1. CAPITAL

a. Capital Adequacy Ratio as per Basel III

Note: The Capital Adequacy Ratio of the Bank as on 31-03-2019 as per Basel - II norms is 14.81% and as on 31-03-2018 it was 12.67%.

a. During the year, the Bank has allotted equity shares to Government of India (“GOI”) on preferential basis as detailed below:

- 18,36,99,217 Equity Shares were allotted on 19.12.2018 under preferential basis at face value of Rs. 10 each at a premium of Rs. 29. 63 aggregating Rs. 728 Crore.

- 43,23,1 7,880 Equity Shares were allotted on 27.02.2019 under preferential basis at face value of Rs. 10 each at a premium Rs. 27.75 aggregating Rs. 1,632 Crore.

- 45,46,22,802 Equity Shares were allotted on 29.03.2019 under preferential basis at face value of Rs. 10 each at a premium of Rs. 25.26 aggregating Rs. 1,603 Crore.

b. During the year, the bank has exercised Call option for Basel III Non-compliant IPDI Bonds of ‘ 339 Crores carrying coupon rate of 9.40% p.a.

c. During the year, the bank has paid maturity of Lower Tier II Bond Series X of ‘ 300 Crores carrying coupon rate of 8.60% p.a.

d. The capital of Rs.500crore raised though ESPS treated as Share application money pending allotment is not considered for capital adequacy purposes.

2. INVESTMENTS

RBI vide circular no.DBR.No.BPBC.102/21.04.048/201 7-18 dated April 2, 2018 grants an option to spread mark to market loss on AFS and HFT investments for quarters ended December 31,2017 and March 31,2018, equally over four quarters commencing with the quarter in which loss is incurred. Further, RBI vide circular no DBR.No.BPBC.113/21.04.048/2017-18 dated June 15, 2018 granted an option to spread mark to market loss on AFS and HFT investments for quarters ending June 30, 2018 as well.

The Bank has availed both the options and accordingly has spread MTM loss on Government Securities in AFS and HFT category for the period Dec17 March 18 and June 18 over four quarters and charged MTM loss to Profit & Loss account amounting to Rs.248.09 Crore for the period ended June 30,2018 and balance entire unamortized depreciation amounting to Rs.585.79 Crore in the quarter ended September 30,2018.

(iii) Sale and transfers to / from HTM category

The value of sales and transfers of securities to / from HTM category does not exceed 5 percent of the book value of investments held in HTM category at the beginning of the year as per RBI guidelines.

(iv) SGL Bouncing

There was no instance of SGL bouncing during the financial year 2018-19.

2.1 Profit on account of sale of securities from HTM category amounting to ‘ 25,87,60,421.90 (Previous Year Rs.94,64,79,349.50) has been taken to Profit and Loss Account and thereafter appropriated towards Capital Reserve Account.

2.2 The amortization charges of Rs.296,72,69,784.00 (Previous Year Rs.272,09,55,070) on the HTM category of securities is debited to Profit and Loss Account and reflected in Schedule - 13, Interest Earned: Item II - Income on Investments as a deduction as per RBI Master Circular.

3. DERIVATIVES

3.A Forward Rate Agreements / Interest Rate Swap / Cross Currency Swaps

- Forward Rate Agreement and Interest Rate Swaps

During the financial years 2011-12, 2012-13 and 2014-15, Bank had raised Fixed Interest rate MTN funds in 3 tranches cumulating to USD 1400.00 Mio for 5 14 Years. Bank had entered into Interest Rate Swaps for USD 1265 Mio for converting the Fixed Interest Rates on Medium Term notes with the floating rates linked to Libor.

(1) Losses have been defined as Total Credit Exposure which is inclusive of Current Credit Exposure (Potential Future Exposure) and Replacement Risk (Positive MTM).

(2) Fair Value of Swaps book is the Net of MTM receivable and Payable on the above Swaps.

(3) Forward Rate Agreement (FRA’s) and Interest Rate Swaps (IRS’s) were undertaken by the Bank to hedge its own books and for managing assets and Liabilities mismatches. Currency Swap has been undertaken with customer for hedging their exposures and covered back-to back with identical terms.

(4) These Derivatives transactions are entered with counter parties satisfying the criteria as prescribed by the Credit and Treasury Policies. These Board approved policies prescribe various parameters/limits to manage and monitor Credit and Market Risks.

(5) The Accounting Policy for Derivatives has been drawn up in accordance with the RBI guidelines, the details of which are presented under Schedule 17 -Significant Accounting Policies 2018-19.

3.B Exchange Traded Interest Rate Derivatives

Currency Futures:

The Bank is undertaking proprietary trading in Currency Futures in USD/INR on the three Exchanges namely BSE, NSE & MCX. There is no Outstanding Contracts under Currency future as at 31-03-2019.

Interest Rate Future:

Exchange Traded Interest Rate Derivative is NIL. The Bank is not dealing in Exchange Traded Interest Rate Derivatives.

3.C Disclosures on Risk Exposure in Derivatives

a) Qualitative Disclosure

s The Bank has a well laid-down policy for undertaking derivative transactions approved by its Board. s The Bank is undertaking derivative transactions for hedging risks on its Balance Sheet as well as for trading / market-making purposes. Bank is undertaking derivative transactions like FRAs, Interest rate swaps, Currency swaps and Currency Options, with bank and Non-bank Counter parties. The Bank is only undertaking proprietary trading position in Currency Futures on two Exchanges.

s Forward contracts under past performance category are booked for clients with Rating SYND 01 - SYND 04 only and on complying with RBI guidelines. s During the year Bank undertook FRA for hedging Purpose to Mitigate Interest Rate Risk in Banking Book for Liabilities at London Branch. s Cross Currency swaps are undertaken for both principal and interest, back-to-back, thus hedging both exchange rate risk and interest rate risk without involvement of any outlays. s Cross-currency swaps are undertaken upto a period of 10 years, covering the same back-to-back without any open position. s Currency swaps are undertaken for non-bank counter party with ratings SYND 01 to 04 only.

s The Bank has set in place appropriate control system to assess the risks associated with Derivatives and MIS in place to monitor the same. s The Bank has a system of continuous monitoring and appraisal of Credit Risk limits of counter-parties. s Credit exposures for derivative transactions are monitored on the basis of Current Exposure Method (CEM). s Credit Risk is monitored by setting up counterparty exposure limits setting country risk exposure limits and mitigating settlement risk through CCIL / CLS. s The transactions with our Counterparty Banks and non-bank counterparty are undertaken within the limits approved by the Board. The transactions with non-bank counterparties are done on a back-to-back covered basis without assuming any market risk. s The Bank is neither having any exposure in complex derivatives nor it has any direct exposure to the sub-prime assets. s The Bank has neither crystallized and written off any account nor incurred any loss on account of undertaking derivative transactions. s The segregation of Front Office, Mid Office and Back Office is ensured to avoid conflict of interests and to mitigate the degree of risk. The Mid Office is directly reporting to Risk Management Department at Corporate Office, Bangalore.

s ISDA agreements are executed / exchanged with every counterparty banks and non-bank clients as per RBI guidelines. s Mid Office measures and monitors the risk arising out of trading deals independently.

s The transactions are undertaken within the overall Aggregate Gap Limits and Net Overnight Open position limits sanctioned by the Board / RBI. s Any transaction undertaken for hedging purpose, if it becomes naked, is treated as a trading transaction and allowed to run till maturity. s The transactions are separately classified as hedge or non-hedge transactions and measured at fair value. s The transactions covered on back-to-back basis and the transactions undertaken to hedge the risks on Bank assets and liabilities are valued as per the valuation prescribed and Interest is accounted on accrual basis. s Adequate provision is made for transactions undertaken for hedging purpose, which became naked resulting in mark-to market losses. However during the period no Hedge Transaction turned naked. s Transactions for market making purposes are marked-to-market at monthly intervals and those for hedging purposes are accounted for, on accrual basis.

s Collaterals are also obtained depending on the terms of sanction. s 99.51% of Derivatives (based on notional amount) fall under the short tenure of less than one year of remaining Maturity.

3.C Credit Default Swaps

During the Financial Year, the Bank has not traded in Credit Default Swaps.

3.D FCNR B Deposit Swap with RBI

In 2013, RBI introduced a US Dollar concessional Swap window for Fresh FCNR B Deposit for the period of 3 years in any permissible currency for the minimum tenor of 3 years or more. As on 31.03.2019 it is NIL.

4. PROVISIONS

a) Income Tax Provision

Following its consistent policy based on the advice of its tax consultants that MAT is not applicable to the Public Sector Banks, the Bank has calculated its current year tax liability.

B. Qualitative Disclosures

1. The main drivers for the contribution to the LCR are Excess liquid investments over the SLR (Statutory Liquidity Ratio) requirement, the Marginal Standing Facility (MSF) available from RBI and the facility to avail liquidity for LCR. Major outflows are the deposits. Promotion of acceptance of Term Deposits without pre-mature option will improve the ratio over a period.

2. High Quality Liquid Assets (HQLA) mainly consists of Cash, Excess CRR, Government Securities in excess of SLR requirements, Available MSF facility, Facility to avail liquidity for LCR.

3. Mainly the funding sources are concentrated with the retail deposits, Small Business Deposits and Deposits from non-financial corporate and funding from other legal entities.

4. Stable deposits comprise of deposits covered under DICGC scheme upto 1 Lakh. However, deposits of the depositors having established relationship with the Bank and deposits in transactional accounts are not considered as stable deposits.

5. The LCR would undergo change due to change in the interest rate scenario, likely pick-up in the credit etc.

6. Bank has modest derivative exposures and its contribution to the LCR is not significant. Currently potential collateral calls are not significant.

7. Major currency is INR and in other significant currencies USD is significant, for which LCR is prepared on Global basis.

8. Investment committee is the top level committee comprising of Managing Director & Chief Executive Officer, Executive Directors and the General Managers from significant departments like Treasury, Risk Management, Credit and Planning etc. This committee meets preferably twice in a week and as may be required depending upon the urgency. One of the major functions of the Investment committee is to review the Funds and Investment position of the Bank. The liquidity position and the projected cash inflow and the outflows will be discussed during this meeting.

9. ALCO reviews the position of LCR on monthly basis and provides the necessary directions if any.

10. Bank does not have any other major cash inflows and outflows omitted for the purpose of LCR computation.

11. In line with the RBI guidelines vide Circular No. DBR.No.BRBC.80/21.06.201/2014-15 dated 31.03.2015, LCR for the FY-2018-19, represents the average of four quarters during the year. Further the quarterly average of June-2018, Sept. 2018, Dec. 2018 and March -2019 represents the daily average of the respective quarters.

5. DISCLOSURE IN TERMS OF ACCOUNTING STANDARDS (AS)

i) Net Profit or Loss for the Period, Prior Period Items and Changes in Accounting Policies (AS 5):

There were no material prior period income/expenditure items requiring disclosure under AS-5.

ii) Revenue Recognition (AS 9):

As per Accounting Policy no. 8, given in Schedule - 17, Significant Accounting Policies, certain items of income are recognized on realization basis on account of statutory requirement or on account of materiality.

iii) Effects of changes in Foreign Exchange Rate (AS 11):

a) The net profit/Loss for the year includes an amount of ‘ 22.37 Crore profit {Rs.10.39 Crores Profit for the previous year} being the profit/loss booked under difference in Exchange on account of AS-11 valuation of FX Assets & Liabilities (excluding Mirrors).

b) Net Rrofit/Loss for the year includes the Mirror Revaluation profit for 2018-19 of Rs.29.01 Crore (T11.95 Crores Profit for Previous year).

c) Net Profit/Loss for the year includes Forward Revaluation loss for 2018-19 of Rs.2.67 Crore (Rs.1.62 Crore loss for Previous year).

d) In terms of Regulatory directives, Accounting Standard (AS 1 1) in respect of Forex Assets and Liabilities has been implemented to ensure a fair and true disclosure of the value of the same in the Balance-Sheet.

iv) Employee Benefits (AS 15):-

The Bank has accounted for employee benefits as per AS 15 issued by the ICAI.

A reconciliation of Opening and Closing Balances of the present value of the defined benefit obligations and the effects during the period attributable to each of the following is as under:

#: As per RBI letter no: DBR. BR9730/21.04.018/2017-18 dated 27.04.2018, the Bank is allowed to amortise additional provisions on Gratuity due to increase in limit to ‘ 20 Lakhs. Accordingly the Bank has assessed additional liability to the extent of Rs.167.19 Crore to be amortised over four quarters starting from quarter end March 2018. Consequently expenses recognised during the F.Y. 2018-19 in addition to the above is 125.40 Crore and accordingly there is no unamortised gratuity expense.

For Pending settlement of the proposed wage revision effective from November, 2017, an adhoc provision of Rs.374 Crores is held as at March 31, 2019 and additional amount of ‘ 260 Crore to built up pension fund is held as at March 31, 2019.

Note:

1. Figures of the previous period/year have been reclassified/regrouped/recost wherever considered necessary to make them comparable with the period under review.

2. As per guidelines of RBI on compliance with Accounting Standards, bank has adopted Treasury Operations, Corporate, Retail and other Banking Operations as Primary business segments and Domestic and International as Secondary / Geographic segments.

vi) Related Party Disclosures (AS 18):

(A) Names of Related Parties and their Relationship:

a) Subsidiary:

Syndbank Services Limited

b) Associates:

Prathama Bank

Karnataka Vikas Grameena Bank Andhra Pragathi Grameena Bank

In terms of RBI Circular on notes to accounts, key management personnel are whole time directors of Board for related party disclosure.

The transactions with the subsidiaries and certain associates have not been disclosed in view of Para 9 of AS 18 “Related Party Disclosure” which exempts State Controlled Enterprises from making any disclosures pertaining to their transactions with other related parties, which are also State Controlled.

ix) Interim Financial Reporting (AS 25):

The Bank is adopting the format prescribed by the RBI for the purpose of quarterly return of its accounts as per RBI Circular No.: D.B.S.A.R.S.L. No. BC. 2/08.91.001/201617 dated July 28, 2016.

x) Impairment of Assets (AS 28):

In the opinion of the management of the Bank, there is no indication of impairment of assets of the Bank.

xi) Provisions, Contingent Liabilities and Contingent Assets (AS 29):

Movement of provisions (excluding provisions for other)

6. OTHER DISCLOSURES

a) Provisioning pertaining to Fraud Accounts:

During the year, the total number of frauds occurred were 563 with an outstanding amount of Rs.1609.33 Crores and the same are fully provided net of CGC claims received and the quantum of unamorfised provision debited from “other reserves” as at the end of FY 2018-19 is Nil.

d) Penalties imposed by RBI:

During the year, Reserve Bank of India has imposed aggregate penalty of ‘ 3.00 Crore (Rupees Three Crore only) on the Bank in the exercise of powers conferred under Section 47(A)(1)(c) read with Section 46(4)(i) of the Banking Regulation Act,1949. (Previous Year Rs.5.00 crore). Rs One Crore under section 35A,46 & 47 of Banking Regulation Act,1949 & Rs. Two Crore under 35, 35A, 46 & 47A of Banking Regulation Act,1949

e) Draw down from Reserves:

During the year, withdrawal from reserves is NIL (without routing from profit and loss year).

IPDI/AT-1 Bonds Repayment:-

During the Financial year 2018-19, the Bank has made payment of interest an amount of Rs. 378.26 crore and during the quarter March 2019 interest payment amount is Rs.129.74 crore on IPDII AT-1 Bonds by drawing from Statutory Reserve while routing the expenses through profit and loss account in compliance with RBI vide circular no, DBR.BPBC.N0.50/21.06.201/2016-17 dated 2nd February 2017.

f) Status of Customer Complaints:

jj) Letter of Comfort issued by the Bank:

(a) Letters of Comfort issued in favour of overseas branch at LONDON by International Division, Mumbai & Branches.

The Bank has given an undertaking to FSA (Financial Services Authority) of U.K. with approval from the Board of Directors / RBI, that it will make available liquidity resources at all times to its London Branch (if needed) in connection with application made for “Whole form liquidity modification” of the London Branch under the new liquidity regime of FSA U.K.

Treasury and International Banking Department, Mumbai issued Letter of Comfort amounting to USD 75.00 Mio and also issued a letter of commitment amounting to USD 100.00 Mio (valid up to 31-12-2019) with approval from the Board of Directors of the Bank.

(b) Letters of Comforts issued by our Branches for the purpose of providing Buyer’s Credit facility to Corporate Clients:

Branches have issued Letters of Comfort on behalf of their corporate customers in favour of Syndicate Bank, London Branch for providing Buyer’s Credit, to the extent of Nil as on 31-03-2019 (Previous Year Rs.70.31 Crores). Letters of Comfort issued by the Branches for the purpose of providing buyers credit facility to corporate clients, in favour of various Foreign Banks and Indian Banks’ Branches outside India is Nil as on 31-03-2019 (Previous Year Rs. 1,120.25 Crores).

The Outstanding Gross Amount of Letters of Comfort issued by our Branches as at 31-03-2019 stands at Nil (Previous Year Rs. 1,190.56 Crores).

The financial impact on account of letters of comfort issued may not be significant when the quality of Letters of Comfort, Credit Ratings / World Rankings, Securities, Collaterals and Counter Guarantees available of / from the underlying reference entities are taken into account.

The bank has stopped issuance of LoU/LoCs for trade credit with effective from 13.03.2018 as per the directions issued by Reserve Bank of India vide Circular No. RBI/201 7-18/139 dated 13.03.2018. k) Insurance Business:

The total income from the Bancassurance Business during the year 2018-19 is Rs.1840.42 Lakh as against Rs. 1989.68 Lakh in the previous year. This comprises of Rs.362.85 Lakh (Previous Year Rs.616.79 Lakh) from Life Insurance business and Rs.1477.57 Lakh (Previous Year Rs.1372.89 Lakh) from Non Life Insurance business.

s) Fixed Assets

In respect of certain premises of the Bank, documentation formalities as to transfer of title are yet to be completed. However the Bank holds documents to prove its title as per the legal opinions obtained. t) Inter Branch transactions, clearing and other adjustment accounts, including with other Banks, which being an on-going process are at various stages of reconciliation. In the opinion of the management, there will not be any material impact on the financial statements arising out of such reconciliation.

The Bank has a policy with regard to capital and provisioning requirements for exposure to entities with Unhedged Foreign Currency Exposure (UFCE) which is based on RBI Circular No.DBOD.No.BPBC.85 / 21.06.200 / 2013-14 dated January 15, 2014 and clarifications received vide RBI Circular No. DBOD. No.BPBC.116/21.06.200 / 2013-14 dated June 03, 2014.

Data has been obtained from the borrowers as per the Bank’s policy and accordingly, provision of UFCE amounting to Rs. 45 Crores and additional RWA of Rs. 140.41 Crores has been provided, against which minimum capital requirement is Rs. 15.27 Crores for the year ended 31-03-2019.

w) The Bank has purchased Priority Sector Lending Certificates (PSLCs)-under General Category to the tune of Rs.1 200 crore as on March 201 9 and the same is taken into consideration for achievement of Priority Sector Obligation as per RBI norms.

x) Restructuring of MSME Advances:- As per the RBI circular No. BPBC.18/21.04.048/2018-19 dated January 1,2019 ,the following details are furnished :

Y. Implementation of Indian Accounting Standards (Ind As)

a. Status on Implementation of IND AS within the Bank

IND AS is applicable to the Bank in accordance with the notification issued by the Ministry of Corporate Affairs from FY 2018-19 and the Bank has initiated steps for implementation of IND AS (Indian Accounting Standards) from FY 2016-17 and accordingly put in place well-planned strategy for implementation and have made good progress during this financial year.

In line with the guidance issued by the Reserve Bank of India in August 2016, the Bank has set up a Steering Committee headed by the Executive Director that monitors the progress of the implementation. The Steering Committee comprises of General Managers from various functional departments of the Bank. Further, Bank’s Audit Committee of the Board has been reviewing the overall progress of the implementation of IND AS at regular intervals.

Deferment of Indian Accounting Standards (Ind AS) implementation RBI through the Press Release dated April 05, 2018 had deferred the implementation of Ind AS by one year (i.e. applicable from 2019-20) for Scheduled Commercial Banks. Further, RBI vide its circular no. DBR.BPBC-No.29/21.07.001/2018-19 dated March 22, 2019 has decided to defer the implementation of Ind AS till further notice.

b. Progress made so far:

- The Bank has completed a diagnostic study to identify the differences between the current accounting framework and IND AS (Indian Accounting Standards).

- Based on the diagnostic study, the Bank has assessed the impact and filed the pro-forma financial statements for the quarter ended June 2018, September 2018 and December 2018 with the Reserve Bank of India.

- The bank has undertaken required changes in policies and procedures.

- The Bank has identified changes required in accounting policies under IND AS.

- The Bank is performing an assessment of the system changes required in the Core Banking System and has commenced the design of the Expected Credit Loss Models.

Z. Previous year figures

Previous year figures have been regrouped / rearranged / recast wherever considered necessary to conform to the current year’s classification.