the borrower''s financial difficulty, grants to the borrower concessions that the Bank would not otherwise consider. Restructuring would normally involve modification of terms of the advance / securities, which would generally include, among others, alteration of repayment period / repayable amount / the amount of installments / rate of interest (due to reasons other than competitive reasons). Restructured accounts are classified as such by the Bank only upon approval and implementation of the restructuring package. Necessary provision for diminution in the fair value of a restructured account is made. In accordance with RBI guidelines the Bank has provided general provision on standard assets including credit exposures computed as per the current marked to market values of interest rate and foreign exchange derivative contracts, and gold at levels stipulated by RBI from time to time - farm credit to agricultural activities and SME at 0.25%, commercial real estate at 1.00%, restructured standard advances at 5%, teaser rate housing loans at 2.00%, commercial real estate-residential housing at 0.75% and for other sectors at 0.40%. Additional 2% standard asset provision is done for overseas step-down subsidiaries of Indian corporate. Further to provisions required as per the asset classification status, provisions are held for individual country exposure (except for home country) as per the RBI guidelines. Exposure is classified in the seven risk categories as mentioned in the Export Credit Guarantee Corporation of India Limited (''ECGC'') guidelines and provisioning is done for that country if the net funded exposure is one percent or more of the Bank''s total assets based on the rates laid down by the RBI. Provision for Unhedged Foreign Currency Exposure of borrowers is made as per the RBI guidelines. 2 Loss on Sale of Advances to Asset Reconstruction Company Loss on sale of Advances sold to Asset Reconstruction Company are recognized immediately in the Profit and Loss Account. 3 Securitization The Bank enters into arrangements for sale of loans through Special Purpose Vehicles (SPVs). In most cases, post securitization, the Bank continues to service the loans transferred to the SPV. At times, the Bank also provides credit enhancement in the form of cash collaterals and / or by subordination of cash flows to Senior Pass Through Certificate (PTC) holders. In respect of credit enhancements provided or recourse obligations (projected delinquencies, future servicing etc.) accepted by the Bank, appropriate provision / disclosure is made at the time of sale in accordance with Accounting Standard 29, "Provisions, Contingent Liabilities and Contingent Assets". In accordance with the RBI guidelines, the profit or premium on account of securitization of assets at the time of sale is computed as the difference between the sale consideration and the book value of the securitized asset amortized over the tenure of the securities issued. Loss on account of securitization on assets is recognized immediately to the Profit and Loss Account. The Bank invests in PTCs of other SPVs which are accounted for at the deal value and are classified under Investments. 4 Fixed assets (Property, Plant & Equipment and Intangible) and depreciation / amortization Property, Plant & Equipment and Intangible Assets have been stated at cost less accumulated depreciation and amortization and adjusted for impairment, if any. Cost includes cost of purchase inclusive of freight, duties, incidental expenses and all expenditure like site preparation, installation costs and professional fees incurred on the asset before it is ready to put to use. Subsequent expenditure incurred on assets put to use is capitalized only when it increases the future benefit / functioning capability from / of such assets. Gain or losses arising from the retirement or disposal of a Property Plant and Equipment / Intangible asset are determined as the difference between the net disposal proceeds and the carrying amount of assets and recognized as income or expense in the Profit and Loss Account. Profit on sale of premises, if any, is transferred to Capital Reserve as per the RBI guidelines. Used assets purchased are depreciated over the residual useful life from the date of original purchase. Items costing less than '' 5,000 are fully depreciated in the year of purchase. 5 Cash and cash equivalents Cash and cash equivalents include cash in hand, balances with Reserve Bank of India and Balances with Other Banks / institutions and money at Call and short Notice (including the effect of changes in exchange rates on cash and cash equivalents in foreign currency). 6 Bullion The Bank imports bullion including precious metal bars on a consignment basis for selling to its wholesale and retail customers. The difference between the sale price to customers and actual price quoted by supplier is reflected under other income. The Bank also borrows and lends gold, which is treated as borrowings or lending as the case may be in accordance with the RBI guidelines and the interest paid or received is classified as interest expense or income and is accounted on an accrual basis. 7 Revenue recognition Interest income is recognized on accrual basis. Interest income in respect of retail advances is accounted for by using the internal rate of return method to provide a constant periodic rate of return on the outstanding on the contract. Interest income on investments in PTCs and loans bought out through the direct assignment route is recognized at their effective interest rate. Interest income on discounted instruments is recognized over the tenure of the instruments so as to provide a constant periodic rate of return. Service charges, fees and commission income are recognized when due except for guarantee commission and letter of credit which is recognized over the period of the guarantee / letter of credit. Syndication / arranger fee is recognized as income as per the terms of engagement. Upon an asset becoming NPA the income accrued gets reversed, and is recognized only on realization, as per RBI guidelines. Penal interest is recognized as income on realization other than on running accounts where it is recognized when due. Dividend income is accounted on an accrual basis when the Bank''s right to receive the dividend is established. Gain on account of securitization of assets is amortized over the life of the securities issued in accordance with the guidelines issued by the RBI. In respect of non-performing assets acquired from other Banks / FIs and NBFCs, collections in excess of the consideration paid at each asset level or portfolio level is treated as income in accordance with RBI guidelines and clarifications. Fees received on sale of Priority Sector Lending Certificates is considered as Miscellaneous Income, while fees paid for purchase is expensed as other expenses in accordance with the guidelines issued by the RBI. 8 Employee benefits Defined Contribution Plan Provident Fund Contribution as required by the statute made to the government provident fund or to a fund set up by the Bank and administered by a board of trustees is debited to the Profit and Loss Account when an employee renders the related service. The Bank has no further obligations. Superannuation Fund The Bank makes contributions in respect of eligible employees, subject to a maximum of ''0.01 crore per employee per annum to a Fund administered by trustees and managed by life insurance companies. The Bank recognizes such contributions as an expense in the year when an employee renders the related service. New Pension Scheme The Bank contributes up to 10% of eligible employees'' salary per annum, to the New Pension Fund administered by a Pension Fund Regulatory and Development Authority (PFRDA) appointed pension fund manager. The Bank recognizes such contributions as an expense in the year when an employee renders the related service. Defined Benefit Plan Gratuity The Bank provides for Gratuity, covering employees in accordance with the Payment of Gratuity Act, 1972, service regulations and service awards as the case may be. The Bank''s liability is actuarially determined (using Projected Unit Credit Method) at the Balance Sheet date. The Bank makes contribution to Gratuity Funds administered by trustees and managed by life insurance companies. Pension Scheme In respect of pension payable to certain erstwhile ING Vysya Bank Limited ("eIVBL") employees under Indian Banks'' Association ("IBA") structure, the Bank contributes 10% of basic salary to a pension fund and the balance amount is provided based on actuarial valuation conducted by an independent actuary as at the Balance Sheet date. The Pension Fund is administered by the board of trustees and managed by life insurance company. The present value of the Bank''s defined obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date. Employees covered by the pension plan are not eligible for employer''s contribution under the provident fund plan The contribution made to the trust is recognized as planned assets. The defined benefit obligation recognized in the Balance Sheet represents the present value of the defined benefit obligation as reduced by the fair value of the plan assets. Actuarial gains or losses in respect of all defined benefit plans are recognized immediately in the Profit and Loss Account in the year they are incurred. Compensated Absences - Other Long-Term Employee Benefits The Bank accrues the liability for compensated absences based on the actuarial valuation as at the Balance Sheet date conducted by an independent actuary which includes assumptions about demographics, early retirement, salary increases, interest rates and leave utilization. The net present value of the Banks'' obligation is determined using the Projected Unit Credit Method as at the Balance Sheet date. Actuarial gains / losses are recognized in the Profit and Loss Account in the year in which they arise. Other Employee Benefits As per the Bank''s policy, employees are eligible for an award after completion of a specified number of years of service with the Bank. The obligation is measured at the Balance Sheet date on the basis of an actuarial valuation using the Projected Unit Credit Method. The undiscounted amount of short-term employee benefits expected to be paid in exchange for the services rendered by employees is recognized during the period when the employee renders the service. These benefits include performance incentives. Employee share based payments Equity-settled scheme: The Employee Stock Option Schemes (ESOSs) of the Bank are in accordance with Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014. The Schemes provide for grant of options on equity shares to employees of the Bank and its Subsidiaries to acquire the equity shares of the Bank that vest in a cliff vesting or in a graded manner and that are to be exercised within a specified period. In accordance with the Securities and Exchange Board of India (Share Based Employee Benefits) Regulations, 2014 and the Guidance Note on Accounting for Employee Share-based Payments, issued by The Institute of Chartered Accountants of India, the cost of equity-settled transactions is measured using the intrinsic value method. The intrinsic value being the excess, if any, of the fair market price of the share under ESOSs over the exercise price of the option is recognized as deferred employee compensation with a credit to Employee''s Stock Option (Grant) Outstanding account. The deferred employee compensation cost is amortized on a straight-line basis over the vesting period of the option. The cumulative expense recognized for equity-settled transactions at each reporting date until the vesting date reflects the extent to which the vesting period has expired and the number of equity instruments that are outstanding. The options that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense, equal to the amortized portion of value of lapsed portion. In respect of the options which expire unexercised the balance standing to the credit of Employee''s Stock Option (Grant) Outstanding accounts is transferred to General Reserve. The fair market price is the latest available closing price, preceding the date of grant of the option, on the stock exchange on which the shares of the Bank are listed. Where the terms of an equity-settled award are modified, the minimum expense recognized in ''Payments to and provision for employees'' is the expense as if the terms had not been modified. An additional expense is recognized for any modification which increases the total intrinsic value of the share-based payment arrangement, or is otherwise beneficial to the employee as premeasured as at the date of modification. In respect of options granted to employees of subsidiaries, the Bank recovers the related compensation cost from the respective subsidiaries. Cash-settled scheme: The cost of cash-settled transactions (Stock Appreciation Rights - ["SARs"]) is measured initially using intrinsic value method at the grant date taking into account the terms and conditions upon which the instruments were granted. This intrinsic value is amortized on a straight-line basis over the vesting period with recognition of corresponding liability. This liability is premeasured at each Balance Sheet date up to and including the vesting date with changes in intrinsic value recognized in Profit and Loss Account in ''Payments to and provision for employees''. The SARs that do not vest because of failure to satisfy vesting condition are reversed by a credit to employee compensation expense, equal to the amortized cost in respect of the lapsed portion. 9 Foreign currency transactions Foreign currency monetary assets and monetary liabilities are translated as at the Balance Sheet date at rates notified by the Foreign Exchange Dealers'' Association of India (FEDAI) and the resultant gain or loss is accounted in the Profit and Loss Account. Income and Expenditure items are translated at the rates of exchange prevailing on the date of the transactions except in respect of representative office (which are integral in nature) expenses, which are translated at monthly average exchange rates. Outstanding forward exchange contracts (other than deposit and placement swaps) and spot contracts outstanding at the Balance Sheet date are revalued at rates notified by FEDAI for specified maturities and at the interpolated rates of interim maturities. In case of forward contracts of greater maturities where exchange rates are not notified by FEDAI, are revalued at the forward exchange rates implied by the swap curves in respective currencies. The resulting profits or losses are recognized in the Profit and Loss Account as per the regulations stipulated by the RBI / FEDAI. Foreign exchange swaps "linked" to foreign currency deposits and placements are translated at the prevailing spot rate at the time of swap. The premium or discount on the swap arising out of the difference in the exchange rate of the swap date and the maturity date of the underlying forward contract is amortized over the period of the swap and the same is recognized in the Profit and Loss Account. Contingent liabilities on account of foreign exchange contracts, letters of credit, bank guarantees and acceptances and endorsements outstanding as at the Balance Sheet date denominated in foreign currencies are translated at year-end rates notified by FEDAI. The financial statements of IBU which are in the nature of non-integral overseas operations are translated on the following basis: (a) Income and expenses are converted at the average rate of exchange during the period and (b) All assets and liabilities are translated at closing rate as on Balance Sheet date. The exchange difference arising out of year end translation is debited or credited as "Foreign Currency Translation Reserve" forming part of "Reserves and Surplus". 10 Derivative transactions Notional amounts of derivative transactions comprising of forwards, swaps, futures and options are disclosed as off Balance Sheet exposures. The Bank recognizes all derivative contracts (other than those designated as hedges) at fair value, on the date on which the derivative contracts are entered into and are re-measured at fair value as at the Balance Sheet or reporting date. Derivatives are classified as assets when the fair value is positive (positive marked to market) or as liabilities when the fair value is negative (negative marked to market). Changes in the fair value of derivatives other than those designated as hedges are recognized in the Profit and Loss Account. Outstanding derivative transactions designated as "Hedges" are accounted in accordance with hedging instrument on an accrual basis over the life of the underlying instrument. Option premium paid or received is recognized in the Profit and Loss Account on expiry of the option. Option contracts are marked to market on every reporting date. 11Lease accounting Leases where the less or effectively retains substantially all the risks and rewards of ownership of the leased term, are classified as operating leases. Operating lease payments are recognized as an expense in the Profit and Loss Account on a straight-line basis over the lease term. 12 Accounting for provisions, contingent liabilities and contingent assets The Bank has assessed its obligations arising in the normal course of business, including pending litigations, proceedings pending with tax authorities and other contracts including derivative and long term contracts. In accordance with Accounting Standard - 29 on ''Provisions, Contingent Liabilities and Contingent Assets'', the Bank recognizes a provision for material foreseeable losses when it has a present obligation as a result of a past event and it is probable that an outflow of resources will be required to settle the obligation, in respect of which a reliable estimate can be made. Provisions are not discounted to its present value and are measured based on best estimate of the expenditure required to settle the obligation at the Balance Sheet date. These are reviewed at each Balance Sheet date and adjusted to reflect the current best estimates. In cases where the available information indicates that the loss on the contingency is reasonably possible but the amount of loss cannot be reasonably estimated, a disclosure to this effect is made as contingent liabilities in the financial statements. The Bank does not expect the outcome of these contingencies to have a materially adverse effect on its financial results. Contingent assets are neither recognized nor disclosed in the financial statements. 13 Impairment The carrying amounts of assets are reviewed at each Balance Sheet date if there is any indication of impairment based on internal / external factors. Impairment loss, if any, is provided in the Profit and Loss Account to the extent carrying amount of assets exceeds their estimated recoverable amount. 14 Taxes on income The Income Tax expense comprises current tax and deferred tax. Current tax is measured at the amount expected to be paid in respect of taxable income for the year in accordance with the Income Tax Act, 1961. Deferred tax assets and liabilities are recognized for the future tax consequences of timing differences being the difference between the taxable income and the accounting income that originate in one period and are capable of reversal in one or more subsequent period. Deferred tax assets on account of timing differences are recognized only to the extent there is reasonable certainty that sufficient future taxable income will be available against which such deferred tax assets can be realized. In case of carry forward losses and unabsorbed depreciation, under tax laws, the deferred tax assets are recognized only to the extent there is virtual certainty supported by convincing evidence that sufficient future taxable income will be available against which such deferred tax assets can be realized. Deferred tax assets are reassessed at each reporting date, based upon the Management''s judgment as to whether realization is considered as reasonably certain. Deferred tax assets and liabilities are measured using tax rates and tax laws that have been enacted or substantively enacted at the Balance Sheet date. Changes in deferred tax assets / liabilities on account of changes in enacted tax rates are given effect to in the Profit and Loss Account in the period of the change. 15 Earnings per share Basic earnings per share are calculated by dividing the net profit or loss for the year attributable to equity shareholders (after deducting attributable taxes) by the weighted average number of equity shares outstanding during the year. The weighted average number of equity shares outstanding during the year is adjusted for events of bonus issue, bonus element in a rights issue to existing shareholders, and share split. For the purpose of calculating diluted earnings per share, the net profit or loss for the year attributable to equity shareholders and the weighted average number of shares outstanding during the year are adjusted for the effects of all dilutive potential equity shares. Diluted earnings per share reflect the potential dilution that could occur if securities or other contracts to issue equity shares were exercised or converted during the year, 16 Share issue expenses Share issue expenses are adjusted from Securities Premium Account as permitted by Section 52 of the Companies Act, 2013. 17 Credit cards reward points The Bank estimates the liability for credit card reward points and cost per point using actuarial valuation conducted by an independent actuary, which includes assumptions such as mortality, redemption and spends. 18 Segment reporting In accordance with guidelines issued by RBI vide DBOD.No.BP.BC.81/21.01.018/2006-07 dated 18th April, 2007 and Accounting Standard 17 (AS-17) on "Segment Reporting", the Banks'' business has been segregated into the following segments whose principal activities were as under: Segment Principal activity Treasury, BMU and Money market, forex market, derivatives, investments and primary dealership of government securities and Balance Corporate Centre Sheet Management Unit (BMU) responsible for Asset Liability Management and Corporate Centre which primarily comprises of support functions. Corporate / Wholesale Whole sale borrowings and landings and other related services to the corporate sector which are not included under Banking retail banking. Retail Banking Includes: I Lending Commercial vehicle finance, personal loans, home loans, agriculture finance, other loans / services and exposures which fulfill the four criteria'' for retail exposures laid down in Basel Committee on Banking Supervision document "International Convergence of Capital Measurement and Capital Standards : A Revised Framework". II Branch Banking Retail borrowings covering savings, current, term deposit accounts and Branch Banking network / services including distribution of financial products. III Credit Cards Receivables / loans relating to credit card business. Other Banking business Any other business not classified above. A transfer pricing mechanism has been established by Asset Liability Committee (ALCO) for allocation of interest cost to the above segments based on borrowing costs, maturity profile of assets / liabilities etc. and which is disclosed as part of segment revenue. Segment revenues consist of earnings from external customers and inter-segment revenues based on a transfer pricing mechanism. Segment expenses consist of interest expenses including allocated operating expenses and provisions. Segment results are net of segment revenues and segment expenses. Segment assets include assets related to segments and exclude tax related assets. Segment liabilities include liabilities related to the segment excluding net worth, employees'' stock option (grants outstanding) and proposed dividend and dividend tax thereon. Since the business operations of the Bank are primarily concentrated in India, the Bank is considered to operate only in the domestic segment. * Being trading positions Disclosures on risk exposures in derivatives: Qualitative disclosures: a) Structure and organization for management of risk in derivatives trading: The Board of Directors, the Asset Liability Management Committee (ALCO), the Risk Management Committee (RMC), the Senior Management Committee for Derivatives and the Market Risk Management Department are entrusted with the management of risks in derivatives. The philosophy and framework for the derivative business is laid out in the Board approved Investment and Derivative policies. The ALCO of the Bank is empowered to set the limit-framework for derivatives. It also reviews the market risk exposures of derivatives against the limits. The Risk Management Committee reviews all risks on a consolidated basis and also reviews Stress Testing. The Senior Management Committee for Derivatives is responsible for reviewing and approving any new derivative products (within the regulatory framework provided by the RBI). The Board approved ''Customer Suitability and Appropriateness Policy for Derivatives'' provides guidelines for the assessment of Customer Suitability and the Appropriateness of products offered to these customers. The monitoring and measurement of risk in derivatives is carried out by the Market Risk Management Department. The Market Risk Management Department is independent of the Treasury Front-Office & Back-Office and directly reports into the Group Chief Risk Officer. b) Scope and nature of risk measurement, risk reporting and risk monitoring systems: All significant risks of the derivative portfolio are monitored and measured daily. The Market Risk Management Department measures and reports Market Risk metrics like VaR, PV01, Option Greeks like Delta, Gamma, Vega, Theta, Rho etc. The Credit Risk from the derivatives portfolio is also measured daily. The Market Risk Management Department monitors these exposures against the set limits and also reviews profitability on a daily basis. MIS is sent to ALCO on a periodic basis. Exception reports are also sent so that emerging risks are reviewed and managed on a timely basis. Stress testing is also performed on the Derivative portfolio. The Bank continuously invests in technology to enhance the Risk Management architecture. c) Policies for hedging and / or mitigating risk and strategies and processes for monitoring the continuing effectiveness of hedges / mitigates: The Board Approved ''Hedging Policy'' details the hedging strategies, hedging processes, accounting treatment, documentation requirements and effectiveness testing for hedges. Hedges are monitored for effectiveness periodically, in accordance with the Board Approved Policy, d) Accounting policy for recording hedge and non-hedge transactions; recognition of income, premiums and discounts; valuation of outstanding contracts; provisioning, collateral and credit risk mitigation: Derivative transactions are segregated into trading or hedge transactions. Trading transactions outstanding as at the Balance Sheet dates are marked to market and the resulting profits or losses, are recorded in the Profit and Loss Account. Derivative transactions designated as "Hedges" are accounted in accordance with hedging instruments on an accrual basis over the life of the underlying instrument. Option premium paid / received is accounted for in the Profit and Loss Account on expiry of the option. Pursuant to the RBI guidelines, any receivables as well positive Mark to Market (MTM) in respect of future receivable under derivative contracts comprising of crystallized receivables which remain overdue for more than 90 days are reversed through the Profit and Loss Account. The derivative limit sanctioned to clients is part of the overall limit sanctioned post credit appraisal. Collateral is accepted on a case to case basis considering the volatility of the price of the collateral and any increase in operational, legal and liquidity risk. Currency interest rate swaps have been included under currency derivatives. # Exdudes PV01 on options. ** MTM has been considered at product level. * Retail assets portfolio purchased by the Bank has been considered as single portfolio. ** Represents outstanding balance of total non-performing financial assets purchased by the Bank at the Balance Sheet date. None of the non-performing financial assets purchased have been restructured during the year (previous year Nil). There were no non-performing financial assets sold by the Bank during the current year (previous year Nil). The Bank has not sold any financial assets to Securitization or Reconstruction Company for asset reconstruction (previous year Nil). Definitions: (A) Working funds is the monthly average of total assets as reported by the Bank''s Management to the RBI under Section 27 of the Banking Regulation Act, 1949. (B) Operating profit = (Interest Income Other Income - Interest expenses - Operating expenses). (C) Business is monthly average of net advances and deposits as reported to the RBI under section 27 of the Banking Regulation Act, 1949. Interbank deposits are excluded for the purposes of computation of this ratio. (D) Productivity ratios are based on average number of employees. 19. Draw Down from Reserves: In accordance with the RBI requirement on creation and utilization of Investment reserve in respect of HFT and AFS investments, reserve of '' 48.49 crore (previous year Rs, 41.52 crore) has been utilized during the year. The above details are as furnished by the Management and relied upon by the auditors. 20. There are no outstanding letter of awareness / letter of comfort (previous year Nil). 21. DISCLOSURES ON REMUNERATION A. Qualitative Disclosures: a) Information relating to the composition and mandate of the Remuneration Committee: The Nomination & Remuneration committee comprises of independent directors of the Bank. Key mandate of the Nomination & Remuneration committee is to oversee the overall design and operation of the compensation policy of the Bank and work in coordination with the Risk Management Committee to achieve alignment between risks and remuneration. b) Information relating to the design and structure of remuneration processes and the key features and objectives of remuneration policy: Objective of Banks'' Compensation Policy is: - To maintain fair, consistent and equitable compensation practices in alignment with Bank''s core values and strategic business goals; - To ensure effective governance of compensation and alignment of compensation practices with prudent risk taking; - To have mechanisms in place for effective supervisory oversight and Board engagement in compensation The remuneration process is aligned to the Bank''s Compensation Policy objectives. c) Description of the ways in which current and future risks are taken into account in the remuneration processes. It should include the nature and type of the key measures used to take account of these risks: In order to manage current and future risk and allow a fair amount of time to measure and review both quality and quantity of the delivered outcomes, a significant portion of senior and middle management compensation is variable. Further reasonable portion variable compensation is non- cash and deferred, over a period of 3 years or longer. In addition, remuneration process provides for ''malus'' and ''clawback'' option to take care of any disciplinary issue or future drop in performance of individual/ business/ company, d) Description of the ways in which the bank seeks to link performance during a performance measurement period with levels of remuneration: Individual performances are assessed in line with business/ individual delivery of the Key Result Areas (KRAs), top priorities of business, budgets etc. KRAs of Line roles are linked to financials, people, service and process (Quality) parameters and KRAs of non-Line Roles have linkage to functional deliveries needed to achieve the top business priorities. Further remuneration process is also linked to market salaries / job levels, business budgets and achievement of individual KRAs. e) A discussion of the banks'' policy on deferral and vesting of variable remuneration and a discussion of the bank''s policy and criteria for adjusting deferred remuneration before vesting and after vesting: A discussion on Policy on Deferral of Remuneration Employees are classified into following three categories for the purpose of remuneration: Category I: Whole Time Directors (WTD)/Chief Executive Officer (CEO) Category II: Risk Control and Compliance Staff Category III: Other Categories of Staff Following principles are applied for deferral / vesting of variable remuneration in accordance with RBI guidelines and Bank''s compensation policy: Category I a. Variable Pay will not exceed 70% of Fixed Pay, b. The Cash component of the Variable Pay will not exceed 50% of the Fixed Pay, c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of Variable Pay will be deferred over a period of 3 years, or longer, on a pro-rata basis. The compensation will be approved by the Nomination and Remuneration committee and RBI Category II a. Variable Pay will not exceed 70% of Fixed Pay, b. The Cash component of the Variable Pay will not exceed 50% of the Fixed Pay, c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of Variable Pay will be deferred over a period of 3 years, or longer, on a pro-rata basis. Category III Variable Pay is payable as per approved schemes for incentive or Bonus: i) The Cash component of the Variable Pay will not exceed 60% of the Fixed Pay, ii) If Variable Pay is higher than 60% of Fixed Pay, at least 40% of Variable Pay will be deferred over a period of 3 years, or longer, on a pro-rata basis. iii) However, if Variable Pay is less than or equal to Rs, 10 lakhs, management will have the discretion to pay the entire amount as cash. For adjusting deferred remuneration before & after vesting: Malus: Payment of all or part of amount of deferred variable pay can be prevented. This clause will be applicable in case of: - Disciplinary Action (at the discretion of the Disciplinary Action Committee) and/ or - Significant drop in performance of Individual/ Business/ Company (at the discretion of the Nomination & Remuneration Committee) and/ or - Resignation of the staff prior to the payment date. Clawback: Previously paid or already vested deferred variable pay can also be recovered under this clause. This clause will be applicable in case of Disciplinary Action (at the discretion of the Disciplinary Action Committee and approval of the Nomination & Remuneration Committee) f) Description of the different forms of variable remuneration (i.e. cash, shares, ESOPs and other forms) that the bank utilizes and the rationale for using these different forms: The main forms of such variable remuneration include: - Cash - this may be at intervals ranging from Monthly, Quarterly, Annual. - Deferred Cash / Deferred Incentive Plan. - Stock Appreciation Rights (SARs): These are structured, variable incentives, linked to Kotak Mahindra Bank Stock price, payable over a period of time - ESOPasperSEBIguidelines. The form of variable remuneration depends on the job level of individual, risk involved, the time horizon for review of quality and longevity of the assignments performed. B. Quantitative Disclosures: a) Number of meetings held by the Remuneration Committee during the financial year and remuneration paid to its members. During year ended 31st March, 2017 3 meetings of Nomination and Remuneration committee was held. Each Member of the Nomination and Remuneration committee is paid a sitting fee of '' 40,000 per meeting. b) Number of employees having received a variable remuneration award during the financial year. Quantitative disclosure restricted to CEO, two Whole Time Directors and six Operating Management committee members as risk takers. c) Number and total amount of sign-on awards made during the financial year. Not Applicable d) Details of guaranteed bonus, if any, paid as joining / sign on bonus. Not Applicable e) Details of severance pay, in addition to accrued benefits, if any. Nil (previous year Nil) f) Total amount of outstanding deferred remuneration, split into cash, shares and share-linked instruments and other forms Cash - Nil (previous year Nil) Outstanding SARs as at 31st March, 2017 - 96,004 rights (previous year 128,696 rights) Outstanding ESOPs as at 31st March, 2017 - 878,448 equity shares (previous year 891,694 equity shares) g) Total amount of deferred remuneration paid out in the financial year. Payment towards SARs during year ended 31st March, 2017 Rs, 5.29 crore (previous year Rs, 6.29 crore) h) Breakdown of amount of remuneration awards for the financial year to show fixed and variable, deferred and no deferred. Total fixed salary for the year ended 31st March, 2017 - Rs, 16.28 crore (previous year Rs, 18.75 crore) Deferred Variable Pay* SARs - 54,220 rights (previous year 35,370 rights) ESOPs - 494,060 equity shares (previous year 145,660 equity shares) Non Deferred variable pay* Rs, 3.99 crore (previous year Rs, 4.02 crore) * Details relating to variable pay pertains to remuneration awards for the financial year 2015-16 awarded during current financial year. Remuneration award for the year ended 31st March, 2017 are yet to be reviewed and approved by the remuneration committee i) Total amount of outstanding deferred remuneration and retained remuneration exposed to ex post explicit and / or implicit adjustments. - Nil (Previous year Nil) j) Total amount of reductions during the financial year due to ex- post explicit adjustments. - Nil (Previous year Nil) k) Total amount of reductions during the financial year due to ex- post implicit adjustments. - Nil (Previous year Nil) 22. Unhedged Foreign Currency Exposure of borrowers: The bank recognises the importance of the risk of adverse fluctuation of foreign exchange rates on the profitability and financial position of borrowers who are exposed to currency risk. Currency induced credit risk refers to the risk of inability of borrowers to service their debt obligations due to adverse movement in the exchange rates and corresponding increase/decrease in their book values of trade payables, loan payables, trade receivables, etc. thereby exposing the Bank to risk of default by the borrower. In this regard, the Bank had put in place requisite policies & processes for monitoring and mitigation of currency induced credit risk of borrowers. These include the following: (a) Currency risk of borrowers on account of un-hedged foreign currency exposures ("UFCE") is duly considered and analysed in credit appraisal notes. (b) Periodic monitoring of un-hedged foreign currency exposures of borrowers. (c) Risk classification of borrowers having un-hedged foreign currency exposures, into Low / Medium / High, as per internal norms, based on likely loss / EBID ratio. Likely loss means the potential loss which can be caused over a one year horizon by adverse movement of exchange rates. (e) In case of borrowers exposed to currency risk where declarations for foreign currency payables/ receivables (UFCE declarations) are not submitted, provision for currency induced credit risk is made as per RBI stipulated rates mentioned below: - 10 bps in cases where limits with banking system are less than Rs, 25 crore; - 80 bps in cases where limits with banking system are Rs, 25 crore or more. (f) Further, where annual certification from statutory auditors of UFCE data is not submitted, such borrowers are treated as UFCE declaration not submitted cases and provision is computed as per point (e) above. (g) Borrowers where the credit exposure is only Letter of Credit Bills Discounting, Fixed Deposit backed, Bank Guarantee / Standby Letter of Credit backed are exempted from the above requirements. Exposures on other Banks and Public Financial Institutions like SIDBI, EXIM Bank, NABARD, NHB are also exempted from the above requirements. (h) Management of foreign exchange risk is considered as a parameter for internal risk rating of borrowers. Provision held for currency induced credit risk as at 31st March, 2017 is Rs, 50.54 crore. (Previous year Rs, 60.00 crore). Incremental Risk weighted Assets value considered for the purpose of CRAR calculation in respect of currency induced credit risk as at 31st March, 2017 is Rs, 2,156.04 crore (Previous year Rs, 1,863.65 crore). 23. b) Qualitative disclosure around LCR The Reserve Bank of India has prescribed monitoring of sufficiency of Bank''s liquid assets using Basel III - Liquidity Coverage Ratio (LCR). The LCR is aimed at measuring and promoting short-term resilience of Banks to potential liquidity disruptions by ensuring maintenance of sufficient high quality liquid assets (HQLAs) to survive an acute stress scenario lasting for 30 days. The LCR requirement has been introduced in a phased manner with banks required to maintain minimum LCR of 60% till Dec 2015 and the 70% from Jan 2016 onwards. The requirement will be increasing by 10% annually to 100% by Jan 2019. LCR requirement is currently at 80% effective Jan 2017. The ratio comprises of high quality liquid assets (HQLAs) as numerator and net cash outflows in 30 days as denominator. HQLA has been divided into two parts i.e. Level 1 HQLA which comprises of primarily cash, excess CRR, SLR securities in excess of minimum SLR requirement and a portion of mandatory SLR as permitted by RBI (under MSF and FALLCR) and Level 2 HQLA which comprises of investments in highly rated non-financial corporate bonds and listed equity investments considered at prescribed haircuts. Cash outflows are calculated by multiplying the outstanding balances of various categories or types of liabilities by the outflow run-off rates and cash inflows are calculated by multiplying the outstanding balances of various categories of contractual receivables by the rates at which they are expected to flow in. The Bank has implemented the LCR framework and has consistently maintained LCR well above the regulatory threshold. The average LCR for the quarter ended 31st March, 2017 was 88.66% which is above the regulatory limit of 80%. For the quarter ended 31st March, 2017 Level 1 HQLA stood at 97.23% (Rs,28,819 crs.) of the total HQLA. LCR is expected to bring in more funding stability due to severe run-off factors on wholesale funding but at the same time it has increased the liquidity cost due to maintenance of high quality liquid assets. Apart from LCR, Bank uses various stock liquidity indicators to measure and monitor the liquidity risk in terms of funding stability, concentration risk, dependence on market borrowings, liquidity transformation, etc. The Bank maintains a diversified source of funding in terms of depositor concentration, lender concentration as well as instrument concentration. This is evident through low depositor and lender concentration with top 20 depositors contributing 9.6% of Bank''s total deposits and top 10 lenders contributing 6.8% of Bank''s total liabilities. Asset Liability Committee (ALCO) of the Bank is the primary governing body for Liquidity Risk Management supported by Balance Sheet Management Unit (BMU), Risk Management Department (RMD), Finance and ALCO Support Group. BMU is the central repository of funds within the Bank and is vested with the responsibility of managing liquidity risk within the risk appetite of the Bank. Bank has incorporated Basel III Liquidity Standards - LCR and NSFR as part of its risk appetite statement for liquidity risk. 24. Frauds The Bank has reported 126 cases (Previous year 114 cases) of fraud during the financial year ended 31st March 2017 amounting to Rs, 111.54 crore (Previous year Rs, 44.94 crore). The Bank has recovered / expensed off / provided the entire amount where necessary, 25. Disclosure of Specified Bank Notes (SBNs) As per the clarification from RBI, the provisions of the MCA Notification dated 30th March 2017 requiring companies to disclose details of the SBNs held and transacted during the notified period is not applicable to banks. Segmental Information is provided as per the MIS available for internal reporting purposes, which includes certain estimates and assumptions. The methodology adopted in compiling and reporting the above information has been relied upon by the auditors. 3. Lease Discloures: a. The Bank has taken various premises and equipment under operating lease. The lease payments recognized in the Profit and Loss Account are Rs, 430.81 crore (previous year Rs, 403.26 crore). The sub-lease income recognized in the Profit and Loss Account is Rs, 5.95 crore (previous year Rs, 7.13 crore). b. The future minimum lease payments under non-cancellable operating lease - not later than one year is Rs, 366.42 crore (previous year Rs, 360.14 crore), later than one year but not later than five years is Rs, 1,160.15 crore (previous year Rs, 1,056.90 crore) and later than five years Rs, 1,003.01 crore (previous year Rs, 899.84 crore). The lease terms include renewal option after expiry of primary lease period. There are no restrictions imposed by lease arrangements. There are escalation clauses in the lease agreements. 26. Related Party Disclosures: A. Parties where control exists: Nature of relationship Related Party Subsidiary Companies Kotak Mahindra Prime Limited Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Investments Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra Trustee Company Limited Kotak Mahindra (International) Limited Kotak Mahindra (UK) Limited Kotak Mahindra Inc. Kotak Investment Advisors Limited Kotak Mahindra Trusteeship Services Limited Kotak Infrastructure Debt Fund Limited (formerly known as Kotak Forex Brokerage Limited) Kotak Mahindra Pension Fund Limited Kotak Mahindra Financial Services Limited Kotak Mahindra Asset Management (Singapore) Pte. Ltd. Kotak Mahindra General Insurance Company Limited IVY Product Intermediaries Limited (formerly known as ING Vysya Financial Services Limited) B. Other Related Parties: Nature of Relationship_Related Party_ Individual having significant influence Mr. Uday S. Kotak along with relatives and enterprises in which he has beneficial interest holds over the enterprise 32.02% of the equity share capital of Kotak Mahindra Bank Limited as on 31st March, 2017 Associates / Others ACE Derivatives and Commodity Exchange Limited. Infina Finance Private Limited Matrix Business Services India Private Limited Phoenix ARC Private Limited Kotak Education Foundation ING Vysya Foundation Key Management Personnel (KMP) Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director Mr. C Jayaram, Joint Managing Director (upto 30 April 2016) Mr. Dipak Gupta, Joint Managing Director Enterprises over which KMP / relatives Aero Agencies Limited of KMP have control / significant Kotak and Company Private Limited influence Komaf Financial Services Private Limited Asian Machinery & Equipment Private Limited. Insurekot Sports Private Limited Kotak Trustee Company Private Limited Cumulus Trading Company Private Limited Palko Properties Private Limited Kotak Chemicals Limited Kotak Ginning & Pressing Industries Private Limited Kotak Commodities Services Private Limited Harisiddha Trading and Finance Private Limited Puma Properties Private Limited Business Standard Private Limited Business Standard Online Private Limited Allied Auto Accessories Private Limited Uday S Kotak HUF Suresh A Kotak HUF USK Benefit Trust II Relatives of KMP Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Mr. Jay Kotak Mr. Dhawal Kotak Ms. Aarti Chandaria Ms. Anita Gupta Ms. Urmila Gupta Mr. Arnav Gupta Mr. Parthav Gupta Mr. Prabhat Gupta Ms. Jyoti Banga Ms. Usha Jayaram (upto 30 April 2016) Mr. K. Madhavan Kutty (upto 30 April 2016) Mr. Vivek Menon (upto 30 April 2016) Ms. Nayantara Menon Mehta (upto 30 April 2016) 27. EMPLOYEE SHARE BASED PAYMENTS: At the General Meetings, the shareholders of the Bank had unanimously passed Special Resolutions on 28th July 2000, 26th July 2004, 26th July 2005, 5th July 2007, 21st August 2007 and 29th June 2015, to grant options to the eligible employees of the Bank and its subsidiary and associate companies. Pursuant to these resolutions, the following Employees Stock Option Schemes had been formulated and adopted: (a) Kotak Mahindra Equity Option Scheme 2001-02; (b) Kotak Mahindra Equity Option Scheme 2002-03; (c) Kotak Mahindra Equity Option Scheme 2005; (d) Kotak Mahindra Equity Option Scheme 2007; and (e) Kotak Mahindra Equity Option Scheme 2015 Consequent to the above, the Bank has granted stock options to the employees of the Group. The Bank under its various plan / schemes, has granted in aggregate 144,210,124 options (including options issued in exchange on amalgamation) as on 31st March, 2017 (Previous year 140,327,654). Further, pursuant to the Scheme of Amalgamation of ING Vysya Bank Limited with the Bank, the Bank has renamed and adopted the ESOP Schemes of the eIVBL, as given below: (a) Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2005; (b) Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2007; (c) Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme 2010; and (d) Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2013 In aggregate 8,663,925 options are outstanding as on 31st March, 2017 under the aforesaid adopted schemes. The expected volatility was determined based on historical volatility data and the Bank expects the volatility of its share price may reduce as it matures. The measure of volatility used in the Black-Scholes options pricing model is the annualised standard deviation of the continuously compounded rates of return on the stock over a period of time. For calculating volatility, the daily volatility of the stock prices on the National Stock Exchange, over a period prior to the date of grant, corresponding with the expected life of the options has been considered. The above information has been prepared by the Bank and relied upon by the auditors. Effect of the employee share-based payment plans on the Profit and Loss Account and on the financial position: Had the Bank recorded the compensation cost computed on the basis of Fair Valuation method instead of intrinsic value method, employee compensation cost would have been higher by Rs, 33.21 crore (Previous year Rs, 93.52 crore) and the profit after tax would have been lower by Rs, 21.72 crore (Previous year Rs, 61.16 crore). Consequently the basic and diluted EPS would have been Rs, 18.45 (Previous year Rs, 11.09) and Rs, 18.43 (Previous year Rs, 11.07) respectively. The above number of ESOPs / SARs, exercise price, fair value and share price have been adjusted for bonus shares - one share for every share allotted on 10th July, 2015. The effect of the bonus share has been given in computation for the previous periods. In computing the above information, certain estimates and assumptions have been made by the Management which have been relied upon by the auditors. 28. Corporate Social Responsibility (CSR) As per the provisions of the Section 135 of the Companies Act, 2013 the Bank is required to contribute Rs, 54.92 crore. The Bank has contributed Rs, 13.03 crore to the Kotak Education Foundation and Rs, 4.30 crore to other CSR initiatives in the current financial year. The Bank has also adopted a strong CSR policy, charting out its plan to invest in society and its own future. The Bank is building its CSR capabilities on a sustainable basis and is committed to gradually increase its CSR spend in the coming years. 29. Tier II Bonds a) Lower Tier II Bonds outstanding as at 31st March, 2017 Rs, 858.80 crore (previous year Rs, 969.70 crore). During the current year and previous year the Bank had not issued lower Tier II bonds. In accordance with the RBI requirements lower Tier II bonds of Rs, 383.64 crore (previous year Rs, 524.71 crore) are not considered as Tier II capital for the purposes of capital adequacy computation under Basel III guidelines. b) Upper Tier II Bonds outstanding as at 31st March, 2017 are Rs, 348.28 crore (previous year Rs, 806.31 crore) of which bonds issued outside India are Rs, 212.28 crore (previous year Rs, 670.31 crore). During the current and previous year, the Bank did not issue upper Tier II bonds. c) Interest Expended-Others (Schedule 15(III)) includes interest on subordinated debt (Lower and Upper Tier II) Rs, 116.19 crore (previous year Rs, 125.97 crore). 30. The Bank has received few intimations from "suppliers" regarding their status under the Micro, Small and Medium Enterprises Development Act, 2006 and there is no outstanding against those suppliers as on 31st March, 2017, hence disclosures, if any, relating to amounts unpaid as at the yearend together with interest paid / payable as required under the said Act have not been given. The above is based on information available with the Bank and relied upon by the Auditors. 31. Figures for the previous year have been regrouped / reclassified wherever necessary to conform to current years, presentation.
Mar 31, 2016
Mar 31, 2015
Mar 31, 2012
Mar 31, 2010
Since the business operations of the Bank are primarily concentrated in
India, the Bank is considered to operate only in the domestic segment.
A. Merger of ING Vysya Bank Limited
The Board of Directors of Kotak and the Board of Directors of ING Vysya
Bank Ltd. ("eIVBL") at their respective meetings held on 20th November,
2014 approved an amalgamation of eIVBL with Kotak. Subsequently, the
shareholders of Kotak and eIVBL have approved the scheme of
amalgamation at their respective Extra Ordinary General Meetings held
on 7th January, 2015. The amalgamation was approved by the Reserve Bank
of India (the "RBI") under subsection (4) of Section 44A of the Banking
Regulation Act, 1949 and the Competition Commission of India. The
amalgamation is effective from the day beginning 1st April, 2015. While
both the entities are banking companies which are licensed by the RBI
under the Banking Regulation Act, 1949, Kotak is a company incorporated
under the Companies Act, 1956, and eIVBL is a company incorporated
under Mysore Companies Regulation, 1917.
As per the Scheme, upon its coming into effect from the appointed date
i.e. 1st April, 2015, the entire undertaking of eIVBL including all its
assets, liabilities and reserves and surplus stood transferred/ deemed
to be transferred to and vest in Kotak. Further, in consideration of
the transfer of and vesting of the undertaking of eIVBL, 725 equity
shares of Kotak of the face value of Rs, 5/- each fully paid-up was
issued to shareholders of eIVBL for every 1,000 equity shares of the
face value of Rs,10/- each of eIVBL held by them on the record date
i.e. 17th April, 2015. Accordingly 13,92,05,159 equity shares of Rs,5/-
each of Kotak were allotted at par to the shareholders of ING Vysya
vide board resolution dated 21st April, 2015. The excess of the paid up
value of equity shares of eIVBL over the paid up value of equity shares
issued as consideration amounting to Rs,122.40 crore has been
transferred to Amalgamation Reserve as per the Scheme of Amalgamation.
The amalgamation has been accounted using the pooling of interest
method under Accounting Standard 14 (AS14), "Accounting for
amalgamation" and the principles laid down in Part VII Â paragraph 19
of the approved Scheme of Amalgamation.
The assets, liabilities and reserves and surplus of eIVBL were recorded
by Bank at their carrying amounts as on 1st April, 2015 except for
adjustments which were made to bring uniformity of accounting policies
as required under AS14. The impact of these adjustments was Rs,189.95
crore which has been adjusted in the balance of Profit and Loss
Account. Timing differences, if any, arising on these adjustments have
been accounted with corresponding adjustment to Deferred Tax Asset.
Further, with respect to revaluation of fixed assets, the revaluation
reserve amounting to Rs,101.37 crore held by eIVBL was reversed and the
Gross Block of Fixed Assets were credited back with Rs,101.37 crores.
The accumulated depreciation on such reserve amounting to Rs,11.15
crore was also reversed in Gross Block of Fixed Assets. Certain other
reclassifcations of items were carried out to ensure consistency in
presentation.
The results for the year ended 31st March, 2016 are not comparable with
that of the corresponding period of the previous year.
* Includes securities with face Value of Rs, 2,288.05 crore (previous
year Rs, 1,905.24 crore) pledged and encumbered for availment of fund
transfer facility, clearing facility, margin requirements and with RBI
for LAF.
- excludes RIDF deposits, as classifed under other assets
* Being trading positions
Disclosures on risk exposures in derivatives: Qualitative disclosures:
a) Structure and organization for management of risk in derivatives
trading:
The Board of Directors, the Asset Liability Management Committee
(ALCO), the Risk Management Committee (RMC), the Senior Management
Committee for Derivatives and the Market Risk Management Department are
entrusted with the management of risks in derivatives.
The philosophy and framework for the derivative business is laid out in
the Board approved Investment and Derivative policies. The ALCO of the
Bank is empowered to set the limit-framework for derivatives. It also
reviews the market risk exposures of derivatives against the limits.
The Risk Management Committee reviews all risks on a consolidated basis
and also reviews Stress Testing.
The Senior Management Committee for Derivatives is responsible for
reviewing and approving any new derivative products (within the
regulatory framework provided by the RBI). The Board approved ''Customer
Suitability and Appropriateness Policy for Derivatives'' provides
guidelines for the assessment of Customer Suitability and the
Appropriateness of products offered to these customers.
The monitoring and measurement of risk in derivatives is carried out by
the Market Risk Management Department. The Market Risk Management
Department is independent of the Treasury Front-Office & Back-Office
and directly reports into the Group Chief Risk Officer.
b) Scope and nature of risk measurement, risk reporting and risk
monitoring systems:
All significant risks of the derivative portfolio are monitored and
measured daily. The Market Risk Management Department measures and
reports Market Risk metrics like VaR, PV01, Option Greeks like Delta,
Gamma, Vega, Theta, Rho etc. The Credit Risk from the derivatives
portfolio is also measured daily.
The Market Risk Management Department monitors these exposures against
the set limits and also reviews Profitability on a daily basis. MIS is
sent to ALCO on a periodic basis. Exception reports are also sent so
that emerging risks are reviewed and managed on a timely basis. Stress
testing is also performed on the Derivative portfolio. The Bank
continuously invests in technology to enhance the Risk Management
architecture.
c) Policies for hedging and / or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants:
The Board Approved ''Hedging Policy'' details the hedging strategies,
hedging processes, accounting treatment, documentation requirements and
effectiveness testing for hedges.
Hedges are monitored for effectiveness periodically, in accordance with
the Board Approved Policy.
d) Accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation:
Derivative transactions are segregated into trading or hedge
transactions. Trading transactions outstanding as at the Balance Sheet
dates are marked to market and the resulting Profits or losses, are
recorded in the Profit and Loss Account.
Derivative transactions designated as "Hedges" are accounted in
accordance with hedging instruments on an accrual basis over the life
of the underlying instrument.
Option premium paid / received is accounted for in the Profit and Loss
Account on expiry of the option.
Pursuant to the RBI guidelines, any receivables as well positive Mark
to Market (MTM) in respect of future receivable under derivative
contracts comprising of crystallised receivables which remain overdue
for more than 90 days are reversed through the Profit and Loss Account.
The derivative limit sanctioned to clients is part of the overall limit
sanctioned post credit appraisal. Collateral is accepted on a case to
case basis considering the volatility of the price of the collateral
and any increase in operational, legal and liquidity risk.
Currency interest rate swaps have been included under currency
derivatives.
# Excludes PV01 on options.
** MTM has been considered at product level.
1. During the year Nil penalty (previous year Rs, 0.10 crore) had
been imposed by the Reserve Bank of India in terms of the Section
47A(1) read with Section 46(4)(i) of the Banking Regulation Act, 1949
for non-compliance of certain RBI instructions.
2. There are no Off-Balance Sheet SPVs sponsored (which are required
to be consolidated as per accounting norms) (previous year Nil).
** Exposures represents credit, derivatives and investment exposure as
prescribed in Master Circular on Exposure Norms DBR.No.Dir.BC.
12/13.03.00/2015-16 dated 1st July, 2015.
The Bank has compiled the data for the purpose of this disclosure (from
its internal MIS system and has been furnished by the management) which
has been relied upon by the auditors.
3. During the year ended 31st March, 2016 and year ended 31st March,
2015 the Bank has not exceeded the prudential exposure limits as laid
down by RBI guidelines for the Single Borrower Limit (SBL)/ Group
Borrower Limit (GBL).
The above details are as furnished by the Management and relied upon by
the auditors.
4. There are no outstanding letter of awareness (previous year Nil).
5. DISCLOSURES ON REMUNERATION
A. Qualitative Disclosures:
a) Information relating to the composition and mandate of the
Remuneration Committee:
The Nomination & Remuneration committee comprises of independent
directors of the Bank. Key mandate of the Nomination & Remuneration
committee is to oversee the overall design and operation of the
compensation policy of the Bank and work in coordination with the Risk
Management Committee to achieve alignment between risks and
remuneration.
b) Information relating to the design and structure of remuneration
processes and the key features and objectives of remuneration policy:
Objective of Bank''s Compensation Policy is:
- To maintain fair, consistent and equitable compensation practices in
alignment with Bank''s core values and strategic business goals;
- To ensure effective governance of compensation and alignment of
compensation practices with prudent risk taking;
- To have mechanisms in place for effective supervisory oversight and
Board engagement in compensation.
The remuneration process is aligned to the Bank''s Compensation Policy
objectives.
c) Description of the ways in which current and future risks are taken
into account in the remuneration processes. It should include the
nature and type of the key measures used to take account of these
risks:
In order to manage current and future risk and allow a fair amount of
time to measure and review both quality and quantity of the delivered
outcomes, a significant portion of senior and middle management
compensation is variable. Further reasonable portion variable
compensation is non-cash and deferred, over a period of 3 years or
longer.
In addition, remuneration process provides for ''malus'' and ''clawback''
option to take care of any disciplinary issue or future drop in
performance of individual/ business/ company.
d) Description of the ways in which the bank seeks to link performance
during a performance measurement period with levels of remuneration:
Individual performances are assessed in line with business/ individual
delivery of the Key Result Areas (KRAs), top priorities of business,
budgets etc. KRAs of Line roles are linked to financials, people,
service and process (Quality) parameters and KRAs of non-Line Roles
have linkage to functional deliveries needed to achieve the top
business priorities.
Further remuneration process is also linked to market salaries / job
levels, business budgets and achievement of individual KRAs.
e) A discussion of the bank''s policy on deferral and vesting of
variable remuneration and a discussion of the bank''s policy and
criteria for adjusting deferred remuneration before vesting and after
vesting:
A discussion on Policy on Deferral of Remuneration
Employees are classifed into following three categories for the purpose
of remuneration:
Category I: Whole Time Directors (WTD)/Chief Executive Officer (CEO)
Category II: Risk Control and Compliance Staff
Category III: Other Categories of Staff
Following principles are applied for deferral / vesting of variable
remuneration in accordance with RBI guidelines and Bank''s compensation
policy:
Category I
a. Variable Pay will not exceed 70% of Fixed Pay.
b. The Cash component of the Variable Pay will not exceed 50% of the
Fixed Pay.
c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of
Variable Pay will be deferred over a period of 3 years, or longer, on a
pro-rata basis.
The compensation will be approved by the Nomination and Remuneration
committee and RBI.
Category II
a. Variable Pay will not exceed 70% of Fixed Pay.
b. The Cash component of the Variable Pay will not exceed 50% of the
Fixed Pay.
c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of
Variable Pay will be deferred over a period of 3 years, or longer, on a
pro-rata basis.
Category III
Variable Pay is payable as per approved schemes for incentive or Bonus:
i) The Cash component of the Variable Pay will not exceed 60% of the
Fixed Pay.
ii) If Variable Pay is higher than 60% of Fixed Pay, at least 40% of
Variable Pay will be deferred over a period of 3 years, or longer, on a
pro-rata basis.
iii) However, if Variable Pay is less than or equal to Rs, 10 lakhs,
management will have the discretion to pay the entire amount as cash.
For adjusting deferred remuneration before & after vesting:
Malus: Payment of all or part of amount of deferred variable pay can be
prevented. This clause will be applicable in case of:
- Disciplinary Action (at the discretion of the Disciplinary Action
Committee) and/ or
- Significant drop in performance of Individual/ Business/ Company (at
the discretion of the Nomination & Remuneration Committee) and/ or
- Resignation of the staff prior to the payment date.
Clawback: Previously paid or already vested deferred variable pay can
also be recovered under this clause.
This clause will be applicable in case of Disciplinary Action (at the
discretion of the Disciplinary Action Committee and approval of the
Nomination & Remuneration Committee).
f) Description of the different forms of variable remuneration (i.e.
cash, shares, ESOPs and other forms) that the bank utilizes and the
rationale for using these different forms:
The main forms of such variable remuneration include:
- Cash  this may be at intervals ranging from Monthly, Quarterly,
Annual.
- Deferred Cash / Deferred Incentive Plan.
- Stock Appreciation Rights (SARs): These are structured, variable
incentives, linked to Kotak Mahindra Bank Stock price, payable over a
period of time.
- ESOP as per SEBI guidelines.
The form of variable remuneration depends on the job level of
individual, risk involved, the time horizon for review of quality and
longevity of the assignments performed.
B. Quantitative Disclosures:
a) Number of meetings held by the Remuneration Committee during the
financial year and remuneration paid to its members.
During year ended 31st March, 2016 fve meetings of Nomination and
Remuneration Committee was held. Each Member of the Nomination and
Remuneration Committee is paid a sitting fee of Rs, 30,000 per meeting.
b) Number of employees having received a variable remuneration award
during the financial year.
Quantitative disclosure restricted to CEO, two Whole Time Directors and
six Operating Management committee members as risk takers.
c) Number and total amount of sign-on awards made during the financial
year.
Nil (previous year Nil)
d) Details of guaranteed bonus, if any, paid as joining / sign on
bonus.
Nil (previous year Nil)
e) Details of severance pay, in addition to accrued benefits, if any.
Nil (previous year Nil)
f) Total amount of outstanding deferred remuneration, split into cash,
shares and share-linked instruments and other forms.
Cash  Nil
Outstanding SARs as at 31st March, 2016 Â 128,696 rights (previous year
100,614 rights)
Outstanding ESOPs as at 31st March, 2016 Â 891,694 equity shares
(previous year 644,816 equity shares)
g) Total amount of deferred remuneration paid out in the financial
year.
Payment towards SARs during year ended 31st March, 2016 Rs, 6.29 crore
(previous year Rs, 7.86 crore)
h) Breakdown of amount of remuneration awards for the financial year to
show fixed and variable, deferred and non- deferred.
Total fixed salary for the year ended 31st March, 2016 - Rs, 18.75
crore (previous year Rs, 17.12 crore)
Deferred Variable Pay*
SARs  35,370 rights (previous year 44,290 rights)
ESOPs  145,660 equity shares (previous year 207,850 equity shares)
Non Deferred variable pay* Rs, 4.02 crore (previous year Rs, 3.43
crore)
* Details relating to variable pay pertains to remuneration awards for
the financial year 2014-15 awarded during current financial year.
Remuneration award for the year ended 31st March, 2016 are yet to be
reviewed and approved by the remuneration committee.
6. Unhedged Foreign Currency Exposure of borrowers:
The bank recognises the importance of the risk of adverse fuctuation of
foreign exchange rates on the Profitability and financial position of
borrowers who are exposed to currency risk. Currency induced credit
risk refers to the risk of inability of borrowers to service their debt
obligations due to adverse movement in the exchange rates and
corresponding increase / decrease in their book values of trade
payables, loan payables, trade receivables, etc. thereby exposing the
Bank to risk of default by the borrower. In this regard, the Bank had
put in place requisite policies & processes for monitoring and
mitigation of currency induced credit risk of borrowers. These include
the following:
(a) Currency risk of borrowers on account of un-hedged foreign currency
exposures ("UFCE") is duly considered and analysed in credit appraisal
notes.
(b) Periodic monitoring of un-hedged foreign currency exposures of
borrowers.
(c) Risk classifcation of borrowers having un-hedged foreign currency
exposures, into Low / Medium / High, as per internal norms, based on
likely loss / EBID ratio. Likely loss means the potential loss which
can be caused over a one year horizon by adverse movement of exchange
rates.
i) Total amount of outstanding deferred remuneration and retained
remuneration exposed to ex-post explicit and / or implicit adjustments.
 Nil
j) Total amount of reductions during the financial year due to ex- post
explicit adjustments. Â Nil
k) Total amount of reductions during the financial year due to ex- post
implicit adjustments. Â Nil
(e) In case of borrowers exposed to currency risk where declarations
for foreign currency payables/ receivables (UFCE declarations) are not
submitted, provision for currency induced credit risk is made as per
RBI stipulated rates mentioned below:
l 10 bps in cases where limits with banking system are less than Rs, 25
crore; l 80 bps in cases where limits with banking system are Rs, 25
crore or more.
(f) Further, where annual certifcation from statutory auditors of UFCE
data is not submitted, such borrowers are treated as UFCE declaration
not submitted cases and provision is computed as per point (e) above.
(g) Borrowers where the credit exposure is only Letter of Credit, Bills
Discounting, Fixed Deposit backed, Bank Guarantee / Standby Letter of
Credit backed are exempted from the above requirements. Exposures on
other Banks and Public Financial Institutions like SIDBI, EXIM Bank,
NABARD, NHB are also exempted from the above requirements.
(h) Management of foreign exchange risk is considered as a parameter
for internal risk rating of borrowers.
Provision held for currency induced credit risk as at 31st March, 2016
is Rs, 60.00 crore. (Previous year Rs, 17.82 crore). Incremental Risk
weighted assets value considered for the purpose of CRAR calculation in
respect of currency induced credit risk as at 31st March, 2016 is Rs,
1,863.65 crore (Previous year Rs, 357.17 crore).
Note: LCR for the quarter end March 2015 had been computed based on the
guidelines applicable at that point in time. Subsequently there have
been amendments in RBI guidelines w.e.f. April 2015. Hence, the
previous year end numbers are not comparable with current financial
year.
7. b) Qualitative disclosure around LCR
The Reserve Bank of India has prescribed monitoring of suffciency of
Bank''s liquid assets using Basel III Â Liquidity Coverage Ratio (LCR).
The LCR is aimed at measuring and promoting short-term resilience of
Banks to potential liquidity disruptions by ensuring maintenance of
suffcient high quality liquid assets (HQLAs) to survive an acute stress
scenario lasting for 30 days.
The LCR requirement has been introduced in a phased manner with banks
required to maintain minimum LCR of 60% till Dec 2015 and 70% from Jan
2016 onwards. The requirement will be increasing by 10% annually to
100% by Jan 2019.
The ratio comprises of high quality liquid assets (HQLAs) as numerator
and net cash outfows in 30 days as denominator. HQLA has been divided
into two parts i.e. Level 1 HQLA which comprises primarily of cash,
excess CRR, SLR securities in excess of minimum SLR requirement and a
portion of mandatory SLR as permitted by RBI (under MSF and FALLCR) and
Level 2 HQLA which comprises of investments in highly rated
non-financial corporate bonds and listed equity investments considered
at prescribed haircuts. Cash outfows are calculated by multiplying the
outstanding balances of various categories or types of liabilities by
the outfow run-off rates and cash infows are calculated by multiplying
the outstanding balances of various categories of contractual
receivables by the rates at which they are expected to fow in.
The Bank has implemented the LCR framework and has consistently
maintained LCR well above the regulatory threshold. The average LCR for
the quarter ended 31st March, 2016 was 77.75% which is above the
regulatory limit of 70%. For the quarter ended 31st March, 2016 Level 1
HQLA stood at 88.38% (24,625 crs) of the total HQLA.
LCR is expected to bring in more funding stability due to severe
run-off factors on wholesale funding but at the same time it has
increased the liquidity cost due to maintenance of high quality liquid
assets. Apart from LCR, Bank uses various stock liquidity indicators to
measure and monitor the liquidity risk in terms of funding stability,
concentration risk, dependence on market borrowings, liquidity
transformation, etc. The Bank maintains a diversifed source of funding
in terms of depositor concentration, lender concentration as well as
instrument concentration. This is evident through low depositor and
lender concentration with top 20 depositors contributing 11.9% of
Bank''s total deposits and top 10 lenders contributing 7.2% of Bank''s
total liabilities.
Asset Liability Committee (ALCO) of the Bank is the primary governing
body for Liquidity Risk Management supported by Balance Sheet
Management Unit (BMU), Risk Management Department (RMD), Finance and
ALCO Support Group. BMU is the central repository of funds within the
Bank and is vested with the responsibility of managing liquidity risk
within the risk appetite of the Bank. Bank has incorporated Basel III
Liquidity Standards - LCR and NSFR as part of its risk appetite
statement for liquidity risk.
8. Frauds
The Bank has reported 114 cases of fraud during the financial year
ended 31st March 2016 amounting to Rs,44.94 crore. The Bank has
recovered / expensed off / provided the entire amount where necessary.
Following the approval of the shareholders at the annual general
meeting on 29th June, 2015, a committee of the Board of Directors at
the meeting held on 10th July, 2015, allotted bonus shares in the ratio
of one equity share for every equity share held. In accordance with
Accounting Standard 20 (AS20), Earnings Per Share issued by the
Institute of Chartered Accountants of India (ICAI), the earnings per
share for the previous year ended 31st March, 2015 have been reworked,
as if the bonus shares were in existence during the said period.
Segmental Information is provided as per the MIS available for internal
reporting purposes, which includes certain estimates and assumptions.
The methodology adopted in compiling and reporting the above
information has been relied upon by the auditors.
9. Lease Discloures:
a. The Bank has taken various premises and equipment under operating
lease. The lease payments recognised in the Profit and Loss Account are
Rs, 403.26 crore (previous year Rs, 266.41 crore). The sub-lease income
recognised in the Profit and Loss Account is Rs, 7.13 crore (previous
year Rs, 6.65 crore).
b. The future minimum lease payments under non-cancellable operating
lease  not later than one year is Rs, 360.14 crore (previous year Rs,
242.99 crore), later than one year but not later than fve years is Rs,
1,056.90 crore (previous year Rs, 722.54 crore) and later than fve
years Rs, 899.84 crore (previous year Rs, 674.31 crore).
The lease terms include renewal option after expiry of primary lease
period. There are no restrictions imposed by lease arrangements. There
are escalation clauses in the lease agreements.
* The closing provision is based on the actuarial valuation of
accumulated credit card account reward points. This amount will be
utilised towards redemption of the credit card accounts reward points.
10. Related Party Disclosures :
A. Parties where control exists:
Nature of relationship Related Party
Subsidiary Companies Kotak Mahindra Prime Limited
Kotak Securities Limited Kotak Mahindra Capital Company Limited Kotak
Mahindra Old Mutual Life Insurance Limited Kotak Mahindra Investments
Limited Kotak Mahindra Asset Management Company Limited Kotak Mahindra
Trustee Company Limited Kotak Mahindra (International) Limited Kotak
Mahindra (UK) Limited Kotak Mahindra Inc. Kotak Investment Advisors
Limited Kotak Mahindra Trusteeship Services Limited Kotak Forex
Brokerage Limited Kotak Mahindra Pension Fund Limited Kotak Mahindra
Financial Services Limited Kotak Mahindra Asset Management (Singapore)
Pte. Ltd.
Kotak Mahindra General Insurance Company Limited (Incorporated on 20th
Dec, 2014) IVY Product Intermediaries Limited (formerly known as ING
Vysya Financial Services Limited)
B. Other Related Parties:
Nature of Relationship Related Party
Individual having Significant Mr. Uday S. Kotak along with relatives
and enterprises in which he has Beneficial interest holds
Infuence over the enterprise 33.64% of the equity share capital of
Kotak Mahindra Bank Limited as on 31st March, 2016
Associates / Others ACE Derivatives and Commodity Exchange Limited
Infna Finance Private Limited
Matrix Business Services India Private Limited
Phoenix ARC Private Limited
Kotak Education Foundation
ING Vysya Foundation Key Management Personnel Mr. Uday S. Kotak,
Executive Vice Chairman and Managing Director
(KMP) Mr. C Jayaram, Joint Managing Director
Mr. Dipak Gupta, Joint Managing Director Enterprises over which KMP /
Aero Agencies Limited relatives of KMP have control / Kotak & Company
Private Limited Significant Infuence Komaf Financial Services Limited
Asian Machinery & Equipment Private Limited
Insurekot Sports Private Limited
Kotak Trustee Company Private Limited
Cumulus Trading Company Private Limited
Palko Properties Private Limited
Kotak Chemicals Limited
Kotak Ginning & Pressing Industries Limited
Kotak Commodity Services Limited
Harisiddha Trading and Finance Private Limited
Puma Properties Private Limited
Business Standard Private Limited
Business Standard Online Limited (From 27th March, 2015)
Allied Auto Accessories Private Limited
Uday S Kotak HUF
Suresh A Kotak HUF
USK Benefit Trust II Relatives of Key Management Ms. Pallavi Kotak
Personnel Mr. Suresh Kotak
Ms. Indira Kotak
Mr. Jay Kotak
Mr. Dhawal Kotak
Ms. Aarti Chandaria
Ms. Anita Gupta
Ms. Urmila Gupta
Mr. Arnav Gupta
Mr. Parthav Gupta
Mr. Prabhat Gupta
Ms. Jyoti Banga
Ms. Usha Jayaram
Mr. K. Madhavan Kutty
Mr. Vivek Menon
Ms. Nayantara Menon Mehta
Note: Figures in brackets represent previous year''s figures.
11. EMPLOYEE SHARE BASED PAYMENTS:
At the General Meetings, the shareholders of the Bank had unanimously
passed Special Resolutions on 28th July 2000, 26th July 2004, 26th July
2005, 5th July 2007, 21st August 2007 and 29th June 2015, to grant
options to the eligible employees of the Bank and its subsidiary and
associate companies. Pursuant to these resolutions, the following
Employees Stock Option Schemes had been formulated and adopted:
(a) Kotak Mahindra Equity Option Scheme 2001-02;
(b) Kotak Mahindra Equity Option Scheme 2002-03;
(c) Kotak Mahindra Equity Option Scheme 2005;
(d) Kotak Mahindra Equity Option Scheme 2007; and
(e) Kotak Mahindra Equity Option Scheme 2015.
Consequent to the above, the Bank has granted stock options to the
employees of the Group. The Bank under its various plan / schemes, has
granted in aggregate 140,327,654 options (including options issued in
exchange on amalgamation) as on 31st March, 2016 (Previous year
124,798,000). In aggregate 8,757,098 options are outstanding as on 31st
March, 2016 under the aforesaid schemes.
Further, pursuant to the Scheme of Amalgamation of ING Vysya Bank
Limited with the Bank, the Bank has renamed and adopted the ESOP
Schemes of the eIVBL, as given below:
- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2005;
- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2007;
- Kotak Mahindra Bank Ltd. (IVBL) Employee Stock Option Scheme 2010;
and
- Kotak Mahindra Bank Ltd. (IVBL) Employees Stock Option Scheme 2013.
* Pursuant to the Scheme of Amalgamation of eIVBL with the Bank, the
options granted under each of the above schemes and outstanding as on
1st April, 2015 have been exchanged for equivalent options of the Bank.
The number of option and the exercise price have been adjusted to
refect the swap ratio. The said ESOP Schemes were adopted and approved
by the Board of Directors of the Bank at its meeting held on 3rd April,
2015. The Scheme provided for accelerated vesting of options and all
the aforesaid stock options are exercisable within a period of 5 years
from the date of vesting.
The expected volatility was determined based on historical volatility
data and the Bank expects the volatility of its share price may reduce
as it matures. The measure of volatility used in the Black-Scholes
options pricing model is the annualised standard deviation of the
continuously compounded rates of return on the stock over a period of
time. For calculating volatility, the daily volatility of the stock
prices on the National Stock Exchange, over a period prior to the date
of grant, corresponding with the expected life of the options has been
considered.
The above information has been prepared by the Bank and relied upon by
the auditors.
Effect of the employee share-based payment plans on the Profit and Loss
Account and on the financial position:
Fair value of employee stock options
The fair value of the equity-settled and cash-settled options is
estimated on the date of grant using Black-Scholes options pricing
model taking into account the terms and conditions upon which the
options were granted. The fair value of the cash-settled options is
remeasured at each Balance Sheet date. The following table lists the
inputs to the model used for equity-settled and cash-settled options:
Had the Bank recorded the compensation cost computed on the basis of
Fair Valuation method instead of intrinsic value method, employee
compensation cost would have been higher by Rs, 93.52 crore (Previous
year Rs, 23.70 crore) and the Profit after tax would have been lower by
Rs, 61.16 crore (Previous year Rs, 15.65 crore). Consequently the basic
and diluted EPS would have been Rs, 11.09 (Previous year Rs, 12.00) and
Rs, 11.07 (Previous year Rs, 11.97) respectively.
The above number of ESOPs / SARs, exercise price, fair value and share
price have been adjusted for bonus shares - one share for every share
allotted on 10th July, 2015. The effect of the bonus share has been
given in computation for the previous periods.
In computing the above information, certain estimates and assumptions
have been made by the Management which have been relied upon by the
auditors.
ii. Gratuity
The gratuity plan provides a lumpsum payment to vested employees at
retirement or on termination of employment based on respective
employee''s salary and years of employment with the Bank subject to a
maximum of Rs, 0.10 crore. There is no ceiling on gratuity payable to
directors and certain categories of employees subject to service
regulations and service awards.
The estimates of future salary increases, considered in actuarial
valuation, take account of inflation, seniority, promotion and other
relevant factors.
Expected rate of return on plan assets is based on expectation of the
average long term rate of return expected on investments of the fund
during the estimated term of the obligations.
The Bank expects to contribute Rs, 36.36 crore to gratuity fund in
financial year 2016 -17. The above information is as certifed by the
actuary and relied upon by the auditors.
iii. Pension
Pension liability relates to employees of eIVBL which was merged with
the Bank, hence there are no corresponding figures for the previous
year.
12. Tier II Bonds
a) Lower Tier II Bonds outstanding as at 31st March, 2016 Rs, 969.70
crore (previous year Rs, 482.00 crore).
During the current year and previous year the Bank had not issued lower
Tier II bonds. In accordance with the RBI requirements lower Tier II
bonds of Rs, 524.71 crore (previous year Rs, 220.44 crore) are not
considered as Tier II capital for the purposes of capital adequacy
computation under Basel III guidelines.
b) Upper Tier II Bonds outstanding as at 31st March, 2016 are Rs,
806.31 crore (previous year Rs, 417.25 crore) of which bonds issued
outside India are Rs, 670.31 crore (previous year Rs, 281.25 crore).
During the current and previous year, the Bank did not issue upper Tier
II bonds.
c) Interest Expended-Others (Schedule 15(III)) includes interest on
subordinated debt (Lower and Upper Tier II) Rs, 125.97 crore (previous
year Rs, 62.88 crore).
13. Description of Contingent Liabilities:
Sr. Contingent Liability* Brief Description
No.
1. Claims not acknowledged as debts This includes liability on account
of income tax, sales tax, lease tax demands, property tax
demands and legal cases fled against the Bank.
The Bank is a party to various legal proceedings in the normal course
of business. The Bank does not expect the outcome of these proceedings
to have a material adverse effect on the Bank''s financial conditions,
result of operations or cash fows. In respect of appeals fled by the
Income Tax department with higher authorities, where the matter was
settled in favour of the Bank at the first appellate stage, and where
in view of the Management, it gives rise to an item of timing
difference, no contingent liability is envisaged by the Bank.
2. Liability on account of outstanding The Bank enters into foreign
exchange contracts with inter Bank participants on its own forward
exchange contracts account and for customers. Forward exchange
contracts are commitments to buy or sell
foreign currency at a future date at the contracted rate.
3. Guarantees on behalf of As a part of its Banking activities, the
Bank issues guarantees on behalf of its customers. constituents
Guarantees generally represent irrevocable assurances that the Bank
will make payments
in the event of customer failing to fulfll its financial or performance
obligations.
4. Acceptances, endorsements and These includes:
other obligations
- Documentary credit such as letters of obligations, enhance the credit
standing of
the customers of the Bank.
- Bills re-discounted by the Bank and cash collateral provided by the
Bank on assets which have been securitised.
- Underwriting commitments in respect of Debt Syndication.
5. Other items for which the Bank is These include:
contingently liable
- Liabilities in respect of interest rate swaps, currency swaps,
forward rate
agreements, futures and options contracts. The Bank enters into these
transactions
with inter Bank participants on its own account and for customers.
Currency
Swaps are commitments to exchange cash fows by way of
interest/principal in
one currency against another, based on predetermined rates. Interest
rate swaps are commitments to exchange fixed and foating interest
rate cash fows. The notional amounts that are recorded as contingent liabilities are amounts used as a benchmark for the calculation of
interest component of the contracts.
- Liability in respect of Capital commitments relating to fixed assets
and undrawn commitments in respect of investments.
14. The Bank has received few intimations from "suppliers" regarding
their status under the Micro, Small and Medium Enterprises Development
Act, 2006 and there is no outstanding against those suppliers as on
31st March, 2016, hence disclosures, if any, relating to amounts unpaid
as at the year end together with interest paid / payable as required
under the said Act have not been given. The above is based on
information available with the Bank and relied upon by the Auditors.
15. Figures for the previous year have been regrouped / reclassifed
wherever necessary to conform to current years'' presentation. The
previous year comparative numbers were audited by a frm of Chartered
Accountants other than S. R. Batliboi & Co. LLP.
A BACKGROUND
In February 2003, Kotak Mahindra Finance Limited was given a license to
carry out banking business by the Reserve Bank of India ("RBI"). It was
the first NBFC Company in India to be converted into a Bank. Kotak
Mahindra Bank Limited ("Kotak Mahindra Bank" or "the Bank") provides a
full suite of banking services to its customers encompassing Retail
Banking, Treasury and Corporate Banking in India and also has a
representative office in Dubai.
B BASIS OF PREPERATION
The financial statements have been prepared in accordance with
statutory requirements prescribed under the Banking Regulation Act,
1949. The accounting and reporting policies of Kotak Mahindra Bank
used in the preparation of these financial statements is the accrual
method of accounting and historical cost convention and it conforms
with Generally Accepted Accounting Principles in India ("Indian GAAP"),
the Accounting Standards specified under section 133 of the Companies
Act, 2013 read with Rule 7 of the Companies (Accounts) Rules, 2014 and
other relevant provisions of the Companies Act, 2013 ("the 2013 Act") /
Companies Act, 1956 ("the 1956 Act"), in so far as they apply to banks
and the guidelines issued by the Reserve Bank of India ("RBI").
Use of estimates
The preparation of financial statements requires the Management to make
estimates and assumptions considered in the reported amounts of assets
and liabilities (including contingent liabilities) as of the date of
the financial statements and the reported income and expenses during
the reporting period. The Bank''s Management believes that the estimates
used in preparation of the financial statements are prudent and
reasonable. Actual results could differ from these estimates. Any
revision to the accounting estimates is recognised prospectively in the
current and future periods.
2. Credit default swaps:
The Bank has not entered into any Credit Default Swap transactions.
3. The Provision Coverage Ratio (PCR) of the Bank after considering
technical write-off is 56.80% as at 31st March, 2015 (previous year:
55.50%).
4. There are no unsecured advances for which intangible security such
as charge over the rights, licenses, authority, etc. are accepted as
collateral by the Bank.
As per extant RBI guidelines, the country exposure of the Bank is
categorised into various risk categories listed in following table.
Since the country exposure (net) of the Bank in respect of any country
does not exceed 1% of the total funded assets, no provision is required
to be maintained on country exposure as on 31st March, 2015 (Nil
provision for the year ended 31st March, 2014).
5. During the year ended 31st March, 2015 and year ended 31st March,
2014 the Bank has not exceeded the prudential exposure limits as laid
down by RBI guidelines for the Single Borrower Limit (SBL) / Group
Borrower Limit (GBL).
6. During the year penalty of Rs. 0.10 crore (previous year Rs. 1.501
crore) had been imposed by the Reserve Bank of India in terms of the
Section 47A(1) read with Section 46(4)(i) of the Banking Regulation
Act, 1949 for non-compliance of certain RBI instructions.
7. There are no Off-Balance Sheet SPVs sponsored (which are required
to be consolidated as per accounting norms).
8. Draw Down from Reserves:
In accordance with the RBI requirement on creation and utilisation of
Investment reserve in respect of HFT and AFS investments, reserve of Rs.
86.65 crore is created during the year (previous year Rs. 41.10 crore had
been utilised).
Further in accordance with the RBI requirement on creation and
utilisation of reserves, no reserve has been utilised in the current
year and in the previous year except for below.
For the previous year ended 31st March, 2014, in accordance with RBI
communication RBI/2013-14/412 DBOD. No.BP.BC.77/21.04.018/2013- 14
dated 20th December, 2013 on "Deferred Tax Liability (DTL) on Special
Reserve created under Section 36(1) (viii) of the Income Tax Act,
1961", the Bank had reduced Rs. 31.18 crore from general reserves of the
previous year towards DTL on special reserves created till year ended
31st March, 2013.
9. The Bank has issued letters of awareness on behalf of a wholly
owned, non-banking finance subsidiary in respect of its borrowings made
or proposed to be made. These letters are in nature of factual
statements or confirmation of facts and do not create any financial
obligation or impact on the Bank. During the year, the Bank has not
issued letters of awareness (previous year Nil). As at 31st March, 2015
cumulative value of outstanding letters of awareness aggregate to Rs. Nil
(previous year Rs. 650 crore).
10. DISCLOSURES ON REMUNERATION:
A. Qualitative Disclosures:
a) Information relating to the composition and mandate of the
Remuneration Committee:
The Nomination & Remuneration Committee comprises of independent
directors of the Bank. Key mandate of the Nomination & Remuneration
Committee is to oversee the overall design and operation of the
compensation policy of the Bank and work in coordination with the Risk
Management Committee to achieve alignment between risks and
remuneration.
b) Information relating to the design and structure of remuneration
processes and the key features and objectives of remuneration policy:
Objective of Bank''s Compensation Policy is to:
- To maintain fair, consistent and equitable compensation practices
in alignment with Bank''s core values and strategic business goals;
- To ensure effective governance of compensation and alignment of
compensation practices with prudent risk taking;
- To have mechanisms in place for effective supervisory oversight and
Board engagement in compensation.
The remuneration process is aligned to the Bank''s Compensation Policy
objectives.
c) Description of the ways in which current and future risks are taken
into account in the remuneration processes. It should include the
nature and type of the key measures used to take account of these
risks:
In order to manage current and future risk and allow a fair amount of
time to measure and review both quality and quantity of the delivered
outcomes, a significant portion of senior and middle management
compensation is variable. Further reasonable portion variable
compensation is non-cash and deferred, over a period of 3 to 4 years.
In addition, remuneration process provides for ''malus'' and ''clawback''
option to take care of any disciplinary issue or future drop in
performance of individual / business / company.
d) Description of the ways in which the Bank seeks to link performance
during a performance measurement period with levels of remuneration:
Individual performances are assessed in line with business / individual
delivery of the Key Result Areas (KRAs), top priorities of business,
budgets etc. KRAs of Line roles are linked to financials, people,
service and process (Quality) parameters and KRAs of non-Line Roles
have linkage to functional deliveries needed to achieve the top
business priorities.
Further remuneration process is also linked to Market salaries / job
levels, business budgets and achievement of individual KRAs.
e) A discussion of the Bank''s policy on deferral and vesting of
variable remuneration and a discussion of the Bank''s policy and
criteria for adjusting deferred remuneration before vesting and after
vesting:
A discussion on Policy on Deferral of Remuneration
Employees are classified into following three categories for the
purpose of remuneration:
Category I: Whole Time Directors (WTD) / Chief Executive Officer (CEO)
Category II: Risk Control and Compliance Staff Category III: Other
Categories of Staff
Following principles are applied for deferral / vesting of variable
remuneration in accordance with RBI guidelines and Bank''s compensation
policy:
Category I and II
a. Variable Pay will not exceed 70% of Fixed Pay.
b. The Cash component of the Variable Pay will not exceed 50% of the
Fixed Pay.
c. If Variable Pay is higher than 50% of Fixed Pay, at least 40% of
Variable Pay will be deferred over a period of 3 years, or longer, on a
pro-rata basis.
Variable Pay is payable as per approved schemes for incentive or Bonus:
i) The Cash component of the Variable Pay will not exceed 60% of the
Fixed Pay.
ii) If Variable Pay is higher than 60% of Fixed Pay, at least 40% of
Variable Pay will be deferred over a period of 3 years, or longer, on a
pro-rata basis.
iii) However, if Variable Pay is less than or equal to Rs. 10 lakhs,
management will have the discretion to pay the entire amount as cash.
For adjusting deferred remuneration before & after vesting :
Malus: Payment of all or part of amount of deferred Variable Pay can be
prevented. This clause will be applicable in case of:
- Disciplinary Action (at the discretion of the Disciplinary Action
Committee) and / or
- Significant drop in performance of Individual / Business / Company
(at the discretion of the Nomination & Remuneration Committee)
- Resignation of the staff prior to the payment date.
Clawback: Previously paid or already vested deferred Variable Pay can
also be recovered under this clause.
This clause will be applicable in case of Disciplinary Action (at the
discretion of the Disciplinary Action Committee and approval of the
Nomination & Remuneration Committee).
f) Description of the different forms of variable remuneration (i.e.
cash, shares, ESOPs and other forms) that the Bank utilizes and the
rationale for using these different forms:
The main forms of such variable remuneration include:
- Cash - this may be at intervals ranging from Monthly, Quarterly,
Annual.
- Deferred Cash / Deferred Incentive Plan.
- Stock Appreciation Rights (SARs) - These are structured, variable
incentives, linked to Kotak Mahindra Bank Stock price, payable over a
period of time.
- ESOPs as per SEBI guidelines.
The form of variable remuneration depends on the job level of
individual, risk involved, the time horizon for review of quality and
longevity of the assignments performed.
B. Quantitative Disclosures:
a) Number of meetings held by the Remuneration Committee during the
financial year and remuneration paid to its members.
During year ended 31st March, 2015 4 meetings of Nomination &
Remuneration Committee was held. Each Member of the Nomination &
Remuneration Committee is paid a sitting fee of Rs. 30,000 per meeting.
b) Number of employees having received a variable remuneration award
during the financial year.
Quantitative disclosure restricted to CEO, two Whole Time Directors and
six Operating Management Committee members as risk takers.
c) Number and total amount of sign-on awards made during the financial
year.
Nil (previous year Nil)
d) Details of guaranteed bonus, if any, paid as joining / sign-on
bonus.
Nil (previous year Nil)
e) Details of severance pay, in addition to accrued benefits, if any.
Nil (previous year Nil)
f) Total amount of outstanding deferred remuneration, split into cash,
shares and share-linked instruments and other forms.
Outstanding SARs as at 31st March, 2015 - 100,614 rights (previous year
123,917 rights)
Outstanding ESOPs as at 31st March, 2015 - 644,816 equity shares
(previous year 744,118 equity shares)
g) Total amount of deferred remuneration paid out in the financial
year.
Payment towards SARs during year ended 31st March, 2015Rs.7.86 crore
(previous year Rs. 2.63 crore)
h) Breakdown of amount of remuneration awards for the financial year to
show fixed and variable, deferred and non-deferred. Total fixed salary
for the year ended 31st March, 2015 Rs. 17.12 crore (previous year Rs.
14.71 crore)
Deferred Variable Pay*
SARs - 44,290 rights (previous year 44,692 rights)
ESOPs - 207,850 equity shares (previous year 279,600 equity shares)
Non Deferred variable pay* Rs. 3.44 crore (previous year Rs. 3.43 crore)
* Details relating to variable pay pertains to remuneration awards for
the financial year 2013-14 awarded during current financial year.
Remuneration award for the year ended 31st March, 2015 are yet to be
reviewed and approved by the Remuneration Committee.
11. Unhedged Foreign Currency Exposure of borrowers:
The Bank recognises the importance of the risk of adverse fluctuation
of foreign exchange rates on the profitability and financial position
of borrowers who are exposed to currency risk. Currency induced credit
risk refers to the risk of inability of borrowers to service their debt
obligations due to adverse movement in the exchange rates and
corresponding increase / decrease in their book values of trade
payables, loan payables, trade receivables, etc. thereby exposing the
Bank to risk of default by the customer. In this regard, the Bank had
put in place requisite policies & processes for monitoring and
mitigation of currency induced credit risk of borrowers. These include
the following:
(a) Currency risk of borrowers on account of un-hedged foreign currency
exposures ("UFCE") is duly considered and analysed in credit appraisal
notes.
(b) Periodic monitoring of un-hedged foreign currency exposures of
borrowers.
(c) Risk classification of borrowers having un-hedged foreign currency
exposures, into Low / Medium / High, as per internal norms, based on
likely loss / EBID ratio. Likely loss means the potential loss which
can be caused over a one year horizon by adverse movement of exchange
rates.
(d) Incremental provisioning (over and above provision applicable for
standard assets) is made in the Bank''s Profit and Loss Account, on
borrower counterparties having UFCE, depending on the likely loss /
EBID ratio, in line with stipulations of RBI. Incremental capital is
maintained in respect of borrower counterparties in the highest risk
category, in line with stipulations of RBI. These requirements are
given below.
(e) In case of borrowers exposed to currency risk where declarations
for foreign currency payables / receivables are not submitted,
provision for currency induced credit risk is made as per RBI
stipulated rates as below:
- 10 bps in cases where limits with banking system are less than Rs. 25
crore;
- 80 bps in cases where limits with banking system are Rs. 25 crore or
more.
(f) Management of foreign exchange risk is considered as a parameter
for internal risk rating of borrowers.
Provision held for currency induced credit risk as at 31st March, 2015
is Rs. 17.82 crore. Incremental Risk weighted assets value considered for
the purpose of CRAR calculation in respect of currency induced credit
risk is Rs. 357.17 crore.
The Reserve Bank of India has prescribed monitoring of sufficiency of
Bank''s liquid assets using Basel III - Liquidity Coverage Ratio (LCR).
The LCR is aimed at measuring and promoting short-term resilience of
banks to potential liquidity disruptions by ensuring maintenance of
sufficient high quality liquid assets (HQLAs) to survive net cash
outflows over next 30 days under stress conditions.
The LCR requirement has been introduced in a phased manner with banks
required to maintain minimum LCR of 60% from January 2015 onwards and
the requirement increasing by 10% annually to 100% by January 2019.
The Bank has implemented the LCR framework and has consistently
maintained LCR well above the regulatory threshold of 60%. The average
LCR for the quarter ended 31st March, 2015 was 69.42%. Level 1 HQLA
stood at 94.3% (Rs. 12,491 crore) of the total HQLA of Rs. 13,251 crore.
This covered the net cash outflow of Rs. 19,087 crore as detailed in the
table above.
Apart from LCR, the Bank uses various stock liquidity indicators to
measure and monitor the liquidity risk in terms of funding stability,
concentration risk, dependence on market borrowings, liquidity
transformation, etc. The Bank maintains a diversified source of funding
in terms of depositor concentration, lender concentration as well as
instrument concentration. This is evident through low depositors and
lenders concentration with top 20 depositors contributing 14.5% of the
Bank''s total deposits and top 10 lenders contributing 8.1% of the
Bank''s total liabilities.
Asset Liability Committee (ALCO) of the Bank is the primary governing
body for Liquidity Risk Management supported by Balance Sheet
Management Unit (BMU), Risk Management Department (RMD), Finance and
ALCO Support Group. BMU is the central repository of funds within the
Bank and is vested with the responsibility of managing liquidity risk
within the risk appetite of the Bank. The Bank has incorporated Basel
III Liquidity Standards - LCR and NSFR as part of its risk appetite
statement for liquidity risk.
B. OTHER DISCLOSURES:
1. The Board of Directors of Kotak Mahindra Bank Ltd ("Kotak") and the
Board of Directors of ING Vysya Bank Ltd ("ING Vysya") at their
respective meetings held on 20th November, 2014 have approved an
amalgamation of ING Vysya with Kotak in the ratio of 725 shares of
Kotak for every 1,000 shares of ING Vysya. Subsequently, the
shareholders of Kotak and ING Vysya have approved the scheme of
amalgamation at their respective Extra Ordinary General Meetings held
on 7th January, 2015. The amalgamation is approved by the Reserve Bank
of India (the "RBI") under the Banking Regulation Act and the
Competition Commission of India. The amalgamation is effective from 1st
April, 2015.
a. The Bank has taken various premises and equipment under operating
lease. The lease payments recognised in the Profit and Loss Account are
Rs. 266.41 crore (previous year Rs. 209.62 crore). The sub-lease income
recognised in the Profit and Loss Account is Rs. 6.65 crore (previous
year Rs. 7.03 crore).
b. The future minimum lease payments under non cancellable operating
lease - not later than one year is Rs. 242.99 crore (previous year Rs.
198.87 crore), later than one year but not later than five years is Rs.
722.54 crore (previous year Rs. 811.69 crore) and later than five years Rs.
674.31 crore (previous year Rs. 443.26 crore).
The lease terms include renewal option after expiry of primary lease
period. There are no restrictions imposed by lease arrangements. There
are escalation clauses in the lease agreements.
5. Deferred Taxes :
"Others" in Other Assets (Schedule 11 (VI)) includes deferred tax asset
(net) of Rs. 69.28 crore (previous year Rs. 140.23 crore). The components
of the same are as follows :
At the General Meetings of the Bank, the shareholders had unanimously
passed Special Resolutions on 28th July, 2000, 26th July, 2004, 26th
July, 2005, 5th July, 2007 and 21st August, 2007, to grant options to
the eligible employees of the Bank and its subsidiaries. Pursuant to
these resolutions, the following four Employees Stock Option Schemes
had been formulated and adopted:
a) Kotak Mahindra Equity Option Scheme 2001-02;
b) Kotak Mahindra Equity Option Scheme 2002-03;
c) Kotak Mahindra Equity Option Scheme 2005; and
d) Kotak Mahindra Equity Option Scheme 2007.
Consequent to the above, the Bank has granted stock options to the
employees of the Bank and its subsidiaries. The Bank under its various
plan / schemes, has granted in aggregate 62,399,000 options as on 31st
March, 2015 (previous year 61,348,520).
Stock appreciation rights
The management has approved the grant of stock appreciation rights
(SARs) to eligible employees as and when deemed fit. The SARs are
settled in cash and vest on the respective due dates in a graded manner
as per the terms and conditions of grant. The contractual life of the
SARs outstanding range from 1.14 to 3.65 years.
Equity-settled options
The Bank has granted options to its employees vide various employee
stock option schemes. During the year ended 31st March, 2015, the
following schemes were in operation:
Stock Options granted
The fair value of the equity-settled and cash-settled options is
estimated on the date of grant using Black-Scholes options pricing
model taking into account the terms and conditions upon which the
options were granted. The fair value of the cash-settled options is
remeasured at the each reporting date. The following table lists the
inputs to the model used for equity-settled and cash-settled options:
The expected volatility was determined based on historical volatility
data and the Bank expects the volatility of its share price to reduce
as it matures. The measure of volatility used in the Black-Scholes
options pricing model is the annualised standard deviation of the
continuously compounded rates of return on the stock over a period of
time. For calculating volatility, the daily volatility of the stock
prices on the National Stock Exchange, over a period prior to the date
of grant, corresponding with the expected life of the options has been
considered.
The above information has been prepared by the Bank and relied upon by
the auditors.
Had the Bank recorded the compensation cost computed on the basis of
Fair Valuation method instead of intrinsic value method, employee
compensation cost would have been higher by Rs. 23.70 crore (previous
year Rs. 22.19 crore) and the profit after tax would have been lower by Rs.
15.65 crore (previous year Rs. 14.65 crore). Consequently the basic and
diluted EPS would have been Rs. 23.99 (previous year Rs. 19.43) and Rs. 23.94
(previous year Rs. 19.40) respectively.
In computing the above information, certain estimates and assumptions
have been made by the Management which have been relied upon by the
auditors.
11. Employee Benefits:
i. The Bank has recognised the following amounts in the Profit and Loss
Account towards contributions to Provident Fund and Other Funds:
ii. The Bank provides for gratuity, a defined benefit retirement plan
covering all employees. The plan provides a lump sum payment to vested
employees at retirement or on termination of employment based on the
respective employee''s salary and the years of employment with the Bank
subject to maximum of Rs. 0.10 crore. There is no ceiling on gratuity
payable to Directors.
The gratuity benefit is provided to the employees of the Bank through a
fund administered by a Board of Trustees and managed by its life
insurance subsidiary. The Bank is responsible for settling the gratuity
obligation through contributions to the fund. The plan is fully funded.
13. Corporate Social Responsibility (CSR):
As per the provisions of the Section 135 of the Companies Act, 2013 the
Bank is required to contribute Rs. 39.20 crore. The Bank has contributed
Rs. 5.63 crore to the Kotak Education Foundation and Rs. 6.34 crore to
other CSR initiatives in the current financial year. The Bank has also
adopted a strong CSR policy, charting out its plan to invest in society
and its own future. The Bank is building its CSR capabilities on a
sustainable basis and is committed to gradually increase its CSR spend
in the coming years.
14. Tier II Bonds:
a) Lower Tier II Bonds outstanding as at 31st March, 2015Rs.482.00 crore
(previous year Rs. 482.00 crore).
During the current year and previous year the Bank had not issued lower
Tier II bonds. In accordance with the RBI requirements lower Tier II
bonds of Rs. 369.25 crore (previous year Rs. 281.91 crore) are not
considered as Tier II capital for the purposes of capital adequacy
computation under Basel III guidelines.
b) Upper Tier II Bonds outstanding as at 31st March, 2015 are Rs. 417.25
crore (previous year Rs. 405.62 crore) of which bonds issued outside
India are Rs. 281.25 crore (previous year Rs. 269.62 crore).
During the current and previous year, the Bank did not issue upper Tier
II bonds.
c) Interest Expended-Others (Schedule 15(III)) includes interest on
subordinated debt (Lower and Upper Tier II) Rs. 62.88 crore (previous
year Rs. 63.57 crore).
16. Description of Contingent Liabilities:
1. Claims not acknowledged as debts
This includes liability on account of income tax, sales tax, lease tax
demands, property tax demands and legal cases filed against the Bank.
The Bank is a party to various legal proceedings in the normal course
of business. The Bank does not expect the outcome of these proceedings
to have a material adverse effect on the Bank''s financial conditions,
result of operations or cash flows. In respect of appeals filed by the
Income Tax department with higher authorities, where the matter was
settled in favour of the Bank at the first appellate stage, and where
in view of the Management, it gives rise to an item of timing
difference, no contingent liability is envisaged by the Bank.
2. Liability on account of outstanding forward exchange contracts
The Bank enters into foreign exchange contracts with inter bank
participants on its own account and for customers. Forward exchange
contracts are commitments to buy or sell foreign currency at a future
date at the contracted rate.
3. Guarantees on behalf of constituents in India
As a part of its Banking activities, the Bank issues guarantees on
behalf of its customers. Guarantees generally represent irrevocable
assurances that the Bank will make payments in the event of customer
failing to fulfill its financial or performance obligations.
4. Acceptances, endorsements and other obligations
These includes:
- Documentary credit such as letters of obligations, enhance the
credit standing of the customers of the Bank.
- Bills re-discounted by the Bank and cash collateral provided by the
Bank on assets which have been securitised.
- Underwriting commitments in respect of Debt Syndication.
5. Other items for which the Bank is contingently liable
These include:
- Liabilities in respect of interest rate swaps, currency swaps,
forward rate agreements and options contracts. The Bank enters into
these transactions with inter bank participants on its own account and
for customers. Currency Swaps are commitments to exchange cash flows by
way of interest / principal in one currency against another, based on
predetermined rates. Interest rate swaps are commitments to exchange
fixed and floating interest rate cash flows. The notional amounts that
are recorded as contingent liabilities are amounts used as a benchmark
for the calculation of interest component of the contracts.
- Liability in respect of Capital commitments relating to fixed
assets and undrawn commitments in respect of investments.
* Also refer Schedule 12 - Contingent Liability
17. The Bank has received few intimations from "suppliers" regarding
their status under the Micro, Small and Medium Enterprises Development
Act, 2006 and there is no outstanding against those suppliers as on
31st March, 2015, hence disclosures, if any, relating to amounts unpaid
as at the year end together with interest paid / payable as required
under the said Act have not been given. The above is based on
information available with the Bank and relied upon by the Auditors.
18. Figures for the previous year have been regrouped / reclassified
wherever necessary to conform to current year''s presentation.
Cash-settled scheme:
The cost of cash-settled transactions (stock appreciation rights) is
measured initially using intrinsic value method at the grant date
taking into account the terms and conditions upon which the instruments
were granted. This intrinsic value is amortised on a straight- line
basis over the vesting period with a recognition of corresponding
liability. This liability is remeasured at each Balance Sheet date up
to and including the settlement date with changes in intrinsic value
recognised in Profit and Loss Account in 'Payments to and provision for
employees'.
A. Disclosures on risk exposures in derivatives:
Qualitative disclosures:
a) Structure and organization for management of risk in derivatives
trading:
The management of risk in derivatives trading is carried out by the
market risk department which is independent of the Treasury and
directly reports into the Group Head-Risk of the Bank. The philosophy
and framework for the derivative business is laid out in the Board
approved Investment and Derivative policies. These policies are
actioned upon by the ALCO. The ALCO sets various limits and reviews
various exceptions to them.
Apart from ALCO, the New Product Committee is responsible for approving
any new derivative products. The Board approved Customer
Appropriateness and Suitability Policy gives guidance to assess
customers and the suitability of products offered to the customer
b) Scope and nature of risk measurement, risk reporting and risk
monitoring systems:
The risk department is responsible for measuring, monitoring and
mitigating risk arising from Derivative transactions. Various risk
metrics like volatility, interest rate sensitivity, price sensitivity,
open position and counterparty exposure are monitored daily.
Schedules forming part of the Balance Sheet and Profit and Loss Account
(Contd.)
The Risk Management function undertakes the following activities:
- monitors daily derivative operations against the set limits.
- reviews daily profitability and activity reports for derivative
operations at various levels.
- reports Management Information System to the ALCO on a periodic
basis as well as exception reporting.
c) Policies for hedging and / or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants:
The Bank enters into derivative transactions for trading and hedging
purposes. The Balance Sheet Management Unit of the Bank obtains
approvals from the ALCO for hedging depending on the market conditions
and Balance Sheet positions.
These hedges are monitored for its hedge effectiveness periodically
having regard to the terms of the hedging instrument and the underlying
hedged risk.
d) Accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation:
Derivative transactions are segregated into trading or hedge
transactions. Trading transactions outstanding as at the Balance Sheet
dates are marked to market and the resulting profits or losses, are
recorded in the Profit and Loss Account.
Derivative transactions designated as "Hedges" are accounted in
accordance with hedging instruments on an accrual basis over the life
of the underlying instrument.
Option premium paid / received is accounted for in the Profit and Loss
Account on expiry of the option.
Provisioning on derivative receivables is made in accordance with RBI
guidelines. The derivative limit sanctioned to clients is part of the
overall limit sanctioned post credit appraisal. Collateral is accepted
on a case to case basis considering the volatility of the price of the
collateral and any increase in operational, legal and liquidity risk.
1. The Provision Coverage Ratio (PCR) of the Bank after considering
technical write-off is 70.14% as at 31st March, 2012 (previous year:
70.14%).
Note:
The amount in above table represents loans outstanding at the time of
restructuring.
Outstanding Restructured loans (net of provisions) as at 31st March,
2012 are Rs 30.20 crores (previous year Rs 66.70 crores). Sacrifice
amount represents provision made for diminution in fair value of the
loan based on assessment at Balance Sheet date.
2. There are no unsecured loans for which intangible security such as
charge over the rights, licenses, authority, etc. are accepted as
collateral by the bank.
3. Draw Down from Reserves:
In accordance with the RBI requirement on creation and utilisation of
reserves, no reserve has been utilised in the current year (previous
year Rs 26.83 crores has been utilised from Investment allowance
reserve-net of taxes and applicable transfer to statutory reserves).
4. Lease Discloures:
a. The Bank has taken various premises and equipment under operating
lease. The lease payments recognised in the Profit and Loss Account are
Rs 137.82 crores (previous year Rs 115.73 crores). The sub-lease income
recognised in the Profit and Loss Account is Rs 6.50 crores (previous
year Rs 5.97 crores).
b. The future minimum lease payments under non cancellable operating
lease - not later than one year is Rs 118.34 crores (previous year Rs
111.59 crores), later than one year but not later than five years is Rs
495.62 crores (previous year Rs 356.45 crores) and later than five years
Rs 121.87 crores (previous year Rs 138.00 crores).
The lease terms include renewal option after expiry of primary lease
period. There are no restrictions imposed by lease arrangements. There
are escalation clauses in the lease agreements.
5. EMPLOYEE SHARE BASED PAYMENTS: At the General Meetings of the
holding company, Kotak Mahindra Bank Limited, the shareholders of the
Bank had unanimously passed Special Resolutions on 28th July, 2000,
26th July, 2004, 26th July, 2005, 5th July, 2007 and 21st August, 2007,
to grant options to the eligible employees of the Bank and its
subsidiaries companies. Pursuant to these resolutions, the following
four Employees Stock Option Schemes had been formulated and adopted:
a) Kotak Mahindra Equity Option Scheme 2001-02
b) Kotak Mahindra Equity Option Scheme 2002-03
c) Kotak Mahindra Equity Option Scheme 2005 and
d) Kotak Mahindra Equity Option Scheme 2007
Consequent to the above, the Bank has granted stock options to the
employees of the Bank and its subsidiaries. The Bank under its various
plan / schemes, has granted in aggregate 5,72,75,810 options as on 31st
March, 2012 (previous year 5,40,24,680).
Stock appreciation rights
The management has approved the grant of stock appreciation rights
(SARs) to eligible employees as and when deemed fit. The SARs are
settled in cash and vest on the respective due dates in a graded manner
as per the terms and conditions of grant. The contractual life of the
SARs range from 0.72 to 4.36 years.
Had the Bank recorded the compensation cost computed on the basis of
Fair Valuation method instead of intrinsic value method, employee
compensation cost would have been higher by Rs 27.39 crores (previous
year Rs 23.25 crores) and the profit after tax would have been lower by
Rs 18.50 crores (previous year Rs 15.52 crores). Consequently the basic
and diluted EPS would have been Rs 14.44 (previous year Rs 11.13) and Rs
14.36 (previous year Rs 11.07) respectively.
In respect of employee stock options granted to employees of the
subsidiaries, the Bank recovers the related compensation cost from the
respective subsidiaries, except in respect of employee stock options
granted to the managing director of one subsidiary of the Bank, where
the Bank has not recovered the related compensation cost aggregating Rs
Nil (previous year Rs 0.45 crores) from the subsidiary in the current
year.
In computing the above information, certain estimates and assumptions
have been made by the Management which have been relied upon by the
auditors.
ii. In accordance with law, the Bank provides for gratuity, a defined
benefit retirement plan covering all employees. The plan provides a
lump sum payment to vested employees at retirement or termination of
employment based on the respective employee's salary and the years of
employment with the Bank subject to maximum of Rs 0.10 crores
The gratuity benefit is provided to the employees through a fund
administered by a Board of Trustees and managed by Kotak Mahindra Old
Mutual Life Insurance Limited. The Bank is responsible for settling the
gratuity obligation through contributions to the fund. The plan is
fully funded.
6. The Bank receives deposits from customers as part of margin
requirements in respect of its professional clearing member (PCM)
business with National Securities Clearing Corporation Ltd (NSCCL).
Correspondingly, the Bank is required to maintain margins / deposits
with NSCCL. For the said purpose of placing margins / deposits, the
Bank has issued its own Fixed Deposit receipts amounting to Rs 414.91
crores (previous year Rs 582.85 crores) in favour of NSCCL which have
not been included in "Term Deposits from Others" [Schedule 3 (III)
(ii)].
7. Tier II Bonds
a) Lower Tier II Bonds outstanding as at 31st March 2012 Rs 610.70
crores (previous year Rs 465.70 crores).
During the year, the Bank had issued lower Tier II bonds of Rs 150
crores (previous year Nil). In accordance with the RBI requirements
lower Tier II bonds of Rs 162.06 crores (previous year Rs 113.48 crores)
are not considered as Tier II capital for the purposes of capital
adequacy computation.
b) Upper Tier II Bonds outstanding as at 31st March, 2012 Rs 364.94
crores (previous year Rs 336.68 crores) of which bonds issued outside
India Rs 228.94 crores (previous year Rs 200.68 crores).
During the year, the Bank did not raise upper Tier II bonds (previous
year Nil).
c) Interest Expended-Others (Schedule 15(III)) includes interest on
subordinated debt (Lower and Upper Tier II) Rs 72.72 crores (previous
year Rs 57.49 crores).
8. The Bank has received few intimation from "suppliers" regarding
their status under the Micro, Small and Medium Enterprises Development
Act, 2006 and there is no outstanding against those suppliers as on
31st March, 2012, hence disclosures, if any, relating to amounts unpaid
as at the year end together with interest paid / payable as required
under the said Act have not been given.
9. Figures of previous year were audited by a firm of Chartered
Accountants other than current statutory auditors 'S.B. Billimoria &
Co'. Figures for the previous year have been regrouped / reclassified
wherever necessary to conform to current years' presentation.
A. Disclosures As Laid Down By RBI Circulara :
1. capital Adequacy Ratio:
With effect from 31st March, 2009, the Bank is subject to the new
capital adequacy norms (Basel II) stipulated by the Reserve Bank of
India (ÃRBI).
6. Derivatives:
c. Disclosures on risk exposures in derivatives: Qualitative
disclosures:
(a) Structure and organization for management of risk in derivatives
trading:
The Derivative policy defnes the framework for carrying out the
derivative business and lays down the policies and processes adopted to
measure, monitor and report risk arising from derivative transactions
The ALCO is responsible for implementing the derivative policy. To
effect this, the ALCO
- determines appropriate limits for different derivative products
within broad policy framework
- reviews the limit breaches and take appropriate actions
The Bank has ÃCustomer Appropriateness Policy which is used to
classify the clients depending on their understanding of the derivative
products. Further the Bank also has New Product Committee that is
responsible for approving any new derivative structure and also for
deciding to which category of clients the product can be offered
(b) Scope and nature of risk measurement, risk reporting and risk
monitoring systems:
The Risk department of the Bank is responsible for measuring, reporting
and monitoring risk arising from Derivative transactions and functions
independently of the Treasury. The risk management methods generally
applied are quantitative like counter party limits, deal sizes,
overnight, PVBP and stop-loss limits
The Risk Management function undertakes the following activities:-
- monitors daily derivative operations against the set out policies and
limits
- reviews daily dealers Profitability and activity reports for
derivative operations
- reports MIS to the ALCO on a periodic basis as well as exception
reporting
- approves non-vanilla derivative deals for proprietary business
(c) Policies for hedging and / or mitigating risk and strategies and
processes for monitoring the continuing effectiveness of hedges /
mitigants:
The Bank enters into derivative transactions for trading and hedging
purposes. The Balance Sheet Management Unit of the Bank obtains
approvals from the Asset Liability Management Committee ("ALCO") for
hedging on a case to case basis depending on the market conditions and
Balance Sheet positions
These hedges are monitored for its hedge effectiveness periodically
having regard to the terms of the hedging instrument and the underlying
hedged risk.
(d) Accounting policy for recording hedge and non-hedge transactions;
recognition of income, premiums and discounts; valuation of outstanding
contracts; provisioning, collateral and credit risk mitigation
Derivative transactions are segregated into trading or hedge
transactions. Trading transactions outstanding as at the Balance Sheet
dates are marked to market and the resulting Profits or losses, are
recorded in the Profit and Loss Account.
Derivative transactions designated as "Hedges" are accounted on an
accrual basis over the life of the transaction.
Option premium paid / received is accounted for in the Profit and Loss
Account on expiry of the option.
Provisioning on derivative receivables is made in accordance with RBI
guidelines. The derivative limit sanctioned to clients is part of the
overall limit sanctioned post credit appraisal. Collateral is accepted
on a case to case basis considering the volatility of the price of the
collateral and any increase in operational, legal and liquidity risk.
8. The Provision Coverage Ratio (PCR) of the Bank after considering
Technical Write-off is 58.34% as at 31st March, 2010.
15. Under Unsecured Loans, amount of advances for which intangible
security such as charge over the rights, licenses, authority, etc. are
accepted as collateral is Nil.
25. No penalties or strictures have been imposed on the Bank during
the year by the RBI.
26. There are no Off-Balance Sheet SPVs sponsored (which are required
to be consolidated as per accounting norms).
6. Related Party Disclosures:
A. Parties where control exists: nature of relationship
Individual having control over the enterprise
Related Party
Uday S. Kotak along with relatives and enterprises in which he has
benefcial interest holds 48.21% of the equity share capital of Kotak
Mahindra Bank Limited as on 31st March, 2010
Subsidiary Companies
Kotak Mahindra Prime Limited
Kotak Securities Limited
Kotak Mahindra Capital Company Limited
Kotak Mahindra Old Mutual Life Insurance Limited
Kotak Mahindra Investments Limited
Kotak Mahindra Asset Management Company Limited
Kotak Mahindra Trustee Company Limited
Kotak Mahindra (International) Limited
Kotak Mahindra (UK) Limited
Kotak Mahindra Inc.
Global Investment Opportunities Fund Limited
Kotak Investment Advisors Limited
Kotak Mahindra Trusteeship Services Limited
Kotak Forex Brokerage Limited
Kotak Mahindra Pension Fund Limited
Kotak Mahindra Financial Services Limited
B. other Related Parties: nature of relationship
Associates
Related Party
Business Standard Limited (Upto 16th June, 2009)
Ahmedabad Commodity Exchange Ltd. (Effective 4th August, 2009)
Kotak Mahindra Asset Reconstruction Company Limited
Infna Finance Private Limited
Matrix Business Services India Private Limited
Phoenix ARC Private Limited
Regency Hospitals Limited (Upto 30th March, 2010)
Key Management Personnel
Mr. Uday S. Kotak, Executive Vice Chairman and Managing Director Mr. C
Jayaram, Executive Director Mr. Dipak Gupta, Executive Director
Enterprise over which Key Management Personnel have signifcant Infuence
Aero Agencies Limited Kotak & Company Limited Komaf Financial Services
Limited
Relatives of Key Management Personnel
Ms. Pallavi Kotak Mr. Suresh Kotak Ms. Indira Kotak Mr. Jay Kotak Mr.
Dhawal Kotak Ms. Aarti Chandaria Ms. Anita Gupta Ms. Urmila Gupta
7. ESOPS :
At the General Meetings of the holding company, Kotak Mahindra Bank
Limited, the shareholders of the Bank had unanimously passed Special
Resolution on 28th July, 2000, 26th July, 2004, 26th July, 2005, 5th
July, 2007 and 21st August, 2007, to grant options to the eligible
Employees of the Bank and its subsidiaries companies. Pursuant to these
resolutions, the following four Employees Stock Option Schemes had been
formulated and adopted:
(a) Kotak Mahindra Equity Option Scheme 2001-02
(b) Kotak Mahindra Equity Option Scheme 2002-03
(c) Kotak Mahindra Equity Option Scheme 2005
(d) Kotak Mahindra Equity Option Scheme 2007
Consequent to the above, the Bank has granted stock options to the
employees of the Bank and its subsidiaries. The Bank under its various
plan / schemes, has granted in aggregate 2,46,37,720 options as on 31st
March, 2010 (Previous Year 2,44,84,700).
Stock appreciation rights
The Bank has also granted stock appreciation rights (SARs) to select
employees which can be settled in cash. These options will vest on the
respective due dates in a graded manner as per the terms and conditions
of grant. The contractual life of the SARs range from 0.34 to 4.36
years. During the year the Bank has granted 1,32,650 SARs. The number
of SARs outstanding as on 31st March, 2010 are 1,32,650. The intrinsic
value of SARs is measured at the grant date taking into account terms
and conditions upon which the instruments were granted.
10. The Bank has agreed with International Finance Corporation ("IFC")
in a loan agreement dated 8th November, 2004 that it shall (i) not
create or permit to exist any lien over and above what was existing
prior to the Bank converting into a scheduled commercial Bank (ii)
request IFCs consent before granting any lien which is not
pre-authorised, should the RBI allow the Bank to grant liens and (iii)
grant in favour of IFC a similar lien which shall rank pari passu with
the lien created in case it creates any such lien which is not a
pre-authorized lien.
15. Bank has not issued any letters of comforts during the year. There
were no outstanding letter of comforts at the year end (Previous Year
Nil).
16. The Bank receives deposits from customers as part of margin
requirements in respect of its professional clearing member (PCM)
business with National Securities Clearing Corporation Ltd (NSCCL).
Correspondingly, the Bank is required to maintain margins / deposits
with NSCCL. For the said purpose of placing margins / deposits, the
Bank has issued its own Fixed Deposit receipts amounting to Rs. 591.41
crores (Previous Year Rs. 844.61 crores) in favour of NSCCL which have
not been included in "Term Deposits from Others" [Schedule 3 (III) (ii)
] .
17. Tier Bonds
(a) Lower Tier II Bonds outstanding as at 31st March, 2010 Rs. 465.70
crores (Previous Year Rs. 465.70 crores).
During the year, the Bank did not raise lower Tier II bonds (Previous
Year Nil). In accordance with the RBI requirements lower Tier II bonds
of Rs. 65.48 crores (Previous Year Rs. 38.74 crores) are not considered
as Tier II capital for the purposes of capital adequacy computation.
(b) Upper Tier II Bonds outstanding as at 31st March, 2010 Rs. 338.05
crores (Previous Year Rs. 364.24 crores) of which bonds issued outside
India Rs. 202.05 crores (Previous Year Rs. 228.24 crores).
During the year, the Bank did not raise upper Tier II bonds. (Previous
Year Nil)
(c) Interest Expended-Others (Schedule 15(III)) includes interest on
subordinated debt (Lower and Upper Tier II) Rs. 58.10 crores (Previous
Year Rs. 64.78 crores).
18. Description of contingent Liabilities:
Sl. Contingent
Liability* Brief Description
no.
1. Claims not
acknowledged as
debts This includes liability on account
of income tax, interest tax, sales
tax and lease tax demands and legal cases
fled against the Bank.
The Bank is a party to various legal proceedings
in the normal course of business.
The Bank does not
expect the outcome of these proceedings
to have a material adverse effect on the
Banks financial conditions, result of
operations or cash fows. Against the above
Rs.19.00 crores have been paid, which shall be
refunded to the Bank, if the outcome of
the legal proceedings will be in the
favour of the Bank.
2. Liability on
account of
outstanding
forward exchange
contracts The Bank enters into foreign exchange contracts
with inter Bank participants on its
own account and for customers. Forward exchange
contracts are commitments to buy or sell
foreign currency at a future date at the
CONTRACTED RATE.
3. Guarantees on
behalf of const
ituents in India As a part of its Banking activities, the Bank
issues guarantees on behalf of its customers.
Guarantees generally represent irrevocable
assurances that the Bank will make payments
in the event of customer failing to fulfll
its financial or performance obligations.
4. Acceptances,
endorsements and
other obligations These includes:
- Documentary credit such as letters of
obligations, enhance the credit
standing of the customers of the Bank.
- Bills re-discounted by the Bank and cash
collateral provided by the
Bank on assets which have been securitised.
5. Other items for
which the Bank
is contingently
liable These includes:
- Liabilities in respect of interest rate
swaps, currency swaps, forward rate agreements
and options contracts. The Bank enters into
these transactions with inter Bank participants
on its own account and for customers. Currency
Swaps are commitments to exchange cash fows by
way of interest / principal in one currency
against another, based on predetermined rates.
Interest rate swaps are commitments to exchange
fxed and foating interest rate cash fows. The
notional amounts that are
recorded as contingent liabilities are
amounts used as a benchmark for the calculation
of interest component of the contracts.
- Liability in respect of Capital commitments
relating to fxed assets. This also includes
undrawn commitments in respect of investments.
19. The Bank has not received any intimation from "suppliers"
regarding their status under the Micro, Small and Medium Enterprises
Development Act, 2006 and hence disclosures, if any, relating to
amounts unpaid as at the year end together with interest paid / payable
as required under the said Act have not been given.
20. Figures for the previous year have been regrouped / reclassifed
wherever necessary to conform to current years presentation.
Kotak Mahindra Bank Ltd. पर और जानकारी
Kotak Mahindra Bank Ltd. टूल
Kotak Mahindra Bank Ltd. कंपनी का विवरण
कंपनी का इतिहास
Kotak Mahindra Bank Ltd. मुख्य वित्तीय अनुपात
Kotak Mahindra Bank Ltd. परिणाम
Kotak Mahindra Bank Ltd. Financial Data
Kotak Mahindra Bank Ltd. की रिपोर्ट
Kotak Mahindra Bank Ltd. कॉर्पोरेट घोषणाएं