Axis Bank - Corporate Governance

8/11/2019 Axis Bank - Corporate Governance

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CORPORATE GOVERNANCE PROJECT

AXIS BANK

1. Board Structure (Size, Percentage of Non-Executives Directors &Independent Directors)

The composition of the Board of Directors of the Bank (Board) is governed by the provisions of the Companies Act, 1956, the BankingRegulation Act, 1949 and Clause49 of the Listing Agreement.

The Board has fourteen ( 14) Directors as on March 31, 2014.

There are 7 Independent Directors constituting one- half ofthe Boards membershipwith Shri S. B. Mathur designated as the Lead Independent Director.The compositionof the Banks Board includes the representatives of the Administrator of the SpecifiedUndertaking ofthe Unit Trust of India (SUUTI) and the Life Insurance Corporation ofIndia (LIC), the Banks promoters. The followingmembers constitute the Board:

SanjivMisra ChairmanPromoter Nominee of SUUTI

Shikha Sharma Managing Director & CEOK. N. Prithviraj Promoter Nominee of SUUTIV. R. Kaundinya IndependentS. B. Mathur IndependentPrasad R. Menon IndependentR. N. Bhattacharyya Promoter Nominee of SUUTISamir K. Barua IndependentSom Mittal IndependentIreenaVittal IndependentRohitBhagat IndependentUshaSangwan Promoter - Nominee of LICSomnathSengupta Executive Director and Head (Corporate Centre)V. Srinivasan Executive Director and Head (Corporate Banking)

2. Board Power &Functioning

The Board is responsiblefor the management of the Banks business. The functions,responsibilities, role and accountability of the Board are welldefined. In addition tomonitoring corporate performance, the Board also carries out functions such as takingcare of allthe statutory agenda, approving the Business Plan and all major policies,reviewing and approving the annual budgets,borrowing limits and fixing exposurelimits. It ensures that the Bank keeps shareholders informed about plans,strategiesand perf ormance. The detailed reports of the Banks performance are

periodically placed before the Board.


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3.Audit Committee (Composition & powers, no. of meetings etc)

The Audit Committee of the Board of Directors functions with the following mainobjectives:

To provide direction and to oversee the operation of the audit function. To review the internal audit system with special emphasis on its quality andeffectiveness.

To review internal and concurrent audit reports of large branches with a focus onall major areas of housekeeping, particularly inter-branch adjustment accounts,arrears in the balancing of the books andun-reconciled entries in inter-bank and

Nostro accounts and frauds. To discuss matters related to frauds. To discuss and follow up for audit issues related to Long Form Audit Report. To discuss and follow up for issues related to RBI Inspection Report(s). To review the system of appointment and remuneration of concurrent auditors and

external auditors. To oversee the Banks financial reporting proce ss and the disclosure of itsfinancial information, to ensurethat the financial statements are correct, sufficientand credible.

To recommend to the Board, the appointment, re-appointment, and if required, thereplacement or removalof the Statutory Auditor and to fix their audit fees.

To approve payments to Statutory Auditors for any other services rendered bythem.

To review, with the management, the annual financial statements beforesubmission to the Board for itsapproval with particular reference to:- Matters required being included in the Directors Responsibility Statement in theBoards report interms of Clause (2AA) of Section 217 of the Companies Act,1956.- Changes, if any, in accounting policies & practices and reasons for the same.- Major accounting entries involving estimates based on the exercise of judgment

by the management.- Significant adjustments made in the financial statements arising out of auditfindings.- Compliance with listing and other legal requirements relating to financialstatements.- Disclosure of any related party transactions.- Qualifications in the draft audit report.

To review, with the management, the quarterly financial statements beforesubmission to the Board for itsapproval.

To review, with the management, the statement of uses/application of funds raisedthrough an issue (publicissue, rights issue, preferential issue etc.), the statement offunds utilized for purposes other than thosestated in the offerdocument/prospectus/notice and the report submitted by the agency monitoringtheutilization of proceeds of a public or rights issue and making appropriaterecommendations to the Board fortaking steps in the matter.


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4.Remuneration andNomination committees

Remuneration Committee The HR and Remuneration Committee of the Board overseesthe framing, review and implementation of thecompensation policy of the Bank on behalf of theBoard. The Committee works in close coordination with theRisk Management Committee of the

Bank, in order to achieve effective alignment between remuneration andrisks.Nomination CommitteeThe Nomination Committee of the Board of Directors functions with the following main

objectives:i. To undertake a process of due diligence to determine the suitability of any person forappointment/continuing to hold appointment as a director on the Board, based upon qualification,expertise, track record,integrity and other fit and proper criteria. ii. To examine the vacancies that will come up at the Board on account of retirement orotherwise.iii. To evaluate the skills that exist, and those that are absent but needed at the Board level, andsearch forappropriate candidates who have the profile to provide such skill sets.

iv. To create a recommendatory list of Directors for deliberation and decision-making at theBoard-level; andv. To review the composition of Committees of the Board, and identify and recommend to theBoard, theDirectors who can best serve as members of each Board Committee.

2 meetings of Nomination Committee were held during the year on 22nd April 2013 and 16thOctober 2013.

5. Whistleblower Policies

A central tenet in the Banks Policy on Corporate Governance is commitment to ethics,integrity,accountability and transparency. To ensure that the highest standards are maintained in theseaspectson an on-going basis and to provide safeguards to various stakeholders (includingshareholders, depositors andemployees) the Bank has formulated a Whistleblower Policy. ThePolicy provides employees with the opportunityto address serious concerns arising fromirregularities, malpractices and other misdemeanours committed by theBanks personnel byapproaching a Committee set-up for the purpose (known as the Whistleblower Committee).Incase, senior management commits an offence, the Policy enables the Banks staff to report theconcernsdirectly to the Audit Committee of the Board. The Policy is intended to encourageemployees to report suspectedor actual occurrence of illegal, unethical or inappropriate actions,

behaviour or practices by staff without fear ofretribution. The employees use this Policyregularly as a tool to voice their concerns on irregularities, malpracticesand othermisdemeanours. To ensure smooth flow and management of complaints under Whistleblower

policy,a new web-based application - Corporate Whistleblower has been set up which also provides an option foranonymous reporting thereby enabling the employees to lodge theircomplaints online over a secure platformwithout fear of revelation of identity. This would createa business culture of honesty, integrity and complianceand would encourage employees to speakup so that preventive action is initiated. It is hereby affirmed that theBank has not denied

personal access to the Audit Committee of the Board and that the Policy contains provisionsprotecting Whistleblowers from unfair termination and other unfair prejudicial, and


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employment practice. TheAudit Committee of the Board reviews, on a quarterly basis, a synopsisof the complaints received and theresolution thereof.

6. Report on Management's Discussion and Analysis

Macroeconomic and Industry Developments :

Fiscal 2014 saw a combination of various external and internal events that kept marketsturbulent, interest rates high andinvestor confidence low, resulting in shrinking investment andGDP growth. Due to apprehensions of an impending taper ofthe US Federal ReservesQuantitative Easing programme, emerging markets, including India, experienced foreigninvestmentoutflows and currency volatility. Indias macroeconomic imbalances at the beginningof the year exposed it to this volatility aswell, forcing stringent policy responses. However,improving fundamentals have gradually restored some stability in the markets.

Indian economic growth had slowed rapidly from 8.9% in 2010-11 to an officially estimated4.9% in fiscal 2014, caused in largepart by structural factors impeding investment activity.Decline in financial savings, sluggish growth in fixed capital formation oversuccessive quarters,

persistence of high inflation and low business confidence contributed to the decline in potentialgrowth,particularly in the absence of adequate structural policy measures.

Inflation had emerged as the central concern during the year and in combination with the currentaccount and fiscal deficits,had forced Reserve Bank of India (RBI) to raise its policy Repo rate

by 75 basis points. While most of the slowdown was due to asteep drop in investment, a cut inthe Governments spending in order to contain the fiscal deficit at less than the budgeted 4.8%of

GDP also contributed to a slowdown in consumption. For fiscal 2014, fiscal deficit has beenrevised down to 4.6% of GDP.

The biggest turnaround was in the Current Account Deficit, which had shrunk from $88 billionin fiscal 2013 to $31 billion inthe first 3 quarters of fiscal 2014. For fiscal 2014, the currentaccount deficit is expected to be ~2% of GDP. With large capitalinflows via Foreign Currency

Non-Resident (FCNR-B) deposits and bank capital, the Rupee has stabilised at around 60-62/USDand has been one of the best performing emerging market currencies over the past fewmonths.

The Repo rate increases have pushed up the floor for rates and despite liquidity infusion by RBI,short term interest rates haveremained high. One of the consequences of the slowdown and highinflation has been a contraction of financial savings ofhouseholds, with a preference forinvestment in assets like gold and real estate. This has, in turn, affected deposit accretionwith

banks. The exceptional liquidity tightening measures of RBI leading to higher rates had resultedin a temporary spike incredit growth in favour of banks compared to credit substitutes in themoney market, but this had gradually normalised. Onthe resources front, strong NRI inflows


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through the FCNR(B) deposits route have helped improve deposit growth. For the fiscal2014,deposit growth in the system was 14.6%, while credit growth was 14.3%.

Financial Performance :

During 2013-14, the operating environment for the banking system continued to be challengingwith persistent high inflation,muted growth, slowdown in credit off-take, concerns regardinggrowing non-performing assets and a high incidence of assetsbeing restructured. Despite thesechallenges, the Banks strategy to build its business upon strong customer franchises,whileadopting a prudent approach, had resulted in delivering strong results. The underlying

performance of the business remainedstrong with revenue growth remaining well ahead of costgrowth. The Bank reported a net profit of `6,217.67 crores for the yearended 31st March 2014,registering a growth of 20.05% over the net profit of `5,179.43 crores last year. The healthygrowth inearnings was driven by contribution from all segments. The Bank continued to focus onthe quality of growth and displayed strong growth in key balance sheet parameters for theyearended 31st March 2014. The total assets increased by12.53% to `383,245 crores, totaldeposits increasedby 11.22% to `280,945 crores while total advancesincreased by 16.81% to`230,067 crores.During the year, the Bank continued to expand itsnetwork, with increased focuson the semi-urbanand rural areas. Both the Retail and SME segmentscontinued to benefit fromthis network expansion andhave justifiably remained the key growth drivers forthe Bank duringthe year. The Bank remains committedto a customer-centric approach in dealing with itsclienteleaided by dependable technology and simplegrowth in key balance sheet parameters for theyearended 31st March 2014. The total assets increased by12.53% to `383,245 crores, totaldeposits increasedby 11.22% to `280,945 crores while total advancesincreased by 16.81% to`230,067 crores.During the year, the Bank continued to expand itsnetwork, with increased focuson the semi-urbanand rural areas. Both the Retail and SME segmentscontinued to benefit fromthis network expansion andhave justifiably remained the key growth drivers forthe Bank duringthe year. The Bank remains committedto a customer-centric approach in dealing with itsclienteleaided by dependable technology and simpleprocesses. A well distributed branch bankingchannelcomplemented by a robust alternate distributionchannel have helped the Bank to deliver awide rangeof products and services to its customers across the country and overseas processes. Awell distributed branch banking channelcomplemented by a robust alternate distributionchannelhave helped the Bank to deliver a wide rangeof products and services to its customers across thecountry and overseas.

Business Segments' Update :

Axis Bank has achieved healthy growth across various operating and financial parameters in thelast financial year.

Retail Banking:

The Retail Banking segment is one of the key drivers of the Banks growthstrategy,encompassing a wide range of products delivered through multiple channels toitscustomers. The Bank today offers a complete suite of products across deposits,loans, investmentsolutions, payments and cards to its customers. The Bank iscommitted to developing long-term


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relationships with its customers by providinghigh-quality services and products through regularcustomer engagement in an easyand convenient manner. During the year, the Bank engaged inLakshya, a retailbanking transformation initiative, which is currently live in more than 1,100

branches,comprising around 80% of the Banks low -cost deposit business. Variousinitiativesunder the Lakshya program have helped increase sales productivity andoperationalefficiency while at the same time focusing on increasing customer satisfactionandimproving employee work life balance.

International Operations :

The international operations of the Bank continue to be at the core of its strategy to expand thehorizon of the product offerings,and delivery channels to various geographies and across clientsegments, covering a wide spectrum of retail and corporate bankingsolutions. During the year,the Bank expanded its overseas branch network by upgrading its representative office inShanghaiinto a branch. The Bank is the first Indian private sector bank to set up a branch in

China. Further during the year, the Banksfirst overseas banking subsidiary - Axis Bank UKLimited commenced its operations. The Bank now has overseas presence in sixcountries withnetwork of five branches at Singapore, Hong Kong, DIFC Dubai, Colombo (Sri Lanka) andShanghai (China),two representative offices at Dubai and Abu Dhabi and an overseas bankingsubsidiary in the United Kingdom.

Information Technology

The Banks continuous endeavour has been to use technology to further improve the customersexperience while transactingwith the Bank. In this regard, it has empowered its relationship

managers with a compl ete 360 degree view of the customersrelationship with the Bank. Thus, ithas concisely captured the customers existing relationship and likely future needs leadingtosuperior service, better business opportunities through higher cross sell using a seamless multi-channel experience. To further theBanks green initiatives, technology has helped in issuance ofGreen Pin through ATM and IVR channels for new to bank debitcard customers resulting in costsavings in deliverables management. Further, technology has been one of the key contributorsinthe Banks launch of multi -currency travel cards. A new and faster platform was implemented toenable foreign exchangemoney transfers for retail customers. The Bank has also re-vamped itsloan system architecture with in-memory computing, amuch faster process to achieve highervolumes and faster turnaround time in loan processing.

Risk Management and Portfolio Quality :

The Banks risk management processes are guided by well -defined policies appropriate forvarious risk categories,independent risk oversight and periodic monitoring through the sub-committees of the Board of Directors. The Board setsthe overall risk appetite and philosophy forthe Bank. The Committee of Directors, the Risk Management Committee andthe Audit


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Committee of the Board, which are sub-committees of the Board, review various aspects of riskarising from thebusinesses of the Bank.

7. Disclosure on Related Party Transactions

The significant transactions between the Bank and related parties during the year ended 31March, 2014 aregiven below. A specific related party transaction is disclosed as a significantrelated party transaction whereverit exceeds 10% of the aggregate value of all related partytransactions in that category: Dividend paid: Ad ministrator of The Specified Undertaking of the Unit Trust of India `175.00crores(previous year `155.56 crores), Life Insurance Corporation of India `78.77 crores (previousyear `64.06crores) Dividend received: Axis Trustee Services Ltd. `1.88 crores (p revious year `1.50 crores) Interest paid: Life Insurance Corporation of India `928.77 crores (previous year `731.58 crores) Interest received: Axis Bank UK Ltd. `6.52 crores (previous year Nil) and Axis Finance Ltd.`1.27 crores(previous year Nil)

Investment of the Bank: Axis Bank UK Ltd. `299.57 crores (previous year Nil) and AxisFinance Ltd. `250crores (previous year Nil) Investment of related party in the Bank: Mrs. Shikha Sharma `7.35 crores (previous year `1.48crores) andMr. V. Srinivasan `2.43 crores (previous year `2.04 crores) Redemption of subordinated debt: Life Insurance Corporation of India `25.00 crores (previousyear `80crores) and General Insurance Corporation of India `15 crores (previous year Nil) Sale of Investments: Life Insurance Corporation of India `221.71 crores (previous year`1,030.60crores), General Insurance Corporation of India `181.37 crores (previous year `85.00crores), New IndiaAssurance Company Ltd. `147.51 crores (previous year Nil), NationalInsurance Company Ltd. `109.97crores (previous year `191.79 crores), United India InsuranceCompany Ltd. `79.12 crores (previous year`115.03 crores)

8. Code of Conduct

This Code of Ethics / Conduct intends to ensure adherence to highest business and ethicalstandards while conducting the business of the Bank and compliance with the legal andregulatory requirements. The Bank values the ethical business standards very highly and intendsadherence thereto in every segment of its business.

Axis Bank - Corporate Governance

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