CORPORATE INFORMATION

Corporate Identification No.

U65992UP2016PLC082804

Website
www.utkarsh.bank

e-mail
shareholders@utkarsh.bank

Statutory Auditors
M/s BSR & Associates
Reliance Humsafar, 8-2-618/2,
4th Floor, Road No.11, Banjara Hills,
Hyderabad – 500034
Telangana

Secretarial Auditors
M/s Anubhav Srivastav & Associates
S 26/46 M-7 Ashok Puram Colony,
Meerapur Basahi,
Varanasi
Uttar Pradesh

Company Secretary
Mr. Anang Shandilya

Registrar & Share Transfer Agent

M/s Karvy Computershare Private Ltd
Unit: Utkarsh Small Finance Bank
Karvy Selenium Tower B,
Plot No 31 & 32, Gachibowli,
Financial District,
Nanakramguda, Serilingampally,
Hyderabad - 500 032
Telangana

Registered & Corporate Office

S-24/1-2, First Floor, Mahavir Nagar
Orderly Bazar,
Varanasi – 221 002
Uttar Pradesh

01 Annual Report FY 2016-17

From the Desk of Chairman
Dr. V. S. Sampath
Dear Shareholders,

It gives me immense pleasure and satisfaction

in sharing my first message to the
shareholders of Utkarsh Small Finance Bank
Limited, as Chairman of the Board of Directors.
I have been associated with the Bank, in the
capacity of Chairman since last fiscal and was
fortunate enough to witness the memorable
start of operations of the Bank.

As you must be aware that during the year

2016 -17, we have been able to get the
necessary regulatory permission from Reserve
Bank of India (RBI) to start the Banking operations
in the month of November, 2016 and effective from
January 23, 2017. We started our journey with the firm
commitment of building an Institution with specialized
range of affordable banking services for the people of India,
particularly in our core area of operation. The launch of the Bank is done at a time when the Government of
India has started various initiatives to increase the digital banking usage post the demonetization.

The Bank is a wholly owned subsidiary of Utkarsh Micro Finance Limited. The holding Company is in the
process of converting itself into an NBFC – Core Investment Company. Our holding Company has played a
significant role in servicing low-income clients and their families, providing them access to financial
services that are client focused, designed to enhance their well-being, and delivered in a manner that is
ethical, dignified, transparent, equitable and cost effective. The holding company in the recent years has
been working effectively on integrating social values into business operations with the firm commitment of
injecting high standards of governance in participative management model in all activities with untiring
efforts to serve its clients and to uphold core social values.

As we now embark on the historical journey of building a bank, we continue our agenda of nation building
and develop an institution that serves, protects and promotes the interest of all segments of society with a
specific focus on the unserved and underserved populace. The year gone by was truly historic for us which
witnessed the incorporation of Bank on April 30, 2016 and saw launch of its banking operations. We see an
opportunity to redefining banking and delivering state-of-the-art solutions across segments. In the coming
days, our activities would be centered around calibrated organic growth of branch network across India.
As of the last financial year, our Bank has 5 General Banking and 350 Micro Banking branches, with a mix of
geographies spread in the urban, underbanked and unbanked areas of the Country.

The Bank during the year has invested on trained manpower and technology to enable banking services for
all. We have developed an easy access Internet banking & Mobile Banking facilities to enable customers to
carry out transactions in a seamless manner. The Bank is also enabling customer acquisition through e KYC
model through Aadhaar enablement.

Annual Report FY 2016-17 02

 While a significant step has been taken in the last year to start banking business, we are motivated by the
challenge to set in motion the customer acquisition in line with our business ambitions. I am sure with your
continued support, we would be in a position to deliver banking services in an effective manner and also
realize shareholders' value. Our customers can now speak to trained bankers 24x7, through our Call center
facility. Our Internet Banking & Mobile Banking facilities enable all customers of the bank to carry out
transactions any time anywhere. Customers' response to our products and offerings in the last few months
has been very motivating for us as an organisation. Feedback on our internet portal for corporate banking
customers, branch design, banking on call, seamless opening of savings account - based on Aadhaar and
many other products and services has been very positive.

Such feedback and response gives us the confidence that we are on the right path to fulfil our vision. On
behalf of the Board of Directors, I want to assure you that we are committed to providing the highest
standards of governance and to ensure this, all the systems, procedures and structures of corporate
governance have been put in place.

Your Board comprises of eminent members drawn from diverse professional backgrounds, skill-set and
experience; requisite Board Committees have been constituted; and policy framework and operating
procedures needed for smooth banking operations have been laid down. The Bank is extremely well
placed to take utmost advantage of available opportunities in the banking industry. The Executive
Committee of the Bank with the active participation of senior management under the proven and dedicated
leadership of the Managing Director & CEO has developed a robust strategy for building a premier banking
institution. Your Bank is fully committed to its endevour of Corporate Social Responsibility in letter and
spirit within the regulatory framework. It will continue to focus on sustainable and impactful programmes
through the platform of Utkarsh Welfare Foundation.

I thank you all for extending your support during the initial stage of setting up of the Bank. I look forward to
your continued support, patronage and guidance in the coming years.
Thanking you.

Yours faithfully,

V. S. Sampath Date : May 29, 2017

Chairman Place : Mumbai

Annual 03
Report FY 2016-17 Annual Report FY 2016-17
 From the Desk of MD & CEO
Govind Singh
It gives me immense pleasure and a sense of
pride to present you with the first Annual Report
of your Bank. The Bank started the journey with
its incorporation on April 30, 2016. The Bank
applied for a Banking Licence to RBI.
Subsequently, the final licence numbered MUM
: 125 was received from RBI on November 25,
2016.

In line with the conditions to the final licence, the

existing businesses of our Holding Company,
Utkarsh Micro Finance Limited was transferred
through a Business Transfer Agreement (BTA) as
at the close of business hours on January 21,
2017. Your Bank started operations with 5 new
branches on January 23, 2017. We received the RBI
approvals and various certifications within a short span
of time and I take this opportunity to congratulate all
employees on your behalf for their focused approach.

Our holding company has provided a strong base for starting the Bank with capacity and capability to
understand the needs of society at large in this geographical belt. Through our Micro Finance, Micro Small
Medium Enterprises and Affordable Housing operations, we had catered to more than 12 lakh clients in 110
districts of 10 states. The legacy of the holding company for transparent and fair practices towards all
stakeholders, clients, employees is being reflected in every endeavor of the group. Our group has always
maintained an approach in its endeavors which is process centric and is equipped with upgraded
technology and people friendly environment to maintain an institution which adheres to the principles of
Reliability, Sustenance Scalability and encourages Socio-economic change.

Your Bank had 5 Banking branches, 23 MSME Loan offices, 3 Housing Loan offices and 350 Micro Finance
Branches as at the close of business on March 31, 2017. We are planning to launch around 50 General
Banking Branches and also to convert our existing 350 JLG Branches into Micro Banking Branches in next
one year. Our operational area which was earlier divided into three hubs (Hub 1, Hub 2 and Hub 3) is now
being reframed as four Zones viz. Varanasi, Patna, Delhi and Nagpur. Our main focus area will remain Uttar
Pradesh and Bihar in immediate future as per our existing expansion plan.

As a Bank, our branches will provide whole gamut of banking services ranging from Savings & Current
Accounts, Fixed and recurring deposits to retail loan products and also insurance and investment products.
The customers can access banking services through multiple channels like branches, 24x7 ATMs, Internet
Banking, Mobile Banking and would also have a Call Center to track and manage customer complaints (if
any).

Annual Report FY 2016-17 04

 While we have started with the basic banking products, we would expand our product suite to cater the
agricultural, commercial vehicle loan segment and other requirements of the society at large.

The Bank has taken significant steps in the Infrastructure and Information technology space and has a Core
Banking Software that takes care of the entire banking requirements including the Microfinance business.
Though there were issues on the migration of data, these were solved proactively by the management and
team and now the CBS is performing to the expected levels. We have a dynamic CRM module that would
cater the entire customer lifecycle such as On boarding, Customer Service, Field Service, Project Service
Automation and Marketing. Going forward, TAB banking solutions would be provided for customer
onboarding.

Considering that we have entered a new business, the Bank has various system and procedures in place to
address the Compliance requirements and the Risk Management practices are in line with the regulatory
requirement. Additionally during the last year, employee training was imparted to give employees an
update on the Utkarsh Journey and Basic Banking training. As against a total staff of 3,845 as on March 31,
2017 3,020 were trained on Basic Banking.

People are the most important assets of any organization. Succeeding through the 'Talent of People' is one
of the fundamental need of any successful institution. At Utkarsh, we always believe in empowering
people, by nurturing their talents and by providing them adequate training in the right direction. In this
transition phase there were many changes in organizational structure as per the Banking business
requirements. In order to fulfill the same, a number of employees joined the Senior Management. The new
joinees across all levels went through a week long induction programmes that ensured allignment to the
overall philosophy and culture of the group.

Your Bank is adequately capitalized with a CAR of 25.87% and in the last year has made profits (PBT) to the
extent of 6.52 crore. The profit is based on the business carried out from January 23, 2017 and March 31,
2017. The details of the financials are given in the ensuing pages and I request you to kindly go through the
same.

Annual 05
Report FY 2016-17 Annual Report FY 2016-17
During the last year, the Government demonitised Specific Bank Notes (₹500 and ₹1,000) which initially
had an impact on the collections and disbursements. There has been significant improvement in
collections towards the later part of the FY. The demonitisation took place while the businesses were
housed in the holding company. However, the collection impact was passed on to the Bank due to the
Business Transfer that took place on January 21, 2017.

With demonitisation, the focus has now moved to the digital banking space and the government has laid a
lot of emphasis on increasing the transactions flow under digital banking. The Reserve Bank of India, our
regulator has also taken concerted efforts to understand the challenges of Small Finance Banks and are
taking necessary steps to address the same. With the focus of the government on Digital Banking and
Financial Inclusion coupled with our approach to serve the underserved and unserved populace we are
entering and exciting era in the Banking space. I am sure that with your continued support, we can bring a
significant impact to the business.

Your Bank has also adopted a new Logo during the last year and our positioning is based on ''Ummeed''
The new logo was launched by the chairman (designate) Dr. V. S. Sampath in the presence of all Directors
and Investors on January 9, 2017.

Our logo is the Sun Logo connotation, culminating into a Symbol, which translates the 'Intent of Utkarsh'. It
highlights a new beginning, a new day, symbol of hope and progress. It powerfully represents the energy
on which every life thrives. The logo artistically reflects the Hindi letter 'U' which stands for Utkarsh. The
Hindu letter 'U' also forms a silhouette of a Bird which denotes 'flight', rising, moving ahead towards Utkarsh
Progress. Awareness programmes were conducted to ensure that employees imbible the elements of logo
and its meaning.

I thank the Boards of the Holding Company and the Bank for their continued guidance. Your Bank took the
support of Dr. P. J. Nayak and team to steer the initial strategy of the Bank and I take this opportunity to thank
Dr. P. J. Nayak and his team on your behalf. The team has laid a strong foundation that would benefit the
Bank in realizing the long term objectives. Your Bank appointed KPMG as the consultant for the Bank
migration, IT migration and also to manage the project management office. I place sincere thanks to the
entire team of KPMG who had stood with us during tiring times and have realized a common goal of setting
up of a Bank. I also thank our Core Banking Software partner- Intellect Design Arena Limited, ATM partner -
AGS Transact Technologies Limited, Branding partner- Focus 360 Degree Media Pvt. Ltd. and PR partner -
Adfactors PR Pvt. Ltd. for their dedicated efforts during this important and critical transition phase. I also
thank the Clients in particular for reposing their faith in our products and services and their continued
patronage.

I look forward to the cooperation of our stakeholders and wish to sincerely thank the entire staff on your
behalf for the sustained efforts displayed during this significant and critical year.

Regards,

Govind Singh
Managing Director & CEO

Place : Mumbai
Date : May 29, 2017

Annual Report FY 2016-17 06

BOARD OF DIRECTORS

Dr. V. S. Sampath
Dr. V. S. Sampath is a 1973 Batch IAS Officer retired from the
prestigious post of Chief Election Commissioner of India and held
several important postings in Central Government including a stint
in the Union Ministry of Rural Development. As Chief Election
Commissioner, Dr. Sampath pioneered several reforms in poll
management, the primary among them being Expenditure
monitoring, setting up of flying squads and surveillance teams.

Dr. Sampath had also been appointed as Director General, National

Institute of Rural Development. Subsequently, he held the post of
Secretary, Chemicals and Petrochemicals where he was pivotal in
conceptualizing and implementing the Petroleum, Chemicals and
Petro chemicals Investment Regions (PCPIR) policy to help the
growth of the Petrochemical sector in India by facilitating massive
investments in the identified Regions.

Dr. Sampath has also served as Secretary, in the Central Power Ministry, where he was instrumental
in implementing several forward-thinking policies which aided the sector. Among them was
Restructured - Accelerated Power Development and Reforms Programme (R-APDRP), a mega-
package for the renovation and modernization of Indian power utilities to help them improve
their performance.

Mr. Kajal Ghose

Mr. Kajal Ghose is a career banker with more than 38 years of
banking experience with SBI. He has rich experience in State Bank of
India and had retired as the CGM. During his career, he had varied
experience including heading retail operations at Branches. He has
also handled key positions in Planning assignments, Inventory
Management, Information Technology.

During the last decade of his career he had experiences in managing

ATM Operations of the Bank and had worked in the Rural Business
Group. He was looking after the Debit and Prepaid card and Mobile
Banking Services at the Bank during the last few years. He headed
Lucknow LHO and Delhi LHO of State Bank of India. Mr. Ghose also
led the Business Intelligence Department of SBI in addition to
running the biggest Banking Data Warehouse.

07 Annual Report FY 2016-17

BOARD OF DIRECTORS

Mr. Somnath Sengupta

Mr. Somnath Sengupta joined the State Bank of Bikaner & Jaipur in
December 1976 as a Probationary Officer and worked in various
roles over the next 19 years. In January 1996 he joined UTI Bank
(which became Axis Bank in 2007) as Head of Treasury Operations.
In 2003 he became the Head of Finance & Accounts and the CFO of
the Bank thereafter. At the time of his retirement from the Axis Bank
in September 2014, he was Executive Director, Corporate Centre
heading the finance, risk, operations, IT, law, compliance, inspection
and investor relations functions.

Mr. Sengupta was a whole-time Director on the Board of the Axis

Bank, a Nominee Director on the Board of Axis UK (the Bank's
subsidiary in London) and a member of the Axis Foundation (the
Bank's CSR arm) Board. After working as a banker for nearly 38
years, he has been working in the social sector in Kolkata.

Mr. Tantra Narayan Thakur

Mr. Tantra Narayan Thakur has over 32 years of extensive

experience, as a Member of the Indian Audit & Accounts Services,
he has provided services related with treasury management,
financial management (including resource mobilisation, investment
decisions and appraisal of projects for project lending), accounts,
cash management, budgeting and budgetary control, and human
resource management. He was also the Chairman of PTC
India Limited.

Annual Report FY 2016-17 08

BOARD OF DIRECTORS

Ms. Anita Ramachandran

Ms. Anita Ramachandran heads Cerebrus Consultants and has
about 35 years of consulting experience in corporate strategy and
Human Resource consulting. She is an alumni of Jamnalal Bajaj
Institute of Management Studies, Mumbai and began her career
with AF Ferguson & Co. where she spent 19 years in the area of
management consulting.

Ms. Ramachandran has set up Cerebrus Consultants in 1995 with a

passion of making a difference in the HR environment and making a
significant impact on the focus on diversity and women's relevance
in the workplace. Ms. Ramachandran is an expert in the rewards
area in the country and has worked with a large number of
multinationals and major Indian companies across a wide range of
sectors. She was the first to bring in several new thoughts in the area
including the concept of total compensation, innovative ways of
incentive design and the focus on performance.

Mr. Govind Singh

Mr. Govind Singh has an overall experience of more than 30 years in
Banking & Finance Sector (from year 1986 to till date) with wide
range of experience at all levels of Banking and Finance.

Presently, as the MD & CEO of Utkarsh Small Finance Bank Ltd, he

looks after all the management activities including compliance, risk,
social performance management, expansion strategy, management
of funds, management of personnel, maintaining relationship with
Bankers, funders, investors and members on the Board of the Bank.
He is involved in day to day management of the Bank and is
responsible for framing new policies and procedure to be adopted
by the Bank in consultation with the Board members & other Heads
of department.

He was previously the business head for Rural and Agri Liabilities,
and the Trust, Associations, Societies and Clubs (TASC) segment at ICICI Bank. He also has
extensive experience with the Retail Liabilities group and Retail Infrastructure Group at ICICI Bank.
He had worked previously with State Bank of Patiala, Surya Roshni group (Financial services), Bank
Internasional Indonesia, Axis Bank and Allahabad Bank.

09 Annual Report FY 2016-17

COMMITTEES OF THE BANK

S.No. Name of The Committee Members Frequency

Mr. Tantra Narayan Thakur
01 Audit Committee Mr. Somnath Sengupta Quarterly
Ms. Anita Ramachandran
Mr. Somnath Sengupta, Minimum Once a
02 Nomination & Remuneration
Ms. Anita Ramachandran Year (as and when
Committee
Dr. V. S. Sampath required)
Ms. Anita Ramachandran
Stakeholders Relationship As and when
03 Mr. Somnath Sengupta
Committee required
Mr. Govind Singh, MD & CEO
Dr. V. S. Sampath
Risk Management
04 Mr Somnath Sengupta Quarterly
Committee
Mr. Govind Singh, MD & CEO

Corporate Social Dr. V. S. Sampath

05 Responsibility Committee Mr. Tantra Narayan Thakur Half Yearly
Mr. Govind Singh, MD & CEO
Mr. Kajal Ghose
06 IT Strategy Committee Mr. Tantra Narayan Thakur Quarterly
Mr. Govind Singh, MD & CEO
Review Committee for Mr. Govind Singh, MD & CEO
As and when
07 Identification of Wilful Mr. Kajal Ghose
required
Defaulters* Mr. Tantra Narayan Thakur

Customer Service Mr. Somnath Sengupta

08 Mr. Kajal Ghose Half Yearly
Committee
Mr. Govind Singh, MD & CEO
Dr. V. S. Sampath
Special Committee to Ms. Anita Ramachandran
09 Monitor Large Value Fraud** Mr. Govind Singh, MD & CEO Half Yearly
Mr. Somnath Sengupta
Mr. Tantra Narayan Thakur
Ms. Anita Ramachandran
Credit Approval Committee As and when
10 Mr. Kajal Ghose
required
Mr. Govind Singh, MD & CEO

* All members are required for Review Committee for Identification of Wilful Defaulters due to the
sensitivity linked to it.

** All Frauds above the monetary value of ₹10 Lakh would be placed to Committee

Annual Report FY 2016-17 10

SENIOR MANAGEMENT
GOVIND SINGH
MANAGING DIRECTOR & CHIEF EXECUTIVE OFFICER
Mr. Govind Singh has an overall experience of more than 30 years in Banking &
Finance Sector (from year 1986 to till date) with wide range of experience at all
levels of Banking and Finance.

Presently, as the MD & CEO of Utkarsh Small Finance Bank Ltd, he looks after all
the management activities including compliance, risk, social performance
management, expansion strategy, management of funds, management of
personnel, maintaining relationship with Bankers, funders, investors and
members on the Board of the Company. He is involved in day to day
management of the company and is responsible for framing any new policy and procedure to be
adopted by the company (in consultation with the Board members & other Heads of department).

He was previously the business head for Rural and Agri Liabilities, and the Trust, Associations,
Societies and Clubs (TASC) segment at ICICI Bank. He also has extensive experience with the Retail
Liabilities group and Retail Infrastructure Group at ICICIBank. He had worked previously with State
Bank of Patiala, Surya Roshni group (Financial services), Bank International Indonesia, Axis Bank and
Allahabad Bank.

ADHIP SYAMROY
CHIEF OPERATING OFFICER
He has over 25 years of experience in Banking and Financial sectors. Prior to
joining Utkarsh, he worked with Axis Bank for nearly 21 years and held senior
leadership roles in Customer Service, Corporate Real Estate, and Employee
Experience & HR Operations. He has also worked with SBI Home Finance Ltd.
handling housing loans to individuals and real estate developers. He is an
engineer from the Indian Institute of Engineering, Science and Technology,
Shibpur (erstwhile Bengal Engineering & Science University).

S. S. RAMANATHAN
CHIEF COMPLIANCE OFFICER
He has 19 years of banking experience spread across Branch Banking,
Operations, Branch Sales Management, Governance and Compliance. Prior to
joining Utkarsh, he was heading the compliance functions relating to Retail
Banking, Control Functions and additionally handled the Subsidiary Governance
in Axis Bank. He is a founding member of UBL Sales Ltd. (Now Axis Securities
Ltd.,) a subsidiary of Axis Bank and has been instrumental in setting up of the
various departments of the subsidiary. He has been involved in implementation
of projects of high importance in Axis Bank. Prior to Axis Bank, he has worked
with IDBI Bank and ICICI Bank in various capacities in branch banking. He is
graduate from University of Madras and ICWAI (Inter) and has also completed a certificate course
from The Strategy Academy.

11 Annual Report FY 2016-17

ABHISHEKA KUMAR
CHIEF FINANCIAL OFFICER
Mr. Abhisheka Kumar has around 15 years experience in Banking Sector, Finance,
Social Sector & Media. He is in-charge of Finance and Accounts function at
Utkarsh (since inception) which cover Fund planning & mobilization, Accounting,
Taxation & Regulatory reporting, Management Reporting, Business Planning &
Analysis, ALM and Capital planning, and shareholder / investor relations and
dealing with the RBI. He was the Regional Head - Microfinance Division, for North
Region of ICICI Bank before he moved to Utkarsh. In ICICI Bank, he handled
various responsibilities in Microfinance Division, both in Product & Relationship
Management function. Prior to ICICI Bank, he has worked with Friends of
Women's World Banking (India) (FWWB), Ahmedabad. He has also worked with Times of India. He
has sound financial knowledge, understanding of financial reporting, and various statutory and
regulatory compliance. He has done his graduation from St. Xavier’s College, Kolkata and Post
Graduate Diploma in Rural Management from Institute of Rural Management, Anand (IRMA).

ALOK PATHAK
CHIEF RISK OFFICER
He has over 19 years of Banking experience in the domain of Risk Management,
Corporate Lending, Liabilities, Forex and Treasury area. Prior to joining Utkarsh
he was with Yes Bank Ltd. as Executive Vice President and in various capacities
with Axis Bank handling various roles at Risk Department for more than 8 years.
Prior to that, he has worked in various fields of Banking including Retail Lending,
Corporate Lending, Liabilities, Forex in State Bank and Oriental Bank of
Commerce. He has also worked as a Dealer at State Bank of Mysore for more than
4 years handling Domestic Treasury. He is a Science Graduate from Kanpur
University, PGDCA from Aptech Computers, JAIIB & CAIIB from IIBF, Mumbai and
he is also a Certified Banking Compliance Professional (a course conducted by
Indian Institute of Banking Finance & Institute of Institute of Company
Secretaries jointly).

ARUP KUMAR DUTTA

HEAD - LIABILITIES
He has been associated with the banking and financial sector all throughout his
career, spanning 25 years. Prior to joining Utkarsh, he has worked with Axis Bank
in the corporate as well as retail banking verticals in senior leadership roles. He
has handled responsibilities in the areas of Retail Branch Banking, Corporate
Liabilities, Cash Management Services and Government Business including
Financial Inclusion initiatives. Earlier, he was with Unit Trust of India, handling
assignments related to Sales & Marketing (strategic planning), Accounts and
Operations. He is an Economics graduate from Visva - Bharati University,
standing First in the Order of Merit and holds post graduate degree from
Himachal Pradesh University, PGDBM (IISWBM, Kolkata), PGCHRM (Gold Medallist, XLRI,
Jamshedpur) and JAIIB (IIB&F, Mumbai).

Annual Report FY 2016-17 12

TRILOK NATH SHUKLA
HEAD - MICRO BANKING
He heads Micro Banking business of the Bank, has an experience of more than 20
years in microfinance sector especially in the northern part of the country. He is a
Postgraduate from Purvanchal University, UP and holds Advance Diploma in
Rural Technology Development and Management from IERT Allahabad. He
joined Cashpor in September 1997 and as his last assignment, was as General
Manager - HRD there and was part of head office operation team. During his stay
at CASHPOR he handled almost all functions of MFI in lead role. He has attended
several training programs in and outside India, including visit to Grameen Bank,
ASA, BRAC in Bangladesh, MFI Program held at Torino in Italy conducted by
Boulder University, Colarado, USA and different MDPs delivered at IIM Ahmedabad, Banglore &
Lucknow. He also attended several conferences / seminars as panelist organized by BIRD / UPMA
based at Lucknow. As part of his training, he got exposure to different MFIs in south east Asia.

MALKIT SINGH DIDYALA

HEAD – MSME
He holds a Post Graduate Diploma in Rural Management (PGDRM) from IRMA. He
is a seasoned finance & banking professional with over 13 years of experience
across various roles and organizations. He also brings a deep understanding of
the rural/informal economy due to his stint in the co-operative dairy sector. He
started his career in Banking at ICICI Bank Ltd. With the microfinance business of
the Bank and handled roles across product and credit. He graduated to a larger
role in ICICI Bank in the Financial Institutions Group handling relationships with
domestic financial institutions and undertaking credit sell-down of underwritten
loans. Post ICICI Bank he joined Bajaj Finance Ltd. as Zonal Head for Infrastructure
Finance and also handled large ticket mortgage and LRDs. In the last role at BFL
he set-up the Financial Institutions Group engaged in lending to other domestic
financial institutions.

VIVEK KASHYAP
HEAD – HOUSING LOAN
He is a Rural Management Graduate (PGDRM) from Institute of Rural
Management, Anand. He has over 11 years of experience in microfinance,
housing finance, sales and marketing. Prior to Joining Utkarsh, he was with
Swarna Pragati Housing Microfinance Private Limited as an Assistant Vice
President, responsible for Maharashtra state Credit and Operations related
activities. Apart from this, he has also worked in various capacities with SKS
Microfinance and had started SKS operations in Vidharbha Region of
Maharashtra. He has also headed the process training department at SKS for a
brief period of time. His last assignment at SKS was as Zonal Manager,
responsible for Maharashtra and Gujarat state. He has also worked with TATA
Motors and FINO Ltd.

13 Annual Report FY 2016-17

VINAY JADHAV
HEAD - ADMINISTRATION
He is having more than 18 years of experience in Banking and Service Industry,
directed full spectrum of facility program encompassing response planning and
implementation, life, safety, security, transportation, and energy conservation.
Prior to joining Utkarsh, he was with Axis Bank for nearly 15 years handling
various responsibilities in Administration, HR Operations, IR, Talent Acquisition,
Protocol & Liasioning, Safety & Security, Vendor & Facility Management. He is a
Commerce Graduate from Mumbai University and currently pursuing Masters in
Human Resources and Development Management from Mumbai University.

RAHUL DEY
HEAD – INFORMATION TECHNOLOGY
He has over 13 years on experience in Banking and Microfinance. Prior to joining
Utkarsh, he was with Ujjivan Financial Services Pvt. Ltd. as Regional Business
Manager, responsible for their Individual lending business in East. Apart from
this, he has worked in various capacities with organizations like, Ballarpur
Industries Ltd, ICICI Bank Ltd, Spandana Spoorthy Financial Ltd. and Anjali
Microfinance Pvt. Ltd. In ICICI Bank, as Regional Manager West Bengal and North
East, he was responsible for the Bank MFI business in the region for more than 3
years. He holds Post Graduate Diploma in Rural Management from Xavier
Institute of Management, Bhubaneswar.

HARESH R WADHWA
HEAD - OPERATIONS
He has been associated with the banking sector for over 22 years. Prior to joining
Utkarsh, he was with IndusInd Bank Ltd. as Vice President and Head – Process
and Projects in General Banking Operations and has domain expertise of
processes and policy documentation, vetting and internal controls. He was also
instrumental in setting up currency chests for the bank. Prior to IndusInd Bank, he
was with ICICI Bank as Chief Manager – Process Reengineering at Corporate
Office, holding various roles covering retail operations, innovations, currency
management including a stint for over a year in ICICI Bank Plc, UK- London office
handling Retail, Trade Finance and Corporate Operations. He had also worked
with UTI Bank Ltd. (Axis Bank) and Shamrao Vithal Co-operative Bank at various branches handling
retail operations. He is a Commerce Graduate from Mumbai University and also holds LLB Degree
from Mumbai University, ICFAI – MBA (Diploma) and CAIIB (Certified Associate of Indian
Institute of Bankers).

Annual Report FY 2016-17 14

VINOD TIWARI
HEAD – PROJECTS
He is having more than 14 years of experience in providing leadership to
infrastructure projects (CRES – Corporate Real Estate Strategic Services) &
Administration at national and international level with specialization in
formulating administrative policies & processes, infrastructure management,
functional strategy, budget planning, vendor management, stakeholder
management, procurement, facility management, security management, travel
management, functional statutory compliances & liaison with Government. He
has worked with companies in the domain of BPO / KPO / IT, banking, government
embassy, infrastructure, real estate, hotels and travel. Prior to joining Utkarsh, he
was associated with IHG Group, Kuoni Group – VFS Global, Logix Group, ICICI Bank & Carlson Group -
Radisson. He is graduate from Delhi University and studied Hotel Management from BVB, German
from BVB & pursing IFM (Masters in International Facilities Management).

ASHWANI KUMAR
HEAD - TRAINING
He is a Rural Management Graduate (PGDRM) from Institute of Rural
Management, Anand (IRMA) and has over 12 years of industry experience. Prior
to joining Utkarsh, he served NABARD Financial Services Ltd. (NABFINS) as AGM
(Finance) for over 2 years. Prior to that he was with Canara Bank as Manager for
over 5 years and 8 months at its Priority Credit Wing, Head Office, and Bangalore,
handling Agri-Business, Priority Small Loan NPA Management and Consultancy
Services with active involvement in setting up of Bank's Financial Inclusion Wing.
Out of his interest, he has taken several sessions on PSL, Agri-business and NPA
Management at Banks, Colleges, CAB-RBI (Pune) and NIBM (Pune). He has
publications in CAB-RBI's annual book and 'Farm Digest'. He started his career as a Research
Associate with Locus Research and Consultants Pvt. Ltd, New Delhi and undertook projects for
Ministry of Rural Development, GoI and other agencies. He has also done CFA from ICFAI (India) and
CAIIB with other Diplomas and Certifications from IIBF. He has UGC Net certification in Management
and is a lifetime member of CFA Council (CCFA, India) and IIBF (India).

G. SRINIVASA REDDY
HEAD - TREASURY
He has over 3 decades of experience in treasury operations domain. Prior to
Utkarsh, he was with Kotak Mahindra Bank in the capacity of Senior Vice
President, Treasury Operations. Earlier he worked with ICICI Bank in Forex and
Domestic Treasury Operations and was on deputation to Clearing Corporation of
India Ltd. during this tenure. He started his career with Corporation Bank and
gained expertise in general banking while working at Mumbai and Bangalore,
subsequent to which he also laid his hands on treasury operations in back and
front office. He is an M. Sc. (Bio Sciences) from Nizam College, Hyderabad with a
Post Graduate Diploma in Advanced Bank Management from NMIMS, Mumbai.

15 Annual Report FY 2016-17

DR. PRIYANKA SINGH
AVP - HUMAN RESOURCE & MDS
She is doctorate from Udai Pratap Autonomous College and MBA from Institute
for Integrated Learning and Management, Gurgaon. She has around 11 years of
professional experiences in the domain of human resource and various other
related domain. Prior to joining Utkarsh, she has worked with Bharti Axa Life
Insurance. She has been awarded with Women Super Achiever Award by
Femina World Women Leadership Congress in 2017.

PANKAJ KUMAR SINGH

DVP - INTERNAL AUDIT MICRO BANKING
He is a Rural Management Graduate (PGDRM) from Institute of Rural
Management, Anand (IRMA). He has more than 11 years of exposure across
Microfinance, Relationship Management, Corporate Banking, and Business
Development & Direct Sales. Prior to joining Utkarsh, he was Area Head - TASC
(Direct Sales) at HDFC Bank Ltd. Prior to that, as Relationship Manager in
Microfinance Division at HDFC Bank, he was responsible for pre-sanction credit
appraisal, post disbursement monitoring & compliance and handling relationship
of North and East based MFI for Bank. He was also responsible for sales &
business development, key account management, new account acquisition,
people management and building healthy professional relationship with clients.

ANANG SHANDILYA
COMPANY SECRETARY
He has around 11 years of professional experiences in the domain of Secretarial,
Legal, Compliance and Corporate Governance framework of Companies while
working with big corporate houses like Tata Group, Delhi Stock Exchange and
Times of India Group. He is a Commerce and Law Graduate, Fellow Member of
the Institute of Company Secretaries of India (ICSI), New Delhi and an MBA
(Finance) from Symbiosis University, Pune.

Annual Report FY 2016-17 16

Management Discussion & Analysis
Introduction

The year has seen landmark change in the organisation's setup. Post receiving the in-principle approval for
Small Finance Bank licence from Reserve Bank of India, our holding company 'Utkarsh Micro Finance Pvt.
Ltd.' was converted into as 'Utkarsh Micro Finance Ltd.', a Public Limited Company to raise domestic equity
to the tune of minimum 51% of total equity. Subsequently, our holding company - 'Utkarsh Micro Finance
Ltd.' promoted 'Utkarsh Small Finance Bank Ltd.' by holding 99.99% of the equity.

Starting the Microfinance operations, back in September 2009; Utkarsh Micro Finance Ltd. was the
youngest in the batch (in terms of vintage) of 8 NBFC-MFIs securing the in-principle licence for Small
Finance Bank (SFB) operations from Reserve Bank of India.

During the FY 17, Utkarsh expanded in geographies of all its 10 States viz. Uttar Pradesh, Bihar, Jharkhand,
Delhi-NCR, Uttarakhand, Haryana, Himachal Pradesh, Maharashtra, Madhya Pradesh and Chhattisgarh. As
a Bank, the General Banking Branches are being launched and the Micro Finance Branches are being
converted into Micro Banking Branches in a phased manner. Simultaneously, the Micro Enterprises Loans
(MEL) and Affordable Housing Loans (AHL) Branches also being converted into Micro, Small and Medium
Enterprise Loan (MSME) Branches and Housing Loan (HL) Branches for covering even newer client
segments with even larger ticket size.

As at the close of March 31, 2017, Utkarsh had Micro Finance Business at 351 locations, MSME Business at
23 locations, Housing Loan Business at 3 locations and 4 General Banking Branches with a total of 3,845
employees pan 110 districts of 10 States in the country.

The Net Worth of the Company was ₹675.4 crore as on March 31, 2017 and the Assets Under Management
(AUM) were ₹1,613.6 crore. The Total Business was ₹1,632.3 crore, including the deposits of ₹18.7 crore.

Technology has been envisaged as the key driver for ensuring delight customer experience. Already the
Bank has upgraded from Mobile Banking to Tab Banking at grassroots levels. Bringing in efficiency through
introduction of technology would stand us out in delivering banking services to under and un-banked
segments of society. Simultaneously, focus would also be on serving the semi-urban, urban and select
metro locations for securing maximum liabilities business and to have greater credit delivery in low CD
geographies at affordable and accessible rates.

Macro Environment – Economy and the Banking Sector

India has emerged as one of the fastest growing economies in recent times. The global growth prospects
also look positive with the main economies gradually ascending the growth ladder. The key triggers of
growth being witnessed is increased government spending in infrastructure, pick up in private investment,
good monsoon, expected surge in consumer spending with pent up demand being satiated and the recent
teaser being the Goods and Services Tax (GST), which is likely to be implemented from July 1, 2017, having
the potential to spur the economy further. According to IMF “The Indian economy is growing strongly and
remains a bright spot in the global landscape.”

In the Banking sector, it is observed especially in context of Small Finance Banks that the sectoral credit off-
take (credit growth in FY17) continues to be driven by the services and retail segments. For FY18, CARE
expects bank deposits to grow at 11-12% as it will continue to be the major avenue of saving for individuals.
As per CARE estimates, the bank credit is to grow at 7-8%.

17 Annual Report FY 2016-17

This growth will be majorly sourced from the retail sector with mortgages benefiting from RERA in
particular.

The Government of India and the Reserve Bank of India have been making concerted efforts to promote
financial inclusion as one of the important national objectives of the country. Some of the major efforts
made in the last five decades include - nationalization of banks, building up of robust branch network of
scheduled commercial banks, co-operatives and regional rural banks, introduction of mandated priority
sector lending targets, lead bank scheme, formation of self-help groups, permitting BCs/BFs to be
appointed by banks to provide door step delivery of banking services, zero balance BSBD accounts, etc.
The fundamental objective of all these initiatives is to reach the large sections of the hitherto financially
excluded Indian population.

With 8 NBFC-MFIs securing Small Finance Bank licence, 2 IPOs of NBFC-MFIs over-subscribed this year, a
projected growth for the Micro Finance industry of 200-300% by 2020; the FY 17 had been a very
successful year for Indian Microfinance Industry.

Macro Environment, the context of a new entrant – the Small Finance Banks
In this context the setup of first ever Small Finance Banks is to take the financial inclusion initiatives to
higher levels. SFBs are full-fledged banks (albeit subject to certain restrictions) meant to further financial
inclusion by provision of savings vehicles and supply of credit to small business units, small and marginal
farmers, MSMEs and other unorganized sector entities unlike payment banks, which aren't authorized to
lend. Consequently, not just are SFBs subject to all regulations pertaining to commercial banks, they are
also required to extend 75% of credit to sectors classified as priority sector lending by RBI. Also, at least
50% of their loans portfolio should constitute small-ticket loans of up to ₹25 lakh.

In a country where financial inclusion statistics are dismal, the opportunity for SFBs, many of whom (8 out
of 10) are also experienced MFI players, is massive. According to an RBI report, 43.9% of all rural
households rely on non-institutional sources of cash credit like professional moneylenders, who charge
predatory interest rates. The Committee on Financial Inclusion headed by C Rangarajan notes, “…despite
the vast network of bank branches, only 27% of total farm households are indebted to formal sources…”
There are also large regional discrepancies, with the northeastern, eastern and central parts of the country
losing out in particular. The Fourth Census of the MSME Sector in 2009 also noted that only 5.2% of all
MSME units availed of credit through institutional sources. Hence, there lies a huge potential, especially for
the SFBs in the hinterland and under or unbanked geographies of the country.

SFBs will have to compete with established public sector and regional rural banks. These banks enjoy
higher trust in the community, are well placed in the rural markets, and are aggressively trying to enhance
their market share. Their existing infrastructure, reputation, business correspondent network, and
expertise in deposit mobilization will be a threat for SFBs – particularly after the efforts they have put in to
open accounts as part of Jan Dhan Yojana (JDY) and the government subsidized add-ons that are part of
this account, such as accident and life insurance. However, the company believes that in the long run
Payment Banks may well provide even fiercer competition for SFBs.

Second, the cost of deposit mobilization will be higher for SFBs considering the rural/underserved
segment they will be catering to. In the past, such segments have had low average deposit sizes. The total
balance in Pradhan Mantri Jan Dhana Yojana accounts as on March 29, 2017 has been close to ₹630 billion.
Thus, on an average the net deposit balance of a customer from the target segments is approximately
₹2,200 per account. While this might be increased with recurring deposit products and broadening the
client base, the cost of deposit mobilization will still be higher than scheduled commercial banks that have
30-40% Current-Account-Savings-Account (CASA) deposits.
Annual Report FY 2016-17 18
For a bank, there should be a healthy mix of current accounts and savings accounts as they are low cost
funds that increase the net interest margin. In case of SFBs, considering the target segment they will cater
to, it is expected that majority of the deposit mobilization will be through savings accounts and term
deposits.

However, since the yields are much higher for SFBs (most of them have significant micro finance portfolio),
and the alternate cost of fund is between 10%-12% from whole sale lenders, SFBs can still be profitable.
The deposit build up will take around 5 years and therefore, the cost of fund will take time to come down.
But SFBs can manage NIM through higher yields at least for next few years till the time microfinance
product dominates the product mix.
Utkarsh Small Finance Bank – the Positioning
Utkarsh Small Finance Bank would continue to focus on its micro finance business as it is a high yield and
negligible delinquency product. The Bank will remain primarily an 'inclusion player'. As a bank there are
opportunities to offer other loan products, especially retail products like Micro Enterprise loan, Two
Wheeler Loan, Personal loan and used /new commercial vehicle loan. The bank has already started
working towards launching these products.

In the market, the competition will be from other SFBs as well as NBFC-MFIs. The competition landscape
will not change much as most of the SFBs have been already in this business. However, the company sees
definite advantage with respect to NBFC-MFI. SFBs, by definition, will cater to the low-income segment
and can offer a comprehensive product suite. Thus, SFBs will have an opportunity for vertical penetration
with an expanded range of products, unlike the MFIs/NBFCs that expand horizontally with limited number
of products. This will also allow SFBs to create a judicious mix of high and low value customers, thus
strengthening the business case. A holistic product suite is likely to lead to both improved customer loyalty
and reduced delinquency as customers will not want to compromise their access to high quality and secure
savings services.

Operational Performance
Microfinance under JLG Model

The Bank is operating in 10 states viz. Uttar Pradesh (with its headquarter at Varanasi), Bihar, Madhya
Pradesh, Uttarakhand, Chhattisgarh, Maharashtra, Delhi-NCR, Haryana, Jharkhand and Himanchal
Pradesh covering 110 districts through 351 Micro Finance business branches and serving 12 lakh active
loan clients with total portfolio outstanding of ₹1,613.6 crore as on March 31, 2017.

During the year, the ticket size of Micro Finance (JLG) Loans was increased from ₹40,000 to ₹50,000, the
minimum continued to be ₹6,000.

In its Banking avatar, the Micro Finance Branches are being augmented with facilities of Micro Liability
products and being re-chiristened as Micro Banking (MB) Branches.

The Micro Banking journey has been exciting throughout the year. The journey experienced some hiccups
post demonetization. Though it has an overall impact on the business of the company, some pockets had
witnessed more specific local concerns. The company's On-Time Repayment Rate (OTRR) dropped down
to 12% for November 9, 2016. However, the energetic team Utkarsh with full zeal worked towards the
gradual improvement on this front. For Q4, it was brought back to 90%.

From Branch banking operations point of view, the company also upgraded its CBS software and moved
from BR.Net software to Intellect's CBS Solution.
19 Annual Report FY 2016-17
The software upgrade took considerable engagement from all employees' front, well supported by the
internal IT Team and Software Partners. Today, the company is fully functional on CBS of Bank for the Micro
Finance Lending. This is a big leap in conversion of MF Branches into MB branches.

Utkarsh plans to convert all its 351 Micro Finance Branches into Micro Banking Branches (with few cases of
merged branches) over a maximum span of 2 years to complete. The current employees of Micro Finance
Branches eagerly look forward onto the opportunities of doing additional business of micro banking which
will not only include credit services but liabilities business also at such locations where banking penetration
is either not present or on a low supply levels.

The Bank aims to grow its Micro Banking business by ₹1,000 crore in terms of portfolio outstanding by
FY18 as compared to FY17. Most of the portfolio growth will come from the existing and even new
branches in current geographies as Bank does not intend to go to any new geography in this FY. To take
care of the portfolio growth, Bank is in the process of launching two new loan products of ₹60,000 and
₹1,00,000 for the JLG segment.

The existing clients are much excited on being associated with Utkarsh, which is now a Bank, thereby
serving as a single window to address all their financial needs. It is easy for the clients to have credit line
with single institution to save their time from attending several center meetings and also to cater all kinds of
other non-credit requirement like savings, insurance & remittance products.

Micro, Small and Medium Enterprises (MSME) Loan

The MSME (erstwhile MEL) business performance for the financial year 2017 can be viewed from two time
slots point of view. One being the pre-demonetization period i.e. from April 1, 2016 to October 31, 2016 and
secondly the demonetization and post-demonetization period from i.e. November 8, 2016 to March 31,
2017.

The MSME business stood at ₹95.91 crores with 17,123 active clients as on October 31, 2016. This was an
increment of 2,797 clients and `8.81 crores of portfolio outstanding compared to the same as on March 31,
2016. The active base has increased by 16.33% and the portfolio outstanding by 10.11 % over March 31,
2016.

The period from November 8, 2016 onwards marks the impact of the demonetization on the MSME
business. The business was halted during the demonetization period starting November 8, 2016 to focus
the efforts of the team on the collection activity so as to minimize the impact of the event. This led to a
decline in the portfolio outstanding and the portfolio stood at ₹87.96 crores with 16,855 active clients as on
December 31, 2016, marking the end of the demonetization period.

The business activity was planned for restart after January 23, 2017 marking the soft-launch of the Utkarsh
Small Finance Bank considering the changes in IT systems and processes that the launch entailed. During
the interim period, the team focused on the collection activity. The stabilization of the IT systems took a little
longer than anticipated and the business could commence only from March 1, 2017 effectively resulting in
a stagnant period of 4 months during which no fresh business was booked. As a result of this the MSME
portfolio decreased during this period and the portfolio outstanding stood at ₹78.26 crores with 16,911
active clients as on March 31, 2017.

The demonetization event had an expectedly negative impact on the portfolio quality of the MSME
business due to both unavailability of cash for repayment as well as negative impact on the borrower's
financial profile.

Annual Report FY 2016-17 20

This negative impact was contained to the extent of the collection efforts of the team during the period. The
portfolio quality metrics for the period and prior to it are as following:

As on October 31, 2016 As on October 31, 2016 As on March 31, 2016

Particulars No. of Portfolio No. of Portfolio No. of Portfolio
Loans Outstanding Loans Outstanding Loans Outstanding
Above 90 Days 541 ₹2.12 crore 669 ₹2.67 crore 671 ₹2.75 crore
Total 17,123 ₹95.91 crore 16,855 ₹87.96 crore 16,911 ₹78.26 crore
The branch network of MSME business has increased from 21 to 23 locations in FY 2017. During the year,
the ticket size of for MEL segment had been enhanced from ₹3 lakh to ₹25 lakh as MSME Loans. The
average outstanding ticket size for the MSME business was around ₹46,000 as at the close of financial year.
The business sourcing for MSME is done through both existing JLG clients by upgrading them to higher
ticket individual loans as well as open market sourcing. The distribution of JLG based sourcing to open
market sourcing for FY 17 was 20: 80 respectively.

MSME business plan for FY 18 envisages a significant jump in branch footprint of 30 new branches taking
the total number of branches to 53 by Q3 FY 2018. This will significantly increase the geographical
coverage and business sourcing capability. With 53 branches the MSME business will be present across 10
states in FY 2018. Further, the business shall focus on creating a balanced mix of secured: unsecured loans
by focusing on increased sourcing of secured loans (the secure: unsecured mix at end of FY 2017 was
3:97). This shall also improve the average ticket size to around ₹2.5 lakhs.
Housing Loan

In India, shelter is still beyond the reach of millions and lack of financial resources is one of the major
reasons behind this. Driven by the belief that housing is a productive asset and a better living condition
further improves the productivity of an individual / family, ultimately leading to the greater economic
development, the company forayed into the affordable housing loan segment by starting pilot at 2 location
i.e. at Varanasi and Nagpur.

The portfolio outstanding as on March 31, 2016 was ₹52.5 Mn. Total loans of ₹63.9 Mn have been
sanctioned till date whereas ₹60.6 Mn has been disbursed to a total of 172 clients. In FY 18, the company is
planning to launch the product in Bihar, Jharkhand, Haryana, Uttarakhand, Madhya Pradesh and
Uttarakhand.

During the year, the ticket size for Housing Loan Segment was envisaged for upto ₹1 crore as against its
earlier format of Affordable Housing Loans of upto ₹5 lakh. This was done with inclusion of varied housing
loan products. With the learning and inputs taken from the customers during the pilot phase, product has
been modified to meet the need of the customer.

Post transition to a bank, the loans from ₹1 lakh upto ₹1 crore shall be given to purchase/construct houses
as well as for repair and renovation. Customers having good repayment track can also avail Home Loan
Plus to meet their consumption related needs. Bank has designed products to meet the requirement of all
types of customers, however, the focus shall remain on the affordable housing segment where customer
has ability and willingness to pay the loan but due to the lack of valid income proof documents they are not
able to get finance.

Recently bank has signed MOU with NHB to implement the Pradhan Mantri Awas Yojana for both EWS / LIG
segment and MIG segment. The beneficiary would be eligible for interest subsidy on
purchase/construction of a house as per government norms.
21 Annual Report FY 2016-17
Liabilities Business

The Company started its operations as a Bank from January 23, 2017 with four General Banking (GB)
branches, one in each of the four zones. Besides, one of the erstwhile Joint Liability Group (JLG) branches
in Varanasi was converted into a Micro Banking Branch.

Initially, the four branches focused on stabilizing the systems and processes and opening of employees'
salary accounts. Later, the branches extended their activities to opening savings and term deposit accounts
of close relatives of employees as well as term deposit accounts of external customers. With 5 branches
having stabilized by April 2017, another 12 branches (6 GB and 6 MB) were operationalized by the first week
of May 2017 taking the total number of operational branches to 17. By the end of Q1FY18, a total of 59
branches (37 GB and 22 MB) are expected to be operational. The network expansion target for FY 18 is 400
branches that includes 50 General Banking branches and 350 Micro Banking branches.

The Bank proposes to have ATMs in each of its General Banking branches and select Micro Banking
branches. During the year, around 40 offsite ATMs are also proposed.

Besides, the retail customer segment, the Bank has been able to commence banking relationship with
some important Institutions and Banks as well. Every branch of the Bank has also successfully created a
sizable database of potential customers (retail and Institutional) and a steady lead funnel which will help in
deeper penetration in respective catchments.

The Bank's customer acquisition strategy is based on the five pillars of Technology, Services, Products,
Smart Banking and Utkarsh Approach. There is a big thrust on digital channels (Internet Banking and
Mobile Banking) to provide real-time banking solutions and services to the customers.

The Bank has plans to offer e-KYC based account opening through hand held TABS, whereby customers
with Aadhaar cards can open savings accounts seamlessly and get all pre-generated kits on the spot. This
will enhance the customer onboarding experience.

The Bank has a fully functional Customer Relationship Management (CRM) tool in place that helps in
getting a complete 360 degree view of the customer and tracking all service requests put in by across all
delivery channels. Besides, the CRM tool aims to provide the complete functionalities for generation and
conclusion of sales, including Lead Management, Lead Closure, Incentive Calculation for the sales channel
and planning marketing campaigns.

The products that the Bank proposes to launch during the year include Insurance (Life & General), Mutual
Funds, Online Trading, Money Remittance (Inward), POS, UPI, Bharat QR, Cash Management, etc.

Annual Report FY 2016-17 22

Financial Performance and Resource Mobilisation
Analysis of Balance Sheet and Profit & Loss account is as follows
Summarized Balance Sheet (Consolidated) of Utkarsh:

Particulars FY 2017 FY 2016* % Growth

(₹ in Crore)
Liabilities
#
Networth 675.5 252.6 167.4%
Deposits 11.0 -
Borrowings 1,901.8 1,217.0 56.3%
Others 62.9 69.2 -9.1%
Total 2,651.2 1,538.8 72.3%
Assets
Cash and Bank 73.1 35.5 105.9%
CRR 41.4 -
SLR 729.7 -
Advances 1,593.9 1,201.3 32.7%
Others 213.1 302.0 -29.4%
Total 2,651.2 1,538.8 72.3%
*FY 2016 figures of Utkarsh Micro Finance Ltd. are being compared to FY 2017 figures of Utkarsh Small Finance Bank to know
the growth at group level
#
It includes CCD of ₹60.54 crore

Deposits

As on March 31 2017, total deposits (post intercompany adjustments) stood at ₹11.04 crore. This was due
to commencement of banking operations in the last quarter of FY.

Borrowings

Borrowing has increased to ₹1,901.83 crore as on March 31 2017 from ₹1,217.0 crore as on March 31 2016.
During the FY 2017 the bank has raised ₹1,311 crore debts, out of which ₹877 crore was unsecured.
Currently the bank maintains diversified funding profile. The funding profile, however, will change in next
2-3 years with borrowing to be replaced by deposits. As on March 31 2017 funding mix are as per table
below:
Nature %
Term Loans 44.3%
NCDs 34.3%
Refinance 10.5%
Sub-debt 8.3%
ECB 1.7%
Deposits 1.0%
Total: 100.0%

Cash & Balances in current account

Cash & Bank has shown increase of 105.9%.

23 Annual Report FY 2016-17

Investments

Average interest-earning investments in FY 17 was ₹409.3 crore. This was primarily due to requirement of
SLR investment and also deployment of surplus liquidity in Government securities & T Bills. Average
interest-earning non-SLR investments primarily include investments in Mutual Funds.
Advances

The advances of the Bank has shown a growth of 32.7% in FY 2017 as compared to FY 2016. The Bank has
closed its book at ₹1,593.9 crore as compared to ₹1,201.3 crore in FY 2016. The advances consists of 95%
from group lending and 5% from MSME.

The growth in H-1 of FY 17 was 24.2%. However, the portfolio has degrown post demonetization
announced by the Government. The collections have come down post demonetization due to slowdown
in business activities of the borrowers and dispensation provided by RBI (earlier by 60 days and later
increased to 90 days) to financial institutions in terms of recognizing NPAs. This special consideration was
misrepresented to the borrowers by local influential individuals and thus resulted in fall in collection
efficiency in few areas of states like Maharashtra, Uttarakhand and Madhya Pradesh.

A total portfolio of ₹ 60.8 crore has been written off in the books of Utkarsh Micro Finance Ltd.

The summarized Profit & Loss Statement of Utkarsh is as follows:

Particulars FY 2017 FY 2016 % Growth

(₹ in Crore)
Interest Income 393.0 241.5 62.8%
Interest Expense 183.6 111.6 64.5%
Net Interest Income 209.4 129.9 61.3%
Non-Interest Income
Fee Income 14.8 10.2 45.5%
Treasury 11.2 -
Other 3.7 2.0 85.5%
Operating Income 239.0 142.0 68.3%
Operating Expense 121.4 72.0 68.6%
Operating Profit 117.7 70.0 68.1%
Provisioning 4.0 8.6 -53.6%
Write Off 60.8 0.3 20156.7%
PBT 52.9 61.1 -13.4%
Tax 18.5 24.3 -23.7%
PAT 34.4 36.8 -6.6%

Interest Income

The interest income has increased to ₹393 crore in FY 2017 from ₹241.5 crore in FY 2016, reflecting a
growth of 62.8%.The increase is mainly due to increase in average advances. Average advances has
increased to ₹1,662.3 crore as on March 31 2017 from ₹1,017.9 crore as on March 31, 2016, showing an
increase of 63.3%.

Annual Report FY 2016-17 24

Interest Expense

Interest expenses has increased by 64.5% mainly due to higher borrowing during FY 2017. The average
borrowing in FY 17 has shown an increase of 91.2% over FY 16. However overall cost of fund has reduced
to 12.3% from 13.6% showing a reduction of 120 bps. The marginal cost of borrowing for H-2 of FY 2017
has come down to 10.9%.

Non-Interest Income

The following table sets forth, for the periods indicated, the principal components of non-interest income.

Non-Interest Income FY 2017 FY 2016 %

Fee Income 14.8 10.2 45.5%
Treasury Income 11.2 - --
Other Income 3.7 2.0 85.5%
Total 29.6 12.2

Fee income (processing fees) has increased by 45.5% mainly on account of growth in advances and write
back of unamortized portion of written off portfolio.

The Bank has started its banking operation on January 23, 2017. Hence, there is no treasury income in FY
2016.

Operating Expenses

Operating expenses has increased by 68.6% to ₹121.4 crore as on March 31, 2017 from ₹72.0 crore as on
March 31, 2016. The increase is mainly due to increase in SFB related cost. However if positive write back
on provisioning is excluded, operating cost increased by 90.6%.

Profit After Tax (PAT)

PAT has reduced by 6.6% to ₹34.4 crore in FY 2017 from ₹36.8 crore in FY 2016. The reduction in profit is
because of writing off of ₹60.8 crore mainly due to demonetization.

Treasury

With the advent of Banking operations, the company has setup suitable treasury function in place. The
Treasury function encompasses the Reserve Management, Liquidity Management, and Trading with
suitable Risk Management. The primary role of treasury department is to ensure maintenance of regulatory
reserves namely CRR and SLR, while managing Asset Liability Gaps and Ensuring liquidity to the Bank at
optimum cost. Under the trading role, it initiates proprietary positions with a view to trade for booking
profits for being a profit center. All these is done keeping in mind the risks associated to its role and ways to
manage with suitable control measures in place.

The Treasury governance structure include the Board of Directors, which is the reviewing authority of the
performance of Treasury, at periodic intervals and the final approval authority for treasury policies; the
Asset Liability Management Committee (ALCO), comprising of senior management responsible for
balance sheet management, pricing of products of assets and liabilities to optimize NIM and NII, measuring
liquidity and interest risk, planning for contingency liquidity funding; and the Investment Committee,
which issues suitable operational guidelines in the backdrop of regulatory / management requirements
and periodical review of treasury operations.

25 Annual Report FY 2016-17

Currently the Bank Treasury participates in Call / Notice / Term Money Markets, Interbank Fixed Deposits
and Short-term debt schemes of Mutual Funds, apart from G-Sec Markets to actively manage short term
surplus funds in the system and to meet credit disbursal requirements in a timely manner while optimizing
the yields on short term parking of the funds.

Since the Bank is subject to CRR and SLR requirements, the Treasury ensures adherence to the regulatory
stipulations on day to day basis. Treasury classifies the investment portfolio comprising of Central
Government Securities, State Development Loans, T-Bills and Short Term Debt Schemes of Mutual Funds
into HTM and AFS. The accounting treatment of the holding and revaluation is as per regulatory
prescription.

The Bank is in the process of obtaining membership to CCIL settlement segment, NDS OM, NDS Call,
Demat operations for Non-SLR investments which enables to expand the investment and trading activities,
including Repo / Reverse Repo, Bonds / Debentures, PTC, CP, CD etc.

The Bank's Treasury is considering raising resources by issue of Certificate of Deposits, availing refinance
available, participating in Inter Bank participation markets and other instruments during the FY18.

However, the Bank is not currently looking at the exposure to capital market instruments and may consider
participating in IPO markets, loans against shares after gaining confidence and experience in stability of
processes, systems and enhancing people skills.
Audit and Internal Control

The Internal Audit Department (IAD) at Utkarsh Small Finance Bank is responsible to review and monitor
the risk framework within the company. The roles and responsibilities of the Internal Audit Department is to
provide independent assurance on the effectiveness of implementation of risk management framework,
including the overall adequacy of the internal control system and the risk control function and compliance
with internal policies and procedures. It is also targeted to highlight early warning signals and adding value
and efficiency within the company by mitigating the possibilities of malpractices. IAD helps to improve the
operations by bringing a systemic, disciplined approach and improving the operations and control
process. It is the role of Internal Audit to provide independent, objective assurance to the management that
will add value and improve Utkarsh's operations.

All departments of Utkarsh are subjected to a strong internal audit scrutiny every quarter. Audit is carried
out at Micro Banking branches (JLG branches), MSME branches (MEL and HL branches) and Head office
(for non-opretation i.e. all support departments) to evaluate the internal controls of the organization and
adherence to the policy and process of the company.

Micro Banking branches (JLG branches) are audited based on two important tools i.e. Short and
Comprehensive audit. As per policy both short and comprehensive audit are carried out at a branch once in
a quarter for a duration of 2-3 days & 5-6 days respectively. However due to various reasons, short audit
could not be conducted at all the branches during the year. During FY 16 -17, total 1421 audits (1257
Comprehensive Audit and 164 Short Audit) were conducted at 346 Micro Banking branches (JLG
branches). During FY 2016-17, 15754 centers meetings were covered by the IAD team which amounts to
20.76% of total center meetings of the company. IAD team also visited 30,925 Active Loan Clients (ALCs)
during the course of audit which amounts to 2.57% of the total ALC of the company.

Comprehensive audit format and Branch Audit Score Sheet were fine-tuned during the FY 16-17 to
incorporate the learnings from the field and also to incorporate changes in the Utkarsh's policies and
processes. Audit synopsis, to highlight critical observations during the audit, is prepared and brought to
Annual Report FY 2016-17 26
the notice of concerned Regional Managers on a weekly basis for a quick resolution. Observations and its
resolutions provided by Regional Managers are compiled and presented to Senior Management twice a
month.

MSME branch (MEL and HL branch) audit is also conducted on quarterly basis and lasts for 3-4 days. During
the FY 16-17, all MEL and HL branches were audited once in each quarter.

Audit team scrutinizes the Non Operations Departments on quantitative as well as qualitative aspects
including engagement quality, Target Resolution Time (TRT) adherence and resolution quality. Audit of
Non-Operations Department is conducted on quarterly basis at the Head Office of the company. During FY
16-17, 33 audit of Non Operations Departments were conducted.

In FY 15-16, IAD started quarterly meeting with JLG operations team (Regional Manager & Divisional
Heads) at Regional level for quick resolution of audit observations. It continued in FY 2016-17 and all
regions were covered during the FY 16-17. Monthly meeting and training of Auditors were conducted at
Hub level throughout the year. In FY 17-18, IAD plans to further strengthen its team with intense focus on
training and developments of auditors to meet out the audit requirement of Bank branches. IAD also plans
to introduce a laptop/tab-based Audit approach in order to digitise the Audit process and to integrate it with
overall MIS structure of the Bank. It will bring in efficiency, will ensure proper maintenance of MIS with
smooth functioning of Audit department.

Post withdrawal of the legal tender status of the ₹500 and ₹1,000 notes (SBN), clients faced shortage of legal
currency which affected repayments of all MFIs including Utkarsh. RBI's notification dated Nov 21, 2016,
(DBR.No.BP.BC.37/21.04.048/2016-17) on providing additional 60 days beyond what is applicable for
recognition of a loan account as substandard, was misconstrued as a repayment holiday for 60 days. This
further impacted the collection across all MFIs. Rumors of Loan waiver and other such local concerns in
some areas further aggravated the situation. Western UP, Gorakhpur region, Uttarakhand, NCR and
Maharashtra were majorly impacted due to loan waiver rumours. Local elections in Nagpur, Amravati and
Yavatmal saw local concerns for not repaying Utkarsh does not have any exposure in Western UP and
collection in Gorakhpur region has improved substantially in last quarter of FY 2016-17. In Uttarakhand and
Maharashtra, situation is still sticky and will take some more time to improve.

Risk Management

The Bank has an evolving risk management model, aligned with regulatory standards and best practices,
and proportional to the scale and complexity of its activities. The Bank is exposed to various risks that are
an inherent part of any banking business. The major risks are Operational Risk, Credit Risk, Market Risk and
Liquidity Risk. Bank has policies and procedures in place to measure, assess, monitor and manage these
risks systematically across all its portfolios.

An independent Risk Governance Structure, in line with best practices, has been put in place, in the context
of segregation of duties and ensuring independence of Risk Measurement, Monitoring and Control
functions. This framework visualizes empowerment of Business Units at the operating level, with
technology being the key driver, enabling identification and management of risk at the place of origination
itself.

The various risks across Bank are monitored and reviewed through the Executive Level Committees and
the Risk Management Committee of the Board (RMCB) which meets regularly. In terms of RBI Guidelines for
Small Finance Bank, the Bank is adequately capitalized as per the current requirements.

27 Annual Report FY 2016-17

Operational Risk:
A dedicated team within the risk management function is responsible for assessment, monitoring and
reporting of operational risk exposures across the Bank. A Board approved Operational Risk Management
Framework has been put in place.

Processes have been put in place to collect the operational risk loss/event data from all the Units and
analyse the same to ascertain the process gap and take steps to avoid the recurrences of these events. Key
Risk Indicators are employed to alert the Bank on impending problems in a timely manner to ensure risk
mitigation actions. A bottom up Risk Control Self-Assessment (RCSA) process identifies high risk areas so
that the Bank can initiate timely remedial measures. Control measures are suggested for implementation to
mitigate the residual risk wherever required.
Risk review of new products, processes and geographical areas
Risk Management team reviews all the new products, processes to assess risks and suggest suitable
controls for risk mitigation.

Integration of Risk Management team with Internal Audit and Vigilance team:
Risk Management team works closely with the internal audit and vigilance team to identify trends in the key
audit findings and trigger points identified during various investigations. Risk team also prompts request to
the Internal Audit or Vigilance team to investigate the issue based on the output of key risk indicators.

Information Security Risk

The Bank has put in place IT Policy and Information Systems Security Policy, in line with the industry best
practices. Information Systems Security Committee and the IT Strategy Committee of the Board meet at
periodical intervals to monitor and review the implementation of these policies.

Initiatives in Risk Management

Ÿ Bank is in the process of adoption of an IT platform for credit appraisal process through a Loan
Originating Software/Loan Lifecycle Management system (LOS/LLMS). This is steadily being
augmented to cover the entire credit portfolio, which are interfaced with CIBIL's and RBI's defaulters list.
Ÿ Behavioral models for monitoring and scoring the retail borrower performance is being developed and
shall be hosted on Credit Risk Data Mart.
Ÿ Internal loss data, external loss data, RCSA (Risk and Control Self-Assessment) KRIs (Key Risk
Indicators) and Scenario analysis is an integral part of Bank's Operational Risk Management.
Ÿ Risk Awareness Workshops are being conducted for all the staff across the Bank by the Risk
Management department.
Ÿ Bank will strengthen its internal control environment around pre-screening and post sanction
compliance, through digitized and centralized monitoring. Risk culture will be embedded through
training of staff at all levels through e-learning lessons.
Ÿ Various controls have been implemented to control the probable fraud on various liabilities product
including second factor validation for transaction processing on Internet Banking, near real time
monitoring of high value and suspicious transactions.

Credit Risk
Credit Risk is defined as the possibility of losses associated with the diminution in the credit quality of
borrowers or counter-parties from outright default or from reduction in portfolio value. Credit Risk
emanates from a bank's dealings with an individual, non-corporate, corporate, Bank, financial institution or
sovereign.

Annual Report FY 2016-17 28

Mitigation Measures
Ÿ The Bank has strong credit appraisal and risk assessment practices in place for identification,
measurement, monitoring and control of the credit risk exposures.
Ÿ The Bank uses internal Credit Risk Assessment Models and score cards for assessing credit risk under
different exposure segments.
Ÿ Bank's business units are armed with inputs on the developments, prospects and risks in the industries
and sectors.
Ÿ Industry-wise exposure ceilings are defined in the Credit Policy and is regularly monitored by the Risk
team.
Ÿ The monitoring of Prudential Exposure norms for Single and Group borrowers, Substantial Exposure
Norms and unsecured Exposures is being done regularly.
Ÿ The Bank has also developed early warning indicators to identify the higher risk exposure in the initial
stages itself to take prompt action.

Liquidity Risk:
Liquidity risk is the risk that the Bank may not be able to fund increases in assets or meet obligations as they
fall due without incurring unacceptable losses. Interest rate risk is the risk where changes in market interest
rates affect the Bank's earnings through changes in its net interest income (NII) and the market value of
equity through changes in the economic value of its interest rate sensitive assets, liabilities and off-balance
sheet positions. The policy framework for liquidity and interest rate risk management is established in the
Bank's ALM policy which is guided by regulatory instructions. The Bank has established various Board
approved limits for liquidity risk. The Bank's Asset Liability Committee (ALCO) is responsible for adherence
to liquidity risk and interest rate risk limits. The Liquidity Coverage Ratio (LCR) is a global minimum
standard for Bank liquidity. The ratio aims to ensure that a bank has an adequate stock of unencumbered
High - Quality Liquid Assets (HQLA) that can be converted into cash easily and immediately to meet its
liquidity needs for a 30 calendar day liquidity stress scenario. Processes have been made to ensure that the
Bank is following these regulatory requirements.

Market Risk Management

Market Risk is the possibility of loss, a Bank may suffer on account of changes in values of its trading
portfolio, due to change in market variables, such as exchange rates, interest rates and equity price, among
others.

Bank is having a Board approved policy for Market Risk Management which covers the identification,
measurement, controls to mitigate the identified market risks and processes related to monitoring and
reporting of the same. Market risks are controlled through various risk limits, such as Modified duration,
Stop loss, Notional limits, Tenor limits and Exposure limits. All these limits are monitored by the Mid-Office
unit on a regular basis.

Bank computes mark to market on a quarterly basis and the Mid-Office unit is responsible for monitoring
the valuations of Bank's investment portfolio.

Chief Information Security Officer

Chief Information Security Officer (CISO) is responsible for ensuring that the Information System Security
Policies and Cyber Security Policies are current, reflecting the requirements of the Bank and for ensuring
development of underlying standards, procedures and roles for managing security.

CISO is responsible to articulate and enforce the policies that the Bank uses to protect their information
assets and coordinate for the security related issues / implementations within the organization as well as
the relevant external agencies.
29 Annual Report FY 2016-17
CISO is responsible for disseminating the policies and ensuring compliance with the policies. CISO reports
directly to the Chief Risk Officer (CRO).

Responsible Finance
Utkarsh from day one of its existence had its focus on “conducting business responsibly”. This was in the
DNA of all the employees, beginning from the Board and Senior Management. There is a cost attached to
any business if one has to do it more responsibly but Utkarsh recognized the long term benefits in terms of
reputation, client satisfaction, client retention, portfolio quality and hence perceived this as not as an
additional cost but a “Must Do” if one has to avoid potential risk. This approach is well integrated in all the
systems and operations.

Utkarsh has variations in its loan products ranging from income generation to micro-enterprise loan,
insurance and pension products. The options are given for weekly, fortnightly and monthly repayments.

Utkarsh has fared very well and successfully integrated Social Performance Management (SPM) into
systems and processes from day one of existence. The thought process with which Utkarsh goes is that,
the responsibilities towards Clients, Staff, Society and environment ensures better credit discipline and
leads to profitability and sustainability. The Responsible Finance initiative at Utkarsh, takes care of all these
four components. In fact, the organization itself was initiated with this thought process. Utkarsh has clear
emphasis on transparency and relationship with clients.

Utkarsh follows a double bottom line approach: both social and financial. The Board is closely involved in
devising policies and monitoring the functioning of JLG operations in terms of setting up targets and
measuring social and financial performance reviewing internal audit reports and ensuring satisfactory
closure of client grievance.

The organization has developed the systems at every step to be in line with the specified RBI guidelines as
applicable on JLG clients and the Unified Code of Conduct (UCOC).

Balance Financial and Social Performance

Utkarsh is very clear about the benefits of implementing has talked about costs and benefits of the SPM
practices which they follow,

Ÿ The compulsory Credit Bureau (CB) check of each clients (reporting to High Mark and Equifax) prior to
disbursement which involves costs to be paid to the CB for each client but the long term benefit of it is
mainly to avoid over indebtedness leading to credit risk.
Ÿ Multiple channel disclosure of terms and condition, Regular client meet, toll free no builds up expenses
on meetings etc. and staff time but it saves the organization from credit and operational risk and also
client awareness thus leading to client satisfaction.
Ÿ Regular training to staff is extremely beneficial not only in reduction of credit and operation risk but also
improving quality of service to clients and client satisfaction. The expenses on salary and operations
cost increase but the long term benefits outweigh them.
Ÿ Transparency and appropriate collection practices are followed, which has impact on operational costs
but there is also reduction in risk and client satisfaction and reduction in credit and operational risk.
Ÿ Fair pricing helps in reduction in regulatory risk and client satisfaction though it costs to the company as
there is reduction in the earnings.
Ÿ In Grievance Redressal Mechanism, again costs are attached in terms of staff time, complaint box
installation and toll free charges (operational cost), but the benefits are high; client satisfaction, quality
service to the clients, reduction in credit and operational risk.

Annual Report FY 2016-17 30

Commitment by Senior Management
There is a designated person who takes care of Social Performance Management (SPM) at Utkarsh. He
ensures that all the systems and processes are aligned with SPM. He is accountable for making progress
toward the social goals of the institutions. The institutions' social performance goals are integrated into
business planning, making strategic and operational decisions by aligning policy and procedure. MIS
captures all the data required for analysis of social performance which is done on a regular basis to ensure
that SPM indicators are in line with the social values of the organization.

Ø Staff satisfaction is important to ensure their commitment which is critical in achieving the double
bottom line

Portfolio growth is important, but more important is its quality, sustainability in the long run and the
appropriate process.

Vigilance and Security

Today Financial Institutions play a significant role in the economic as well as social development of the
country. Since these institutions hold 'Public Faith” bankers need to be Prudent, cautious and circumspect
while taking decisions. System work more than individuals. Transparent, ethical and watchful eye ensures
public faith and trust. It is not only to remain alert against external threats, but to remain vigilant internally.

Keeping these all ethical value of Vigilance in mind Utkarsh has set up an independent Vigilance and
Security Department in FY 16. A “Vigilance Manual” with the object to enhance transparency,
accountability and efficiency in the organization has also been enforced. A prudent Whistle Blower Policy
has been drafted and circulated to encourage the minute and sensitive input from the employees and
public. Provisions for protection of whistle blowers have been incorporated in the policy.

Now, with the banking operations i.e. with start of accepting deposits from public, the role of vigilance has
gained further importance. The company is further strengthening Vigilance system among its employees
to establish internal system and controls which would act as a defense against malafide activities. The
company has also implemented to encourage stake holders i.e. Employees, customers etc. to bring in to
the notice of organization any issue involving compromise / violation of ethical norms, legal or regulatory
provisions etc. without any fear of reprisal, retaliation, discrimination or harassment of any kind
whatsoever.

Irregularities reflecting adversely on the integrity of the public servant, or Lapses involving Gross or willful
negligence; Recklessness; Failure to report to competent authorities, exercise of discretion without or in
excess of powers/ jurisdiction; and Cause of undue loss or a concomitant gain to an individual or a set of
individuals/a party or parties; and Flagrant violation of a systems and procedures, are closely monitored
and are brought to the notice of MD & CEO and Board Committees from time to time.

Compliance
The Compliance function of the Bank houses the Compliance, Company Secretary and also the AML
monitoring functions. The department independently ensures that the various operating & business units
are in compliance with the guidelines issued for Small Finance Banks by various regulators & statutory
bodies from time to time.

The Compliance department co-ordinates closely with Businesses/operations/Control departments to

ensure that the guidelines & its requirements are understood and addressed properly.

31 Annual Report FY 2016-17

The Compliance department plays a critical role in ensuring implementation of compliance requirements
in accordance with the directives issued by the regulators. Bank's Board is apprised at quarterly intervals on
the important regulations that impact the Bank and the action taken against each of these requirements
along with its status.

All the new instructions/guidelines issued by the regulatory authorities were disseminated across the Bank
to ensure that the business, operations & functional units operate within the set boundaries by the
regulators and that compliance risks are suitably monitored and mitigated in course of their activities and
processes. The function also ensures that internal policies address the regulatory requirements, besides
vetting processes. The department if the point of contact with RBI and other regulatory entities.

The compliance department has a dedicated vertical to manage Know Your Customer/Anti Money
laundering/Controlling Financing of Terrorism guidelines. This vertical looks at Know Your Customer (KYC)
at policy level and issues guidelines to branches/operating units for adherence to KYC requirements of the
regulator & the Bank. This vertical also takes care of Transaction Monitoring function and ensures that
transactions are monitored in line with the requirements of regulators and IBA. Any suspicious
transactions are reported to the Financial Intelligence Unit (FIU)-India at required intervals. All the
guidelines scenario's provided by Indian Banks Association (IBA) and industry best practices are factored
in, while preparing the thresholds for monitoring of transactions. As a matter of abundant precaution and
considering that the Bank is new, the limits are fixed at a lower level, these would be reviewed at quarterly
intervals.

The Department ensures that all policies, as applicable to the bank are vetted before the same being
approved by the Board. The Department acts as a single point of contact for all regulatory guidelines and its
interpretation to the Management.

Technology Initiatives

With the organization transiting from NBFC-MFI to a Small Finance Bank, the organization had a clear focus
on upgrading its IT systems & processes and set up new delivery channels for the customer. This prompted
the bank to take a number of new initiatives in the domain of Information Technology and IT enabled
services. Apart from the upgradation of existing core banking solution to a full spectrum core banking
solution the bank commissioned a number of high end solutions to automate its Human Resources,
Information Management, Customer Relationship Management, Data processing and Credit Quality
Management.

Core Banking Solution by Intellect

The transition from NBFC-MFI to Small finance Bank demanded that the Core Banking Solution adopted by
the bank be versatile enough to cater to existing as well as new business environment. With this philosophy
Intellect Core Banking solution was selected to provide quantum leap to the organization's business
aspirations. Intellect Digital Core harmonizes the power of digital 360 with customer-centric architecture
thereby ensuring superior customer experience at all touch points like Branch, ATM, Tablet, Internet
Banking, Mobile Banking, Kiosks etc. With a Single Source of Touch on Customer Data, Efficient Business
Processes as well as Business Agility, Intellect Digital Core enables digital banking transformation.

Adrenalin HRMS
With substantial increase in the number of employees and also keeping in mind great diversity in job roles,
key result areas and reporting hierarchy, the Human Resource Management of the organization was
completely automated on Adrenalin HRMS platform.

Annual Report FY 2016-17 32

Adrenalin is a transformative digital HR software which can automate the HR process from hire to retire. It
catalyzes the smooth functioning of the organization through streamlining employee data and processes,
structured management of complete employee information, compensation and payroll management,
employee lifecycle management, workforce administration, talent acquisition and performance
management.

Microsoft Dynamics 365 Customer Relationship Management

Servicing customers coming from different geographies, demography and socio-economic segments can
be a challenge to any organization. To overcome this challenge, the bank got associated with Microsoft
Dynamics 365 customer relationship management suite to streamline processes in sales, marketing and
service divisions. Dynamics 365 delivers the full spectrum of CRM through five individual apps - Sales,
Customer Service, Field Service, Project Service Automation, and Marketing that work seamlessly
together. This way marketing campaigns, data analysis, sales lead management, customer care, grievance
redressal and much more can all happen simultaneously.

StrategyOne Business Rules Management Platform

Informed decisions spanning across different stages of customer lifecycle like new customer acquisition,
customer portfolio management and debt collection is a key element of business performance. To address
this critical aspect the organization has StrategyOne as its business rules management platform.
StrategyOne supports all customer segments across various business processes like application
evaluation, credit underwriting, on-going credit risk management and collections.

GIEOM Digital Blue Print

One of the most critical driving factors of organizational sustainability and scalability is standardization of
processes. A large and diverse organization requires robust management of its Standard Operating
Policies and corresponding manuals. GIEOM offers digitization of Standard Operating Procedures by
interconnecting and assembling all operational processes. The unique Intelligent Linking Technology used
by GIEOM helps in maximizing bank's functional efficiency.

Central Processing Center

The organization has an aspiration to go “beyond core” and explore new opportunity for information
management, improved customer service and better risk management. This culminated in the
organization setting up a full-fledged Central Processing Center (CPC) that is capable of catering to multiple
processes with reduced TAT and stricter policy adherence. The CPC enables the customer facing outlets to
conduct only front end activities and focus on customer service and delight. It also houses a highly robust
in-bound call center which responds to customer queries and service requests.

Centralised Operations
The Operation department of the Bank is the backbone of the Bank and supports centralized Operations for
the business sourced and services the clientele thereafter. Banking operations make sure Bank processes
and transactions are executed correctly, which minimize risk and maximize quality of service. Operations
support all businesses such as Liabilities, Assets, Treasury and micro banking with dedicated centralized
processing center (CPC) for business and other units for all business such as contact center, Clearing of
instruments, NEFT, RTGS, AEPS, ATMs, etc. Operations unit also ensures documentation and review of
processes and policies for the Bank and supports the training team in content building for various
operational procedural guidelines. The Operations unit operates from Central office having the process
and policies functions, customer grievance redressal and access controls. CPC of the Bank is located at
Sarnath, Varanasi. Treasury Back office function operates from Mumbai and Zonal operations operate from
respective zones.

33 Annual Report FY 2016-17

Operations categorizes its functions under the following broad heads:

1. Centralised Processing Center (CPC)

1.1 CPC Liabilities

Liabilities Business Team sources accounts and further all the customer request right from opening of
account and servicing the customer for its account is done by CPC Unit. CPC Liabilities team encompassing
the functions of Account Opening (Savings, Current, Term Deposits and Recurring Deposits Accounts in
Paper Based (AOF), Paperless and Aadhaar based modes; performing Dedupe checks, negative screening,
PAN validation, document verification, signature uploading, CIF and Account creation & Deliverables) and
Post Account Opening activities such as statements delivery ; Account modification requests such as add
holder, name change, address change, Mobile number change, email change, KYC Updation; Customer's
Debit card request processing such as issuance, re-issuance, charge reversal, inventory management PAN
India; Customer's account closure, cheque book issue, Deceased claims management etc. Delivery of
customer's deliverables are processed and monitored by the department once the account is opened.

1.2 CPC Assets

CPC Assets currently focuses the assets products of MSME (both secured and unsecured) and Housing
Loans. The main activities under this are Account Opening Process (Checking proposal file and performing
Dedupe for existing clientele records, Internal Rejection list, Negative and AML checklist, Credit Bureau
Report, PAN Validation, Disbursement check list, Verification of property and ownership documents,
Accounts and CIF in system, CERSAI Registry, List of documents dispatch to customers, NACH SI
Registration, Rejection letters, CKYC uploads and RCU Checks) and Post Disbursal Activities (Archival /
Retrieval of documents, Change in EMI dates, Change in Tenure, Statement of Account, Loan Closure, Loan
Pre-closure, Takeover of Loan, Top-up of Loan, Tranche disbursement and Installment collections). Further
provide support to sales staff for CIBIL check and PDC management and banking of customer's PDC, ACH
clearing and running of SI instructions etc.

1.3 Critical support units for Clearing, NEFT, RTGS, IMPS, NACH, AEPS, CMS, DCMS, ATMs and
Reconciliations
Clearing function would cover the Cheque Truncation System (CTS – both Inward and Outward) or Image-
based Clearing System (ICS). Further, Operation Team also support the Standalone branches (non CTS
location) for getting their clearing account opened and start the clearing activity from non CTS location.
Operation team has centralized support cells covering National Electronic Funds Transfer (NEFT), Real time
Gross Settlement (RTGS), National Automated Clearing House (NACH), Aadhaar Enabled Payment
Systems (AEPS), IMPS and ATM support. Operations team ensures Cash Management Services (CMS) for
branches & ATM through correspondent banking arrangements and load balancing between branches to
reduce idle cash holdings.
Debit Card Management Systems (DCMS) issuance, reissuance, usages, reportings, etc. are done centrally
at the CPC.

On ATMS and reconciliations activities covered are monitoring of cash loading & balancing Switch
Reports; refunds, charge back, card disputes; Suspense Accounts Reconciliations; Settlements with
various other banks for card usage transactions; Fees and Charges Reconciliation and Settlement;
Retained cards at ATMs and Card Limit Maintenance.

Annual Report FY 2016-17 34

2. Process, Policies and related operational functions:

2.1 Process and Policies

Processes are documented and are reviewed at stipulated intervals covering the operations of the bank
and encompass the standard operating procedures to be followed within the bank and are duly
disseminated to stakeholders. Policies are documented and duly approved by Board within the broad
framework of RBI Guidelines for all the Departments of the Bank and covers various internal and external
workings of the bank. Some of the customer centric policies put up in the website are
• Grievance Redressal Policy
• Cheque Collection Policy of the Bank and Frequent Cheque Dishonour
• Compensation Policy
• Comprehensive Deposit Policy
• Customer Rights Policy

2.2 Access Control

Central Operation Team manages access controls for all the Bank staff for the Core Banking application
(CBS) Utkarsh training portal.

2.3 Customer's Grievance Redressal

Operation Head is the overall in charge for Customer's Grievance Redressal and has to minimize instances
of customer complaints and grievances through proper service delivery and review mechanism and to
ensure prompt redressal of customer complaints and grievances. There are various internal machinery
created to handle Customer complaints/ grievances such as Customer Service Committee of the Board
which formulate policies on improved customer experience, assess the service governance structure
effect ongoing improvements in the quality of service provided by the Bank. Customers are also invited to
share their experience and feedback with the Committee. Similarly there are other committee such as
Standing Committee on Customer Service and Branch Level Customer Service Committees to ensure
proper Customer's Grievance Redressal. Branch Manager has the responsibility for the resolution of
complaints / grievances in respect of Customer's service by the branch and would be responsible to ensure
that the complaint is resolved completely to the satisfaction of the customer and ensure closure of all
complaints received at the branches within a week. Escalation matrix will be as follows:

Escalation Escalation Call MSME Micro Banking

Branch
Levels TAT Centre Location Branches
Zonal Operations Head Call Regional Divisional
Level 1 10 Days
Head (ZOH) Centre Head Head
Level 2 15 Days Principal Nodal Officer
Level 3 30 Days Banking Ombudsman

3. Zonal Operations
Zonal Operations supported by Branch Monitoring Team is responsible for operations support to all
branches. It extends support for all transactions and queries relating to operations at branches and give
approvals for exceptional transactions. It also does remote monitoring of transactions and activities of the
branches bucketed into Daily, Weekly, Fortnightly lists through various reports and co-ordination with
branches. The Monthly / Quarterly Branch Visits and Grading of Branches on various parameters planned
also ensures smooth operations. Zonal Operations Heads are the escalation level for complaints /
grievances at Branches and nodal complaint officers for the region within their jurisdiction.

35 Annual Report FY 2016-17

4. Call Center
Call Center would have a Toll Free number for customers and non-customer calls with facilities of
Interactive Voice Response (IVR) based Inbound calling teams.

This will support all customers including Liabilities and Assets as well as non-customers or potential
customers. Call Center will handle customer calls and service requests and provide instant or deferred
resolutions (requests forwarded to CPC). The Call Center would liaise with the respective teams within the
bank for timely resolutions.

5. Treasury Back Office

The Treasury Back office Operations team supports the front office Treasury dealings with confirmation,
payments and settlements and accounting of various dealings pertaining to SLR, Non-SLR and other
dealings. It would also monitor the inflow / outflow of funds such as maturity collections and obligations for
principal and interest / coupons through the various reports. It would be further reconciling various
accounts and ensure timely payments / receipts and forecasting the funds flow for the future periods. This
is located at Chembur, Mumbai.

Human Resource and Training

The goal of the Human Resources Department is to strive for Utkarsh achieving its strategic Mission, while
ensuring employees are engaged and motivated to help the Bank succeed. HR's success is measured by
the company's ability to align and integrate processes with the strategic mission.

The FY 2016-17 has been strategically very important for Utkarsh. As the company was in the transition
phase a Micro Finance Institution to a Small Finance Bank, the responsibilities of HR department increased
many folds and the most challenging assignment at hand was the alignment of Utkarsh Culture for the new
joining in large numbers. This challenge was meticulously handled by Team HR and all the employees were
personally addressed by MD and CEO of the company through 7 Town Hall Meetings covering all the then
employee base of over 2,400 pan all the operational regions of the company. The Town Hall Meetings
focused on cultural alignment, future prospects and role of every individual in Utkarsh. At the same time,
opportunities were given to employees to raise and clarify any doubt regarding the transition and their
future career prospects.

The second most important aspect of any transition is managing the Change and getting pulse about the
readiness and preparedness of Employees for accepting change. For this, HR took a proactive role and a
survey on Employee Engagement and Change Readiness was conducted in consultation with KPMG. The
result of both the surveys were very encouraging. It stated that 92% of the respondents were excited and
felt engaged in the transition employees and they were forthcoming for all the initiatives for change.

During the year, Utkarsh accomplished its stated Vision in 2009 for the year 2016. The same was the result
of all out efforts of all Utkarsh employees with due support from their families and stakeholders all across.
In consultation with KPMG, the new Vision and Mission was also framed for year 2021 in banking context. It
provided a very clear picture of the business, the target clients and the culture on which the company wants
to build itself. In brief, the new Mission and Vision of Utkarsh gets its inspiration from the philosophy, the
company inherits from beginning and i.e. Culture, Process and Growth.

Recruiting trained and qualified human resource was another big assignment for the FY 2016-17 and the
team HR through its planned and continuous recruitment drives recruited approx. 1,200 employees during
the financial year.

Annual Report FY 2016-17 36

As part of the transition and to align with the Banking sector the Organizational Structure was revised to suit
the standards of Banking Sector and subsequently the Compensation & Benefit Structure was also revised
and restructured. Job description and HR policies as per the bank standards were also reviewed and
restructured during the year.

Beside this, Behavior Competency Frame Work and Assessor Assessment was also designed during the
year and the same was facilitated by Microfinanza, an Italian consultant with support from Norwegian
Microfinance Initiative (NMI). Software development for HR (Adrenalin) is under different phases of
implementation for meeting all HR regular administration and management requirements of employees.

Moving forward, HR has targeted its operational initiatives to align to the Utkarsh Small Finance bank
Strategic Plan by initially identifying ways to leverage and develop technology as a means to cut costs and
improve internal efficiencies. PMS, Assessment Framework for ensuring suitable role fitment, establishing
HR software and Creating Learning and Development Frame work will be the major activities for the FY
2017-18. In the coming year, HR will focus its resources for becoming the best place to work for.

Performance Management System

The Bank has a proper Performance Management System in place, but the same is compiled manually,
which takes considerable effort. Going forward, the Bank has started the process of incorporating it in our
HRMS system. Especially in the banking context, the Scorecards are being revisited and being defined for
employees. The KRA's and KPI's are being reviewed based on the strategy and the workshop inputs from
the Top Management. The Performance Evaluation forms, Tools which captures KRAs and self-
development goals are also being reviewed accordingly to close on the formats and process for goal
setting, performance measurement and feedback.

Subsequently, suitable on the PMS Model shall be conducted to sensitize the employee on the new system.
Workshops shall be specifically conducted for Leaders and PMS Champions. There would be a dedicated
PMO, which shall assist smooth transaction of PMS Cycle.

360 Degree Feedback Mechanism

The work has also started on 360 degree Feedback Mechanism. The context of it is being finalized by
identifying the relevant roles / stakeholders and by closing on the structured questionnaires for finalizing
the right fit mechanism. The mechanism is proposed to be hosted online along with the HRMS.

Competency Framework
During the FY 17, one round of initial workshops were conducted to define and identify the basic element of
Competency Framework. It was done in association with Microfinanza, an Italy based consulting Firm. This
project was supported by Norwegian Microfinance Initiative.

This year, it is proposed to take it further and design the assessment framework, define the assessment
process and competency wise mapping levels and tools. In the first phase, it is proposed to have face to
face Competency Mapping for Top Management and Senior Leadership, whereas it would be an online
process for Middle & Junior Management.

The initiatives of HR Department was especially recognized at an international forum, where Dr. Priyanka
Singh, who leads the HR Team at Utkarsh, has been recognized with 'Women Super Achiever Award' at the
4th World Women Leadership Congress 2017.

37 Annual Report FY 2016-17

Capacity Development and Management
For smooth transition of Utkarsh from an NBFC-MFI into a Small Finance Bank, it was required to have a
comprehensive action plan to upskill and to especially create awareness among employees on banking
domain. To sensitize and enhance the employees' Banking Skills in different sub domains, the training
vertical planned and executed suitable modules for all the existing as well as new incoming employees.

Training Team further strengthened its capacity by inducting new Trainers. Few ex-bankers (superannuated
/ VRS opted bankers) also joined the team to focus on banking training planning and execution across all
the Zones of Utkarsh.

A glimpse on few of the Banking Transition Training Modules during the FY17 is as below:

1. Basic Banking Training (phase-1): A 6 days module covering the basics of banking for a novice bankers.
2. Basic Banking Training (phase-2): A 3 days module covering the advanced level for employees who
covered Basic Banking Training 1.
3. Combo Banking Training - A combined module of phase 1 and 2 to cover the trainees not covered till
date.
4. Micro Banking Training (MBT) – A 5 days module especially designed with inclusion of New Banking
Products, Processes and CBS for Micro Banking Branches. (upgraded MFI branches)

During the programs, suitable books on 'Basic Banking' were also distributed to all employees and
altogether 3,500+ employees covered under the same.

These programs/modules proved effective in infusing information and helped in alignment of their role in
banking. The bank also experimented the Model of posting 'Branch Banking Trainer (BBTs)' along with each
Area Manager of Micro Finance Business. Utkarsh partnered with NIBF, Raipur for this project. The BBTs
who align themselves with Area Managers, handhold and train their Branch Employees on the following 3
areas:

1. Branch Banking Operations

2. Branch Banking Compliance (Statutory and Regulatory)
3. Core Banking Solutions (CBS) implementation

Apart from this, they also handhold the employees on soft skills of Customer Service and Life Sciences.

Likewise for the General Banking Branch employees, a program captioned 'Technology Orientation
Training Program for GB Branches' was rolled out for readiness of the employees before launching the
Branch. It is a 5 day compressive program under Branch banking scope with hands-on exposure on IT
architecture.

Apart from the regular Induction and Refresher trainings, focus was more on external training for senior,
middle and junior management as well as front level officers to acquaint themselves with new banking
reforms / compliances / policies / processes.

Few of the external engagements are as below:

Sl.No. Name of Training Programs

1 Financial Analysis
2 Workshop on HR

Annual Report FY 2016-17 38

 3 Leadership for the Front Line Officers (LFTF)
4 Effective Communication and Leadership Skills
5 Woman Empowerment
6 Housing Finance Summits
7 Prevention of Cyber Crimes and Frauds in Banks
8 Retail Credit Risk Management
9 International Exposure Visits

For the coming year, the team is already up for taking the next level training focused on banking operations
from the point of view of all the business, support and control teams.

The company proposes to further strengthen and decentralized some of its regular training activities,
which were being held at Head Office hitherto. Also, the company is looking up for more Industry
engagements and collaboration to stay abreast and have an effective capacity development and
management approach.

Marketing, Branding, PR & Corporate Communication

Utkarsh in its earlier avatar of NBFC-MFI was not marketing itself, except for the recruitment
advertisements. Now, in the new avatar of Banking, Utkarsh has further strengthened its Corporate
Communications team to further take up the Marketing, Branding and PR activities.

Utkarsh strives for being a technology driven Bank with focus on customer delight experience. Marketing is
the key to establish a successful Banking relation with customers. Traditional banking method is changed
to digital banking. It is the era of digitalization and social media also started existence in marketing. There
are lot of changes happened in the Banking sector. So as the company is also transforming towards
establishing itself into a Bank, which is customer centric in terms of the products and services offered to
customers, it was need of the hour to establish a Marketing and Branding Department.

The Marketing Department primarily focuses on two aspects, creating a Brand Identity and communicating
about the Brand and varied products and Services to the targeted audience. The Brand identity creation
was started with the launch of new Logo and tagline for the Bank. The Market positioning has also been
decided and the communication has been defined in terms of the customer centric approach and being a
Bank that fulfills customer hopes.

Communication is the key and it is the most important objective of Marketing Department to communicate
about the New Bank, its ideology and about all the offerings in a creative and understandable manner to the
targeted audience. For the same Marketing Department is developing the various Brand and Product
collaterals describing about the new Bank and giving details about the Products and Services.

Marketing Department is also developing Branch and ATM Branding objects to communicate about the
Brand and Products to maximum target customers. For reaching to the mass the company will also plan
ATL (Above the Line) advertising in TV, Radio & Newspapers and for reaching to direct audience the
company will plan different activities like Activations, Outdoor and other activities. The company has
already started Outdoor campaign in Varanasi.

In the Digital Space also the company has started activities in Social Media and other on-line advertising.
Also the company's Website is getting transformed in a more dynamic and user friendly way.

39 Annual Report FY 2016-17

PR & Corporate Communication is also a Part of Marketing Communication. Good Public relation helps in
Positive Brand Building. Different Newspapers, News Channels and Radio Channels are regularly covering
the Bank's activities and communicating about the launches, future plans and other aspects.

Corporate communication is working towards giving correct and timely communication to all
stakeholders, shareholders, all employees through its various publications like Utkarsh Voice and Share
Holder Communication. Also this departments updates all stakeholders about any development
happening in the company and industry with its regular communication. The Website is also updated by
this Department on a regular basis for giving correct and updated information to all stakeholders and to
General Public.

Corporate Social Responsibility

Utkarsh Small Finance Bank collaborates with Utkarsh Welfare Foundation for all its Corporate Social
Responsibility (CSR) activities. The area of interventions are broadly under Education (Financial
Awareness) and Health (Poly Clinics). It also undertakes other Goodwill Activities on regular basis and
organizes Blood Donation Camps in association with local hospitals.

During the FY 17, CSR contribution from Utkarsh Small Finance Bank supported initiatives for
strengthening collaboration & partnerships for the promotion of financial awareness & philanthropic
activities such as charitable homes and blood donation camps.

Financial Awareness
Financial awareness initiatives are aligned with Utkarsh's mission to support underprivileged and
underserved segments of the population by providing financial and non-financial services in a socially
responsible, sustainable and scalable manner. Financial education program is aimed at building financial
decision making and capabilities of the targeted beneficiaries through right information, instructions and
advices. As a part of credit plus initiative the total beneficiaries outreach under financial awareness
initiatives of Utkarsh Welfare Foundation since its inception has been 1,23,523 beneficiaries.

For the Financial Year 2016 – 2017 total outreach achieved through corporate social responsibility
initiative under financial awareness programs were 63,633 beneficiaries.

Projects supported under USFB- Corporate Social Responsibility in collaboration with other funding &
technical partners

a. FMO (Dutch Entrepreneurial Development Bank) and ACCION - Financial Education for Beneficiaries:
The project aims to provide financial literacy to 23,200 rural beneficiaries. Two approaches have been
adopted for providing financial literacy. It is proposed to cover 13,200 target beneficiaries through class
room trainings and 10,000 additional beneficiaries shall be reached through mass awareness program.

Total outreach as at March 31, 2017 through class room training approach has been 13,214 beneficiaries
and through mass awareness program has been 10,142 beneficiaries.

b. SIDBI - Poorest States Inclusive Growth Programme (PSIG) - Financial Literacy and Women
Empowerment Initiatives: Currently, the project is in scale-up phase and the program extended to 30
new branch locations across Bihar & Uttar Pradesh State through 30 Master Trainers in 15 months
timeline upto July 31, 2017. Each of the MTs are expected to undergo 15 days TOT and Refresher
Trainings. Web based MIS system is used for effective monitoring and evaluation of the project.

Annual Report FY 2016-17 40

The project entails collection of baseline data and training of 22,500 new beneficiaries and end line data
collection of 15,000 beneficiaries from the pilot project through open data kit based mobile handsets.

Total outreach as at March 31, 2017 through class room training approach has been 19,456 beneficiaries.

c. Swiss Capacity Building Facility (SCBF) and ACCION - Financial Education for underserved
beneficiaries: This project is being implemented in two phases. In the first phase of project
implementation (April 2015 to December 2015), project aimed to cover 13,000 beneficiaries through
Class Room Trainings and Mass Awareness Programs. At the completion of first phase, 11,689
beneficiaries outreach was achieved including both the intervention approaches. Under Banks CSR
collaboration the project has been able to enhance it outreach during the second phase of the project.

In the ongoing second phase (January 2016 to December 2016), the project aimed to cover 15,000
beneficiaries, of which, 11,000 were expected to be covered through Class Room Trainings and 4,000
through Mass Awareness Programs.

Total outreach as at March 31, 2017 through class room training approach has been 11,809 beneficiaries
and through Mass Awareness Programs, the outreach has been 4,175 beneficiaries.

d. Dialogue on Business (DOB) for Micro enterprise beneficiaries - Knowledge collaboration with
ACCION: Dialogue on Business (DOB) is an award-winning business skills training program developed
by the knowledge partner, ACCION. It is based on adult learning principles, which draws from the
knowledge and experience of program participants. It uses interactive games and role-playing tools to
help participants solve real-life business challenges. DOB is found to be an interesting and engaging
activity for people, even with little formal education, who may not learn effectively in a traditional
classroom setup.

Program has started in June 2016 and aims to cover 1,000 micro entrepreneurs till March 2017. The total
outreach under DOB program as at March 31, 2016 has been 919 beneficiaries.

Goodwill Projects
Demonstrating ethos of charity Utkarsh Welfare Foundation has established regular engagements with the
initiatives of Missionaries of Charity such as Nirmala Shishu Bhawan and Nirmal Hriday. Voluntary
participation is encouraged and visits are organized on monthly basis. As a token of goodwill gesture
employees distribute snacks, small gifts and food items.

Blood Donation Camps

A blood donation camp was organized in association with Pandit Deen Dayal Upadhyay Government
Hospital Varanasi on March 04, 2017. 42 Volunteers from Utkarsh successfully donated the blood. The
event strengthened the noble cause that blood donation saves life.

Rating and Grading

Rating
CARE (Credit Analysis & Research Ltd.) has revised the ratings from 'Care A –'(Single A Minus) to 'Care A;
Stable (Single A; Outlook: Stable)' for Long Term Bank Facilities and Non-Convertible Debentures. It has
also assigned 'Care A; Stable (Single A; Outlook: Stable)' rating for proposed Non-Convertible Debentures
and Long-term Tier – II Bonds. Further, it has reaffirmed 'Care A1 (A One)' rating for the Commercial Paper
(CP).

41 Annual Report FY 2016-17

As per the rating rationale given by CARE, the long – term rating takes into account, the improvement in
business and earnings profile, significant infusion of equity of ₹395 crore in view of setting up of the Small
Finance Bank (SFB) which has improved the capitalization levels is expected to support the growth plans.
The ratings continue to derive strength from experienced promoters and management team, strong
investor profile, diversified resource base, moderate geographic concentration, good asset quality and
comfortable liquidity position of UMFL.

The ratings also take note of the structural changes in its operational framework including creation of
various divisions and formation of management team along with strengthening of IT systems for migration
to SFB.

The rating is, however, constrained by lack of diversity in earnings profile, short track record in Micro
Enterprises Loans and Home Loan segments, and the inherent risk involved in the microfinance industry
including socio political intervention risk and regulatory uncertainty.

Going forward, successful transition from an NBFC – MFI to a SFB while continuing to grow its loan
portfolio, geographically diversify its operations, maintains its profitability and healthy asset quality and
capital adequacy would remain the key rating sensitivities.

Grading
ICRA has assigned an MFI grading of M1 (pronounced M One) to Utkarsh Micro Finance Limited (UMFL).
The grading indicates that in ICRA's current opinion, the MFI's ability to manage its microfinance activities
in a sustainable manner is the highest. The grading is valid till July 2017.

The rationale behind the highest MFI grading for UMFL is supported by its good Loan Origination, Internal
Audit, MIS, Risk Management and COLLECTION Mechanisms, its experienced Board, Management Team
and strong Investor profile which have been strengthened further over the last one year. These positives,
coupled with UMFL's good financial flexibility arising out of relationships with a large number of lenders as
well as its ability to raise equity in a timely manner have helped the company to scale up operations
(portfolio of ₹1,593 crore as on June 30, 2016 with 66% growth in client base) while expanding and
diversifying across 10 states while reducing its concentration in the state of Uttar Pradesh from 44% as on
March 31, 2015 to 33% as on June 30, 2016 and maintaining good asset quality (0+ delinquencies of 0.18%
as on June 30, 2016) and profitability indicators (ROE of 15.8% in 2015-16).

Awards
During the Year, the Bank also received Skoch Award (Gold) – 2016 for maximum Inclusive Insurance,
especially for the Micro Finance client. The industry recognitions on a year-to-year basis, reaffirms the
commitment of Team Utkarsh in serving the different client segments.

Annual Report FY 2016-17 42

DIRECTORS' REPORT
To,
The Members,
Utkarsh Small Finance Bank Limited

Your Directors have pleasure in presenting herewith their First Annual Report on the business and
operation of the Utkarsh Small Finance Bank (“Bank”) together with the Audited Financial Statements of
st
the Bank for the year ended on 31 March, 2017.

Financial Performance

As on March 31, 2017

Particulars
(Amount in ₹ Crore)
Deposits 18.72
Investments 729.23
Advances (Net) 1,593.91
Net worth 304.88
Net interest income 31.37
Other income 14.04
Net total income 45.41
Operating expenses 34.89
Provisions and contingencies 3.99
Profit Before Tax 6.52

Tax 1.69

Net Profit 4.83

Gross NPA ratio 0.0%#

Net NPA ratio 0.0%#

Capital Adequacy Ratio 25.87%

Business Per Employee 0.44

Business Per Branch 4.52

43 Annual Report FY 2016-17

 Appropriations:

Transfer to Statutory Reserve 1.21

Transfer to Capital Reserve NIL

Transfer to Revenue and Other Reserves NIL

Transfer to Investment Reserve NIL

Dividend for the year, including tax thereon NIL
No. of Branches :
General Banking Branch 005
Micro Finance Branch 350
Assets Branch 023

No. of Employees 3845

No. of Clients Over 12 Lakh

#The GNPA and the NNPA are NIL due to the RBI Guideline and dispensation issue for provisioning post demonetization.

Assets Business
Presently, the Assets Products of the Bank include Micro Banking (Joint Liability Group), Micro, Small and
Medium Enterprises Loan and Affordable Housing Loans. Below are the details of the Asset Business
Verticals of the Bank:

Micro Banking
Our Micro Banking operations are spread in 10 states namely; UP, Bihar, MP, Uttrakhand, Chhattisgarh,
Maharashtra, Delhi, Haryana, Jharkhand and Himachal Pradesh covering 110 districts through 351
branches and serving over 12 lakh loan clients with total portfolio outstanding of ₹1,536.25 Cr. as on March
31, 2017.

Micro, Small & Medium Enterprises Loan

The Micro Small & Medium Enterprises Loan business of the Bank has presence across 7 states of Bihar,
Uttar Pradesh, Jharkhand, Delhi, Haryana, Uttrakhand & Maharashtra through 23 branches. The states of
Bihar & Uttar Pradesh having 14 branches account for more than 50% of the total branches. Your Bank is
planning to open another 20 new branches concentrated in the Delhi-NCR & Haryana Region, Uttar
Pradesh, Jharkhand, Madhya Pradesh & Maharashtra.

The MSME Loan portfolio was ₹72.11 Crore with 16,911 active clients as on March 31, 2017. The total loan
amount disbursed under the MSME business till March 31, 2017 was ₹178.01 Crore across 22,968 clients.
The average ticket size is ₹0.52 lakhs and the lending rates range from 22% - 28% p.a.

Housing Loan
Housing Loan business focus mainly on low-cost and affordable housing segment targeting self-
employed/Salaried customers in the low-middle income segment, who are typically unable to otherwise
avail loans from the formal channels in the absence of proper income documents. The target customers
typically have an average credit profile. The Housing Loan portfolio is ₹5.25 crore as on March 31, 2017,
predominantly representing loans for construction of houses for self-occupation on owned property. The
total loan amount sanctioned till March 31, 2017 is ₹6.36 crore whereas total amount disbursed is ₹5.99
crore.

Annual Report FY 2016-17 44

Liabilities Business
The branches currently are primarily involved in opening salary accounts of employees, savings accounts
of close relatives of employees and term deposit from external customers. The Bank has been able to
commence banking relationship with some important Institutions / Banks as a result of sustained efforts of
the branches. The branches have also created a sizable database of potential customers (retail and
Institutional) and a steady lead funnel which will help the branches in deeper penetration in their
catchment.

A. Financial Disclosures

Dividend
In view of the fact that Bank has started operations from this year only, your Directors do not recommend
any dividend during the year under review.

Net Worth
The Bank's net worth, as on March 31, 2017 is ₹304.88 Crore. It comprises paid-up equity capital of ₹300.05
Crore and Reserves of ₹4.83 Crore (excluding Revaluation Reserve, Investment Reserve and Intangible
assets).

B. Corporate Governance

The Bank's philosophy

The Bank's philosophy on corporate governance is aimed at supporting the top management to efficiently
conduct its business operations and meet its obligations towards its stakeholders. The Bank is committed
to transparent, merit-based organisation and ensure fairness, transparency and responsiveness in all
transactions / engagements.

Constitution of the Board of Directors

The Board of Directors is constituted in accordance with the provisions of the Companies Act, 2013 (CA
2013), the Banking Regulation Act, 1949 (the BR Act, 1949) and the Articles of Association of the Bank. The
Board consists of eminent persons with considerable professional expertise in Banking, Finance,
Administration, HR, Technology and other related fields. Their experience and professional credentials
have helped the Bank to gain insights for strategy formulation and direction setting for the Bank, thus
adding value to its growth objectives.

The Board comprises of six (6) Directors of which Four (4) are Independent, One (1) is Non-Executive and
One (1) is Managing Director & CEO.

All the Independent Directors have given the declarations that they meet the criteria of independence laid
down under Section 149(6) of the Companies Act, 2013. Based on the declaration of independence
provided by them and based on the applicable RBI guidelines and circulars, all aforesaid four Independent
Directors would qualify to be classified as Independent Directors under Section 149 of the CA 2013.

Committee of the Board of Directors

For effective decision making, the Board acts through various Committees which oversee specific
operational or strategic matters falling within the ambit of the specific terms of reference of that
Committee. The Board has constituted 10 Committees of Directors. These Committees monitor activities
falling within their terms of reference.

Composition of the Committees and attendance of the Directors at the Board and Committee Meetings
held during the year under review have been given as an annexure to this report.

45 Annual Report FY 2016-17

Board Evaluation and Remuneration Policy
The Independent Directors of the Bank carried out an annual performance evaluation of the performance of
the entire Board, performance of the Chairman, the directors individually as well as the evaluation of the
working of its Committees.

The Board has framed a Corporate Governance Policy which inter alia deals with remuneration structure
and criteria for selection and appointment of directors.

C. Statutory Disclosure
Extract of Annual Return to be mandatorily attached to the Directors' Report
As required by the provisions of Sections 92(3) and 134(3)(a) of the CA 2013 read with the rules framed
thereunder, the extract of the annual return of the Bank in the Form MGT-9 is attached as Annexure to this
Report.

Conservation of energy and technology absorption

The particulars to be disclosed under Section 134(3)(m) of the CA 2013, relating to conservation of energy
and technology absorption are not applicable to the Bank. The Bank is constantly pursuing its goal of
upgrading technology to deliver quality services to its customers in a cost-effective manner.

Foreign exchange earnings / outgo

The Bank has not carried out any activities relating to the export and import during the financial year. There
are no foreign exchange expenses and foreign income during the financial year.

Changes in Directors and Key Managerial Personnel

The details about the changes in the Directors and Key Managerial Personnel (KMP) by way of
appointment, re – designation, resignation, death or disqualification, variation made or withdrawn etc are
as follows:

Date of Date of
S.No. Name of Director / KMP Designation
Appointment Resignation
01 Mr. Govind Singh MD & CEO* 30.04.2016

02 Mr. T. N. Thakur Director 30.04.2016

03 Mr. Vishal Mehta Director 30.04.2016

04 Dr. V. S. Sampath Director 24.08.2016

05 Mr. Somnath Sengupta Director 24.08.2016

06 Ms. Anita Ramachandran Director 24.08.2016

07 Mr. Kajal Ghose Director 16.01.2017

08 Mr. Abhisheka Kumar Chief Financial Officer 01.10.2016

09 Mr. Anang Kr. Shandilya Company Secretary 01.10.2016

(* Appointment as MD & CEO approved by RBI on January 20, 2017 and took charge as MD & CEO of the Bank w.e.f. 21st January, 2017)

Annual Report FY 2016-17 46

Whistle Blower Policy (Vigil Mechanism)
The Bank, as a part of prudent practice, established Vigilance Department as essential pillar in developing
and executing a comprehensive strategy to deal with instances of fraud and mismanagement, if any, and
for a holistic and smooth operations of the Bank. The department is fully functional to take overview of the
related matter.

Pursuant to provisions of Section 177(9) of the Companies Act, 2013 and RBI Guidelines and other
application laws, the Bank has established the Vigil Mechanism, as part of the Whistle Blower Policy, for the
Directors and Employees to report concerns about unethical behaviour, actual or suspected fraud or
violation of the Bank's Code of Conduct or ethics policy. Additionally, the Bank places zero tolerance for dis-
integrity and corruption. Towards this end, all employee after joining are trained to maintain high standards
of integrity of their work area. The Bank also has a Whistle Blower policy enabling the staff to escalate any
perceived dis-integiry and corruption issue. It also provides adequate safeguards against the victimization
of employees who avail this mechanism and allows direct access to the Chairperson of the Audit
Committee in exceptional cases. No personnel has been denied access to the Audit Committee.

The Audit Committee overseas the Vigil Mechanism. The Whistle Blower Policy has been periodically
communicated to the employees and is also posted on the Bank's website: www.utkarsh.bank.

In addition to the above, the Bank has formulated Vigilance Policy for effectively managing the risks arising
on account of possible corruption, malpractices and frauds.

Auditors
Pursuant to the provisions of Section 139 and 141 of the companies Act, 2013, M/s. BSR and Associates,
LLP was appointed as Statutory Auditor of the Bank for to hold office till conclusion of first Annual General
Meeting of the Bank.

The Statutory Auditor has confirmed their willingness and eligibility to continue as Statutory Auditor of the
Bank, as required under Section 141 of the Companies Act, 2013.

The Board recommends the appointment of M/s. BSR and Associates, LLP as Statutory Auditor of the Bank
at the ensuing Annual General Meeting.

Pursuant to Section 204 of the Companies Act, 2013, your Bank had appointed M/s. Anubhav Srivastav
& Associate, Practicing Company Secretaries, Varanasi as its Secretarial Auditors for FY2016-17. The
Bank provided all assistance and facilities to the Secretarial Auditor for conducting their audit. The
Report of Secretarial Auditor for the FY2015-16 is annexed to this report.

Employees Stock Option Plan (ESOP)

During the year under review Bank has not issued any employees stock options to any of its employees.
However, the holding of the Bank, Utkarsh Micro Finance Limited has issued certain employees stock
option plan shares to the employees of the Bank as a part of the group policy and in line with the approved
ESOP policy of the holding company. While the Holding company approved the overall options. Employee
level allocation of options was based on the performance of the employee and was approved by the
Nomination and Remuneration Committee of the Board of the Bank.

Deposits
Being a banking company, the disclosures required as per Rule 8(5)(v)&(vi) of the Companies
(Accounts) Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable to
your Bank.

47 Annual Report FY 2016-17

Deposits
Being a banking company, the disclosures required as per Rule 8(5)(v)&(vi) of the Companies (Accounts)
Rules, 2014, read with Section 73 and 74 of the Companies Act, 2013 are not applicable to your Bank.

Other Statutory Disclosures:

· The Bank has not changed its nature of business during FY16-17.

· Pursuant to Section 186(11) of the CA 2013 loans made, guarantees given or securities
provided or acquisition of securities by a banking company in the ordinary course of its
business are exempted from disclosure in the Annual Report.

· All related party transactions that were entered into during FY16-17 were on an arm's length basis
and were in the ordinary course of business. There are no materially significant related party
transactions made by the Bank with Directors, Key Managerial Personnel or other designated
persons which may have a potential conflict with the interest of the Bank at large. The Bank has a
Related Party Transactions Policy in place for the purpose of identification and monitoring of any
potential related party transactions.

· There were no significant/ material orders passed by the Regulators / a Court/ Tribunal etc. during
FY 17 which would impact the going concern status of the Bank and its future operations.

· The details of Risk Management Policy & its framework are separately provided in Management
Discussion and Analysis Report.

· Our Bank is the subsidiary company of Utkarsh Micro Finance Limited.

· There are no adverse observations / qualifications in the Auditors' Report.

· There are no audit qualifications in the Secretarial Audit report.

· All recommendations of the Audit Committee were approved by the Board.

· Proper internal financial controls were in place and that the financial controls were adequate and
were operating effectively.

· There are no material changes and commitments, affecting the financial position of the Bank that
have occurred between the end of the financial year of the Bank i.e. March 31, 2017 and the date of
the Directors' report i.e. May 29, 2017.

D. Other Disclosures

Code of Conduct
In the current era of transparency and highest standards of corporate governance, for a financial
institution, confidence of stakeholders and public at large is one of the pre-requisite for establishing as a
market player. Towards this end, the Bank endeavors to ensure that all its activities are fairly aligned with
the highest standards of personal and professional integrity and highest level of ethical conduct. The Bank
has adopted a Code of Conduct and norms for avoidance of Conflict of Interest which all Directors and
employees have to adhere to. All the Directors and Employees have to conduct duties according to the
aforesaid Code and avoid even the appearance of improper behaviour. Some of the areas which are
covered by the Code of Conduct are fairness of employment practices, protection of intellectual property,
integrity, customer confidentiality and conflict of interest.

Annual Report FY 2016-17 48

Vigilance
We have a responsibility both to the members and to the communities in which we conduct business to be
transparent in all our dealings. Our Code of Conduct requires that we do not engage in unethical practices
or corruption in any form and explicitly mentions that the Bank will not pay or procure the payment of a
bribe or unlawful fee to encourage the performance of a task or one which is intended or likely to
compromise the integrity of another. The Bank will not accept any payment, gift or inducement from a third
party which is intended to compromise our own integrity. The Code of Conduct also includes procedures
dealing with Gifts & Entertainment, conflicts of interest and other important matters. The Bank has a Zero
tolerance on unethical practices and corruption.

Corporate Social Responsibility (CSR)

The Board of Directors in its meeting held on March 19, 2017 had approved the CSR Policy of the Bank.
Being the 1st year of operations, the provision relating to contribution towards CSR as per Section 135
of the Companies Act, 2013 was not applicable to the Bank for FY17.

Pursuant to the Business Transfer Agreement between Bank and Utkarsh Micro Finance Ltd (Holding
Company), the lending, borrowing and existing businesses of UMFL was transferred to the Bank as at the
close of business on January 21, 2017. Accordingly, the CSR spend would be applicable to the Bank from
the next financial year based on the profits of March 31, 2017. The CSR spends would be carried out in line
the Board approved policy with the approval of the Corporate Social responsibility Committee of the Bank.

Know Your Customer (KYC)/Anti-Money Laundering (AML)

Your Bank adheres to the RBI's KYC/AML Guidelines issued from time to time. The Bank's KYC/ AML Policy
is prepared in accordance with the Prevention of Money Laundering Act, 2002 and RBI/IBA (Indian Banks'
Association) guidelines. Various regulatory reporting requirements, as set out by the Financial Intelligence
Unit (FIU) of the Government of India, are complied with by the Bank. The Bank has a transaction
monitoring process with automated system solution closely monitored by the centralised AML team.
Further, a dedicated team carries out the transaction monitoring process in line with the regulatory
requirement. Bank's employees are being imparted training on KYC/AML aspects on a regular basis.
Executives of the Bank also attend periodic workshops/seminars organised by FIU, RBI, IBA and NIBM
(National Institute of Bank Management) to enhance their awareness in these aspects.

E. Directors' Responsibility Statement

As per requirements of Section 134(3) (c) of the Companies Act, 2013, your directors hereby confirm
and declare that —

a) in the preparation of the annual accounts for financial year ended 31st March, 2017, the applicable
accounting standards have been followed and there is no material departures from the same;
b) the Directors have selected such accounting policies and applied them consistently and made
judgments and estimates that are reasonable and prudent so as to give true and fair view of the state
of affairs of the Bank at the end of the financial year and of the profit or loss of the Bank for that year;

c) the Directors have taken proper and sufficient care for the maintenance of adequate accounting
records in accordance with the provisions of the Act for safeguarding the assets of the Bank and for
preventing and detecting fraud and other irregularities;
d) the Directors have prepared the annual accounts for the financial year ended March, 31, 2017 on a
going concern basis:
e) the directors had laid down internal financial controls to be followed by the Bank and that such
internal financial controls are adequate and were operating effectively; and
f) the directors had devised proper systems to ensure compliance with the provisions of all
applicable laws and that such system were adequate and operating effectively.

49 Annual Report FY 2016-17

F. Prospects
Despite the challenges faced by the economy and the banking industry, the Directors expect a sustained
level of growth of business of the Bank in the coming year. Your Directors feel that there is immense
opportunity to cater the unserved and underserved section of client base in the country particularly the
area in which your Bank is currently operating. Your Bank in the coming years would serve this segment
with the innovative products and services aligned with the needs of the prospective clients of the area.

G. Logo of the Bank

Bank has decided to come up with its new logo effective from January 9, 2017. Our logo has the Sun Logo
connotation, culminating into a symbol, which translates the 'Intent of Utkarsh'. It highlights a new
beginning, a new day, symbol of hope and progress. It is the most powerful representation of the energy
on which every life thrives. The logo also artistically reflects the Hindi letter 'U' which stands for Utkarsh.
The Hindi letter 'U' also forms a silhouette of a Bird which denotes 'flight', rising, moving ahead towards
Utkarsh Progress.

H. Human Resources
The Bank has formulated a sound HR policy and adopted HR strategy to effectively align business
requirements with various HR activities pertaining to recruitment, deployment, training, talent retention
and motivational strategies so as to seamlessly support achievement of your Bank's vision and mission. In
this direction, your Bank has been making constant efforts to motivate its employees for excellence in
performance and at the same time endevour to provide a better work life balance through various staff
welfare activities. Total head count of the Bank as on March 31, 2017 stood at 3,845 which consist 240
female employees and 3,605 male employees.

I. Technology

In this era of cut throat competition, technology has become key differentiators and your Bank is constantly
working to improve simplicity, speed and security with respect to technological advancement in all our
service to customers. In the journey of transformation to bank, we have been able to implement of our
technological upgradation enabling our customers, employees and other stakeholder to have a hassle
freeway of technologically advanced working.

Acknowledgment
Your Directors place on record their sincere thanks to the Central and State Governments, employees of
the Bank, all stakeholders of the Bank for their continuous support and contribution to the Bank. Your
Board of director also like to place on record sincere gratitude towards customers for reposing their faith in
us. We would also like to thank our associates and other partners of the Bank for their assistance and co-
operation extended. The Directors also express their gratitude to the Shareholders for extending their
support

For and on behalf of the Board of Directors

Sd/- Sd/-
Kajal Ghose Govind Singh
Place :Mumbai Director MD & CEO
Date : May 29, 2017 DIN - 07702190 DIN - 02470880

Annual Report FY 2016-17 50

ANNEXURE
Number of meetings of the board of directors

A total of seven (7) Board Meetings were held during the financial year 2016-17. The particulars of
meetings are summarized as below:

No. of Directors No. of Directors Percentage of

S.No. Date of Meetings
present eligible to attend attendance
01 May 23, 2016 3 3 100%

02 August 24, 2016 4 4 100%

03 September 27, 2016 4 5 80%

04 December 26, 2016 2 5 40%

05 January 09, 2017 4 5 80%

06 January 16, 2017 4 6 75%

07 March 20, 2017 6 6 100%

Details regarding committees

In due compliance of various Companies Act, 2013 requirements and RBI Guidelines, the Board has
constituted following Board Committees. Details of the Committees existing as on March 31, 2017 are as
follows:

Name of The No. of meetings

S.No. Members
Committee held during the FY
Mr. Tantra Narayan Thakur, Chairman
01 Audit Committee Mr. Somnath Sengupta 1
Ms. Anita Ramachandran

Nomination & Mr. Somnath Sengupta, Chairman

02 Remuneration Dr. V. S. Sampath 2
Committee Ms. Anita Ramachandran

Stakeholders' Ms. Anita Ramachandran, Chairperson

03 3
Relationship Committee Mr. Somnath Sengupta
Mr. Govind Singh
Dr. V. S. Sampath, Chairman
04 Risk Management 1
Committee Mr Somnath Sengupta
Mr. Govind Singh
Corporate Social Dr. V. S. Sampath, Chairman
05 Responsibility Mr. Tantra Narayan Thakur 1
Committee Mr. Govind Singh

51 Annual Report FY 2016-17

 Name of The No. of meetings
S.No. Members
Committee held during the FY
Mr. Kajal Ghose, Chairman
06 IT Strategy Committee Mr. Tantra Narayan Thakur 1
Mr. Govind Singh
Mr. Govind Singh, Chairman Committee meetings
Review Committee for
07 Mr. Kajal Ghose are need based, no
Identification of Wilful
Mr. Tantra Narayan Thakur meeting held during
Defaulters
the FY 16-17
Meetings with Half
Customer Service Mr. Somnath Sengupta yearly frequency,
08 Mr. Kajal Ghose
Committee no meeting held
Mr. Govind Singh during the FY 16-17
Mr. Govind Singh, Chairman
Special Committee to Dr. V. S. Sampath Committee meetings
09 Monitor Large Value are need based, no
Ms. Anita Ramachandran
meeting held during
Fraud Mr. Somnath Sengupta
the FY 16-17
Mr. Tantra Narayan Thakur
Committee
Mr. Kajal Ghose meetings are need
Credit Approval
10 Ms. Anita Ramachandran based, no meeting
Committee
Mr. Govind Singh held during the
FY 16-17

Annual Report FY 2016-17 52

CORPORATE GOVERNANCE REPORT
Corporate Governance Practices

At Utkarsh, we are of the firm belief that Corporate Governance is a process that aims to meet
Stakeholder's aspirations and societal expectations. It is a culture that guides the Board, Management and
Employees to function towards best interest of Stakeholders.

Corporate Governance philosophy at our Bank stems from the belief that Corporate Governance is a key
element in improving efficiency and growth as well as enhancing investor confidence. The Bank strongly
believes in ethical values and self- discipline to achieve higher standard of Corporate Governance and
continues to strive for excellence in business operations through transparency, accountability to its
stakeholders, Government and other stakeholders dealing with the Bank.

The Bank's Corporate Governance practices are aimed at meeting the Corporate Governance
requirements as per the Government of India, Reserve Bank of India (RBI), Securities Exchange Board of
India (SEBI) and The SEBI (Listing Obligation and Disclosure Requirement) Regulations - 2015 ('Listing
Regulations') BIS-Corporate Governance Guidelines, besides good practices either recommended by
professional bodies or practiced by leading banks/ companies in India.

The Board

The primary role of the Board is to protect and enhance long-term shareholders' value. It sets the overall
strategy for the Bank and supervises executive management. It also ensures that good corporate
governance policies and practices are implemented within the Bank. In the course of discharging its duties,
the Board acts in good faith, with due diligence and care, and in the best interests of the Bank and its
shareholders.

The Board currently comprises 6 members whose biographical details are set out in the Board of Directors
and Senior Management section of this annual report. An updated list of directors of the Bank and their
respective role and function are maintained on the website.

Day-to-day operation of the businesses of the Bank is delegated to the management which is led by the
Managing Director and CEO and aided by the Executive Committee. They are being closely monitored by
the Board and are accountable for the performance of the Bank as measured against the corporate goals
and business targets set by the Board.

The Bank provides extensive background information about its history, mission and businesses to its
directors. Directors are also invited to visit the Banks' operating units from time to time and to meet with the
management for gaining better understanding of business operations of the Bank. Furthermore, the Board
has separate and independent access to the senior management and the Company Secretary at all times.

Appropriate liability insurance for directors & key managerial personnel has been arranged for
indemnifying their liabilities arising out of various corporate activities undertaken by them on behalf of the
Bank. This insurance coverage is reviewed on an annual basis.

53 Annual Report FY 2016-17

Board Meetings

The Board meets regularly at least four times a year at quarterly intervals and holds additional meetings as
and when the Board thinks appropriate.

Eight Board meetings were held during FY 2016-17. Notice of not less than 14 days was given to directors
for the regular Board meetings. Draft agenda for Board meetings were prepared and were circulated to all
Directors before each meeting. Directors were given an opportunity to include any other matters in the
agenda. The agenda, together with Board papers, were sent to the directors not less than three business
days before the intended date of the Board meeting.

Minutes of Board meetings were prepared in a eloquent manner covering the details of decisions reached,
any concerns raised and also mentioning dissenting views expressed (if any). The draft minutes were sent
to all directors within a reasonable time after each meeting for their observations before being formally
signed by the chairman of the meeting. Copies of the final version of minutes of the Board meetings were
sent to the directors for information and record.

At each regular Board meeting, Department Heads of the Bank made presentations to the Board on
various aspects, including the business performance, risk management framework, financial
performance, corporate governance and outlook, policy matters, reviews, etc.

Throughout FY 2016-17, directors of the Bank also participated in the consideration and approval of
matters of the Bank by way of written resolutions circulated to them. Supporting written materials were
provided by the respective Department Heads as and when required.

As per the existing Code of Conduct and Norms to avoid Conflict of Interest, a director, whether directly or
indirectly, interested in a contract or arrangement or proposed contract or arrangement with the Bank
would declare the nature of his interest at the meeting of the Board at which the question of entering into
the contract or arrangement is first considered. Additionally, the director would not vote (nor be counted
in the quorum) on any resolution of the directors in respect of any contract or arrangement or proposal in
which he or any of his associate(s) is to his knowledge materially interested. Matters to be decided at
Board meetings are decided by a majority of votes from directors allowed to vote. These were strictly
observed throughout FY 2016-17.

Directors of the Bank play an active role in participating the Bank's meetings through contribution of their
professional opinions and active participation in discussion.

Annual Report FY 2016-17 54

 Attendance of Meetings held during the FY 2016-17:

Name of Director No. of Meetings No. of Meetings % of attendance

Eligible to Attend Attended
Audit /Committee
Independent Non-Executive Directors
Dr. V. S. Sampath* 7 6 85%
Mr. Kajal Ghose ** 1 1 100%

Mr. Somnath Sengupta* 6 4 75%

Mr. Tantra Narayan Thakur 8 6 75%

Ms. Anita Ramachandran* 6 3 50%

Executive Directors
Mr. Govind Singh 8 8 100%
* Appointed as Director w.e.f. August 24, 2016
** Appointed as Director w.e.f. January 16, 2017

Board Committees
The Board delegates its powers and authorities from time to time to committees in order to ensure the
operational efficiency and specific issues are being handled with relevant expertise. Ten board committees
have been established and each of them has its specific duties and authorities set out in its own terms of
reference.

1) Audit Committee
The Audit Committee meets at quarterly intervals. Total one Meeting was held during the FY 2016-17.

The composition & major responsibilities of the committee are given below:

Mr. Tantra Narayan Thakur

Members Mr. Somnath Sengupta
Ms. Anita Ramachandran
§ Recommendation for appointment, remuneration and terms of appointment of
auditors of the Bank.
Major § Review and monitoring the auditor's independence and performance, and
Responsibilities effectiveness of audit process.
§ Examination of the financial statement and the auditors' report thereon.
§ Approval or any subsequent modification of transactions of the Bank with Related
parties.
§ Scrutiny of inter-corporate loans and investments;

55 Annual Report FY 2016-17

 § Valuation of undertakings or assets of the Bank, wherever it is necessary;
§ Evaluation of internal financial controls and risk management systems;
§ Monitoring the end use of funds raised through public offers and related Matters.
§ Providing direction and to oversee the operation of the audit function.
§ Review of the internal audit system with special emphasis on its quality and
effectiveness.
§ Review of internal and concurrent audit reports of large branches with a focus on all
major areas of housekeeping, particularly inter branch adjustment accounts, arrears
in the balancing of the books, un-reconciled entries in inter-Company accounts and
frauds.
§ Discussion on the matters related to frauds.
§ Discussion and follow up for the audit observations relating to Long Form Audit
Report.
§ Discussion and follow up for the observations relating to Inspection Report / Risk
Assessment Report of the RBI.
§ Review the system of appointment of concurrent auditors and external auditors.
§ Review of the Bank's financial reporting process and the disclosure of its financial
information to ensure that the financial statement is correct, sufficient and credible.
§ Approval of payments to statutory auditors for other services rendered by them.
§ Review with the management, the annual financial statements and auditor's report
thereon before submission to the Board for approval with particular reference to:
§ Review and Approval of matters required to be included in the Director's
Responsibility Statement in the Board's report in terms
of clause (5) of section 134 of the Companies Act, 2013, Changes, if any, in accounting
policies & practices and reasons for the same.
§ Review of major accounting entries involving estimates based on the exercise of
judgment by the management
§ Review of Significant adjustments made in the financial statements arising out of
audit findings
§ Review of Compliance with statutory and legal requirements relating to financial
statements
§ Review of disclosure of any related party transactions.
§ Review and discuss qualifications in the draft audit report.
§ Review with the management, the quarterly financial statements before
submission to the Board for approval.
§ Review with the management, the statement of uses / application of funds raised
through an issue (public issue, rights issue, preferential issue, etc.), the statement of
funds utilized for purposes other than those stated in the offer document /
prospectus / notice and the report submitted by the agency monitoring the
utilisation of proceeds of a public or rights issue, and making appropriate
recommendations to the Board for taking steps in the matter.
§ Review with the management, performance and independence of statutory and
internal auditors, adequacy of the internal control systems and effectiveness of audit
process.
§ Obtain and review quarterly / half yearly reports of the Compliance Officer
§ Review the adequacy of internal audit function, if any, including the structure of the
internal audit department, staffing, seniority of the official heading the department,
reporting structure, coverage and frequency of internal audit.

Annual Report FY 2016-17 56

 § Discuss with internal auditors any significant audit findings and follow up thereon.
§ Review the findings of any internal investigations by the internal auditors into
matters where there is suspected fraud or irregularity or a failure of internal control
systems of a material nature and reporting the matter to the Board.
§ Discuss with Statutory Auditors, before the commencement of audit, the nature and
scope of audit as also conduct post-audit discussion to ascertain any area of
concern.
§ Analysis of the reasons for substantial defaults in the payment to the depositors,
debenture holders, shareholders (in case of non-payment of declared dividends)
and creditors.
§ Review of the functioning of the Whistle Blower-cum-Vigil Mechanism.
§ Approval of the appointment of the Head of Internal Audit / Chief Internal Audit
Officer before finalization of the same by the management. While approving the
appointment, Audit Committee shall assess the qualifications, experience &
background etc. of the candidate.
§ Approval or any subsequent modification of transactions of the Bank with related
parties.
§ Evaluation of internal financial controls and risk management system.
Valuation of undertakings or assets of the Bank, wherever it is necessary.

Attendance of Meetings held during the FY 2016-17:

Name of Members No. of Meeting(s) No. of Meeting(s)

Eligible to Attend Attended
Mr. Tantra Narayan Thakur 1 1
Mr. Somnath Sengupta 1 1

Ms. Anita Ramachandran 1 0

2) Nomination & Remuneration Committee

The Nomination & Remuneration Committee meets minimum once in a year or as and when required.
Total 2 Meetings were held during the FY 2016-17.

The composition & major responsibilities of the Committee are given below:

Mr. Somnath Sengupta

Members Dr. V. S. Sampath
Ms. Anita Ramachandran

57 Annual Report FY 2016-17

 § Review the structure, size, composition, diversity of the Board and make necessary
recommendations to the Board with regard to any changes as necessary and
formulation of policy thereon.
§ Evaluate the skills that exist, and those that are absent but needed at the Board level,
and search for appropriate candidates who have the profile to provide such skill sets.
§ Examine vacancies that will come up at the Board on account of retirement or
otherwise and suggest course of action.
§ Advise criteria for evaluation of Independent Directors and the Board and carry out
evaluation of every directors' performance.
§ Undertake a process of due diligence to determine the suitability of any person for
appointment / continuing to hold appointment as a director on the Board, based
upon qualification, expertise, track record, integrity other 'fit and proper' criteria,
positive attributes and independence (if applicable) and formulate the criteria
relating thereto.
§ Review the composition of Committees of the Board, and identify and recommend to
the Board the Directors who can best serve as members of each Board Committee.
§ Review and recommend to the Board for approval the appointment of Managing
Director & CEO and other whole-time Directors and the overall remuneration
framework and associated policy of the Bank (including remuneration policy for
directors and key managerial personnel) the level and structure of fixed pay, variable
pay, perquisites, bonus pool, stock-based compensation and any other form of
compensation as may be included from time to time to all the employees of the Bank
Major
Responsibilities including the Managing Director & CEO, other whole Time Directors and senior
managers one level below the Board.
§ Review and recommend to the Board for approval the total increase in manpower
cost budget of the Bank as a whole, at an aggregate level, for the next year.
§ Recommend to the Board the compensation payable to the Chairman of the Bank.
§ Review the Code of Conduct and HR strategy, policy and performance appraisal
process within the Bank, as well as any fundamental changes in organization
structure which could have wide ranging or high risk implications.
§ Review and recommend to the Board for approval the talent management and
succession policy and process in the Bank for ensuring business continuity,
especially at the level of MD & CEO, the other Whole Time Directors, senior managers
one level below the Board and other key roles and their progression to the Board.
§ Review and recommend to the Board for approval:
the creation of new positions one level below MD & CEO
appointments, promotions and exits of senior managers one level below the
MD & CEO
§ Set the goals, objectives and performance benchmarks for the Bank and for MD &
CEO, the other Whole Time Directors for the financial year and over the medium to
long term.
§ Review the performance of the MD & CEO and other Whole Time Directors at the end
of each year.
§ Review organization health through feedback from employee surveys conducted on
a regular basis.
§ Perform such other duties as may be required to be done under any law, statute,
rules, regulations etc. enacted by Government of India, Reserve Bank of India or by
any other regulatory or statutory body.

Annual Report FY 2016-17 58

Attendance of Meeting(s) held during the FY 2016-17:

Name of Members No. of Meeting(s) No. of Meeting(s)

Eligible to Attend Attended
Mr. Somnath Sengupta 2 2
Dr. V. S. Sampath 2 2

Ms. Anita Ramachandran 2 2

3) Stakeholders' Relationship Committee

The Stakeholder Relationship Committee meets as and when required. Total 2 Meetings were held
during the FY 2016-17.

The composition & major responsibilities of the Committee are given below:

Ms. Anita Ramachandran

Members Mr. Somnath Sengupta
Mr. Govind Singh
§ Considering and resolving grievances of shareholder's, debenture holders and other
security holders.
Major § Redressal of grievances of the security holders of our Bank, relating to non-receipt of
Responsibilities dividend/interest, refund order/redemption, transfer/ transmission, non-receipt of
annual report and all other grievances as may arise.
§ Allotment of Equity Shares, approval of transfer or transmission of Equity Shares,
debentures or any other securities.
§ Issue of duplicate certificates and new certificates on split/consolidation/renewal etc.;
§ Overseeing requests for dematerialization and rematerialization of Securities.
§ Spreading awareness amongst security holders for protection of their rights and
interest(s) and
§ Carrying out any other function as assigned by the Board from time to time related
with security holders of the Bank.

Attendance of Meetings held during the FY 2016-17:

Name of Members No. of Meeting(s) No. of Meeting(s)

Eligible to Attend Attended
Ms. Anita Ramachandran 2 2
Mr. Somnath Sengupta 2 2

Mr. Govind Singh 2 2

4) Risk Management Committee

The Risk Management Committees meets on Quarterly basis. One Meeting was held during the FY
2016-17.

The composition & major responsibilities of the Committee are given below:

59 Annual Report FY 2016-17

 Dr. V. S. Sampath
Members Mr. Somnath Sengupta
Mr. Govind Singh
§ To perform the role of Risk Management in pursuance of the Risk Management
Guidelines issued periodically by RBI and Board.
§ To oversee and advise to the Board on:
Major
Responsibilities defining risk appetite, tolerance thereof and review the same, as appropriate;
the systems of risk management framework, internal control and compliance
to identify, measure, aggregate, control and report key risks.
the alignment of business strategy with the Board's risk appetite.
the maintenance and development of a supportive culture, in relation to the
management of risk, appropriately embedded through procedures, training
and leadership actions so that all employees are alert to the wider impact on
the whole organization of their actions and decisions.
§ To advise the Board on all high level risk matters.
§ To require regular risk management reports from management which enable the
Committee to assess the risks involved in the Bank's business and how they are
controlled and monitored by management; and give clear focus to current and
forward-looking aspects of risk exposure.
§ To review the effectiveness of the Bank's internal control and risk management
framework, in relation to its core strategic objectives, and to seek such assurance
as may be appropriate.
§ To review the asset liability management (ALM) of the bank on a regular basis;
§ To consider any major regulatory issues that may have bearing on the risks and
risk appetite of the Bank.
§ To provide to the Board with such additional assurance as it may require regarding
the quality of risk information submitted to it.
§ To decide the policy and strategy for integrated risk management containing
various risk exposures of the Bank including the credit, market, liquidity,
operational and reputation risk.
§ To review risk return profile of the Bank, capital adequacy based on the risk profile of
the Bank's balance sheet, Basel-II implementation, assessment of Pillar II risk under
Internal Capital Adequacy Assessment Process (ICAAP), business continuity plan
and disaster recovery plan, key risk indicators and significant risk exposures.

Attendance of Meetings held during the FY 2016-17:

Name of Members No. of Meeting(s) No. of Meeting(s)

Eligible to Attend Attended
Dr. V. S. Sampath 1 1
Mr. Somnath Sengupta 1 1

Mr. Govind Singh 1 1

Annual Report FY 2016-17 60

5) Corporate Social Responsibility Committee
The Corporate Social Responsibility Committees meets on half yearly basis. Total One Meeting was
held during the FY 2016-17.

The composition & major responsibilities of the Committee are given below:

Dr. V. S. Sampath
Members Mr. Tantra Narayan Thakur
Mr. Govind Singh
§ Formulation and recommendation to the Board, the Corporate Social Responsibility
(CSR) strategy of the Bank including the CSR Policy and its implementation.
Major
§ Formulation and recommendation to the Board, the CSR activities to be undertaken
Responsibilities by the Bank either directly or through Utkarsh Welfare Foundation or through any
other entity working for the welfare of society and determining the CSR projects /
programmes which the Bank plans to undertake during the year of implementation,
specifying modalities of execution in the areas / sectors chosen and implementation
schedules for the same.
§ Recommendation to the Board, the amount of expenditure to be incurred on the CSR
activities.
§ Review and monitoring the compliance of initiatives undertaken and evaluate
performance of the activities against the agreed targets.
§ Conducting an impact-assessment of the various initiatives undertaken in terms of
the CSR Policy at periodic intervals.
§ Reviewing and recommending the annual CSR report for the Board's approval and for
public disclosure.
§ Performing such other duties with respect to CSR activities, as may be required to
be done under any law, statute, rules, regulations etc. enacted by Government of
India, Reserve Bank of India or by any other regulatory or statutory body.

Attendance of Meetings held during the FY 2016-17:

Name of Members No. of Meeting(s) No. of Meeting(s)

Eligible to Attend Attended
Dr. V. S. Sampath 1 1
Mr. Tantra Narayan Thakur 1 1

Mr. Govind Singh 1 1

6) IT Strategy Committee
The IT Strategy Committees meets minimum Quarterly basis. Total One Meeting held during the FY
2016-17.

The composition & major responsibilities of the Committee are given below:

61 Annual Report FY 2016-17

 Mr. Kajal Ghose
Members Mr. Tantra Narayan Thakur
Mr. Govind Singh
§ Approving IT strategy and policies.
§ Ensuring that management has an effective strategic planning process in place.
§ Ensuring that the business strategy is aligned with the IT strategy.
Major
§ Ensuring that the IT organizational structure serves business requirements and
Responsibilities
direction.
§ Oversight over implementation of processes and practices that ensures IT delivers
value to businesses.
§ Monitoring the method that management uses to determine the IT resources needed
to achieve strategic goals and provide high-level direction for sourcing and use of IT
resources.
§ Ensuring proper balance of IT investments for sustaining Bnak's growth.
§ Assess exposure to IT risks and its controls and evaluating effectiveness of
management's monitoring of IT risks.
§ Assessing management's performance in implementing IT strategies.
§ Assessing if IT architecture has been designed to derive maximum business value.
§ Reviewing IT performance measurement and contribution to businesses
To approve capital and revenue expenditure in respect of IT procurements.

Attendance of Meetings held during the FY 2016-17:

Name of Members No. of Meeting(s) No. of Meeting(s)

Eligible to Attend Attended
Mr. Kajal Ghose 1 1
Mr. Tantra Narayan Thakur 1 1
Mr. Govind Singh 1 1

7) Review Committee for Identification of Wilful Defaulters

The Review Committee for Identification of Wilful Defaulters meets as and when required. No Meeting
held during the FY 2016-17.

The composition & major responsibilities of the Committee are given below:
Details of Committee are as follows:
Mr. Govind Singh
Members Mr. Kajal Ghose
Mr. Tantra Narayan Thakur
§ To review, confirm and take decision with regard to classifying a borrower as “Wilful
Defaulter” based on the inputs / decisions of Committee headed by Executive
Director, classifying a borrower as Willful Defaulter.
Major
§ To review, confirm and take decision with regard to classifying a borrower as “non-
Responsibilities
cooperative borrower” based on the inputs / decisions of Committee headed by
Executive Director, classifying a borrower as “Non-cooperative borrower”
§ To set-up and review the policies and process of the Bank vis-à-vis regulatory
guidelines with regard to identification of “wilful defaulter” or “non-cooperative
borrower”.

Annual Report FY 2016-17 62

The meeting of this committee is conducted on a need basis. No meeting was conducted for the FY 17.

8) Customer Service Committee

The Customer Service Committee meets half yearly basis. No Meeting held during the FY 2016-17.

The composition & major responsibilities of the Committee are given below:

Mr. Somnath Sengupta

Members Mr. Kajal Ghose
Mr. Govind Singh
One Customer Representative
§ Overseeing the functioning of the Bank's internal committee setup for customer
service.
§ To review the level of customer service in the Bank including customer complaints
Major
and the nature of their resolutions.
Responsibilities
§ Provide guidance in improving the customer service level.
§ Review any award by the Companying Ombudsman to any customer on a complaint
filed with the Ombudsman.
§ To ensure that the Bank provides and continues to provide, best-in-class service
across all its category of customers which will help the Bank in protecting and
growing its brand equity.
§ The Committee could address the formulation of a Comprehensive Deposit Policy,
incorporating the issues such as the treatment of death of a depositor for operations
of his account, the product approval process, the annual survey of depositor
satisfaction and the periodical audit of such services.
§ The Committee could also examine any other issues having a bearing on the quality
of customer service rendered.
§ To ensure implementation of directives received from RBI with respect to rendering
services to customers of the Bank.

9) Special Committee to Monitor Large Value Frauds

The Special Committee to monitor Large Value Fraud meets half yearly basis. No Meeting held during
the FY 2016-17.

The composition & major responsibilities of the Committee are given below:

Mr. Govind Singh

Dr. V. S. Sampath
Members Ms. Anita Ramachandran
Mr. Somnath Sengupta
Mr. Tantra Narayan Thakur
§ The major functions of the Special Committee is to monitor and review all the frauds
of ₹10.00 Lakh and above.
§ Identify the systemic lacunae, if any that facilitated perpetration of the fraud and put in
place measures to plug the same.
Major § Identify the reasons for delay, if any, in detection and reporting to top management of
Responsibilities the Bank and RBI.
§ Monitor progress of CBI / Police investigation and recovery position.
§ Ensure that staff accountability is examined at all levels in all the cases of frauds and
staff related action, if required, is completed quickly without loss of time.

63 Annual Report FY 2016-17

 § Review the efficacy of the remedial action taken to prevent recurrence of frauds, such
as, strengthening of internal controls.
§ Put in place other measures as may be considered relevant to strengthen preventive
measures against frauds.

10) Credit Approval Committee

The Credit Approval Committee meets as and when required basis. No Meeting held during the FY
2016-17.

The composition & major responsibilities of the Committee are given below:

Mr. Kajal Ghose

Members Ms. Anita Ramachandran
Mr. Govind Singh
Major § To provide approvals for loans above certain stipulated limits, discuss strategic issues
Responsibilities in relation to credit policy, and deliberate on the quality of the credit portfolio.
§ To monitor the exposures (both credit and investment) of the Bank.
§ To sanction expenditures above certain stipulated limits.
§ To approve expansion of the location of the Bank's Network of offices, branches,
extension counters, ATMs and Currency chests.
§ To review investment strategy and approve investment related proposals above
certain limits.
§ To approve proposals relating to the Bank's operations covering all departments and
business segments.
§ To ensure compliance with the statutory / regulatory framework, etc.;
§ To discuss issues relating to day to day affairs/problems and to take such steps as may
be deemed necessary for the smooth functioning of the Bank (all routine matters
other than the strategic matters and review of policies other than strategic policies like
credit policy, investment policy and other policies which the COD may consider
necessary or RBI may specifically require to be reviewed by the Board).

Non Executive Directors

Coming from diverse business and professional backgrounds, the non-executive directors (including
independent non-executive directors) of the Bank have shared their valuable experiences to the Board for
promoting the best interests of the Bank and its shareholders. The non-executive directors have actively
participated in the board and board committees of the Bank and they have made significant contribution of
their skills and expertise to these committees.

Remuneration of Directors

Each director is entitled to a directors fee which is determined by the Board in line with the provisions of
Companies Act, 2013. Currently the Directors are not paid any additional remuneration. The Chairman of
the Board is proposed to be paid the remuneration subject to the approval of RBI & shareholders. The
remuneration related decisions are discussed with the Nomination & Remuneration Committee of the
Board. The Bank's Human Resources Department assists the Nomination & Remuneration Committee by
providing relevant remuneration data and market conditions for the Remuneration Committee's
consideration. The remuneration of MD & CEO and senior management of the Bank is determined with
reference to the Bank's performance and profitability, as well as remuneration benchmarks in the industry
and the prevailing market conditions. Remuneration is performance-based and coupled with an incentive
system is competitive to attract and retain talented employees.

Annual Report FY 2016-17 64

Nomination, Appointment and Re-election of Directors
Formal nomination procedures were adopted by the Board for governing the nomination of directors.
Nomination of director are reviewed and discussed by the Nomination Committee for his suitability on the
basis of qualifications, experience and background. Suitable candidate would be recommended by the
Nomination Committee to the Board for consideration of the appointment.

During the year under review, the Nomination & Remuneration Committee considered the appointment of
Dr V S Sampath as Non-Executive Part Time Chairman and Mr. Govind Singh as Managing Director & CEO
of the Bank.

In addition, one-third of the directors who have served longest on the Board would retire, thus becoming
eligible for re-election at each annual general meeting. Each director is subject to retirement by rotation at
least once every three years. Any further re-appointment of an independent non-executive director, who
has served the Board for more than nine years, will be subject to separate resolution to be approved by the
shareholders.

Board Diversity
The Bank currently has truly diverse board to make good use of optimum mix of skills, regional and
industrial experience, background, gender and other qualities of members of the Board. These varied
qualities of board members have been taken into account in determining the optimum composition of the
Board.

Induction and Continuous Professional Development

A new director is explained about the Banking business and the core areas of the Bank's operations at the
time of induction. Also, various new regulations issued by the regulators that are critical are explained to
the Board members along with the action taken against each requirement. Orientation with regard to the
duties and responsibilities of directors under statutory regulations, internal code of conduct and norms for
avoiding Conflict of interest and the Listing Rules are provided.

The Bank has plans to arrange training programmes as part of the continuous professional development
for its directors to develop and refresh their knowledge and skill.

Corporate Governance Function

The Board is responsible for performing the corporate governance duties. Specific terms of reference
were set out in the Corporate Governance Policy approved by the Board and the relevant duties include the
following:

· Ensure that the Governance principles set for the bank comply with all relevant laws, regulations
and other applicable codes of conduct.
· Set the business policies in consultation with the Management of the Bank.
· Provide strategic guidance for implementation of business policy and structure a management
information system for review and course correction.
· Ensuring proper implementation of the guidelines of the business & other policies and take action
as under:
· Establish appropriate systems to regulate the risk appetite and profile of the Bank in order to
develop an effective risk management system.
· Ensure that all supervisory/regulatory directions are submitted and the supervisor's
recommendations are utilized in the assessment of the performance of the senior management in
implementation of Board philosophy.
· Formulate, adopt and review of the various policies prescribed by various Statutory Authorities
from time to time.

65 Annual Report FY 2016-17

 · Set Standards of Business Conduct and Ethical Behavior for members and Senior Management.
· Ensure that the Bank has in place a robust compliance system for all applicable laws and
regulations.
· Prescribe the forms and frequency of reporting to the Board in respect of each of the above areas of
responsibility.
· Set up sound system of internal controls and audit including Financial, operational and Compliance
controls and annual review of such system for their effectiveness.
· Monitor the financial performance of the Bank and must ensure that the financial results are
prepared in accordance with the generally accepted accounting principles and regulations
issued by the RBI and are reported to shareholders and regulators on a timely and regular basis.
· Ensure that all material developments of the Bank are disclosed to the public on a timely basis in
accordance with the Standard Listing Regulations requirement.
· Delegate the responsibilities to mandated/ other recommended Empowered Committees of
Directors in discharging of the above governance functions, while retaining its primary
accountability.
· Execute such other duties as defined under the relevant Government of India / RBI Guidelines.

Directors' Responsibilities for Financial Reporting and Disclosures

The Bank's directors acknowledge their responsibilities to prepare accounts for each half and full financial
year which give a true and fair view of the state of affairs of the Bank. The directors consider that in
preparing financial statements, the Bank ensures statutory requirements are met and applies appropriate
accounting policies that are consistently adopted and makes judgements and estimates that are
reasonable and prudent in accordance with the applicable accounting standards.

The directors are responsible for taking all reasonable and necessary steps to safeguard the assets of the
Bank and to prevent and detect fraud and other irregularities. They consider that the Bank has adequate
resources to continue in operational existence for the foreseeable future and are not aware of material
uncertainties in relation to events or conditions that may cast significant doubt upon the Bank's ability to
continue as a going concern. The Bank's financial statements have accordingly been prepared on a going
concern basis.

The directors are responsible for ensuring that proper accounting records are kept so that the Bank could
prepare financial statements in accordance with statutory requirements and the Bank's accounting
policies. The Board is aware of the requirements under the applicable Listing Rules and statutory
regulations with regard to the timely and proper disclosure of inside information, announcements and
financial disclosures and authorizes their publication as and when required.

Risk Management & Internal Control

Risk management is an essential part of corporate governance. Effective risk management facilitates the
Bank's business development and operation by setting the appropriate risk appetite, maintaining an
optimal risk level and most importantly, proactively managing risks. It is the responsibility of all
management staff to uphold the Bank's risk management function by ensuring that all staff members and
business units comply with the risk management practices embedded into our daily operation.

The Board is responsible for ensuring that sound and effective risk management and internal control
systems are maintained, while management ensures the sufficient and effective operational controls over
the key business processes are properly implemented with regular review and update.

As per the directions of RBI on Guidelines for Licensing of Small Finance Banks in the Private sector, Utkarsh
Small Finance Bank Limited is required to maintain a minimum capital adequacy of 15 per cent of its Risk
Weighted Assets (RWA) subject to any higher percentage as may be prescribed by RBI from time to time.

Annual Report FY 2016-17 66

This document covers the Capital Adequacy status for Utkarsh Small Finance Bank Limited. It also
describes the Risk Process and Governance at the Bank to effectively on-board, monitor and report risk.

Internal audit reports are submitted to the Audit Committee regularly. Key audit findings are presented to
the management in the Compliance and Audit Committee.

Furthermore, The Bank has a policy to address the complaints through the Whistle blower mechanisms for
staff members to raise concerns, in strict confidence, about possible improprieties in any matters.
Reported cases would be investigated by a committee in a confidential and timely manner and the
investigation report are submitted to the Audit Committee of the Board.

External Auditor
The Audit Committee is responsible for considering the appointment, re-appointment and removal of
external auditor subject to endorsement by the Board and final approval and authorization by the
shareholders of the Bank in general meetings. BSR & Associates LLP, has been appointed as first auditors of
the Bank and recommended by the Board of appointment as Statutory Auditors in the ensuing Annual
General Meeting the Bank.

Review of Audited Results

The Audit Committee of the Bank has reviewed the accounting principles and practices adopted by the
Bank and the audited consolidated financial statements of the Bank for FY2017.

Company Secretary
The Company Secretary of the Bank is involved in day-to-day affairs of the Bank and is responsible for
providing professional advice on governance matters. The details of the Company Secretary along with
his experience is posted on the website of the Bank.

Communication with Shareholders

The Board recognizes the importance of frequent and proper communication with the Bank's
shareholders. In line with the Corporate Governance Policy adopted by the Bank special emphasis has
been given for ensuring effective and transparent communication between the Bank and its shareholders.

Moreover, the Annual General Meeting of the Bank provides an opportunity for face-to-face
communication between the Board and the shareholders. Shareholders are welcome to raise any query in
relation to the Bank's businesses at the annual general meeting. Shareholders' enquiries, either received by
telephone or by email, are properly attended by the Bank Secretarial Department and are addressed to the
Stakeholders Relationship Committee, if necessary. Shareholders may at any time send their enquiries and
concerns to the Board in writing through the Company Secretary at the Company's registered office
address.

Shareholder Services

Any matter in relation to the transfer of shares, change of name or address, or loss of share, registrations
and requests for annual/interim report copies should be addressed to the Bank's Registrar & Share Transfer
Agent, M/s Karvy Computershare Private Ltd, Unit: Utkarsh Small Finance Bank, Karvy Selenium Tower B,
Plot No 31 & 32, Gachibowli, Financial District, Nanakramguda, Serilingampally, Hyderabad - 500 032,
Telangana. Any Shareholder can raise any service request or any query to the Company Secretary by
writing a mail to shareholders@utkarsh.bank.

67 Annual Report FY 2016-17

Bank's Website and Annual Report
To ensure all shareholders have uniform and timely access to important Bank information, the Bank makes
extensive use of the Bank's website to deliver up-to-date information. Latest information regarding the
activities and publications of the Bank is included in the Bank's website at www.utkarsh.bank in order to
provide comprehensive information of the Bank for the shareholders of the Bank as well as the general
public. The Bank's annual report is available on our corporate website. Shareholders may at any time
change their choice of means of receiving the Bank's corporate communications free of charge by notice in
writing to the Registrar & Share Transfer Agent M/s Karvy Computershare Private Limited.
Shareholders' Rights
The Board and management shall ensure shareholders' rights and all shareholders are treated equitably
and fairly. Pursuant to the Bank's bye-laws, any shareholder entitled to attend and vote at a general meeting
of the Bank is entitled to appoint another person as his proxy to attend and vote instead of him.
Shareholders who hold not less than one-tenth of the paid up capital of the Bank shall have the right, by
written requisition to the Company Secretary of the Bank, to require a special general meeting to be called
by the Board for the transaction of any business specified in such requisition. The procedures for
shareholders to put forward proposals at general meetings are stated as follows:

1. The written requisition must state the purposes of the meeting, and must be signed by all the
shareholders concerned and may consist of several documents in like form each signed by one or
more shareholders concerned.

2. The written requisition must be deposited at the Bank's registered office of the Bank as well as the
principal place of business in Varanasi for the attention of the Company Secretary.

3. The written requisition will be verified with the Bank's share registrar and upon their confirmation
that the request is proper and in order, the Company Secretary will ask the Board to include the
relevant resolution in the agenda for such general meeting provided that the shareholders
concerned have deposited a sum of money reasonably sufficient to meet the Bank's expenses in
serving the notice of the resolution and circulating the statement submitted by the shareholders
concerned in accordance with the statutory requirements to all the registered shareholders. Such
general meeting shall be held within two months after deposit of such requisition.

4. If within 21 days of such deposit, the Board fails to proceed to convene such general meeting, the
shareholders concerned, or any of them representing more than one half of the total voting rights
of all of them, may themselves convene a meeting, but any meeting so convened shall not be held
after the expiration of three months from the said date.

Any vote of shareholders at a general meeting must be taken by way of poll and the Bank will announce the
results of the poll in the manner prescribed under the Listing Rules.

Chairman of the Audit Committee will attend the annual general meetings of the Bank to address
shareholders' queries. External auditor is also invited to attend the Bank's annual general meetings and is
available to assist the directors in addressing queries from shareholders relating to the conduct of the audit
and the preparation and content of its auditors' report.
General Meeting

As the Bank was incorporated in the month of April, 2016 no Annual General Meeting general meeting was
held during FY 2016-17. During the year under review, four Extra-Ordinary General Meetings were held on
1st September, 2016, 28th September, 2016, 28th December, 2016 and 28th March, 2017 to transact some
special business with the approval of the Board of Directors.

Annual Report FY 2016-17 68

Investor Relations

The Bank is committed to uphold the highest standards of corporate governance practices and
maintaining effective communication with shareholders and the financial community. To this end, the Bank
maintains an open-dialogue with investors to ensure transparent, timely and accurate dissemination of
information including operating performance and strategic business developments.

To ensure fair and equal access to material information, the Bank utilizes multiple communication channels
such as results announcements and presentations and corporate website to reach out to individual
shareholders and stakeholders within the investment community.

69 Annual Report FY 2016-17

Balance Sheet as at 31 March 2017
(₹ in '000s)
As at
Schedule
31 March 2017
CAPITAL AND LIABILITIES
Capital 1 3,000,500
Reserves and Surplus 2 48,348
Deposits 3 187,223
Borrowings 4 22,888,283
Other Liabilities and Provisions 5 628,935
Total 26,753,289
ASSETS

Cash and balances with Reserve Bank of India 6 423,844

Balances with banks and money at call and short notice 7 1,496,115
Investments 8 7,292,293
Advances 9 15,939,087
Fixed Assets 10 216,158
Other Assets 11 1,385,792
Total 26,753,289
Contingent Liabilities 12 410,126
Bills for Collection -
Significant accounting policies 17
Notes to the financial statements 18

The Schedules referred to above form an integral part of the Balance Sheet

As per our Report of even date attached for and on behalf of the Board of Directors of
for B S R & Associates LLP Utkarsh Small Finance Bank Limited
Chartered Accountants CIN: U65992UP2016PLC082804
ICAI Firm Registration No. 116231W/ W-100024

Sriram Mahalingam Govind Singh Kajal Ghose

Partner Managing Director & CEO Director
Membership No.049642 DIN : 02470880 DIN : 07702190

Abhisheka Kumar Anang Kumar

Chief Financial Officer Shandilya
Company Secretary
Place : Mumbai Place : Mumbai
Date : 29-May-2017 Date : 29-May-2017

Annual Report FY 2016-17 70

Profit and Loss Account for the period ended 31 March 2017
(₹ in '000s)
For the period ended
Schedule
31 Mar 2017
I INCOME
Interest Earned 13 868,894
Other Income 14 33,153
Total 902,047
II EXPENDITURE
Interest Expended 15 442,929
Operating Expenses 16 348,935
Provisions and Contingencies 61,835
Total 853,699
III PROFIT/LOSS
Net Profit /(Loss) for the year 48,348
Balance in Profit and Loss account brought forward -
Total 48,348
IV APPROPRIATIONS
Transfer to Statutory Reserve 12,087
Balance carried over to Balance Sheet 36,261
Total 48,348
V EARNINGS PER EQUITY SHARE 18.5.5
EPS Basic (₹) 0.51
EPS Diluted (₹) 0.27
Face Value per share (₹) 10
Significant accounting policies 17
Notes to the financial statements 18
The Schedules referred to above form an integral part of the Profit and Loss Account

As per our Report of even date attached for and on behalf of the Board of Directors of
for B S R & Associates LLP Utkarsh Small Finance Bank Limited
Chartered Accountants CIN: U65992UP2016PLC082804
ICAI Firm Registration No. 116231W/ W-100024

Sriram Mahalingam Govind Singh Kajal Ghose

Partner Managing Director & CEO Director
Membership No.049642 DIN : 02470880 DIN : 07702190

Abhisheka Kumar Anang Kumar

Chief Financial Officer Shandilya
Company Secretary
Place : Mumbai Place : Mumbai
Date : 29-May-2017 Date : 29-May-2017

71 Annual Report FY 2016-17

Cash Flow Statement for the period ended 31 March 2017
(₹ in '000s)
For the period ended
Sl.No.
31 Mar 2017
I Cash flow from operating activities - -
Profit before taxes 65,230
Adjustments for:-
Depreciation and amortisation 14,139
Net depreciation on investments 5,015
General provision for standard advances 39,938
Employees stock options expense 2,635
(i) 126,957
Adjustments for:-
Decrease in investments 538,936
Decrease in advances 28,845
Increase in deposits 187,223
Increase in other assets (620,745)
Decrease in other liabilities and provisions (91,577)
(ii) 42,682
Refund/(payment) of direct taxes (iii) (16,882)

Net cash flow from operating activities (A) 152,757

(i)+(ii)+(iii)
II Cash flow used in investing activities - -
Purchase of fixed assets (100,790)
Addition to Capital Work in Progress (21,353)
Payment made pursuant to BTA (Refer Schedule 18.43) (685,063)
Purchase of held to maturity securities (3,898,454)
Net cash flow used in investing activities (B) (4,705,660)
III Cash Flow from financing activities - -
Proceeds from issue of share capital 3,000,500
Proceeds from issue of Compulsorily Convertible 3,870,000
Debentures

Repayments from long term borrowings (1,725,835)

Repayments from short term borrowings (238)

Net cash flow from financing activities (C) 5,144,427

Cash & cash equivalents acquired pursuant to BTA (Refer Schedule 18.43) (D) 1,328,435

IV Net increase in cash and cash equivalents (A) + (B) + (C) + (D) 1,919,959

Annual Report FY 2016-17 72

V Cash and cash equivalents at beginning of the year -

VI Cash and cash equivalents at end of the year 1,919,959

Notes to the Cash Flow Statement:

Cash and cash equivalents includes the following:
(i) Cash and Balances with Reserve Bank of India (Refer Schedule 6) 423,844
(ii) Balances with Banks in Current Accounts (Refer Schedule 7) 1,496,115
(iii) Money at Call and Short Notice (Refer Schedule 7) -
Cash and cash equivalents at the end of the year 1,919,959

As per our Report of even date attached for and on behalf of the Board of Directors of
for B S R & Associates LLP Utkarsh Small Finance Bank Limited
Chartered Accountants CIN: U65992UP2016PLC082804
ICAI Firm Registration No. 116231W/ W-100024

Sriram Mahalingam Govind Singh Kajal Ghose

Partner Managing Director & CEO Director
Membership No.049642 DIN : 02470880 DIN : 07702190

Abhisheka Kumar Anang Kumar

Chief Financial Officer Shandilya
Company Secretary
Place : Mumbai Place : Mumbai
Date : 29-May-2017 Date : 29-May-2017

73 Annual Report FY 2016-17

SCHEDULES FORMING PART OF THE BALANCE SHEET AS AT 31 MARCH 2017
Schedule 1 - Capital
(₹ in '000s)
As at
31 March 2017
Authorised Capital
3,300,000
330,000,000 equity Shares of ₹10/- each

Issued, subscribed and fully paid-up capital

300,050,000 equity Shares of ₹10/- each 3,000,500
Total 3,000,500

Schedule 2 - Reserves and Surplus

(₹ in '000s)
As at
31 March 2017
1. Statutory Reserve
Opening balance -
Addition during the year 12,087
Deduction during the year -
Total 12,087
1. Balance in Profit and Loss Account 36,261
Total (1+2) 48,348

Schedule 3 - Deposits
(₹ in '000s)
As at
31 March 2017
A. 1. Demand Deposits
i) From banks -
ii) From others 865

Total 865
2. Savings Bank Deposits 5,566
3. Term Deposits
i) From banks 100,000
ii) From others 80,792
Total 180,792
Total ( 1 to 3 ) 187,223
B. i. Deposits of branches in India 187,223
ii. Deposits of branches outside India -

Total 187,223

Annual Report FY 2016-17 74

Schedule 4 - Borrowings
(₹ in '000s)
As at
31 March 2017
1. Borrowings in India
i) Reserve Bank of India -
ii) Other banks 8,017,648
iii) Other institutions and agencies * 9,286,892
2. Borrowings outside India # 5,583,743

Total (1+2) 22,888,283

Secured borrowings included in 1 and 2 above 10,643,012
* Borrowing from other institutions and agencies include subordinated debt of ₹100,000 thousands in the nature of term loan
# Borrowing from outside India include subordinated debt of ₹1,500,000 thousands in the nature of Non Convertible Debenture

Schedule 5 - Other Liabilities and Provisions

(₹ in '000s)
As at
31 March 2017
1. Bills payable -
2. Inter office adjustments (Net) -
3. Interest accrued 208,078
4. Provision against standard assets 39,938
5. Others (including provisions) 380,919

Total (1+5) 628,935

Schedule 6 - Cash and balances with Reserve Bank of India

(₹ in '000s)
As at
31 March 2017
1. Cash in hand 10,205

2. Balances with Reserve Bank of India

i) In current account 413,639
ii) In other accounts -
Total (1+2) 423,844

Schedule 7 - Balance with banks and money at call and short notice
(₹ in '000s)
As at
31 March 2017
1. In India
i) Balances with banks
a) In current accounts 558,770
b) In other deposit accounts 937,345

75 Annual Report FY 2016-17

 ii) Money at call and short notice
a) With banks -
b) With other institutions -
Total (i+ii) 1,496,115
2. Outside India
In current accounts -
In other deposits accounts -
Money at call and short notice -
Total -
Total (1+2) 1,496,115

Schedule 8 - Investments
(₹ in '000s)
As at
31 March 2017
1. Investments in India (net of provisions)

i) Government securities 7,292,041

ii) Other approved securities -
iii) Shares -
iv) Debentures and bonds -
v) Subsidiaries / joint ventures -
vi) Others (mutual funds) 252
Total 7,292,293

2. Investments Outside India (net of provisions)

i) Government securities -
ii) Subsidiaries / joint ventures -
iii) Others (equity shares and bonds) -
Total
Total (1+2) 7,292,293
3. Investments

i) Gross value of investments

a) In India 7,297,308
b) Outside India -
7,297,308
ii) Provision for depreciation
a) In India 5,015
b) Outside India -
5,015
iii) Net value of investments
a) In India 7,292,293
b) Outside India -
7,292,293

Annual Report FY 2016-17 76

Schedule 9 - Advances (net of provisions)
(₹ in '000s)
As at
31 March 2017
A. i) Bills purchased and discounted -
ii) Cash credits, overdrafts and loans repayable on demand -
iii) Term loans 15,939,087
Total 15,939,087
B. i) Secured by tangible assets (includes advances against fixed deposits 124,089
and book debts)
ii) Covered by Bank / Government guarantees -
iii) Unsecured 15,814,998
Total 15,939,087
C.1 Advances in India
i) Priority sector 15,938,437
ii) Public sector -
iii) Banks -
iv) Others 650
Total 15,939,087
C.2 Advances Outside India
i) Due from banks -
ii) Due from others -
a) Bills purchases and discounted -
b) Syndicated loans -
c) Others -
Total -
Total (C.1 + C.2) 15,939,087

Schedule 10 - Fixed Assets

(₹ in '000s)
As at
31 March 2017
1. Premises
i) At cost at 31st March of the preceding year -
ii) Additions during the year -
iii) Deductions during the year -
iv) Accumulated depreciation to date -
Total -
2. Other Fixed Assets (including furniture and fixtures)
i) At cost at 31st March of the preceding year -
1
ii) Additions during the year 227,466
iii) Deductions during the year -
2,3
iv) Accumulated depreciation to date 71,432
Total 156,034

77 Annual Report FY 2016-17

 3. Capital Work in Progress 60,124

Total ( 1 to 3 ) 216,158
1. Includes assets taken over from the Holding Company (Refer Schedule 18.43)
2. Includes accumulated depreciation on assets taken over from Holding Company (Refer Schedule 18.43)
3. Includes depreciation charge amounting to ₹14,139.37 thousands for the period ended 31 March 2017

Schedule 11 - Other Assets

(₹ in '000s)
As at
31 March 2017
1. Inter-office adjustment (net) -
2. Interest accrued 397,684
3. Tax Paid in advance / tax deducted at source (net of provision) -
4. Stationery and stamps -
5. Non-banking assets acquired in satisfaction of claims -
6. Others* 988,108
Total (1 to 6) 1,385,792
* includes deferred tax assets of 22,718.32 thousands (Refer Schedule 18.5.6)

Schedule 12 - Contingent Liabilities

(₹ in '000s)
As at
31 March 2017
1. Claims against the bank not acknowledged as debts -
2. Liability for partly paid investment -
3. Liability on account of outstanding forward exchange contracts -
4. Liability on account of outstanding derivative contracts* 317,200
5. Guarantees given on behalf of constituents
i) In India -
ii) Outside India -
6. Acceptances, endorsements and other obligations -
7. Other items for which the bank is contingently liable
a) Income tax & other matters (under appeal) -
b) Others 92,926
Total (1 to 7) 410,126
* Represents notional principal amount with respect to cross currency interest rate swaps

Schedule 13 - Interest Earned

(₹ in '000s)
As at
31 March 2017
1. Interest / discount on advances / bills 719,669
2. Income on investments 109,246
3. Interest on balance with Reserve Bank of India and Other inter bank funds 39,424
4. Others 555
Total (1 to 4) 868,894

Annual Report FY 2016-17 78

Schedule 14 - Other Income
(₹ in '000s)
As at
31 March 2017
1. Commission, exchange and brokerage 27,736
2. Profit / (Loss) on sale of Investments (net) 699
3. Profit / (Loss) on sale of revaluation of investments -
4. Profit / (Loss) on sale of land, building and other assets (net) -
5. Profit / (Loss) on exchange transactions (net) -
6. Income earned by way of dividends from Subsidiaries / Associates and -
/or Joint Venture abroad / in India
7. Miscellaneous Income 4,718
Total (1 to 7) 33,153

Schedule 15 - Interest Expended

(₹ in '000s)
As at
31 March 2017
1. Interest on deposits 1,484
2. Interest on Reserve Bank of India / Inter-bank borrowings 168,801
3. Others 272,644
Total (1 to 3) 442,929

Schedule 16 - Operating Expenses

(₹ in '000s)
As at
31 March 2017
1. Payments to and provisions for employees 207,431
2. Rent, taxes and lighting 21,150
3. Printing and stationery 9,591
4. Advertisement and publicity 5,566
5. Depreciation on Bank's property 14,139
6. Director's fees allowances and expenses 1,486
7. Auditors' fees and expenses 2,889
8. Law charges 19,507
9. Postage, telegrams, telephones, etc. 6,149
10. Repairs and maintenance 5,837
11. Insurance 479
12. Other expenditure 54,711
Total (1 to 12) 348,935

79 Annual Report FY 2016-17

Schedule 17 - Significant accounting policies

Background:

Utkarsh Small Finance Bank Limited (“Company” or “the Bank”), incorporated on 30 April 2016 in India, is a
small finance bank engaged in providing banking and financial services and governed by the Banking
Regulation Act, 1949.Pursuant to the small finance banking license received from Reserve Bank of India on
25 November 2016, the Bank has commenced its banking operations from 23 January 2017. The Company
is a wholly owned subsidiary of Utkarsh Micro Finance Limited.

Basis of preparation:

The accompanying financial statements have been prepared under the historical cost convention and on
the accrual basis of accounting, unless otherwise stated, and comply with the requirements prescribed
under the Third Schedule of the Banking Regulation Act, 1949. The accounting and reporting policies of the
Bank used in the preparation of these financial statements conform to Generally Accepted Accounting
Principles in India (“Indian GAAP”), the circulars and guidelines issued by Reserve Bank of India (“RBI”)
from time to time, the accounting standards notified under section 133 of the Companies Act, 2013 read
together with paragraph 7 of the Companies (Accounts) Rules, 2014 and the Companies (Accounting
Standards) Amendment Rules, 2016 to the extent applicable, and practices generally prevalent in the
banking industry in India.This being the year of incorporation of the Bank, these financial statements have
been prepared for the period beginning from 30 April 2016 to 31 March 2017.

Use of estimates:

The preparation of the financial statements in conformity with the Indian GAAP requires the management
to make estimates and assumptions that are considered in the reported amount of assets, liabilities and
disclosure of contingent liabilities on the date of the financial statements and reported income and
expenses during the reporting period. The estimates and assumptions used in the accompanying financial
statements are based upon management's evaluation of the relevant facts and circumstances as of the date
of the financial statements and the management believes that the estimate used in the preparation of the
financial statements are prudent and reasonable. Actual results may differ from the estimates used in
preparing the accompanying financial statements. Any revision to accounting estimates is recognized
prospectively in current and future periods.

Significant accounting policies

17.1 Advances
Advances are stated net of specific provisions made in respect of non-performing advances ('NPA').
Advances are classified as Performing and NPA based on the relevant RBI guidelines. Provisions in
respect of non-performing and restructured advances are made based on management's
assessment of the degree of impairment of the advances subject to the minimum provisioning
levels prescribed under RBI guidelines with regard to the Prudential Norms on Income Recognition,
Asset Classification & Provisioning prescribed from time to time. The Bank also maintains provision
on standard assets to cover potential credit losses which are inherent in any loan portfolio in
accordance with RBI guidelines in this regard. Provision made against standard assets is included in
'Other Liabilities and Provisions'.Loss assets and the unsecured portion of doubtful assets are
provided / written-off as per the extant RBI guidelines.

Annual Report FY 2016-17 80

17.2 Investments
Classification and valuation of Bank's Investments is carried out in accordance with RBI and Fixed
Income Money Market and Derivatives Association ('FIMMDA') guidelines issued in this regard from
time to time.
a) Classification
Investments are classified into 'Held for Trading' ('HFT'), 'Available for Sale' ('AFS') and 'Held to
Maturity' (HTM) categories at the time of purchase. Investments, which the Bank intends to hold till
maturity are classified as HTM investments. Investments that are held principally for resale within a
short period, including short sale, are classified as HFT investments. All other investments are
classified as AFS investments. The Bank follows trade date method of accounting for purchase and
sale of investments, except for government of India and state government securities where
settlement date method of accounting is followed in accordance with RBI guidelines. For the
purpose of disclosure in the financial statements, the Investments are classified under six groups a)
Government Securities b) Other Approved Securities c) Shares d) Debentures and Bonds e)
Subsidiaries / Joint Ventures and f) Others.
Investments are classified as performing or non-performing as per RBI guidelines. Non performing
investments are subjected to prudential norms for Classification, valuations and Operation of
Investment Portfolio by Banks prescribed from time to time.

b) Valuation

Investments classified as HTM are carried at amortised cost. Any premium over the face value of
fixed rate and floating rate securities acquired is amortised over the remaining period to maturity on
a constant yield basis and straight line basis respectively. Where in the opinion of the management,
a diminution, other than temporary in the value of investments classified under HTM has taken
place, suitable provisions are made.

Investments classified as AFS and HFT are marked-to-market on a periodic basis as per relevant RBI
guidelines. The securities are valued scrip-wise and depreciation / appreciation is aggregated for
each category. Net appreciation in each category, if any, is ignored, while net depreciation is
provided for. The book value of individual securities is not changed consequent to the periodic
valuation of investments.

Treasury bills, commercial papers and certificates of deposit are valued at carrying cost including
the pro rata discount accreted for the holding period.

Quoted investments are valued at closing quoted price available on the recognised stock
exchanges, subsidiary general ledger account transactions, price list of RBI or prices declared by
Primary Dealers Association of India (“PDAI”) jointly with FIMMDA applicable as at the balance sheet
date. For deriving market value of unquoted fixed income securities (other than Central and State
Government securities), yields / mark-up rates (reflecting associate credit risk) declared by the
FIMMDA in consultation with PDAI are used.

Quoted Mutual Fund units are valued as per closing Stock Exchange quote sand un-quoted Mutual
Fund units are valued at last available re-purchase price or Net Asset Value where re-purchase price
is not available.

Unquoted equity shares are valued at the break-up value, if the latest balance sheet is available, or at
₹1, as per RBI guidelines.

81 Annual Report FY 2016-17

 c) Disposal of investments
Profit / Loss on sale of investments under the aforesaid three categories is recognised in the Profit
and Loss account. Cost of investments is based on the weighted average cost method.

The profit from sale of investment under HTM category, net of taxes and transfer to statutory reserve
is appropriated from Profit and Loss account to “Capital Reserve” in accordance with the RBI
Guidelines.
d) Transfer between categories
Transfer of investments between categories is accounted in accordance with the extant RBI
guidelines:

a) Transfer from AFS / HFT to HTM is made at the lower of book value or market value at the time of
transfer.

b) Transfer from HTM to AFS / HFT is made at acquisition price/book value if originally placed in HTM
at par or at a discount and at amortised cost if originally placed in HTM at a premium.

c) Transfer from AFS to HFT category or vice-versa is made at book value and the provision for the
accumulated depreciation, if any, held is transferred to the provisions for depreciation against the
HFT securities or vice-versa.

e) Repurchase transactions
Repurchase ('Repo') and reverse repurchase ('Reverse Repo') transactions including liquidity
adjustment facility (with RBI) are accounted for as borrowing and lending transactions. Accordingly,
securities given as collateral under an agreement to repurchase them continue to be held under the
investment account of the Bank and the Bank would continue to accrue the coupon/discount on the
security during the repo period. Also, the Bank continues to value the securities sold under repo as
per the investment classification of the security. Borrowing cost on repo transactions is accounted
for as interest expense and revenue on reverse repo transactions are accounted for as interest
income.

f) Broken period interest, brokerage etc.

Broken period interest and costs such as brokerage paid at the time of acquisition of the security are
charged to the Profit and Loss account.

17.3 Foreign Currency transactions

Transactions denominated in foreign currency are recorded at exchange rates prevailing on the date
of the transactions. Exchange differences arising on foreign currency transactions settled during the
year are recognised in the Profit and Loss account. Income and Expenditure items are translated at
the rates of exchange prevailing on the date of the transaction. Monetary assets and liabilities
denominated in foreign currencies are translated at the Balance Sheet date based on exchange rates
notified by Foreign Exchange Dealers' Association of India ('FEDAI') and the resultant exchange
differences are recognized in the Profit and Loss account.

17.4 Fixed Assets and Depreciation

Tangible assets

Fixed Assets are accounted for at cost less accumulated depreciation, amortization and
accumulated impairment losses.

Annual Report FY 2016-17 82

 Cost includes freight, duties, taxes and incidental expenses related to the acquisition and installation
of the asset.

Depreciation is provided as per straight-line method from the date of addition over the estimated
useful life of the asset. Depreciation on assets sold during the year is charged to the Profit and Loss
account upto the date of sale. Assets costing less than ₹5,000 are fully depreciated in the year of
purchase If the management's estimate of the useful life of a fixed asset at the time of acquisition of
the asset or of the remaining useful life on a subsequent review is shorter, then the depreciation is
provided at a higher rate based on management's estimate of the useful life / remaining useful life.
The management believes that depreciation rates currently used, fairly reflect its estimate of the
useful lives and residual values of fixed assets which are in accordance with lives prescribed under
Schedule II of Companies Act, 2013.

Improvements and installations of capital nature on the leasehold property are depreciated over the
primary lease term.

Intangible assets

Intangible assets that are acquired by the Company are measured initially at cost. After initial
recognition, an intangible asset is carried at its cost less any accumulated amortisation and any
accumulated impairment loss. Subsequent expenditure is capitalised only when it increases the
future economic benefits from the specific asset to which it relates.

Intangible assets are amortized in the Profit and Loss account over their estimated useful lives from
the date they are available for use based on the expected pattern of consumption of economic
benefits of the asset. Intangible assets are amortised on straight line basis. Computer software are
amortised on straight line basis over their estimated useful life of three years.

The Bank assesses at each Balance Sheet date whether there is any indication that an asset may be
impaired. If any such indication exists, the Bank estimates the recoverable amount of the asset. An
asset's recoverable amount is the higher of an asset's net selling price and its value in use. If such
recoverable amount of the asset is less than its carrying amount, the carrying amount is reduced to
its recoverable amount. The reduction is treated as an impairment loss and is recognized in the Profit
and Loss account. If at the Balance Sheet date there is an indication that a previously assessed
impairment loss no longer exists, the recoverable amount is reassessed and the asset is reflected at
the recoverable amount subject to a maximum of depreciable historical cost.

17.5 Retirement and other employee benefits

The Bank's contribution towards Provident fund, being a defined contribution scheme, is accounted
for on an accrual basis and recognized in the Profit and Loss account. Liability for Gratuity, being
defined benefit retirement schemes, are determined based on an actuarial valuation as at the
Balance Sheet date as per the Projected Unit Credit Method as computed by an independent
actuary.

The Bank provides for leave encashment liability of its employees who are eligible for encashment
of accumulated leave, which is a long-term benefit scheme, based on actuarial valuation of the leave
encashment liability at the balance sheet date, carried out by an independent actuary.

Actuarial gains / losses arising during the year are recognized in Profit and Loss Account.

83 Annual Report FY 2016-17

17.6 Employee Stock Option Scheme
The Bank follows the intrinsic value method for computing the compensation cost for all options
granted which will be amortized over the vesting period. Measurement and disclosure of the
employee share-based payment Schemes are done in accordance with the Guidance Note on
Accounting for Employee Share-based Payments, issued by the Institute of Chartered Accountants
of India ('ICAI').
17.7 Revenue Recognition
a) Interest income is recognised in the Profit and Loss account on accrual basis, except in the case of
interest on NPA as per the Income Recognition and Asset Classification norms of RBI.

b) Recoveries in respect of past due loan accounts classified as sub-standard are appropriated
towards overdue principal and thereafter towards interest and charges.

c) Income on discounted instruments is recognised over the tenure of the instrument on a constant
yield basis.

d) Dividend is accounted on an accrual basis when the right to receive the dividend is established.

e) Loan processing fees collected from the borrowers is recognised over the tenure of the loan.

f) All other fees are accounted for as and when they become due.

17.8 Lease transactions

Leases where the lessor effectively retains substantially all the risks and benefits of ownership over
the lease term are classified as operating leases. Operating lease rentals are recognised as and
when the payments are made over the lease terms.

17.9 Taxation
Income tax comprises the current tax (i.e. amount of tax for the period, determined in accordance
with the Income Tax Act, 1961 and the rules framed there under) and the net change in the deferred
tax asset or liability for the period (reflecting the tax effects of timing differences between
accounting income and taxable income for the period).

Provision for current income-tax is recognized in accordance with the provisions of Indian Income
Tax Act, 1961 and is made annually based on the tax liability after taking credit for tax allowances and
exemptions.

The current tax, deferred tax charge or credit and the corresponding deferred tax liability or asset is
recognised using the tax rates that have been enacted or substantively enacted by the Balance
Sheet date.

Deferred tax assets are recognised only to the extent there is reasonable certainty that the assets
can be realized in future. However, where there is unabsorbed depreciation or carried forward loss
under taxation laws, deferred tax assets are recognised only if there is virtual certainty (supported
by convincing evidence of future taxable income) of realization of such assets.

Deferred tax assets are reviewed at each balance sheet date and appropriately adjusted to reflect the
amount that is reasonably/virtually certain to be realized.

Annual Report FY 2016-17 84

17.10 Provisions and contingencies
The Bank creates a provision when there is present obligation as a result of a past event that
probably requires an outflow of resources and a reliable estimate can be made of the amount of the
obligation. A disclosure for a contingent liability is made when there is a possible obligation or a
present obligation that may, but probably will not, require an outflow of resources. When there is a
possible obligation or a present obligation in respect of which the likelihood of outflow of resources
is remote, no provision or disclosure is made.

Provisions are reviewed at each balance sheet date and adjusted to reflect the current best estimate.
If it is no longer probable that an outflow of resources would be required to settle the obligation, the
provision is reversed.

Contingent assets are not recognized in the financial statements. However, contingent assets are
assessed continually and if it is virtually certain that an inflow of economic benefits will arise, the
asset and related income are recognized in the period in which the change occurs.

17.11 Earnings per share (EPS)

Basic earnings per share is calculated by dividing the net profit or loss after tax for the period
attributable to equity shareholders by the weighted average number of equity shares outstanding
during the period.

Diluted earnings per share reflect the potential dilution that could occur if contracts to issue equity
shares were exercised or converted during the period. Diluted earnings per equity share is
computed using the weighted average number of equity shares and dilutive potential equity shares
outstanding during the period, except where the results are anti-dilutive.

17.12 Cash and Cash Equivalents

Cash and Cash equivalents include cash in hand, balances with RBI, balances with other banks and
money at call and short notice.

85 Annual Report FY 2016-17

Schedule 18

Notes to accounts forming part of financial statements for the period ended 31 March 2017

18.1 The Reserve Bank of India ("RBI") issued license no. MUM: 125 on 25 November 2015 to the
Company to carry on business as a Small Finance Bank with attached terms and conditions.
Pursuant to condition attached in the approval for small finance bank, Utkarsh Micro Finance Limited
('the Holding Company') entered into a business transfer agreement (BTA) and transferred its micro
finance business to the Bank. Pursuant to the BTA all the assets and liabilities (except certain
specified assets and liabilities) as at 21 January 2017 of the Holding Company were transferred to
the Bank at book value based on slump sale basis for cash consideration. Resultant, non-convertible
debentures listed on the stock exchange were also transferred in the name of the Bank and a transfer
was effected by the exchange effective 03 May 2017. The Company has been incorporated on 30
April 2016 and commenced its operations as a Bank effective 23 January 2017. This being the first
financial period from incorporation of the Company to the end of the financial year, no comparative
figures have been provided by the Bank in these financial results.

18.2 Capital

During the period ended 31 March 2017, the Bank issued equity shares of 300,050,000 through
private placement of ₹10 each allotted at face value.

18.3 Investments

During the period ended 31 March 2017 there has been no sale / transfer to / from HTM categories.
18.4 Employee Stock Option Plan (“ESOP”)

The Holding Company has formulated an Employees Stock Option Scheme to be administered
through a Trust. The scheme provides that subject to continued employment with the Bank, the
employees are granted an option to acquire equity shares of the Holding Company that may be
exercised within a specified period.

The Holding Company formed Utkarsh ESOP Welfare Trust to issue ESOPs to employees of the
Holding Company as per Employee Stock Option Scheme. Total 1,200,000 equity shares has been
reserved under ESOP scheme 2016 and pursuant to Shareholder agreement executed in the year
2016-17 additional 5,989,594 equity shares has been reserved by the Holding Company for the
purpose of ESOP scheme. The Holding Company has given interest and collateral free loan to the
trust, to provide financial assistance to purchase its equity shares under such schemes. The Holding
Company has allotted 343,507 equity shares of ₹10 each and 856,493 equity shares of ₹10 each in
the years ended 31 March 2011 and 31 March 2013 respectively. The trust holds these shares for the
benefit of the employees and issues them to the eligible employees as per the recommendation of
the compensation committee. The Trust in turn allots the shares to employees on exercise of their
right against cash.

The options vested shall be exercised within a period of 24 months from the date of vesting. The
plan shall be administered, supervised and implemented by the Compensation Committee under
the policy and frame work laid down by the Board of Directors of the Holding Company in
accordance with the authority delegated to the Compensation Committee in this regard from time to
time.

These options shall vest on graded basis as follows:

Annual Report FY 2016-17 86

 On completion of 1 year 25%
On completion of 2 years 25%
On completion of 3 years 25%
On completion of 4 years 25%

The Guidance Note on “Accounting for Employee Share Based Payments” issued by the ICAI
establishes financial and reporting principles for employees share based payment plans. The
Guidance Note applies to employee share based payment plans, the grant date in respect of which
falls on or after 1 April 2005. The Guidance Note also applies to transfers of shares or stock options
of the parent of the enterprise, or shares or stock options of another enterprise in the same group as
the enterprise, to the employees of the enterprise. The compensation costs of stock options granted
to employees of the Bank are accounted using intrinsic value method.

Stock option activity under ESOP Plan in respect of employees of the Bank is as below:
For the period ended
Particulars
31 March 2017
Number of equity shares:
Outstanding at the beginning of the period (transferred pursuant to BTA)* 496,830
Granted during the period 269,838
Forfeited during the period 32,125
Exercised during the period 97,959
Outstanding at the end of period 636,584
Exercisable at the end of period 445,625
* Refer Schedule 18.43

The compensation cost is calculated based on the intrinsic value method, wherein the excess of Fair
value of underlying equity shares as on the date of the grant over the exercise price of the options
given to employees of the Bank under the ESOP scheme, is recognised as compensation cost and
amortised over the vesting period.

Impact of Fair Value Method on Net Profit and EPS

Had the compensation cost for the Bank's stock option plans outstanding been determined based on
the fair value by using Black Scholes model, the Bank's net profit and earnings per share would have
been as per the proforma amounts indicated below:
(₹in crore, except per share data)
For the period ended
Particulars
31 March 2017
Profit after tax
- As reported 4.83
- Proforma 4.97
Earnings per share
Basic
- Number of shares 94,677,232
- EPS as reported (₹) 0.51
- Proforma EPS (₹) 0.53

87 Annual Report FY 2016-17

18.5 Disclosures as per Accounting Standards

18.5.1 Disclosures under AS -15 on employee benefits

Defined Contribution Plans:

Employer's contribution recognized and charged off for the periodto defined contribution plans are
as under:
(₹ in crore)
For the period ended
Particulars
31 March 2017
Provident Fund 1.44

Defined Benefit Plans:

The following table sets out the status of the defined benefit Gratuity Plan as required under
Accounting Standard 15.

Change in the present value of the defined benefit obligation

(₹ in crore)
For the period ended
Particulars
31 March 2017
Opening defined benefit obligation at 30th April Nil
Transferred pursuant to BTA* 2.31
Current Service cost 0.16
Interest cost 0.03
Actuarial losses/ (gains) 0.12
Benefits paid (0.02)
st
Closing defined benefit obligation at 31 March 2.60
* Refer Schedule 18.43

Change in the plan assets

(₹ in crore)
For the period ended
Particulars
31 March 2017
th
Opening fair value of plan assets at 30 April Nil
Transferred pursuant to BTA* 2.57
Expected return on plan assets 0.04
Employers Contributions 0.08
Benefit paid (0.02)
Actuarial gains / (losses) on plan assets 0.02
st
Closing fair value of plan assets at 31 March 2.69
* Refer Schedule 18.43

Annual Report FY 2016-17 88

 Net liability / (asset) recognised in the balance sheet

(₹ in crore)
For the period ended
Particulars
31 March 2017
Present value of funded obligation 2.60
Fair value of plan assets 2.69
Deficit / (Surplus) (0.09)
Net Liability / (Asset) (0.09)

Net cost recognized in the profit andloss account

(₹ in crore)
For the period ended
Particulars
31 March 2017
Current Service cost 0.16
Interest cost 0.03
Expected return on plan assets (0.04)
Net actuarial losses / (gains) recognised during the period 0.10
Total cost of defined benefit plans included in Schedule 16 Payments 0.25
to and provisions for employees

Reconciliation of opening and closing net liability / (asset) recognised in balance sheet

(₹ in crore)
For the period ended
Particulars
31 March 2017
Opening net liability as at 30thApril -
Transferred pursuant to BTA* (0.26)
Expenses as recognised in profit & Loss account 0.25
Employers contribution -
Contribution paid to fund (0.08)
Net liability / (asset) recognised in balance sheet (0.09)
* Refer Schedule 18.43

Experience Adjustment

(₹ in crore)
For the period ended
Particulars
31 March 2017
Present value of funded obligation at 31st March 2.60
st
Fair value of plan assets at 31 March 2.69
Deficit / (Surplus) (0.09)
On Plan Liabilities (gains) / losses 0.12
On Plan Assets (losses) / gains 0.02

89 Annual Report FY 2016-17

 A breakup of Investments under Plan Assets of Gratuity fund is as follows:

Category of Assets (%)

Funds with LIC 100%

Key Actuarial Assumptions

Particulars Assumptions
Discount rate 6.70%
Expected rate of return on Plan Asset 7.71%
Salary Escalation 8.00%
Attrition rate 2% to 25%

18.5.2 Segment Reporting: Information about business segments

In terms of AS-17 (Segment Reporting) issued by ICAI and RBI circular Ref. DBOD.No.
BP.BC.81/21.04.018/2006-07 dated April 18, 2007 read with DBR.BP.BC No.23/21.04.018/2015-16
dated July 1, 2015 and amendments thereto, the following business segments have been disclosed:

Ÿ Corporate/Wholesale Banking: Includes lending, deposits and other banking services provided
to corporate customers of the Bank.
Ÿ Retail Banking: Includes lending, deposits and other banking services provided to retail
customers of the Bank through branch network or other approved delivery channels.
Ÿ Treasury: includes investments, all financial markets activities undertaken on behalf of the Bank's
customers, proprietary trading, bullion business, maintenance of reserve requirements and
resource mobilization from other Banks and financial Institutions.
Ÿ Other Banking Operations: Includes para banking activities like Bancassurance, Credit Cards etc.

The following table sets forth the business segment results:

(₹ in crore)
For the period ended 31 March 2017
Particulars Corporate/ Other Banking
Wholesale Banking Retail Banking Treasury Operations Total

Gross Revenue - 74.74 14.94 - 89.68

Unallocated Revenue 0.52
Less: Inter Segment
-
Revenue
Total Revenue 90.20
Segment Results - 5.90 14.44 - 20.34
Unallocated expenses (15.49)
Operating Profit 6.52
Income Tax expense
(including deferred tax) 1.69

Net Profit 4.83

Segment Assets 1,664.05 785.58 2,449.63
Unallocated Assets 225.69

Annual Report FY 2016-17 90

 For the period ended 31 March 2017
Particulars Corporate/ Other Banking
Wholesale Banking Retail Banking Treasury Operations Total

Total Assets 2,675.32

Segment Liabilities - 1,974.88 387.00 - 2,361.88
Unallocated Liabilities 8.57
Total Liabilities 2,370.45
Capital expenditure - - - - -
Depreciation - - - - -

Notes:
Ÿ The business of the Bank does not extend outside India and it does not have any assets outside
India or earnings emanating from outside India. Accordingly, the Bank has reported operations in
the domestic segment only.
Ÿ Income, expenses, assets and liabilities have been either specifically identified to individual
segment or allocated to segments on a reasonable basis or are classified as unallocated.
Ÿ Unallocated items include Fixed Assets, Depreciation, Capital expenditure, realized gains/losses
on their sale, income tax expense, deferred income tax assets / liabilities, advance tax and cash in
hand.

18.5.3 Related Party Transactions

As per AS 18 “Related Party Disclosures”, the Bank's related parties for the period ended 31 March
2017are disclosed below:

1. Holding Company
Utkarsh Micro Finance Limited

2. Key Management Personnel ('KMP')

Mr. Govind Singh- Managing Director and CEO*
Mr. Abhisheka Kumar – Chief Financial Officer (effective from 01 Oct 2016)
Mr. Anang Kumar Shandilya– Company Secretary (effective from 01 Oct 2016)
*Appointed as Director on 30 April 2016 and later on appointed as Managing Director and CEO on 16 Jan 2017 pursuant to RBI
approval.

The following represents the significant transactions between the Bank and such related parties
including relatives of above mentioned KMP during the period ended 31 March 2017.

(₹ in crore)
Transaction
Sl. No. Name of the related party Nature of transaction For the period ended
31 March 2017
Remuneration 0.53
01 Mr. Govind Singh
Deposits accepted 0.62
Remuneration 0.19
02 Mr. Abhisheka Kumar
Deposits accepted 0.30
03 Mr. Anang Shandilya Remuneration 0.07

91 Annual Report FY 2016-17

 Transaction
Sl. No. Name of the related party Nature of transaction For the year ended
31 March 2017
Deposits accepted 31.60
Interest paid 0.01
Equity shares issued 300.00
Utkarsh Micro Finance Limited Compulsorily Convertible
04 387.00
Debentures issued
Purchase consideration
pursuant to BTA, net 68.51
(refer Schedule 18.43)
Transactions (collection
and payment) carried out 18.37
on behalf Bank, net

Payable/ (receivable) as at balance sheet date:

As at
Sl. No. Name of related party
31 March 2017
1. Utkarsh Micro Finance Limited 7.74
2. Utkarsh Micro Finance Limited (54.86)
3. Govind Singh 0.12
4. Abhisheka Kumar 0.10

18.5.4 Operational Leases

Lease payments made under cancellable operating lease amounting to Rs. 2.11 crore disclosed as
rent under Schedule 16 and the same have been recognized as an expense in the Profit and Loss
Account. There are no subleases. Also, requirement of minimum lease payments does not arise as
the Bank do not have any non-cancellable operating leases.

18.5.5 Earnings Per Share (EPS)

(₹ in crore, except per share data)
For the period ended
Particulars
31 March 2017
Basic
Weighted average number of equity shares 94,677,232
Net profit after tax available for equity share holders (₹) 4.83
Basic earnings per share 0.51
Diluted
Weighted average number of equity shares (including dilutive potential
176,195,089
equity shares)
Net Profit after tax available for equity share holders (₹) 4.84
Diluted Earnings Per Share 0.27
FaceValue per share 10.00

The dilutive impact is due to Compulsorily Convertible Debentures granted to the Holding Company
by the Bank.

Annual Report FY 2016-17 92

18.5.6 Deferred Tax
Major components of Deferred Tax Assets and Deferred Tax Liabilities as on 31 March 2017 are as
under:-
(₹ in crore)
As at
Particulars
31 March 2017
Deferred Tax Assets:
Provision for Assets 1.38
Others 4.19
Deferred Tax Liabilities:
Depreciation on Fixed Assets 0.04
Others 3.26
Net Deferred Tax Assets / (Liability) 2.27

18.6 Small and Micro Industries

Under the Micro, Small and Medium Enterprises Development Act, 2006, certain disclosures are
required to be made relating to Micro, Small and Medium Enterprises. There have been no reported
cases of delays in payments to micro and small enterprises or of interest payments due to delays in
such payments, if any. The above is based on the information available with the Bank which has
been relied upon by the auditors.
18.7 Disclosure of customer complaints for the period ended 31 March 2017
As at
Sl.No. Customer Complaints
31 March 2017
a) No. of complaints pending at the beginning of the period -
b) Transferred pursuant to BTA* 106
c) No. of complaints received during the period 1124
d) No. of complaints redressed during the period 985
e) No. of complaints pending at the end of the period 245
* Refer Schedule 18.43

18.8 Capital Adequacy

18.8.1 Capital Adequacy Ratio as per operating guidelines issued by RBI for Small Finance Banks and
amended thereafter, as at 31 March 2017 is given below:
(₹ in crore, except percentages)
As at
Sl.No. Particulars
31 March 2017
I) Common Equity Tier 1 (CET) capital ratio (%) 17.15%
ii) Tier I capital ratio (%) 17.15%
iii) Tier II capital ratio (%) 8.72%
iv) Total capital ratio (CRAR) (%) 25.87%
v) Amount of Equity capital raised 300.05
vi) Amount of Additional Tier I capital raised -
vii) Amount of Tier II capital raised 150.00

93 Annual Report FY 2016-17

 Notes:
Ÿ The Bank has followed Basel II standardized approach for credit risk, as mentioned below, in
accordance with the operating guidelines for small finance banks as issued by RBI on 6 October
2016. In the absence of defined prudential framework for market risk and operational risk, the
Company has followed Basel II approach.
Ÿ The Bank has followed Basel II Capital Regulations dated July 1, 2015 and amended thereafter for
the purpose of Capital Adequacy Ratio.
Ÿ The Bank has not considered the Subordinated debt from SIDBI which is in the nature of term loan
as eligible Tier II capital.
Ÿ Since it is a first year of operations, for the purpose of computing capital charge for operational
risk under the Basic Indicator Approach, Gross Income for the period is extrapolated to 12 month
period, in the absence of last three years of average gross income.

18.8.2 Tier II Capital

During the financial period, the Bank has acquired Basel II compliant debt capital instruments,
details of which are as follows:
(Amount in ₹ in crore)
Particulars Nature of Date of Issue Coupon Tenure Amount
Security Rate %
Redeemable Unsecured Debenture 12-Jan-2017 12% Five Years and 150.00
Non - Convertible 6 Months

18.9 Investments:

18.9.1 Movement of Investments:

(₹ in crore)
As at
Sl.No. Particulars 31 March 2017
(1) Value of Investments
(i) Gross Value of Investments
(a) In India 729.73
(b) Outside India -
(ii) Provisions for Depreciation 0.50
(a) In India 0.50
(b) Outside India -
(iii) Net Value of Investments 729.23
(a) In India 729.23
(b) Outside India -

(2) Movement of provisions held towards depreciation of investments

(including provision for NPIs)
(I) Opening balance -
(ii) Add: Provisions made during the period 0.50
(iii) Less: Write-off / write back of excess / provisions (including
-
provision for NPIs) during the period
(iv) Closing balance 0.50

Annual Report FY 2016-17 94

18.9.2 Repo / Reverse Repo Transactions:
During the period, the Bank has undertaken neither any Repo / Reverse Repo transactions nor Repo /
Reverse Repo transactions under the Liquidity Adjustment Facility (LAF) / Marginal Standing Facility
(MSF) with RBI.
18.9.3 Issuer Composition of Non-SLR investments (investments not qualifying for the purpose of
Statutory Liquidity Ratio (SLR) prescribed by RBI):
Issuer composition as at 31 March 2017 of non-SLR investments
(₹ in crore)
Private Below Investment Unrated Unrated
No. Particulars Amount Placement Grade Securities Securities
1 PSU - - - - -
2 FIs - - - - -
3 Banks - - - - -
4 Private Corporates - - - - -
5 Subsidiaries /
- - - - -
Joint ventures
6 Others 0.03 - - - -

7 Provisions held - - - - -
towards depreciation
Total 0.03 - - - -

18.9.4 There are no non performing non-SLR investments as at 31 March 2017.

18.9.5 Security Receipts (SR)

Details of the book value of investments held as Security Receipts received by sale of NPA to
Securitization / Reconstruction Company as at 31 March 2017 are as follows-
(₹ in crore)
Backed by NPAs sold
Backed by NPAs sold by
Particulars by other banks/ FIs/ Total
the Bank as underlying
NBFCs as underlying
Book value of investments in NIL NIL NIL
security receipts
As the Bank do not hold any security receipts, the other disclosures are not provided

18.10 Forward Rate Agreement / Interest Rate Swaps / cross currency swap/ Exchange Traded Interest
Rate Derivatives:
18.10.1 Notional and concentration of FRAs and IRS (₹ in crore)
As at
Particulars
31 March 2017
I) The notional principal of swap agreements *31.72
ii) Losses which would be incurred if counterparties failed to fulfil their 0.70
obligations under the agreements
iii) Collateral required by the Bank upon entering into swaps -
iv) Concentration of credit risk arising from the swaps -
v) The fair value of the swap book 0.40
* Pertains to cross currency interest rate swap

95 Annual Report FY 2016-17

18.10.2 The nature and terms of Cross Currency Interest Rate Swaps (CCIRS)-FCY as on 31 March 2017 are
set out below –

Nature Nos . Notional Principal Benchmark Terms

(₹in crore)

USD 1 31.72 USD LIBOR Fixed payable v/s floating payable

18.10.3 The nature and terms of Interest Rate Swaps (IRS) – INR as on 31 March 2017 are set out below –

Nature Nos . Notional Principal Benchmark Terms

(₹in crore)

NIL - - - -

18.10.4 Exchange Traded Interest Rate Derivatives and exchange traded currency derivative
(₹ in crore)
Sl. No. Particulars As at
31 March 2017
1. Notional Principal amount of exchange traded interest rate derivatives NIL
and currency derivatives undertaken during the period :
Notional Principal amount of exchange traded interest rate derivatives
2. NIL
and currency derivatives outstanding as on 31 March 2017.
Notional Principal amount of exchange traded interest rate derivatives
3. and currency derivativesoutstanding and not “highly effective” as NIL
on 31 March 2017
Mark-to-Market value of exchange traded interest rate derivatives and
4. currency derivatives outstanding and not “highly effective” as NIL
on 31 March 2017.

18.10.5 Risk Exposure in Derivatives:

The Bank has not engaged in any derivatives contracts during the period. However, Bank acquired a
CCIRS contract pursuant to BTA from Holding Company. The disclosure to the extent applicable is
given below.
18.10.6 Quantitative disclosure on risk exposure in derivatives as at 31 March 2017
(₹ in crore)
For the period ended 31 March 2017
Sl. No. Particulars Currency derivatives
Interest rate
Forward Currency Currency Swap derivatives
Contract Option
Derivatives
(i) (Notional Principal Amount)
a) For hedging NIL NIL 31.72* NIL
b) For trading NIL NIL NIL NIL
(ii) Marked to Market Positions
a) Asset (+) NIL NIL NIL NIL
b) Liability (-) NIL NIL 0.40 NIL

Annual Report FY 2016-17 96

 (iii) Credit Exposure NIL NIL 31.72* NIL
Likely impact of one NIL NIL NIL NIL
(iv) percentage change in
interest rate (100*PV01)
a) on hedging derivatives NIL NIL NIL NIL
b) on trading derivatives NIL 0.40 NIL
Maximum and Minimum of
100*PV01 observed during
the period
NIL NIL NIL NIL NIL
a) on hedging
NIL NIL NIL NIL NIL
NIL NIL NIL NIL NIL
b) on trading
NIL NIL NIL NIL NIL
* Pertains to cross currency interest rate swap

18.11 Restructured / Rescheduled / Renegotiated Investments

During the year there are no such investments.
18.12 Asset Quality

18.12.1 Movement of NPA and NPA Provision

(₹ in crore)
As at
Particulars
31 March 2017
(I) Net NPAs to Net Advances (%) -
(ii) Provisioning Coverage Ratio (PCR) (%) -
(iii) Movement of Gross NPAs -
(a) Opening balance -
(b) Additions during the period -
(c) Reductions during the period -
(i) Up – gradations -
(ii) Recoveries (excluding recoveries made from up-graded accounts) -
(iii) Write – offs -
(d) Closing balance -
(iv) Movement of Net NPAs -
(a) Opening balance -
(b) Additions during the period -
(c)Reductions during the period -
(d) Closing balance -
(v) Movement of provisions for NPAs -
(excluding provisions on standard assets) -
(a) Opening balance -
(b) Provisions made during the period -
(c) Write-off / write back of excess provisions during the period -
(d) Closing balance -

97 Annual Report FY 2016-17

Technical Write-off:
(₹ in crore)
As at
Particulars
31 March 2017
Opening balance of Technical / Prudential written-off accounts as
NIL
at 30 April 2016
Add : Technical / Prudential write-offs during the period NIL
Sub-total (A) NIL
Less : Recoveries made from previously technical / prudential
NIL
written-off accounts during the period (B)
Closing balance as at March 31 (A-B) NIL

18.12.2 Particulars of Restructured Accounts:

Details of loan assets subjected to restructuring during the period are given below:
Restructured Advances as at 31 March 2017

Type of Under CDR Under SME Others Total

restructuring
Asset S SS D L Total S SS D L Total S SS D L Total -
Classification
Details
Restructured A
accounts as - - - - - - - - - - - - - - -
on 1 April of B
the FY - - - - - - - - - - - - - - - -
C
- - - - - - - - - - - - - - - -
Fresh A
Restructurin - - - - - - - - - - - - - - - -
g during the B
period - - - - - - - - - - - - - - - -
C
- - - - - - - - - - - - - - - -
Increase / A
(Decrease) in - - - - - - - - - - - - - - - -
outstanding B
of - - - - - - - - - - - - - - - -
Restructured C
cases - - - - - - - - - - - - - - - -
Upgradation A
to - - - - - - - - - - - - - - - -
restructured B
standard - - - - - - - - - - - - - - - -
during the C
FY - - - - - - - - - - - - - - - -

Annual Report FY 2016-17 98

 Type of Under CDR Under SME Others Total
restructuring
Asset S SS D L Total S SS D L Total S SS D L Total -
Classification
Details
Restructur A
edaccount
ed - - - - - - - - - - - - - - -
sstandard
as on 1 B
April of
advances -- -- -- -- -- -- -- -- -- -- -- -- -- -- -- --
the
whichFY C
B
cease to - - - - - - - - - - - - - - - -
attract
Fresh A
higher
Restructur - - - - - - - - - - - - - - - -
provision - - - - - - - - - - - - - - - -
ing during B
at the C
the period - - - - - - - - - - - - - - - -
period C
end and - - - - - - - - - - - - - - - -
need not / A
Increase
be shown
(Decrease) - - - - - - - - - - - - - - - -
as
in B
restructur
outstandin - - - - - - - - - - - - - - - -
gedof C
advances
Restructur
at the
ed cases - - - - - - - - - - - - - - - -
beginning A
Upgradati
of the
on to next - - - - - - - - - - - - - - - -
FY
restructur B - - - - - - - - - - - - - - - -
Down
ed A - - - - - - - - - - - - - - - -
gradations
standard C - - - - - - - - - - - - - - - -
of
during the B
restructur
FY - - - - - - - - - - - - - - - -
ed C
accounts
during the
FY - - - - - - - - - - - - - - - -
Write-offs A
of - - - - - - - - - - - - - - - -
restructur B
ed - - - - - - - - - - - - - - - -
accounts C
- - - - - - - - - - - - - - - -
Restructur A
ed - - - - - - - - - - - - - - - -
accounts B
as on 31 - - - - - - - - - - - - - - - -
March C
(Closing) - - - - - - - - - - - - - - - -

A - No. of borrowers, B- Amt. outstanding, C- Provision thereon

99 Annual Report FY 2016-17

18.12.3 Strategic Debt Restructuring

18.12.3.1 Disclosures on Strategic Debt Restructuring Scheme (accounts which are currently under the
stand-still period)

(₹ in crore)
Amount outstanding as on Amount outstanding as on
the reporting date with the reporting date with
No. of accounts Amount outstanding respect to accounts where respect to accounts where
where SDR has as on the reporting date conversion of debt to conversion of debt to
been invoked equity is pending equity has taken place
Classified as Classified as Classified as Classified as Classified as Classified as
Standard NPA Standard NPA Standard NPA
- - - - - - -

18.12.3.2 Disclosures on Strategic Debt Restructuring Scheme (accounts which are currently under the
stand-still period)

(₹ in crore)
Amount outstanding
No. of Amount outstanding as Amount outstanding as as on the reporting
on the reporting date on the reporting date date with respect
accounts
where banks Amount with respect to accounts with respect to accounts to accounts where
outstanding where conversion of where conversion of change in ownership
have decided
as on the debt to equity / debt to equity / is envisaged by
to effect
reporting date invocation of pledge invocation of pledge issuance of fresh
change in
of equity shares of equity shares has shares or sale of
ownership
is pending taken place promoters equity
Classified Classified Classified Classified Classified Classified Classified Classified
as as as as as as as as
Standard NPA Standard NPA Standard NPA Standard NPA
- - - - - - - - -

18.12.3.3 The Bank has not acquired any equity shares under Strategic Debt Restructuring scheme during
the period. The Bank has not done any restructuring of loans during the period and there are no
cases where scheme for sustainable structuring of stressed assets (S4A) is implemented.

18.12.4 Details of financial assets sold to Securitization / Reconstruction Company for Asset
Reconstruction:
(₹ in crore)
As at
Sl. No. Particulars 31 March 2017
No. of accounts -
(ii) Aggregate value (net of provisions) of accounts sold to SC / RC -
(iii) Aggregate consideration -

(iv) Additional consideration realized in respect of accounts transferred -

in earlier years
(v) Aggregate loss over net book value -

Annual Report FY 2016-17 100

18.12.5 Details of non-performing financial assets purchased / sold:

18.12.5.1 Non-performing financial assets purchased:

(₹ in crore)
As at
Particulars
31 March 2017
1 (a) No. of accounts purchased during the period -
(b) Aggregate Outstanding -
2 (a) Of these, number of accounts restructured during the period -
(b) Aggregate Outstanding -

18.12.5.2 Non-performing financial assets sold:

(₹ in crore)
As at
Particulars
31 March 2017
No. of accounts sold during the period -
Aggregate Outstanding -
Consideration Received -

18.13 The Bank has not done any securitisations during the period ended 31 March 2017.

18.14 Business Ratios:

As at
Sl. No. Particulars 31 March 2017
Interest income as % to Working funds1 17.09%
(ii) Non-Interest income as % to Working funds 0.65%
2
(iii) Operating profit as % to Working funds 2.07%
(iv) Return on Assets (Working funds) 0.95%
3 4
(v) Business (Deposit plus Advance) per employee (₹in crore) 0.44
4
(vi) Profit per employee (₹in crore)* 0.00
1. Working funds represents the monthly average of total assets during the period.
2. Operating profit is net profit for the year before provisions and contingencies.
3. "Business” is the total of net advances and deposits (net of inter-bank deposits).
4. Productivity ratios are based on average employee number.
*Profit per employee is ₹13,158/-

18.15 Maturity Pattern

Maturity pattern of certain items of assets and liabilities is given below:
(₹ in crore)
As at 31 March 2017
Loans & Foreign Foreign
Particulars Advances Investments Deposits Borrowings currency currency
(INR) (INR) (INR) (INR) Assets Liabilities
1 day 0.01 - - - - -

101 Annual Report FY 2016-17

 2 to 7 days 85.73 0.03 0.64 6.13 - -
8 to 14 days 26.88 45.31 - 3.45 - -
15 to 30 Days 54.12 29.89 - 31.53 - -
31 Days to 2 121.94 - - - -
40.87
months
Over 2 months to 115.57 - - -
49.38 65.26
3 months
Over 3 months to - - -
320.87 213.87 183.75
6 months
Over 6 months to 17.62 - -
1 year 497.78 66.06 332.44
Over 1 year to
368.30 - 0.46 677.48 - 15.86
3 years
Over 3 years to -
1.93 73.68 244.20 - 15.86
5 years
Over 5 years 0.78 251.00 - 672.00 - -
Total 1,593.91 729.22 18.72 2,257.11 - 31.72

18.16 Lending to Sensitive Sector

18.16.1 Exposure to Real Estate Sector:

(₹ in crore)
As at
Sl. No. Particulars 31 March 2017
1) Direct exposure
(a) Residential Mortgages - 6.01
Out of which Individual housing loans eligible for inclusion in 5.94
priority sector advances
(b) Commercial Real Estate Nil
Investments in Mortgage Backed Securities (MBS) and other
(c)
securitized exposures
i. Residential Mortgages Nil
ii. Commercial Real Estate Nil
2) Indirect Exposure
Fund based and non-fund based exposures on National Housing
Nil
Bank (NHB) and Housing Finance Companies (HFCs)
Total Exposure to Real Estate Sector 6.01

18.16.2 Exposure to Capital Market:

(₹ in crore)
As at
Sl. No. Particulars 31 March 2017
Direct investments made in equity shares, convertible bonds,
convertible debentures and units of equity-oriented mutual funds Nil
the corpus of which is not exclusively invested in corporate debt;

Annual Report FY 2016-17 102

 As at
Sl. No. Particulars 31 March 2017
Advances against shares/bonds/debentures or other securities or on
(ii) clean basis to individuals for investment in shares (including IPOs / Nil
ESOPs), convertible bonds, convertible debentures, and units of
equity-oriented mutual funds
Advances for any other purposes where shares or convertible bonds
(iii) or convertible debentures or units of equity oriented mutual funds are Nil
taken as primary security
Advances for any other purposes to the extent secured by the
collateral security of shares or convertible bonds or convertible
(iv) debentures or units of equity oriented mutual funds i.e. where the Nil
primary security other than shares / convertible bonds / convertible
debentures / units of equity oriented mutual funds 'does not fully
cover the advances
(v) Secured and unsecured advances to stockbrokers and guarantees
Nil
issued on behalf of stockbrokers and market makers;
Loans sanctioned to corporates against the security of shares / bonds
/ debentures or other securities or on clean basis for meeting
(vi) Nil
promoter's contribution to the equity of new companies in
anticipation of raising resources
(vii) Bridge loans to companies against expected equity flows/issues Nil
Underwriting commitments taken up by the banks in respect of
(viii) primary issue of shares or convertible bonds or convertible Nil
debentures or units of equity oriented mutual funds;
(ix) Financing to stockbrokers for margin trading Nil
All exposures to Venture Capital Funds (both registered and
(x) unregistered) will be deemed to be on par with equity and hence will Nil
be reckoned for compliance with the capital market exposure ceilings
(both direct and indirect)
Total Exposure to Capital Market

18.16.3 Risk Category wise Country Exposure:

The Bank's exposures are concentrated in India, hence country risk exposure as at March 31,
2017 is ₹1,593.91 crore.

18.17 Details of Single / Group Borrower limit exceeded by the Bank

During the current period, the Bank has complied with the applicable RBI guidelines with regard to
exposure to a single borrower and a group of the borrower.

18.18 Amount of Provisions made for Income-tax during the period:

(₹ in crore)
For the period ended
Sl. No. Particulars
31 March 2017
i) Provision for Income tax 3.96

ii) Provision for Deferred tax (2.27)

103 Annual Report FY 2016-17

18.19 Unsecured Advances against Intangible Collaterals:
(₹ in crore)
As at
Particulars
31 March 2017
Total Advances against intangible securities such as charge over the rights,
-
licenses, authority etc.
Estimated Value of intangible collateral such as charge over the rights, -
licenses, authority etc.

18.20 Penalties imposed by RBI

During the current period ended 31 March 2017, no penalty was imposed by RBI on the Bank.

18.21 Disclosure of Fees / Remuneration Received in respect of Bancassurance Business

(₹ in crore)
For the period ended
Sl. No. Particulars
31 March 2017
i) Fee / Remuneration from Life Insurance Business -

ii) Fee / Remuneration from General Insurance Business -

18.22 Break up of Provisions and Contingencies debited to Profit & Loss Account
(₹ in crore)
For the period ended
Sl. No. Particulars 31 March 2017
i) Provisions towards Standard Advances 3.99
ii) Provision for depreciation on investments 0.50
iii) Provisions towards Income tax 3.96
iv) Provision towards deferred tax (net) (2.27)
Total 6.18
18.23 Draw down from Reserves
The Bank has not undertaken any draw down from reserves during the period ended 31 March 2017.
18.24 Floating Provisions
During the period the Bank has not made any floating provisions.
18.25 Investor Education and Protection Fund
There are no amounts which are due to be transferred to the Investor Education and Protection Fund
during the period ended 31 March 2017.
18.26 Concentration of Deposits, Advances, Exposures and NPAs
18.26.1 Concentration of Deposits
(₹ in crore)
As at
Particulars
31 March 2017
Total Deposits of twenty largest depositors 18.71

Percentage of Deposits of twenty largest depositors to Total Deposits 99.95

Annual Report FY 2016-17 104

18.26.2 Concentration of Advances
(₹ in crore)
As at
Particulars
31 March 2017
Total Advances to twenty largest borrowers 1.57
Percentage of Advances to twenty largest borrowers to Total Advances 0.10%

18.26.3 Concentration of Exposures

(₹ in crore)
As at
Particulars
31 March 2017
Total Exposure to twenty largest borrowers / customers 1.59
Percentage of Exposure to twenty largest borrowers / customers to Total
0.10%
Exposure of the Bank on borrowers / customers
18.26.4 Concentration of NPA's
(₹ in crore)
As at
Particulars
31 March 2017
Total Exposure to top four NPA Accounts (Gross) Nil

18.27 Sector Wise Advances:

(₹ in crore)
As at 31 March 2017
Sl. Percentage of Gross NPAs
Sector Outstanding Total Gross NPAs to Total Advances in
No.
Advances that sector
A Priority Sector

1 Agriculture and allied

860.74 - -
activities
Advances to industries
2 sector eligible as priority 522.09 - -
sector lending
3 Services 211.01 - -
4 Personal loans - - -
Sub-total (A) 1,593.84 - -

B Non Priority Sector

Agriculture and allied - - -
1
activities
2 Industry - - -
3 Services 0.07 - -
4 Personal loans - - -
Sub-total (B) - -

Total (A+B) 1,593.91 - -

105 Annual Report FY 2016-17

18.28 Details of Priority Sector Lending Certificates (PSLC)
The Bank has not bought or sold any priority sector lending certificates during the period.
18.29 Overseas Assets, NPAs and Revenue
(₹ in crore)
As at
Particulars
31 March 2017
Total Assets Nil
Total NPAs Nil
Total Revenue Nil

18.30 Off- Balance Sheet SPVs sponsored

There are no off balance sheet SPVs sponsored by the Bank, which needs to consolidated as per
accounting norms.

18.31 Disclosures relating to Securitization

(Amount ₹ in crore / No.)

As at
Particulars
31 March 2017

1. Number of Special Purpose Vehicles (SPVs) sponsored by the

2
Company for securitisation / bilateral transactions
2. Total amount of securitised assets as per books of the SPVs/
27.47
assignees sponsored by the Company#
3. Total amount of exposures retained by the Company to comply with -
MRR as on the date of balance sheet
a) Off-balance sheet exposures -
* First loss -
* Others -
b) On-balance sheet exposures -
* First loss# 6.98
* Others -
4. Amount of exposures to securitisation transactions other than MRR -
a) Off-balance sheet exposures -
i) Exposure to own securitizations -
* First loss -
* loss -
ii) Exposure to third party securitizations -
* First loss -
* Others -

Annual Report FY 2016-17 106

 As at
Particulars
31 March 2017

b) On-balance sheet exposures -

i) Exposure to own securitizations -
* First loss -
* Others -
ii) Exposure to third party securitizations -
* First loss -
* Others -
# the above information has been prepared based on the confirmations received from SPVs
The above securitized portfolio originated by the Holding Company has been acquired by Bank pursuant to BTA.

18.32 Disclosure on Remuneration

Qualitative Disclosure
A. Information relating to the bodies that oversee remuneration
a) Name, composition and mandate of the main body overseeing remuneration

The Nomination and Remuneration Committee (NRC) of the Board is the main body overseeing
remuneration. As on March 31, 2017, the NRC comprise of three members who are Independent
Directors.

Following are the functions of Nomination and Remuneration Committee:

Ÿ Review the structure, size, composition, diversity of the Board and make necessary
recommendations to the Board with regard to any changes as necessary and formulation of
policy thereon.
Ÿ Evaluate the skills that exist, and those that are absent but needed at the Board level, and search
for appropriate candidates who have the profile to provide such skill sets.
Ÿ Examine vacancies that will come up at the Board on account of retirement or otherwise and
suggest course of action.
Ÿ Advise criteria for evaluation of Independent Directors and the Board and carry out evaluation of
every directors' performance.
Ÿ Undertake a process of due diligence to determine the suitability of any person for appointment /
continuing to hold appointment as a director on the Board, based upon qualification, expertise,
track record, integrity other 'fit and proper' criteria, positive attributes and independence (if
applicable) and formulate the criteria relating thereto.
Ÿ Review the composition of Committees of the Board, and identify and recommend to the Board
the Directors who can best serve as members of each Board Committee.
Ÿ Review and recommend to the Board for approval the appointment of Managing Director & CEO
and other whole-time Directors and the overall remuneration framework and associated policy of
the Company (including remuneration policy for directors and key managerial personnel) the
level and structure of fixed pay, variable pay, perquisites, bonus pool, stock-based compensation
and any other form of compensation as may be included from time to time to all the employees of
the Company including the Managing Director & CEO, other whole time Directors and senior
managers one level below the Board.
Ÿ Review and recommend to the Board for approval the total increase in manpower cost budget of
the Company as a whole, at an aggregate level, for the next year.

107 Annual Report FY 2016-17

 Ÿ Recommend to the Board the compensation payable to the Chairman of the Company.
Ÿ Review the Code of Conduct and HR strategy, policy and performance appraisal process within
the Company, as well as any fundamental changes in organization structure which could have
wide ranging or high risk implications.
Ÿ Review and recommend to the Board for approval the talent management and succession policy
and process in the Company for ensuring business continuity, especially at the level of MD & CEO,
the other Whole Time Directors, senior managers one level below the Board and other key roles
and their progression to the Board.
Ÿ Review and recommend to the Board for approval:
the creation of new positions one level below MD & CEO
appointments, promotions and exits of senior managers one level below the MD & CEO
Ÿ Set the goals, objectives and performance benchmarks for the Company and for MD & CEO, the
other Whole Time Directors for the financial year and over the medium to long term.
Ÿ Review the performance of the MD & CEO and other Whole Time Directors at the end of each year.
Ÿ Perform such other duties as may be required to be done under any law, statute, rules,
regulations etc. enacted by Government of India, Reserve Company of India or by any other
regulatory or statutory body

b) External consultants whose advice has been sought, the body by which they were
commissioned, and in what areas of the remuneration process
The Bank did not take advice from an external consultant on any area of remuneration during the
year ended March 31, 2017.

c) Scope of the Bank's remuneration policy (eg. by regions, business lines), including the extent
to which it is applicable to foreign subsidiaries and branches
The Human Resources Policy of the Bank, approved by the Board on 09 January 2017, pursuant to
the guidelines issued by RBI, to cover all employees of the Bank. Further the NRC has approved the
remuneration structure of Managing Director and CEO.

d) Type of employees covered and number of such employees

All the employees of the Bank are covered. The total number of employees of the Bank at March 31,
2017 was 3,850.
B. Information relating to the design and structure of remuneration processes.
Key features and objectives of remuneration policy: The Bank has, under the guidance of the Board
and the NRC, followed remuneration practices intended to drive meritocracy and performance
based on a prudent risk management framework.

Effective governance of compensation: The NRC has oversight over compensation to senior
management personnel and also provides overall guidance to the compensation paid to other
employees.

Alignment of compensation philosophy with prudent risk taking: While the Bank seeks to achieve
a mix of fixed and variable remuneration that is prudent, it currently has predominantly a fixed
remuneration structure with no guaranteed bonuses. Also, the remuneration of employees in
financial and risk control functions is not linked to business outcomes and solely depends on their
performance. The Bank seeks to align remuneration with financial and non-financial performance
indicators.

Whether the remuneration committee reviewed the firm's remuneration policy during the past
year, and if so, an overview of any changes that were made: The Board / NRC has been appraised of
the Bank's remuneration practices and will review periodically.
Annual Report FY 2016-17 108
 Discussion of how the Bank ensures that risk and compliance employees are remunerated
independently of the businesses they oversee: The remuneration of employees in control
functions such as Risk and Compliance depends solely on their performance and is not linked to any
business outcomes.

C. Description of the ways in which current and future risks are taken into account in the
remuneration processes.

Overview of the key risks that the Bank takes into account when implementing remuneration
measures: The Board approves the overall risk management policy including risk framework, limits,
etc. The Bank conducts all its business activities within this framework. The NRC while assessing the
performance of the Bank and senior management, shall consider adherence to the policies and
accordingly make its recommendations to the Board.

Overview of the nature and type of key measures used to take account of these risks, including
risk difficult to measure: The evaluation process shall incorporate both qualitative and quantitative
aspects including asset quality, provisioning, increase in stable funding sources,
refinement/improvement of the risk management framework, effective management of stakeholder
relationships and mentoring key members of the top and senior management.

Discussion of the ways in which these measures affect remuneration: In order to ensure alignment
of remuneration with prudent practices, the NRC takes into account adherence to the risk framework
in addition to business performance.
Discussion of how the nature and type of these measures have changed over the past year and
reasons for the changes, as well as the impact of changes on remuneration: Not applicable

D. Description of the ways in which the Bank seeks to link performance during a performance
measurement period with levels of remuneration.

Overview of main performance metrics for the Bank, top level business lines and individuals: The
main performance metrics include profitability, business growth, asset quality, compliance, and
customer service.

Discussion of how amounts of individual remuneration are linked to the Bank-wide and individual
performance: The assessment of employees shall be based on their performance with respect to
their result areas and shall include the metrics mentioned above.

Discussion of the measures the Bank will in general implement to adjust remuneration in the
event that performance metrics are weak, including the Bank's criteria for determining 'weak'
performance metrics: In case such an event should occur, the Board/NRC shall review and provide
overall guidance on the corrective measures to be taken.

E. Description of the ways in which the Bank seeks to link performance during a performance
measurement period with levels of remuneration.

Discussion of the Bank's policy on deferral and vesting of variable remuneration and, if the
fraction of variable remuneration that is deferred differs across employees or groups of
employees, a description of the factors that determine the fraction and their relative importance:
The Bank do not have any component of variable portion which can be deferred.

Discussion of the Bank's policy and criteria for adjusting deferred remuneration before vesting
and (if permitted by national law) after vesting through claw back arrangements: Not Applicable.

109 Annual Report FY 2016-17

F. Description of the different forms of variable remuneration that the Bank utilizes and the
rationale for using these different forms.

Overview of the forms of variable remuneration offered. A discussion of the use of different forms
of variable remuneration and if the mix of different forms of variable remuneration differs across
employees or group of employees, a description of the factors that determine the mix and their
relative importance: The variable remuneration is offered in the form of annual performance bonus
and monthly incentives.

Quantitative Disclosure -
(The quantitative disclosure covers MD& CEO and employees in the grade of Vice President and
above.)
(₹ in crore, except numbers)
For the period ended
Sl. No. Particulars 31 March 2017
Number of meetings held by the Remuneration Committee
1(i) 2
during the financial period.
Remuneration paid to its members during the financial period
1(ii) 0.10
(sitting fees)
Number of employees having received a variable remuneration
2(i) 11
award during the financial period.
Number and total amount of sign-on awards made during the
2(ii) Nil
financial period.
Details of guaranteed bonus, if any, paid as joining / sign on
2(iii) Nil
bonus
2(iv) Details of severance pay, in addition to accrued benefits, if any. Nil
Total amount of outstanding deferred remuneration, split into
3(i) Nil
cash, shares and share-linked instruments and other forms.
3(ii) Total amount of deferred remuneration paid out in the period. Nil
Breakdown of amount of remuneration awards for the period: 2017 Fixed CTC :1.46
Fixed Variable:0.50
4 Variable
Deferred
Non-deferred
Total amount of outstanding deferred remuneration and
5(i) retained remuneration exposed to ex post explicit and / Nil
or implicit adjustments.
5(ii) Total amount of reductions during the period due to ex- post Nil
explicit adjustments.

5(iii) Total amount of reductions during the period due to ex- post
Nil
implicit adjustments

18.33 Contingent Liabilities

Description of nature of contingent liabilities is set out below:
i) Liability on account of cross currency interest rate swaps:

Cross Currency interest rate swaps are commitments to exchange cash flows by the way of
interest/principal in one currency against another, based on pre-determined rates and
commitments to exchange fixed and floating interest rate cash flows.

Annual Report FY 2016-17 110

 The amount recorded as contingent liability with respect to these contracts represents the underlying
notional amounts of these contracts.

ii) The Bank is contingently liable to certain SPV with respect to securitization of loans and advances to
the extent of cash collateral deposits and credit enhancements.

Refer Schedule 12 for amounts relating to contingent liabilities.

18.34 Bank has not issued any letters of comfort during the period.

18.35 Liquidity Coverage Ratio(LCR)

Qualitative disclosure around LCR

Liquidity Coverage Ratio (LCR) is a global minimum standard for Bank's liquidity. The ratio aims to ensure
that a bank has an adequate stock of unencumbered High - Quality Liquid Assets (HQLA) that can be
converted into cash easily and immediately to meet its liquidity needs for a 30 calendar days of severe
liquidity stress scenario.

The LCR is a ratio of High Quality Liquid unencumbered Assets (HQLA) to total estimated net outflows over
a stressed period of 30 calendar days.

The net cash outflows are calculated by applying RBI prescribed outflow factors to the various categories of
liabilities (deposits, unsecured and secured wholesale borrowings), as well as to undrawn commitments
and derivative-related exposures, partially offset by inflows from assets maturing within 30 days.

The Board of Directors has the overall responsibility for management of liquidity risk. The Board at overall
level decides the liquidity risk tolerance / limits and accordingly decides the strategy, policies and
procedures of the Bank for managing liquidity risk.

The Board has constituted Risk Management Committee (RMC), which reports to the Board, and consisting
of Chief Executive Officer (CEO) / Chairman and certain other Board members. The committee is
responsible for evaluating the overall risks faced by the Bank including liquidity risk. The potential
interaction of liquidity risk with other risks is included in the risks addressed by the Risk Management
Committee.

At the executive level, Asset Liability Management Committee (ALCO) ensures adherence to the risk
tolerance / limits set by the Board as well as implementing the liquidity risk management strategy of the
Bank in line with Bank's risk management objectives and risk tolerance. A dedicated desk within Treasury
function of the Bank is responsible for the day-to-day / intra-day liquidity management.

ALCO of the Bank channelizes various business segments of the Bank to target good quality asset and
liability profile to meet the Bank's profitability as well as Liquidity requirements with the help of robust MIS
and Risk Limit architecture of the Bank.

The Bank has been maintaining HQLA (Level 1) primarily in the form of Excess CRR, excess SLR
investments over and above mandatory requirement.

111 Annual Report FY 2016-17

Quantitative Disclosures
(₹ in crore)
As at 31 March 2017

High Quality Liquid Assets Total Unweighted Total Weighted

Value (average)* Value (average)

1 Total High Quality Liquid Assets (HQLA) 397.15

Cash Outflows
Retail deposits and deposits from small 1.04 0.09
2
business customers, of which:
(i) Stable Deposits 0.24 0.01
(ii) Less Stable Deposits 0.80 0.08
3 Unsecured wholesale funding, of which: 24.53 8.61
(i) Operational deposits (all counterparties) 17.69 1.77
(ii) Non-operational deposits (all counterparties) 0.00 0.00
(iii) Unsecured debt 6.84 6.84
4 Secured wholesale funding 44.81
5 Additional requirements, of which 0.00 0.00

(I) Outflows related to derivative exposures and - -

other collateral requirements
(ii) Outflows related to loss of funding on debt - -
products
(iii) Credit and liquidity facilities - -
6 Other contractual funding obligations 0.31 0.02
7 Other contingent funding obligations - -
8 TOTAL CASH OUTFLOWS 53.53
Cash Inflows
9 Secured lending (e.g. reverse repos) - -
10 Inflows from fully performing exposures 166.74 83.37
11 Other cash inflows 0.00 0.00
12 TOTAL CASH INFLOWS 166.74 83.37
13 TOTAL HQLA 397.15
14 Total Net Cash Outflows 13.38
15 Liquidity Coverage Ratio (%) 2967.91%
*The weighted value and unweighted value are based on the balances as at 31 March 2017.

Reasons for High Liquidity Coverage Ratio

1. Excess liquidity arising from investment into level 1 securities - Central and State Government
securities.

2. Lower cash outflow arising due to positive mismatch in the ALM i.e, the average tenor for the
advances is 21 months and the average tenor with respect to borrowings from banks, NBFCs, financial
Institutions and other agencies is 33 months. (Refer note no. 18.15 with respect to ALM)

Annual Report FY 2016-17 112

18.36 Intra-Group Exposures
(₹ in crore)
As at
Particulars
31 March 2017
Total amount of intra-group exposures Nil
Total amount of top-20 intra-group exposures Nil
Percentage of intra-group exposures to total exposure of the bank on Nil
borrowers/customers

18.37 Details of provisioning pertaining to fraud accounts

The following table sets forth for the period ended 31 March 2017, the details of provisioning
pertaining to fraud accounts.
(₹ in crore)
As at
Particulars
31 March 2017
Number of frauds reported 7
Amount involved in frauds* 0.00
Provision made 0.00
Unamortised provision debited from 'other reserves' 0.00
*Rs.35,114/-
The Bank has recovered the amount involved in frauds.

18.38 Transfers to Depositor Education and Awareness Fund (DEAF)

Below mentioned are the details of funds transferred to Depositor Education and Awareness Fund
during the periodended 31 March 2017.
(₹ in crore)
For the period ended
Particulars
31 March 2017
Opening balance of amounts transferred to DEAF -
Add: Amounts transferred to DEAF during the period -
Less: Amounts reimbursed by DEAF towards claims -
Closing balance of amounts transferred to DEAF -

18.39 The disclosure required on holdings as well as dealings in Specified Bank Notes (SBN) during the
period from November 8, 2016 to December 30, 2016 as envisaged in notification GSR 308(E) dated
March 30, 2017 issued by the Ministry of Corporate Affairs (MCA), is not applicable to the Bank.

18.40 Credit Default Swap

The Bank has not entered into Credit Default Swap during the period.

18.41 Unhedged Foreign Currency Exposure (UFCE) of Bank's Customer

The borrowers of the Bank does not have any Unhedged Foreign Currency Exposure as at 31 March
2017. The above Information is as certified by the Management and relied upon by the auditors.

18.42 The Bank has a process whereby periodically all long term contracts (including derivative contracts)
are assessed for material foreseeable losses. At the year end, the Bank has reviewed and recorded
adequate provision as required under any law / accounting standards for material foreseeable
losses on such long term contracts (including derivative contracts) in the books of accounts.

113 Annual Report FY 2016-17

18.43 Business transfer
The Holding Company executed a Business Transfer Agreement (BTA) with the Bank to transfer its
micro finance operation effective 21 January 2017 as to comply with one of the condition attached
to the Small Finance Bank License provided by RBI. Pursuant to BTA, all the assets and liabilities
(except certain statutory assets, vehicle and statutory liabilities) of the Holding Company
transferred to the Bank at book value and net consideration of Rs. 68.51crores was satisfied in cash
by SFB. The summary of assets and liabilities acquired is as follows:
(₹ in crore)
Particulars Amount
Assets
Fixed Asset (net block) 6.94
Capital work in progress 3.88
Investments 394.28
Cash and bank balances 132.84
Loan portfolio 1,596.79
Other loans and advances 50.36
Other assets 26.16
Total asset taken over 2,211.25

Liabilities
Secured loans 2,074.44
Other liabilities 68.30
Total liabilities taken over 2,142.74

Net assets taken over 68.51

Pursuant to BTA, all the employees of the Holding Company (except certain employees) transferred
to SFB on the same employment terms and rights granted under employee stock option scheme of
the Holding Company are continued in SFB.

18.44 This being the year of incorporation of the Bank, it is not required to spend the prescribed amount as
required by Section 135 of the Companies Act, 2013.

18.45 The Bank does not have any pending litigations as at 31 March 2017.

18.46 This being the year of incorporation of the Bank, the financial statements have been prepared for the
first time and accordingly no comparative information has been furnished.

Annual Report FY 2016-17 114

for B S R & Associates LLP for and on behalf of Board of Directors
Chartered Accountants Utkarsh Small Finance Bank Limited
ICAI Firm Registration No. 116231W/W-100024 CIN: U65992UP2016PLC082804

Sriram Mahalingam Govind Singh Kajal Ghose

Partner Managing Director & CEO Director
Membership No.049642 DIN : 02470880 DIN : 07702190

Abhisheka Kumar Anang Kumar

Chief Financial Officer Shandilya
Company Secretary

Place : Mumbai Place : Mumbai

Date : 29-May-2017 Date : 29-May-2017

115 Annual Report FY 2016-17

Independent Auditor's Report
To the Members of Utkarsh Small Finance Bank Limited
Report on the Financial Statements

We have audited the accompanying financial statements of Utkarsh Small Finance Bank Limited ('the
Bank'), which comprise the Balance Sheet as at 31 March 2017, the Profit and Loss Account, the Cash Flow
Statement for the period then ended, and a summary of the significant accounting policies and other
explanatory information.

Management's Responsibility for the Financial Statements

The Bank's Board of Directors is responsible for the matters stated in Section 134(5) of the
Companies Act, 2013 ("the Act") with respect to the preparation of these financial statements that give a
true and fair view of the financial position, financial performance and cash flows of the Bank in accordance
with the accounting principles generally accepted in India, including the Accounting Standards specified
under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, provisions of
Section 29 of the Banking Regulation Act, 1949 and the circulars, guidelines and directions issued by the
Reserve Bank of India ('RBI') from time to time. This responsibility also includes maintenance of adequate
accounting records in accordance with the provisions of the Act for safeguarding of the assets of the Bank
and for preventing and detecting frauds and other irregularities; selection and application of appropriate
accounting policies; making judgments and estimates that are reasonable and prudent; and the design,
implementation and maintenance of internal financial controls, that were operating effectively for ensuring
the accuracy and completeness of the accounting records, relevant to the preparation and presentation of
the financial statements that give a true and fair view and are free from material misstatement, whether due
to fraud or error.
Auditor's Responsibility

Our responsibility is to express an opinion on these financial statements based on our audit.

We have taken into account the provisions of the Act, the accounting and auditing standards and matters
which are required to be included in the audit report under the provisions of the Act and the Rules made
thereunder.
We conducted our audit in accordance with the Standards on Auditing ('the Standards') specified under
Section 143(10) of the Act. Those Standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free from
material misstatements.

An audit involves performing procedures to obtain audit evidence about the amounts and the disclosures
in the financial statements. The procedures selected depend on the auditor's judgment, including the
assessment of the risk of material misstatement of the financial statements, whether due to fraud or error.
In making those risk assessments, the auditor considers internal control relevant to the Bank's preparation
of the financial statements that give a true and fair view in order to design audit procedures that are
appropriate in the circumstances. An audit also includes evaluating the appropriateness of the accounting
policies used and the reasonableness of the accounting estimates made by the Bank's Directors, as well as
evaluating the overall presentation of the financial statements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion on the financial statements.

Annual Report FY 2016-17 116

Opinion

In our opinion and to the best of our information and according to the explanations given to us, the
aforesaid financial statements give the information required by the Banking Regulation Act, 1949 as well as
the relevant requirements of the Act, in the manner so required for banking companies and give a true and
fair view in conformity with the accounting principles generally accepted in India, of the state of affairs of
the Bank as at 31 March 2017, its profit and its cash flows for the period then ended.
Emphasis of Matter

We draw your attention to Schedule 18.1 of the accompanying financial statements. The Reserve Bank of
India ("RBI") issued the small finance bank license to Utkarsh Small Finance Bank Limited pursuant to which
the Utkarsh Micro Finance Limited ('the Holding Company') transferred its micro lending business to the
Bank through a Business Transfer Agreement (BTA). In accordance with the BTA, all the assets and liabilities
(except certain specified assets and liabilities) as at 21 January 2017 of the Holding Company were
transferred at book value on a 'slump sale basis' for cash consideration. Resultant, non-convertible
debentures listed on the stock exchange were also transferred in the name of the Bank and a transfer was
effected by the exchange effective 03 May 2017. The Bank has been incorporated on 30 April 2016 and
commenced its operations as a Bank effective 23 January 2017. This being the first financial period from
incorporation of the Bank to the end of the financial year, no comparative figures have been provided by the
Bank in these financial statements. Our report is not qualified in respect of this matter.
Report on Other Legal and Regulatory Requirements
The Balance Sheet and Profit and Loss Account have been drawn up in accordance with the provisions of
Section 29 of the Banking Regulation Act, 1949 read with Section 133 of the Act read with the Rule 7 of the
Companies (Accounts) Rules, 2014.

As required by sub section (3) of Section 30 of the Banking Regulation Act, 1949, we report that:

(a) we have obtained all the information and explanations which, to the best of our knowledge and belief,
were necessary for the purpose of our audit and have found them to be satisfactory;

(b) the transactions of the Bank, which have come to our notice, have been within the powers of the Bank;
and

(c) during the course of our audit, we have visited two branches. The audit of bank is carried out
centrally as all the necessary records and data required for the purposes of our audit are available at
corporate office.

Further, as required by Section 143 (3) of the Act, we further report that:

(a) we have sought and obtained all the information and explanations which to the best of our knowledge
and belief were necessary for the purpose of our audit;
(b) in our opinion, proper books of account as required by law have been kept by the Bank so far as it
appears from our examination of those books;

(c) the Balance Sheet, the Profit and Loss Account and the Cash Flow Statement dealt with by this report
are in agreement with the books of account;

(d) in our opinion, the aforesaid financial statements comply with the Accounting Standards specified
under Section 133 of the Act, read with Rule 7 of the Companies (Accounts) Rules, 2014, to the extent
they are not inconsistent with the accounting policies prescribed by the RBI;
117 Annual Report FY 2016-17
(e) on the basis of the written representations received from the directors as on 31 March 2017 taken on
record by the Board of Directors, none of the directors is disqualified as on 31 March 2017 from being
appointed as a director in terms of Section 164 (2) of the Act.

(f) with respect to the adequacy of the internal financial controls over financial reporting of the Bank and
the operating effectiveness of such controls, refer to our separate Report in "Annexure A";

(g) with respect to the other matters to be included in the Auditor's Report in accordance with Rule 11 of
the Companies (Audit and Auditors) Rules, 2014, in our opinion and to the best of our information and
according to the explanations given to us:

(i) the Bank does not have any pending litigations which would impact its financial position as at 31
March 2017;- Refer Schedule 18.45

(ii) the Bank has made provisions, as required under the applicable law or accounting standards, for
material forseeable losses, if any, on long term contracts including derivative contracts;

(iii) there has been no delay in transferring amounts, required to be transferred, to the Investor
Education and Protection Fund by the Bank; and

(iv) as referred in the Schedule 18.39 to the financial statements, the disclosure required on holdings
as well as dealings in Specified Bank Notes during the period from 8 November 2016 to 30
December 2016 as envisaged in notification GSR 308(E) dated 30 March 2017 issued by the Ministry
of Corporate Affairs, is not applicable to the Bank.

for B S R & Associates LLP

Chartered Accountants
ICAI Firm's Registration No: 116231W/W–100024

Sriram Mahalingam
Partner
Membership No: 049642

Place: Mumbai
Date: 29 May 2017

Annual Report FY 2016-17 118

Annexure A to the Independent Auditor's Report of even date on the Financial Statements of Utkarsh
Small Finance Bank Limited

Report on the Internal Financial Controls under clause (i) of sub-section 3 of Section 143 of the
Companies Act, 2013

We have audited the internal financial controls over financial reporting of Utkarsh Small Finance Bank
Limited ('the Bank') as at 31 March 2017 in conjunction with our audit of the financial statements of the Bank
for the period ended on that date. Attention is drawn to the fact the Bank has commenced its operation from
23 January 2017. Refer Schedule 18.1.
Management's Responsibility for Internal Financial Controls
The Bank's Board of Directors is responsible for establishing and maintaining internal financial controls
based on the internal control over financial reporting criteria established by the Bank considering the
essential components of internal control stated in the Guidance Note on Audit of Internal Financial Controls
Over Financial Reporting ('the Guidance Note') issued by the Institute of Chartered Accountants of India
('the ICAI'). These responsibilities include the design, implementation and maintenance of adequate
internal financial controls that were operating effectively for ensuring the orderly and efficient conduct of
its business, including adherence to Bank's policies, the safeguarding of its assets, the prevention and
detection of frauds and errors, the accuracy and completeness of the accounting records, and the timely
preparation of reliable financial information, as required under the Companies Act, 2013 ('the Act').
Auditor's Responsibility
Our responsibility is to express an opinion on the Bank's internal financial controls over financial reporting
based on our audit. We conducted our audit in accordance with the Guidance Note and the Standards on
Auditing ('the Standards'), issued by the ICAI and deemed to be prescribed under section 143(10) of the Act,
to the extent applicable to an audit of internal financial controls, both issued by the ICAI. Those Standards
and the Guidance Note require that we comply with ethical requirements and plan and perform the audit to
obtain reasonable assurance about whether adequate internal financial controls over financial reporting
was established and maintained and if such controls operated effectively in all material respects.

Our audit involves performing procedures to obtain audit evidence about the adequacy of the internal
financial controls system over financial reporting and their operating effectiveness. Our audit of internal
financial controls over financial reporting included obtaining an understanding of internal financial
controls over financial reporting, assessing the risk that a material weakness exists, and testing and
evaluating the design and operating effectiveness of internal control based on the assessed risk. The
procedures selected depend on the auditor's judgment, including the assessment of the risks of material
misstatement of the financial statements, whether due to fraud or error.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
audit opinion on the Bank's internal financial controls system over financial reporting.

Meaning of Internal Financial Controls over Financial Reporting

A bank's internal financial control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A bank's internal financial
control over financial reporting includes those policies and procedures that (1) pertain to the maintenance
of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the
assets of the bank;

119 Annual Report FY 2016-17

(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of
financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the bank are being made only in accordance with authorizations of management and
directors of the bank; and (3) provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use, or disposition of the bank's assets that could have a material effect on the
financial statements.
Inherent Limitations of Internal Financial Controls over Financial Reporting
Because of the inherent limitations of internal financial controls over financial reporting, including the
possibility of collusion or improper management override of controls, material misstatements due to error
or fraud may occur and not be detected. Also, projections of any evaluation of the internal financial controls
over financial reporting to future periods are subject to the risk that the internal financial control over
financial reporting may become inadequate because of changes in conditions, or that the degree of
compliance with the policies or procedures may deteriorate.

Opinion

In our opinion, the Bank has, in all material respects, an adequate internal financial controls system over
financial reporting and such internal financial controls over financial reporting were operating effectively
as at 31 March 2017, based on the internal control over financial reporting criteria established by the Bank
considering the essential components of internal control stated in the Guidance Note on Audit of Internal
Financial Controls Over Financial Reporting issued by the ICAI.

or B S R & Associates LLP

Chartered Accountants
ICAI Firm's Registration No: 116231W/W–100024

Sriram Mahalingam
Partner
Membership No: 049642

Place: Mumbai
Date: 29 May 2017

Annual Report FY 2016-17 120

SECRETARIAL AUDIT REPORT
For the Financial Year Ended 31st Day of March 2017

[Pursuant to section 204(1) of the Companies Act, 2013 and rule No.9 of the Companies
(Appointment and Remuneration of Managerial Personnel) Rules, 2014]

To,
The Members,
UTKARSH SMALL FINANCE BANK LIMITED
(CIN NO- U65992UP2016PLC082804)
S-24/1-2, FIRST FLOOR, MAHAVIR NAGAR,
ORDERLY BAZAR VARANASI UP 221002 IN

I have conducted the secretarial audit of the compliance of applicable statutory provisions and the
adherence to good corporate practices by UTKARSH SMALL FINANCE BANK LIMITED (hereinafter called
the company) incorporated on 30-04-2016. Secretarial Audit was conducted in a manner that provided me
a reasonable basis for evaluating the corporate conducts/statutory compliances and expressing my
opinion thereon.

Based on my verification of the UTKARSH SMALL FINANCE BANK LIMITED books, papers, minute books,
forms and returns filed and other records maintained by the company and also the information provided
by the Company, its officers, agents and authorized representatives during the conduct of secretarial audit,
I hereby report that in my opinion, the company has, during the audit period covering the financial year
ended on 31ST Day of March , 2017 complied with the statutory provisions listed hereunder and also that
the Company has proper Board-processes and compliance-mechanism in place to the extent, in the
manner and subject to the reporting made hereinafter:

I have examined the books, papers, minute books, forms and returns filed and other records maintained
by UTKARSH SMALL FINANCE BANK LIMITED (“the Company”) for the financial year ended on 31ST Day
of March, 2017 according to the provisions of:

(i) The Companies Act, 2013 (the Act) and the rules made there under;
(ii) The Securities Contracts (Regulation) Act, 1956 ('SCRA') and the rules made thereunder;
(iii)The Depositories Act, 1996 and the Regulations and Bye-laws framed thereunder;
(iv) Foreign Exchange Management Act, 1999 and the rules and regulations made
thereunder to the extent of Foreign Direct Investment, Overseas Direct Investment and
External Commercial Borrowings;
(v) The following Regulations and Guidelines prescribed under the Securities and Exchange
Board of India Act, 1992 ('SEBI Act'):-
(a) The Securities and Exchange Board of India (Substantial Acquisition of Shares
and Takeovers) Regulations, 2011;
(b) The Securities and Exchange Board of India (Prohibition of Insider Trading)
Regulations, 1992;
(c) The Securities and Exchange Board of India (Issue of Capital and Disclosure Requirements)
Regulations, 2009;
(d) The Securities and Exchange Board of India (Employee Stock Option Scheme and Employee
Stock Purchase Scheme) Guidelines, 1999;

121 Annual Report FY 2016-17

 (e) The Securities and Exchange Board of India (Issue and Listing of Debt Securities)
Regulations, 2008;
(f) The Securities and Exchange Board of India (Registrars to an Issue and Share Transfer
Agents) Regulations, 1993 regarding the Companies Act and dealing with client;
(g) The Securities and Exchange Board of India (Listing Obligations and Disclosure
Requirements) Regulations, 2015; and
(h) The Securities and Exchange Board of India (Buyback of Securities) Regulations, 1998;
(vi) The following laws, regulations, directions, orders applicable specifically to the Company:
a. The Reserve Bank of India Act, 1934.
b. Employees Provident funds & miscellaneous Provisions Act, 1952.
c. Payment of Gratuity Act, 1972.
d. Employees State Insurance Act, 1948.
e. Payment of wages Act, 1936 and Minimum Wages Act, 1948 and its rules.
f. Maternity Benefit Act, 1961.
g. Employees Compensation Act, 1923.
h. Payment of Bonus Act, 1965.

I have also examined compliance with the applicable clauses of the following:
Secretarial Standards issued by The Institute of Company Secretaries of India.

During the period under review the Company has complied with the provisions of the Act, Rules,
Regulations, Guidelines, Standards, etc. mentioned above subject to the following observations:

The company has done all monthly, quarterly, half yearly and yearly compliances with the Reserve Bank of
India.

The company has followed the secretarial standards issued by the Institute of Company Secretaries of
India.

I further report that The Board of Directors of the Company is duly constituted with proper balance of
Executive Directors, Non-Executive Directors and Independent Directors. Section 149 (13) states that the
provisions of section 152 (6) & (7) in respect of retirement of directors by rotation shall not applicable to the
Independent director, but the current board composition of the company, 4 independent directors in the all
6 board members excluding CEO / CFO & CS. So, the other 2 directors including 1 Managing director and
nominee director will e liable for retire by rotation in the ensuing annual general meeting of the company.

The clause 131 of the Article of association of the company says that Independent directors of the company
shall be liable for retires by rotation. Directors other than Managing director, whole time director and
independent director shall be liable for retire by rotation in accordance with the provisions of the Act.

The clause 132 (a) states that independent directors, managing director or any whole time directors, if any,
shall not be subject to retirement under this article and shall not be taken into account in determining the
number of directors to retire by rotation. Hence there is some confliction in the articles of association of the
company and the Companies Act, 2013 and as per my opinion, the company has two options either the
company change the board composition or the company alter its clause 131 and 132 of the article of
association of the company before the ensuing Annual general meeting of the company.

Annual Report FY 2016-17 122

The changes in the composition of the Board of Directors that took place during the period under review
were carried out in compliance with the provisions of the Act.

Adequate notice is given to all directors to schedule the Board Meetings, agenda and detailed notes on
agenda were sent at least seven days in advance, and a system exists for seeking and obtaining further
information and clarifications on the agenda items before the meeting and for meaningful participation at
the meeting.

Majority decision is carried through and recorded as part of the minutes. I understand that there were no
dissenting views for being captured in the minutes.

I further report that there are adequate systems and processes in the company commensurate with the size
and operations of the company to monitor and ensure compliance with applicable laws, rules, regulations
and guidelines.

a) Members have enabled Borrowing Powers of the Company up to a limit and above the aggregate of the
paid-up share capital and free reserves under Section 180(1) (c) of the Companies Act, 2013 through
special resolution.

b) Members have also enabled the Company to issue NCD's / CCD's and / or other debt securities on private
placement basis, in one or more tranches, during the period of one year from the date of passing of special
resolution by the Members, within the overall borrowing limits approved by the Members from time to
time.

FOR, ANUBHAV SRIVASTAV & ASSOCIATES

(COMPANY SECRETARIES)

Sd/-
ANUBHAV SRIVASTAV
(PROPERIETOR)
C.P. NO- 10064

123 Annual Report FY 2016-17

To,
The Members
UTKARSH SMALL FINANCE BANK LIMITED
(CIN NO- U65992UP2016PLC082804)
S-24/1-2, FIRST FLOOR, MAHAVIR NAGAR,
ORDERLY BAZAR VARANASI VARANASI UP 221002 IN

Our report of even date is to be read along with this letter.

1 Maintenance of secretarial record is the responsibility of the management of the Company. Our
responsibility is to express an opinion on these secretarial records based on our audit.
2 We have followed the audit practices and processes as were appropriate to obtain reasonable
assurance about the correctness of the contents of the Secretarial records. The verification was
done on test basis to ensure that correct facts are reflected in secretarial records. We believe that
the processes and practices, we followed provide a reasonable basis for our opinion.
3 We have not verified the correctness and appropriateness of financial records and Books of
Accounts of the Company.
4 The compliance of the provisions of Corporate and other applicable laws, rules, regulations,
standards is the responsibility of management. Our examination was limited to the verification of
procedures on test basis.
5 The Secretarial Audit report is neither an assurance as to the future viability of the Company nor of
the efficacy or effectiveness with which the management has conducted the affairs of the Company.

FOR, ANUBHAV SRIVASTAV & ASSOCIATES

(COMPANY SECRETARIES)

Sd/-
ANUBHAV SRIVASTAV
(PROPERIETOR)
C.P. NO- 10064

Place: Varanasi
Date: 04-05-2017

Annual Report FY 2016-17 124

CHIEF EXECUTIVE OFFICER (CEO) & CHIEF FINANCIAL OFFICER (CFO) CERTIFICATION

We, Govind Singh, Managing Director & Chief Executive Officer and Abhisheka Kumar, Chief Financial
Officer of Utkarsh Small Finance Bank Limited (“the Bank”), hereby certify to the Board that:

a. We have reviewed financial statements and the cash flow statement for the year and that to the best of
our knowledge and belief:

i. These statements do not contain any materially untrue statement or omit any material fact or
contain statements that might be misleading;
ii. These statements together present a true and fair view of the Bank's affairs and are in compliance
with existing accounting standards, applicable laws and regulations.

b. There are, to the best of our knowledge and belief, no transactions entered into by Bank during the year
which are fraudulent, illegal or violative of the Bank's code of conduct.

c. We are responsible for establishing and maintaining internal controls for financial report in Bank and we
have evaluated the effectiveness of the internal control systems of the Bank pertaining to financial
reporting. We have disclosed to the Auditors and the Audit Committee, deficiencies in the design or
operation of such internal controls, if any, of which we are aware and the steps we have taken or propose
to take to rectify these deficiencies.

d. We have indicated to the Auditors and the Audit committee

i. Significant changes in internal control over financial reporting during the year;
ii. Significant changes in accounting policies during the year and the same have been disclosed in
the Notes to the financial statements; and
iii. Instances of significant fraud of which we have become aware and the involvement therein, if
any, of the Management or an employee having a significant role in the Bank's internal control
system over financial reporting

e. We affirm that we have not denied any personnel access to the Audit Committee of the Bank (in respect
of matters involving alleged misconduct, if any).

Govind Singh Abhisheka Kumar

Managing Director & CEO Chief Financial Officer

125 Annual Report FY 2016-17

EXTRACT OF ANNUAL RETURN
Form No. MGT-9
EXTRACT OF ANNUAL RETURN
As on the Financial Year Ended on March 31, 2017
[Pursuant to section 92(3) of the Companies Act, 2013 and rule 12(1) of the Companies
(Management and Administration) Rules, 2014]

I. Registration and other Details:

i) CIN: U65992UP2016PLC082804
ii) Registration Date – 30.04.2016
iii) Name of the Company – Utkarsh Small Finance Bank Limited
iv) Category / Sub-Category of the Company – Public Limited Company

v) Address of the Registered office and contact details

S-24/1-2, First Floor, Mahavir Nagar, Orderly Bazar, Varanasi - 221 002
vi) Whether listed company - No
vii) Name, Address and Contact details of Registrar and Transfer Agent, if any

M/s Karvy Computershare Private Ltd

Unit: Utkarsh Small Finance Bank
Karvy Selenium Tower B,
Plot No 31 & 32, Gachibowli,
Financial District,
Nanakramguda, Serilingampally,
Hyderabad - 500 032
Telangana

II. Principal Business Activities of the Company

All the business activities contributing 10 % or more of the total turnover of the
company shall be stated:-

Sl. Name and Description NIC Code of the % to Total Turnover

No. of Main Products / Services Products / Services of the Company

01 Banking Services K1 100

III. Particulars of Holding, Subsidiary and Associate Companies

Holding /
Sl. Name and Address of % of Shares Applicable
CIN / GLN Subsidiary /
No. the Company held Section
Associate
Utkarsh Micro
U65191UP1990PLC045609 Holding 99.98% 2(46)
Finance Limited
01
S-2/639-56 Varuna Vihar
Colony J.P Mehta Road
Varanasi

Annual Report FY 2016-17 126

IV. Share Holding Pattern (Equity Share Capital Breakup as Percentage of Total Equity)

i) Category-wise Share Holding

No. of Shares held at the time No. of Shares held at the % Change
Category of of incorporation 30.04.2016 end of the year 31.03.2017 during
Shareholder
% of Total % of Total the year
Demat Physical Total Demat Physical Total
Shares Shares
A. Promoters

(1) Indian 49,000 49,000 98% 49,000 49,000 0.02%

Individual/ HUF
Central Govt
State Govt (s) 1,000 1,000 2% 30,00,01,000 30,00,01,000 99.98%
Bodies Corp.
Banks / FI
Any Other….
Sub-total 50,000 50,000 100% 30,00,50,000 30,00,50,000 100.00%
(A) (1):
(2) Foreign

a) NRIs -
Individuals
b) Other –
Individuals
c) Bodies Corp.
d) Banks / FI e)
Any Other….
Sub-total
(A) (2):-

Total
shareholding 50,000 50,000 30,00,50,000 30,00,50,000 100.00%
of Promoter (A)
= (A)(1)+(A)(2)

B. Public NIL NIL NIL NIL NIL NIL NIL NIL NIL
Shareholding

1. Institutions

a) Mutual Funds
b) Banks / FI
c) Central Govt
d) State Govt (s)
e) Venture
Capital Funds
f) Insurance
Companies

127 Annual Report FY 2016-17

g) FIIs
h) Foreign
Funds
i) Others
(Specify)
Sub-total
(B)(1):-

2. Non-
Institutions
a) Bodies Corp.
i) Indian
ii) Overseas
b) Individuals
i) Individual
shareholders
holding
nominal share
capital upto
Rs. 1 lakh
ii) Individual
shareholders
holding
nominal share
capital in
excess of
Rs 1 lakh
c) Others
(specify)

Sub-total
(B)(2):-

Total Public
Shareholding
(B)=(B)(1)
+(B)(2)

C. Shares held
by Custodian
for GDRs &
ADRs

Grand Total
(A+B+C)

Annual Report FY 2016-17 128

IV. SHARE HOLDING PATTERN (Equity Share Capital Breakup as percentage of Total Equity)

ii) Shareholding of Promoters

Shareholding at the beginning Share holding at the end of

of the year the year
% of % change
Sl. Shareholder's %of Shares
No. % of total Pledged / % of total Shares in share
Name No. of No. of Shares of Pledged /
Shares of encumbe holding
Shares the company red to total Shares the encumbe during
shares company red to total the year
shares
01 Govind Singh 44,000 88% 44,000 0.01466%

02 Revati Govind 1,000 2% 1,000 0.00033%

03 Raghvendra Singh 1,000 2% 1,000 0.00033%

04 Trilok Nath Shukla 1,000 2% 1,000 0.00033%

05 Abhisheka Kumar 1,000 2% 1,000 0.00033%

06 Ashwani Kumar 1,000 2% 1,000 0.00033%

07 Utkarsh Micro
Finance Limited 1,000 2% 30,00,01,000 99.98367%
(Holding Company)
Total 50,000 100.00% 30,00,50,000 100.00%

iii) Change in Promoters' Shareholding ( please specify, if there is no change)

Shareholding at the beginning Cumulative Shareholding

of the year during the year
Particulars % of total
% of total Shares of
No. of Shares No. of Shares Shares of
the company
the company
At the beginning of
50, 000 100% 50, 000 100%
the year
Date wise Increase / 9,99,50,000
Decrease in Promoters (allotted on
Share holding during the October 07, 2016
year specifying the on private
reasons for increase / placement basis)
decrease
(e.g. allotment / 20,00,50,000
(allotted on 20th Jan,
transfer / bonus/ sweat
2017 on private
equity etc):
At the End of the year 30,00,50,000 100%

(iv) Shareholding Pattern of top ten Shareholders (other than Directors, promoters and
Holders of GDRs and ADRs) : NIL

129 Annual Report FY 2016-17

 v) Shareholding of Directors and Key Managerial Personnel:

Particulars Shareholding at the beginning Cumulative Shareholding

of the year during the year
For Each of the Directors % of total Shares % of total Shares
No. of Shares of the company No. of Shares of the company
and KMP
Mr. Govind Singh 88.00% Mr. Govind Singh
0.01466%
– 44,000 – 44,000
At the beginning of
the year Mr. Abhisheka Kumar Mr. Abhisheka Kumar
02.00% 0.00033%
– 1,000 – 1,000
Date wise Increase /
Decrease in Promoters
Share holding during the
year specifying the reasons
for increase / decrease
(e.g. allotment / transfer
/ bonus/ sweat equity etc):
Mr. Govind Singh 88.00% Mr. Govind Singh
– 44,000 0.01466%
– 44,000
At the End of the year
Mr. Abhisheka Kumar 02.00% Mr. Abhisheka Kumar 0.00033%
– 1,000 – 1,000

V. Indebtedness

Indebtedness of the Company including interest outstanding/accrued but not due for payment
(Amount in ₹)
Secured Loans Unsecured
Particulars Deposits Total Indebtedness
excluding Deposits Loans
Indebtedness at the beginning
NIL NIL NIL NIL
of the financial year
i) Principal Amount as on
12,675,352,445 100,000,000 - 12,775,352,445
January 21, 2017
ii) Interest due but not paid NIL NIL NIL NIL
iii) Interest accrued but not
78,630,786 891,781 - 79,522,567
due as on January 21, 2017
Total (i+ii+iii) 12,753,983,231 100,891,781 - 12,854,875,012
Change in Indebtedness
- - - -
during the financial year
Addition 4,335,000,000 8,775,000,000 - 13,110,000,000
Reduction 6,867,340,543 - - 6,867,340,543
Net Change - - - -
Indebtedness at the end of
- - - -
the financial year
i) Principal Amount 10,143,011,901 8,875,000,000 - 19,018,011,901
ii) Interest due but not paid - - - -
iii) Interest accrued but not due 120,151,690 87,926,244 187,222,659 395,300,593
Total (i+ii+iii) 10,263,163,591 8,962,926,244 187,222,659 19,413,312,494

Annual Report FY 2016-17 130

VI. Remuneration of Directors and Key Managerial Personnel

A. Remuneration to Managing Director, Whole-time Directors and/or Manager:

(Amount in ₹)
Name of MD & CEO
Sl. No. Particulars of Remuneration Total
Govind Singh *
Gross salary
(a) Salary as per provisions contained in 52,67,200 52,67,200

01 section 17(1) of the Income-tax Act, 1961

(b) Value of perquisites u/s 17(2) Income-tax - -
Act, 1961
(c) Profits in lieu of salary under section - -
17(3) Income- tax Act, 1961
02 Stock Option - -

03 Sweat Equity - -
Commission
04 - as % of profit - -
- others, specify…
05 Others, please specify - -

Total (A) 52,67,200** 52,67,200**

Ceiling as per the Act 27,44,760 27,44,760
* Taken charge as MD & CEO w.e.f. January 21, 2017.

**Paid in due Compliance of Section II of Part II of Schedule V of the Companies Act, 2013

B. Remuneration to other Directors : (Amount in ₹)

Name of Directors
Particulars of
Total
Remuneration Mr. Tantra Dr. V. S. Mr. Somnath Mr. Kajal
Narayan Thakur Sampath Sengupta Ghose
Independent Directors

Fee for attending Board 2,65,000 4,80,000 4,35,000 1,00,000 12,80,000

Committee Meeting

Commission. - - - - -

Meetings
- Commission
- Others, please specify
Total (1) 2,65,000 4,80,000 4,35,000 1,00,000 12,80,000
Other Non-Executive
Directors Fee for attending
board committee meetings
Total (2) 2,65,000 4,80,000 4,35,000 1,00,000 12,80,000
Total (B)=(1+2) 2,65,000 4,80,000 4,35,000 1,00,000 12,80,000
Total Managerial Remuneration 5,48,952 5,48,952 5,48,952 5,48,952 21,95,808

131 Annual Report FY 2016-17

 C. Remuneration to Key Managerial Personnel other than MD/Manager/WTD
(Amount in ₹)
Key Managerial Personnel
Particulars of
Sl. No.
Remuneration Company
CEO CFO*** Total
Secretary**
Gross salary 6,59,371 19,05,425 25,64,797
(a) Salary as per provisions
contained in section 17(1)
of the Income-tax Act, 1961
01
(b) Value of perquisites u/s
17 (2) Income-tax Act, 1961

(c) Profits in lieu of salary u/s

17 (2) Income-tax Act, 1961
02 Stock Option
03 Sweat Equity
Commission as % of profit
04 others, specify…

05 Others, please specify

Total 6,59,371 19,05,425 25,64,797

** Appointed w.e.f. October 1, 2016.

*** Appointed w.e.f. October 1, 2016

VII. Penalties / Punishment / Compounding of Offences

NIL

Annual Report FY 2016-17 132

ANNUAL REPORT ON CORPORATE SOCIAL RESPONSIBILITY ACTIVITIES (FY 2016-17)

1. Brief outline of the Bank's CSR policy, including overview of the projects or programs undertaken
and a reference to the web link to the CSR policy and projects and programs.

Policy Statement

The Bank's CSR aims to contribute to the social and economic development of the underprivileged and
underserved community in low income geographies. Through impact oriented interventions the bank
seeks to mainstream economically, physically and socially challenged groups and to draw them into the
cycle of growth, development and empowerment. Initiatives will focus on education, health, promoting
livelihoods through skill building and vocational training. The Bank shall also promote initiatives that
preserve, restore and enhance environment, ecological balance, and natural resources, and improve
sanitation and hygiene.

The Bank's strategy is to integrate its activities in community development, social responsibility and
environmental responsibility and encourage each business unit or function to include these considerations
into its operations.

CSR Philosophy & Guiding Principles

CSR policy covers the entire process by which an organization approaches, defines and develops its
relationships with stakeholders for the common good, and demonstrates its commitment in this regard by
adoption of appropriate strategies and projects. Thus CSR is not charity or mere donations but a way of
giving back to society by going beyond business as usual, creating shared value and contributing to social
and environmental good. The Bank's CSR philosophy is based on cardinal principle to make a meaningful
and measurable impact in the lives of economically, physically and socially challenged communities of the
country.

The Bank is in its continuous efforts to positively impact the society particularly, underserved and
unsecured communities in the area of its operations. Utkarsh has formulated policies for social
development based on following guiding principles:

Ÿ To be the trusted financial service provider to over 10 million customers by 2021.

Ÿ Adopt an approach that aims at achieving a greater balance between social development and economic
development.
Ÿ Adopt new measures to accelerate and ensure the basic needs of all people.
Ÿ Work towards elimination of barriers for the social inclusion of disadvantaged groups - such as the poor
and the disabled.
Ÿ Support underprivileged and under served segments by providing financial and non-financial services
through a socially responsible, sustainable and scalable institution.

Organization Set-up

With the objective of interventions through various services, a new separate entity in the name of Utkarsh
Welfare Foundation has been incorporated as section 25 company under the provisions of the Companies
Act, 1956. UWF aims to make a meaningful and sustainable impact in the lives of the community through a
multi-pronged service oriented market led approach. UWF has initiatives that focus on range of issues such
as education, health, skill development, environment, micro enterprise training, sustainable livelihoods,
water & sanitation. Bank's all CSR activities are implemented through UWF.

133 Annual Report FY 2016-17

The Bank has constituted a CSR Committee of the Board consisting of three or more directors including at
least one Independent Director. The Committee will meet at least three times in a year. The following shall
be the terms of reference of the Committee.

Ÿ To formulate the Bank's CSR strategy, policy and goals

Ÿ To monitor the Bank's CSR policy and performance
Ÿ To review the CSR projects/initiatives from time to time
Ÿ To ensure legal and regulatory compliance from a CSR viewpoint
Ÿ To ensure reporting and communication to stakeholders on the Bank's CSR projects/initiatives
Consistent with the above, the CSR Committee of the Board currently has the following members:

Scope of Activities

Identified CSR activities are in line with the CSR Rules (Sec.135 of Companies Act, 2013).Under CSR
activities the identified thematic areas of interventions are Health, financial awareness, Environment
protection, water, sanitation, skill & vocational training activities. The Bank initiated many such programs
through Utkarsh Welfare Foundation. The Bank will provide not less than 2% of average profit before tax for
preceding three financial years) to UWF to carry out the programs as listed below

During the Financial Year 2016-17, prime focus under CSR initiatives were financial awareness &
goodwill initiatives

Financial Awareness
Financial awareness initiatives are aligned with Utkarsh's mission to support underprivileged and
underserved segments of the population by providing financial and non-financial services in a socially
responsible, sustainable and scalable manner. Financial education program is aimed at building financial
decision making and capabilities of the targeted clients through right information, instructions and advices.
As a part of credit plus initiative the total outreach under financial awareness initiatives of Utkarsh Welfare
Foundation since its inception is 1,23,523 beneficiaries.

For the Financial Year 2016 – 2017 total outreach achieved through corporate social responsibility
initiative under financial awareness programs are 63,633 beneficiaries.

Ongoing Projects
i. FMO (Dutch Entrepreneurial Development Bank) and ACCION - Financial Education for Beneficiaries
The project aims to provide financial literacy to 23,200 rural beneficiaries. Two approaches have been
adopted for providing financial literacy. It is proposed to cover 13,200 target beneficiaries through class
room trainings and 10,000 additional beneficiaries shall be reached through mass awareness program.
Total outreach as at March 31, 2017 through class room training approach has been 13,214 beneficiaries
and through mass awareness program has been 10,142 beneficiaries.

ii. SIDBI - Poorest States Inclusive Growth Programme (PSIG) - Financial Literacy and Women
Empowerment Initiatives
Currently, the project is in scale-up phase and the program extended to 30 new branch locations across
the States of Bihar & Uttar Pradesh through 30 Master Trainers in 15 months timeline upto 31st July 2017.
Each of the MTs are expected to undergo 15 days TOT and Refresher Trainings. Web based MIS system is
used for effective monitoring and evaluation of the project.

Annual Report FY 2016-17 134

 The project entails collection of baseline data and training of 22,500 new beneficiaries and end line data
collection of 15,000 beneficiaries from the pilot project through open data kit based mobile handsets.

Total outreach as at March 31, 2017 through class room training approach has been 19,456 beneficiaries.

iii. Swiss Capacity Building Facility (SCBF) and ACCION - Financial Education for underserved
beneficiaries
This project is being implemented in two phases. In the first phase of project implementation (April 2015
to December 2015), project aimed to cover 13,000 beneficiaries through Class Room Trainings and Mass
Awareness Programs. At the completion of first phase, 11,689 beneficiaries outreach was achieved
including both the intervention approaches. Under Banks CSR collaboration the project has been able to
enhance it client outreach during the second phase of the project.

In the ongoing second phase (January 2016 to December 2016), the project aimed to cover 15,000
beneficiaries, of which, 11,000 were expected to be covered through Class Room Trainings and 4,000
through Mass Awareness Programs.

Total outreach as at March 31, 2017 through class room training approach is 11,809 and through Mass
Awareness Programs is 4,175 beneficiaries.

iv. Utkarsh Welfare Foundation – Financial Awareness Initiatives

Learnings and experiences gained during the implementation of various projects on financial education
with reputed knowledge and resource partners such as ACCION, FMO, IFC, ISMW, SCBF, SIDBI, etc. has
built the in-house capacity to design and deliver financial literacy for targeted beneficiaries. Utkarsh
Welfare Foundation aims to develop financial education initiatives which are replicable and scalable.

Currently, UWF has undertaken the financial education initiatives at 8 branches across Bihar and Madhya
Pradesh which will geographically be expanded to Uttarakhand.

Total outreach under financial awareness initiatives of Utkarsh Welfare Foundation since its inception is
33,960 beneficiaries. During the FY 17, Utkarsh Welfare Foundation aimed to cover 39,300 target
beneficiary. The total outreach as at March 31, 2017 had been 21,356 beneficiaries.

v. Dialogue on Business (DOB) for Micro enterprise beneficiaries - Knowledge collaboration with
ACCION
Dialogue on Business (DOB) is an award-winning business skills training program developed by the
knowledge partner, ACCION. It is based on adult learning principles, which draws from the knowledge
and experience of program participants. It uses interactive games and role-playing tools to help
participants solve real-life business challenges. DOB is found to be an interesting and engaging activity
for people, even with little formal education, who may not learn effectively in a traditional classroom
setup.

Program has started in June 2016 and aims to cover 1,000 micro entrepreneurs till March 2017. The total
outreach under DOB program as at March 31, 2016 has been 919 beneficiaries.

135 Annual Report FY 2016-17

Goodwill Projects
Demonstrating ethos of charity Utkarsh Welfare Foundation has established regular engagements with the
initiatives of Missionaries of Charity such as Nirmala Shishu Bhawan and Nirmal Hriday. Voluntary
participation is encouraged and visits are organized on monthly basis. As a token of goodwill gesture
employees distribute snacks, small gifts and food items.

Blood Donation Camps

A blood donation camp was organized in association with Pandit Deen Dayal Upadhya Government
Hospital Varanasi on March 04, 2017. 42 Volunteers from Utkarsh successfully donated the blood. The
event strengthened the noble cause that blood donation saves life.

Geographical Span
During the Financial Year 2016-17 the CSR activities were spread across various districts in three States
namely Uttar Pradesh, Bihar and Madhya Pradesh.

Web Link to CSR policy and projects or programs

Annual Report on CSR Activities is also available at the website of the Company at https://utkarsh.bank/

2. Composition of the CSR committee

Dr. V. S. Sampath (Chairman)

Mr. T. N. Thakur
Mr. Govind Singh

3. Average net profit of the company for last three financial years Not Applicable

4. Prescribed CSR expenditure (i.e. 2% of the amount as in 3 above)

Net profit for the Financial Year 2016-17 65,229,410 and the company spent 4,450,000 which was
higher than 2% of its net profit

5. Details of the CSR spent during FY 2016-17

(1) (2) (3) (4) (5) (6) (7) (8) (9)

Projects or
programs- Projects or
Specify the programs –
Specify the Amount Amount Expenditure
Sector in state /
Sl. CSR project Union district outlay spent on on Mode of
which the
No or activity Territory where (budget) the Administ- Amount
identified Project is project or projects rative
covered where the projects or spent
programs programs or overheads
Project /
was wise programs
Program
was undertaken
undertaken

Annual Report FY 2016-17 136

 1. Financial Financial Uttar UP 4,450,000 2,495,588.40 1,954,411.6 Direct
Awareness Literacy & Pradesh- (Varanasi, Expenditure
Projects Women UP Mirzapur,
empower- Bihar Bhadohi,
ment Madhya Allahabad,
Pradesh Jaunpur,
Deoria,
Ghazipur,
Ballia)

Bihar
(Rohtas,
Ara, Buxur,
Khagariya,
Kaimur,
East
Champaran,

MP
(Shahdol,
Jabalpur,
Annopur)
Amount 4,450,000 2,495,588.40 1,954,411.6 Direct
Spent on Expenditure
Local Area
Amount
Spent on
other Area

Total 4,450,000 2,495,588.40 1,954,411.6 Direct

Amount Expenditure
Spent on
CSR

6. Reasons for not spending the 2% of average net profit of last three financial years:Not Applicable.

7. Responsibility Statement of the CSR committee:

The implementation and monitoring of Utkarsh Small Finance Bank's CSR policy is in compliance with
CSR objectives and policy of the company.

Govind Singh V. S. Sampath

MD & CEO Chairman

Date : May 29, 2017

Place : Mumbai

137 Annual Report FY 2016-17

Basel – Pillar 3 Disclosures - March 31, 2017
Utkarsh Small Finance Bank Limited (hereafter referred as the “Bank”), is a wholly owned subsidiary
promoted by Utkarsh Micro Finance Limited incorporated on 30th April, 2016 under the provision of the
Companies Act, 2013. It is licensed by the Reserve Bank of India to operate as Small Finance Bank under the
Banking Regulation Act, 1949 on 25th November, 2016. Soft launching of banking operations commenced
on 23rd January, 2017 with the opening of five branches in Delhi, Patna, Nagpur and Varanasi. It aims to
provide affordable & accessible banking services which are process centric, technology enabled and
people oriented resulting in reliable, scalable and sustainable institution facilitating socioeconomic
change. The purpose is to provide banking products to the unserved and underserved sections of the
country, which includes small and marginal farmers, micro and small industries, and other organized
sector entities, at an affordable cost. The Bank's vision is to be the trusted financial service provider to over
10 million customers by 2021.

As per the Business transfer agreement, the entire balance sheet of Utkarsh Micro Finance Ltd. was
transferred to Utkarsh Small Finance Bank Limited as at the close of business on January 21, 2017.
Subsequently, the Bank started operations with effect from Jan 23, 2017. In terms of the operating
guidelines issued by the Reserve Bank of India (RBI) for Small Finance Banks (SBFs), all SFBs are required to
follow the Basel II Standardized Approach for Credit Risk. Guidelines with regard to capital charge by SFBs
for Operations Risk and Market Risk are awaited from RBI.

As per the directions of RBI on Guidelines for Licensing of Small Finance Banks in the Private sector dated
September 19, 2015, being a newly launched bank, Utkarsh Small Finance Bank Limited is required to
maintain a minimum capital adequacy of 15 per cent of its Risk Weighted Assets (RWA) subject to any
higher percentage as may be prescribed by RBI from time to time.

Utkarsh Small Finance Bank Limited aims to operate within an effective risk management framework to
actively manage all the material risks faced by the Bank, in a manner consistentwith the Bank's risk appetite.
This document covers the Capital Adequacy status for Utkarsh Small Finance Bank Limited. It also
describes the Risk Process and Governance at the Bank to effectively on-board, monitor and report risk.

I. Scope of Application

The framework of disclosures applies to Utkarsh Small Finance Bank Limited. The Bank does not have any
subsidiary nor does it have any interest in any insurance entity. All the information in this document are
made as a standalone entity.

II. Capital Adequacy

The Bank has a process for assessing its overall capital adequacy in relation to the Bank's risk profile and a
strategy for maintaining its capital levels. The process provides an assurance that the Bank has adequate
capital to support all risks inherent to its business and an appropriate capital buffer based on its business
profile. The Bank identifies, assesses and manages comprehensively all risks that it is exposed to through
sound governance and control practices, robust risk management framework and an elaborate process for
capital calculation and planning.

In line with the Basel guidelines, the Bank has calculated its capital ratios as per the RBI guidelines. The main
focus of Basel III norms is on the quality and quantity of Tier I capital and these regulatory requirements are
currently met with the quantum of capital available with the Bank.

Annual Report FY 2016-17 138

The Pillar I Risk Weighted Assets (RWA) Calculation covers the following risks:

I. Credit Risk (Standardized Approach)

ii. Market Risk (Standardized Approach)
iii. Operational Risk (Basic Indicator Approach)

The Bank had a total capital of Rs 434.65 Cr; out of which Tier- I capital was Rs 288.21 Cr, as on March 31,
2017. Based on RBI guidelines on Capital Adequacy, the CRAR of the Bank as on March 31, 2017 was
25.87% against regulatory requirement of 15%.

Break up of capital requirements for various risks:

(₹ in Crore)
Sl. No. Particulars Amount as on 31st March 2017
(a) Capital Requirement for Credit Risk:
Portfolios subject to Standardised Approach 1632.02
Securitisation
(b) Capital Requirement for Market Risk:
Standardised duration approach
Interest Rate Risk 12.55
Foreign exchange Risk (including Gold)
Equity Risk
(c) Capital Requirement for Operational Risk:
Basic Indicator Approach 35.73
(d) Total Capital Requirement
(e) Total Risk Weighted Assets 1680.29
(f) Capital Adequacy Ratio
Common Equity Tier-1 17.15%
Tier-1 17.15%
Tier-2 8.72%
(g) Total CRAR 25.87%

III. Risk Exposure and assessment

The Bank encourages calculated risk-taking, where risks are known, and are within the risk limits arising
from the approved risk appetite. Also while evaluating the risks, the associated returns are also considered.

Utkarsh has an evolving and robust risk management model of proven effectiveness, aligned with
regulatory standards and best practices, and proportional to the scale and complexity of its activities.
Utkarsh is exposed to various risks that are an inherent part of any banking business. The major risks are
credit risk, market risk, liquidity risk and operational risk which includes IT related risk. Bank has policies
and procedures in place to measure, assess, monitor and manage these risks systematically across all its
portfolios. RBI Guidelines on Basel III Capital Regulations have been implemented and our Bank is
adequately capitalized as per the current requirements under Basel III. An independent Risk Governance
Structure, in line with best practices, has been put in place, in the context of segregation of duties and
ensuring independence of Risk Measurement, Monitoring and Control functions.

139 Annual Report FY 2016-17

Employees at all levels are responsible for the management and escalation of risks. This is within a
framework of risk limits and risk strategy as approved by the Board and communicated by the Bank's senior
management.

Risk transparency is fostered through reporting, disclosure, sharing of information and open dialogue
about the risks arising from different activities across the Bank.

Risk Governance Model

The Bank has established a system for directing and controlling the management of risk within the Bank.
This governance model defines three key roles:

Ÿ Businesses that take, manage and monitor risk;

Ÿ Risk Management to provide policy, guidance and analysis; and
Ÿ Internal Audit to provide independent assurance.

Risk Management Department is responsible for setting up the appropriate risk control mechanism,
quantifying and monitoring risks.

Risk Governance Framework

The Bank believes that the role of risk management should not be biased by consideration of profits or
performance evaluation and should be in line with regulatory guidelines and international good practices.
The risk governance framework has been designed taking this into account. All new processes and
products introduced in the Bank have a rigorous due diligence process that includes a risk review before
these are formally introduced.

Governance Committees
Board of Directors

The Board of Directors (“the Board”) is the ultimate authority in the Bank to lay down the policies. The Board
can, however, form committees to oversee the risk management processes, procedures and systems in
the Bank.

Risk Management Committee of the Board (RMC)

The Risk Management Committee of the Board is a Board level sub-committee. The primary role of the
Committee is to report to the Board and provide appropriate advice and recommendations on matters
relevant to Risk Management.

RMC constitutes:
Ÿ Three members of the Board of Directors, as nominated by the Board, including Managing Director &
CEO
Ÿ Chief Risk Officer - Permanent Invitee
Ÿ The Chief Financial Officer- Permanent Invitee
Ÿ The Company Secretary – Convener and Secretary

Management level committees

At a management level, there are separate committees for Credit Risk, Operations & IT Risk and Market Risk
and Asset Liability Management Committee. All these committees meet at regular intervals.

Annual Report FY 2016-17 140

IV. Credit Risk: General Disclosure for All banks

Credit risk is the risk of loss that may occur due to default of the counterparty or from its failure to meet its
obligations as per the terms of the financial contract. Any such event will have an adverse effect on the
financial performance of the Bank.

The Bank faces credit risk through its lending, investment and contractual arrangements. To counter the
effect of credit risks faced by the Bank, a robust risk governance framework is in place.

The framework provides a clear definition of roles as well as allocation of responsibilities with regard to
ownership and management of risks. Allocation of responsibilities is further substantiated by defining clear
hierarchy with respect to reporting relationships and Management Information System (MIS) mechanism.

Strategies and processes

The Bank has defined and implemented various risk management policies, procedures and standards with
an objective to clearly articulate processes and procedural requirements that are binding on all the
Business groups concerned. The Credit Policy and the Credit Risk Management Policy of the Bank are
guided by the objective to build, sustain and maintain a high quality credit portfolio by measurement,
monitoring and control of the credit exposures. The policies also address more granular factors such as
diversification of the portfolio across companies, business groups, industries, geographies and sectors.
The policies reflect the Bank's approach towards lending to borrowers in light of prevailing business
environment and regulatory stipulations. All these policies are approved by the Board of Directors of the
Bank and are reviewed regularly.

To avoid concentration of credit risk, the Bank has put in place internal guidelines on exposure norms in
respect of single borrower, groups, exposure to sensitive sector, industry exposure, unsecured exposures,
etc. based on various guidelines issued by regulators.

The delegation structure for approval of credit limits is approved by the Board of Directors. Credit
Committees, comprising of various senior officials from the Bank including representation from the Risk
Department, are constituted for approval of various loan proposals. All credit proposals other than Micro
Finance loans are approved through these Committees only.

Structure and organization

The organizational structure for Credit Risk Management is as follows:

Ÿ Board of Directors
Ÿ Risk Management Committee of Board (RMCB)
Ÿ Credit Risk Management Committee (CRMC)
Ÿ Chief Risk Officer (CRO)
Ÿ Head - Credit Risk Department
Ÿ Credit Risk Department

Scope and nature of measurement systems

The Bank's approach for credit risk identification and assessment of credit risks underlying both funded and
non-funded exposures is explicitly set out. All credit proposals are subject to a credit scoring process /
rating process based on the quantum of advance value to support credit approvals.

141 Annual Report FY 2016-17

Policies for hedging and/or mitigating risk
Credit risk at the Bank arises from the following sources:

Ÿ In case of direct lending (including the Micro lending): Principal and/or interest amount may not be
repaid;
Ÿ In case of guarantees, letters of credit and letters of comfort (LoC) issued by the Bank: Funds may not be
forthcoming from the constituents upon crystallization of the liability;
Ÿ In case of treasury operations: The payment or series of payments due from the counterparties under
respective contracts may not be forthcoming;
Ÿ In case of securities trading businesses: Funds/ securities settlement may be effected; and
Ÿ In case of cross-border exposures: Availability and free transfer of foreign currency funds may either
cease or restrictions may be imposed by the Sovereign.
Ÿ Non-SLR Investment arising from the delay or default by the counterparties in repayment of principal or
interest.

The Bank's credit risk governance framework is being build up to strengthen risk evaluation and
management of credit whilst positioning the Bank to effectively and efficiently manage changes in the
environment.

The responsibilities for managing credit risk extend throughout the Bank. Key steps for credit risk
management is as follows:

Credit Risk Assessment

First-hand preliminary assessment of risks embedded in products and services is conducted by related
functional departments. CRMD, in consultation with related functional departments, pursues the process
of identification and assessment of credit risk involved in each of the loan products or services offered by
the Bank and the findings are used in risk profiling of the Bank.

The Bank's initial loan portfolio consists of its legacy micro banking loan portfolio and MSME portfolio. The
focus of the Bank to augment or diversify its credit portfolio not only with a mix of retail, MSME & priority
sector loans but also lending to small/medium corporate also.

However, the Bank ensures that it meets all the priority sector targets as per regulatory guidelines for Small
Finance Banks. Priority sector includes the following segments:

Ÿ Agriculture
Ÿ Micro, Small and Medium Enterprises
Ÿ Export Credit
Ÿ Education
Ÿ Housing
Ÿ Social Infrastructure
Ÿ Renewable Energy
Ÿ Others (as defined in the Circular)

Annual Report FY 2016-17 142

General Parameters used for Credit Risk Assessment
Risks used to be analyzed on the basis of various parameters and key risk drivers.

An indicative list of parameters is as follows:

Ÿ Purpose of the credit and sources of repayment;

Ÿ Financial Considerations, borrower's repayment history, capacity to repay based on future cash flow
projections under different scenarios;
Ÿ Commercial and technical aspects of the operations of the borrower including terms of trade;
Ÿ Risk profile of the borrower and its sensitivity to economic and market developments;
Ÿ Integrity of borrowers through reference checks and other means;
Ÿ Quality, type and adequacy of collaterals, including their enforceability;
Ÿ Management quality (in case of loans extended to corporate entities);
Ÿ Evaluation of the Borrower's industry or industries; and
Ÿ Borrower's business position in the industry and techno-economic aspects of the project, if any (in case
of loans extended to corporate entities).

Credit Risk Measurement

Quantitative dimension of risk management involves measuring risk in credit portfolio, making provisions
as per “Master Circular - Prudential norms on Income Recognition, Asset Classification and Provisioning
pertaining to Advances” and holding capital as per “Master Circular - Prudential Guidelines on Capital
Adequacy and Market Discipline-New Capital Adequacy Framework (NCAF)”.

Total gross credit risk exposure by facility:

(₹ in Crore)
Sl. No. Facility Type Domestic Credit Exposure
1 Fund Based 2660.72
2 Non-Fund Based 0
Total 2660.72

Total gross credit risk exposure by geography:

(₹ in Crore)
Sl. No. State Domestic Credit Exposure Overseas Credit Exposure
1 Bihar
2 Chhattisgarh
Delhi
Haryana
Himachal Pradesh
Jharkhand
Madhya Pradesh
Maharashtra
Uttar Pradesh
Utarakhand
Total

143 Annual Report FY 2016-17

Total gross credit risk exposure by industry:
(₹ in Crore)
Sl. No. Industry Non-Fund Total Credit
Fund Based
Based Exposure
1 Mining and Quarrying 0 0 0
2 Food Processing 0 0 0
3 Beverages (excluding Tea & Coffee) and Tobacco 0 0 0
4 Textiles 0 0 0
5 Leather and Leather products 0 0 0
6 Wood and Wood Products 0 0 0
7 Paper and Paper Products 0 0 0
Petroleum (non-infra), Coal Products (non-mining) 0 0 0
8
and Nuclear Fuels
Chemicals and Chemical Products
9 0 0 0
(Dyes, Paints, etc.)
10 Rubber, Plastic and their Products 0 0 0
11 Glass & Glassware 0 0 0
12 Cement and Cement Products 0 0 0
13 Basic Metal and Metal Products 0 0 0
14 All Engineering 0 0 0
15 Vehicles, Vehicle Parts and Transport Equipment 0 0 0
16 Gems and Jewellery 0 0 0
17 Construction 0 0 0
18 Infrastructure 0 0 0
19 Other Industries 37.17 0 37.17
Residuary other advances
20 1556.74 0 1556.74
(to tally with gross advances)
Total 1593.91 0 1593.91

Residual maturity breakdown of Assets:

(₹ in Crore)

Loans &
Particulars Investments Deposits Borrowings Foreign Foreign
Advances currency currency
(INR) (INR) (INR)
(INR) Assets Liabilities
1 day 0.01 - - - - -
2 to 7 days 85.73 0.03 0.64 6.13 - -
8 to 14 days 26.88 45.31 - 3.45 - -
15 to 30 Days 54.12 29.89 - 31.53 - -
31 Days to 2 months 121.94 - - 40.87 - -
Over 2 months to 3 months 115.57 49.38 - 65.26 - -

Annual Report FY 2016-17 144

Over 3 months to 6 months 320.87 213.87 - 183.75 - -
Over 6 months to 1 year 497.78 66.06 17.62 332.44 - -
Over 1 year to 3 years 368.30 - 0.46 677.48 - 15.86
Over 3 years to 5 years 1.93 73.68 - 244.20 - 15.86
Over 5 years 0.78 251.00 - 672.00 - -
Total 1,593.91 729.22 18.72 2,257.11 - 31.72

Position of Non-performing Assets (NPA):

(₹ in Crore)
Particulars Amount as on March 31, 2017
Gross Advances 1593.91
Net Advances 1593.91
Gross NPA 0
Substandard 0
Doubtful 1 0
Doubtful 2 0
Doubtful 3 0
Loss 0
NPA Provision 0
Net NPA 0
NPA Ratio 0
Gross NPA to Gross Advances (%) 0
Net NPA to Net Advances (%) 0

Movement of Non-performing Assets (NPA Gross):

(₹ in Crore)
Particulars Amount as on March 31, 2017
Opening Balances (As on 23rd Jan 2017) 0
Additions 0
Write Offs 0
Reductions 0
Closing Balances 0

Movement of Specific & General NPA Provisions:

(₹ in Crore)
Particulars Amount as on March 31, 2017
Opening Balances (As on 23rd Jan 2017) 0
Add: Provisions made during the period 0
Less : Transfer to Countercyclical Provisional Buffer 0
Less : Write offs 0

145 Annual Report FY 2016-17

 Less : Write Back of excess provision 0
Closing Balances 0

Geography based position of NPAs, Specific provisions and General provisions:

(₹ in Crore)
Particulars Amount as on March 31, 2017
Domestic Overseas Total
Gross NPA 0 0 0
Provision for NPA 0 0 0

Position of Non-Performing Investments (NPI) as on March 31, 2017:

(₹ in Crore)
Particulars Amount as on March 31, 2017
Amount of Non-performing Investments (NPI) Nil
Amount of provisions held for Non-performing
Nil
Investments

Movement of provisions for depreciation on investments as on March 31, 2017:

(₹ in Crore)
Particulars Amount as on March 31, 2017
Opening Balance (As on 1st Apr 2016) 0
Provisions made during the period 0.50
Write offs / Write Back of excess provisions 0
Closing Balance 0.50

Industry wise Distribution

(₹ in Crore)
Financial year ended
Amount as on March 31, 2017
March 31, 2017

Gross NPA Provisions

Particulars Provision for Provisions
Write offs
for NPA standard assets for NPA
Agriculture and Allied Activities 0 0 2.15 0 0
Automobile & Auto Ancillary 0 0 0 0 0
Banks and Financial Institutions 0 0 0 0 0
Capital Market Intermediaries 0 0 0 0 0
Cement & Products 0 0 0 0 0
Chemical and Products 0 0 0 0 0
Coal & Petroleum Products 0 0 0 0 0
Construction and Developers
0 0 0 0 0
(Infrastructure)
Consumer Durables 0 0 0 0 0

Annual Report FY 2016-17 146

 Consumer Loans 0 0 0 0 0
Drugs and Pharmaceuticals 0 0 0 0 0
Engineering 0 0 0 0 0
Fertilisers & Pesticides 0 0 0 0 0
Food and Beverage 0 0 0 0 0
Gems and Jewellery 0 0 0 0 0
Housing Finance Companies 0 0 0 0 0
Information Technology 0 0 0 0 0
Iron and Steel 0 0 0 0 0
Mining and Minerals 0 0 0 0 0
NBFC / Financial Intermediaries 0 0 0 0 0
Non-ferrous Metals 0 0 0 0 0
Paper, Printing and Stationery 0 0 0 0 0
Plastic & Products 0 0 0 0 0
Power 0 0 0 0 0
Real Estate & Property Services 0 0 0 0 0
Retail Trade 0 0 0 0 0
Road Transportation 0 0 0 0 0
Services 0 0 1.73 0 0
Telecom 0 0 0 0 0
Textiles & Garments 0 0 0 0 0
Wholesale Trade 0 0 0 0 0
Other Retail Assets 0 0 0 0 0
Other Industries 0 0 0.11 0 0
Total 0 0 3.99 0 0

V. Credit Risk- Disclosures for Portfolios Subject to Standardized Approach

In line with the RBI guidelines on Small Finance Banks, Bank ensures that at least 50 per cent of its loan
portfolio should constitute loans and advances of upto Rs. 25 lakhs. Presently, Bank's overall portfolio is
below Rs. 25 Lakhs only.

The Bank has used the Standardised Approach under the RBI's Basel capital regulations for its credit
portfolio.

(₹ in Crore)
Category Amount as on March 31, 2017
Below 100% Risk Weight 396.68
100% Risk Weight 1235.34
More than 100% Risk Weight 0
Closing Balance 1632.02

147 Annual Report FY 2016-17

VI. Credit Risk Mitigation- Disclosures for Standardized Approaches

Collaterals & Guarantees

Borrower's financial strength and debt-servicing capacity shall be the primary consideration while granting
credit limits and bank shall not rely, solely on collateral or guarantees as the primary source of repayment or
as a substitute for evaluating the borrower's creditworthiness.

Nevertheless, collateral and guarantees, if properly taken and managed serve a number of important
functions in credit risk management.

Collateral Acceptance Criteria

Assets accepted as collateral shall satisfy the following criteria:

Ÿ the market value of the asset is readily determinable or can be reasonably established and verified;
Ÿ the asset is marketable and there exists a readily available secondary market for disposing of the asset;
Ÿ bank's right to repossess the asset is legally enforceable and without impediment;
Ÿ bank is able to secure control over the asset if necessary. In the case of a movable asset, bank should
either have physical custody of the asset (e.g. gold, precious metal) or have the means of locating its
whereabouts (e.g. vehicle, machinery or equipment); and bank has the expertise & systems to manage
the asset concerned.

Loan-to-Value Ratio (LTV Ratio)

Bank specifies the maximum loan-to-value ratio for major types of asset to be accepted as collateral. Such
ratios are commensurate with the relative risk of the assets and be able to provide an adequate buffer
against potential losses in realizing the collateral Valuation.

VII. Market Risk in Trading Book

The Bank for International Settlements defines market risk as “the risk that the value of “on and “off
balance sheet positions will be adversely affected by movements in market interest rate, currency
exchange rates, equity and commodity prices.” This definition is adopted by the Bank for the purposes of
identifying and managing the risk. Market risk has the following components:

Ÿ Interest Rate Risk: The risk that changes in market interest rates may adversely affect the Bank's
financial condition. While the immediate impact is on the Net Interest Income (NII) and also the value of
investments, the long term variations in interest rates would also impact the Bank's net worth.

Ÿ Equity Risk: The risk that changes in the equity prices of various stocks may diminish the value of equity
portfolio held by the Bank (also includes investments in equity based mutual funds).

Ÿ Exchange Rate Risk: The risk that the Bank may suffer losses as a result of adverse exchange rate
movements during a period in which it has an open position, either spot or forward, or a combination of
the two, in any foreign currency.

Annual Report FY 2016-17 148

Strategies & Processes

Risk identification entails ensuring all instruments that result in Market Risk both on and off the balance
sheet of the Bank are identified and monitored centrally. To achieve this objective, all new instruments/
products in which the Bank engage should be assessed. The Asset Liability Management Committee
(ALCO) reviews all new instruments to evaluate whether they result in market risk. Modifications to existing
instruments are reported to the ALCO to enable such evaluation.

Structure and organization

The organizational structure for Market Risk Management is as follows:

Ÿ Board of Directors
Ÿ Risk Management Committee of Board (RMCB)
Ÿ Asset Liability Management Committee (ALCO)
Ÿ Chief Risk Officer (CRO)
Ÿ Head - Market Risk Department
Ÿ Market Risk Department

Scope and nature of measurement systems

There are a number of methods for measuring market risks encountered in trading operations. All these
require adequate information on current positions, market conditions, and instrument characteristics.

Of the various measures available, the Bank have many early warning indicators for market risk
measurement. Different products are measured by certain parameters. At present, in the trading book,
Bank only has Interest Rate Sensitive products.

Processes for monitoring

The Bank fixes appropriate action triggers or stop loss limits for all marked to market risk taking activities.
The Bank has procedure that monitors activity to ensure that they remain within the approved limits at all
times. Limits are classified into general (applicable to all portfolios) and specific portfolio related limit. For
the purpose of market risk management the following minimum limits are monitored:

Ÿ General Limits (Applicable to all portfolios) at Day 0

Ÿ Portfolio-wide Position limits
Ÿ Dealer-wise limits
Ÿ Single Deal Size Limit
Ÿ Stop-loss limits
Ÿ General Limits (Applicable to all portfolios) at Year 2-3
Ÿ Value at Risk (VaR) limits – for all portfolios (Explained below in separate section)
Ÿ Specific Limits (Interest Rate Related Instruments)
Ÿ Modified Duration Limit
Ÿ PV01 Limit (Tenor Wise and Portfolio Level)

149 Annual Report FY 2016-17

Capital Requirement
(₹ in Crore)
Risk Weighted Assets for Market Risk:
Standardised duration approach 0
Interest Rate Risk 12.55
Foreign exchange Risk (including Gold) 0
Equity Risk 0

VIII. Operational Risk Qualitative disclosures

Operational risk, which is intrinsic to all the material products, activities, processes and systems, has
emerged as an important component of the enterprise-wide risk management system. Operational Risk is
defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or
from external events. Operational risk may result from various internal and external factors e.g. failure to
obtain proper internal authorizations, improperly documented transactions, breach of information security
procedures, failure of IT and / or communication infrastructure / equipment, non-compliance of regulatory
requirements, contractual terms and corporate policies & procedures, commitment of fraud, natural
disasters, inadequate training to employees etc.

Strategies & Processes

The Bank's strategy for operational risk management focuses on:

Ÿ Minimizing the losses to an acceptable level as per risk appetite of the Bank;
Ÿ Providing operational risk capital which is sensitive to the Bank's risk profile;
Ÿ Using results of operational risk management in day to day business operations and decision making
process;
Ÿ Carrying out risk based performance measurement;
Ÿ Analyzing the impact of failures in technology / systems and develop mitigants to minimize the impact;
and
Ÿ Developing plans for external shocks that will adversely impact the continuity in the Bank's operations.

Structure and Organisation

The operational risk management governance structure is as follows:

Ÿ Board of Directors
Ÿ Risk Management Committee of Board (RMCB)
Ÿ Operational Risk Management Committee (ORMC)
Ÿ Chief Risk Officer (CRO)
Ÿ Head - Operational Risk Department
Ÿ Operational Risk Department

Scope and nature of measurement systems

As per the Basel III Capital Regulations issued by RBI for banking institutions based on the Basel framework,
banks need to use an approach that is risk sophisticated and commensurate to the risk profile of the
institution. The Bank is currently performing risk measurement under the Basic Indicator Approach (BIA).

Annual Report FY 2016-17 150

Processes for monitoring

The Bank plans to have risk mitigants like a strong internal control system, resorting to an optimal
insurance cover, outsourcing of activities, BCP / DRP etc. For example, losses that might arise on account of
natural disasters are insured; losses that might arise from business disruptions due to telecommunication
or electrical failures are mitigated by establishing available backup facilities, loss due to internal factors like
employee fraud or product flaws, will be mitigated through strong internal auditing procedures.

IX. Composition of Capital

Disclosures pertaining to composition of capital, including the capital disclosure templates, main features
of equity and debt capital instruments, the terms and conditions of equity and debt capital instruments and
leverage ratio have been disclosed separately on the Bank's website under the Regulatory Disclosures
Section.

Capital Funds (₹ in Crore)

Sl. No. Particulars Amount as on 31st March 2017
A Tier I Capital
Paid-up Share Capital 300.05
Reserves 4.83
Innovative Tier 1 Capital instruments -
Minority Interest -
B Deductions
Investments in instruments eligible for regulatory capital
-
of financial subsidiaries/associates
Securitisation exposures including credit enhancements 1.65
Deferred Tax Assets 2.27
Good will and Adjustments for less liquid position -
Deferred revenue expenditure 10.60
Intangible assets 2.15
C Net Tier 1 Capital 288.21
D Tier II Capital
General Provisions 3.99
Upper Tier 2 capital instruments 144.10
Lower Tier 2 capital instruments -
E Deductions
Investments in instruments eligible for regulatory capital
-
of financial subsidiaries/associates
Securitisation exposures including credit enhancements 1.65
F Net Tier 2 Capital 146.44
Total Eligible Capital 434.65

151 Annual Report FY 2016-17

X. Summary Comparison of accounting assets and leverage ratio exposure

Disclosures pertaining to composition of capital, including the capital disclosure templates, main features
of equity and debt capital instruments, the terms and conditions of equity and debt capital instruments and
leverage ratio have been disclosed separately on the Bank's website under the Regulatory Disclosures
Section.

(₹ in Crore)
Sl. No. Particulars Amount as on 31st March 2017
Total consolidated assets as per published financial
1 2675.83
statements
Adjustment for investments in banking, financial, insurance
2 or commercial entities that are consolidated for accounting 0
purposes but outside the scope of regulatory consolidation
Adjustment for fiduciary assets recognised on the balance
3 sheet pursuant to the operative accounting framework but 0
excluded from the leverage ratio exposure measure
4 Adjustments for derivative financial instruments 0
Adjustment for securities financing transactions
5 0
(i.e. repos and similar secured lending)

6 Adjustment for off-balance sheet items (i.e. conversion to 22.02

credit equivalent amounts of off- balance sheet exposures)
7 Other adjustments 0
8 Leverage ratio exposure 10.7%

XI. Leverage ratio common disclosure

The leverage ratio acts as a credible supplementary measure to the risk based capital requirement. The
Bank's leverage ratio, calculated in accordance with RBI guidelines under consolidated framework, is as
follows:
(₹ in Crore)
Sl. No. Leverage ratio framework Amount
On-Balance sheet exposure
1 On-balance sheet items (excluding derivatives and SFTs, but including collateral) 2675.83
2 (Asset amounts deducted in determining Basel III Tier 1 capital) 0
Total on-balance sheet exposures (excluding derivatives and SFTs)
3 2675.83
(sum of lines 1 and 2)
Derivative exposure
Replacement cost associated with all derivatives transactions
4 0
(i.e. net of eligible cash variation margin)
5 Add-on amounts for PFE associated with all derivatives transactions 0
Gross-up for derivatives collateral provided where deducted from the balance
6 0
sheet assets pursuant to the operative accounting framework
(Deductions of receivables assets for cash variation margin provided in
7 0
derivatives transactions)

Annual Report FY 2016-17 152

 8 (Exempted CCP leg of client-cleared trade exposures) 0
9 Adjusted effective notional amount of written credit derivatives 0
(Adjusted effective notional offsets and add-on deductions for written
10 0
credit derivatives)
11 Total derivative exposures (sum of lines 4 to 10) 0

Securities financing transaction exposures

Gross SFT assets (with no recognition of netting), after adjusting for sale
12 0
accounting transactions
13 (Netted amounts of cash payables and cash receivables of gross SFT assets) 0
14 CCR exposure for SFT assets 0
15 Total securities financing transaction exposures (sum of lines 12 to 15) 0
16 Other off-balance sheet exposures 22.02
17 Off-balance sheet exposure at gross notional amount 0
18 (Adjustments for conversion to credit equivalent amounts) 0
19 Off-balance sheet items (sum of lines 17 and 18) 0
Capital and total exposures

20 Tier 1 capital 288.21

21 Total exposures (sum of lines 3, 11, 16 and 19) 2697.85

Leverage ratio

22 Basel III leverage ratio 10.7%

Reconciliation of total published balance sheet size and on balance sheet exposure
(₹ in Crore)
Sl. No. Leverage ratio framework Amount
1 Total consolidated assets as per published financial statements 2675.83
Replacement cost associated with all derivatives transactions, i.e. net of
2 eligible cash variation margin 0

Adjustment for securities financing transactions (i.e. repos and similar

3 0
secured lending)
4 Adjustment for entities outside the scope of regulatory consolidation 0
On-balance sheet exposure under leverage ratio
5 2675.83
(excluding derivatives and SFTs)

153 Annual Report FY 2016-17

 Smiles Loaded ...

Aapki Ummeed Ka Khaata ...

REGISTERED & CORPORATE OFFICE

Utkarsh Small Finance Bank
S-24/1-2, 1st Floor, Mahavir Nagar, Orderly Bazar,
Varanasi - 221002 (U.P.)