24 Apr 2017 | Livemint.com

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The Federal Bank Ltd.

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The Federal Bank Ltd. Accounting Policy

CORPORATE GOVERNANCE

Corporate Governance is essentially a set of standards, systems, and procedures aimed at effective, honest, transparent, and responsible management of a company within the applicable statutory and regulatory structures. This Code represents a set of desirable, if not necessarily ideal, corporate-governance practices to be adopted by the Bank. The Code takes into account the relevant statutory and current stock-exchange listing requirements and Reserve Bank of India (RBI) directives and other guidelines under the Companies Act 2013. The efficacy of the Code lies in how well it is put into practice. In adopting the Code, the stress is in its substance and spirit rather than on its form.

Corporate Objective of the Bank

Good corporate governance practices help support and strengthen corporate actions aimed at achieving the corporate objective. The Bank's principal corporate objective, like that of any corporate business entity, is to perpetuate its business while protecting and enhancing, over the long term, the value of the investments of its shareholders in the Bank.

The Code of Corporate Governance was last amended in the Board Meeting held on 10 March 2016, incorporating the provisions of Companies Act, 2013 and SEBI (Listing Obligations and Disclosure Requirements) Regulations, 201 5 ("Listing Agreement"). A copy of the Code is available on request for the members of the Bank, and relevant portions are available on the website of the Bank.

Board of Directors

The composition of the Board of Directors is governed by the Banking Regulation Act, 1949, the Companies Act, Listing Agreement, and the Code of Corporate Governance adopted by the Bank. The Board comprises of 10 Directors as on 31 March 2016 with rich experience and specialized knowledge in various areas of relevance to the Bank, including banking, management, risk management, accountancy, economics, MSME, finance, SSI, agriculture, treasury, investments, governance, compliance, strategic planning and information technology.

Prof. Abraham Koshy ceased to be the Chairman & Director of the Board of the Bank w.e.f 18 May 2015 after completing his tenure of eight years on the Board of the Bank. Mr. Abraham Chacko, erstwhile Executive Director, ceased to be a member of the Board of the Bank w.e.f. 01 May 2015, after completing his tenure. The Board places its appreciation for the valuable contributions made by them for the overall development of the Bank.

Mr. C Balagopal was appointed as an Additional Independent Director with effect from 29 June 2015.

Mr. Ashutosh Khajuria was appointed as Executive Director on the Board of the Bank, with RBI approval, with effect from 28 January 2016.

Excluding MD & CEO and ED, all other members of the Board are Non-Executive and Independent Directors.

Mr. Shyam Srinivasan, MD &CEO of the Bank was re-elected as the Director of the Bank at the 84th Annual General Meeting held on 29 June 2015.

No relationship exists between the Directors of the Bank.

Mr. Shyam Srinivasan, MD &CEO of the Bank is liable to retire at this AGM as per the Companies Act, 2013. Mr. C Balagopal was appointed as Additional Directors of the Bank, and has been recommended for appointment as Independent Director in the 85th Annual General Meeting.

Nine Board Meetings were held during the Financial Year ended 31 March 2016. The dates of the Board Meetings were 29 April 201 5, 16 May 2015, 28 & 29 June 2015, 18 July 2015, 5 September 2015, 20 October 2015, 18 & 19 December 2015, 12 January 2016, and 10 & 11 March 2016.

Board Procedure

All the matters included in the Agenda for discussion in the Board/Committees of Board are backed by comprehensive background information to enable the Board/Committee to take informed decisions. Agenda papers are generally circulated in advance prior to the meeting of the Board/Committee. Also the Board/Committee agenda contains the Action Taken Report of the directions taken at previous meetings. The members of the Board exercise due diligence in performance of their functions as Directors of the Bank and follow highest degree of business ethics, transparent practices and code of good governance amidst cordial environment. The Board of Directors of the Bank also periodically review the compliance report of applicable laws to the Bank and steps are being taken by the Bank to rectify any instances of non-compliances. The Board of the Bank also ensures that proper plans are put in place for orderly succession of appointment to the Board and to senior management of the Bank.

The Board consists of not less than 51% of Board of Directors as Non-Executive Directors with two Women Directors. The Board consists of at least one third of Directors as Independent Directors and the Chairman of the Board is a Non-Executive Independent Director.

Remuneration to Directors

Mr. Shyam Srinivasan, MD & CEO, was paid Rs. 1 1,1 50,776 (gross) and Mr. Ashutosh Khajuria (Executive Director) who joined the Board as Executive Director from 28 January 2016, was paid Rs. 10,229,474 (gross), as remuneration for the year in accordance with the terms and conditions approved by Reserve Bank of India. Mr. Abraham Chacko erstwhile Executive Director, who retired w.e.f 01 May 2015 was paid Rs. 12,46,665.00 (gross), as remuneration for the year FY 2016.

During the year the remuneration of Mr. Shyam Srinivasan was revised to Rs. 1,20,00,000/- plus perquisites with effect from 23 September 2015 with the approval of RBI. Although revised remuneration was approved by RBI from 23 September 2015, Mr. Shyam Srinivasan, MD & CEO has not availed the revised remunerartion so far. Mr. Shyam Srinivasan, MD & CEO was paid a variable pay Rs. 20,00,000/- for FY 2014-15 with the approval of RBI. Mr. Abraham Chacko erstwhile Executive Director, who retired w.e.f 01May 2015 was paid a variable pay of Rs. 7,00,000/- for FY 2014-15, with the approval of RBI.

a) No pecuniary relationship / transaction exists for Independent Directors/Non-Executive Directors vis-à-vis the Bank, other than payment of sitting fees for Board/Committee meetings/ monthly remuneration during the year as per law. The Independent

Directors of the Bank also had no pecuniary relationship with the Bank, its subsidiary or associate company or their promoters or directors during the two immediately preceding financial years.

b) The criteria of making payments to Independent Directors/ Non-executive Directors of the Bank are contained in the Comprehensive Compensation Policy for Non Executive Directors which is disclosed on the Bank's website, the web link to which is : <http://www.federalbank.co.in/shareholder->information

RBI vide letter no. DBR.No.BC.97/29.64.001/2014-15 dated 01 June 2015 had advised all private sector banks to formulate and adopt a comprehensive compensation policy for the non-executive Directors (other than the Part Time Chairman) in compliance with the provisions of the Companies Act, 2013. A new Policy named Comprehensive Compensation Policy for Non Executive Directors/ Independent Directors (other than Part Time Chairman) has been framed and approved by the Board and is available at the weblink mentioned below.

<http://www.federalbank.co.in/shareholder-information>

Appointment of Independent Directors, Criteria of Independence and Tenure of Independent Directors

At the time of appointment of Independent Directors a formal letter is being issued by the Bank to the appointee Director specifying the terms and conditions of his/her appointment. The terms and conditions of appointment of Independent Directors of the Bank are disclosed on the website of the Bank and the web link to it is given below:

<http://www.federalbank.co.in/documents/1> 01 80//63602//Terms+ and+conditions+of+Appointment+of+Independent+Directors/

4e33ba77-1cc5-42b4-aa02-ab4b84a62324

All the Independent Directors of the Bank satisfy the criteria of Independence as contained in the Banking Regulation Act, 1949, RBI Regulations, Companies Act, 2013 and as per the Listing Agreement. The present tenure of Independent Directors of the

Bank is subject to Regulation 10A of the Banking Regulation Act,1949 and also subject to the tenure fixed for appointment of all the Independent Directors of the Bank by the shareholders / Board.

During the Financial Year 2015-16 only one director, Mr. C Balagopal was appointed as the Additional Independent Director of the Bank.

Separate meeting of Independent Directors and Familiarization Programme

A separate meeting of the Independent Directors of the Bank was held on 10 March 2016 to review the performance of the management during the year. In the meeting of Independent Directors, evaluation / review of the performance of non-independent directors of the Bank, the Board/ Committees of Board and the review of the performance of the Chairperson of the Bank were also considered. The meeting also assessed the quality, quantity and timeliness of flow of information between the Bank's management and the Board, that is necessary for the Board to effectively and reasonably perform their duties. All the Independent Directors were present at the meeting.

The Bank familiarizes the Independent Directors with their roles, rights and responsibilities in the Bank at the time of appointment and also on a continual basis. The Bank also familiarizes the Independent Directors with the nature of the industry in which the Bank operates, business models and other important matters relating to Bank's business. The details of the familiarization programme / training given to Directors of the bank for FY 201 5-16 are disclosed in the Bank's website: <http://www.federalbank.co.in/> documents/10180//5471355//Familiarisation + Program+for+Ind ependent+Directors/213ebc6b-7a8e-4f36-9ba3-1d913a62d3c2

The roles, rights and responsibilities of Independent Directors are disclosed in the Bank's website and a weblink thereto is:<http://www.federalbank.co.in/documents/1> 01 80/45777/ Corporate + Governance.pdf/e5b848c8-8bc4-480e-a7dd- 33db81258edb

Audit Committee

The Audit Committee consists of four non-executive, Independent Directors, chaired by Ms.Grace Elizabeth Koshie, a Non-Executive Independent Director. The members of the Committee are Mr. Nilesh S Vikamsey, Mr Dilip G Sadarangani, and Ms. Shubhalakshmi Panse who are Non-Executive Independent Directors. The Committee was re-constituted once in the financial year 201 5-16.

The constitution of the Committee is in compliance with the regulatory requirements.

The terms of reference of the Audit Committee and incorporated in the Bank's Code of Corporate Governance, are in accordance with the listing agreements entered into by the Bank with Stock Exchanges where the Bank's shares are listed, Companies Act, 2013 and RBI guidelines.

Terms of Reference/ Roles and Responsibilities of the Committee are:

1. Review the company's financial and risk-management policies, and, where necessary, recommend changes for the Board's approval.

2. Reviewing, with the management, performance of statutory and internal auditors, adequacy of the internal control systems

3. Review periodically the adequacy of internal control systems (including the asset-liability management and risk-assessment and management systems) with the management and external and internal auditors, assure itself that the systems are being effectively observed and monitored, and, where necessary, approve changes or recommend changes for the Board's approval;

4. Review the adequacy of the internal audit function, including the structure of the internal audit department, staffing, and the suitability and seniority of the official heading it, reporting structure coverage, and the frequency of internal audit, and, where necessary, approve changes;

5. Discussion with internal auditors of any significant findings and follow up there on.

6. Reviewing 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

7. Review and have oversight of the Bank's financial reporting process and the disclosure of its financial information to ensure that the financial statements are correct, sufficient, and credible, and present a true and fair view of the state of affairs and of the profit or loss of the Bank for the relevant financial year or other period as the case may be;

8. Recommend to the full Board for shareholders' approval, the appointment, reappointment, removal, or replacement and terms of appointment of auditors, and the fee payable to them for the audit, taking into consideration any relationship between the auditors and the Bank that may impact on the independence of the auditors in carrying out the audit.

9. Approve the terms of engagement of the services of the external/statutory auditors for rendering any other professional services to the Bank and the fee therefore;

10. Discuss with the external auditors, before they commence the audit, the nature and scope of the audit, and ensure coordination where more than one audit firm is employed.

11.Reviewing and examine with the management, the annual financial statements and auditor's report thereon before submission to the board for approval, with particular reference to:

i) any changes in accounting policies and practices

ii) major accounting entries involving estimates based on the exercise of judgment by management

iii) significant adjustments made in the financial statements arising out of audit findings;

iv) compliance with the applicable accounting standards;

v) compliance with listing and other legal requirements relating to financial statements, and RBI guidelines and directives, concerning financial policies and statements;

vi) to review the company's statement on internal control systems prior to endorsement by the Board

vii) the going-concern assumption;

viii) disclosure of any related-party transactions, i.e., transactions of the Bank with the Directors, senior executives, their relatives, or associated concerns, that may potentially conflict with the Bank's interests at large; and

ix) modified opinion(s) in the draft audit report;

x) matters required to be included in the Director's Responsibility Statement to be included in the Board's report in terms of clause ( c) of sub- section 3 of section 134 of the Companies Act, 2013

12.Reviewing, with the management, the quarterly financial statements before submission to the Board for approval

13. Review with the external auditors, without the presence of the executive directors and Bank officials, and summarize their conclusion (in writing) at a full Board in the presence of the external auditors and without the presence of the management (Executive Directors, Bank Officials etc.)

i) The auditors' report on the annual, half-yearly, and quarterly financial statements,

ii) Their assessment of the internal control and reporting systems and procedures, the quality of the accounting principles applied and significant judgments affecting the statements, and the Bank's compliance with statutory and regulatory requirements, and

iii) The auditors' long-form audit report and management letter and the management's response, and

iv) Any concerns of the auditors with respect to the said systems and procedures, the financial statements, any aspect of compliance, or any other matter arising from or related to the audit;

14.Discuss with the management the auditors' report and assessment, their qualifications and concerns, if any, and the management's response to the auditors' management letter and long-form audit report;

15.Review with the management, and if necessary with the external auditors, any inspection or other report of RBI on the Bank or other communication from RBI on the audit, internal controls, financial reporting, or other aspects of the Bank falling within the remit of the Committee, and the management's response thereto;

16.To review and oversight the functioning of the Whistle Blower mechanism.

17. Approval of appointment of Chief Financial Officer (i.e., the whole-time Finance Director or any other person heading the finance function or discharging that function) after assessing the qualifications, experience & background, etc. of the candidate.

18.Approval or any subsequent modification of transactions of the Bank with related parties;

19.Valuation of undertakings or assets of the Bank, wherever it is necessary;

20.Evaluation of internal financial controls and risk management systems.

21.Monitoring the end use of funds raised through public offers and related matters.

22.Reviewing, 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 monitoring agency monitoring the utilisation of proceeds of a public or rights issue, and making appropriate recommendations to the Board to take up steps in this matter.

23.Reviewing and monitoring the auditor's independence and performance, and effectiveness of audit process;

24. Scrutiny of inter-corporate loans and investments, if any;

25.To consider and approve/grant omnibus approval for certain Related Party Transactions;

26.Perform any other function or duty as stipulated by the Companies Act, Reserve Bank of India, Securities and Exchange Board of India, Stock Exchanges and any other regulatory authority or under any applicable laws as may be prescribed from time to time.

27.Discussion with statutory auditors before the audit commences, about the nature and scope of audit as well as post-audit discussion to ascertain any area of concern;

28. To look into the reasons for substantial defaults in the payment to the depositors, debenture holders, shareholders (in case of non-payment of declared dividends) and creditors.

29. Review arrangements by which staff of the bank may confidentially raise concerns about possible improprieties in matters of financial reporting.

30. The Audit Committee of the Board shall:

i) ensure that senior management is taking necessary corrective actions to address the findings and recommendations of internal auditors and external auditors in a timely manner;

ii) address control weaknesses, non-compliance with policies, laws and regulations and other problems identified by internal auditors and external auditors, and

iii) ensure that deficiencies identified by supervisory authorities related to the internal audit function are remedied within an appropriate time frame and that progress of necessary corrective actions are reported to the board of directors.

Powers of Audit Committee:

The Audit Committee shall have the authority -

a) to call for the comments of the auditors about internal control systems, the scope of audit, including the observations of the auditors and review of financial statement before their submission to the Board.

b) to discuss any related issues with the internal and statutory auditors and the management of the company.

c) to investigate into any matter in relation to the items referred to it by the Board.

d) to investigate any activity within its terms of reference, seek information from any employee, obtain outside legal or other professional advice.

e) to have full access to information contained in the records of the Bank

Review of information by Audit Committee as per LODR, Regulations, 2015

The Audit Committee shall mandatorily review the following information:

i. Management discussion and analysis of financial condition and results of operations;

ii. Statement of significant related party transactions (as defined by the Audit Committee), submitted by management;

iii. Management letters / letters of internal control weaknesses issued by the statutory auditors;

iv. Internal audit reports relating to internal control weaknesses; and

v. The appointment, removal and terms of remuneration of the Chief internal auditor shall be subject to review by the Audit Committee

vi. Statement of deviations:

a) quarterly statement of deviation(s) including report of monitoring agency, if applicable, submitted to stock exchange(s) in terms of issue of securities of any nature. (if any)

b) annual statement of funds utilized for purposes other than those stated in the offer document/prospectus/notice in terms of issue of securities of any nature. (if any)

Other matters

1. In carrying out its functions as aforesaid, the Committee shall have full access to information contained in the Bank's records and may seek information from any employee of the Bank, or, if considered necessary, obtain outside legal or other professional advice, or discuss with outsiders having the relevant expertise, and thereafter place the same to the Board.

2. The chairperson of the committee shall be present at Annual general meeting to answer shareholder queries.

3. The Company Secretary shall act as the secretary to the Audit committee.

4. The minutes of the Committee meetings and decisions taken by the Committee shall be promptly submitted to the Board.

The Audit Committee met 5 (five) times during the year on 29 April 2015, 17 July 2015, 19 October 2015, 27 November 2015 and 11 January 2016.

Nomination, Remuneration, Ethics and Compensation Committee

The Committee is chaired by Mr. Sudhir M Joshi, (Independent Director) and consists of Mr Nilesh S Vikamsey and Mr K M Chandrasekhar as members. The Committee was re- constituted twice in the financial year 2015-16. All the members of the Committee are Non Executive Independent Directors. Mr. K M Chandrasekhar was nominated as a member w.e.f. 21 May 2015, consequent to the retirement of Prof. Abraham Koshy. The Committee was re constituted as on 28 June 2015, appointing Mr. Sudhir M Joshi as Chairman of the Committee .

The constitution of the Committee is in compliance with the regulatory requirements.

Terms of Reference/ Roles and Responsibilities of the Committee are:

1. recommending to the Board for its consideration and approval on the size and composition of the Board taking into account the available and needed diversity and balance in terms of experience, knowledge, skills, and judgment of the Directors;

2. reviewing, from time to time, possible candidates for current or potential Board vacancies, including Directors who are to retire and are eligible for reappointment or re-election and other persons who may be recommended by the Chairman or the MD & CEO or other Directors, shareholders or others;

3. recommending to the Board, candidates for election (including re-election) or appointment (including reappointment) to the Board.

4. carrying out evaluation of every director's performance.

5. deciding on the matter of whether to extend or continue the term of appointment of the independent director, on the basis of the report of performance evaluation of independent directors.

6. identifying persons who are qualified to become directors and who may be appointed in senior management in accordance with the criteria laid down, recommend to the Board their appointment and removal; formulation of the criteria for determining qualifications, positive attributes and independence of a director;

7. devising a policy on diversity of board of directors;

8. recommending to the Board a policy, relating to the remuneration for the directors, key managerial personnel and other employees;

The Committee shall ensure the following while formulating the policy on the aforesaid matters:

a) the level and composition of remuneration is reasonable and sufficient to attract, retain and motivate directors, key managerial personnel and senior management of the quality required to run the Bank successfully;

b) relationship of remuneration to performance is clear and meets appropriate performance benchmarks;

c) remuneration to directors, key managerial personnel and senior management involves a balance between fixed and incentive pay reflecting short and long term performance objectives appropriate to the working of the Bank and its goals.

9. Formulating and determining the Bank's policies on remuneration packages payable to the Directors and key managerial personnel including performance/achievement bonus, perquisites, retirals, sitting fees.

10.Considering grant of Stock Options to employees.

11.Reviewing the composition of the existing Committees of the Board.

12.Formulation of criteria for performance evaluation of Independent Directors and the Board;

13.Validation of 'fit and proper' status of all Directors on the Board of the Bank in terms of the Guidelines issued by the RBI or other regulatory authorities;

14.Developing and recommending to the Board the Corporate Governance guidelines applicable to the Bank for incorporating best practices from time to time;

The Bank is having a compensation policy formulated in accordance with the RBI guidelines and Companies Act, 2013 and approved by the Board. The performance evaluation criteria for Independent Directors is detailed in Directors' Report.

The Committee met 8(Eight) times during the year on 29 April 2015, 21 May 2015, 10 June 2015, 28 June 2015, 18 July 2015,18 September 201 5,12 January 2016 and10 March 2016.

Investor Grievance, Share Transfer and Stakeholders Relationship Committee

The Committee chaired by Mr. C Balagopal an Independent Director, consists of Mr. Harish Engineer, (Independent Director)

Mr. Shyam Srinivasan, MD & CEO of the Bank & Mr. Ashutosh

Khajuria, Executive Director as members. The Committee was re constituted twice in the financial year 2015-16 as on 18 July 2015 and 10 March 2016.

Mr. Girish Kumar. G, Company Secretary, functions as the Compliance Officer. The constitution of the Committee is in compliance with the regulatory requirements.

Terms of Reference/ Roles and Responsibilities of the Committee are:

1. Review, where necessary, complaints received from shareholders or others regarding transfer of shares, non-receipt of declared dividends, non-receipt of annual accounts or reports, or other matters relating to shareholding in the Bank, and any action taken by the Bank on such complaints;

2. Initiate such (further) action on the complaints as is considered necessary or desirable by way of redressal or to prevent similar complaints arising in the future; and

3. Approve or reject applications for transfer/transmission of shares referred to the Committee by the Bank's Registrar and Share Transfer Agent in terms of such criteria as may be determined by the Committee and conveyed to the Agent.

4. To oversee and review all matters connected with transfers, transmissions, dematerialization, rematerialisation, splitting and consolidation of securities issued by the Bank, issue of duplicate share certificates;

5. To oversee the performance of the Registrar and Transfer Agent of the Bank

6. Recommends measures for overall improvement in the quality of investor services;

The Committee met 8 (Eight) times during the year and reviewed and redressed the complaints received from shareholders. The Committee met on 29 April 201 5, 30 May 201 5, 10 July 201 5, 29 August 2015, 12 October 2015, 11 December 2015, 22 January 2016 & 01 March 2016.

Credit Committee & Investment and Raising Capital Committee

The Committee is chaired by Mr. Harish Engineer (Independent Director) and consists of Mr. Sudhir M Joshi, Mr. C Balagopal, (Independent Directors), and Mr. Shyam Srinivasan, MD & CEO of the Bank as members. The Committee was re constituted once in the financial year 201 5-1 6.

Terms of Reference/ Roles and Responsibilities of the Committee are:

1. Consider proposals for approval, renewal, or modification of various types of funded and non-funded credit facilities to clients within such authority as delegated to it by the Board from time to time;

2. Monitor the credit and investment exposures of the Bank, review the adequacy of the credit and investment risk management processes and policies, internal control systemsand compliance of statutory, regulatory and other applicable norms;

3. Periodically review Non Performing Assets of large value (Rs. 5 crore and above) and also a pool of NPAs in various categories (substandard, doubtful and loss);

4. Periodically review the large corporate loans and advances appearing in SMA lists;

5. Take note of the details of credit facilities sanctioned by the ED and MD level committees and call for more particulars/ comments/clarifications, if found necessary;

6. Take note of the details of compromise settlements approved by the ED and MD level committees and call for more particulars/ comments/clarifications, if necessary.

The Credit Committee & Investment and Raising Capital Committee met 10 (Ten) times during the year and the dates of meetings were on 14 May 2015, 23 May 2015, 24 June 2015,06 August

201 5, 25 August 201 5,1 8 September 201 5, 1 2 October 201 5, 08 December 201 5, 11 January 2016 and 08 March 201 6.

Risk Management Committee

The Committee is chaired by Mr. Sudhir M Joshi (Independent Director) and consists of Mr Nilesh S Vikamsey, Mrs. Grace Koshie, Mr. K M Chandrasekhar (Independent Directors) and Mr. Shyam Srinivasan, Managing Director & CEO as members. The Committee was re constituted once in the financial year 201 5-1 6. The constitution of the Committee is in compliance with the regulatory requirements.

Terms of Reference/ Roles and Responsibilities of the Committee are:

1. Devise policy and strategy for integrated risk management for the material risks the Bank is exposed to, in the course of its business. Evolve long term and medium term strategies to ensure business growth while maintaining the risk levels within the approved safe limits;

2. Effectively co-ordinate with the Executive level Committees - the Credit Risk Management Committee (CRMC), Asset Liability Management Committee (ALCO) and Operation Risk Management Committee (ORMC) to ensure effective risk management in the organization;

3. Set policies and guidelines for credit risk measurement, management and reporting;

4. Ensure that the credit risk management processes satisfy the Bank's policy and regulatory prescriptions and is capable of containing the credit risk within the set limits;

5. Set risk parameters and prudential limits for credit exposure;

6. Ensure that adequate training is made available to the staff in Credit Risk Management;

7. Ensure that market risk management processes (including people, systems, operations, limits and controls) satisfy bank's policy and regulatory guidelines;

8. Review and approve market risk limits, counter party exposures, including triggers or stop-losses for traded and accrual portfolios;

9. Ensure robustness of financial models, and the effectiveness of all systems used to calculate market risk;

10.Set policies and guidelines for operational risk measurement, management and reporting; 11. Ensure that adequate training is made available to the staff handling Operational Risk Management functions; 12.Consider the effectiveness of overall risk management framework in meeting sound corporate governance principles and best industry practices; 13. Monitoring and reviewing risk mitigation plans on significant risks, which requires policy or procedure level changes for effective implementation.

The Risk Management Committee met 6 (Six) times during the year and the dates of the meetings were 23 April 2015,11 June 201 5, 26 August 201 5, 09 December 201 5, 20 January 201 6 and 10 March 2016.

Customer Service & Marketing Strategy Committee

The Committee is chaired by Mr C Balagopal (Independent Director) and consists of Mr. K. M. Chandrasekhar, Mr. Harish H Engineer, (Independent Directors), Mr. Shyam Srinivasan, MD & CEO of the Bank and Mr. Ashutosh Khajuria, Executive Director as members. The Committee was re constituted twice in the financial year 2015-16. The constitution of the Committee is in compliance with the regulatory requirements.

Terms of Reference/ Roles and Responsibilities of the Committee are:

In respect of Customer Service, the key roles & responsibilities of the Committee are provided below:

1. Approving the various policies that relate to customer service ; examples thereof include and are not limited to :

• Comprehensive Deposit Policy

• Treatment of death of a depositor for operations in the account

• Grievance Handling process

• Collection of cheques

2. Reviewing metrics and indicators that provide information on the state of customer service in the Bank; providing direction to the management of the Bank on actions to be taken to improve the metrics;

3. Reviewing the actions taken/ being taken by the Bank to standardize the delivery of customer experience across all branches;

4. Reviewing results of the surveys conducted that provide quantitative and qualitative information on the state of customer experience;

5. Providing inputs on the products introduced by the Bank with a view to ensure suitability and appropriateness;

6. Monitoring the implementation of the Banking Ombudsman Scheme with particular reference to:

• Reviewing all the awards against the Bank with a focus on identifying issues of systemic deficiencies and the Bank's plan to address these deficiencies;

• Reviewing all awards that remain unimplemented after 3 months from the date of the award with the reasons thereof; to report to the Board such delays in implementation without valid reasons and for initiating remedial action;

7. Review, on an overall basis, the customer service aspects in the

Bank on the basis of the detailed memorandum submitted in this regard and report to the Board of Directors thereafter; this is done once every six months and based on the review, the Committee will direct the Bank to initiate prompt corrective action wherever service quality / skills gaps have been noticed;

8. Monitoring the activities of the Standing Committee on Customer Service (executive level committee) on a quarterly basis;

In respect of the Marketing functions of the Bank, the key roles & responsibilities of the Committee are provided below:

1. Reviewing the Bank's marketing strategy, providing direction on areas of focus;

2. Providing direction on the communication strategy and media focus;

3. Reviewing the Bank's progress in implementing the marketing strategy;

The Committee met 3 (Three) times during the year and the dates of the meetings were 18 July 2015, 09 December 2015 and 20 January 2016.

Committee to Review Large Value Frauds (Rs.1 Crore & Above)

The Committee is chaired by Mr. Shyam Srinivasan, MD & CEO of the Bank and consists of Mr. Nilesh S Vikamsey, Mr. Dilip G Sadarangani, Ms. Grace Elizabeth Koshie, Ms. Shubhalakshmi Panse (Independent Directors) and Mr. Ashutosh Khajuria, Executive Director as members. As required under the RBI regulations, all fraud cases of Rs. 1 Crore and above are considered by the Committee and as directed by the Audit Committee, all fraud cases of Rs. 1 Lakh and above are reported to this Committee. The Committee was re-constituted once in the financial year 2015-16. Mr Ashutosh Khajuria was nominated as a member of the committee w.e.f. 10 March 2016. The constitution of the Committee is in compliance with the regulatory requirements.

Terms of Reference/ Roles and Responsibilities of the Committee are:

The major functions of the Committee would be to monitor and review all frauds of Rs. 100 Lakh and above so as to:

i. Identify the systemic lacunae if any that facilitated perpetration of the fraud and put in place measures to plug the same;

ii. Identify the reasons for delay in detection, if any, reporting to top management of the Bank and RBI;

iii. Monitor progress of CBI/Police investigation and recovery position;

iv. Ensure that staff accountability is examined at all levels in all the cases of frauds and staff side action, if required, is completed quickly without loss of time;

v. Review the efficacy of the remedial action taken to prevent recurrence of frauds, such as strengthening of internal controls;

vi. Put in place other measures as may be considered relevant to strengthen preventive measures against frauds.

All the frauds involving an amount of Rs. 100 lakh and above should be monitored and reviewed by the Committee of the Board. The periodicity of the meetings of the Committee may be decided according to the number of cases involved. In addition, the Committee should meet and review as and when a fraud involving an amount of Rs. 100 lakh and above comes to light.

The Committee met 2 (two) times during the year and the dates of meetings were 06 August 2015 and 19 October 2015.

Committee for Human Resources Policy

The Committee is chaired by Mr. K M Chandrasekhar (Independent Director) and consists of Mr Nilesh S Vikamsey, Ms. Shubhalakshmi Panse (Independent Directors) and Mr. Shyam Srinivasan, MD & CEO of the Bank as members. The Committee was re constituted once in the financial year 201 5-1 6.

Terms of Reference/ Roles and Responsibilities of the Committee are

1. To review HR Strategy aligning with business strategy of the Bank;

2. To review the existing HR policy of the Bank;

3. To review productivity levels of employees benchmarking with peers in the industry;

4. To review recruitment policy of the Bank;

5. To review compensation policy of the Bank;

6. To review outsourcing Policy of the Bank;

7. To review Talent Development & Training Initiatives;

8. To review Skill gaps and Talent pool creation.

The Committee met four(4) during the year and the dates of the meetings were 11 June 2015, 06 August 2015, 19 October 2015 and 20 January 2016.

Information Technology & Operations Committee

The Committee is chaired by Mr. Dilip G Sadarangani (Independent Director) and consists of Ms. Shubhalakshmi Panse, Ms. Grace Elizabeth Koshie (Independent Directors) and Mr. Shyam Srinivasan, MD & CEO of the Bank as its members. The Committee was re-constituted once during the financial year 2015-16. The constitution of the Committee is in compliance with the regulatory requirements.

Terms of Reference/ Roles and Responsibilities of the Committee are

In respect of the Technology functions of the Bank, the key roles & responsibilities of the Committee are provided below:

1. Approving IT strategy and policy documents and reviewing the same from time to time;

2. Ensuring that the management has put an effective strategic planning process in place;

3. Ensuring that the business strategy is indeed aligned with IT strategy;

4. Ensuring that the IT organizational structure complements the business model and its direction;

5. Ascertaining that management has implemented processes and practices that ensure that the IT delivers value to the business;

6. Ensuring IT investments represent a balance of risks and benefits and that budgets are acceptable ;

7. 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;

8. Ensuring proper balance of IT investments for sustaining bank's growth;

9. Becoming aware about exposure towards IT risks and controls. And evaluating effectiveness of management's monitoring of IT risks;

10.Assessing Senior Management's performance in implementing IT strategies;

11 .Issuing high-level policy guidance (e.g. related to risk, funding, or sourcing tasks)

12.Confirming whether IT or business architecture is to be designed, so as to derive the maximum business value from IT;

13.Overseeing the aggregate funding of IT at a bank-level, and ascertaining if the management has resources to ensure the proper management of IT risks;

14.Reviewing IT performance measurement and contribution of IT to businesses.

In respect of the Operations functions of the Bank, the key roles & responsibilities of the Committee are provided below:

1. Ensuring that the management has put an effective strategic planning process in place for operational activities that balances risk, customer experience and costs reviewing the same from time to time;

2. Ensuring that the Operations organizational structure complements the business model and its direction;

3. Ensuring that management has put in place effective steps to mitigate operational risks relating to the core operational processes of the Bank;

4. Issuing high-level policy guidance (e.g. related to risk, funding, or sourcing tasks);

5. Reviewing metrics and measurement relating to operational processes so as to ensure due contribution to the business.

The Committee met 4 (four) times during the year. The dates of meetings were 10 July 2015, 23 November 2015, 07 January 2016 and 25 February 201 6.

Corporate Social Responsibility Committee

The Committee is chaired by Mr. Harish Engineer (Independent Director) and consists of Mr. C Balagopal, Mr. K M Chandrasekhar (Independent Directors) and Mr. Shyam Srinivasan, MD &CEO of the Bank as its members. The Committee was reconstituted twice during the financial year 201 5-16. Mr C Balagopal was nominated as a member of the committee w.e.f.18 July 2015 and Mr Ashutosh Khajuria was nominated as a member of the committee w.e.f.10 March 2016.

Terms of Reference/ Roles and Responsibilities of the Committee are:

The CSR Committee shall formulate and recommend to the Board Corporate Social Responsibility Policy which shall indicate the activity or activities to be undertaken by the Bank as specified in schedule VII of the Companies Act, 2013 such as promotion of education, eradicating hunger and poverty, social business projects and contribution to Prime minister's National Relief Fund or any other fund set up by central government for socio-economic development etc. and shall also recommend the amount of expenditure to be incurred on the CSR activities and monitor CSR Policy of the Bank.

a) The Board shall ensure that the Bank spends in every financial year atleast 2% of the average net profits of the Bank made during the three immediately preceding financial years in pursuance of its CSR policy;

b) Where the Bank fails to spend such amount, the Board shall in its report specify the reasons for not spending the amount. The approach is to 'comply or explain';

c) The Bank shall give preference to local areas where it operates, for spending amount earmarked for Corporate Social Responsibility (CSR) activities.

The Committee met 3 (three) times during the year and the dates of meetings were 18 July 2015, 19 October 2015 and 20 January 2016.

Performance Review Committee

The Board at its meeting held on 14 June, 2014 had decided to form a sub Committee of the Board, termed as Performance Review Committee. The Committee is chaired by Ms. Shubhalakshmi Panse (Independent Director) and consists of Mr. Sudhir M Joshi, Mr. Dilip G Sadarangani (Independent Directors), Mr. Shyam Srinivasan, MD & CEO and Mr. Ashutosh Khajuria, Executive Director as members, for periodical review of the performance of the Bank. The Committee was reconstituted once in the financial year inducting Mr. Ashutosh Khajuria, Executive Director as member w. e. f 10 March 2016.

Adherence of Code of Corporate Governance and Code of Conduct for all Board Members and Management of The Bank:

The Board of Directors of the Bank has adopted the Code of Corporate Governance and Code of Conduct for the Directors of the Bank and for Management. All the Board members and the senior management of the Bank have affirmed compliance to the Bank's Code of Corporate Governance and Code of Conduct.

Bank's Code of Corporate Governance and Code of Conduct for Directors and Management is posted on the website of the Bank and the web link thereto is <http://www.federalbank.co.in/our->commitments

Subsidiary Companies

The Bank has one subsidiary company, Fedbank Financial Services Limited. Two Directors of the Bank, Mr. Shyam Srinivasan and Mr. Dilip G Sadarangani are Nominee Directors of the Bank in the Bank's subsidiary Company. The Bank has no material subsidiaries as per the conditions laid down in the Listing Agreement.

Whistle Blower Policy/Vigil Mechanism:

The Bank has established a Whistle Blower Policy/ Vigil Mechanism to report concerns about unethical behaviour, actual or suspected fraud and others. As per the Whistle Blower Policy, Directors and employees of the Bank, customers, stakeholders, non-governmental organizations (NGO) and members of general public can lodge complaints/disclosures under the scheme. The Bank affirms that no employee has been denied access to the Audit Committee of the Board under the Whistle Blower Policy adopted by the Bank. Preventive measures for enhancing awareness of fraud risk and for promoting a culture of compliance among the employees preventive vigilance audits, vigilance workshops, circulation of modus operandi of frauds occurred in banking industry etc are done.

DISCLOSURES

Related Party Transactions

There were no material related party transactions during the financial year. The details of transaction with related parties which are not material during the year is disclosed in notes to Financial Statements of the Bank. Since there are no material subsidiaries for the Bank the policy for material subsidiaries is not required.

There were no material transactions between the Bank and its Directors or management. The Bank complied with the directives issued by the Stock Exchanges on which the Bank's shares are listed, SEBI, and other regulatory authorities.

The policy on materiality of Related Party Transactions and also on dealing with Related Party Transactions as approved by the Audit Committee and the Board of Directors is uploaded on the website of the Bank and the link for the same is <http://www.federalbank>. co.in/our-commitments.

The Bank does not have any material subsidiary since the Networth of the subsidiary is less than 20% of the consolidated Networth of the Bank. The Corporate Governance requirements with respect to subsidiary of Listed Entity have been complied.

No penalties or strictures have been imposed on the Bank by SEBI or any of the Stock Exchanges for any non-compliance on any matter relating to capital markets during the last three years

Internal Controls

The Bank has a system of internal control which examines both the financial effectiveness and operational effectiveness to ensure reliability of financial and operational information and all statutory /regulatory compliances.

Insider Trading Code:

The Bank has formulated a code for prevention of Insider Trading named Federal Bank Code Of Conduct For Regulating, Monitoring & Reporting Trading By Insiders And Code Of Practices And Procedures For Fair Disclosure, pursuant to Securities and Exchange Board of India (Prohibition of Insider Trading) Regulations, 2015 to prevent the practices of Insider Trading.

Mr. Girish Kumar Ganapathy, Company Secretary has been designated as Compliance Officer for this purpose. Senior Management of the Bank has affirmed compliance with the Code of Conduct.

The Bank has duly complied with all the mandatory listing agreement requirements specified in Regulation 27 of the SEBI (Listing Obligation and Disclosure Requirements) Regulations, 201 5 ("Listing Agreement").

Adoption of Non-mandatory requirements

The Bank has also complied with the adoption of non-mandatory requirement on separate posts of Chairman and CEO. The Bank presently appoints separate persons to the post of Chairman and Managing Director/CEO.

Ethical Standards Employed By The Bank:

The Bank has formulated service manual for its employees. This manual contains comprehensive regulations on ethical standards to be mandatorily observed by all the employees of the Bank.

Code of Ethics and Business Conduct provides the guidelines on our standards of business conduct and applies to all employees of the Bank. The main objectives of the Code of Ethics of the Bank are Focussing on our customers' needs first, Build more productive, professional work relationships, Promote mutual feeling of respect, Exhibit Integrity and Responsibility in our actions, and to promote culture of compliance. The Bank is obliged to comply with all general laws, local rules and regulations relevant to our activity and is committed to provide a sustainable and attractive long term financial return for those who invest in the Bank's business. The Bank shall be committed to enhance share holder value and shall comply with all regulations and laws that govern shareholders' right.

Outstanding GDRs/ADRs/Warrants or any Convertible Instruments, Conversion Date And Likely Impact On Equity:

The Bank has 28049968 GDRs (equivalent to equity shares) outstanding, which constituted 1.63 % of the Bank's total equity capital as at 31 March 2016. No convertible debenture is outstanding.

CEO/CFO Certification:

In terms of Regulation 17 of the Listing Agreement, the certification by MD & CEO and Chief Financial Officer on the financial statements and internal controls relating to financial reporting has been obtained.

We the undersigned, in our respective capacities as Managing Director & Chief Executive Officer and Chief Financial Officer of Federal Bank Limited, to the best of our knowledge and belief certify that:

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

(1) these statements do not contain any materially untrue statement or omit any material fact or contain statements that might be misleading;

(2) these statements together present a true and fair view of the listed entity's affairs and are in compliance with existing accounting standards, applicable laws and regulations.

B. There are, to the best of their knowledge and belief, no transactions entered into by the listed entity during the year which are fraudulent, illegal or violative of the listed entity's code of conduct.

C. We accept responsibility for establishing and maintaining internal controls for financial reporting and that we have evaluated the effectiveness of internal control systems of the listed entity pertaining to financial reporting and 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

(1) significant changes in internal control over financial reporting during the year;

(2) significant changes in accounting policies during the year and that the same have been disclosed in the notes to the financial statements; and

(3) 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 listed entity's internal control system over financial reporting.

Means of Communication:

The quarterly, unaudited and annual audited financial results were published in nationally circulated newspapers in English, such as, Business Line and Business Standard, and in the regionally circulated Malayalam daily Deepika. The results were also displayed on the Bank's website - www.federalbank.co.in <http://www.federalbank.co.in>. The website also contains details of official news releases, presentations made to institutional investors/to the analysts.

General information for shareholders:

ANNUAL GENERAL MEETING

Date : 11.08.2016

Time : 10 AM

Venue : Mahatma Gandhi Municipal Town Hall, Aluva

Financial year :

01 April 2015 to 31 March 2016

Period of book closure :

02. 08. 2016 to 11. 08. 2016 Dividend payment date : 18. 08. 2016

FINANCIAL CALENDAR

Approval of quarterly results for the period ending:

• 30 June 2015 : 18 July 2015

• 30 September 2015 : 20 October 2015

• 31 December 2015 : 12 January 2016

• 31 March 2016 : 29 April 2016

Commodity price risk or foreign exchange risk and hedging activities

To monitor Foreign Exchange risk, Bank has envisaged Forex VaR, NOOP Limit and AGL which are being monitored on daily basis by Risk department. Bank also has Forex policy to define and regulate forex operation taken up by the bank and different level of limits are given in it. Treasury also monitors Foreign assets liabilities gap to hedge it in the market.

Bank hedges its foreign currency position using derivatives including mainly SWAPs and outright Forwards.

Bank is not active in commodity trading and hedging activities.

Listing on Stock Exchanges

The Bank's shares are listed on the Stock Exchanges viz. in National Stock Exchange of India Ltd., Bombay Stock Exchange Ltd., and the Bank's shares were also listed in Cochin Stock Exchange , but as per exit order granted by SEBI to Cochin Stock Exchange Limited vide order dated 23rd December 2014 and the Banks shares are no more listed/traded in Cochin Stock Exchange. The GDRs issued by the Bank in 2006 have been listed on the London Stock Exchange.

BSE Scrip Code : 500469 Scrip ID : FEDBANK

NSE Symbol : FEDERALBNK

LSE Scrip Code : FEDS

Demat ISIN Code : INE171A01029

The annual listing fees for 2015-16 have been paid to all the Stock Exchanges where the shares are listed.

Registrars and share transfer agent

Integrated Enterprises (India) Ltd.

2nd Floor, Kences Towers, No.1,Ramakrishna Street, Off : North Usman Road

T.Nagar, Chennai-600017 Phone No: 044-28140801-03 Fax: 044-28142479 Email: csdstd@integratedindia.in

Debenture Trustee Details:

IDBI Trusteeship Services Ltd. Asian Building, Ground Floor, 17, R.Kamani Marg,Ballard Estate, Mumbai- 400 001.

Tel.No.022-40807000, E mail: itsl@idbitrustee.com

 Share transfer system

Integrated Enterprises (India) Ltd, the Registrar and Share Transfer Agents looks after the share transfer. The share transfer instruments, as and when received, are duly processed and shares in respect of valid share transfer instruments are transferred in thenames of transferees complying with rules in force.

The Bank obtains half yearly certificate of compliance with the share transfer formalities as required under Regulation 40(10) of the Listing Agreement with Stock Exchanges from a Company Secretary in practice, and files a copy of the certificate with the Stock Exchanges were Bank's shares are listed.

As required by SEBI, a Reconciliation of Share Capital Audit is conducted on a quarterly basis by a Practicing Company Secretary and Certificate issued in this regard is forwarded to the Stock Exchanges

Dematerialisation of the Bank's shares

The Paid up Equity Shares of the Bank as on 31 March 2016 is

1718946844 shares. Out of this 1717857994 shares are listed. Of the total listed equity shares of the Bank, 1679816297 shares (97.73%)are held in dematerialized form (In NSDL-1552309367

90.32%,in CDSL-127506930-7.41%) and 38041697 (2.27 %) are in physical form. Under agreements with National Securities Depository India Ltd (NSDL) and Central Depository Services Ltd (CDSL), the Bank's shares can be and are traded in electronic form. Shares remaining in physical form can be dematerialized for which the share holders are requested to open a Depository Account with the Depository Participants (DP) and to lodge the share certificates along with Demat Request Form with them.

Unclaimed Dividends

Under the Transfer of Unclaimed Dividend Rules, it would not be possible to claim the dividend amount once deposited in Investors' Education & Protection Fund (IEPF). Therefore, shareholders are requested to claim their unpaid dividend, if not already claimed.

Locations

With its Head Office at Aluva, the Bank has a network of 1 252 Branches across India as on 31 March 2016.

Address for correspondence:

The Federal Bank Ltd.

Secretarial Department, PB No. 103, Federal Towers, Head Office, Aluva - 683 101, Kerala State, India.

E-mail - secretarial@federalbank.co.in Website : www.federalbank.co.in

Company Secretary :Mr. Girish Kumar Ganapathy

Auditors :M/s Deloitte Haskins & Sells, Chennai

M/s M.P. Chitale & Co, Mumbai

Secretarial Auditors :M/s. SVJS & Associates,Company Secretaries, Kochi

Compliance with the Code of Conduct

I confirm that for the year under review all Directors and members of the Senior Management have affirmed compliance with the Code of Conduct of the Bank as required under SEBI (LODR) Regulations, 201 5 "on Corporate Governance."

Shyam Srinivasan

Managing Director & Chief Executive Officer

21 June 2016