Axis Bank - Corporate Governance

CORPORATE GOVERNANCE PROJECT AXIS BANK 1. Board Structure (Size, Percentage of Non-Executives Directors & Independent Directors) The composition of the Board of Directors of the Bank (“Board”) is governed by the provisions of the Companies Act, 1956, the BankingRegulation Act, 1949 and Clause 49 of the Listing Agreement. The Board has fourteen (14) Directors as on March 31, 2014. There are 7 Independent Directors constituting one-half ofthe Board‟s membership with Shri S. B. Mathur designated as the Lead Independent Director.The composition of the Bank‟s Board includes the representatives of the Administrator of the Specified Undertaking ofthe Unit Trust of India (SUUTI) and the Life Insurance Corporation of India (LIC), the Bank‟s promoters. The followingmembers constitute the Board:

SanjivMisra Shikha Sharma K. N. Prithviraj V. R. Kaundinya S. B. Mathur Prasad R. Menon R. N. Bhattacharyya Samir K. Barua Som Mittal IreenaVittal RohitBhagat UshaSangwan SomnathSengupta V. Srinivasan

Chairman Promoter – Nominee of SUUTI Managing Director & CEO Promoter – Nominee of SUUTI Independent Independent Independent Promoter – Nominee of SUUTI Independent Independent Independent Independent Promoter - Nominee of LIC Executive Director and Head (Corporate Centre) Executive Director and Head (Corporate Banking)

2. Board Power &Functioning The Board is responsiblefor the management of the Bank‟s business. The functions, responsibilities, role and accountability of the Board are welldefined. In addition to monitoring corporate performance, the Board also carries out functions such as taking care of allthe statutory agenda, approving the Business Plan and all major policies, reviewing and approving the annual budgets,borrowing limits and fixing exposure limits. It ensures that the Bank keeps shareholders informed about plans, strategiesand performance. The detailed reports of the Bank‟s performance are periodically placed before the Board.

3.Audit Committee (Composition & powers, no. of meetings etc) The Audit Committee of the Board of Directors functions with the following main objectives:  To provide direction and to oversee the operation of the audit function.  To review the internal audit system with special emphasis on its quality and effectiveness.  To review 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 andun-reconciled entries in inter-bank and Nostro accounts and frauds.  To discuss matters related to frauds.  To discuss and follow up for audit issues related to Long Form Audit Report.  To discuss and follow up for issues related to RBI Inspection Report(s).  To review the system of appointment and remuneration of concurrent auditors and external auditors.  To oversee the Bank‟s financial reporting process and the disclosure of its financial information, to ensurethat the financial statements are correct, sufficient and credible.  To recommend to the Board, the appointment, re-appointment, and if required, the replacement or removalof the Statutory Auditor and to fix their audit fees.  To approve payments to Statutory Auditors for any other services rendered by them.  To review, with the management, the annual financial statements before submission to the Board for itsapproval with particular reference to: - Matters required being included in the Director‟s Responsibility Statement in the Board‟s report interms of Clause (2AA) of Section 217 of the Companies Act, 1956. - Changes, if any, in accounting policies & practices and reasons for the same. - Major accounting entries involving estimates based on the exercise of judgment by the management. - Significant adjustments made in the financial statements arising out of audit findings. - Compliance with listing and other legal requirements relating to financial statements. - Disclosure of any related party transactions. - Qualifications in the draft audit report.  To review, with the management, the quarterly financial statements before submission to the Board for itsapproval.  To review, with the management, the statement of uses/application of funds raised through an issue (publicissue, rights issue, preferential issue etc.), the statement of funds utilized for purposes other than thosestated in the offer document/prospectus/notice and the report submitted by the agency monitoring theutilization of proceeds of a public or rights issue and making appropriate recommendations to the Board fortaking steps in the matter.

4.Remuneration andNomination committees Remuneration Committee The HR and Remuneration Committee of the Board oversees the framing, review and implementation of thecompensation policy of the Bank on behalf of the Board. The Committee works in close coordination with theRisk Management Committee of the Bank, in order to achieve effective alignment between remuneration andrisks. Nomination Committee The Nomination Committee of the Board of Directors functions with the following main objectives: i. To undertake a process of due diligence to determine the suitability of any person for appointment/continuing to hold appointment as a director on the Board, based upon qualification, expertise, track record,integrity and other „fit and proper‟ criteria. ii. To examine the vacancies that will come up at the Board on account of retirement or otherwise. iii. To evaluate the skills that exist, and those that are absent but needed at the Board level, and search forappropriate candidates who have the profile to provide such skill sets. iv. To create a recommendatory list of Directors for deliberation and decision-making at the Board-level; and v. To review the composition of Committees of the Board, and identify and recommend to the Board, theDirectors who can best serve as members of each Board Committee. 2 meetings of Nomination Committee were held during the year on 22nd April 2013 and 16th October 2013. 5.

Whistleblower Policies

A central tenet in the Bank‟s Policy on Corporate Governance is commitment to ethics,integrity, accountability and transparency. To ensure that the highest standards are maintained in these aspectson an on-going basis and to provide safeguards to various stakeholders (including shareholders, depositors andemployees) the Bank has formulated a „Whistleblower Policy‟. The Policy provides employees with the opportunityto address serious concerns arising from irregularities, malpractices and other misdemeanours committed by theBank‟s personnel by approaching a Committee set-up for the purpose (known as the Whistleblower Committee).In case, senior management commits an offence, the Policy enables the Bank‟s staff to report the concernsdirectly to the Audit Committee of the Board. The Policy is intended to encourage employees to report suspectedor actual occurrence of illegal, unethical or inappropriate actions, behaviour or practices by staff without fear ofretribution. The employees use this Policy regularly as a tool to voice their concerns on irregularities, malpracticesand other misdemeanours. To ensure smooth flow and management of complaints under Whistleblower policy,a new web-based application - „Corporate Whistleblower‟ has been set up which also provides an option foranonymous reporting thereby enabling the employees to lodge their complaints online over a secure platformwithout fear of revelation of identity. This would create a business culture of honesty, integrity and complianceand would encourage employees to speak up so that preventive action is initiated. It is hereby affirmed that theBank has not denied personal access to the Audit Committee of the Board and that the Policy contains provisionsprotecting Whistleblowers from unfair termination and other unfair prejudicial, and

employment practice. TheAudit Committee of the Board reviews, on a quarterly basis, a synopsis of the complaints received and theresolution thereof. 6.

Report on Management's Discussion and Analysis

Macroeconomic and Industry Developments : Fiscal 2014 saw a combination of various external and internal events that kept markets turbulent, interest rates high andinvestor confidence low, resulting in shrinking investment and GDP growth. Due to apprehensions of an impending „taper‟ ofthe US Federal Reserve‟s Quantitative Easing programme, emerging markets, including India, experienced foreign investmentoutflows and currency volatility. India‟s macroeconomic imbalances at the beginning of the year exposed it to this volatility aswell, forcing stringent policy responses. However, improving fundamentals have gradually restored some stability in the markets. Indian economic growth had slowed rapidly from 8.9% in 2010-11 to an officially estimated 4.9% in fiscal 2014, caused in largepart by structural factors impeding investment activity. Decline in financial savings, sluggish growth in fixed capital formation oversuccessive quarters, persistence of high inflation and low business confidence contributed to the decline in potential growth,particularly in the absence of adequate structural policy measures. Inflation had emerged as the central concern during the year and in combination with the current account and fiscal deficits,had forced Reserve Bank of India (RBI) to raise its policy Repo rate by 75 basis points. While most of the slowdown was due to asteep drop in investment, a cut in the Government‟s spending in order to contain the fiscal deficit at less than the budgeted 4.8%of GDP also contributed to a slowdown in consumption. For fiscal 2014, fiscal deficit has been revised down to 4.6% of GDP. The biggest turnaround was in the Current Account Deficit, which had shrunk from $88 billion in fiscal 2013 to $31 billion inthe first 3 quarters of fiscal 2014. For fiscal 2014, the current account deficit is expected to be ~2% of GDP. With large capitalinflows via Foreign Currency Non-Resident (FCNR-B) deposits and bank capital, the Rupee has stabilised at around 6062/USDand has been one of the best performing emerging market currencies over the past few months. The Repo rate increases have pushed up the floor for rates and despite liquidity infusion by RBI, short term interest rates haveremained high. One of the consequences of the slowdown and high inflation has been a contraction of financial savings ofhouseholds, with a preference for investment in assets like gold and real estate. This has, in turn, affected deposit accretionwith banks. The exceptional liquidity tightening measures of RBI leading to higher rates had resulted in a temporary spike incredit growth in favour of banks compared to credit substitutes in the money market, but this had gradually normalised. Onthe resources front, strong NRI inflows

through the FCNR(B) deposits route have helped improve deposit growth. For the fiscal2014, deposit growth in the system was 14.6%, while credit growth was 14.3%. Financial Performance : During 2013-14, the operating environment for the banking system continued to be challenging with persistent high inflation,muted growth, slowdown in credit off-take, concerns regarding growing non-performing assets and a high incidence of assetsbeing restructured. Despite these challenges, the Bank‟s strategy to build its business upon strong customer franchises, whileadopting a prudent approach, had resulted in delivering strong results. The underlying performance of the business remainedstrong with revenue growth remaining well ahead of cost growth. The Bank reported a net profit of `6,217.67 crores for the yearended 31st March 2014, registering a growth of 20.05% over the net profit of `5,179.43 crores last year. The healthy growth inearnings was driven by contribution from all segments. The Bank continued to focus on the quality of growth and displayed strong growth in key balance sheet parameters for the yearended 31st March 2014. The total assets increased by12.53% to `383,245 crores, total deposits increasedby 11.22% to `280,945 crores while total advancesincreased by 16.81% to `230,067 crores.During the year, the Bank continued to expand itsnetwork, with increased focus on the semi-urbanand rural areas. Both the Retail and SME segmentscontinued to benefit from this network expansion andhave justifiably remained the key growth drivers forthe Bank during the year. The Bank remains committedto a customer-centric approach in dealing with itsclientele aided by dependable technology and simplegrowth in key balance sheet parameters for the yearended 31st March 2014. The total assets increased by12.53% to `383,245 crores, total deposits increasedby 11.22% to `280,945 crores while total advancesincreased by 16.81% to `230,067 crores.During the year, the Bank continued to expand itsnetwork, with increased focus on the semi-urbanand rural areas. Both the Retail and SME segmentscontinued to benefit from this network expansion andhave justifiably remained the key growth drivers forthe Bank during the year. The Bank remains committedto a customer-centric approach in dealing with itsclientele aided by dependable technology and simpleprocesses. A well distributed branch banking channelcomplemented by a robust alternate distributionchannel have helped the Bank to deliver a wide rangeof products and services to its customers across the country and overseas processes. A well distributed branch banking channelcomplemented by a robust alternate distributionchannel have helped the Bank to deliver a wide rangeof products and services to its customers across the country and overseas. Business Segments' Update : Axis Bank has achieved healthy growth across various operating and financial parameters in the last financial year. Retail Banking: The Retail Banking segment is one of the key drivers of the Bank‟s growth strategy,encompassing a wide range of products delivered through multiple channels toits customers. The Bank today offers a complete suite of products across deposits,loans, investment solutions, payments and cards to its customers. The Bank iscommitted to developing long-term

relationships with its customers by providinghigh-quality services and products through regular customer engagement in an easyand convenient manner. During the year, the Bank engaged in „Lakshya‟, a retailbanking transformation initiative, which is currently live in more than 1,100 branches,comprising around 80% of the Bank‟s low-cost deposit business. Various initiativesunder the Lakshya program have helped increase sales productivity and operationalefficiency while at the same time focusing on increasing customer satisfaction andimproving employee work life balance. International Operations : The international operations of the Bank continue to be at the core of its strategy to expand the horizon of the product offerings,and delivery channels to various geographies and across client segments, covering a wide spectrum of retail and corporate bankingsolutions. During the year, the Bank expanded its overseas branch network by upgrading its representative office in Shanghaiinto a branch. The Bank is the first Indian private sector bank to set up a branch in China. Further during the year, the Bank‟sfirst overseas banking subsidiary - Axis Bank UK Limited commenced its operations. The Bank now has overseas presence in sixcountries with network of five branches at Singapore, Hong Kong, DIFC – Dubai, Colombo (Sri Lanka) and Shanghai (China),two representative offices at Dubai and Abu Dhabi and an overseas banking subsidiary in the United Kingdom. Information Technology The Bank‟s continuous endeavour has been to use technology to further improve the customer‟s experience while transactingwith the Bank. In this regard, it has empowered its relationship managers with a complete 360 degree view of the customer‟srelationship with the Bank. Thus, it has concisely captured the customers‟ existing relationship and likely future needs leading tosuperior service, better business opportunities through higher cross sell using a seamless multichannel experience. To further theBank‟s green initiatives, technology has helped in issuance of Green Pin through ATM and IVR channels for new to bank debitcard customers resulting in cost savings in deliverables management. Further, technology has been one of the key contributorsin the Bank‟s launch of multi-currency travel cards. A new and faster platform was implemented to enable foreign exchangemoney transfers for retail customers. The Bank has also re-vamped its loan system architecture with in-memory computing, amuch faster process to achieve higher volumes and faster turnaround time in loan processing. Risk Management and Portfolio Quality : The Bank‟s risk management processes are guided by well-defined policies appropriate for various risk categories,independent risk oversight and periodic monitoring through the subcommittees of the Board of Directors. The Board setsthe overall risk appetite and philosophy for the Bank. The Committee of Directors, the Risk Management Committee andthe Audit

Committee of the Board, which are sub-committees of the Board, review various aspects of risk arising from thebusinesses of the Bank. 7.

Disclosure on Related Party Transactions

The significant transactions between the Bank and related parties during the year ended 31 March, 2014 aregiven below. A specific related party transaction is disclosed as a significant related party transaction whereverit exceeds 10% of the aggregate value of all related party transactions in that category: • Dividend paid: Administrator of The Specified Undertaking of the Unit Trust of India `175.00 crores(previous year `155.56 crores), Life Insurance Corporation of India `78.77 crores (previous year `64.06crores) • Dividend received: Axis Trustee Services Ltd. `1.88 crores (previous year `1.50 crores) • Interest paid: Life Insurance Corporation of India `928.77 crores (previous year `731.58 crores) • Interest received: Axis Bank UK Ltd. `6.52 crores (previous year Nil) and Axis Finance Ltd. `1.27 crores(previous year Nil) • Investment of the Bank: Axis Bank UK Ltd. `299.57 crores (previous year Nil) and Axis Finance Ltd. `250crores (previous year Nil) • Investment of related party in the Bank: Mrs. Shikha Sharma `7.35 crores (previous year `1.48 crores) andMr. V. Srinivasan `2.43 crores (previous year `2.04 crores) • Redemption of subordinated debt: Life Insurance Corporation of India `25.00 crores (previous year `80crores) and General Insurance Corporation of India `15 crores (previous year Nil) • Sale of Investments: Life Insurance Corporation of India `221.71 crores (previous year `1,030.60crores), General Insurance Corporation of India `181.37 crores (previous year `85.00 crores), New IndiaAssurance Company Ltd. `147.51 crores (previous year Nil), National Insurance Company Ltd. `109.97crores (previous year `191.79 crores), United India Insurance Company Ltd. `79.12 crores (previous year`115.03 crores)

8.

Code of Conduct

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