Persevere. Pioneer. Prosper.Financial HighlightsBank Reports andStatementsConsolidated FinancialStatementsDirectors’ ReportDirectors’ ReportTo the Members ofKOTAK MAHINDRA BANK LIMITEDThe Directors present their Thirty-fifth Annual Report together with the audited accounts of your Bank for the year ended 31st March, 2020.FINANCIAL HIGHLIGHTS(A)Kotak Mahindra Bank Limited – Consolidated financial highlights *:Total incomeTotal expenditure, excluding provisions and contingenciesOperating ProfitProvisions and contingencies, excluding provision for taxProfit before taxProvision for taxesProfit after taxAdd: Share in profit of AssociatesConsolidated profit for the GroupEarnings per Equity Share:Basic ( )Diluted ( )(B)31st March, 2020 in ,814.728,607.08(13.72)8,593.3631st March, 2019 in st March, 2020 in 857.495,947.1816,919.2922,866.4731st March, 2019 in 6.9940.0070.891.40160.2823.6816,919.29Kotak Mahindra Bank Limited – Standalone financial highlights:Total IncomeTotal expenditure, excluding provisions and contingenciesOperating ProfitProvisions and contingencies, excluding tax provisionsProfit before taxProvision for taxesProfit after taxAdd: Surplus brought forward from the previous yearAmount available for appropriationAppropriations:Statutory Reserve under Section 17 of the Banking Regulation Act, 1949Transfer to Investment Reserve AccountTransfer to Capital ReserveTransfer to Special ReserveTransfer to Investment Fluctuation Reserve AccountTransfer to Fraud ProvisionDividend Paid **Corporate Dividend TaxSurplus carried to Balance Sheet* The financial results of the subsidiaries (excluding insurance companies) and associates used for preparation of the consolidated financial results arein accordance with Generally Accepted Accounting Principles in India (‘GAAP’) specified under Section 133 and relevant provision of Companies Act,2013. The financial statements of such Indian subsidiaries and associates are prepared as per Indian Accounting Standards in accordance with theCompanies (Indian Accounting Standards) Rules, 2015.** The Bank has paid a dividend at rate of 0.80 per equity share for the year ended 31st March, 2019 (previous year: 0.70 per equity share for the yearended 31st March, 2018) and has paid interim dividend at rate of Re.0.405 per share on preference shares for year ended 31st March, 2020 (previousyear: interim dividend at rate of 8.10% (on pro-rata basis)), to all shareholders, whose names appear on the Register of members / beneficial holderslist on the book closure date. As per the requirements of revised AS 4 – ‘Contingencies and Events Occurring After the Balance Sheet Date’, this payout(including dividend distribution tax) has been appropriated from amount available for appropriation in the year of pay-out.101
DIVIDENDReserve Bank of India vide its circular No. DOR.BP.BC.No.64/21.02.067/2019-20 dated April 17, 2020, has directed all banks to not make anyfurther dividend payouts from profits pertaining to the financial year ending March 31, 2020 until further instructions.In March 2020, your Directors declared an interim dividend on Perpetual Non-Cumulative Preference Shares of face value of 5 each issued bythe Bank, carrying a dividend rate of 8.10%, in respect of the financial year 2019-20, as per the terms of issuance. This entailed a payout of 40.50 crore (previous year 26.86 crore), excluding dividend distribution tax.Pursuant to Regulation 43A of the Securities and Exchange Board of India (Listing Obligations and Disclosure Requirements) Regulations,2015, the Board of Directors of the Bank have adopted a Dividend Distribution Policy which is in line with the parameters prescribed by SEBIfor distribution of dividend. The Policy is available on the Bank’s website viz. URL: ance/policies.htmlCAPITALDuring the year, your Bank allotted 42,83,511 equity shares arising out of the exercise of Employees Stock Options granted to the whole timedirector and employees of your Bank and its subsidiaries.Post allotment of equity shares as aforesaid, the issued, subscribed and paid-up share capital of the Bank as at 31st March, 2020 stood at 14,56,51,91,690 comprising of 191,30,38,338 equity shares of 5 each and 100,00,00,000 preference shares of 5 each.Your Bank has a Capital Adequacy Ratio (‘CAR’) under Basel III as at 31st March, 2020 of 17.89% with Tier I being 17.27%.During the year, your Bank has not issued any capital under Tier II. As on 31st March, 2020, outstanding Unsecured, Redeemable NonConvertible, Subordinated Debt Bonds were 456 crore.Pursuant to the approval of the Board of Directors on 22nd April 2020 and approval of the shareholders by way of postal ballot on 25th May2020, your Bank undertook a Qualified Institutions Placement. The object of the issuance is to augment the Bank’s capital base and tostrengthen its balance sheet, which would assist the Bank in dealing with contingencies or financing business opportunities (which may eitherbe organic or inorganic), or both, which may arise pursuant to the economic events driven by the outbreak of COVID-19 (which has beendeclared a pandemic by the World Health Organization), or otherwise. On 30th May 2020, your Bank allotted 6,50,00,000 equity shares of facevalue of 5 each at an issue price of 1,145 per equity share thereby raising 74,42,50,00,000.OPERATIONSWe organize our principal banking business activities into the following business units: consumer banking, commercial banking, corporatebanking, treasury, and other financial services. The consumer, commercial and corporate banking businesses correspond to the key customersegments of our Bank. The treasury offers specialized products and services to these customer segments and also undertakes asset liabilitymanagement as well as proprietary trading for the Bank.In addition to our banking activities, our Group offers a significant array of other financial products and services as well, which we operatethrough our subsidiaries. These products and services include banking, financing through NBFCs, asset management, insurance, broking,investment banking, wealth management and asset reconstruction.Consumer BankingThe Consumer Bank services a customer base in excess of 19 million customers covering a wide spectrum across domestic individuals andhouseholds, non-residents, small and medium business segments for a range of products from basic savings & current accounts to termdeposits, credit cards, unsecured and secured loans, working capital and investment advisory.Your Bank continued its strategy of calibrated expansion of its branch network. As of 31st March, 2020, your Bank had 1,600 branches and2,637 ATMs, covering 779 locations. Of the 100 new branches commissioned this year, 50 were in metro, 18 were in urban, 3 semi urban &29 rural branches. Aided partly by 811, your Bank saw fast-paced customer acquisition across all core banking products including savings andcurrent accounts, term deposits, overdrafts and non-resident accounts. Your Bank has also set up 82 e-lobbies, and relocated 20 branchesacross metro and semi urban locations to give easier access and higher convenience to its customers.Your Bank rolled out several initiatives aimed at offering a superior and differentiated customer experience. Your Bank’s investment in thephone based remote engagement through VRM (Virtual Relationship Model) yielded good results and your Bank has expanded this model tonow serve over 0.8 million customers (across 10 languages) and provide them services across banking, deposit, lending and investment needs.Your Bank has continued to take significant steps in the area of digital initiatives.Your Bank continued to ramp up 811 acquisition numbers this year. Your Bank also increased its focus on cross selling to these customers usingnewer digital channel like Whatsapp & Web Notifications, while also driving Digital channel adoption & transactions to better engage withexisting 811 customers.Additionally, after the new regulations on Aadhaar-based account opening in October 2019, your Bank has quickly enabled its officers toacquire new customers using Aadhaar-based biometric acquisition. Now on a monthly basis, 30% of the customers (non 811) are acquireddigitally using Biometric authentication.102Annual Report 2019-20
Persevere. Pioneer. Prosper.Financial HighlightsConsolidated FinancialStatementsBank Reports andStatementsDirectors’ ReportIn order to ensure that banking relationships are also at the start of asset relationships, your Bank has implemented a biometric process to openaccounts for consumer durable finance customers.The National Pension System (NPS) has started offering Your Bank’s customers with online and paperless journey with e-signature for accountopening. We have integrated with the NSDL website for this seamless journey.Your Bank has also successfully enabled Applications Supported by Blocked Amount (ASBA) Application through United Payments Interface(UPI) mode both as an Issuer Bank and as a Sponsor Bank, thereby reducing the physical movement of Broker ASBA Applications.Your Bank is taking aggressive steps to grow its presence in several large customer segments:Your Bank’s exclusive women-oriented Silk program entered into an alliances with Sheroes (a women-only social networking platform with over14 million users) to extend banking services to their customer base. Your Bank holds live chats for the Sheroes fraternity where women fromvarious walks of life can ask questions and clarify their financial concerns.Your Bank, in the last quarter of Financial Year 2020, launched an exclusive Salary Account offering for PSU and Government bodies. Thisoffering comes with exclusive features like Permanent & Partial Disability Cover and Education benefit. With this offering, your Bank intends toforay into this large salaried segment to increase its mark on salary business.For its premium Salary offering, your Bank tied up with vHealth by Aetna (Indian Health Organization) and offered Family Health Care Benefits,like free Health Check-up, unlimited Tele-consultation with doctors and discounts on various Health care benefits.In line with your Bank’s overall strategy, the Non-Resident Indian Business has focused on enhancing customer experience through use oftechnology, across our banking products and platforms. As part of this endeavour, your Bank has gone live with 5 partners on Ripple, adistributed ledger based payment network facilitating seamless cross-border transactions. Additionally, your Bank on-boarded 11 new MSB(Money-transfer Service Business) relationships in the Financial Year 2019-20 to increase coverage across US, UK, Europe and Middle East.Your Bank integrated its services with the Ministry of Corporate Affairs (MCA) and has enabled customers coming to MCA portal for registrationof their companies to select and open a Current Account with the Bank, online from the MCA portal.In the Retail Institutional Business, your Bank introduced a collection solution-based UPI & Quick Response (QR) code, so as to digitise paymentsfor traditionally cash-based segments like religious institutions. This solution solves collection-related requirement of clients and shall help yourBank to acquire new customers in this segment.Your Bank has actively taken part in various Financial Inclusion initiatives. Your Bank has partnered with multiple Corporate BusinessCorrespondents, and operates with more than 300 customer service points across Chhattisgarh, Karnataka, Tamil Nadu, Andhra Pradesh &Telangana, offering banking services and Mahatma Gandhi National Rural Employment Guarantee Act (MGNREGA) payments to Beneficiaries.To enhance its reach and to build customer convenience, your Bank has successfully set up 145 Aadhaar Enrolment Centres in its branchpremises and surpassed the transaction volume mandated by Unique Identification Authority of India (UIDAI). As a result of these efforts, yourBank has been recognized by UIDAI as the Best Performing Private Bank for conducting highest average daily transactions. Your Bank has beenawarded, twice, by the Pension Fund Regulatory Authority of India (PFRDA) as the Best Performing Private Sector Bank for highest persistencyof Atal Pension Yojana (APY) subscribers.Commercial BankingYour Bank’s Commercial Banking business focuses on meeting the banking and financial needs of various customer segments with deepercoverage that goes beyond metro and urban centers, through an expanding network of branches and associates. The business has specializedunits which offer financial solutions in the areas of Commercial Vehicles, Construction Equipment, Tractor and Agriculture business. It servicesthe priority sector by providing finance for Tractor, Crop loans, Small Enterprises and Allied agricultural activities, thereby helping your Bankmeet its financial inclusion goal. In line with growing rural incomes, our Bank’s Commercial Bank branches have experienced robust growthacross product lines on savings as well as lending side.The Tractor Finance businesses reported significant growth and gained market share, while the Commercial Vehicle (CV) and ConstructionEquipment Business witnessed a sharp drop in disbursements due to excess load carrying norms, proposed change to BS-VI norms & a reductionin infrastructure spending by the Government. Asset quality also deteriorated.Your Bank’s Agriculture Financing business continued its focus on the agriculture value chain funding for various agro processing activities. Ithas registered good growth despite volatility and uncertainty in the commodities market. A Good monsoon and expectations of a bumper Rabioutput supported the robust growth. Microfinance Institutions (MFI) segment growth remains robust and asset quality remains good.Branches in semi-urban and rural areas come under the umbrella of the Commercial Bank. This network plays a crucial role in meeting yourBank’s financial inclusion goals and the credit demand of ‘Bharat’. The Commercial Bank’s Branch network has expanded and the Liabilitiesbook has grown at a healthy pace.Corporate BankingYour Bank’s Corporate Banking business caters to a wide range of corporate customer segments including major Indian corporates,conglomerates, financial institutions, public sector undertakings, multinational companies, small and medium enterprises and realty businesses.103
This business offers a comprehensive portfolio of products and services to these customers including working capital finance, medium termfinance, trade finance, foreign exchange services, other transaction banking services, custody services, debt capital markets and treasuryservices. The core focus of this business has been to acquire deepen existing relationships and acquire new quality customers on a consistentbasis, delivering customized solutions through efficient technology platforms backed by high quality service. Your Bank also aims to securevalue addition through the cross-selling of varied products and services.Corporate Banking was subjected to a number of headwinds through the year including from a slowdown in the economy that was particularlyvisible in certain key segments such as auto & auto-ancillaries, telecom and real estate. Your Bank has a higher proportion of working capitaland short term assets and these were impacted due to the slowdown. The slowdown was compounded by elevated risks in the industry dueto high leverage across sectors. In the face of this uncertainty, your Bank was cautious in increasing its exposures and concentration risks. Theresult has been a muted growth in Assets for the year.Your Bank has continued to focus on maintaining the health and profitability of the business. There is far more focus on ensuring right riskreturn metrics and this has led to continued improvement in Asset spreads during the year. There has also been greater focus on increasing theliability side of our business and other non-risk income streams. Improved customer service and product innovations have helped us increasecross-sell and wallet share in non-credit businesses. Corporate deposits including Current Account and Savings Account (CASA) grew strongly,further reducing our cost of funds and improving our spreads. Income from other non-credit income streams including from Forex, CashManagement and other Transaction Banking products has also grown at a healthy rate. We have also focused on converting opportunities forsyndication of loans. This year, we ramped up our income from debt syndication significantly including from high yield opportunities.Robust risk management practices are in place and your Bank has achieved growth over the years without compromising the health of thebook. This year too, despite increased stress in the industry, your Bank has been able to navigate the credit challenges without significantlyincreasing credit costs. Non Performing Assets (NPAs) have been reasonably controlled though recoveries were muted given the slowdown inthe economy.Across corporate segments, your Bank has been proactive in rebalancing its portfolios to reflect economic situations and reducing exposureto situations with heightened risk. Your Bank’s focus on risk management has helped the business reduce its Risk Weighted Assets (RWA) asa percentage of assets over the past few years. The use of Risk Adjusted Return on Capital (RaRoC) pricing models has become ingrained inthe way the Corporate Banking division conducts its business and has helped to optimize pricing, better utilize capital and improve return onequity. Economic Value Add (EVA) measurement tools have been implemented that help your Bank monitor the true risk adjusted value beingderived from each client. These initiatives ensure greater focus on improving income mix in favour of non-capital intensive income streams.Improved credit spreads, higher non-credit income streams and controlled credit costs have ensured that your Bank has been able to grow theprofitability of the Corporate Banking business at a strong rate and maintain a healthy Return on Equity (RoE).Your Bank continues to focus on strengthening its organization platform that positions the Corporate Bank in a strong position to captureopportunities in the market.Your Bank has an integrated Corporate and Investment Banking (CIB) approach towards certain top conglomerates and large corporates. TheCIB model has ramped up well and your Bank was awarded the ‘Best Corporate & Investment Bank in India’ by Asiamoney for the calendaryear 2019, an award that the Bank has won for the third time in the last four years as a testimony to its capabilities.The Custody business continues to grow both in terms of Assets under Custody (AUC) as well as new clients added during the year. Your bankcontinues to be one of India’s largest local Custodians despite the volatility in listed markets in the last 6-12 months. We on-boarded a numberof marquee Foreign Portfolio Investment (FPIs), Alternative Investment Fund (AIFs) and Portfolio Management Services (PMS) Clients during theyear who started using our Custody, Clearing and Fund Accounting solutions. Your Bank also implemented a new Fund Accounting softwareduring the year with minimal disruption to clients and we expect this to be a good driver of new business as we go forward.Your Bank’s dedicated Service Solutions vertical has helped ensure faster customer response and improve customer experience. This vertical isthe single point of contact for all service related and documentation issues with personnel present across the country. While your Bank has beensuccessful in significantly reducing Turn-Around-Time across various processes, it has also smoothly transitioned into its Business ContinuityPlanning (BCP) processes in the Covid-19 scenario and ensured business continuity. Additionally, to address challenges in this Covid-19 climate,the Bank has accelerated a number of its digital initiatives on e-signatures and e-stamping to enhance customer options and is focused ongradually moving the entire customer lifecycle to the electronic platform.Your Bank continues to target productivity and efficiency improvements. There is greater focus on measuring and improving employeeproductivity including of its sales force through use of technology and digital tools. Given high focus in this area, costs have been kept well incontrol further improving profitability of the business.Your Bank continues on its Digital journey to provide the best in class solutions and enhance its customers’ experiences. During the year, wehave updated our Core Trade Platform which has laid the foundation for an integrated trade portal, have built a comprehensive Quickcheckplatform to automate all types of recurring payments through error-free real time mandate registration, have built an Application ProgramInterface (API) based instant and end to end automated e-collections solution, have implemented the United Payments Interface (UPI) 2.0recurring mandate solution and have partnered with FinTechs to provide API and Digital payment solutions. During this digital journey, yourBank has become the leading bank in Bharat Bill Payments System (BBPS), has built the Best in class Corporate Mobility Portal for providing on104Annual Report 2019-20
Persevere. Pioneer. Prosper.Financial HighlightsConsolidated FinancialStatementsBank Reports andStatementsDirectors’ Reportthe go approvals and has been recognized as the Best Cash Management Bank by Asia Money and The Asian Banker. As part of our digitaljourney, we are also upgrading our Cash Management Services (CMS) platform to enhance efficiency and experience, focusing on API basedsolutions and its use across our partners and customers and building a Loan Management and an Escrow Management solution to digitizethe entire transaction process including the documentation process. Furthermore, we have also provided Best in Class Structured solutionsto various state and central governments, including our all in one and modular electronic fund flow application for National Health Mission,Rajasthan.Wealth ManagementWealth Management, your Bank’s private banking arm, caters to a number of distinguished Indian families and is one of the oldest and themost respected Indian wealth management firms, managing wealth for 50% of India’s top 100 families (Source: Forbes India Rich List 2019),with customers range from entrepreneurs to business families and professionals.Your Bank provides an open architecture proposition to its customers, offering both proprietary and external wealth products. This businesshas a strong distribution capability for private clients through distribution/referral model across equities, fixed income & alternates across HighNetworth Individual (HNI) investors. In addition to comprehensive financial solutions, the family office service provides a strategic consolidatedview on the client’s overall portfolio across multiple advisors, in addition to comprehensive financial solutions that go beyond investments.These include value added services such as assistance with investment structuring, banking and credit, consolidated reporting, referral forphilanthropy services and concierge services. The trusteeship services offers estate planning services helping clients with succession planningactivities through creation of private trusts. With an in-depth understanding of client requirements and expertise across various asset classes,this business offers the widest range of financial solutions through transaction-based investment approach. As per the Reserve Bank of Indiaguidelines, advisory activities that were being offered out of your Bank are now offered out of Kotak Investment Advisors Limited, a subsidiaryof your Bank with effect from 20th April, 2019.In addition, your Bank has also built a large Priority Banking business, assisting mass affluent customers with products and solutions developedto meet their financial requirements. The total relationship value across your Bank’s Wealth & Priority offerings is INR 306k crore (as ofDecember 2019) across 4,400 families.In 2019, Kotak Wealth Management has been consistently featured as the Best Private Bank, India across multiple Global and DomesticSurveys. Some of the recent accolades include: Best Private Bank, India by Euromoney Private Banking and Wealth Management Survey- 2019 and 2018 Best Private Bank, Domestic by Asian Private Banker 2018 Best Wealth Management Firm, India by Asian Private Banker’s Indian 2018 AUM League table Best Performing Private Bank by The PWM Global Private Banking Awards 2018International BusinessoGIFT City Branch:The GIFT City Branch, an International Financial Services Centre Banking Unit of your Bank, facilitates your Bank’s participation insyndication of overseas loans, lending to clients in international markets and providing External Commercial Borrowing to eligible Indiancorporates. Your Bank also undertakes client forex and derivative transactions to help offshore clients with management of interest rateand currency risks, in addition to investments in offshore bonds.oDIFC Branch:Your Bank successfully obtained license approvals from the Dubai Financial Services Authority [DFSA] and inaugurated its first overseasbranch at Dubai International Financial Centre [DIFC], Dubai in October, 2019. With this, the Bank complemented its ability to advise andarrange global investment products, provide loans and accept deposits from its overseas wealth & private banking customers that qualifyunder the Professional client criteria of the DFSA.Asset ReconstructionThe Resolutions of several large accounts got seriously impacted due to slow down in the economy even before the Covid 19 crisis. It furtherexacerbated by the large unresolved piling of cases in various judicial forums like Debt Recovery Tribunals (DRT’s), Debt Recovery AppellateTribunal (DRAT), High Courts, including National Company Law Tribunal (NCLT) proceedings under Insolvency and Bankruptcy Code (IBC).Crucial recoveries expected in the month of March has been delayed because of the lockdown due to spread of Corona Virus.The situation looks grim at the moment. The Reserve Bank of India has offered six months moratorium to all the standard borrowers which willgive some breather to the borrowers to handle the financial crisis.Your Bank will however monitor the resolution impact of Covid situation very closely and diligently, spare no efforts to resolve the stress andbad accounts with empathy and compassion.We expect a lot of opportunities to present in the acquisition side, of the stressed loans which your Bank will look at very closely and if theprices offered are reasonable and attractive, we shall be open to acquire several of them.105
TreasuryYour Bank’s Treasury actively contributes to your Bank by way of:oBalance Sheet Management: The Balance Sheet Management Unit (BMU) ensures maintenance of regulatory reserves and adequateliquidity buffers and requisite investments. The BMU also manages Interest Rate & Liquidity risk within the overall risk appetite of theBank.oProprietary Trading: The proprietary trading desks actively trade in products such as Fixed Income, Money Markets, Derivatives, ForeignExchange and Equity. The Primary Dealer Desk – a part of the proprietary Trading desk, actively participates in primary auctions ofgovernment securities, makes market in government securities and engages in retailing of government securities.oCustomer Transactions: The Customer-facing desks at the Treasury assist and manage customer transactions across Foreign Exchange,Derivatives and Bullion products.oForex & Derivatives: Facilitating customer access to foreign currency markets through cash & derivatives products for remittances, tradetransactions and for managing foreign exchange and interest rate risks.oBullion: The Bullion desk provides efficient working capital solutions to domestic Jewellery manufacturers as per the prescribed rulesof Reserve Bank of India. Under License from the Reserve Bank of India, your Bank also imports gold and silver to meet the needs ofcustomers.Further details of the principle business units of your Bank and their performance are available in the Management’s Discussion and AnalysisReport.Response to CovidThe outbreak of COVID-19 has had and continues to have a material impact on the global and Indian economy, the financial services sectorand our business. We summarise below the significant areas where we have seen an impact of COVID-19 on our business and your Bank’sapproach on these areas going forward: Operations and business continuity: Your Bank has taken a number of steps at various levels to enable supervision and support of itsemployees who are working from home. IT and HR teams of your Bank have worked to move many employee systems to internet-firstand mobile-first platforms, ensuring seamless access from home in several areas of operations. While the focus so far had been toprotect the health and ensure the safety of employees, while ensuring minimum disruption to regular banking operations, your Bank willcontinue to improve productivity monitoring as an ongoing process as ‘work from home’ continues. To enhance the quality of customerinteractions and to enable increased personalization, your Bank has upgraded to a new customer relationship management tool whichhas enabled the relationship teams to reach out and service clients in the current situation, thus facilitating banking from home. The moratorium: Until April 30, 2020, at the account level, 26
Transfer to Investment Reserve Account (31.06) 31.06 Transfer to Capital Reserve 114.84 6.99 Transfer to Special Reserve 80.00 40.00 Transfer to Investment Fluctuation Reserve Account 483.13 70.89 Transfer to Fraud Provision (1.40) 1.40 Dividend Paid ** 193.26 160.28 Corporate Dividend Tax 29.09 23.68 Surplus carried to Balance Sheet 20,511.81 .