INSTITUTE OF PROFESSIONAL EDUCATION AND RESEARCH

BUSINESS ENVIORNMENT

TRIM-3
Assignment -1 Impact of Corporate Governance on the Kotak Mahindra Bank

Kotak Bank

INTRODUCTION

Kotak Mahindra Bank is an Indian financial service firm established in 1985. It was previously
known as Kotak Mahindra Finance Limited, a non-banking financial company. In February 2003, Kotak Mahindra Finance Ltd, the group's flagship company was given the license to carry on banking business by the Reserve Bank of India (RBI). Kotak Mahindra Finance Ltd. is the first company in the Indian banking history to convert to a bank. Today it has more than 20,000 employees and Rs. 10,000 crore in revenue. Since the inception of the erstwhile Kotak Mahindra Finance Limited in 1985, it has been a steady and confident journey leading to growth and success

CORPORATE GOVERNANCE PHILOSOPHY

The Company firmly believes in and has proactively adopted the best policies of corporate governance to ensure transparency, professionalism and accountability in its dealing with shareholders, customers, creditors, Employees and every person who enters into contact with the Company The Company believes in monitoring its performance regularly and with utmost transparency so as to enable the optimum utilization of its resources. The Company has a professional Board, which provides strong oversight and strategic counsel to the operational management. Abhinav has established systems and procedures to ensure that it remains fully complied with all mandated regulations and achieve business excellence to enhance stakeholder value.

COMPOSITION, MEETING AND ATTENDANCE

The composition of the Board of Directors of the bank is governed by the Banking Regulations Act, 1949 and Clause 49 of the listing Agreement. The Board Of Directors, comprising a combination of executive and non-executive directors, presently consist of nine members, of whom six are non-executive directors. The chairmanof the Board is a nonexecutive Independent Director and six out of nine directors are independent.

MEANS OF COMMUNICATION
The Company has published quarterly, half yearly as well as annual results in Free Press Journal (English Daily News Paper) and Navshakti (Marathi Daily News Paper).

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Board Of Directors

Name Age Designation Qualification

Date of Joining

Dr. Shankar Acharya 65 years Non-Executive Part-time Chairman B.A. (Hons.) from Oxford University and Ph.D. (Economics) from Harvard University, 20th July 2009

Name Age Designation Qualification Date of Joining

Mr. UdayKotak 52 Years Executive Vice-Chairman and Managing Director B.Com, MMS (Masters in Management Studies), Over the past 25 years

Name Age Designation Qualification Date of Joining

Mr. C. Jayaram 55 years Joint Managing Director B. A. (Economics), PGDM-IIM, Kolkata with the Kotak Group for 21 years

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Name Age Designation Qualification Date of Joining

Mr. Dipak Gupta 60 years Joint Managing Director B.E. (Electronics), PGDM-IIM, Ahmedabad 19 years of which have been with the Kotak Group

(Independent Director)
Name Age Designation Qualification Date of Joining Mr. AsimGhosh 63 years Director of the Bank B.Tech, Delhi and MBA from the Wharton School, University of Pennsylvania 28th July 2008

(Independent Director)
Name Age Designation Qualification Date of Joining Dr. SudiptoMundle 62 years Director of the Bank graduated from St. Stephen College, New Delhi, and has a Ph.D. in Economics from the Delhi School of Economics. 21st July 2010

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(Independent Director)
Name Age Designation Qualification Date of Joining Mr. PrakashApte 57 years Director of Syngenta Foundation India and Kotak Mahindra Old Mutual Life Insurance Limited Since last 15 years

(Independent Director)

Name Age Designation Qualification Date of Joining

Mr. Narendra P. Sarda 65 years Director of the Stock Exchange, Mumbai (BSE) B.Com, F.C.A

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Directors Composition
No Of Directors in other Companies No. of Committee Positionsheld in Bank & other Public Companies

Position

Indian Companies Independent Non -Executive Part -time Chairman Executive Vice-Chairman & Managing Director, Promoter Executive Director Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director Independent Non Executive Director Non- Executive Director Independent Non- Executive Director Independent Non- Executive Director

Other Indian Companies

Chairman 1

Member

6 5 5 1 1 9 1 3

1 1 1 8 -

2 1 1 1 -

2 4 4 1 1 1 1 2

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CHANGE IN SHARE PRICE

Share Prices (Daily)

1000 900 800 700 600 500 400 300 200 100 0

Trend Line

Average Return Of Rs 1.23 daily

900 800 700 600 500 400 300 200 100 0

Average Return Of Rs 16 monthly

1 17 33 49 65 81 97 113 129 145 161 177 193 209 225 241 257 273 289 305 321 337 353 369 385 401 417 433 449 465 481 497 513
Linear (Series1)

Share Prices (Monthly)

1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30 31 32 33 34 35 36 Series1

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FINANCIAL PERFORMANCE OF FIRM

Mar '11 Capital and Liabilities: Total Share Capital Equity Share Capital Share Application Money Preference Share Capital Reserves Revaluation Reserves Net Worth Deposits Borrowings Total Debt Other Liabilities & Provisions Total Liabilities 368.44 368.44 0 0 6,464.95 0 6,833.39 29,260.97 11,723.95 40,984.92 3,032.36 50,850.67

Mar '10 Assets Cash & Balances with 348.14 RBI Balance with Banks, 348.14 Money at Call 0 Advances 0 Investments 4,191.78 Gross Block Accumulated 0 Depreciation 4,539.92 Net Block Capital Work In 23,886.47 Progress 6,140.51 Other Assets 30,026.98 2,869.42 37,436.32 Total Assets

Mar '11

Mar '10

2,107.72 363.26 29,329.31 17,121.44 831.8 406.2 425.6 0 1,503.33

2,085.67 214.59 20,775.05 12,512.66 745.34 317.69 427.65 0 1,420.69

50,850.66

37,436.31

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Series1

Financial Higlights
Surplus carried to Balance Sheet -317 Corporate Dividend Taxx Proposed Dividend Transfer to Special Reserve Transfer to Capital Reserve

% Change from 2010

55

24 -28 -90

-2355 Transfer to / (from) Investment Reserve Account General Reserve Statutory Reserve under Section 17 of the Banking Regulation Act, 1949 Appropriations: Amount available for appropriation Add: Surplus brought forward from the previous year Profit after tax Provision for taxes Profit before tax -72 Provisions and contingencies, excluding tax provisions Operating Profit Total expenditure, excluding provisions and contingencies Total Income 2 40 27 47 49 46 48 46 46 46

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ANALYSIS

On financial year 2008-2009

Kotak Mahindra Bank ranked in the top 5 of companies with Best Corporate Governance Practices in Asia/Pacific IR Global Rankings 2009. On 31 March 2009 the year ended with a profit of Rs6.5 billion consolidated after tax for the year and ended thequarter with a profit of Rs 2.1 billion for the quarter. The mutualfund business did well, ended the year with Rs 161 million rupeesof profits. The end of the year with a book value of Rs 189 per share.

On financial year 2009-2010:-

Q1 of 2009 ended with Profit After Tax consolidatedlevel of Rs. 2.57 billion which is 72% higher than 1.49 which was last year. Theimmediately preceding quarter we had a Profit after Tax of 2.1 consolidated. The quarter ends with the net worth of 67.99 billion and a book value of Rs. 196 per share. In Q2 in the year ended 31st September 2009 end the corporate bank advances were 57 billion. Overall at the end of the quarter Q2the profit after tax of 2.997 billion rupees for this period. They clocked profit of Rs. 3.3 billion for the Q3 which compared to the same period last year a rise of 153%, last year this quarter was Rs. 1.3 billion. During the year, the bank picked up several awards. Just to mention couple of them, for the second time running, they were amongst the best employers by Hewitt India, and
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Kotak Bank
IR Global came up with the ranking of the best corporate governance practices globally. The top 30 across the world had 2 Indian companies. No. 1 was Infosys, and kotak were at No. 2.

The Q4 ended, at a consolidated level, had a profit after tax of Rs. 4.18 billion with the bank contributing almost half of that number at Rs. 2 bn plus. Prime was the other big contributor at Rs 0.6 bn. Insurance had a record quarter at Rs. 0.44 bn. They continue to have high NIMs at 6.3%. Their return on net worth for the year is 18.2%.

In the year ended the profits was Rs 5.6 billion. Income has grown, up from Rs. 17.9 bn to Rs. 24.8 bn with the overall expenditure being pretty much under control or reasonably flattish for the year.

On financial year 2010-2011: On Q1 of 2010 at the consolidated level, they have a profit after tax for the group at Rs.3.27 billion which is as against Rs. 2.57 billionThe same period last year. Overall income they are at about Rs.22 billion for the quarter which is compared to Rs.19 billionfor the same period last year with most of the segments showing upward swings. At end of Q1 period they have a net worth of Rs.82 billion with a book value per share of Rs.237. They ended the September quarter at a consolidated profit of 3.64 billion rupees which is up from about 3 billion the same period last year, which means they have ended this half year with a profit of 6.9 billion. In Q2 Mortgage loans have been the biggest rise in terms of percentage, at 59 billion it's about 68% higher than last year same period. The other growth is coming from both auto and the commercial vehicle segment. The only area which has seen a negative is the unsecured personal loan fees which we are now at 11.6 compared to 17 billion last year.

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In Q2 Kotak Mahindra Capital at 73 million, much better than the same period last year and a marginal rise over theimmediately preceding quarter. For the quarter ended December 2010 they at a consolidated level end the quarter with a profit of ` 383.6 crores which is about 16% higher than same period last year which was `331crores. This takes them to their nine month profit to Rs` 1075 crores for the period endedDecember. Consolidated PAT for FY11 up 20% to ` 15,667 million from ` 13,070 million in FY10. Consolidated PAT for Q4 was Rs 4,914 million - up 17% from ` 4,186 million in Q4FY10 and up 28% fromRs3,836 million in Q3FY11.

This was the highest PAT in the 25 year history, both for the year and for the quarter. Kotak Mahindra Bank was among the top 25 employers in India as per the Hewitt Best Employers in India study 2011. It is the only BFSI (banking financial service and insurance) Company included in the top 25 employer category.

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PERCENT CHANGE IN ASSETS & LIABILITIES IN COMPARISON OF PREVIOUS YEAR

100 90 80 70 60 50 40 30 20 Percent 10 Change in 0

Liabilities

2011

Total Equity Share Prefere Reserv Revalua Net Deposit Borrow Share Share Applica nce es tion Worth s ings Capital Capital tion Share Reserv Money Capital es 0 0 54.2292 0

Series1 5.83099 5.83099

Other Total Liabiliti Liabiliti es & es Provisi ons 50.5179 22.5002 90.928 36.4936 5.6785 35.8324

Total Debt

70 60 50 Percent 40 Change in 30 20 2011 10 0 -10

Assets

Cash & Balance Advance Investm Gross Accumul Net Capital Other Balances with s ents Block ated Block Work In Assets with RBI Banks, Deprecia Progress Money tion at Call Series1 1.05721 69.281 41.1756 36.8329 11.6001 27.8605 -0.4794 0 5.81689

Total Assets

35.8325

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Report On Corporate Governance
Corporate governance is the system by which companies are directed and controlled. (Sir Adrian Cadbury, the Committee on the Financial Aspects of Corporate Governance). Corporate governance is the relationship between corporate managers, directors and the providers of equity, people and institutions who save And invest their capital to earn a return. It ensures that the board of directors are accountable for the pursuit of corporate objectives and that the Corporation itself conforms to the law and regulations (International Chamber of Commerce). The Bank believes in adopting and adhering to the best standards of corporate governance to all the stakeholders. The Banks corporate governance is, therefore based on the following principles: Appropriate composition, size of the Board and commitment to adequately discharge its responsibilities and duties. Transparency and independence in the functions of the Board. Independent verification and assured integrity of financial reporting. Adequate risk management and Internal Control. Protection of shareholders rights and priority for investor relations. Timely and accurate disclosure on all matters concerning operations and performance of the Bank.

The Banks philosophy on corporate governance enshrines the goal of achieving the highest levels of transparency, accountability and equity in all spheres of its operations and in all its dealing with the shareholders, employees, the government and other parties. The Bank understands and respects its fiduciary role and responsibility to shareholders and strives hard to meet their expectations. The report on the Banks corporate governance, as per the applicable provisions of the Clause 49 is as under:

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I.

COMPOSITION, MEETING AND ATTENDANCE

The composition of the Board of Directors of the Bank is governed by the Banking Regulation Act, 1949 and Clause 49 of the Listing Agreement. The Board of Directors, comprising a combination of executive and non-executive Directors, presently consists of nine members, of whom six are non-executive Directors.

The Chairman of the Board is a Non-Executive Independent Director and six out of nine Directors are independent. The Board mix provides a combination of professionalism, knowledge and experience required in the banking industry. The responsibilities of the Board inter alia include formulation of policies, taking new initiatives, performance review, monitoring of plans, pursuing of policies and procedures.

II.

BOARD MEETINGS

Scheduling and selection of agenda items for board meetings: Dates of the board meetings are decided in advance. The board meetings are convened by giving appropriate notice after obtaining the approval of the Chairman and the Executive ViceChairman and Managing Director. The Board meets at least once a quarter to review the results and other items on the agenda and also on the occasion of the annual shareholders meeting. When necessary, additional meetings are held. The agenda of the board meetings is drafted by the Company Secretary along with the explanatory notes and these are distributed in advance to the Directors. Every Board member is free to suggest the inclusion of items on the agenda. All divisions/departments in the Bank are encouraged to plan their functions well in advance, particularly with regard to matters requiring discussion/ approval/ decision in the Board/ Committee meetings. All such matters are communicated to the Company Secretary in advance so that the same could be included in the agenda for the board meetings.

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The agenda papers are prepared by the concerned officials of the respective department and are approved by the Executive Director/s and/or Executive Vice-Chairman and Managing Director. Agenda papers are circulated to the Board by the Company Secretary. Additional items on the agenda are permitted with the permission of the Chairman. To address specific urgent need, meetings are also convened at short notice. The Board also passes resolutions by circulation on need basis. Minutes of the proceedings of the Board meeting are prepared within 48 hours of the meeting. Draft minutes are circulated to the Chairman for his comments. The minutes of all the Committees of the Board of Directors of the Bank and the minutes of the meetings of the Board of Directors of the subsidiary companies of the Bank are placed before the Board. The quarterly, half-yearly and the annual results for the consolidated entity and for the Bank stand alone are first placed before the Audit Committee of the Bank and thereafter the same are placed before the Board of Directors. A Compliance Certificate, signed by the Executive Vice-Chairman and Managing Director in respect of various laws, rules and regulations applicable to the Bank is placed before the Board, every quarter. The Bank has put in place a post meeting follow-up, review and reporting process for the action taken on decisions of the Board. The Company Secretary submits follow-up Action Taken Report to the Board at each meeting on the compliance of the decisions/instructions of the Board. During the year under review, eight meetings of the Board of Directors were held on 11th May 2010, 29th June 2010, 30th June2010, 21st July 2010, 20th October 2010, 28th December 2010, 20th January 2011 and 18th March 2011. The maximum time gap between any two meetings was not more than three calendar months. The average duration of the board meetings held is approximately three hours.

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III. DETAILS OF DIRECTORS ATTENDANCE

DIRECTORS REMUNERATION

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SITTING FEES OF DIRECTORS

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IV. AUDIT COMMITTEE

The Audit Committee of the Bank comprises of three members, with any two forming the quorum.

V.

INVESTOR RELATIONS (SHAREHOLDERS/INVESTORS GRIEVANCE) COMMITTEE

The Investor Relations Committee of the Bank consists of four members, with any two forming the quorum. The Committee presently consists of Mr. AsimGhosh (Chairman), Mr. UdayKotak, Mr. C. Jayaram and Mr. Dipak Gupta. The Investor Relations Committee reviews the complaints received from the shareholders and ensures redressal thereof. The constitution and composition of the Committee is in accordance with the provisions of Clause 49 of the Listing Agreement with the Stock Exchanges and the criteria specified by the Reserve Bank of India. The Company Secretary acts as the Secretary and has been appointed as the Compliance Officer of the Committee.

VI.

ESOP/COMPENSATION COMMITTEE

The ESOP/Compensation Committee of the Bank comprises of three members, with any two forming the quorum. The constitution and composition of the Committee is in accordance with the guidelines issued by Reserve Bank of India. The ESOP/Compensation Committee has been constituted to recommend/review overall compensation structure and policies; consider grant of stock options to employees; review compensation levels vis--vis other banks and industry in general and determine the compensation payable to the Directors including performance/achievement bonus and perquisites.

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VII.

SHARE TRANSFER AND ROUTINE TRANSACTIONS (START) COMMITTEE

The START Committee of the Bank consists of Mr. UdayKotak (Chairman), Mr. C. Jayaram and Mr. Dipak Gupta, with any two forming the quorum. Some of the term followed by this committee is as follows: To approve transfer, transmission, transposition, name deletion, consolidation and splitting of share and debenture certificates of the Company. To issue duplicate share/debenture certificates. To apply for registration of the Company with various authorities of any state or Centre including sales tax authorities, income tax authorities, shops & establishment authorities, and to do or perform all matters relating to such matters. To apply, in the name of and for the Company for telephone, telex, fax and other telecommunication and electrical/electronic connections and to do all matters relating to such applications. To open, operate and close

VIII.

NOMINATION COMMITTEE

The Nomination Committee of the Bank consists of three members, with any two forming the quorum. Presently, the Committee consists of Mr. UdayKotak (Chairman), Mr. C. Jayaram and Mr. Dipak Gupta. The terms of reference of the Committee include appointment of senior management personnel and making recommendations to the Board for appointment of Directors or filling of vacancies on the Board. In addition, the Committee also evaluates whether the members of the Board of Directors of the Bank adhere to the fit and proper criteria as prescribed by the Reserve Bank of India.

IX.

MANAGEMENT COMMITTEE

The Management Committee of the Bank consists of four members, with any three forming the quorum. The Committee has been constituted to review all important matters to be placed before the Board, assess adequacy of policies on an on-going basis, review business operations, corporate governance, and implementation of policies, to establish systems for facilitating efficient operations and to approve donations.
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X.

CUSTOMER SERVICES COMMITTEE

The Bank has, pursuant to the directives issued by the Reserve Bank of India, constituted a Customer Services Committee on 22nd September 2004. The Committee presently consists of three members viz; Mr. AsimGhosh (Chairman), Mr. UdayKotak and Mr. DipakGupta. The Committee has been constituted to bring about ongoing improvements in the quality of customer services provided by the Bank. The Committee would also oversee the functioning of the Customer Service Standing Committee, compliance with the recommendations of the Committee on Procedures and Performance Audit and Public Services (CPPAPS) and also mount innovative measures for enhancing the quality of customer service and improving the level of customer satisfaction for all categories of cliental, at all times. During the year, two meetings of the Committee were held on 20th July 2010 and 27th October 2010. All the members attended both the meetings.

XI.

CODE OF CONDUCT

The Board of Directors of the Bank at its meeting held on 18th March 2011 adopted the revised Code of Conduct for the purpose of Clause 49 applicable to the Board of Directors and Senior Management.

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CORPORATE SOCIAL REPORTING OF THE FIRM (2009-2011)

On January 22-29 2010 they undertook the following initiatives in order to raise awareness and serve our community better. They continued their Blood Donation activities that they began last year through their voluntary blood donation program. A blood donation drive was conducted on the occasion of Republic Day in 8 cities this year and donors helped collect 835 units, which in effect could save 2,505 lives. Voluntary organizations live Red Cross Blood Bank were their partners in this drive. With the help of '1098 Ambulance for All' and 'Life Supporters Institute of Health Sciences', they arranged for training program for their staff in first aid and basic life support. Today they have more than 100 trained staff members who can offer basic life support and first aid to citizens. The other campaign that we championed this year include the 'Eye Donation' and 'World Sight Day', which involved raising awareness and increasing eye donation pledges. They extended oyr support to 'Cancer Patients Aid Association (CPAA)'. To rise funds for CPAA and to spread awareness about the disease, around 60 Kotak employees participated in the Mumbai Marathon. Through the marathon, they helped rise over Rs 9 lakh for the social sector. Jan 17, 2010 - Over 60 employees of Kotak group participated in the Mumbai Marathon 2010, to support the Cancer Patients Aid Association. On 5- 13 September 2009 they collaborated with organizations like 'Goonj' and 'Vidya' to support the cause of education. Their employees volunteered time and also donated school books and stationery for underprivileged school children through 'Goonj'. These initiatives helped over 1,000 beneficiaries in different cities. Jun 17, 2009 - Initiated the 'Employee Volunteering Program' with Kotak Education Foundation, wherein 65 employees volunteered and taught children Mathematics and English on weekends. Jun 23, 2009 - Observed 'No Printing Day' across the Kotak group to promote conservation in our daily operations. Aug 9, 2009 - A Nature Trail was organized for the employees to sensitize them about our eco-system. 125 participating employees and children were given tree saplings. Sept 22, 2009 - 'Employee Giving' survey was conducted across the group, to enable the employees in channelizing their efforts to support social causes through employee giving.

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Oct 9, 2009 - Employee Volunteering opportunity was initiated along with a South Mumbai based NGO in the education sector. Employees and their family members taught in municipal schools as a part of this initiative. Oct 15, 2009 - 'World White Cane Day' promotional mailers supporting Eye Donation drive were sent out, followed by the promotion of the concept of the 'Eye Donation Pledge' at our offices in Mumbai. Nov 10, 2009 - R-5 Initiative that had been implemented by the bank was launched across the Kotak Group. Dec 14-22, 2009 - National Association for the Blind (NAB), Akanksha and Make-aWish Foundation organized gift stalls at Kotak Bank branches for promotion and sale of their goods to our customers. Dec 18, 2009 - Kotak 'No Car Day' was observed to support the fuel conservation efforts.

Dec 21, 2009 - Christmas gift stalls were organized by Make-a-Wish Foundation, Vidya and NAB at our office in Kalina and Goregaon. Jan 17, 2010 - Over 60 employees of Kotak group participated in the Mumbai Marathon 2010, to support the Cancer Patients Aid Association. March 27, 2010 - WWF 'Earth Hour' campaign was promoted within the employees as a part of our efforts towards energy conservation.

THANKING YOU

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