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1
Table-X: Divergence in RWA
As per NCAF
Particulars
As per bank As per SSM
Remark
3034264.92 3037972.79 Additional RWAs of 3707.87 mn
was added on account of inclusion
of corporate in Regulatory Retail in
one instance ( 16.36 mn), wrong
application of external rating in one
instance ( 486.00 mn) , application
on 50% CCF in financial guarantee
in two instances ( 405.15 mn ) and
Credit Risk – RWA
non-application of 150% risk weight
to unrated long term exposure of
corporates where the short term
unrated exposure were attracting
150% risk weight due to application
issue specific short term rating one
notch below the available rating (
2800.36 mn).
Market Risk – 113673.30 113673.30
RWA
Operational Risk – 305070.30 305070.30
RWA
Total RWA 3453008.52 3456716.39
2
1/2013-14 dated
July 1 2013
Direct Agriculture
amounting to Rs.
1230 has been
Indirect moved under
100774 172688 435 173484
2 Agricult Indirect
ure Agriculture as per
the above
mentioned
reason.
Total
403097 445977 909 445069 30738
Agricul
ture
Weaker 223943 139972 85 139887 84056
3
sections
Not eligible as per
para 2 of the
circular ibid as
Micro 177606 175249 393 683 166427 11179
4 investment in
MSME
plant machineries
were more than
50 mn
Not eligible as
per para 2 of the
circular ibid as
Small 188237 249 1313 185233
5 investment in
MSME
plant machineries
were more than
50 mn
Not eligible as per
208462 22 0 208440
6 Housing para 4.(i) of the
circular ibid.
Educati 1008 0 1008
7
on
PSL 5317 10 5307
8
Others
Increme
7342 0 7342
9 ntal
MSME
Adjusted Net As per Bank As per SSM
Bank Credit 2239433 2239433
* In case of NPA accounts reported under priority sector advances, the bank had included
memorandum of interest amounting to 2915 mn as achievement under priority sector advances
which has been declassified.
3
Annex–2: Computation of Outside Liabilities
Amount in
Sr. No. Particulars
MN
Total Liabilities excluding capital & reserves as on March
A
31 2014 4481209
Upper Tier II Instruments
40151
Subordinated debt
126281
Deposits
3673374
Borrowings 227959
Any other
4
Annex-3: Assessed Net Worth
Sr
.
Particulars Amount
N
o.
Paid up capital [including ESOP outstanding & interest free funds
A
from H.O. (foreign banks)] 4798
B Reserves and Surplus 429779
Statutory Reserve 91104
Capital Reserve (excluding revaluation reserve) 4396
General Reserve 34607
Share Premium 142564
Revenue Reserve (Balance of Profit and Loss Account) 146542
Other Reserve (Amalgamation Reserve) 10636
Foreign Currency Translation Reserve -70
Intangible assets (including net deferred tax assets) & accumulated
C
losses 18595
D Net Worth (book value) [A+B-C] 415982
E Adjustments following inspection findings 456
Additional Loan Loss Provision 0
Additional Standard Asset Provisioning 3
Net Deferred Tax Asset 0
Understatement of Liabilities 0
Any other Item ( Provision for Diminution in fair Value Restructured
Account) 2
Valuation adjustment for illiquid positions 451
Assessed net worth or real/exchangeable value of paid up capital
F
and reserves [D-E] 415526
5
Annex-4: Computation of Assessed Capital
Sr. Eligible
Particulars / Items
No. amount
Computation of Common Equity Tier 1 capital (CET1)
6
1 Add: Additional Standard asset provisions
2 Any other item to be specified
V Assessed Tier 2 (T2) capital available (T + U) 148556
W Reported T2 admissible for capital adequacy (Basel III Cap) 148556
X Assessed T2 admissible for capital adequacy (Basel III Cap) 148556
Computation of Total Capital (TC)
7
Annex-5: Assessment of Internal Generation of Capital
Sr.
Break-up of income and expenditure March 14 March 13 March 12
No
Total Interest/discount Income
1
(2+3+4+5) 411355 350649 278741
2 Interest/discount on advance/bills
316869 268224 211244
3 Income on investments
90368 78203 65046
4 Interest on balances with RBI
- - -
Interest on market lending/ Income on
5
other interest earning assets 4118 4222 2451
Fee based & stable misc. income
6
[6(a)+6(b) 57349 51669 43121
6a Fee based income
57349 51669 43121
6b Misc. income from stable sources 0 0 0
7 Gross stable income (1+6)
468704 402318 321862
8 Interest Expended (9+10)
226529 192537 149896
Interest on deposits/ all other interest
9
expense 190482 163206 126897
10 Interest on borrowings
36047 29331 22999
11 Net Stable Income (7-8)
242175 209781 171966
12 Income from trading*
1105 1613 (1959)
Realised gains on derivatives (P&L on
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forex operations)** 14011 10101 11388
14 Gains on sale of asset
33 (11) 15
15 recovery from w/offs
6226 4965 5033
Extra-ordinary income/ Dividend income &
16 472 189 238
other miscellaneous income
Gross volatile income
17
(12+13+14+15+16) 21847 16857 14715
Provisions and contingencies
18
(excluding tax) (19+20+21) 15873 16764 18769
19 Provisions for Loan losses
16326 12342 10918
Provisions for depreciation in
20
investments/NPI (41) 522 934
21 Other provisions
(412) 3900 6917
22 Extra-ordinary expenses
8
- - -
23 Write-offs
1201 789 631
24 Net Volatile Income (17-18-22-23)
4773 (696) (4685)
Assessed provision by supervisor
25
(26+27+28+29+30+31+32+33) 5 - -
26 Provisions for frauds
- - -
Provisions for understatement of NPAs,
27
and other problem accounts - - -
Provisions for divergence in evaluation of
investments and other assets between the - - -
28
assessment made by the bank and the
supervisory officer
29 Provisions for un-reconciled entries
- - -
Provisions for claims not acknowledged as
30
debt - - -
31 Provisions for derivatives
- - -
Provisions for wage settlements, pension
32
& gratuity - - -
Other Provisions(Additional standard
asset provision and Provision for -
33
Diminution in fair Value Restructured
Account) 5
34 Assessed net volatile Income (24-25)
4768 (696) (4685)
35 Reported net total income (11+24)
246948 209085 167281
36 Assessed net total income (11+34)
246943 209085 167281
37 Operational expenses (38+39+40)
119220 111574 92145
Staff expenses, Director’s fees/Board
38
Members’ fees & expenses 41790 39654 33999
Depreciation on bank’s property and
39
repairs 14599 14182 11610
40 Other Operating Expenses
62831 57738 46536
41 Provisions for tax
42944 30249 23466
42 Reported profit (35-37-41)
84784 67262 51670
43 Assessed profit (36-37-41)
84779 67262 51670
44 Dividend paid (excluding tax)
16433 13091 10091
45 Assessed Retained Earnings (43-44)
68346 54171 41579
9
* It consists of profit/(loss) on sale / revaluation of investments (net).
** It consists of Profit/(loss) on exchange/derivative transactions (net)
10
Annex–6: Leverage Ratio under Basel III
11
Annex–7
Details of Observations for Operational Non-IT Risk
KYC/AML:
a) The bank had not yet fully adhered to the requirement of unique identification code
for each customer. There was no system for de-duping/UCIC before opening of an
account either at branch or at Central Processing Unit (CPU) level.
b) The bank was opening corporate salary accounts after obtaining only one ID proof
i.e. copy of PAN card and no proof of address was obtained if the mailing address
was that of the employer. The bank merely relied upon the introduction given by the
employer having current account with the bank. Several frauds to the extent of
15.6 mn had been detected after disbursal of personal loans and credit cards to
corporate employees by way of fake documentation regarding salary certificates.
c) Some of the rules prescribed for risk categorization of customers were not capable
of assessing the true risk of the customer. Gross turnover of a company at less than
or equal to 15 lacs was categorised as low risk, irrespective of type of business.
Cash transactions in the account were only considered for reviewing the risk
category, even though other types of transactions may not be commensurate with
the declared turnover of the firm. Risk was reviewed only on the basis of declared
income/turnover only, at the time of risk review, No separate scenarios for
monitoring domestic wire transactions exclusively. Out of a sample check of 110384
accounts under UBS (corporate), 45 accounts were without risk allocation and
80766 accounts were under low risk including co-operative banks, stock brokers
and trusts etc.
d) For the purpose of CTR, the bank was not reporting amount aggregating more than
10 lacs in all the accounts of the same persons. CTRs were being generated only
when the amount exceeded 10 lacs in one single account.
e) The bank had allowed opening of account of proprietorship concerns even with one
of the minimum two documents required as per the guidelines delegating such
authority to its Grade D2 officers and above.
f) The account opening process required to be strengthened as internal guidelines of
the bank were not being followed meticulously. In some of the accounts opened
with Power of Attorney (POA), approval of Branch Banking Head (BBH)/Regional
Head (RH) was not obtained. Though the internal guidelines of the bank stipulated
Contact Point Verification (CPV) before opening of account, the same was not
found to have been conducted in large number of cases, even in cases where the
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requirement was not waived in terms of the delegation of authority laid down by the
bank.
g) Approval delegation was conferred upon branch head for opening of accounts with
exceptions including name mismatch on documents, incomplete CPV details etc.
h) The bank had no mechanism to monitor multiple cash transactions by walk-in-
customers at one branch or at multiple branches.
i) In case of co-operative banks, the bank had no internal guidelines regarding cash
payment to third party against “self” or bearer cheques to monitor cash withdrawals,
as any amount from any branch of the bank can be withdrawn. The bank had not
framed any guidelines regarding third party payment at home/ non home branches.
j) For current accounts of foreign/ private banks, customer profiling was a one-time
activity.
k) The bank had no system of generating any AML alert for the accounts which were
opened and closed on the same day or within a period of 0-7 days/ very short
period. 554 accounts out of a sample of 6307 were found closed within a period of 7
days.
l) The bank had filed 7451 STRs from April 01, 2013 to October 31, 2014, out of
which 285 were on account of false/ forged documents, address found to be wrong/
non-existent, match with other TF list, criminal background and identity documents
not identifiable. The bank had not initiated any steps for terminating the banking
relationship after issuing due notice to the customer explaining the reasons and a
decision at higher level was not taken.
m) As per the data provided for the sample study of 21 randomly selected branches,
there were 53880 accounts where re-KYC was due but was not carried out.
n) There was no system in place for monitoring of FEMA violations in all prepaid cards
as the loading / reloading was on the basis of customers’ self declaration.
o) Vostro accounts: There was no system level control to prevent any fund transfer
between Vostro accounts and real time conversion into INR for inward forex
remittances. Operational manual detailing processes and procedures was not
documented. The bank had 448 branches which exceeded the RBI stipulation of a
cap of 300 drawee branches. Vostro account of World Exchange House was
opened without prescribed documentation including agreement. There was no
systemic mechanism to check the purpose code especially in mode of payment like
DD, RTGs, NEFT and crediting trusts accounts by the beneficiary.
p) The bank had no policy for establishing correspondent banking relationship with
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foreign banks/ foreign financial institutions and not prescribed operative procedures
for the staff to guide them in complying with the requirements in Master circular on
KYC/ AML. The bank had not obtained certain declaration/ documents such as
declaration in AOF that the bank/ institution had physical presence in the country of
its operation, does not have any relationship with any Shell bank, identification of
key senior management functionaries and major shareholders, prime line of
business operations, FATF compliance, AML/CTF controls, identification of the
regulatory agency which exercises oversight on the applicant bank etc.
q) The bank was having a common account opening form for regular SB accounts as
well as Basic Savings Bank Deposit Account (BSBDA). The schedule of charges
pertaining to BSBDA were also similar on line with normal SB accounts, and were
misleading inasmuch as there was no communication to the customers that offering
of value-added services at extra cost would render such an account non-BSBDA.
r) There was no audit trail in the system to show that the decision to file an STR with
FIU-IND was actually taken by PMLRO.
s) Apart from the alerts being generated by the AML application, the bank had been
generating exception reports for 48 scenarios by running query directly in various IT
systems. A group of 6 to 8 AML team members ran through the exception reports
&selected certain cases "manually". Hence, a lot of subjectivity existed in such
cases for identifying transactions before sending the same to branches for their
responses or disposing the same by the AML team. In some cases STRs were
directly filed without any analysis at all.
t) The quality of closure of alerts generated through exception report was a matter of
concern because there was no audit trail as to who examined the alerts for which
STRs were filed. Further, threshold limits for generating exception report were
disclosed to everybody.
Frauds and Vigilance:
a) The bank did not analyze the occurrence of frauds in terms of “system failure” or
“human failure”, borrowal/non-borrowal accounts, state wise concentration etc.
b) The bank had not fixed up a benchmark tolerance level for operational risks arising
from trend of frauds. Operational risk arising due to technological failure, fraud,
error, inadequate financial capacity to fulfill obligations was not reviewed.
c) The Fraud Monitoring Committee had not met immediately after detection of frauds
of more than one crore on January 11, 2014 and March 10, 2014. It had met in
March for its scheduled regular meeting.
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d) During 2013-14, HLIC related 16 complaints received by the bank on account of
Forgery (signature done by someone else/ records changed without intimation etc)
were not investigated by the Vigilance department and were closed at branch end.
The bank had not taken action against the erring employees and declared the
cases as frauds, where mis-selling was proved as per the internal investigation and
the entire amount of policies was ordered to be refunded to the customer.
e) The bank had not formed a dedicated and well organized unit for fraud monitoring
investigation/continuous surveillance over potentially fraud prone areas and follow
up function to be discharged in a centralized manner instead of leaving it to
subordinate offices where such specialization is not available.
Complaints:
a) During the year more than 50% (1456 out of 2809 complaints) of the complaints
received at branches were not addressed within the stipulated turnaround time.
Further, in 23% of cases the bank had not issued acknowledgement to the
complainant.
b) The single largest category of complaints at the branches pertained to mis-selling of
insurance products including debit of premium from the account where the consent
of customers was not obtained, product features etc. not explained.
c) The complaints pertaining to sale of insurance products were being closed at the
branch level without escalating them to head office level. These were also not being
forwarded to fraud/vigilance for investigation.
d) Complaints even pertained to cases where insurance product was sold to
customers even though a fixed deposit had been requested.
e) The bank needed to step up its efforts to identify and address the cases which led
to complaints that were recurring in nature e.g. staff related complaints mis-selling
etc.
f) Contrary to regulatory guidelines, complaints regarding corruption and malpractices,
misconduct on the part of employees etc were not recorded as complaints, though
they were being dealt with directly by the vigilance department for investigation. The
disclosure of the bank regarding complaints was incorrect to that extant.
Customer Service:
a) The bank needed to strengthen the system of sending positive confirmation to
remittance originator for NEFT transactions to walk-in-customers.
b) The bank had not allotted a separate product code for accounts opened under
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various Central /State Govt. schemes for crediting cheques/ direct benefit transfer/
electronic benefit transfer.
c) The bank had no mechanism for auto credit of penal interest in case of delayed
NEFT.
Outsourcing:
a) Almost all the CIT vendors had exceeded the cash withdrawal limit (more than the
security offered to the bank in any form) at one or the other specific point of time.
b) CIT agency in Jammu continued to provide services during July, August, and
September 2013 without any agreement with the bank as the same had expired.
c) The bank’s dependence on outsourced employees and consequent concentration
risk was observed to be towards the higher side as about 50% of the employees
involved in operations and processes were from ADFC, HBL and contract
employees.
d) A periodical review of the effectiveness of outsourcing policies and procedures was
not done by the senior management.
e) The regional quarterly audit reports on CITs were not reviewed by the centralized
team for effective monitoring.
f) The bank had an agreement with VISA Processing Service (India) Private Ltd, for
authentication of transactions initiated by a bank’s customer using bank’s card for
which the service provider had set up its data centre at Singapore. The bank had
not ensured through agreement that the jurisdiction of the courts in off-shore
location where data is maintained did not extend to the operations of the bank in
India on the strength of the fact that the data was being processed there even
though the transactions were undertaken in India.
16
made through DD by the customers and deposited with the bank, there were delays
of more than one month in the issue of policy.
e) The bank had altered the minimum eligible amount of single one time premium in
some of the HDFC life insurance policies from 25,000.00 to 2,50,000.00, as
compared to that offered by HDFC SLI.
f) Some e-mail documents provided by the bank indicated that HDFC SLIC had
offered incentives for enhanced target achievement, in the form of training at
Portblair for employees of the bank, through mails to the respective clusters. These
mails were then forwarded by the clusters to every employee within the cluster.
Such incentive was prohibited in terms of IRDA guidelines. Additionally, the HDFC
SLI mail suggested that the sales could be made by non specified persons too as
the qualification certificates were to be submitted at a later date i.e. March 31, 2015.
MIS:
The bank’s MIS was incapable of generating details of all accounts such as deposits,
borrowings, credit cards etc. of the same customer as there were several systems in
which the data was stored. Similarly, disaggregation of details regarding alerts
generated by AML software, audit alerts, exception reports etc. for the purpose of filing
of STRs was also not possible.
Concurrent Audit:
The concurrent audit system of the bank needed strengthening to be concurrent in
nature. It was observed that
(a) Certain areas/activities such as Vostro accounts, loan against gold jewellery and
financial securities, Trade finance CPUs, gold banking/ metal loans, currency chest
operations etc. were not covered under concurrent audit, the bank may review the
areas required to be covered under concurrent audit.
(b) Though the branches were required to respond promptly regarding bonafides of
transactions on the 1 crore portal’, the same was not being covered by the
concurrent auditors as they have not been provided access rights.
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