ANNUAL REPORT 2017

 Overall global business of bank stood at ₹933,820 crore as on

March 31, 2017
 CASA deposits grew by 30.24% and its share in domestic deposits
improved from 34.18% in March 2016 to 39.84% in March 2017
 Bank’s global gross NPA ratio declined sequentially from 13.38% in
December 2016 to 13.22% as on 31st March 2017
 Bank’s operating profit as on March 31, 2017 is ₹9733 crore as
against ₹6036 crore as on March 31, 2016 showing a growth of
61.25%
 Bank declared PAT of ₹ -1558 crore in FY2016-17 as against PAT of
₹ -6089 crore for corresponding period last year, reducing the loss
by 74.41%
 Debit cards base increased to 471.49 lakh as on March 31, 2017
from 352.72 lakh as on March 31, 2016
 Internet Banking users (retail) increased to 40.68 lakh as on
March 31, 2017 from 33.81 lakh as on March 31, 2016
 Mobile banking users increased to 1.51 lakh as on March 31, 2017
from 1.22 lakh as on March 31, 2016

FINANCIAL PERFORMANCE FOR THE YEAR 2016-17

Particulars 2015-2016 2016-2017 GROWTH (in %)
(in crore) (in crore)
Net Interest Income 11,724 11,826 0.87
Non-Interest Income 3,653 6,772 85.38
Operating Expenses 9,341 8,866 -5.09
Operating Profit 6,036 9,733 61.25
Provisions/Contingencies 12,125 11,291 -6.88
Net Profit -6089 -1558 74.41
Earnings Per Share (₹) -83.01 -15.72 81.06
Book Value Per Share (₹) 246.82 188.62 -23.58
Return on Equity (%) -26.10 -7.78 -
Return on Average Assets (%) -0.94 -0.24 -
 KEY FINANCIAL RATIOS ANALYSIS
PARAMETERS 2015-2016 2016-2017
(Types of Ratios) (in %) (in %)
Yield on Advances Ratio 8.28 7.98
Yield on Investments Ratio 7.81 7.58
Yield on Funds Ratio 6.87 6.41
Cost of Deposits Ratio 5.25 4.84
Cost of Funds Ratio 4.95 4.48
Net Interest Margin Ratio 2.11 2.20
Non-Interest Income to Operating Expenses Ratio 39.10 76.38
Other income to Average Working Fund Ratio 0.57 1.03
Operating Expenses to Average Working Fund Ratio 1.54 1.45
Staff Expenses to Average Working Fund Ratio 0.88 0.88
Other Operating Expenses to Average Working Fund Ratio 0.66 0.57
Assets Utilization Ratio 0.99 1.59
Non-Interest Income to Total Income Ratio 8.04 14.70
Non-Interest Income to Net Income Ratio 23.75 36.41
Cost to Net Income Ratio 55.72 47.67

CAPITAL & CAPITAL ADEQUACY REPORT

During the year bank has raised ₹1338 crore by issue of 12, 06, 60, 113
fresh equity shares to Government of India at the price of ₹110.89 per
share. The bank has also received ₹1500 crore from Government of India
and ₹221.92 crore from Life Insurance Corporation of India towards
share application money for subscription of equity shares on preferential
basis. During the year the ban has also received additional TIER-I capital
bonds for an amount of ₹2500 crore and TIER-II bonds for an amount of
₹2500 crore. These bonds are listed on the stock exchange.

Format for FOREX Audit

Sr. Name of the Customer (Importer/Exporter) Analysis/Report/Information
No. M/s Blue Circle Organics Private Limited provided
1 Importer Exporter Code Number 0305020803
2 Year of Establishment 2008
3 Banking with us since 07.04.2013
4 Line of business/product Mfg. of chemicals etc.
5 Export turnover (in INR/USD) 8736.26
6 Import turnover (in INR/USD) 3042.85
7 No./Amount export/import bills routed through branch (FY) 82
8 No. of bills discounted/purchased/negotiated 41
9 Credit Facilities (if any) Yes
10 If Yes, limit towards export/foreign standby LC/LC 3000.00
11 ECGC cover details Pre & Post Shipment
12 Major foreign suppliers/buyers CombrexKartskoga, Amri
13 No./Amount of overdue bills, write off by AD/Exporter NOT AVAILABLE
14 Average shipment in tonnage/amount, whether the same NOT AVAILABLE
tallies with the figures reported under their audited balance
sheet
15 Amount of individual advance remittance towards imports NIL
and funds received towards exports (Attach details if any)
16 Date of bill of entry submitted to the branch/exchange control Exchange control copy is
copy towards exports selected from list provided in
system
17 Whether FEMA guidelines followed in regards of 15 & 16, if YES
not reasons thereof
18 Major country of Exports/Imports ITALY, USA
19 Percentage of Merchant Export, if any NIL
20 If YES, whether any finance extended NOT AVAILABLE
21 Status of XOS/BEF reporting NOT ON RECORD
22 Manner in which export proceeds received SWIFT
23 3rd party payment/realization of bills NIL
24 Realization of export bills through foreign currency NIL
25 Clean remittances from the account NIL
26 Trade credits extended are in line with RBI guidelines 120 days
27 Any funding against SBLC issued are in line with RBI NIL
guidelines
28 Whether the exporter is permitted by the AD to dispatch Allowed by Branch
documents directly to buyer with the overall ambit of RBI
guidelines
29 Whether bills of the exporters being submitted beyond 21 Allowed by Branch
days and permitted by the branch for lodgement within the
ambit of RBI rules
30 Whether the exporter is engaged in exports of goods on lease, NO
hire or elongated credits terms
31 Exports payments realized through RTGS/NEFT of other NO
banks, whether FIRCs have been obtained by the branch from
remitting bank
32 Any other advance features noticed in the account as regards NOT NOTICED
to RBI/FEMA/KYC/Compliance Angle

BOI QUESTIONNAIRE
Sr. QUESTIONS ANSWERS/INFORMATION
No.
1 Full Name of Bank & Branch Bank of India, Turbhe Branch
2 Regulatory Authority Reserve Bank of India
3 Date of Establishment/Incorporation and Bank of India was incorporated on 7th September
Banking License 1906 under Act No. VI of 1887 of the legislative
council of India. Bank of India was nationalized
under Banking Companies Act 1970, India
4 Does your institution have a branch or a YES
subsidiary operating under offshore banking Bank of India Cayman Islands branch
license? Date: 29.05.1980
Licensing Body: Cayman islands-Registrar of
companies
Regulating Body: Cayman Islands Monetary
Authority
Country: Cayman Islands
5 Listing (Stock Exchange): YES
Is your institution’s shares listed on any stock Name of Stock Exchange: BSE, NSE
exchange markets? Stock Symbol: 532149, BANKINDIA
6 Number of Employees 48129 (as of 31st March 2017)
7 Shareholders: 1) Government of India with 73.72% of
List all of your institution’s shareholders with ownership
shareholding greater than 5%? 2) LIC of India with 12.82% of ownership
8 Indicate areas of Institution’s business  Commercial banking
activities  Retail Banking
 Investment Banking
 Asset Management
 Private Banking
 Merchant trading
 Treasury management
9 Products and Services:  Trade finance products (e.g. Forex, letter of
Enlist your institution’s principal products and credit, ECA financing, etc.)
services  Lending activities
 Trust & Asset management services
 Investment products (e.g. securities,
commercial/government bonds)
 Correspondent banking
 International Funds Transfer
 Others, Please specify
10 Does your institution handle traveler’s checks  YES
or demand drafts?  NO
11 Does your institution allow your customers to  YES
have direct access to your correspondent  NO
account as a sub-account holder?  DON’T KNOW
12 Provide industry sectors of which your  Agricultural sector
institution’s customer belong to  MSME sector
 Retail sector
 Corporate sector
13 From the sectors selected above, if there is any
concentration to a specific sector, indicate in
which there is concentration
14 Does your institution have a transaction  YES
 monitoring system to automatically detect  NO
suspicious activities/transactions?  DON’T KNOW
15 Does your institution have a sanction screening  YES
system to automatically detect a transaction  NO
which may involve any sanctioned party?  DON’T KNOW
16 Is money laundering a criminal offence in  YES
India?  NO
 DON’T KNOW
Has the country established laws designed to  YES
prevent money laundering and terrorist  NO
financing?  DON’T KNOW
Does your institution comply with those laws?  YES
 NO
 DON’T KNOW
17 Does your institution’s AML/CFT program
include Enhanced Know Your Customer (KYC)
routines in relation to the following:
a) Dealings with individuals, companies  YES
and institutions located in dealing with  NO
high risk countries?  DON’T KNOW

b) Politically exposed persons (peps)  YES

 NO
 DON’T KNOW
c) Non face to face business relationships  YES
 NO
 DON’T KNOW
d) Customers (other than those mentioned  YES
above) who are assessed to be high risk  NO
customers concerning the risk of money  DON’T KNOW
laundering and terrorist financing?
18 How frequently does your institution review or
update AML policies and procedures?
19 When was the last time your institution’s AML
policies and procedures were updated?
20 Does your institution permit transaction with  YES
non-established or walk in customers?  NO
 DON’T KNOW
21 If YES in above, Does your institution have  YES
customer identification requirements for such  NO
customers?  DON’T KNOW
 NOT AVAILABLE
22 Does your institution’s AML/CFT program  YES
include providing complete information for all  NO
payment transactions, including sender &  DON’T KNOW
beneficiary names, addresses, account
numbers and purpose?
23 Does your institution’s AML/CFT program  YES
include procedures to monitor large cash  NO
deposits and withdrawals?  DON’T KNOW
24 Does your institution have any policies to  YES
mitigate money laundering risks associated  NO
with business activities of your institution or  DON’T KNOW
customers, located in a sanctioned jurisdiction
or a high risk country?
25 Does your institution employ 3rd party vendors  YES
to perform any KYC/AML functions?  NO
 DON’T KNOW
26 Does your institution have a system and  YES
controls to request and record beneficial owner  NO
details for all corporate and correspondent  DON’T KNOW
customers?
27 Do your institution screen beneficial owner  YES
against sanctions lists or PEPs database?  NO
 DON’T KNOW
28 Does your institution conduct periodic  YES
AML/CFT risk assessment on all corporate and  NO
correspondent customers?  DON’T KNOW
29 Describe risk classifications High –
(high/medium/low) and frequency of a Medium –
periodical review Low –
30 Are the KYC policies and procedures applicable  YES
to both your domestic as well as the foreign  NO
branches?  CAN’T SAY
 NO FOREIGN BRANCHES
31 Does the bank have a policy aimed at  YES
protecting personnel reporting of any  NO
suspicious transaction?  DON’T KNOW
32 What does your KYC procedures and policies  To open or maintain anonymous accounts
allow?  To conduct business with the banks having
no physical presence in any country (shell
banks)
 To currently maintain accounts for shell
banks
33 What does your KYC policies and procedures  To maintain all records related to customer
require? identification and their transactions
 To report suspicious activities and
transactions to appropriate KYC
authorities
 To monitor client activity to detect
suspicious activity and due diligence
 None
 All of these
34 Does your bank provide KYC training to staff  YES
including identification and reporting of  NO
transactions that must be reported to  DON’T KNOW
government authorities?
35 Has your bank appointed a compliance officer  YES
for KYC?  NO
 DON’T KNOW
  NOT REQUIRED
36 What else do you think can be done to avoid
money laundering risks? Give your
suggestions/feedback

CASH MANAGEMENT QUESTIONNAIRE

Research Topic: Cash Management Products – a solution for toning
down the impacts of NPA

Research Methodology: Qualitative & Quantitative

Method of Data Collection: Questionnaire

GENERAL QUESTIONS

1. Name of the bank, based in, year of establishment

2. Is your bank a scheduled commercial bank or an unscheduled
bank?
3. Is it a private sector bank or a public sector bank?

CASH MANAGEMENT PRODUCTS QUESTIONS

A. What kind of cash management services do you provide?

B. Can you list some prominent products offered by your bank?
C. Do you offer these products on fee basis or float basis? If fee is
charged please mention the charges
D. In what form do clients share data with you? E.g. H2H, SFTP, etc.
E. Do you provide services in real time? If NO what do you do?
F. By when do you provide MIS report? (Daily, weekly, fortnightly,
etc.)
G. Do you provide customized MIS as per customer’s requirements?
H. Do you provide any value added service to attract customers?
Please mention a few
I. Do you have an agreement with cash pick up agency?
J. From how many different locations can the cash be picked up?
K. With respect to “Electronic based transactions” which ERP
software your bank chooses to use?
L. Do you have an agreement with other banks for service delivery?
M. How do you address grievances of your clients?
PERSONAL RESPONSES

1. What is the one thing which gives you competitive advantage over
your peers?
2. Do you see scope of improvement with respect to cash
management products of your bank? If YES please elaborate
3. What according to you should be an ideal cash management
product/service?

What is the NPA issue all about?

NPA is short for non-performing assets -a term used for loan where borrowers are
not able to pay the instalments in time. If the banking industry in any country has
bad loans within 3% it is considered manageable. But all of a sudden public sector
banks are reporting NPAs of 7-10%.

The reason why this is happening suddenly is that the Reserve Bank of India has
given banks a list of corporates which it has discovered are playing with the system -
repaying to some banks and not repaying to others. So RBI has asked even those
banks to whom the loans are being repaid to classify them as defaulters. This is
possible even if technically they are not in default with that particular bank as the
concept of cross default applies in banking.

To understand why there are so many stressed loans one needs to rewind to 2008.
Immediately after the global financial crisis when global markets had seized up and
trade had suffered, the Indian government decided to boost the economy by pumping
money into banks and asking them to restructure loans to companies who are going
through difficult times and not to classify them as defaulters. Restructuring
essentially meant giving banks more time and easier terms of repayment. Most of
this happened through public sector banks

This restructuring of loans had become the order of the day. Between March 2009
and March 2012, while total gross advances of the banking system grew at a
compound annual growth rate of less than 20%, restructured standard advances
grew by over 40%. Resultantly, the proportion of Restructured Standard Advances to
Gross Total Advances increased from 3.45% in March 2011 to 4.68% in March 2012.

In a 2012 speech RBI deputy governor KC Chakrabarty had highlighted how banks
had planted the seeds for bad loans by being liberal with the ‘corporate debt
restructuring’ mechanism.
Despite the problems coming to light as early as 2012, the drift continued. In 2013
after taking charge as RBI Governor Raghuram Rajan highlighted the need for
finding out ‘where the bodies are buried’

One of the steps taken by Rajan was to set up a central database of big-ticket loans
called the Central Repository of Information on Large Credits (CRILC). This helped
RBI identify which banks are not recognizing bad loans. For instance way back in
April 2015 HDFC Bank sold Essar Steel's loans at a steep discount following a
default, other banks continued to maintain the loan as a standard asset on their
books.

Towards the end of 2015 when it became clear that the global environment is not
going to be conducive for revival of sectors such as steel, power and engineering RBI
decided that time has come for deep surgery as band aids were not doing their job.
This prompted Rajan to call up banks and hand them a list of companies that were in
trouble.

How can the banks and government tackle the

problem of NPA?

Tackling NPA is easy if government and Bank decides to completely go for “No NPA
balance sheet”.

1) Government have to make some strong changes in policy of NPA and Bank loan
system. These changes are as follows

In current rules selling guarantees (securities like home, land, shops etc.) of
defaulters is like solving murder mystery.

 Government have to make this process easy for Banks so that Bank can
easily get their money back from the defaulters and also can give this money
as loans. So somebody who wants to start business can start their business
and make new jobs for others.
 Government have to give permission to Bank to sell the values of defaulters
 At present rules Bank don't give loans easily because of these regulations

Currently taking loans from Bank is much harder than being defaulter because Bank
can't do anything to defaulters. I think I don't have to give the example of Mr Mallya.

For current NPA if Bank sells all the guarantees of defaulters they will get 80% of
their loan amount. Other 20% they can easily cover from their profit if they give
loans in an easy manner to others and if someone from the others is defaulter they
can easily sell their guarantees as soon as that loan becomes an NPA. If this process
becomes faster there are chances of getting more money back from guarantees than
loan amount.

The situation of NPAs, stressed accounts, recovery rates has been worsening in the
Indian banking system. This has been identified after former RBI Governor Raghu
Ram Rajan started the process of annual review of banks loans. RBI and the
government have pushed Banks and NBFCs to recognize bad loans and make
provisions for it, instead of turning a blind eye to the situation. The most important
step in cleaning up the balance sheets of Indian banks is ensuring that all the bad
loans have been recognized as bad.

RBI has also issued guidelines to Banks to put in place Early warning system (EWS).
An effective EWS analyses internal as well as external signals on the companies on a
real time basis and alerts the Bank’s credit/risk analysts of the same. Other steps
contemplated are:

 Bankruptcy code
 Strategic debt restructuring schemes
 Setting up bad bank
 Setting up private AMCs
 Setting up oversight committee
These are the several steps that the RBI and the government are evaluating. But
foremost, the underwriting and the monitoring systems of the Banks will have to be
made more effective to identify stress accounts well in advance.

What could be an effective solution for removing

the NPA problem in India?

The best possible quote for removing NPAs is “Prevention is better than cure”

The main strategies of preventing slippage of standard assets into NPA category and
reducing NPAs are through cash recovery, up gradation, compromise and
settlements.

Preventing NPAs

1. At the pre-disbursement stage, appraisal techniques of banks need to be

sharpened. All technical, economic, commercial, organizational and
financial aspects of the project need to be assessed realistically. Bankers
should satisfy themselves that the project is technically feasible with
reference to technical knowhow, scale of production etc. If you sanction
more than the actual requirement the chances of going that account into
NPA is always HIGH.
2. A major cause for NPA is fixation of unrealistic repayment schedule;
repayment schedule may be fixed taking into account gestation or
moratorium period, harvesting, income generation, surplus available etc. If
the repayment schedule is defective both with reference to the quantum of
instalment and period of recovery, assets have a tendency to become NPA.
3. At the post –disbursement stage, banks should ensure that the advance
does not become an NPA by proper follow-up and supervision to ensure
both assets creation and assets utilization and waiting for the mandatory
period before classifying an asset as NPA, the banker should look for early
warning signals of NPA.
4. Personal visit and face to face discussion with a case of wilful default, during
discussion with borrower the banker may come to know details relating to
break down in plant and machinery, labour strike, change in management,
 death of a key person, reconstitution of the firm etc. All these factors have a
bearing on the functioning of the unit and on its financial status.
5. ‘Special Mention’ category of account, based on warning signals obtained
through both internal and external monitoring, bank may classify accounts
with irregularities persisting for more than 30 days under ‘Special Mention’
or potential NPA category which is a help for the bank to proactive cause for
early regularisation. The measures include timely release of additional
funds to borrowers with temporary liquidity problem and restructuring of
accounts of sincere and honest borrowers after considering cases on merit.
6. Classification of assets is yearly exercise bank would do well to have a
system of on-going classification of assets and quarterly provision. This
helps in assessing provisioning requirements well in advance. All doubts
regarding classification should be settled internally and a system of fixing
accountability for failure to comply with the regulatory guidelines should be
introduced.
7. Provision for doubtful assets is with reference to secured and unsecured
portion. 100% provision needs to be made for the unsecured portion. If
banks can ensure that the loan outstanding is fully secured by realisable
security, the quantum of provision to be made would be less. It takes one
year for sub-standard assets to slip into doubtful category. Therefore, as
soon as an account is classified as sub-standard, then one year become
classified as doubtful.

Reducing NPAs

Now-a-days, recovery is risk of credit on banks. It is also known as credit risk. A bank
credit risk has two distinct faces, ‘quality of risk’ and ‘quantity of risk’. It is observed
that the recovery is carried out in the banks by adopting following ways -

General Mechanism
All the banks operate general mechanism of recovery of NPA. All primary measures
to persuade the defaulting borrowers to repay their over dues like writing letters and
sending representatives of the banks to the borrowers for personal visits, cash
recovery, up gradation of assets, etc.

Instead of organizing a recovery drive banks must short list those accounts, the
recovery of which would provide impetus to the system in reducing the pressure on
profitability by reduced provisioning burden and the recovery of critical amount
(overdue interest and instalment). Once accounts become NPA, bankers should take
steps to upgrade them by recovering the entire over dues. Close follow-up will
generally ensure success.

Legal Mechanism

In case of legal mechanism it is observed that all the banks operated this mechanism
to the maximum extent involving Debt Recovery Tribunals (DRT), Lok Adalat,
Securitization Act, and Compromises (OTS), Write off.

Non-performing asset is a very important aspect of every banking sector. However

Government must take positive steps on the below points to strengthen the recovery
& stop the accounts from slipping into NPA
i) Management of NPAs in bank is poor

ii) Many factors are causing the problem and low response to compromise proposals.
It affects the business cycle. Business cycle increases the possibility of credit loss,
leading to higher interest provision requirement

iii) In the last few years asset’s quality is challenged in banking sector on account of
slowdown economy, uncertain clement and political interference.

Overall conclusion for four mantras used to reduce NPAs of banks

First is curtailing bank’s costs

Second expanding bank’s good quality assets

Third is development of bank employee’s skills

Fourth is reduction in NPA.

What are the causes of piling up of NPA?

That is more important to understand then only solution can be traced.

We have large private organizations creating super-large NPA.

Who is authorizing their loans? What assessment was carried out for these
approvals? Are there any malpractices followed during these assessments?

Is there any action taken against any officer for sanctioning any such
loan? This is a BIG BIG NO.

Another observation, all such are PSU banks, so you know “whose money is this?” No
one from higher authority is going to question this. If there is any action taken
against any employee, we have UNIONS to back them and choke the transactions.

What is the purpose of audits carried out every year? Are they not able to
pin point the NPA of larger amount?
The audits should not be on JUST random x% of cases. They should be towards the
benefits of the organization where larger amount is turning into NPA. Why such
audits are not carried out?

As government, they want to consolidate all the PSU banks into less number of
entities.
NPA in SBI will get diluted when we have assets from SBA, SBB, SBC,…, SBZ put
together, creating a rosy picture. Now you can also see the results where the NPA
percentage has gone down. So we have done a good job. So the stock price is also
going to go high so will be the index, it means that the economy is also doing well.
You see how it makes us appear good after sitting on this same pile of
NPA.

Now when there is support for such practices to paint a picture that the NPA are
reducing, then how can you expect and why are you asking for effective solution for a
problem which is already being treated.